<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 3, 1998
REGISTRATION NO. 333-42641
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
RAM ENERGY, INC.*
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1311 52-1535102
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
5100 EAST SKELLY DRIVE, SUITE 650
TULSA, OKLAHOMA 74135
(918) 663-2800
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
JOHN M. LONGMIRE
SENIOR VICE PRESIDENT, TREASURER, SECRETARY
AND CHIEF FINANCIAL OFFICER
9400 BROADWAY EXTENSION, SUITE 130
OKLAHOMA CITY, OKLAHOMA 73114
(405) 478-0600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES TO:
THEODORE M. ELAM, ESQ. CHARLES L. STRAUSS, ESQ.
McAfee & Taft Fulbright & Jaworski L.L.P.
A Professional Corporation 1301 McKinney, Suite 5100
211 North Robinson, Suite 1000 Houston, Texas 77010-3095
Oklahoma City, Oklahoma 73102 (713) 651-5151
(405) 235-9621
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED UNIT(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
% Senior Notes due 2008................. $115,000,000 100% $115,000,000 $33,925(2)
Guarantees of % Senior Notes due 2008... -- -- -- -- (3)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 of the Securities Act of 1933.
(2) Calculated in accordance with Rule 457 of the Securities Act of 1933. The
registration fee is included in the fee paid on December 18, 1997 in
connection with the initial filing of this Registration Statement.
(3) Pursuant to Rule 457(n), no registration fee is required for Guarantees of
the Notes registered hereby.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* THE SUBSIDIARY GUARANTORS OF RAM ENERGY, INC. WILL GUARANTEE THE %
SENIOR NOTES DUE 2008 BEING REGISTERED HEREBY AND THEREFORE ARE ALSO
REGISTRANTS. INFORMATION ABOUT SUCH ADDITIONAL REGISTRANTS APPEARS ON THE
FOLLOWING PAGE.
<PAGE>
ADDITIONAL REGISTRANTS
RB OPERATING COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1311 73-1523738
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
incorporation or
organization)
</TABLE>
5100 EAST SKELLY DRIVE, SUITE 650
TULSA, OKLAHOMA 74135
(918) 663-2800
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
JOHN M. LONGMIRE
SENIOR VICE PRESIDENT, TREASURER, SECRETARY
AND CHIEF FINANCIAL OFFICER
9400 BROADWAY EXTENSION, SUITE 130
OKLAHOMA CITY, OKLAHOMA 73114
(405) 478-0600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
RLP GULF STATES, L.L.C.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
OKLAHOMA 1311 73-1522976
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
incorporation or
organization)
</TABLE>
5100 EAST SKELLY DRIVE, SUITE 650
TULSA, OKLAHOMA 74135
(918) 663-2800
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
JOHN M. LONGMIRE
9400 BROADWAY EXTENSION, SUITE 130
OKLAHOMA CITY, OKLAHOMA 73114
(405) 478-0600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION DATED FEBRUARY 3, 1998
PROSPECTUS
$115,000,000
[LOGO]
RAM ENERGY, INC.
% SENIOR NOTES DUE 2008
---------------------
THE % SENIOR NOTES DUE 2008 (THE "NOTES") ARE BEING OFFERED (THE
"OFFERING") BY RAM ENERGY, INC. INTEREST ON THE NOTES WILL BE
PAYABLE SEMI-ANNUALLY ON AND OF EACH YEAR AT THE INTEREST
RATE PER ANNUM SET FORTH ABOVE, COMMENCING , 1998. THE NOTES WILL
MATURE ON , 2008, AND WILL BE REDEEMABLE AT THE OPTION OF RAM ENERGY,
INC., IN WHOLE OR IN PART, AT ANY TIME ON OR AFTER , 2003, AT THE
REDEMPTION PRICES SET FORTH HEREIN, TOGETHER WITH ACCRUED AND UNPAID INTEREST TO
THE DATE OF REDEMPTION. IN THE EVENT RAM ENERGY, INC. CONSUMMATES A PUBLIC
EQUITY OFFERING ON OR PRIOR TO , 2001, RAM ENERGY, INC., AT ITS
OPTION, MAY USE ALL OR A PORTION OF THE NET PROCEEDS FROM SUCH OFFERING TO
REDEEM UP TO 35% OF THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTES ORIGINALLY
ISSUED, AT A REDEMPTION PRICE OF % OF THE PRINCIPAL AMOUNT THEREOF, PLUS
ACCRUED AND UNPAID INTEREST TO THE DATE OF REDEMPTION, PROVIDED THAT AT LEAST
65% OF THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTES ORIGINALLY ISSUED REMAINS
OUTSTANDING IMMEDIATELY FOLLOWING SUCH REDEMPTION. IN THE EVENT OF A CHANGE OF
CONTROL, RAM ENERGY, INC. WILL BE REQUIRED TO OFFER TO REPURCHASE THE NOTES AT A
PRICE EQUAL TO 101% OF THE PRINCIPAL AMOUNT THEREOF, PLUS ACCRUED AND UNPAID
INTEREST TO THE DATE OF REPURCHASE. SEE "DESCRIPTION OF NOTES."
RAM ENERGY, INC. WILL USE $43 MILLION OF THE AGGREGATE NET PROCEEDS FROM THE
OFFERING TO ACQUIRE THE OUTSTANDING CAPITAL STOCK AND TO REPAY CERTAIN
INDEBTEDNESS OF CARLTON RESOURCES CORPORATION. SEE "USE OF PROCEEDS" AND
"BUSINESS -- THE CARLTON ACQUISITION." THE CLOSING OF THE OFFERING IS
CONDITIONED UPON THE SIMULTANEOUS CLOSING OF THE CARLTON ACQUISITION.
THE NOTES WILL BE SENIOR UNSECURED OBLIGATIONS OF RAM ENERGY, INC. AND WILL
RANK PARI PASSU IN RIGHT OF PAYMENT WITH ALL EXISTING AND FUTURE SENIOR
INDEBTEDNESS AND OTHER SENIOR OBLIGATIONS OF RAM ENERGY, INC., AND SENIOR IN
RIGHT OF PAYMENT TO ALL SUBORDINATED INDEBTEDNESS OF RAM ENERGY, INC. BORROWINGS
BY RAM ENERGY, INC. UNDER ITS REVOLVING CREDIT FACILITY ARE SECURED BY
SUBSTANTIALLY ALL OF RAM ENERGY, INC.'S OIL AND GAS PROPERTIES. PAYMENT OF
INTEREST AND PREMIUM (IF ANY) ON AND PRINCIPAL OF THE NOTES WILL BE
UNCONDITIONALLY GUARANTEED, JOINTLY AND SEVERALLY, ON A SENIOR UNSECURED BASIS
BY THE SUBSIDIARY GUARANTORS. TO THE EXTENT OF PLEDGED COLLATERAL, THE NOTES AND
THE SUBSIDIARY GUARANTEES WILL BE EFFECTIVELY SUBORDINATED TO SECURED
INDEBTEDNESS OF RAM ENERGY, INC. AND THE SUBSIDIARY GUARANTORS. THE INDENTURE
GOVERNING THE NOTES WILL PERMIT RAM ENERGY, INC. AND THE SUBSIDIARY GUARANTORS
TO INCUR ADDITIONAL INDEBTEDNESS IN THE FUTURE, SUBJECT TO CERTAIN LIMITATIONS.
AT SEPTEMBER 30, 1997, AFTER GIVING PRO FORMA EFFECT TO THE CONSUMMATION OF THE
OFFERING AND THE APPLICATION OF THE NET PROCEEDS THEREFROM AS DESCRIBED IN "USE
OF PROCEEDS," RAM ENERGY, INC. WOULD HAVE HAD $0.2 MILLION OF OUTSTANDING SENIOR
INDEBTEDNESS OTHER THAN THE NOTES WHICH WOULD RANK PARI PASSU IN RIGHT OF
PAYMENT WITH THE NOTES. SEE "USE OF PROCEEDS."
THE NOTES WILL BE REPRESENTED BY A GLOBAL NOTE REGISTERED IN THE NAME OF THE
NOMINEE OF THE DEPOSITORY TRUST COMPANY, WHICH WILL
ACT AS THE DEPOSITORY (THE "DEPOSITORY"). BENEFICIAL INTERESTS IN THE GLOBAL
NOTE WILL BE SHOWN ON, AND TRANSFERS THEREOF WILL BE EFFECTED ONLY THROUGH,
RECORDS MAINTAINED BY THE DEPOSITORY AND ITS PARTICIPANTS. EXCEPT AS DESCRIBED
HEREIN, NOTES IN DEFINITIVE FORM WILL NOT BE ISSUED. SEE "DESCRIPTION OF NOTES."
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE NOTES.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
Per Note........................................ % % %
Total........................................... $ $ $
</TABLE>
- ---------------
(1) Plus accrued interest, if any, from the date of issuance.
(2) RAM Energy, Inc. and the Subsidiary Guarantors have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by RAM Energy, Inc., estimated to be
$1,150,000.
------------------------
THE NOTES ARE OFFERED BY THE UNDERWRITER, SUBJECT TO PRIOR SALE, WHEN, AS
AND IF DELIVERED TO AND ACCEPTED BY THE UNDERWRITER. THE UNDERWRITER RESERVES
THE RIGHT TO REJECT ORDERS IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF
THE NOTES WILL BE MADE IN BOOK-ENTRY FORM THROUGH THE FACILITIES OF THE
DEPOSITORY TRUST COMPANY IN NEW YORK, NEW YORK, ON OR ABOUT , 1998.
---------------------
JEFFERIES & COMPANY, INC.
, 1998
<PAGE>
MAP OF PRINCIPAL OPERATING AREAS
[Map shows the location of the Mid-Continent Area and the Permian Basin, the
Company's core operating areas, in the states of Oklahoma, Texas and New
Mexico.]
-------------------
IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. CERTAIN TERMS RELATING TO THE OIL AND GAS BUSINESS
ARE DEFINED IN THE "GLOSSARY OF TERMS" SECTION OF THIS PROSPECTUS. UNLESS
OTHERWISE INDICATED, REFERENCES TO "RAM ENERGY" ARE TO RAM ENERGY, INC. AND ITS
SUBSIDIARIES, AS THE CONTEXT REQUIRES, AND REFERENCES TO THE "COMPANY" ARE TO
THE COMBINED OPERATIONS OF RAM ENERGY AND, UNTIL NOVEMBER 30, 1996, THE
PARTNERSHIP (AS DEFINED HEREIN). UNLESS OTHERWISE INDICATED, ALL FINANCIAL AND
QUANTITATIVE INFORMATION PROVIDED IN THIS PROSPECTUS ON A "PRO FORMA" BASIS
GIVES EFFECT, ON THE DATE AND FOR THE PERIODS INDICATED, TO THE COMPLETION OF
THE OFFERING AND THE APPLICATION OF THE NET PROCEEDS THEREFROM, THE COMPLETION
OF THE PARTNERSHIP ACQUISITION (AS DEFINED HEREIN), THE COMPLETION OF THE
CARLTON ACQUISITION (AS DEFINED HEREIN) AND THE CONSUMMATION OF CERTAIN OTHER
ACQUISITIONS AND DISPOSITIONS.
THE COMPANY
RAM Energy is an independent oil and gas company engaged in the acquisition,
development and production of oil and gas properties primarily in the
mid-continent region of Oklahoma and the Texas panhandle (the "Mid-Continent
Area") and in the Permian Basin of West Texas and eastern New Mexico (the
"Permian Basin"). At November 30, 1997, the Company's estimated net proved
reserves, on a pro forma basis, were 114.3 Bcf of natural gas and 4.3 MMBbls of
oil, or 140.1 Bcfe, with a PV-10 Value of approximately $150 million and a
reserve life of approximately 12 years. As of such date, on a pro forma basis,
the Company operated 736 wells, a 165-mile oil and gas gathering system and a
saltwater disposal operation. The Company's interests in the wells it operates
represented approximately 64% of its pro forma PV-10 Value at November 30, 1997.
The Company has grown principally through producing property acquisitions,
acquiring approximately $195 million of oil and gas properties since inception,
including the Carlton Acquisition.
From 1989 to November 1996, the Company primarily developed and operated oil
and gas properties owned jointly by RAM Energy and an institutional limited
partnership (the "Partnership") managed by RAM Energy. During that eight-year
period, the Company drilled 225 oil and gas wells with a 95% success rate. The
Partnership distributed a substantial portion of the net cash flows from these
properties to its partners and the Company did not invest significantly in its
asset base. Management believes that the Partnership's business strategy allowed
the Company's properties to remain under-developed and that these properties
contain significant potential for the addition of reserves and production
through accelerated development and exploration activities. The Company's
historical drilling success rate is not necessarily indicative of what its
future drilling success may be.
In November 1996, RAM Energy acquired the limited partner's interest in the
Partnership (the "Partnership Acquisition"). As a result of the Partnership
Acquisition and the Carlton Acquisition, the Company is pursuing a more
aggressive growth strategy. The Company has identified a substantial inventory
of over 200 development and exploitation opportunities on its existing
properties and on the properties included in the Carlton Acquisition. These
projects generally involve moderate drilling and completion costs, as they are
located primarily in intermediate depth, normally pressured reservoirs. The
Company has budgeted capital spending of $20.3 million in 1998 for development
projects and certain exploration activities. The Company also intends to
continue to pursue attractive oil and gas acquisition opportunities.
THE CARLTON ACQUISITION
On December 16, 1997, the Company entered into a definitive agreement to
purchase Carlton Resources Corporation ("Carlton") for $43.0 million, subject to
closing adjustments (the "Carlton Acquisition"). Carlton is engaged in the
exploration, development and production of oil and gas properties in the
Mid-Continent Area and, to a lesser extent, in the Permian Basin and other oil
and gas producing
3
<PAGE>
regions. At November 30, 1997, Carlton's estimated net proved reserves were 36.8
Bcfe. Carlton also owns and operates a 165-mile oil and gas gathering system and
a saltwater disposal operation in north central Oklahoma (the "Carmen System"),
which the Company estimates to have a pre-tax net present value of $24.0 million
as of November 30, 1997, using a 10% discount factor. The Carmen System
purchases, transports and markets oil and gas production and disposes of
produced water from properties owned by Carlton and other oil and gas companies.
The Company believes the Carlton Acquisition provides the opportunity to improve
cash flow from additional development and exploration activities, gathering and
sale of oil and gas production and reduction of operating and administrative
costs.
STRATEGY
The Company's primary goal is to increase reserves, production and cash flow
through the acquisition and aggressive development of oil and gas properties.
Key elements of the Company's growth strategy include:
DEVELOP AND EXPLOIT EXISTING OIL AND GAS PROPERTIES. The Company has
identified over 200 development opportunities on its properties, and plans to
pursue these relatively lower-risk activities, as well as selective exploration
activities. The Company has budgeted capital spending of $20.3 million in 1998,
primarily to complete approximately 75 planned development and exploration
projects, exclusive of acquisitions, as compared to expenditures of $5.8 million
to complete 26 development projects in 1997.
COMPLETE SELECTIVE OIL AND GAS ACQUISITIONS. The Company seeks to acquire
producing oil and gas properties that provide opportunities for reserve
additions and increased cash flow through operating improvements and additional
development and exploratory drilling. The Company believes these criteria are
met in regions that are characterized by long histories of production and
multiple producing oil and gas horizons, such as the Mid-Continent Area and the
Permian Basin.
MAINTAIN AND EXPAND CORE AREAS. Over 90% of the Company's pro forma PV-10
Value as of November 30, 1997 is concentrated in the Mid-Continent Area and the
Permian Basin. The Company believes that its geographic concentration and
region-specific experience provide it with focused, efficient operations. The
Company will continue to pursue acquisitions and drilling opportunities in its
core areas and will evaluate acquisitions that could establish additional core
areas.
REDUCE COSTS THROUGH OPERATING CONTROL. The Company seeks to operate a
substantial number of its producing properties. As a result of the Carlton
Acquisition, the Company will also operate an oil and gas gathering system and a
saltwater disposal operation. The Company believes that operating a high
percentage of its properties provides it with substantial control of the timing,
level and incurrence of expenditures.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
NOTES OFFERED..................... $115,000,000 aggregate principal amount of % Senior
Notes due 2008.
ISSUER............................ RAM Energy, Inc.
MATURITY DATE..................... , 2008.
INTEREST RATE AND PAYMENT DATES... The Notes will bear interest at a rate of % per
annum. Interest on the Notes will accrue from the date
of issuance thereof and will be payable semi-annually in
cash in arrears on and of each year
commencing , 1998.
RANKING........................... The Notes will be senior unsecured obligations of RAM
Energy, Inc., ranking PARI PASSU in right of payment
with all existing and future senior Indebtedness of RAM
Energy, Inc. and senior to all existing and future
Subordinated Indebtedness of RAM Energy, Inc. The Notes
and the Subsidiary Guarantees will be effectively
subordinated to secured Indebtedness of RAM Energy, Inc.
and the Subsidiary Guarantors, including any
Indebtedness under the Credit Facility (as defined
herein), which is secured by liens on certain assets of
the Company. At September 30, 1997, on a pro forma
basis, RAM Energy, Inc. would have had $0.2 million of
outstanding senior Indebtedness other than the Notes
which would rank PARI PASSU in right of payment with the
Notes. Subject to certain limitations, RAM Energy, Inc.
and the Subsidiary Guarantors may incur additional
secured and unsecured Indebtedness in the future. See
"Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and
Capital Resources."
SUBSIDIARY GUARANTEES............. The Notes will be unconditionally guaranteed on a senior
unsecured basis by the existing and future Subsidiary
Guarantors. Each Subsidiary Guarantee will rank PARI
PASSU in right of payment to all existing and future
senior Indebtedness of the Subsidiary Guarantors and
senior to all existing and future Subordinated
Indebtedness of the Subsidiary Guarantors.
OPTIONAL REDEMPTION............... The Notes will be redeemable at the option of RAM
Energy, Inc., in whole or in part, at any time on or
after , 2003, at the redemption prices set
forth herein, together with accrued and unpaid interest
to the date of redemption. In the event RAM Energy, Inc.
consummates a Public Equity Offering on or prior to
, 2001, RAM Energy, Inc. has the option to
use all or a portion of the proceeds from such offering
to redeem up to 35% of the aggregate principal amount of
the Notes originally issued at a redemption price equal
to % of the principal amount thereof, together with
accrued and unpaid interest to the date of redemption,
provided that at least 65% of the aggregate principal
amount of the Notes originally issued remains
outstanding immediately following such redemption.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
CHANGE OF CONTROL................. Upon the occurrence of a Change of Control, RAM Energy,
Inc. will be required to offer to repurchase the Notes
at a price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest to
the date of repurchase.
CERTAIN COVENANTS................. The indenture under which the Notes will be issued (the
"Indenture") will contain certain covenants including,
but not limited to, covenants that limit (i) incurrences
of additional indebtedness and issuances of disqualified
capital stock, (ii) restricted payments, (iii) dividends
and other payments affecting subsidiaries, (iv)
transactions with affiliates, (v) asset sales, (vi)
liens, (vii) lines of business and (viii) merger, sale
or consolidation. The Indenture will also contain
covenants regarding the designation of Unrestricted
Subsidiaries (as defined herein), ownership of
Subsidiary Guarantors and issuance of reports.
USE OF PROCEEDS................... RAM Energy, Inc. plans to use the net proceeds from the
Offering primarily to (i) repay indebtedness outstanding
under its existing bank facility, (ii) acquire the stock
and repay certain indebtedness of Carlton in connection
with the Carlton Acquisition and (iii) provide
additional working capital for general corporate
purposes, including the acquisition and development of
oil and gas properties. See "Use of Proceeds."
</TABLE>
For a more detailed discussion of the terms of the Notes, see "Description
of Notes."
RISK FACTORS
An investment in the Notes involves a high degree of risk. The risks that a
potential investor should consider before making an investment in the Notes
include, but are not limited to, risks associated with (i) the Company's
incurrence of substantial indebtedness, (ii) substantial capital requirements
associated with the Company's operations, (iii) the effective subordination of
the Notes, (iv) certain restrictions on repurchases of Notes upon a Change of
Control or other events, (v) the possible limitations on enforceability of the
Subsidiary Guarantees, (vi) the Company's dependence on expanding and developing
oil and gas reserves, (vii) acquisition risks, (viii) the volatility of oil and
gas prices, (ix) hedging transactions, (x) possible writedowns of carrying
values, (xi) uncertainty of estimates of oil and gas reserves and future net
revenues, (xii) drilling and operating hazards and uninsured risks, (xiii) risks
relating to injection wells, (xiv) dependence on distribution and processing
systems, (xv) government regulation and environmental matters, (xvi)
competition, (xvii) the control of the Company by existing stockholders and
(xviii) the absence of a public market for the Notes. See "Risk Factors."
6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following summary historical and pro forma financial data were derived
from the financial statements of the Company and the Partnership, including the
notes thereto (the "Financial Statements"), as well as the selected historical
and pro forma financial and operating information included elsewhere in this
Prospectus. The pro forma financial data are based on the assumptions and
adjustments described in the pro forma combined financial information and do not
purport to present the results of operations and financial position of the
Company and the Partnership as if the Offering and the application of the net
proceeds therefrom, the Partnership Acquisition, the Carlton Acquisition and
certain other acquisitions and dispositions had actually occurred on such dates,
nor are they necessarily indicative of the results of operations that may be
achieved in the future. The information set forth below should be read in
conjunction with "Selected Historical and Pro Forma Financial Information and
Operating Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements included elsewhere
herein.
<TABLE>
<CAPTION>
PARTNERSHIP COMPANY
----------------------------------- ----------------------
YEAR ENDED ELEVEN YEAR ENDED
PARTNERSHIP COMPANY
----------- ---------
NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
DECEMBER 31, MONTHS ENDED ---------------------- ----------------------
-------------------- NOVEMBER 30, PRO FORMA
1994 1995 1996(1) 1996 1996(2) 1996 1997
--------- --------- ------------- --------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues:
Oil and gas.......................... $ 24,481 $ 21,802 $ 23,456 $ 3,275 $ 31,900 $ 18,744 $ 16,820
Gathering system..................... -- -- -- -- 14,688 -- --
Management fees(3)................... -- -- -- 1,482 22 -- --
Operator overhead fees(3)............ -- -- -- 1,343 -- -- --
Consulting fees(3)................... -- -- -- 153 -- -- --
Other................................ 60 139 7 567 1,356 -- 85
--------- --------- ------------- --------- ----------- ----------- ---------
Total operating revenues........... 24,541 21,941 23,463 6,820 47,966 18,744 16,905
Operating expenses:
Oil and gas production............... 9,839 9,902 7,609 827 10,764 6,153 4,795
Cost of oil and gas purchased........ -- -- -- -- 6,657 -- --
Gathering system..................... -- -- -- -- 1,177 -- --
Depreciation and amortization........ 11,608 9,808 5,114 990 11,944 4,160 5,268
Writedown of oil and gas properties
and equipment...................... 8,700 -- -- -- -- -- --
Management fees(3)................... 1,555 1,606 1,482 -- -- 1,210 --
Operator overhead fees(3)............ 1,746 1,686 1,343 -- -- 1,108 --
General and administrative........... 676 502 378 4,164 3,256 241 3,325
--------- --------- ------------- --------- ----------- ----------- ---------
Total operating expenses........... 34,124 23,504 15,926 5,981 33,798 12,872 13,388
--------- --------- ------------- --------- ----------- ----------- ---------
Operating income (loss)................ (9,583) (1,563) 7,537 839 14,168 5,872 3,517
Other income (expense):
Interest expense..................... (587) (809) (564) (541) (12,554) (484) (3,788)
Interest income...................... 41 59 114 29 536 92 43
Equity in income of the
Partnership........................ -- -- -- 71 71 -- --
Minority interest in the
Partnership........................ -- -- -- 10 10 -- (15)
--------- --------- ------------- --------- ----------- ----------- ---------
Income (loss) before income taxes...... (10,129) (2,313) 7,087 408 2,231 5,480 (243)
Income tax provision (benefit)......... -- -- -- -- 848 -- --
--------- --------- ------------- --------- ----------- ----------- ---------
Net income (loss)...................... $ (10,129) $ (2,313) $ 7,087 $ 408 $ 1,383 $ 5,480 $ (243)
--------- --------- ------------- --------- ----------- ----------- ---------
--------- --------- ------------- --------- ----------- ----------- ---------
<CAPTION>
COMPANY
--------------------
AT SEPTEMBER 30,
1997
--------------------
AS
ACTUAL ADJUSTED(4)
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $ 2,031 $ 7,663
Net property and equipment............................................................ 60,100 124,026
Total assets.......................................................................... 70,344 147,158
Long-term debt, including current portion............................................. 62,215 115,215
Stockholders' equity (deficit)(5)..................................................... (1,563) (1,563)
<CAPTION>
PRO FORMA
1997(2)
-----------
<S> <C>
INCOME STATEMENT DATA:
Operating revenues:
Oil and gas.......................... $ 21,447
Gathering system..................... 7,468
Management fees(3)................... 8
Operator overhead fees(3)............ --
Consulting fees(3)................... --
Other................................ 268
-----------
Total operating revenues........... 29,191
Operating expenses:
Oil and gas production............... 6,796
Cost of oil and gas purchased........ 4,785
Gathering system..................... 569
Depreciation and amortization........ 8,113
Writedown of oil and gas properties
and equipment...................... --
Management fees(3)................... --
Operator overhead fees(3)............ --
General and administrative........... 2,552
-----------
Total operating expenses........... 22,815
-----------
Operating income (loss)................ 6,376
Other income (expense):
Interest expense..................... (9,420)
Interest income...................... 89
Equity in income of the
Partnership........................ --
Minority interest in the
Partnership........................ (15)
-----------
Income (loss) before income taxes...... (2,970)
Income tax provision (benefit)......... (1,129)
-----------
Net income (loss)...................... $ (1,841)
-----------
-----------
<S> <C> <S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................................
Net property and equipment............................................................
Total assets..........................................................................
Long-term debt, including current portion.............................................
Stockholders' equity (deficit)(5).....................................................
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
PARTNERSHIP COMPANY PARTNERSHIP COMPANY
----------------------------------- ---------------------- ----------- ---------
YEAR ENDED ELEVEN YEAR ENDED
NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
DECEMBER 31, MONTHS ENDED ---------------------- ----------------------
-------------------- NOVEMBER 30, PRO FORMA
1994 1995 1996(1) 1996 1996(2) 1996 1997
--------- --------- ------------- --------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Cash flow from operating activities.... $ 9,969 $ 7,478 $ 10,837 $ 70 -- $ 8,098 $ 6,421
Cash flow from investing activities.... (5,336) (5,273) (61,621) (59,102) -- (1,625) (5,227)
Cash flow from financing activities.... (4,630) (1,295) 50,620 60,116 -- (4,530) (770)
Capital expenditures................... 4,325 5,380 3,310 250 -- 1,950 14,692
Adjusted EBITDA(6)..................... 10,766 8,304 12,765 1,939 $ 26,729 10,124 8,813
Ratio of:
Earnings to fixed charges(7)......... -- -- 13.57x 1.75x 1.18x 12.32x --
Adjusted EBITDA to interest expense.................................................. 2.13x -- --
Long-term debt to Adjusted EBITDA(8)................................................. -- -- --
Net debt to Adjusted EBITDA(8)....................................................... -- -- --
<CAPTION>
PRO FORMA
1997(2)
-----------
<S> <C>
OTHER FINANCIAL DATA:
Cash flow from operating activities.... --
Cash flow from investing activities.... --
Cash flow from financing activities.... --
Capital expenditures................... --
Adjusted EBITDA(6)..................... $ 14,563
Ratio of:
Earnings to fixed charges(7)......... --
Adjusted EBITDA to interest expense.. 1.55x
Long-term debt to Adjusted EBITDA(8). 5.93x
Net debt to Adjusted EBITDA(8)....... 5.54x
</TABLE>
- ------------------------------
(1) Partnership operations were effectively terminated on a stand-alone basis on
November 30, 1996 upon consummation of the Partnership Acquisition.
(2) Pro forma to reflect the Offering and the application of the net proceeds
therefrom, the Partnership Acquisition, the Carlton Acquisition and certain
other acquisitions and dispositions as if they had occurred on January 1,
1996.
(3) Under the terms of the Partnership's partnership agreement, RAM Energy was
reimbursed by the Partnership for management fees, operator overhead fees
and certain consulting fees. The Partnership capitalized the consulting
fees.
(4) Pro forma to reflect the Offering and the application of the net proceeds
therefrom and the Carlton Acquisition as if they had occurred on September
30, 1997.
(5) Before giving effect to the redemption of all outstanding shares (77,714
shares) of RAM Energy, Inc.'s Series A Preferred Stock at a redemption price
of $10.00 per share and the redemption of all outstanding shares (69,652
shares) of its Series B Preferred Stock at a redemption price of $10.00 per
share. See "Capitalization" and "Management -- Certain Transactions."
(6) Adjusted EBITDA is defined as earnings before interest expense, income
taxes, depreciation and amortization and writedown of related oil and gas
properties and equipment. Adjusted EBITDA is not a measure of cash flow as
determined by generally accepted accounting principles ("GAAP"). Adjusted
EBITDA should not be considered as an alternative to, or more meaningful
than, net income or cash flow as determined in accordance with GAAP or as an
indicator of a company's operating performance or liquidity. Certain items
excluded from Adjusted EBITDA are significant components in understanding
and assessing a company's financial performance, such as a company's cost of
capital and tax structure, as well as historic costs of depreciable assets,
none of which are components of Adjusted EBITDA. The Company's computation
of Adjusted EBITDA may not be comparable to other similarly titled measures
of other companies. The Company believes that Adjusted EBITDA is a widely
followed measure of operating performance and may also be used by investors
to measure the Company's ability to meet future debt service requirements,
if any.
(7) For the Partnership, earnings were insufficient to cover fixed charges by
approximately $10,129,000 and $2,313,000 for the years ended December 31,
1994 and 1995, respectively. For the Company, earnings were insufficient to
cover fixed charges by approximately $243,000 and $2,970,000 for the nine
months ended September 30, 1997 and for the nine months ended September 30,
1997, on a pro forma basis, respectively. For purposes of computing the
ratio of earnings to fixed charges, earnings are computed as income from
continuing operations before taxes, plus fixed charges. For the historical
periods, fixed charges consist of interest expense, and for the pro forma
periods, include interest expense and amortization of costs incurred in
connection with the Offering.
(8) The ratio of long-term debt to Adjusted EBITDA is computed on the basis of
annualized Adjusted EBITDA for periods shorter than one year. The ratio of
net debt to Adjusted EBITDA is the ratio of long-term debt, including the
current portion thereof, less cash and cash equivalents, to Adjusted EBITDA,
annualized for periods shorter than one year.
8
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA RESERVE AND OPERATING DATA
The following tables set forth summary information with respect to the
estimated proved oil and gas reserves and certain operating data of the Company
and the Partnership at or for the periods shown and on a pro forma basis. See
"Risk Factors," "Selected Historical and Pro Forma Financial Information and
Operating Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business," "Experts" and the Financial Statements
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PARTNERSHIP COMPANY COMPANY
-------------------- ----------- ----------------------
NOVEMBER 30,
DECEMBER 31, ----------------------
--------------------------------- PRO FORMA
RESERVE DATA: 1994 1995 1996 1997 1997(1)
--------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Proved reserves:
Natural gas (MMcf)................................................... 75,435 68,920 82,885 83,006 114,323
Oil and condensate (MBbls)........................................... 3,770 3,333 4,282 3,376 4,295
Total (MMcfe)........................................................ 98,055 88,918 108,577 103,263 140,092
Proved developed reserves:
Natural gas (MMcf)................................................... 56,792 51,664 62,319 58,717 78,399
Oil and condensate (MBbls)........................................... 2,797 2,714 3,511 2,569 3,182
Total (MMcfe)........................................................ 73,574 67,948 83,385 74,128 97,492
PV-10 Value (in thousands)(2).......................................... $ 56,480 $ 63,913 $ 160,930 $ 116,186 $ 150,403
</TABLE>
- ------------------------------
(1) Pro forma to reflect the Carlton Acquisition as if it had occurred on
November 30, 1997.
(2) PV-10 Value represents the present value of estimated future net revenues
before income tax discounted at 10%, using prices in effect at the end of
the respective periods presented and including the effects of hedging
activities. In accordance with applicable requirements of the Securities and
Exchange Commission (the "Commission"), estimates of the Company's proved
reserves and future net revenues are made using oil and 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). The average prices used in
calculating PV-10 Value as of November 30, 1997 were $3.00 per Mcf of
natural gas and $17.99 per Bbl of oil, compared to average prices used as of
December 31, 1996 of $3.78 per Mcf of natural gas and $23.88 per Bbl of oil.
The average prices used in calculating the pro forma PV-10 Value as of
November 30, 1997 were $3.01 per Mcf of natural gas and $17.81 per Bbl of
oil. Average prices as of December 31, 1997, on a pro forma basis, were
$2.75 per Mcf of natural gas and $15.99 per Bbl of oil. These prices, if
applied to estimated proved reserves of the Company as of November 30, 1997,
would result in a PV-10 Value, on a pro forma basis, of $133.3 million at
such date, as estimated by the Company.
<TABLE>
<CAPTION>
PARTNERSHIP
COMPANY -------------
PARTNERSHIP ----------------------------
----------------------------------------------- NINE MONTHS
YEAR ENDED ENDED
YEAR ENDED DECEMBER 31, ELEVEN MONTHS DECEMBER 31, SEPTEMBER 30,
ENDED NOVEMBER ---------------------------- -------------
---------------------------- 30, PRO FORMA
OPERATING DATA: 1994 1995 1996(1) 1996 1996(2) 1996
------------- ------------- ----------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Production volumes:
Natural gas (MMcf)............ 9,403 9,700 7,594 711 10,645 6,192
Oil and condensate (MBbls).... 534 463 387 38 487 313
Total (MMcfe)................. 12,605 12,476 9,914 941 13,568 8,072
Average realized prices(3):
Natural gas (per Mcf)......... $ 1.71 $ 1.44 $ 2.04 $ 3.34 $ 2.07 $ 2.02
Oil and condensate (per Bbl).. 15.75 16.86 20.59 23.39 20.34 19.99
Per Mcfe...................... 1.94 1.75 2.37 3.48 2.35 2.32
Expenses (per Mcfe):
Lease operating (including
production taxes)........... 0.78 0.79 0.77 0.88 0.79 0.76
Depreciation and
amortization................ 0.92 0.79 0.52 1.05 0.88 0.52
General and
administrative(4)........... 0.32 0.30 0.32 1.26 0.24 0.32
<CAPTION>
COMPANY
----------------------------
PRO FORMA
OPERATING DATA: 1997 1997(2)
------------- -------------
<S> <C> <C>
Production volumes:
Natural gas (MMcf)............ 5,263 6,931
Oil and condensate (MBbls).... 235 307
Total (MMcfe)................. 6,675 8,774
Average realized prices(3):
Natural gas (per Mcf)......... $ 2.31 $ 2.25
Oil and condensate (per Bbl).. 19.81 19.15
Per Mcfe...................... 2.52 2.44
Expenses (per Mcfe):
Lease operating (including
production taxes)........... 0.72 0.77
Depreciation and
amortization................ 0.79 0.92
General and
administrative(4)........... 0.50 0.29
</TABLE>
- ------------------------------
(1) Partnership operations were effectively terminated on a stand-alone basis on
November 30, 1996 upon consummation of the Partnership Acquisition.
(2) Pro forma to reflect the Offering and the application of the net proceeds
therefrom, the Partnership Acquisition, the Carlton Acquisition and certain
other acquisitions and dispositions as if they had occurred on January 1,
1996.
(3) Reflects the actual realized prices received by the Company, including the
results of the Company's hedging activities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(4) For the Partnership, includes management fees and operator overhead fees
charged to the Partnership by RAM Energy during 1994, 1995 and the 1996
periods. For the Company, general and administrative expense is net of
management fees, operator overhead fees and consulting fees, if any,
received by RAM Energy from the Partnership.
9
<PAGE>
FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts included in this
Prospectus, including without limitation statements under "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" regarding the planned capital
expenditures, increases in oil and gas production, the number of anticipated
wells to be drilled in 1998 and thereafter, the Company's financial position,
business strategy and other plans and objectives for future operations, are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. The Company
cautions prospective investors that actual results could differ materially from
those expected by the Company, depending on the outcome of certain factors,
including, without limitation, (i) factors discussed under "Risk Factors" such
as volatility of oil and gas prices, uncertainties inherent in estimating
quantities of oil and gas reserves and projecting future rates of production and
timing of development expenditures, competition, operating risks, acquisition
risks, liquidity and capital requirements and the effects of governmental and
environmental regulation, (ii) adverse changes in the operations acquired in the
Carlton Acquisition or the failure of the Company to achieve anticipated
consolidation cost savings in connection with the Carlton Acquisition and (iii)
adverse changes in the market for the Company's oil and gas production. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof.
10
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS,
THE FOLLOWING FACTORS RELATING TO THE COMPANY AND THE OFFERING SHOULD BE
CONSIDERED WHEN EVALUATING AN INVESTMENT IN THE NOTES OFFERED HEREBY.
INCURRENCE OF SUBSTANTIAL INDEBTEDNESS
At September 30, 1997, on a pro forma basis, RAM Energy, Inc. and the
Subsidiary Guarantors would have had $115.2 million of indebtedness (including
current maturities of long-term indebtedness) as compared to a deficit in the
Company's stockholders' equity of $1.6 million. See "Use of Proceeds" and
"Capitalization." The Indenture may limit the amounts of borrowings under bank
facilities, including the Company's bank credit facility (the "Credit
Facility"). See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Description of
Notes -- Certain Covenants."
This level of indebtedness may pose substantial risks to holders of Notes,
including the possibility that the Company might not generate sufficient cash
flow to pay the principal of and interest on the Notes. For the nine months
ended September 30, 1997, on a pro forma basis, the Company's earnings would
have been insufficient to meet its fixed charges, including interest on the
Notes, by approximately $3 million. If the Company is unsuccessful in increasing
its proved reserves, the future net revenues from existing proved reserves may
not be sufficient to pay the principal of and interest on the Notes in
accordance with their terms. Such indebtedness may also adversely affect the
Company's ability to finance its future operations and capital needs, and may
limit its ability to pursue other business opportunities.
The Indenture and the instruments governing the Credit Facility (amended and
restated as a $50.0 million revolving credit facility, effective upon
consummation of the Offering and the Carlton Acquisition, with initial
availability of $25.0 million) impose significant operating and financial
restrictions on the Company. Such restrictions will affect, and in many respects
significantly limit or prohibit, among other things, the ability of the Company
to incur additional indebtedness, pay dividends, repay indebtedness prior to its
stated maturity or engage in mergers or acquisitions. These restrictions could
also limit the ability of the Company to effect future financings, make needed
capital expenditures, withstand a future downturn in the Company's business or
the economy in general, or otherwise conduct necessary corporate activities. A
failure by the Company to comply with these restrictions could lead to a default
under the terms of such indebtedness and the Notes. In the event of default, the
holders of such indebtedness could elect to declare all of the funds borrowed
pursuant thereto to be due and payable together with accrued and unpaid
interest. In such event, there can be no assurance that the Company would be
able to make such payments or borrow sufficient funds from alternative sources
to make any such payment. Even if additional financing could be obtained, there
can be no assurance that it would be on terms that are favorable or acceptable
to the Company. In addition, the Company's indebtedness under the Credit
Facility is secured by a substantial portion of the assets of RAM Energy, Inc.
and the Subsidiary Guarantors. Upon consummation of the Offering and application
of the net proceeds therefrom, no amounts will be outstanding under the Credit
Facility. The pledge of such collateral to existing lenders could impair the
Company's ability to obtain favorable financing. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company has made, and will likely continue to make, substantial capital
expenditures in connection with the acquisition, development, exploration and
production of oil and gas properties. Since 1991, the Company has funded its
capital expenditures through bank borrowings and cash flow from operations.
Future cash flows and the availability of credit are subject to a number of
variables, such as the level of production from existing wells, prices of oil
and gas and the Company's success in locating and producing new reserves. If
revenues were to decrease as a result of lower oil and gas prices, decreased
production or otherwise, and the Company had no availability under the Credit
Facility, the Company could have limited ability to replace its reserves or to
maintain production at current levels, resulting in a decrease in production and
revenues over time. The Company has budgeted $20.3 million for capital
11
<PAGE>
expenditures in 1998, exclusive of acquisitions. The Company expects to use cash
flow from operations, cash balances and borrowings under the Credit Facility to
fund these expenditures. If the Company's cash flow from operations and
availability under the Credit Facility are not sufficient to satisfy its capital
expenditure requirements, there can be no assurance that additional debt or
equity financing will be available.
EFFECTIVE SUBORDINATION
The obligations under the Credit Facility are secured by substantially all
of the proved oil and gas reserves of RAM Energy, Inc. and the Subsidiary
Guarantors. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
Holders of secured indebtedness of the Company under the $50 million Credit
Facility will have claims with respect to the assets constituting collateral for
such indebtedness that are prior to the claims of the holders of Notes. In the
event of a default on the Notes, or a bankruptcy, liquidation or reorganization
of RAM Energy, Inc. and the Subsidiary Guarantors, such assets will be available
to satisfy obligations with respect to the indebtedness secured thereby before
any payment therefrom could be made on the Notes. Accordingly, the Notes will be
effectively subordinated to claims of secured creditors of RAM Energy, Inc. and
the Subsidiary Guarantors to the extent of such pledged collateral. At September
30, 1997, on a pro forma basis, RAM Energy, Inc. and the Subsidiary Guarantors
would have had $115.0 million of indebtedness represented by the Notes and $0.2
million of other indebtedness which would rank PARI PASSU in right of payment
with the Notes. In addition, at such date, no amounts would be outstanding under
the Credit Facility and borrowing availability under the Credit Facility would
be $25.0 million.
RESTRICTIONS ON REPURCHASES OF NOTES UPON A CHANGE OF CONTROL AND CERTAIN OTHER
EVENTS
In the event of a Change of Control, RAM Energy, Inc. will be required to
offer to repurchase all Notes then outstanding at a purchase price equal to 101%
of the principal amount thereof, plus accrued interest to the date of
repurchase. In the event of certain asset dispositions, RAM Energy, Inc. will be
required under certain circumstances to use the Excess Cash (as defined herein)
to offer to repurchase the Notes at 100% of the principal amount thereof, plus
accrued interest to the date of repurchase (an "Excess Cash Offer"). See
"Description of Notes -- Repurchase of Notes at the Option of the Holder Upon a
Change of Control" and "-- Certain Covenants."
The events that constitute a Change of Control or require an Excess Cash
Offer under the Indenture may also be events of default under the Credit
Facility or other senior indebtedness of RAM Energy, Inc. and the Subsidiary
Guarantors. Such events may permit the lenders under such debt instruments to
accelerate the debt and, if the debt is not paid, to enforce security interests
on substantially all the assets of RAM Energy, Inc. and the Subsidiary
Guarantors, thereby limiting the Company's ability to raise cash to repurchase
the Notes and reducing the practical benefit of the offer to repurchase
provisions to the holders of the Notes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." There can be no assurance that the Company will have
sufficient funds available at the time of any Change of Control or Excess Cash
Offer to make any debt payment (including repurchases of Notes) as described
above. Any failure by RAM Energy, Inc. to repurchase Notes tendered pursuant to
a Change of Control Offer (as defined herein) or an Excess Cash Offer will
constitute an Event of Default under the Indenture. See "Description of Notes --
Certain Covenants."
POSSIBLE LIMITATIONS ON ENFORCEABILITY OF SUBSIDIARY GUARANTEES
RAM Energy, Inc.'s obligations under the Notes will be guaranteed on a
senior unsecured basis by the Subsidiary Guarantors pursuant to the provisions
of the Indenture. The obligations of any Subsidiary Guarantor under its
Subsidiary Guarantee may be subject to review under applicable fraudulent
conveyance statutes in the event of the bankruptcy or other financial difficulty
of any such Subsidiary Guarantor. Under such laws, if a court in a lawsuit by an
unpaid creditor or representative of creditors of any such person, such as a
trustee in bankruptcy of any such person as debtor in possession, were to find
that at the
12
<PAGE>
time such person incurred its obligations under its guarantee or pledged its
assets, it (i) received less than fair consideration or reasonably equivalent
value therefor, and (ii) either (a) was insolvent, (b) was rendered insolvent by
such guarantee or pledge, (c) was engaged in a business or transaction for which
its remaining unencumbered assets constituted unreasonably small capital or (d)
intended to incur or believed that it would incur debts beyond its ability to
pay such debts as they matured, such court could void such obligations under its
guarantee and direct the return of any amounts paid with respect thereto.
Moreover, regardless of the factors identified in the foregoing clauses (i) and
(ii), a court could take such action if it found that the guarantee was entered
into or the security interest granted with actual intent to hinder, delay or
defraud creditors. The measure of insolvency for purposes of the foregoing will
vary depending on the law of the jurisdiction being applied. Generally, however,
an entity would be considered insolvent if the sum of its debts (including
contingent or unliquidated debts) is greater than all of its property at a fair
valuation or if the present fair salable value of its assets is less than the
amount that would be required to pay its probable liability on its existing
debts as they become absolute and mature. There can be no assurance that, after
providing for all prior claims, if any, there would be sufficient assets to
satisfy the claims of the holders of the Notes relating to any voided portion of
such Subsidiary Guarantees.
DEPENDENCE ON EXPANDING AND DEVELOPING RESERVES
The Company's future success depends upon its ability to find, develop or
acquire additional oil and gas reserves that are economically recoverable.
Unless the Company successfully replaces the reserves that it produces (through
successful development, exploration or acquisition), the Company's proved
reserves will decline. There can be no assurance that the Company will continue
to be successful in its effort to increase or replace its proved reserves.
Approximately 30% of the PV-10 Value of the Company's total proved reserves at
November 30, 1997, on a pro forma basis, was attributable to undeveloped
reserves. Recovery of such reserves will require significant capital
expenditures and successful drilling operations. There can be no certainty
regarding the results of developing these reserves. To the extent the Company is
unsuccessful in replacing or expanding its estimated proved reserves, the
Company may be unable to pay the principal of and interest on the Notes in
accordance with their terms, or otherwise to satisfy certain of its covenants
contained in the Indenture. See "Description of Notes -- Certain Covenants."
ACQUISITION RISKS
The Company's growth strategy includes the acquisition of oil and gas
properties. There can be no assurance, however, that the Company will be able to
identify attractive acquisition opportunities, obtain financing for acquisitions
on satisfactory terms or successfully acquire identified targets. In addition,
no assurance can be given that the Company will be successful in integrating
acquired businesses into its existing operations, and such integration may
result in unforeseen operational difficulties or require a disproportionate
amount of management's attention. Future acquisitions may be financed through
the incurrence of additional indebtedness to the extent permitted under the
Indenture or through the issuance of capital stock. Furthermore, there can be no
assurance that competition for acquisition opportunities in these industries
will not escalate, thereby increasing the cost to the Company of making further
acquisitions or causing the Company to refrain from making additional
acquisitions.
VOLATILITY OF OIL AND GAS PRICES
The Company's revenues, profitability and future rate of growth are
substantially dependent upon prevailing prices for oil and gas and natural gas
liquids, which are dependent upon numerous factors such as weather, economic,
political and regulatory developments and competition from other sources of
energy. The Company is affected more by fluctuations in natural gas prices than
oil prices, because a majority of its production is natural gas. The volatile
nature of the energy markets and the unpredictability of actions of OPEC members
make it particularly difficult to estimate future prices of oil and gas and
natural gas liquids. Prices of oil and gas and natural gas liquids are subject
to wide fluctuations in response to relatively minor changes in circumstances,
and there can be no assurance that future prolonged decreases in such prices
will not occur. All of these factors are beyond the control of the Company. Any
13
<PAGE>
significant decline in oil and gas prices would have a material adverse effect
on the Company's results of operations and financial condition. Although the
Company may enter into hedging arrangements from time to time to reduce its
exposure to price risks in the sale of its oil and gas, the Company's hedging
arrangements are likely to apply to only a portion of its production and provide
only limited price protection against fluctuations in the oil and gas markets.
See "Business -- Oil and Gas Marketing and Hedging."
RISK OF HEDGING ACTIVITIES
The Company's use of energy swap and forward sale arrangements to reduce its
sensitivity to oil and gas price volatility is subject to a number of risks. If
the Company's reserves are not produced at the rates estimated by the Company
due to inaccuracies in the reserve estimation process, operational difficulties
or regulatory limitations, or otherwise, the Company would be required to
satisfy its obligations under potentially unfavorable terms. If the Company
enters into financial instrument contracts for the purpose of hedging prices and
the estimated production volumes are less than the amount covered by these
contracts, the Company would be required to mark-to-market these contracts and
recognize any and all losses within the determination period. Further, under
financial instrument contracts, the Company may be at risk for basis
differential, which is the difference in the quoted financial price for contract
settlement and the actual physical point of delivery price. The Company will
from time to time attempt to mitigate basis differential risk by entering into
physical basis swap contracts. Substantial variations between the assumptions
and estimates used by the Company in its hedging activities and actual results
experienced could materially adversely affect the Company's anticipated profit
margins and its ability to manage risk associated with fluctuations in oil and
gas prices. Furthermore, the fixed price sales and hedging contracts limit the
benefits the Company will realize if actual prices rise above the contract
prices.
As of January 31, 1998, approximately 20% of the Company's estimated natural
gas production for the period of March 1998 through August 1998 was committed to
hedging contracts that established a NYMEX floor price which, after adjustment
for Btu content, results in an equivalent price to the Company of $2.12 per Mcf.
See "Business -- Oil and Gas Marketing and Hedging."
WRITEDOWN OF CARRYING VALUES
The Company periodically reviews the carrying value of its oil and gas
properties under the full cost accounting rules of the Commission. Under these
rules, capitalized costs of proved oil and gas properties may not exceed the
present value of estimated future net revenues from proved reserves, discounted
at 10%. Application of this "ceiling" test generally requires pricing future
revenue at the unescalated prices in effect as of the end of each fiscal quarter
and requires a write-down for accounting purposes if the ceiling is exceeded,
even if prices were depressed for only a short period of time. The Company may
be required to write down the carrying value of its oil and gas properties when
oil and gas prices are depressed or unusually volatile, which would result in a
charge to earnings. Once incurred, a write-down of oil and gas properties is not
reversible at a later date.
UNCERTAINTY OF ESTIMATES OF OIL AND GAS RESERVES AND FUTURE NET REVENUES
This Prospectus contains estimates of the Company's proved oil and gas
reserves, the estimated future net revenues therefrom and the discounted present
value thereof, as of November 30, 1997, based on a report prepared by Forrest A.
Garb & Associates, Inc. ("Garb & Associates") which was audited by Netherland,
Sewell & Associates, Inc. ("Netherland & Sewell"). There are numerous
uncertainties inherent in estimating quantities and future values of proved oil
and gas reserves, including many factors beyond the control of the Company. Each
of the estimates of proved oil and gas reserves, future net revenues and
discounted present values relies upon various assumptions, including assumptions
required by the Commission as to constant oil and gas prices, drilling and
operating expenses, capital expenditures, taxes and availability of funds. The
process of estimating oil and gas reserves is complex, requiring significant
decisions and assumptions in the evaluation of available geological,
geophysical, engineering and economic data for each reservoir. As a result, such
estimates are inherently imprecise. Actual future
14
<PAGE>
production, oil and gas prices, revenues, taxes, development expenditures,
operating expenses and quantities of recoverable oil and gas reserves may vary
substantially from those estimated in the report. Any significant variance in
these assumptions could materially affect the estimated quantity and value of
reserves set forth in this Prospectus. In addition, the Company's reserves may
be subject to downward or upward revision, based upon production history,
results of future exploration and development, prevailing oil and gas prices and
other factors, many of which are beyond the Company's control. The PV-10 Value
of the Company's proved oil and gas reserves does not necessarily represent the
current or fair market value of such proved reserves, and the 10% discount rate
required by the Commission may not reflect current interest rates, the Company's
cost of capital or any risks associated with the development and production of
the Company's proved oil and gas reserves. The estimated future net revenues
attributable to the Company's proved oil and gas reserves, on a pro forma basis,
are based on prices in effect at November 30, 1997 ($3.01 per Mcf of natural gas
and $17.81 per Bbl of oil), which may be materially different than actual future
prices. As of December 31, 1997, the average prices, on a pro forma basis, were
$2.75 per Mcf of natural gas and $15.99 per Bbl of oil.
DRILLING AND OPERATING RISKS
Oil and gas drilling activities are subject to numerous risks, many of which
are beyond the Company's control, 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 irregularities in formations, equipment
failures or accidents, adverse weather conditions, title problems and shortages
or delays in the delivery of equipment. The Company's future drilling activities
may not be successful and, if unsuccessful, such failure will have an adverse
effect on future results of operations and financial condition.
The Company's properties may be susceptible to hydrocarbon drainage from
production by other operators on adjacent properties. Industry operating risks
include the risk of fire, explosions, blow-outs, pipe failure, abnormally
pressured formations and environmental hazards such as oil spills, gas leaks,
ruptures or discharges of toxic gases, the occurrence of any of which could
result in substantial losses to the Company due to injury or loss of life,
severe damage to or destruction of property, natural resources and equipment,
pollution or other environmental damage, clean-up responsibilities, regulatory
investigation and penalties and suspension of operations. In accordance with
customary industry practice, the Company maintains insurance against the risks
described above. There can be no assurance that any insurance will be adequate
to cover losses or liabilities. The Company cannot predict the continued
availability of insurance, or its availability at premium levels that justify
its purchase.
RISKS RELATING TO INJECTION WELLS
The Company's saltwater injection operations will pose certain risks of
environmental liability to the Company. Although the Company will monitor the
injection process, any leakage from the subsurface portions of the wells could
cause degradation of fresh groundwater resources, potentially resulting in
suspension of operation of the wells, fines and penalties from governmental
agencies, expenditures for remediation of the affected resource, and liability
to third parties for property damages and personal injuries. In addition, the
sale by the Company of residual crude oil collected as part of the saltwater
injection process could impose liability on the Company in the event the entity
to which the oil was transferred fails to manage the material in accordance with
applicable environmental health and safety laws.
DEPENDENCE ON DISTRIBUTION AND PROCESSING SYSTEMS
The marketability of the Company's oil and gas production depends upon the
availability and capacity of gas gathering systems, pipelines and processing
facilities, and any lack of availability or capacity 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 gas production
and transportation, general economic
15
<PAGE>
conditions and changes in supply and demand could adversely affect the Company's
ability to produce and market its oil and gas on a profitable basis.
GOVERNMENTAL REGULATION
Oil and gas operations are subject to various federal, state and local
governmental regulations which may be changed from time to time in response to
economic or political conditions. From time to time, regulatory agencies have
imposed price controls and limitations on production in order to conserve
supplies of oil and gas. In addition, the production, handling, storage,
transportation and disposal of oil and gas, by-products thereof and other
substances and materials produced or used in connection with oil and gas
operations are subject to regulation under federal, state and local laws and
regulations. See "Business -- Regulation."
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. See "Business -- Regulation."
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 business,
financial condition and results of operations.
COMPETITION
The Company operates in a highly competitive environment. The Company
competes with major and independent oil and gas companies and with individual
producers and developers for the acquisition of desirable oil and gas
properties, as well as for the equipment and labor required to develop and
operate such properties. Many of these competitors have financial and other
resources that are substantially greater than those of the Company. See
"Business -- Competition."
CONTROL BY CERTAIN STOCKHOLDERS
At January 31, 1998, three of the Company's directors, two of whom are also
executive officers, beneficially owned 2,025,000 shares of Common Stock
representing, in the aggregate, approximately 74% of the outstanding Common
Stock. As a result, these stockholders are in a position to control the Company.
See "Security Ownership of Management and Principal Stockholders."
ABSENCE OF A PUBLIC MARKET FOR THE NOTES
The Notes will constitute a new issue of securities with no established
trading market, and there can be no assurance as to the liquidity of any markets
that may develop for the Notes, the ability of the holders of Notes to sell
their Notes or the price at which holders would be able to sell their Notes.
Future trading prices of the Notes will depend on many factors, including, among
others, prevailing interest rates, the Company's operating results and the
market for similar securities. The Company does not intend to apply for listing
of the Notes on any securities exchange. The Underwriter has informed the
Company that it currently intends to make a market for the Notes. However, it is
not so obligated, and any such market making may be discontinued at any time
without notice. Accordingly, no assurance can be given that an active public or
other market will develop for the Notes or as to the liquidity of or the trading
market for the Notes. See "Underwriting."
16
<PAGE>
THE COMPANY
RAM Energy was incorporated in 1987 in Delaware. In October 1987, RAM
Energy, as managing general partner, together with New York Life Insurance
Company ("New York Life") and an affiliate of RAM Energy, formed RAMCO-NYL 1987
Limited Partnership. From September 1987 through May 1989, RAM Energy, acting on
its own behalf and on behalf of the Partnership, completed 13 oil and gas
acquisitions at a total cost of approximately $141 million.
From May 1989 to November 1996, RAM Energy conducted drilling and
development activities primarily on behalf of and as the managing general
partner of the Partnership. As a result, the Company maintained a relatively
stable level of proved reserves and did not acquire significant additional
leasehold interests, aggressively develop or explore its existing property base.
In November 1996, RAM Energy purchased New York Life's interest in the
Partnership, effectively terminating the Partnership's activities on a
stand-alone basis.
In the first quarter of 1997, the Company sold certain of its oil and gas
properties located offshore in the Gulf of Mexico, in East Texas and in the
Rocky Mountain area for $10.4 million. In September 1997, the Company concluded
an acquisition of oil and gas properties in the Mid-Continent Area and in the
Louisiana and Mississippi Gulf Coast area for $11.2 million. In December 1997,
the Partnership was liquidated and all of its oil and gas properties and other
assets were distributed to RAM Energy. See "Business."
On December 16, 1997, the Company entered into a definitive agreement to
purchase Carlton for $43.0 million (subject to closing adjustments), including
the repayment of existing Carlton debt. The closing of the Carlton Acquisition
is conditioned upon the simultaneous closing of the Offering.
The Company's principal executive and operating offices are located at Suite
650, Meridian Tower, 5100 E. Skelly Drive, Tulsa, Oklahoma 74135, telephone
(918) 663-2800.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to RAM Energy, Inc. from the issuance and sale of the Notes
offered hereby, after deducting the underwriting discount and expenses of the
Offering, are estimated to be $110.4 million. The following table illustrates
the sources and uses of the net proceeds to the Company, as estimated by the
Company's management, in connection with the Offering:
<TABLE>
<CAPTION>
SOURCES OF FUNDS USES OF FUNDS
- --------------------------------------------------- -----------------------------------------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Notes............................... $ 110,400 Carlton Acquisition(1).............. $ 43,000
Repayment of existing debt(2)....... 62,000
Working capital..................... 5,400
------------- ---------
Total sources of funds............ $ 110,400 Total uses of funds................. $ 110,400
------------- ---------
------------- ---------
</TABLE>
- ------------------------
(1) The Carlton Acquisition purchase price is subject to certain adjustments,
and includes the repayment of $24.6 million outstanding under Carlton's
credit facility, which will be extinguished upon completion of the Carlton
Acquisition, and which provided for interest at a weighted average rate of
12.7% at December 31, 1997. See "Business -- The Carlton Acquisition."
(2) Consists of a $62.0 million principal balance under the Credit Facility. The
Credit Facility has been amended and restated as a $50.0 million revolving
credit facility, effective upon consummation of the Offering and the Carlton
Acquisition. Advances under the Credit Facility were used to complete the
Partnership Acquisition and other acquisitions and bear interest at varying
rates for which the weighted average at December 31, 1997, was 8.8%. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
18
<PAGE>
CAPITALIZATION
The following table sets forth at September 30, 1997, the cash and cash
equivalents and capitalization of the Company, and to give pro forma effect to
the Offering and the application of the net proceeds therefrom as set forth
under "Use of Proceeds." This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
---------------------
ACTUAL PRO FORMA
--------- ----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................................................... $ 2,031 $ 7,663
--------- ----------
--------- ----------
Long-term debt, including current portion:
Credit Facility(1).................................................................... $ 62,000 --
% Senior Notes due 2008......................................................... -- $ 115,000
Other indebtedness.................................................................... 215 215
--------- ----------
Total long-term debt.................................................................. 62,215 115,215
Stockholders' equity (deficit)(2):
Series A Preferred Stock(2)........................................................... 1 1
Series B Preferred Stock(2)........................................................... 1 1
Common Stock.......................................................................... 22 22
Paid-in capital....................................................................... 1,493 1,493
Retained earnings (deficit)........................................................... (3,080) (3,080)
--------- ----------
Total stockholders' equity (deficit)................................................ (1,563) (1,563)
--------- ----------
Total capitalization................................................................ $ 60,652 $ 113,652
--------- ----------
--------- ----------
</TABLE>
- ------------------------
(1) The Credit Facility has been amended and restated as a $50.0 million
revolving credit facility, effective upon consummation of the Offering and
the Carlton Acquisition. The initial availability under the amended and
restated Credit Facility will be $25.0 million. The Indenture may limit the
amount the Company may borrow under the Credit Facility. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
(2) Before giving effect to the redemption of all outstanding shares of RAM
Energy, Inc.'s Series A Preferred Stock and Series B Preferred Stock. In
December 1997, RAM Energy, Inc. redeemed all of its outstanding shares of
Series A Preferred Stock (none of which were held by officers, directors or
holders of Common Stock of the Company) for an aggregate redemption price of
$777,140. RAM Energy, Inc. redeemed its Series B Preferred Stock from the
holders thereof (all of whom also are holders of Common Stock) in January
1998, for an aggregate redemption price of $696,520. See "Management --
Certain Transactions."
19
<PAGE>
SELECTED HISTORICAL AND PRO FORMA
FINANCIAL INFORMATION AND OPERATING DATA
PRO FORMA COMBINED FINANCIAL INFORMATION
The following Pro Forma Combined Statements of Operations and other
financial data for the year ended December 31, 1996 and for the nine months
ended September 30, 1997 reflect the historical results of the Company, adjusted
to give effect to the Offering and the application of the net proceeds
therefrom, the completion of the Partnership Acquisition, the completion of the
Carlton Acquisition and the consummation of certain other acquisitions and
dispositions by the Company as though each of the transactions had occurred on
January 1, 1996.
The Pro Forma Combined Condensed Balance Sheet at September 30, 1997
reflects the historical financial position of the Company as of such date
adjusted to give pro forma effect to the Carlton Acquisition and the Offering
and the application of the net proceeds therefrom as if they had occurred on
September 30, 1997.
The pro forma adjustments are based upon available information and
assumptions that management of the Company believes are reasonable. The Pro
Forma Combined Financial Information does not purport to represent the financial
position or results of operations which would have occurred had such
transactions been consummated on the dates indicated or the Company's financial
position or results of operations for any future date or period. The Pro Forma
Combined Financial Information and notes thereto should be read in conjunction
with the Financial Statements included elsewhere in this Prospectus.
20
<PAGE>
RAM ENERGY, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADJUSTMENTS
HISTORICAL -----------------------------------------------------
------------------------------------- 1997 1997
PARTNERSHIP COMPANY CARLTON DISPOSITION ACQUISITION COMBINING OFFERING
----------- ----------- ----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
NOTE A NOTE B NOTE C NOTE D NOTE E NOTE F
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Operating revenues:
Oil and gas....................... $ 23,456 $ 3,275 $ 6,713 $ (5,518) $ 3,974
Gathering system.................. -- -- 14,688
Management fees................... -- 1,482 22 $ (1,482)(1)
Operator overhead fees............ -- 1,343 616 (1,959)(1)
Consulting fees................... -- 153 -- (153)(1)
Other............................. 7 567 782
----------- ----------- ----------- ----------- ----------- ------------
Total operating revenues........ 23,463 6,820 22,821 (5,518) 3,974 (3,594)
Operating expenses:
Oil and gas production............ 7,609 827 2,387 (1,943) 1,884
Other charges to production....... -- -- 754 (754)(3)
Cost of oil and gas purchased..... -- -- 6,657
Gathering system.................. -- -- 1,177
Depreciation and amortization..... 5,114 990 3,269 (1,452) 1,108 2,915(2)
Management fees................... 1,482 -- -- (1,482)(1)
Operator overhead fees............ 1,343 -- -- (1,343)(1)
Consulting fees................... 53 -- -- (53)(1)
General and administrative........ 325 4,164 2,396 (616)(1)
(1,926)(3) (1,087)(8)
----------- ----------- ----------- ----------- ----------- ------------ -------------
Total operating expenses........ 15,926 5,981 16,640 (3,395) 2,992 (3,259) (1,087)
----------- ----------- ----------- ----------- ----------- ------------ -------------
Operating income (loss)............. 7,537 839 6,181 (2,123) 982 (335) 1,087
Other income (expense):
Interest expense.................. (564) (541) (326) 1,092 (1,176) (8,300)(4) $ (2,279)(6)
(460)(7)
Interest income................... 114 29 393
Equity in income of the
Partnership..................... -- 71 --
Minority interest in the
Partnership..................... -- 10 --
----------- ----------- ----------- ----------- ----------- ------------ -------------
Income (loss) before income taxes... 7,087 408 6,248 (1,031) (194) (8,635) (1,652)
Income tax provision (benefit)...... -- -- 2,324 (848)(5) (628)(9)
----------- ----------- ----------- ----------- ----------- ------------ -------------
Net income (loss)................... $ 7,087 $ 408 $ 3,924 $ (1,031) $ (194) $ (7,787) $ (1,024)
----------- ----------- ----------- ----------- ----------- ------------ -------------
----------- ----------- ----------- ----------- ----------- ------------ -------------
Net income per common share.........
Weighted average common shares
outstanding (in thousands)........
<CAPTION>
PRO FORMA
-----------
<S> <C>
INCOME STATEMENT DATA:
Operating revenues:
Oil and gas....................... $ 31,900
Gathering system.................. 14,688
Management fees................... 22
Operator overhead fees............ --
Consulting fees................... --
Other............................. 1,356
-----------
Total operating revenues........ 47,966
Operating expenses:
Oil and gas production............ 10,764
Other charges to production....... --
Cost of oil and gas purchased..... 6,657
Gathering system.................. 1,177
Depreciation and amortization..... 11,944
Management fees................... --
Operator overhead fees............ --
Consulting fees................... --
General and administrative........
3,256
-----------
Total operating expenses........ 33,798
-----------
Operating income (loss)............. 14,168
Other income (expense):
Interest expense..................
(12,554)
Interest income................... 536
Equity in income of the
Partnership..................... 71
Minority interest in the
Partnership..................... 10
-----------
Income (loss) before income taxes... 2,231
Income tax provision (benefit)...... 848
-----------
Net income (loss)................... $ 1,383
-----------
-----------
Net income per common share......... $ 0.51
-----------
-----------
Weighted average common shares
outstanding (in thousands)........ 2,727
-----------
-----------
</TABLE>
(SEE FOOTNOTES ON PAGE 24)
21
<PAGE>
RAM ENERGY, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
HISTORICAL
----------------
COMPANY PRO FORMA
------- ---------
ADJUSTMENTS
----------------------------------------------
CARLTON 1997 1997 COMBINING OFFERING
------- DISPOSITION ACQUISITION ---------- ---------
----------- -------
NOTE B NOTE E NOTE F
NOTE C NOTE D
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues:
Oil and gas................................ $16,820 $4,109 $(1,365) $1,883 $21,447
Gathering system........................... -- 7,468 7,468
Management fees............................ -- 8 8
Operator overhead fees..................... -- 520 $ (520)(1) --
Other...................................... 85 183 268
------- ------- ----------- ------- ---------- ---------
Total operating revenues................. 16,905 12,288 (1,365) 1,883 (520) 29,191
Operating expenses:
Oil and gas production..................... 4,795 1,593 (341) 749 6,796
Other charges to production................ -- 377 (377)(3) --
Cost of oil and gas purchased.............. -- 4,785 4,785
Gathering system........................... -- 569 569
Depreciation and amortization.............. 5,268 2,343 (274) 562 214(2) 8,113
General and administrative................. 3,325 1,860 (520)(1)
(1,298)(3) (815)(8) 2,552
------- ------- ----------- ------- ---------- --------- ---------
Total operating expenses................. 13,388 11,527 (615) 1,311 (1,981) (815) 22,815
------- ------- ----------- ------- ---------- --------- ---------
Operating income (loss)...................... 3,517 761 (750) 572 1,461 815 6,376
Other income (expense):
Interest expense........................... (3,788 ) (2,305 ) 819 (882) (1,081)(4) $(1,838)(6)
(345)(7) (9,420)
Interest income............................ 43 46 89
Minority interest in the Partnership....... (15 ) -- (15)
------- ------- ----------- ------- ---------- --------- ---------
Income (loss) before income taxes............ (243 ) (1,498 ) 69 (310) 380 (1,368) (2,970)
Income tax provision (benefit)............... -- (559 ) (50)(5) (520)(9) (1,129)
------- ------- ----------- ------- ---------- --------- ---------
Net income (loss)............................ $ (243 ) $ (939 ) $ 69 $ (310) $ 430 $(848) $(1,841)
------- ------- ----------- ------- ---------- --------- ---------
------- ------- ----------- ------- ---------- --------- ---------
Net (loss) per common share.................. $ (0.68)
---------
---------
Weighted average common shares
outstanding (in thousands)................. 2,727
---------
---------
</TABLE>
(SEE FOOTNOTES ON PAGE 24)
22
<PAGE>
RAM ENERGY, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AT SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
ADJUSTMENTS
HISTORICAL -------------------------
------------------------ CARLTON
COMPANY CARLTON ACQUISITION OFFERING PRO FORMA
----------- ----------- ------------ ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................ $ 2,031 $ 232 $ (43,000)(1) $ 48,400(2) $ 7,663
Restricted cash...................................... -- 346 346
Accounts receivable:
Oil and gas sales.................................. 2,898 -- 2,898
Joint interest..................................... 1,399 1,270 2,669
Other.............................................. 46 214 260
Prepaid expenses..................................... 254 826 1,080
----------- ----------- ------------ ----------- -----------
Total current assets............................. 6,628 2,888 (43,000) 48,400 14,916
Property and equipment (net)........................... 60,100 43,306 20,620(1) 124,026
Other assets........................................... 3,616 403 (403)(1) 4,600(2) 8,216
----------- ----------- ------------ ----------- -----------
Total assets..................................... $ 70,344 $ 46,597 $ (22,783) $ 53,000 $ 147,158
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Account payable:
Oil and gas proceeds due others.................... $ 2,855 -- $ 2,855
Trade.............................................. 3,549 $ 1,938 5,487
Affiliates......................................... -- 22 22
Accrued liabilities:
Interest........................................... 401 -- 401
Gas balancing liability............................ 300 -- 300
Other.............................................. 98 354 452
Long-term debt due within one year................... 9,244 24,572 $ (24,572)(1) $ (9,029)(2) 215
----------- ----------- ------------ ----------- -----------
Total current liabilities........................ 16,447 26,886 (24,572) (9,029) 9,732
% Senior Notes due 2008............................. -- -- 115,000(2) 115,000
Other long-term debt due after one year................ 52,971 -- (52,971)(2) --
Deferred tax liability................................. -- 20,445 1,055(1) 21,500
Other.................................................. 2,489 -- 2,489
Redeemable preferred stock............................. -- 550 (550)(4) --
Stockholders' equity (deficit)......................... (1,563) (1,284) 1,284(1) (1,563)
----------- ----------- ------------ ----------- -----------
Total liabilities and stockholders' equity
(deficit)...................................... $ 70,344 $ 46,597 $ (22,783) $ 53,000 $ 147,158
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
</TABLE>
(SEE FOOTNOTES ON PAGE 24)
23
<PAGE>
RAM ENERGY, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
STATEMENTS OF OPERATIONS
NOTE A --
The historical results of the Partnership are presented for the eleven
months ended November 30, 1996 (prior to the acquisition by RAM Energy effective
November 30, 1996). Combining adjustments are included in Note E to eliminate
charges in 1996 by RAM Energy to the Partnership and to recalculate depreciation
and amortization to reflect the revised basis in Partnership assets acquired by
RAM Energy.
NOTE B --
The historical results of Carlton are presented as follows:
YEAR ENDED DECEMBER 31, 1996. The eight months ended August 31, 1996 of the
predecessor to Carlton are combined with the four months results of Carlton
after its acquisition of the predecessor on September 1, 1996. Prior to such
date, Carlton's activities were insignificant. The impact of changes in the
asset values on depreciation and amortization following Carlton's acquisition
were not given separate pro forma effect as the adjustment to consider the
Carlton Acquisition and the resulting valuation of its assets are considered in
Note E.
NINE MONTHS ENDED SEPTEMBER 30, 1997 include the historical results of
Carlton for such period.
NOTE C --
Adjustments to reduce the Company's historical oil and gas revenues and
related costs of certain producing oil and gas properties sold in March 1997,
for the periods prior to their sale.
NOTE D --
Adjustments to increase oil and gas revenues and related costs for the
periods prior to the purchase by the Company in August 1997 of certain producing
oil and gas properties.
NOTE E --
Adjustments to combine the entities and properties presented including
elimination of transactions between entities; adjustment of depreciation and
amortization to consider carrying amounts after purchase allocations and
application of the full cost method of accounting to acquired properties;
interest on debt incurred or reduced by the transactions; adjustments to costs
and expenses to give effect to contractual terms of the Carlton Acquisition; and
adjustment of income taxes resulting from other adjustments. Such adjustments
include:
(1) Elimination of fees billed to the Partnership prior to its acquisition
by RAM Energy, together with related expenses of the Partnership and
reclassification of operator fees recorded by Carlton as recovery of
expenses applied on the full cost method of accounting.
(2) Adjust depreciation and amortization to reflect changes in the asset
values after acquisitions:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- -------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Acquired basis.................................. $ 11,944 $ 8,113
Historical basis................................ 9,029 7,899
------- -------
Adjustment...................................... $ 2,915 $ 214
------- -------
------- -------
</TABLE>
(3) The stock purchase agreement executed on December 16, 1997 by RAM Energy
to acquire Carlton, attached as Exhibit 2 to the Registration Statement,
provides that Corporate Employees (defined therein) will resign or be
terminated by closing of the Carlton Acquisition and that the Company
will assign Excluded Assets (defined therein) to the selling stockholders
of Carlton prior to such closing.
Adjustments resulting from contractual requirements of the Carlton stock
purchase agreement to exclude costs and expenses of Corporate Employees
identified and required in such agreement to resign or be terminated at
24
<PAGE>
RAM ENERGY, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION (CONTINUED)
NOTE E -- (CONTINUED)
closing of the Carlton Acquisition and Excluded Assets identified and to be
retained by the selling stockholders of Carlton at such closing:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------- -------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Salaries and related benefits of Corporate Employees to be
terminated by the closing of the Carlton Acquisition.............. $ 2,159 $ 1,079
Rental and other costs associated with Excluded Assets............. 521 596
------ ------
Total costs and expenses eliminated at the closing of the Carlton
Acquisition....................................................... $ 2,680 $ 1,675
------ ------
------ ------
Included in Carlton historical results as:
General and administrative....................................... $ 1,926 $ 1,298
Other charges to production...................................... 754 377
------ ------
$ 2,680 $ 1,675
------ ------
------ ------
</TABLE>
(4) Additional interest expense resulting from acquisitions:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- -------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Partnership -- $60.0 million in debt (eleven months in 1996).... $ 4,675
Less actual..................................................... (564)
-------
Incremental -- Partnership...................................... 4,111
-------
Carlton -- $43.0 million in debt at 10 1/2%..................... 4,515 $ 3,386
Less actual..................................................... (326) (2,305)
------- -------
Incremental -- Carlton.......................................... 4,189 1,081
------- -------
Total incremental............................................... $ 8,300 $ 1,081
------- -------
------- -------
</TABLE>
(5) Income tax effect of inclusion of the Partnership and adjustments to
Combined amounts at 38%:
<TABLE>
<S> <C> <C>
Year ended December 31, 1996........................... $ (848)
-----
-----
Nine months ended September 30, 1997................... $ (50)
-----
-----
</TABLE>
25
<PAGE>
RAM ENERGY, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION (CONTINUED)
NOTE F --
Effects of the Offering as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- -------------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
(6) Incremental interest expense of Offering, net of amounts
allocated to acquisitions:
$115.0 million of Senior Notes (at 10 1/2%) due 2008....... $ 12,075 $ 9,056
Interest on other debt..................................... 19 19
------- -------
12,094 9,075
Allocated to transactions and actual....................... 9,815 7,237
------- -------
Incremental................................................ $ 2,279 $ 1,838
------- -------
------- -------
(7) Additional amortization related to deferred offering costs
on debt issuance......................................... $ 460 $ 345
------- -------
------- -------
(8) In connection with the Offering, officers of RAM Energy have executed new employment and other
agreements and the RAM Energy board of directors adopted resolutions which reduced executive and
director compensation, attached as Exhibits 10.5 and 10.6 to the Registration Statement and
described in "Management--Employment and Severance Agreements."
Reductions in general and administrative expense for
reduced executive compensation to reflect new employment
agreements executed in connection with the Offering...... $ (1,087) $ (815)
------- -------
------- -------
(9) Tax effect of adjustments at 38%........................... $ (628) $ (520)
------- -------
------- -------
</TABLE>
26
<PAGE>
RAM ENERGY, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION (CONTINUED)
BALANCE SHEET
<TABLE>
<S> <C> <C>
(1) Record the Carlton Acquisition as if consummated on September 30, 1997:
Purchase price.............................................................. $ 43,000
---------
---------
Retirement of Carlton debt.................................................. $ 24,572
---------
---------
Redemption of preferred stock............................................... $ 550
---------
---------
Allocation to property and equipment:
Purchase price -- oil and gas properties.................................... $ 26,000
Purchase price -- gathering system.......................................... 17,000
Deferred income taxes....................................................... 21,500
---------
64,500
Carlton -- historical....................................................... 43,306
---------
21,194
Allocation to other assets and liabilities, net............................. 574
---------
Adjustment.................................................................. $ 20,620
---------
---------
(2) Record net proceeds of Offering and retirement of existing debt of Company:
% Senior Notes due 2008..................................................... $ 115,000
Less issuance costs and expenses............................................ 4,600
---------
Net proceeds from the Offering.............................................. 110,400
Retirement of other long-term debt.......................................... 62,000
---------
Net proceeds after retirement of existing long-term debt.................... $ 48,400
---------
---------
</TABLE>
OTHER FINANCIAL DATA
<TABLE>
<CAPTION>
PRO FORMA
-------------------------------------
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Adjusted EBITDA(1)...................................................... $ 26,729 $ 14,563
Ratio of:
Earnings to fixed charges(2).......................................... 1.18x --
Adjusted EBITDA to interest expense................................... 2.13x 1.55x
Long-term debt to Adjusted EBITDA(3).................................. -- 5.93x
Net debt to Adjusted EBITDA(3)........................................ -- 5.54x
</TABLE>
Definitions applicable to other financial data are as follows:
(1) Adjusted EBITDA is defined as earnings before interest expense, income
taxes, depreciation and amortization and writedown of related oil and gas
properties and equipment. Adjusted EBITDA is not a measure of cash flow
as determined by GAAP. Adjusted EBITDA should not be considered as an
alternative to, or more meaningful than, net income or cash flow as
determined in accordance with GAAP or as an indicator of a company's
operating performance or liquidity. Certain items excluded from Adjusted
EBITDA are significant components in understanding and assessing a
company's financial performance, such as a company's cost of capital and
tax structure, as well as historic costs of depreciable assets, none of
which are components of Adjusted EBITDA. The Company's computation of
Adjusted EBITDA may not be comparable to other similarly titled measures
of other companies. The Company believes that Adjusted EBITDA is a widely
followed measure of operating performance and may also be used by
investors to measure the Company's ability to meet future debt service
requirements, if any.
(2) For purposes of computing the ratio of earnings to fixed charges,
earnings are computed as income from continuing operations before taxes,
plus fixed charges. Fixed charges consist of interest expense and
amortization of costs incurred in connection with the Offering. For the
Company, on a pro forma basis, earnings were insufficient to cover fixed
charges by approximately $2,970,000 for the nine months ended September
30, 1997.
(3) The ratio of long-term debt to Adjusted EBITDA is computed on the basis
of annualized Adjusted EBITDA for periods shorter than one year. The
ratio of net debt to Adjusted EBITDA is the ratio of long-term debt,
including the current portion thereof, less cash and cash equivalents, to
Adjusted EBITDA, annualized for periods shorter than one year.
27
<PAGE>
PARTNERSHIP HISTORICAL FINANCIAL INFORMATION AND OTHER FINANCIAL DATA
The following tables set forth selected historical financial information and
other financial data of the Partnership for the periods shown. The following
information should be read in conjunction with "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------ NOVEMBER 30,
1992 1993 1994 1995 1996(1)
------- -------- -------- ------- -----------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Operating revenues:
Oil and gas............................................... $31,093 $ 30,005 $ 24,481 $21,802 $23,456
Other..................................................... 164 74 60 139 7
------- -------- -------- ------- -------
Total operating revenues................................ 31,257 30,079 24,541 21,941 23,463
Operating expenses:
Oil and gas production.................................... 11,809 11,230 9,839 9,902 7,609
Depreciation and amortization............................. 13,860 14,526 11,608 9,808 5,114
Writedown of oil and gas properties and equipment......... -- 15,100 8,700 -- --
Management fees(2)........................................ 1,418 1,518 1,555 1,606 1,482
Operator overhead fees(2)................................. 1,805 1,756 1,746 1,686 1,343
General and administrative................................ 897 676 676 502 378
------- -------- -------- ------- -------
Total operating expense................................. 29,789 44,806 34,124 23,504 15,926
------- -------- -------- ------- -------
Operating income (loss)..................................... 1,468 (14,727) (9,583) (1,563) 7,537
Other income (expense):
Interest expense.......................................... (412) (477) (587) (809) (564)
Interest income........................................... 40 50 41 59 114
------- -------- -------- ------- -------
Net income (loss)........................................... $ 1,096 $(15,154) $(10,129) $(2,313) $ 7,087
------- -------- -------- ------- -------
------- -------- -------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------ AT NOVEMBER 30,
1992 1993 1994 1995 1996
------- -------- -------- ------- -----------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 885 $ 353 $ 356 $ 1,266 $ 1,102
Net property and equipment.................................. 89,405 68,701 54,663 49,601 46,198
Total assets................................................ 101,969 76,075 62,967 57,208 115,611
Long-term debt, including currrent portion.................. 10,000 10,000 10,000 10,000 62,800
Total partners' equity...................................... 83,797 61,534 47,775 43,166 48,120
</TABLE>
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------ NOVEMBER 30,
1992 1993 1994 1995 1996(1)
------- -------- -------- ------- -----------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
OTHER FINANCIAL DATA:
Cash flow from operating activities......................... $14,166 $ 15,492 $ 9,969 $ 7,478 $10,837
Cash flow from investing activities......................... (10,794) (8,915) (5,336) (5,273) (61,621)
Cash flow from financing activities......................... (3,051) (7,109) (4,630) (1,295) 50,620
Capital expenditures........................................ 9,496 8,407 4,325 5,380 3,310
Adjusted EBITDA(3).......................................... 15,368 14,949 10,766 8,304 12,765
Ratio of earnings to fixed charges(4)....................... 3.66x -- -- -- 13.57x
</TABLE>
(SEE FOOTNOTES ON PAGE 30)
28
<PAGE>
RAM ENERGY HISTORICAL FINANCIAL INFORMATION AND OTHER FINANCIAL DATA
The following tables set forth selected historical financial information and
other financial data of RAM Energy for the periods shown. The following
information should be read in conjunction with "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1992 1993 1994 1995
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues:
Oil and gas.................................................................... $ 224 $ 236 $ 153 $ 166
Gathering system............................................................... -- -- -- --
Management fees(2)............................................................. 1,548 1,545 1,555 1,606
Operator overhead fees(2)...................................................... 1,805 1,756 1,746 1,686
Consulting fees(2)............................................................. 1,959 1,927 236 163
Other.......................................................................... 369 93 120 84
--------- --------- --------- ---------
Total operating revenues..................................................... 5,905 5,557 3,810 3,705
Operating expenses:
Oil and gas production......................................................... 84 80 76 77
Cost of oil and gas purchased.................................................. -- -- -- --
Gathering system............................................................... -- -- -- --
Depreciation and amortization.................................................. 650 663 406 353
General and administrative..................................................... 4,523 4,310 3,279 3,364
--------- --------- --------- ---------
Total operating expense...................................................... 5,257 5,053 3,761 3,794
--------- --------- --------- ---------
Operating income (loss).......................................................... 648 504 49 (89)
Other income (expense):
Interest expense............................................................... (278) (45) (23) (18)
Interest income................................................................ 88 106 75 73
Equity in income of the Partnership............................................ -- -- -- --
Minority interest in the Partnership........................................... -- -- (101) (23)
--------- --------- --------- ---------
Net income (loss)................................................................ $ 458 $ 565 $ 0 $ (57)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss) per common share............................................... $ 0.17 $ 0.21 $ 0.00 $ (0.02)
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common shares outstanding (in thousands)........................ 2,727 2,727 2,727 2,727
--------- --------- --------- ---------
--------- --------- --------- ---------
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1996(1) 1996(1) 1997
--------- --------- ---------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues:
Oil and gas.................................................................... $ 3,275 $ 148 $ 16,820
Gathering system............................................................... -- -- --
Management fees(2)............................................................. 1,482 1,225 --
Operator overhead fees(2)...................................................... 1,343 1,108 --
Consulting fees(2)............................................................. 153 91 --
Other.......................................................................... 567 78 85
--------- --------- ---------
Total operating revenues..................................................... 6,820 2,650 16,905
Operating expenses:
Oil and gas production......................................................... 827 62 4,795
Cost of oil and gas purchased.................................................. -- -- --
Gathering system............................................................... -- -- --
Depreciation and amortization.................................................. 990 264 5,268
General and administrative..................................................... 4,164 2,517 3,325
--------- --------- ---------
Total operating expense...................................................... 5,981 2,843 13,388
--------- --------- ---------
Operating income (loss).......................................................... 839 (193) 3,517
Other income (expense):
Interest expense............................................................... (541) (14) (3,788)
Interest income................................................................ 29 22 43
Equity in income of the Partnership............................................ 71 -- --
Minority interest in the Partnership........................................... 10 55 (15)
--------- --------- ---------
Net income (loss)................................................................ $ 408 $ (130) $ (243)
--------- --------- ---------
--------- --------- ---------
Net income (loss) per common share............................................... $ 0.15 $ (0.05) $ (0.09)
--------- --------- ---------
--------- --------- ---------
Weighted average common shares outstanding (in thousands)........................ 2,727 2,727 2,727
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------
1992 1993 1994 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents........................................................ $ 4,731 $ 2,211 $ 1,426 $ 524
Net property and equipment....................................................... 1,671 1,317 1,014 995
Total assets..................................................................... 16,524 10,335 10,263 6,485
Long-term debt, including current portion........................................ 2,319 1,254 618 49
Stockholders' equity (deficit)(5)................................................ (2,106) (1,541) (1,571) (1,729)
<CAPTION>
AT SEPTEMBER 30,
--------------------
1996 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................ $ 1,607 $ 838 $ 2,031
Net property and equipment....................................................... 54,738 946 60,100
Total assets..................................................................... 71,410 6,030 70,344
Long-term debt, including current portion........................................ 62,984 128 62,215
Stockholders' equity (deficit)(5)................................................ (1,321) (1,858) (1,563)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1992 1993 1994 1995
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Cash flow from operating activities.............................................. $ 3,534 $ (664) $ 144 $ (233)
Cash flow from investing activities.............................................. (36) (234) (312) (8)
Cash flow from financing activities.............................................. (971) (1,622) (617) (662)
Capital expenditures............................................................. 162 305 79 335
Adjusted EBITDA(3)............................................................... 1,386 1,273 429 314
Ratio of earnings to fixed charges(4)............................................ 2.64x 13.56x 1.00x --
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1996(1) 1996(1) 1997
--------- --------- ---------
<S> <C> <C> <C>
OTHER FINANCIAL DATA:
Cash flow from operating activities.............................................. $ 70 $ 405 $ 6,421
Cash flow from investing activities.............................................. (59,102) (170) (5,227)
Cash flow from financing activities.............................................. 60,116 (79) (770)
Capital expenditures............................................................. 250 187 14,692
Adjusted EBITDA(3)............................................................... 1,939 148 8,813
Ratio of earnings to fixed charges(4)............................................ 1.75x -- --
</TABLE>
(SEE FOOTNOTES ON PAGE 30)
29
<PAGE>
- --------------------------
(1) RAM Energy acquired the limited partner's interest in the Partnership on
November 30, 1996 in the Partnership Acquisition. For periods following that
date, the Partnership and RAM Energy are presented on a consolidated basis.
The Partnership (on an unconsolidated basis) includes the first 11 months of
1996; the Company includes one month (December 1996) of Partnership data on
a consolidated basis.
(2) Under the terms of the Partnership's partnership agreement, RAM Energy was
reimbursed by the Partnership for management fees, operator overhead fees
and certain consulting fees. The Partnership capitalized the consulting
fees.
(3) Adjusted EBITDA is defined as earnings before interest expense, income
taxes, depreciation and amortization and writedown of related oil and gas
properties and equipment. Adjusted EBITDA is not a measure of cash flow as
determined by GAAP. Adjusted EBITDA should not be considered as an
alternative to, or more meaningful than, net income or cash flow as
determined in accordance with GAAP or as an indicator of a company's
operating performance or liquidity. Certain items excluded from Adjusted
EBITDA are significant components in understanding and assessing a company's
financial performance, such as a company's cost of capital and tax
structure, as well as historic costs of depreciable assets, none of which
are components of Adjusted EBITDA. The Company's computation of Adjusted
EBITDA may not be comparable to other similarly titled measures of other
companies. The Company believes that Adjusted EBITDA is a widely followed
measure of operating performance and may also be used by investors to
measure the Company's ability to meet future debt service requirements, if
any.
(4) For the Partnership, earnings were insufficient to cover fixed charges by
approximately $15,154,000, $10,129,000 and $2,313,000 for the years ended
December 31, 1993, 1994 and 1995, respectively. For RAM Energy, earnings
were insufficient to cover fixed charges by approximately $57,000 for the
year ended December 31, 1995 and by approximately $130,000 and $243,000 for
the nine months ended September 30, 1996 and 1997, respectively. For
purposes of computing the ratio of earnings to fixed charges, earnings are
computed as income from continuing operations before taxes, plus fixed
charges. For the historical periods, fixed charges consist of interest
expense.
(5) Before giving effect to the redemption of all outstanding shares (77,714
shares) of RAM Energy, Inc.'s Series A Preferred Stock at a redemption price
of $10.00 per share and the redemption of all outstanding shares (69,652
shares) of its Series B Preferred Stock at a redemption price of $10.00 per
share. See "Capitalization" and "Management -- Certain Transactions."
30
<PAGE>
HISTORICAL AND PRO FORMA OPERATING DATA
The following table sets forth selected Partnership and Company operating
data for the periods shown and on a pro forma basis to give effect to the
Offering and the application of the net proceeds therefrom, the completion of
the Partnership Acquisition, the completion of the Carlton Acquisition and the
consummation of certain other acquisitions and dispositions. Prior to November
30, 1996, RAM Energy did not own significant reserves and, therefore no
historical operating data is provided for RAM Energy.
<TABLE>
<CAPTION>
PARTNERSHIP COMPANY
----------------------------------------------------------- ------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, ELEVEN DECEMBER 31,
MONTHS ENDED ------------------------
------------------------------------------ NOVEMBER 30, PRO FORMA
1992 1993 1994 1995 1996(1) 1996 1996(2)
--------- --------- --------- --------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Production volumes:
Natural gas (MMcf).......... 9,503 9,515 9,403 9,700 7,594 711 10,645
Oil and condensate
(MBbls)................... 760 644 534 463 387 38 487
Total (MMcfe)............... 14,065 13,382 12,605 12,476 9,914 941 13,568
Average realized prices(3):
Natural gas (per Mcf)....... $ 1.74 $ 2.00 $ 1.71 $ 1.44 $ 2.04 $ 3.34 $ 2.07
Oil and condensate (per
Bbl)...................... 19.10 17.01 15.75 16.86 20.59 23.39 20.34
Per Mcfe.................... 2.21 2.24 1.94 1.75 2.37 3.48 2.35
Expenses (per Mcfe):
Lease operating (including
production taxes)......... 0.84 0.84 0.78 0.79 0.77 0.88 0.79
Depreciation and
amortization.............. 0.99 1.09 0.92 0.79 0.52 1.05 0.88
General and
administrative(4)......... 0.29 0.30 0.32 0.30 0.32 1.26 0.24
<CAPTION>
PARTNERSHIP COMPANY
--------------- --------------------------
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------
PRO FORMA
1996 1997 1997(2)
--------------- ------------- -----------
<S> <C> <C> <C>
OPERATING DATA
Production volumes:
Natural gas (MMcf).......... 6,192 5,263 6,931
Oil and condensate
(MBbls)................... 313 235 307
Total (MMcfe)............... 8,072 6,675 8,774
Average realized prices(3):
Natural gas (per Mcf)....... $ 2.02 $ 2.31 $ 2.25
Oil and condensate (per
Bbl)...................... 19.99 19.81 19.15
Per Mcfe.................... 2.32 2.52 2.44
Expenses (per Mcfe):
Lease operating (including
production taxes)......... 0.76 0.72 0.77
Depreciation and
amortization.............. 0.52 0.79 0.92
General and
administrative(4)......... 0.32 0.50 0.29
</TABLE>
- ----------------------------------
(1) Partnership operations were effectively terminated on a stand-alone basis on
November 30, 1996 upon consummation of the Partnership Acquisition.
(2) Pro forma to reflect the Offering and the application of the net proceeds
therefrom, the Partnership Acquisition, the Carlton Acquisition and certain
other acquisitions and dispositions as if they had occurred on January 1,
1996.
(3) Reflects the actual realized prices received by the Company, including the
results of the Company's hedging activities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(4) For the Partnership, includes management fees and operator overhead fees
charged to the Partnership by RAM Energy during 1992, 1993, 1994, 1995 and
the 1996 periods. For the Company, general and administrative expense is net
of management fees, operator overhead fees and consulting fees, if any,
received by RAM Energy from the Partnership.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
RAM Energy is an independent oil and gas company engaged in the acquisition,
development and production of oil and gas properties primarily in the
Mid-Continent Area and the Permian Basin.
Prior to December 1996, RAM Energy conducted drilling and development
activities on behalf of and as the managing general partner of the Partnership.
The Partnership's objective was to replace reserves through a limited
development drilling program and to distribute cash flows from operating
activities. In November 1996, RAM Energy acquired the limited partner's interest
in the Partnership. The historical financial information and operating data
discussed in detail for the periods ended December 31, 1994 through December 31,
1996 are those of the Partnership, whose operations were effectively terminated
on a stand-alone basis on November 30, 1996 as a result of the Partnership
Acquisition. Results for 1996 also include December 1996 results of the Company,
following the Partnership Acquisition. The financial information and operating
data discussed in detail for the periods ended September 30, 1996 and 1997 are
those of the Partnership for the 1996 period and those of the Company for the
1997 period. A summary discussion of RAM Energy's financial results for the
periods ended December 31, 1994 through December 31, 1996 follows "-- Quarterly
Results of Operations."
As the result of certain acquisitions and dispositions of oil and gas
properties, operating results may not be comparable from period to period. In
the first quarter of 1997, the Company sold certain non-core properties for
$10.4 million. In September 1997, the Company concluded the acquisition of
certain interests in oil and gas properties from Quarles Drilling Corporation
for $11.2 million. On December 16, 1997 the Company entered into a definitive
agreement to purchase Carlton for $43.0 million (subject to closing
adjustments), including the repayment of existing Carlton debt. The closing of
the Carlton Acquisition is conditioned upon the simultaneous closing of the
Offering.
The Company's revenue, profitability and cash flow are substantially
dependent upon prevailing prices for oil and gas and the volumes of oil and gas
it produces. In addition, the Company's proved reserves and oil and gas
production will decline as oil and gas are produced unless the Company is
successful in acquiring producing properties or conducts successful exploration
and development drilling activities.
The Company uses the full cost method of accounting for its investment in
oil and gas properties. Under the full cost method of accounting, all costs of
acquisition, exploration and development of oil and gas reserves are capitalized
into a "full cost pool" as incurred, and properties in the pool are amortized
and charged to operations using the future recoverable units of production
method based on the ratio of current production to total proved reserves,
computed based on current prices and costs. Significant downward revisions of
quantity estimates or declines in oil and gas prices that are not offset by
other factors could result in a writedown for impairment of the carrying value
of oil and gas properties. Once incurred, a writedown of oil and gas properties
is not reversible at a later date, even if oil or gas prices increase.
As of January 31, 1998, approximately 20% of the Company's estimated natural
gas production for the period of March 1998 through August 1998 was committed to
hedging contracts that established a NYMEX floor price which, after adjustment
for Btu content, results in an equivalent price to the Company of $2.12 per Mcf.
See "Business -- Oil and Gas Marketing and Hedging."
All of the Company's computers and operating systems are Year 2000
compliant. Mainframe business software will be modified during 1998 and 1999 at
a cost estimated to be less than $100,000.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
The Company's results of operations for the nine months ended September 30,
1997 are compared herein to the Partnership's results of operations for the nine
months ended September 30, 1996. The
32
<PAGE>
results of operations for the nine months ended September 30, 1996 exclude the
results of operations for RAM Energy, Inc. Because RAM Energy, Inc.'s results
are excluded from the nine months ended September 30, 1996, the nine month
periods discussed herein may not be comparable.
OPERATING REVENUES. Operating revenues decreased by $1.8 million, or 10%,
for the nine months ended September 30, 1997, compared to the year earlier
period, primarily due to overall production volume decreases resulting from the
sale of non-core properties, partially offset by increases in average realized
oil and gas prices.
The following table summarizes production volumes, average sales prices and
period to period comparisons, including the effect on operating revenues, for
the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------ 1997 PERIOD COMPARED
TO 1996 PERIOD
PARTNERSHIP COMPANY ------------------------------------
----------- ----------- % INCREASE OPERATING REVENUE
1996 1997 (DECREASE) INCREASE (DECREASE)
----------- ----------- --------------- -------------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C>
Production volumes:
Core areas:
Natural gas (MMcf)......... 5,076 4,990 (2)% $ (165)
Oil (MBbls)................ 234 215 (8)% (380)
Non-core areas:
Natural gas (MMcf)......... 1,116 272 (76)% (1,938)
Oil (MBbls)................ 79 20 (75)% (1,184)
Total production:
Natural gas (MMcf)......... 6,192 5,263 (15)% (2,103)
Oil (MBbls)................ 313 235 (25)% (1,564)
Average sale prices:
Natural gas (per Mcf)...... $ 2.02 $ 2.31 15% $ 1,781
Oil (per Bbl).............. 19.99 19.81 (1)% (39)
</TABLE>
Production of oil and gas decreased by 25% and 15%, respectively, for the
nine months ended September 30, 1997, compared to the prior year period, due
primarily to the sale in the first quarter of 1997 of certain non-core
properties located offshore Gulf of Mexico, in the Rocky Mountain area and in
east Texas. This decrease in production resulted in a decrease in operating
revenues of $3.7 million. For the nine months ended September 30, 1997, the
average realized natural gas price was $2.31 per Mcf, an increase of 15%, and
the average realized price of oil was $19.81 per Bbl, essentially unchanged,
compared to the nine months ended September 30, 1996. Changes in oil and gas
prices resulted in increased operating revenues of $1.7 million.
OIL AND GAS PRODUCTION EXPENSE. Oil and gas production expense decreased by
$1.4 million, or 22%, for the nine months ended September 30, 1997, compared to
the same period in 1996. The oil and gas production expense was $0.72 per Mcfe
for the nine months ended September 30, 1997, a decrease of 5% from $0.76 per
Mcfe for the same period in 1996. This decrease in costs was attributable
primarily to the sale of certain higher cost non-core properties, discussed
above.
GENERAL AND ADMINISTRATIVE ("G&A") EXPENSE. G&A expense, including
management and operator overhead fees, increased by $767,000, or 30%, for the
nine months ended September 30, 1997 and was $0.50 per Mcfe, an increase of 56%
compared to the prior year period, due primarily to the Company's increased
acquisition activity and the addition of technical staff to accommodate the
Company's increased inventory of development drilling opportunities. Per unit
increases were also impacted by decreased production associated with the sale of
non-core properties, which production declines were not offset by acquisitions
which occurred subsequent to such property sales.
33
<PAGE>
DEPRECIATION AND AMORTIZATION ("D&A") EXPENSE. D&A expense increased by
$1.1 million, or 27%, for the nine months ended September 30, 1997 and was $0.79
per Mcfe, an increase of 52% from the prior year period, due primarily to the
Partnership Acquisition.
INTEREST EXPENSE. Interest expense increased by $3.3 million for the nine
months ended September 30, 1997, compared to the prior year period, due to
additional borrowings by the Company of $62.8 million in November 1996 to fund
the Partnership Acquisition. The average interest rate also increased by 1% on
the revolving portion of the Credit Facility, and approximately 4% on the term
portion of that facility compared to the average interest rate on the
Partnership's previous credit facility.
NET INCOME (LOSS). Due to the factors described above, net income decreased
$5.7 million to a loss of $243,000 for the nine months ended September 30, 1997,
compared to the same period in 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
The results of operations for the year ended December 31, 1996, discussed
herein, include results for the Partnership through November 30, 1996, the date
of the Partnership Acquisition at which time the Partnership's operations were
effectively terminated on a stand-alone basis, combined with results for RAM
Energy for the year 1996. The results of operations for the year ended December
31, 1995, discussed herein, are those of the Partnership. Because RAM Energy's
results are excluded from the year ended December 31, 1995, the annual periods
disclosed herein may not be comparable. The following table illustrates the
combination of eleven months of 1996 Partnership operations with the annual 1996
results for RAM Energy, compared to results for the Partnership in 1995:
<TABLE>
<CAPTION>
1996
-------------------------------------
ELEVEN
MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER NOVEMBER DECEMBER DECEMBER
31, 1995 30, 31, 31,
----------- ----------- ----------- -----------
PARTNERSHIP PARTNERSHIP RAM ENERGY COMBINED
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating revenues:
Oil and gas....................... $ 21,802 $ 23,456 $ 3,275 $ 26,731
Consulting fees................... -- -- 153 153
Other............................. 139 7 567 574
----------- ----------- ----------- -----------
Total operating revenues........ 21,941 23,463 3,995 27,458
Operating expenses:
Oil and gas production............ 9,902 7,609 827 8,436
Depreciation and amortization..... 9,808 5,114 990 6,104
Management fees................... 1,606 1,482 (1,482) --
Operator overhead fees............ 1,686 1,343 (1,343) --
General and administrative........ 502 378 4,164 4,542
----------- ----------- ----------- -----------
Total operating expenses........ 23,504 15,926 3,156 19,082
----------- ----------- ----------- -----------
Operating income (loss)............. (1,563) 7,537 839 8,376
Other income (expense):
Interest expense.................. (809) (564) (541) (1,105)
Interest income................... 59 114 29 143
Equity in income of the
Partnership..................... -- -- 71 71
Minority interest in the
Partnership..................... -- -- 10 10
----------- ----------- ----------- -----------
Net income (loss)................... $ (2,313) $ 7,087 $ 408 $ 7,495
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
34
<PAGE>
For purposes of this presentation, management fees and operator overhead
fees charged by RAM Energy to the Partnership are treated as reimbursements in
order to eliminate these items upon combination.
OPERATING REVENUES. Operating revenues increased by $5.5 million, or 25%,
for 1996 compared to 1995, primarily due to increases in average realized oil
and gas prices, partially offset by production decreases.
The following table summarizes production volumes, average sales prices and
year to year comparisons, including the effect on operating revenues, for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------ 1996 COMPARED TO 1995
--------------------------------
PARTNERSHIP COMBINED OPERATING REVENUE
----------- ----------- % INCREASE INCREASE
1995 1996 (DECREASE) (DECREASE)
----------- ----------- ------------- -----------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C>
Production volumes:
Natural gas (MMcf)...... 9,700 8,305 (14)% $ (2,014)
Oil (MBbls)............. 463 425 (8)% (633)
Average sale prices:
Natural gas (per Mcf)... $ 1.44 $ 2.15 49% $ 5,881
Oil (per Bbl)........... 16.86 20.84 24% 1,692
</TABLE>
Production of oil and gas decreased by 8% and 14%, respectively, for 1996
compared to 1995 due to the natural decline in the rate of production resulting
from a limited development drilling program during the period. This decrease in
production resulted in a decrease in operating revenues of $2.6 million. The
average realized natural gas price was $2.15 per Mcf, an increase of 49%, and
the average realized price of oil was $20.84 per Bbl, an increase of 24%, for
1996 compared to 1995. These higher oil and gas prices resulted in an increase
in operating revenues of $7.6 million.
OIL AND GAS PRODUCTION EXPENSE. Oil and gas production expense decreased by
$1.5 million, or 15%, for 1996 compared to 1995. The average operating expense
was $0.78 per Mcfe in 1996, a decrease of 2% from the prior year, impacted by
reduced production during 1996.
G&A EXPENSE. G&A expense, including management and operator overhead fees,
increased by $749,000, or 20%, for 1996 compared to 1995, and was $0.42 per
Mcfe, an increase of 38% from the prior year. This expense increased principally
due to the increased personnel costs in the 1997 period as the result of the
addition of technical personnel in connection with the Partnership Acquisition.
D&A EXPENSE. D&A expense decreased by $3.7 million, or 38% in 1996 compared
to 1995, and was $0.56 per Mcfe, a decrease of 28% compared to the prior year.
D&A expense decreased due to reduced production and an increase in booked
reserves, resulting from the identification of additional development drilling
locations.
INTEREST EXPENSE. Interest expense increased by $296,000, or 37%, for 1996
compared to 1995 as a result of the $62.8 million borrowed for the Partnership
Acquisition at the end of November 1996.
NET INCOME (LOSS). Due to the factors described above, net income increased
$9.8 million to $7.5 million for 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
OPERATING REVENUES. Operating revenues decreased by $2.6 million, or 11%,
for 1995 compared to 1994, primarily due to decreases in average realized prices
received for natural gas and decreases in oil production, partially offset by
natural gas production increases and increases in prices received for oil.
35
<PAGE>
The following table summarizes production volumes, average sales prices and
year to year comparisons, including the effect on operating revenues, for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
-------------------- 1995 COMPARED TO 1994
--------------------------------
PARTNERSHIP OPERATING REVENUE
-------------------- % INCREASE INCREASE
1994 1995 (DECREASE) (DECREASE)
--------- --------- ------------- -----------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C>
Production volumes:
Natural gas (MMcf)......... 9,403 9,700 3% $ 508
Oil (MBbls)................ 534 463 (13)% (1,119)
Average sale prices:
Natural gas (per Mcf)...... $ 1.71 $ 1.44 (16)% $ (2,578)
Oil (per Bbl).............. 15.75 16.86 7% 508
</TABLE>
Natural gas production increased by 3%, while oil production decreased by
13%, in 1995 compared to 1994, due to increased natural gas development
activities and reduced oil development activities. These changes in production
resulted in a net decrease in operating revenues of $611,000. The average
realized natural gas price was $1.44 per Mcf, a decrease of 16%, and the average
realized price of oil was $16.86 per Bbl, an increase of 7%, for 1995 compared
to 1994. Changes in oil and gas prices resulted in a net decrease in operating
revenues of $2.1 million.
OIL AND GAS PRODUCTION EXPENSE. Oil and gas production expense increased by
$63,000, or 1%, in 1995 compared to 1994, due to increased property maintenance
expense, partially offset by lower production taxes attributable to reduced gas
prices. The average operating expense was $0.79 per Mcfe in 1995, an increase of
2% from the prior year.
G&A EXPENSE. G&A expense, including management and operator overhead fees,
decreased by $184,000, or 5%, for 1995 compared to 1994, and was $0.30 per Mcfe,
a decrease of 4% from the prior year. This expense decreased due to reduced
litigation expenses compared to the prior year.
D&A EXPENSE. D&A expense decreased by $1.8 million, or 16%, for 1995
compared to 1994, and was $0.79 per Mcfe, a decrease of 14% compared to the
prior year. D&A expense decreased due primarily to a reduced depreciable base
which was the result of an impairment write-down of $8.7 million at the end of
1994.
INTEREST EXPENSE. Interest expense increased by $222,000, or 38%, for 1995
compared to 1994 primarily due to an increase in the average interest rate to
7.59% in 1995 compared to 5.87% in 1994.
NET INCOME (LOSS). Due to the factors described above, net loss decreased
$7.8 million to a loss of $2.3 million for 1995.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated statements of
operations data for the first three quarters of 1996 for the Partnership and the
first three quarters of 1997 for the Company. The fourth quarter of 1996 for the
Partnership was omitted because the Partnership's operations were effectively
terminated on a stand-alone basis upon consummation of the Partnership
Acquisition on November 30, 1996. The unaudited consolidated financial
statements have been prepared on the same basis as the Financial Statements
contained herein and include all adjustments that the Company considers
36
<PAGE>
necessary for a fair presentation of such information when read in conjunction
with the Financial Statements appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PARTNERSHIP COMPANY
----------------------------------------- ------------------------
1996 1997
----------------------------------------- ------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 MARCH 31 JUNE 30
----------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating revenues:
Oil and gas............................................. $ 6,124 $ 6,364 $ 6,256 $ 7,097 $ 4,428
Other................................................... -- -- -- 17 25
----------- ----------- ------- ----------- -----------
Total operating revenues.............................. 6,124 6,364 6,256 7,114 4,453
Operating expenses:
Oil and gas production.................................. 2,266 1,967 1,920 1,661 1,458
Depreciation and amortization........................... 1,401 1,409 1,350 1,841 1,628
Writedown of oil and gas properties and equipment.......
Management fees......................................... 398 405 407 -- --
Operator overhead fees.................................. 368 368 372 -- --
General and administrative.............................. 85 100 56 770 977
----------- ----------- ------- ----------- -----------
Total operating expenses.............................. 4,518 4,249 4,105 4,272 4,063
----------- ----------- ------- ----------- -----------
Operating income (loss)................................... 1,606 2,115 2,151 2,842 390
Other income (expense):
Interest expense........................................ (180) (161) (143) (1,294) (1,138)
Interest income......................................... 48 21 23 22 4
Minority interest in the Partnership.................... -- -- -- (30) 31
----------- ----------- ------- ----------- -----------
Net income (loss)......................................... $ 1,474 $ 1,975 $ 2,031 $ 1,540 $ (713)
----------- ----------- ------- ----------- -----------
----------- ----------- ------- ----------- -----------
Net income (loss) per common share........................ $ 0.56 $ (0.26)
----------- -----------
----------- -----------
Weighted average common shares
outstanding (in thousands).............................. 2,727 2,727
----------- -----------
----------- -----------
<CAPTION>
SEPTEMBER 30
---------------
<S> <C>
Operating revenues:
Oil and gas............................................. $ 5,295
Other................................................... 43
---------------
Total operating revenues.............................. 5,338
Operating expenses:
Oil and gas production.................................. 1,676
Depreciation and amortization........................... 1,799
Writedown of oil and gas properties and equipment.......
Management fees......................................... --
Operator overhead fees.................................. --
General and administrative.............................. 1,578
---------------
Total operating expenses.............................. 5,053
---------------
Operating income (loss)................................... 285
Other income (expense):
Interest expense........................................ (1,356)
Interest income......................................... 17
Minority interest in the Partnership.................... (16)
---------------
Net income (loss)......................................... $ (1,070)
---------------
---------------
Net income (loss) per common share........................ $ (0.39)
---------------
---------------
Weighted average common shares
outstanding (in thousands).............................. 2,727
---------------
---------------
</TABLE>
RAM ENERGY, INC. RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994
THROUGH 1996
Prior to December 1, 1996, RAM Energy, Inc. principally managed the
operations and assets of the Partnership, for which RAM Energy, Inc. received
management fees and operator overhead fees from the Partnership. Other
activities prior to December 31, 1996 were insignificant to RAM Energy, Inc. RAM
Energy, Inc.'s operating revenues and expenses for the three year period ended
December 31, 1996 are shown below:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Operating revenues........................................................ $3,810 $3,705 $ 6,820
Operating expenses........................................................ 3,761 3,794 5,981
--------- --------- ---------
Operating income (loss)................................................. $ 49 $ (89) $ 839
--------- --------- ---------
--------- --------- ---------
</TABLE>
Operating revenues for 1994 and 1995 consisted primarily of management fees
and operator overhead fees billed to the Partnership. Operating expenses for
1994 and 1995 primarily consisted of $3.3 and $3.4 million, respectively, of G&A
expenses, composed primarily of management and technical personnel expenses. The
balance of operating expenses during 1994 and 1995 consisted primarily of D&A
expenses.
Operating revenues in 1996 increased $3.1 million from 1995 due primarily to
increases related to the Partnership Acquisition, which added $3.1 million of
oil and gas revenues. Management fees and reimbursements during 1996 declined
slightly through the eleven months of the period during which RAM Energy, Inc.
managed the Partnership, as compared to 1995. Operating expenses in 1996
increased $2.2 million from 1995 due primarily to increased D&A expenses,
increased oil and gas production expense and the addition of technical personnel
due to increased reserves and production attributable to the Partnership
Acquisition.
37
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had cash and cash equivalents of $2.0
million ($7.7 million on a pro forma basis).
As of September 30, 1997, on a pro forma basis, the Company would have had
$115.2 million of indebtedness outstanding. Pursuant to the Indenture, the
Company will be allowed to incur up to $30.0 million in Permitted Indebtedness
(as defined herein). Subject to certain limitations in the Indenture, the
Company may incur additional indebtedness, including indebtedness under the
Credit Facility. See "-- Credit Facility."
Funding for the Company's business activities has historically been provided
by operating cash flow and reserve-based bank borrowings. The Company regularly
engages in discussions relating to potential acquisitions of oil and gas
properties or companies engaged in the oil and gas business. The Company has no
present agreement, commitment or understanding with respect to any such
acquisition, other than the Carlton Acquisition. Any future acquisitions may
require additional financing which will be dependent upon financing
arrangements, if any, available at the time.
CREDIT FACILITY. At December 31, 1997, an aggregate of $62.0 million was
outstanding under the Credit Facility with Union Bank of California, N.A. and
Den Norske Bank ASA. The term portion ($7.0 million) matures in June 1998 and
the revolving credit portion ($55.0 million) amortizes quarterly over four years
commencing in June 1998. The Company and Union Bank have amended and restated
the Credit Facility, effective upon consummation of the Offering and the Carlton
Acquisition.
The Credit Facility, as amended and restated, provides for a $50.0 million
revolving commitment which will be payable in full in February 2003. Advances
under the amended Credit Facility will bear interest on a sliding scale based on
the ratio of the aggregate amount outstanding to the borrowing base. The
applicable rate may, at the Company's option, be based either on the Eurodollar
rate or the Union Bank base rate, with the rates ranging from the Eurodollar
rate plus 1.375% to 2.0% or the Union Bank base rate plus 0.0% to 0.5%. The
Company is required to pay a commitment fee on the amount by which the borrowing
base exceeds the aggregate amount outstanding under the Credit Facility. All
amounts outstanding under the Credit Facility are secured by a lien on all oil
and gas reserves, wells, personal property and contract rights of the Company.
The amount of credit available at any time under the amended and restated
Credit Facility may not exceed the borrowing base which, initially, will be
$25.0 million, and will be redetermined semi-annually. The Credit Facility
contains customary covenants which, among other things, require periodic
financial and reserve reporting and limit the Company's incurrence of
indebtedness, liens, dividends, loans, mergers, transactions with affiliates,
investments and sales of assets.
NET CASH PROVIDED BY OPERATING ACTIVITIES. For the nine months ended
September 30, 1997, net cash provided by the Company's operating activities was
$6.4 million compared to $8.1 million for the comparable period in 1996 for the
Partnership. Although core-area natural gas production and the average prices
received for natural gas were higher in the nine months ended September 30, 1997
compared to the comparable period in 1996, these factors were offset by
production decreases attributable to the sale of non-core properties in the
first quarter of 1997.
NET CASH USED IN INVESTING ACTIVITIES. For the nine months ended September
30, 1997, net cash used in the Company's investing activities was $5.2 million
compared to $1.6 million for the Partnership in the comparable period in 1996
attributable primarily to oil and gas development and acquisitions. The Company
has budgeted $20.3 million for capital expenditures in 1998, exclusive of
acquisitions. The Company expects to use cash flow from operations, cash
balances and borrowings under the Credit Facility to fund these expenditures.
38
<PAGE>
BUSINESS
THE COMPANY
RAM Energy is an independent oil and gas company engaged in the acquisition,
development and production of oil and gas properties primarily in the
Mid-Continent Area and in the Permian Basin. At November 30, 1997, the Company's
estimated net proved reserves, on a pro forma basis, were 114.3 Bcf of natural
gas and 4.3 MMBbls of oil, or 140.1 Bcfe, with a PV-10 Value of approximately
$150 million and a reserve life of approximately 12 years. As of such date, on a
pro forma basis, the Company operated 736 wells, a 165-mile oil and gas
gathering system and a saltwater disposal operation. The Company's interests in
the wells it operates represented approximately 64% of its pro forma PV-10 Value
at November 30, 1997. The Company has grown principally through producing
property acquisitions, acquiring approximately $195 million of oil and gas
properties since inception, including the Carlton Acquisition.
From 1989 to November 1996, the Company primarily developed and operated oil
and gas properties owned jointly by RAM Energy and the Partnership. During that
eight-year period, the Company drilled 225 oil and gas wells with a 95% success
rate. The Partnership distributed a substantial portion of the net cash flows
from these properties to its partners and the Company did not invest
significantly in its asset base. Management believes that the Partnership's
business strategy allowed the Company's properties to remain under-developed and
that these properties contain significant potential for the addition of reserves
and production through accelerated development and exploration activities. The
Company's historical drilling success rate is not necessarily indicative of what
its future drilling success may be.
In November 1996, RAM Energy acquired the limited partner's interest in the
Partnership and subsequently liquidated the Partnership and distributed all of
its oil and gas properties and other assets to RAM Energy. As a result of the
Partnership Acquisition and the Carlton Acquisition, the Company is pursuing a
more aggressive growth strategy. The Company has identified a substantial
inventory of over 200 development and exploitation opportunities on its existing
properties and on the properties included in the Carlton Acquisition. These
projects generally involve moderate drilling and completion costs, as they are
located primarily in intermediate depth, normally pressured reservoirs. The
Company has budgeted capital spending of $20.3 million in 1998 for development
projects and certain exploration activities. The Company also intends to
continue to pursue attractive oil and gas acquisition opportunities.
STRATEGY
The Company's primary goal is to increase reserves, production and operating
cash flow through the acquisition and aggressive development of oil and gas
properties. Key elements of the Company's growth strategy include the following:
DEVELOP AND EXPLOIT EXISTING OIL AND GAS PROPERTIES. The Company has
identified over 200 infill drilling, recompletion, enhanced recovery and
workover opportunities on its properties, and plans to pursue these relatively
lower-risk development activities, as well as selective exploration activities.
The Company has budgeted capital spending of $20.3 million in 1998 primarily to
complete approximately 75 planned development and exploration projects,
exclusive of acquisitions, as compared to expenditures of $5.8 million to
complete 26 development projects in 1997. The Company plans to spend over 80% of
its 1998 budgeted capital expenditures on development projects in the
Mid-Continent Area and the Permian Basin.
COMPLETE SELECTIVE OIL AND GAS ACQUISITIONS. The Company seeks to acquire
producing oil and gas properties that provide opportunities for reserve
additions and increased cash flow through operating improvements, production
enhancement and additional development and exploratory drilling. The Company
believes these criteria are met in regions that are characterized by long
histories of production and multiple producing oil and gas horizons, such as the
Mid-Continent Area and the Permian Basin. As part of its growth strategy, the
Company intends to evaluate acquisitions in other regions where it can add
39
<PAGE>
producing properties, undeveloped acreage and personnel to establish
concentrated operations and economies of scale.
MAINTAIN AND EXPAND CORE AREAS. Over 90% of the Company's pro forma PV-10
Value as of November 30, 1997 is concentrated in the Mid-Continent Area and the
Permian Basin, core areas in which the Company has a significant operating
history. The Company believes that its geographic concentration and
region-specific geological, engineering and production experience provide it
with focused, efficient operations. The Company will continue to evaluate and
pursue acquisitions and drilling opportunities in its core areas and will
evaluate acquisitions that could establish additional core areas.
REDUCE COSTS THROUGH OPERATING CONTROL. The Company seeks to operate a
substantial number of its producing properties. The Company's interests in the
wells it operates represented 64% of its pro forma PV-10 Value at November 30,
1997. As a result of the Carlton Acquisition, the Company will also operate an
oil and gas gathering system and a saltwater disposal operation, which
management believes offers opportunities to reduce overhead and lease operating
expenses. The Company believes that operating a high percentage of its producing
properties and drilling prospects within its core areas provides it with
substantial control of the timing, level and incurrence of operating and
drilling expenditures.
THE CARLTON ACQUISITION
On December 16, 1997, the Company entered into a definitive agreement to
purchase Carlton for $43.0 million, subject to closing adjustments. With the
Carlton Acquisition, the Company will acquire interests in 360 producing oil and
gas wells, primarily located in the Carmen Field in the Mid-Continent Area and
other fields in the Mid-Continent Area, the Permian Basin and other oil and gas
producing regions. The Company will operate 225 of these wells. The Carlton
Acquisition will add approximately 36.8 Bcfe of estimated net proved reserves to
the Company's reserve base, as of November 30, 1997. Carlton's properties
include an attractive combination of established, long-life production and
development and exploratory drilling opportunities, with over 60 identified
projects. The Carlton properties have an estimated reserve life of approximately
15 years.
As part of the Carlton Acquisition, the Company will acquire, own and
operate the Carmen System, a 165-mile oil and gas gathering system and a
saltwater disposal operation in the Carmen Field of the Mid-Continent Area. The
Company estimates that the pre-tax net present value of the Carmen System as of
November 30, 1997 was $24.0 million, using a 10% discount factor. The Carmen
System purchases, transports and markets oil and gas production and disposes of
produced water from properties owned by Carlton and other oil and gas companies.
Of the 169 producing wells currently dedicated to the Carmen System, the Company
will operate 120 wells.
The Carmen System purchases oil and gas at the lease and transports the
production, with associated saltwater, to a collection and separation facility
operated by Carlton. From this point, the natural gas is delivered to a
processing and compression facility operated by Continental Gas, Inc. After
processing, gas volumes are returned to Carlton and sold into a variety of
delivery points. Oil purchasing and gathering, saltwater gathering and saltwater
disposal comprise an integrated operation whereby oil and saltwater are gathered
at the lease and subsequently measured and transported to a central facility
through the liquids gathering line. Upon separation, the oil is aggregated and
sold at a central sales point to a number of crude purchasers, and the saltwater
is disposed into Carlton's saltwater disposal well.
In 1985, a subsidiary of Carlton (the "Carlton Sub") that beneficially owns
Carlton's oil and gas properties and the Carmen System, filed a Chapter 11
bankruptcy reorganization proceeding in the United States Bankruptcy Court for
the Western District of Oklahoma. Pursuant to the Plan of Reorganization (the
"Bankruptcy Plan") confirmed by the Bankruptcy Court in 1987, the Carlton Sub
transferred the undeveloped portion of oil and gas leases on which there were
producing wells owned by limited partnerships for which the Carlton Sub is the
general partner (the "Subject Partnerships") to another limited partnership (the
"Creditors' Partnership") created for the benefit of the secured creditors of
the
40
<PAGE>
Carlton Sub and as to which a subsidiary of the Carlton Sub is the general
partner. As part of the Bankruptcy Plan, the Creditors' Partnership issued to
the secured creditors promissory notes secured by liens on the assets of the
Creditors' Partnership. In 1993, the Carlton Sub purchased these notes and
liens. Following such purchase of notes and liens, a limited partner of certain
of the Subject Partnerships filed claims in the bankruptcy proceeding against
the Carlton Sub asserting that the Carlton Sub, as general partner, (i) did not
adequately represent the Subject Partnerships in the bankruptcy proceeding, (ii)
wrongfully transferred assets of the Subject Partnerships to the Creditors'
Partnership and (iii) breached the partnership agreements of the Subject
Partnerships. The claimant-limited partner also seeks to quiet title to the
leases transferred to the Creditors' Partnership and damages against the Carlton
Sub for unjust enrichment. The Carlton Sub has filed a motion for summary
judgment in the bankruptcy proceeding, which is expected to be ruled upon in the
first quarter of 1998. The claimant-limited partner also filed an action against
the Carlton Sub in the District Court of Oklahoma County, Oklahoma, seeking an
accounting and unspecified damages for an alleged breach of fiduciary duty. The
Carlton Sub has denied these claims and a pretrial hearing is scheduled for
February 1998. Upon completion of the Carlton Acquisition, the Company intends
to vigorously defend both actions. As part of the Carlton Acquisition, Carlton's
existing stockholders have agreed to indemnify RAM Energy against all damages,
losses, costs and expenses suffered as a result of the above claims to the
extent such damages, losses, costs and expenses exceed $50,000. In addition,
Carlton's existing stockholders have agreed to indemnify RAM Energy for two
years after closing against breaches of representations and warranties contained
in the stock purchase agreement to the extent such representations and
warranties are inconsistent with the actual knowledge of such stockholders.
The Company believes the Carlton Acquisition provides the opportunity to
improve cash flow from additional development and exploration activities,
gathering and sale of oil and gas production and reduction of operating and
administrative costs. The closing of the Carlton Acquisition is conditioned upon
the simultaneous closing of the Offering.
PRINCIPAL OIL AND GAS PROPERTIES
The Company's oil and gas properties located in the Mid-Continent Area and
the Permian Basin comprised approximately 73% and 18%, respectively, of the
Company's pro forma PV-10 Value as of November 30, 1997. These regions are
large, well established oil and gas producing basins with activities dating from
the early 1900s and are characterized by numerous known producing horizons
ranging from shallow oil and gas production to deep gas reservoirs. The Company
owns interests in numerous properties which provide opportunities to increase
reserves and production through additional development, recompletions, enhanced
recovery methods and the use of 3-D seismic technology. The Company's interests
in the wells it operates represented approximately 64% of its pro forma PV-10
Value at November 30, 1997. The Company has budgeted $16.9 million of its
planned $20.3 million 1998 capital expenditures for additional oil and gas
development in these two regions.
41
<PAGE>
The following table provides information for the Company's major fields as
of November 30, 1997, on a pro forma basis.
NET PROVED RESERVES FOR PRINCIPAL OIL AND GAS PROPERTIES
<TABLE>
<CAPTION>
GAS
GAS EQUIVALENT % OF TOTAL
AREA/FIELD OIL (MBBL) (MMCF) (MMCFE) PV-10 VALUE
- ---------------------------------------------------------------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Mid-Continent Area:
Carmen Field........................................................ 601 25,269 28,875 17.3%
Hammon Area......................................................... 272 22,497 24,130 17.8
Strong City Area.................................................... 10 8,427 8,484 5.8
Wickham Ranch Field................................................. 62 6,577 6,946 5.5
Butler Field........................................................ 159 5,719 6,676 5.4
Major County Area................................................... 194 5,030 6,195 4.8
South Thomas Field.................................................. 21 2,922 3,050 3.0
Dewey County Area................................................... 38 2,077 2,304 2.2
Permian Basin:
South Culebra Bluff Field........................................... 1,272 7,772 15,405 10.2
El Dorado Field..................................................... 0 4,047 4,049 2.0
----- --------- ----------- -----
Total - Principal oil and gas properties.......................... 2,629 90,337 106,114 74.0
Gulf Coast Properties................................................. 76 3,821 4,277 4.0
Other properties...................................................... 1,590 20,165 29,702 22.0
----- --------- ----------- -----
Total net proved reserves......................................... 4,295 114,323 140,093 100.0%
----- --------- ----------- -----
----- --------- ----------- -----
</TABLE>
MID-CONTINENT AREA
CARMEN FIELD. The Carmen Field is located in Alfalfa, Major and Woods
Counties, Oklahoma, and produces from the Mississippi, Chester, Red Fork and
Oswego reservoirs at depths ranging from 6,000 to 8,500 feet. The field was
discovered in 1957. The shallower Tonkawa and Cottage Grove formations, as well
as the deeper Hunton, Simpson and Arbuckle formations, have also produced
economically. Upon completion of the Carlton Acquisition, the Company will own
average working and net revenue interests of 44% and 36%, respectively, in over
52,550 gross acres. The Company will have interests in 198 producing wells and
operate 145 of those wells. The Company has identified 64 infill drilling
locations within the field and is evaluating numerous additional potential
locations.
HAMMON AREA. The Hammon Area is comprised of the Northeast Hammon and
Hammon Fields, which are located in Roger Mills and Custer Counties, Oklahoma,
and produces from the Red Fork and Skinner reservoirs at depths ranging from
12,300 to 12,800 feet. The fields were discovered in 1978 and 1981,
respectively. The Company owns average working and net revenue interests of 24%
and 19%, respectively, in over 5,866 gross acres in the Hammon Area. The Company
has interests in 45 producing wells and operates seven of those wells. The
Company has drilled and completed 28 gross wells in this area. Future
development plans include the drilling and completion of 23 infill wells.
STRONG CITY AREA. The Strong City Area includes the Carpenter, Cheyenne and
Strong City Fields, which are located in Roger Mills County, Oklahoma, and
produces from the Skinner and Red Fork reservoirs at depths ranging from 11,900
to 12,500 feet. The area was discovered in 1978. The Company owns average
working and net revenue interests of 17% and 13%, respectively, in over 4,489
gross acres. The Company has interests in 47 producing wells and operates 13 of
those wells. The Company has drilled
42
<PAGE>
19 and completed 18 gross wells in this area. Future development plans include
the drilling and completion of 13 infill wells and two recompletions.
WICKHAM RANCH FIELD. The Wickham Ranch Field is located in Roger Mills
County, Oklahoma, and produces from the Prue and Red Fork reservoirs at depths
ranging from 11,600 to 12,400 feet. The field was discovered in 1978. The
Company owns average working and net revenue interests of 11% and 9%,
respectively, in over 9,146 gross acres. The Company has non-operated interests
in 53 producing wells. The Company has drilled and completed 31 gross wells in
this field. Future development plans include the drilling and completion of 11
infill wells.
BUTLER FIELD. The Butler Field is located in Custer County, Oklahoma, and
produces from the Skinner and Red Fork reservoirs at depths ranging from 11,900
to 12,500 feet. The field was discovered in 1980. The Company owns average
working and net revenue interests of 28% and 23%, respectively, in over 6,833
gross acres. The Company has interests in 17 producing wells and operates nine
of those wells. The Company has drilled three and completed two gross wells in
this field. Future development plans include the drilling and completion of
seven infill wells and one recompletion.
MAJOR COUNTY AREA. The Major County Area of Oklahoma produces from the
Oswego, Manning, Mississippi, Meramec, Hunton and Arbuckle reservoirs at depths
ranging from 6,000 to 8,500 feet. Production in this area commenced in 1949. The
Company owns average working and net revenue interests of 40% and 31%,
respectively, in over 13,935 gross acres. The Company has interests in 77
producing wells and operates 37 of those wells. The Company has drilled and
completed eight gross wells in this field. Future development plans include the
drilling and completion of two infill wells and four recompletions.
SOUTH THOMAS FIELD. The South Thomas Field is located in Custer and Roger
Mills Counties, Oklahoma, and produces from the Red Fork reservoir at depths
ranging from 10,800 to 11,000 feet. The field was discovered in 1975. The
Company owns average working and net revenue interests of 17% and 14%,
respectively, in over 6,404 gross acres. The Company has interests in 30
producing wells and operates 12 of those wells. The Company has drilled and
completed two gross wells in this field. Future development plans include the
drilling and completion of four infill wells.
DEWEY COUNTY AREA. The Dewey County Area of Oklahoma produces from the Red
Fork and Skinner reservoirs at depths ranging from 12,300 to 12,800 feet.
Production in this area commenced in 1952. The Company owns average working and
net revenue interests of 26% and 20%, respectively, in over 13,740 gross acres.
The Company has interests in 31 wells and operates seven of those wells. The
Company has drilled and completed one gross well in this field. The Company is
currently evaluating future development potential of the field.
PERMIAN BASIN
SOUTH CULEBRA BLUFF FIELD. The South Culebra Bluff Field is located in Eddy
County, New Mexico, and produces from the Brushy Canyon reservoir at depths
ranging from 5,800 to 6,350 feet. The field was discovered in 1989. The Company
owns average working and net revenue interests of 48% and 38%, respectively, in
over 2,810 gross acres. The Company has interests in 46 producing wells and
operates 36 of those wells. The Company has drilled and completed 30 gross wells
in this field. Future development plans include the drilling and completion of
nine infill wells and 12 recompletions.
EL DORADO FIELD. The El Dorado Field is located in Schleicher County,
Texas, and produces from the Canyon Sand reservoir at depths ranging from 6,300
to 6,500 feet. The field was discovered in 1948. The Company owns average
working and net revenue interests of 35% and 28%, respectively, in over 4,222
gross acres. The Company has interests in 28 producing wells and operates 27 of
those wells. The Company has drilled five and completed four gross wells in this
field. Future development plans include the drilling and completion of six
infill wells and nine recompletions.
43
<PAGE>
GULF COAST PROPERTIES
The Company owns a 54% working interest and 40% net revenue interest in 602
gross acres in the Newman Field in Hinds County, Mississippi, which produces
from the Cotton Valley reservoir at depths ranging from 16,300 to 17,500 feet.
The Company has an interest in and operates one well in the Newman Field. The
Company also owns average working and net revenue interests of 38% and 32%,
respectively, in 4,366 gross acres in the Egan Field located in Acadia Parish,
Louisiana, which produces from multiple reservoirs at depths ranging from 7,000
to 11,000 feet. The Company owns interests in and operates 29 wells in the Egan
Field. The Company is currently evaluating 3-D seismic data for further drilling
potential.
OIL AND GAS RESERVES
The following table summarizes the estimates of the Company's historical and
pro forma net proved reserves and the related present values of such reserves at
the dates shown. The reserve and present value data for the Company's oil and
gas properties as of November 30, 1997 on an actual and pro forma basis were
prepared by Garb & Associates and audited by Netherland & Sewell. The reserve
and present value data for the Company's oil and gas properties as of December
31, 1994, 1995 and 1996 were prepared by Garb & Associates.
<TABLE>
<CAPTION>
PARTNERSHIP COMPANY COMPANY
-------------------- ---------- -----------------------
NOVEMBER 30,
DECEMBER 31, -----------------------
-------------------------------- PRO FORMA
1994 1995 1996 1997 1997(1)
--------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
RESERVE DATA:
Proved reserves:
Natural gas (MMcf).......................................... 75,435 68,920 82,885 83,006 114,323
Oil and condensate (MBbls).................................. 3,770 3,333 4,282 3,376 4,295
Total (MMcfe)............................................... 98,055 88,918 108,577 103,263 140,092
Proved developed reserves:
Natural gas (MMcf).......................................... 56,792 51,664 62,319 58,717 78,399
Oil and condensate (MBbls).................................. 2,797 2,714 3,511 2,569 3,182
Total (MMcfe)............................................... 73,574 67,948 83,385 74,128 97,492
PV-10 Value (in thousands)(2)................................. $ 56,480 $ 63,913 $ 160,930 $ 116,186 $ 150,403
</TABLE>
- ------------------------
(1) Pro forma to reflect the Carlton Acquisition as if it had occurred on
November 30, 1997.
(2) PV-10 Value represents the present value of estimated future net revenues
before income tax discounted at 10%, using prices in effect at the end of
the respective periods presented and including the effects of hedging
activities. In accordance with applicable requirements of the Commission,
estimates of the Company's proved reserves and future net revenues are made
using oil and 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). The average prices used in calculating PV-10 Value as of
November 30, 1997 were $3.00 per Mcf of natural gas and $17.99 per Bbl of
oil, compared to average prices used as of December 31, 1996 of $3.78 per
Mcf of natural gas and $23.88 per Bbl of oil. The average prices used in
calculating the pro forma PV-10 Value as of November 30, 1997 were $3.01 per
Mcf of natural gas and $17.81 per Bbl of oil. Average prices as of December
31, 1997, on a pro forma basis, were $2.75 per Mcf of natural gas and $15.99
per Bbl of oil. These prices, if applied to estimated proved reserves of the
Company as of November 30, 1997, would result in a PV-10 Value, on a pro
forma basis, of $133.3 million at such date, as estimated by the Company.
Estimated quantities of proved reserves and future net revenues therefrom
are affected by oil and gas prices, which have fluctuated widely in recent
years. There are numerous uncertainties inherent in estimating oil and gas
reserves and their values, including many factors beyond the control of the
producer. The reserve data set forth in this Prospectus represent only
estimates. Reservoir engineering is a subjective process of estimating
underground accumulations of oil and gas that cannot be measured in an exact
44
<PAGE>
manner. The accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment. As
a result, estimates of different engineers, including those used by the Company,
may vary. In addition, estimates of reserves are subject to revisions based upon
actual production, results of future development and exploration activities,
prevailing oil and gas prices, operating costs and other factors, which
revisions may be material. The PV-10 Value of the Company's proved oil and gas
reserves does not necessarily represent the current or fair market value of such
proved reserves, and the 10% discount factor required by the Commission may not
reflect current interest rates, the Company's cost of capital or any risks
associated with the development and production of the Company's proved oil and
gas reserves. The estimated future net revenues attributable to the Company's
proved oil and gas reserves, on a pro forma basis, are based on prices in effect
at November 30, 1997 ($3.01 per Mcf of natural gas and $17.81 per Bbl of oil),
which may be materially different than actual future prices. As of December 31,
1997, the average prices, on a pro forma basis, were $2.75 per Mcf of natural
gas and $15.99 per Bbl of oil.
In general, the volume of production from oil and gas properties declines as
reserves are depleted. Except to the extent the Company acquires properties
containing proved reserves or conducts successful exploitation and development
activities, the proved reserves of the Company will decline as reserves are
produced. The Company's future oil and gas production is, therefore, highly
dependent upon its level of success in finding or acquiring additional reserves.
See "Risk Factors -- Dependence on Expanding and Developing Reserves" and "--
Uncertainty of Estimates of Oil and Gas Reserves and Future Net Revenues."
NET PRODUCTION, UNIT PRICES AND COSTS
The following table presents certain information with respect to oil and gas
production, prices and costs attributable to all oil and gas properties owned by
the Partnership and the Company for the periods shown and on a pro forma basis:
<TABLE>
<CAPTION>
PARTNERSHIP COMPANY PARTNERSHIP COMPANY
-----------------------------------------
ELEVEN MONTHS
YEAR ENDED ENDED
-----------------------
---------------------------------------
-----------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, NOVEMBER 30, ------------------------ --------------------------
------------------------ --------------- PRO FORMA
1994 1995 1996(1) 1996 1996(2) 1996 1997
----------- ----------- --------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Production volumes:
Natural gas (MMcf).... 9,403 9,700 7,594 711 10,645 6,192 5,263
Oil and condensate
(MBbls)............. 534 463 387 38 487 313 235
Total (MMcfe)......... 12,605 12,476 9,914 941 13,568 8,072 6,675
Average realized
prices(3):
Natural gas (per
Mcf)................ $ 1.71 $ 1.44 $ 2.04 $ 3.34 $ 2.07 $ 2.02 $ 2.31
Oil and condensate
(per Bbl)........... 15.75 16.86 20.59 23.39 20.34 19.99 19.81
Per Mcfe.............. 1.94 1.75 2.37 3.48 2.35 2.32 2.52
Expenses (per Mcfe):
Lease operating
(including
production taxes)... 0.78 0.79 0.77 0.88 0.79 0.76 0.72
Depreciation and
amortization........ 0.92 0.79 0.52 1.05 0.88 0.52 0.79
General and
administrative(4)... 0.32 0.30 0.32 1.26 0.24 0.32 0.50
<CAPTION>
PRO FORMA
1997(2)
-----------
<S> <C>
Operating Data:
Production volumes:
Natural gas (MMcf).... 6,931
Oil and condensate
(MBbls)............. 307
Total (MMcfe)......... 8,774
Average realized
prices(3):
Natural gas (per
Mcf)................ $ 2.25
Oil and condensate
(per Bbl)........... 19.15
Per Mcfe.............. 2.44
Expenses (per Mcfe):
Lease operating
(including
production taxes)... 0.77
Depreciation and
amortization........ 0.92
General and
administrative(4)... 0.29
</TABLE>
- ------------------------------
(1) Partnership operations were effectively terminated on a stand-alone basis on
November 30, 1996 upon consummation of the Partnership Acquisition.
45
<PAGE>
(2) Pro forma to reflect the Offering and the application of the net proceeds
therefrom, the Partnership Acquisition, the Carlton Acquisition and certain
other acquisitions and dispositions as if they had occurred on January 1,
1996.
(3) Reflects the actual realized prices received by the Company, including the
results of the Company's hedging activities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(4) For the Partnership, includes management fees and operator overhead fees
charged to the Partnership by RAM Energy during 1994, 1995 and the 1996
periods. For the Company, general and administrative expense is net of
management fees, operator overhead fees and consulting fees, if any,
received by RAM Energy from the Partnership.
PRODUCING WELLS
The following table sets forth the number of productive wells in which the
Company owned an interest, and on a pro forma basis, as of December 31, 1997:
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
-------------------- --------------------
GROSS NET GROSS NET
--------- --- --------- ---
<S> <C> <C> <C> <C>
Natural Gas......................................................................... 760 148 990 229
Oil................................................................................. 1,308 198 1,438 249
--------- --- --------- ---
Total........................................................................... 2,068 346 2,428 478
--------- --- --------- ---
--------- --- --------- ---
</TABLE>
Productive wells consist of producing wells and wells capable of production,
including gas wells awaiting pipeline connections and oil wells awaiting
connection to production facilities. Wells that are completed in more than one
producing horizon are counted as one well.
ACREAGE
The following table sets forth the Company's developed and undeveloped gross
and net leasehold acreage, and on a pro forma basis, as of December 31, 1997:
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
-------------------- --------------------
GROSS NET GROSS NET
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Developed.............................................................. 230,751 90,828 317,150 119,079
Undeveloped............................................................ 27,790 5,088 27,790 5,088
--------- --------- --------- ---------
Total.............................................................. 258,541 95,916 344,940 124,167
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Approximately 73% of the Company's acreage was located in the Mid-Continent
Area and Permian Basin, on a pro forma basis as of December 31, 1997.
Undeveloped acreage includes leased acres on which wells have not been drilled
or completed to a point that would permit the production of commercial
quantities of oil and gas, regardless of whether or not such acreage contains
proved reserves. A gross acre is an acre in which an interest is owned. A net
acre is deemed to exist when the sum of fractional ownership interests in gross
acres equals one. The number of net acres is the sum of the fractional interests
owned in gross acres.
DRILLING ACTIVITIES
During the periods indicated, the Company drilled the following wells, but
did not drill any exploratory wells.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1994 1995 1996
---------------------- ---------------------- ----------------------
GROSS NET GROSS NET GROSS NET
----------- --- ----------- --- ----------- ---
<S> <C> <C> <C> <C> <C> <C>
Development wells:
Productive............................................ 25 4.5 9 1.1 19 2.8
Non-productive........................................ 1 0.2 -- -- 1 0.2
-- -- --
--- --- ---
Total............................................... 26 4.7 9 1.1 20 3.0
-- -- --
-- -- --
--- --- ---
--- --- ---
<CAPTION>
1997
----------------------
GROSS NET
----------- ---
<S> <C> <C>
Development wells:
Productive............................................ 29 5.6
Non-productive........................................ -- --
--
---
Total............................................... 29 5.6
--
--
---
---
</TABLE>
46
<PAGE>
OIL AND GAS MARKETING AND HEDGING
The Company's oil and gas production is sold primarily under market
sensitive or spot price contracts. The Company sells substantially all of its
casinghead gas to purchasers under varying percentage-of-proceeds contracts. By
the terms of these contracts, the Company receives a fixed percentage of the
resale price received by the purchaser for sales of natural gas and natural gas
liquids recovered after gathering and processing the Company's gas. The Company
receives between 84% and 100% of the proceeds from natural gas sales and from
40% to 100% of the proceeds from natural gas liquids sales received by the
purchasers of the Company's production when the products are resold. The natural
gas and natural gas liquids are sold primarily based on spot market prices. The
revenues received by the Company from the sale of natural gas liquids are
included in natural gas sales. As a result of the natural gas liquids contained
in the Company's production, the Company has historically improved its price
realization on its natural gas sales. For the year ended December 31, 1996,
purchases of the Company's oil and gas production by Coastal Gas Marketing
accounted for 11.2% of the Company's total oil and gas sales for such period.
For the nine months ended September 30, 1997, purchases of the Company's oil and
gas production by GPM Gas Corp. and American Central Western Oklahoma Gas
Company, L.L.C. accounted for 13% and 12%, respectively, of the Company's total
oil and gas sales for such period.
Periodically the Company utilizes various hedging strategies to manage the
price received for a portion of its future oil and gas production. The Company
does not establish hedges in excess of its expected production. These strategies
customarily emphasize forward-sale, fixed-price contracts for physical delivery
of a specified quantity of production or swap arrangements that establish an
index-related price above which the Company pays the hedging partner and below
which the Company is paid by the hedging partner. These contracts allow the
Company to predict with greater certainty the effective oil and gas prices to be
received for its production and benefit the Company when market prices are less
than the fixed prices provided in its forward-sale contracts. However, the
Company will not benefit from market prices that are higher than the fixed
prices in such contracts for its hedged production. For the nine months ended
September 30, 1997, forward-sale contracts affected prices received for 0% and
38% of the Company's production of oil and gas, respectively.
As of January 31, 1998, approximately 20% of the Company's estimated natural
gas production for the period of March 1998 through August 1998 was committed to
hedging contracts that established a NYMEX floor price which, after adjustment
for Btu content, results in an equivalent price to the Company of $2.12 per Mcf.
The Company has only limited involvement with derivative financial
instruments, as defined in SFAS No. 119 "Disclosure About Derivative Financial
Instruments and Fair Value of Financial Instruments" and does not use them for
trading purposes. The Company's objective is to hedge a portion of its exposure
to price volatility from producing oil and gas. These arrangements expose the
Company to credit risk of its counterparties and to basis risk.
EMPLOYEES
As of December 31, 1997, the Company employed 57 people, 27 of whom were
administrative, accounting or financial personnel and 30 of whom were
professional, technical or geological personnel. The Company's future success
will depend partially on its ability to attract, retain and motivate qualified
personnel. The Company is not a party to any collective bargaining agreements
and has not experienced any strikes or work stoppages. The Company considers its
relations with its employees to be satisfactory.
COMPETITION
The oil and gas industry is highly competitive. The Company competes for the
acquisition of oil and gas properties, primarily on the basis of the price to be
paid for such properties, with numerous entities including major oil companies,
other independent oil and gas concerns and individual producers and
47
<PAGE>
operators. Many of these competitors are large, well established companies and
have financial and other resources substantially greater than those of the
Company. The Company's ability to acquire additional oil and gas properties and
to discover reserves in the future will depend upon its ability to evaluate and
select suitable properties and to consummate transactions in a highly
competitive environment.
LEGAL PROCEEDINGS
From time to time, the Company is party to litigation or other legal
proceedings that it considers to be a part of the ordinary course of its
business. The Company is not involved in any legal proceedings, nor is it party
to any pending or threatened claims, that could reasonably be expected to have a
material adverse effect on its financial condition or results of operations.
REGULATION
GENERAL. Various aspects of the Company's oil and gas operations are
subject to extensive and continually changing regulation, as legislation
affecting the oil and 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 gas industry and its individual members. The Federal Energy
Regulatory Commission (the "FERC") regulates the transportation and sale for
resale of natural gas in interstate commerce pursuant to the Natural Gas Act of
1938 (the "NGA") and the Natural Gas Policy Act of 1978 (the "NGPA"). In the
past, the federal government has regulated the prices at which oil and 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 SALES AND TRANSPORTATION OF NATURAL GAS. The Company's sales
of natural gas are affected by the availability, terms and cost of
transportation. The price and terms for access to pipeline transportation are
subject to extensive regulation. In recent years, the FERC has undertaken
various initiatives to increase competition within the natural gas industry. As
a result of initiatives like FERC Order No. 636, issued in April 1992, the
interstate natural gas transportation and marketing system has been
substantially restructured to remove various barriers and practices that
historically limited non-pipeline natural gas sellers, including producers, from
effectively competing with interstate pipelines for sales to local distribution
companies and large industrial and commercial customers. The most significant
provisions of Order No. 636 require that interstate pipelines provide firm and
interruptible transportation service on an open access basis that is equal for
all natural gas suppliers. 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. While the United States
Court of Appeals upheld most of Order No. 636 last year, certain related FERC
orders, including the individual pipeline restructuring proceedings, are still
subject to judicial review and may be reversed or remanded in whole or in part.
While the outcome of these proceedings cannot be predicted with certainty, the
Company does not believe that it will be affected materially differently than
its competitors.
The FERC has also announced several important transportation-related policy
statements and proposed rule changes, including a statement of policy and a
request for comments concerning alternatives to its traditional cost-of-service
ratemaking methodology to establish the rates interstate pipelines may charge
for their services. A number of pipelines have obtained FERC authorization to
charge negotiated rates as one such alternative. Both the policy statement and
individual pipeline negotiated rate authorizations are currently subject to
appeal before the U.S. Court of Appeals for the D.C. Circuit. In February 1997,
the FERC announced a broad inquiry into issues facing the natural gas industry
to assist the
48
<PAGE>
FERC in establishing regulatory goals and priorities in the post-Order No. 636
environment. Moreover, the FERC has refined the criteria used to distinguish
non-jurisdictional gathering from jurisdictional transportation. Similarly, the
Oklahoma Corporation Commission and the Texas Railroad Commission have been
reviewing changes to their regulations governing transportation and gathering
services provided by intrastate pipelines and gatherers. While the changes being
considered by these federal and state regulators would affect the Company only
indirectly, they are intended to further enhance competition in natural gas
markets. The Company cannot predict what further action the FERC or state
regulators will take on these matters, however, the Company does not believe
that it will be affected by any action taken materially differently than other
natural gas producers with which it competes.
Additional proposals and proceedings that might affect the natural gas
industry are pending before Congress, the FERC, state commissions and the
courts. The natural gas industry historically has been very heavily regulated;
therefore, there is no assurance that the less stringent regulatory approach
recently pursued by the FERC and Congress will continue.
OIL PRICE CONTROLS AND TRANSPORTATION RATES. Sales of crude oil, condensate
and gas liquids by the Company are not currently regulated and are made at
market prices. The price the Company receives from the sale of these products
may be affected by the cost of transporting the products to market.
ENVIRONMENTAL. 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 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 civil and even criminal 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 or entity liable for environmental damages and cleanup costs
without regard to negligence or fault on the part of such person or entity.
Other laws, rules and regulations may restrict the rate of oil and 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 gas industry increases the Company's cost of doing
business and consequently affects the Company's 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
or competitive position of the Company.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") imposes liability, without regard to fault or the legality of the
original act, 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 at the disposal site. 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. Comparable state statutes also impose liability on the owner or
operator of a property for remediation of environmental contamination existing
on such property. In addition, companies that incur liability frequently
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 polluted site.
49
<PAGE>
The Company currently owns or leases, and has in the past owned or leased,
numerous properties that have been used for the exploration and production of
oil and gas and for other uses associated with the oil and gas industry.
Although the Company has followed operating and disposal practices that it
considered appropriate under applicable laws and regulations, hydrocarbons or
other wastes may have been disposed of or released on or under the properties
owned or leased by the Company or on or under other locations where such wastes
were taken for disposal. In addition, the Company owns or leases properties that
have been operated by third parties in the past. The Company could incur
liability under CERCLA or comparable state statutes for contamination caused by
wastes it generated or for contamination existing on properties it owns or
leases, even if the contamination was caused by the waste disposal practices of
the prior owners or operators of the properties.
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 gas from regulation as
"hazardous waste." A similar exemption is contained in many of the state
counterparts to RCRA. Disposal of such non-hazardous oil and gas exploration,
development and production wastes usually is regulated by state law. Other
wastes handled at exploration and production sites or used in the course of
providing well services may not fall within this exclusion. Moreover, stricter
standards for waste handling and disposal may be imposed on the oil and 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 and
disposal requirements. If such legislation were enacted, or if changes to
applicable state regulations required the wastes to be managed as hazardous
wastes, it could have a significant impact on the operating costs of the
Company, as well as the oil and gas industry in general.
The Company's operations are also subject to the Clean Air Act (the "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 believes its operations will not 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 gas exploration and production activities
or well servicing activities.
The Federal Water Pollution Control Act of 1972 (the "FWPCA") imposes
restrictions and strict controls regarding the discharge of wastes, including
produced waters and other oil and gas wastes, into navigable waters. These
controls have become more stringent over the years, and it is probable that
additional restrictions will be imposed in the future. Permits must be obtained
to discharge pollutants into state and federal waters. The FWPCA provides for
civil, criminal and administrative penalties for unauthorized discharges of oil
and other hazardous substances and imposes substantial potential liability for
the costs of removal or remediation. State laws governing discharges to water
also provide varying civil, criminal and administrative penalties and impose
liabilities in the case of a discharge of petroleum or its derivatives, or other
hazardous substances, into state waters. In addition, the Environmental
Protection Agency has promulgated regulations that require many oil and gas
production sites, as well as other facilities, to obtain permits to discharge
storm water runoff. The Company believes that compliance with existing
requirements under the FWPCA and comparable state statutes will not have a
material adverse effect on the Company's financial condition or results of
operations.
The Company maintains insurance against "sudden and accidental" occurrences
which may cover some, but not all, of the risks described above. Most
significantly, the insurance maintained by the
50
<PAGE>
Company may not cover the risks described above which occur over a sustained
period of time. Further, there can be no assurance that such insurance will
continue to be available to cover all such costs 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 results of operations.
REGULATION OF OIL AND 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 unitization or pooling of oil and gas properties, the establishment of
maximum rates of production from oil and gas wells and the regulation of
spacing, plugging and abandonment of such wells. Some state statutes limit the
rate at which oil and gas can be produced from the Company's properties. See
"Risk Factors -- Governmental Regulation."
TITLE TO PROPERTIES
The Company believes it has satisfactory title to its properties in
accordance with standards generally accepted in the oil and gas industry. As is
customary in the oil and gas industry, the Company makes only a cursory review
of title to farmout acreage and to undeveloped oil and gas leases upon execution
of any contracts. Prior to the commencement of drilling operations, a 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. Prior to completing an acquisition of producing oil and
gas leases, the Company performs a title review on a material portion of the
leases. The Company's oil and 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.
FACILITIES
The Company's principal executive and operating offices are located at Suite
650, Meridian Tower, 5100 E. Skelly Drive, Tulsa, Oklahoma 74135. The Company's
finance and accounting offices, along with the office of the Chairman, are
located at Suite 130, One Benham Place, 9400 N. Broadway Extension, Oklahoma
City, Oklahoma 73114. The Company leases all of its significant facilities. The
Company believes that its facilities are adequate for its current needs.
51
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth names, ages and titles of the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- -------------------------------------------------------------------
<S> <C> <C>
William W. Talley II, Ph.D............. 55 Chairman of the Board of Directors
Larry E. Lee........................... 49 President and Chief Executive Officer and Director
M. Helen Bennett(1)(2)................. 50 Director
Gerald R. Marshall(1)(2)............... 63 Director
John M. Reardon(1)(2).................. 56 Director
Larry G. Rampey........................ 52 Senior Vice President - Operations
John M. Longmire....................... 55 Senior Vice President and Chief Financial Officer, Treasurer and
Secretary
Drake N. Smiley........................ 50 Senior Vice President - Land, Legal and Business Development
</TABLE>
- ------------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
WILLIAM W. TALLEY II, PH.D. has been Chairman of the Board and a director of
the Company since its incorporation in 1987 and was Chief Executive Officer from
1987 to 1989 and from 1992 to October 31, 1997. Dr. Talley served as the Society
of Petroleum Engineers' Distinguished Lecturer on natural gas marketing and
pricing in 1987 and 1988 and was Vice President and director of the Independent
Petroleum Association of America in 1987. Dr. Talley has been an officer and a
principal of the RAM Group, Ltd., an energy and management consulting firm,
since 1974. He is a registered professional engineer.
LARRY E. LEE has been President and a director of the Company since its
incorporation in 1987. Mr. Lee served as its Chief Executive Officer from 1989
to 1992 and has served in such capacity since November 1, 1997. Mr. Lee is a
member of the Oklahoma Independent Petroleum Association and of the Independent
Petroleum Association of America. He served as a director of the Independent
Petroleum Association of America from 1990 to 1992. Mr. Lee has been an officer
and a principal of the RAM Group, Ltd. since 1984.
M. HELEN BENNETT has been a director of the Company since 1992 and was a
Vice President of the Company from December 1996 until November 30, 1997. Mrs.
Bennett has been a limited partner of Goldman, Sachs & Co., an investment
banking firm, since May 1992. From 1980 until 1986, Mrs. Bennett served in
several executive capacities with Time, Incorporated, including General Manager
of Fortune magazine from 1984 to 1986. From 1973 until 1980, she was employed by
McKinsey & Company.
GERALD R. MARSHALL became a director of the Company in December 1997. Since
October 1996, Mr. Marshall has served as Vice Chairman of the Midland Group, an
Oklahoma-based financial services organization. Since December 1993, Mr.
Marshall has served as President and Chief Executive Officer of Midland Asset
Management Co., an asset management and financial consulting firm. He has served
as Chairman and Chief Executive Officer of RAM Management Associates, Inc., a
management contractor for the Resolution Trust Corporation, since March 1990.
JOHN M. REARDON became a director of the Company in December 1997 and served
as an adviser to the Company's Board of Directors from August 1994 until
December 1997. Mr. Reardon has been President and Chief Executive Officer of
Valencia National Bank of Santa Clarita, California, since August 1994. From
1991 to August 1994, he was Senior Vice President of RAMCO Oil & Gas, Inc., a
former subsidiary
52
<PAGE>
of the Company, and of RAM Management Associates, Inc. From 1987 to 1991, Mr.
Reardon was a Senior Vice President of Wells Fargo Bank.
LARRY G. RAMPEY became a Senior Vice President of the Company in December
1997 and had been a Vice President of the Company since 1989. From 1972 to 1989,
Mr. Rampey held the positions of Vice President of International Operations,
Vice President of Domestic Operations and staff engineer for Reading & Bates
Petroleum Co.
JOHN M. LONGMIRE became a Senior Vice President of the Company in December
1997 and had been a Vice President of the Company since 1994. Mr. Longmire has
been Chief Financial Officer, Treasurer and Secretary of the Company since
August 1994 and was its Controller from 1990 to February 1994. Previously, he
held various financial management positions with Texas International Company,
Amarex, Inc. and Union Oil Company of California. Mr. Longmire is a Certified
Public Accountant.
DRAKE N. SMILEY became a Senior Vice President of the Company in December
1997 and had been a Vice President of the Company since February 1997. Mr.
Smiley was Vice President - Land and Legal of the Company from 1989 to 1994.
From 1994 until he rejoined the Company in 1997, Mr. Smiley served as Vice
President - Land of Continental Resources, Inc., an independent oil and gas
company. From 1980 to 1989, he was employed by Reading & Bates Petroleum Co.,
serving as Manager of Land. Mr. Smiley is a member of the Oklahoma and Tulsa
County Bar Associations.
The directors are divided into three classes, with each class having as
equal a number of directors as practicable. The directors are elected on a
staggered basis for three-year terms. One class stands for re-election at each
annual meeting of stockholders. The Company's executive officers serve at the
discretion of the Board of Directors. Dr. Talley's term as a director will
expire in 1998, the terms of Mr. Lee and Mr. Marshall will expire in 1999, and
the terms of Mrs. Bennett and Mr. Reardon will expire in 2000.
Dr. Talley and Mr. Lee beneficially own and were formerly executive officers
of Jobs for St. Landry Parish, Inc., d/b/a Standard Fittings Company ("Standard
Fittings"), a manufacturer of pipe fittings. Standard Fittings filed a petition
pursuant to Chapter 11 of the U.S. Bankruptcy Code in January 1997 in the U.S.
Bankruptcy Court for the Western District of Louisiana. The Chapter 11
proceeding was dismissed in June 1997.
EXECUTIVE COMPENSATION
The following table sets forth for 1997 the cash compensation of (i) the
Company's chief executive officer and (ii) each other person who was an
executive officer as of December 31, 1997 (together with the Company's chief
executive officer, the "Named Executive Officers"). As described below, the
Company entered into a severance agreement with Dr. Talley and a revised
employment agreement with Mr. Lee. See "-- Employment and Severance Agreements."
53
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------- OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) COMPENSATION(2)
- ------------------------------------------------------ ---------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
William W. Talley II, Ph.D. .......................... $ 540,860 $ 47,500 -- --
Chairman of the Board(3)
Larry E. Lee ......................................... 540,860 47,500 -- --
President and Chief Executive Officer(4)
M. Helen Bennett ..................................... 372,660 24,250 -- --
Vice President(5)
Larry G. Rampey ...................................... 130,000 12,708 -- --
Vice President
John M. Longmire ..................................... 120,000 12,500 -- --
Vice President, Chief Financial Officer, Treasurer
and Secretary
</TABLE>
- ------------------------------
(1) Personal benefits provided by the Company did not exceed the lesser of
$50,000 or 10% of total annual salary and bonus for any Named Executive
Officer. No other annual compensation was paid.
(2) Represents matching contributions made by the Company to the account of the
executive officer under the Company's 401(k) Profit Sharing Plan.
(3) Dr. Talley was Chief Executive Officer until October 31, 1997. Director fees
of $180,860 are included as salary.
(4) Mr. Lee was appointed Chief Executive Officer effective November 1, 1997.
Director fees of $180,860 are included as salary.
(5) Mrs. Bennett was Vice President until November 30, 1997. Director fees of
$168,660 are included as salary.
DIRECTORS' COMPENSATION
Each director received $289,380 in 1996. Dr. Talley and Mr. Lee received
$180,860 in 1997 and Mrs. Bennett received $168,660 in 1997 for serving as
directors. In 1998, the annual fee to be paid to each non-employee director will
be $24,000 plus $1,000 for each meeting attended. Directors who are also
employees of the Company will not receive annual directors fees. Directors are
also reimbursed for travel and other expenses.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company is a party to a Special Severance Agreement with Dr. Talley
which continues until Dr. Talley ceases to be Chairman of the Board of the
Company. During the existence of this agreement, Dr. Talley will receive an
annual base salary of at least $240,000 and a bonus as determined by the Board.
The term of the agreement ends upon Dr. Talley's death, disability or voluntary
resignation, and may be terminated by the Company for cause. Upon Dr. Talley's
death, his representatives or, upon his disability, Dr. Talley, will receive
accrued but unpaid salary, bonus and benefits, a pro rata share of any bonus
paid for the preceding year, one year's salary and an amount equal to the
highest bonus paid to him during the term of the agreement. In the event of Dr.
Talley's disability, he will continue to be entitled to receive benefits for the
remainder of the agreement. If Dr. Talley ceases to be Chairman of the Board
other than by reason of death, disability, for cause or by voluntary
resignation, he is entitled to receive his accrued but unpaid salary and
benefits, an amount equal to a pro rata share of any bonus paid for the
immediately preceding year, plus an amount equal to three times his base salary.
The Company has an employment agreement with Mr. Lee for an initial term
expiring in December 2000, subject to annual extensions of one year, at an
annual salary of at least $295,000 and an annual bonus to be determined by the
Board. Under this agreement, Mr. Lee's employment may be terminated by the
Company for death or disability, or for cause, and by Mr. Lee for good reason.
Upon Mr. Lee's death, his representatives or, upon his disability, Mr. Lee, will
receive accrued but unpaid salary, bonus and
54
<PAGE>
benefits, a pro rata share of any bonus paid for the immediately preceding year,
one year's salary and an amount equal to the highest bonus paid to him during
the term of the agreement. In the event of Mr. Lee's disability, he will
continue to be entitled to receive benefits for the remainder of the agreement.
If Mr. Lee ceases to be an employee other than by reason of death, disability,
for cause or by voluntary resignation, he is entitled to receive his accrued but
unpaid salary and benefits, an amount equal to a pro rata share of any bonus
paid for the immediately preceding year, plus an amount equal to three times his
base salary.
The Company has employment and severance agreements with Messrs. Longmire,
Rampey and Smiley. Each of these agreements expires December 31, 1998. Under the
terms of each agreement, the officer's employment may be terminated by the
Company at any time for good cause, or for any other reason upon two weeks prior
notice, subject to certain severance payments.
STOCK INCENTIVE PLAN
The Company's 1998 Stock Incentive Plan (the "Plan") authorizes the grant of
nonqualified stock options, incentive stock options and restricted stock awards
to employees and non-employee directors. The purpose of the Plan is to create
incentives designed to motivate employees of the Company, and any present or
future parent or subsidiary, and directors of the Company to exert maximum
efforts toward the success and growth of the Company and to attract and retain
experienced individuals who by their position, ability and diligence are able to
make important contributions to the Company's success. The Plan is administered
by the Compensation Committee of the Board of Directors; however, awards under
the Plan to non-employee directors are made by the full Board (whether the
Compensation Committee or the Board, the "Committee").
The maximum number of shares of Common Stock for which options and
restricted stock awards may be granted under the Plan is 550,000, subject to
adjustment in the event of any stock dividend, stock split, recapitalization or
reorganization or certain business combinations. Shares subject to previously
expired or terminated options or other forfeited awards which did not result in
the issuance of shares become available again for awards under the Plan. The
shares to be issued under the Plan may be newly issued shares, treasury shares
or shares acquired privately or by open-market purchases. The number of shares
and other terms of each grant are determined by the Committee; provided that the
shares subject to stock options granted under the Plan and the shares of
restricted stock awarded under the Plan in any year to any participant may not
exceed an aggregate of 25,000. Awards under the Plan may, in the discretion of
the Committee, provide for immediate vesting upon a change of control (as
defined in the Plan).
The price payable upon the exercise of both incentive and nonqualified stock
options may not be less than 100% of the fair market value of the Common Stock
at the time of grant or, in the case of an incentive stock option granted to an
employee owning stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company (a "10% Shareholder"), 110% of the
fair market value of the Common Stock on the date of grant. Incentive stock
options may be granted only to employees, and the aggregate exercise price of
all incentive stock options under all Company plans becoming exercisable for the
first time by an employee during any calendar year may not exceed $100,000. Each
option granted under the Plan will expire on the date specified by the
Committee, but, with respect to incentive stock options, not more than ten years
from the date of grant or, in the case of a 10% Shareholder, not more than five
years from the date of grant. Unless the Committee otherwise provides, a stock
option will terminate three months (one year in the event of an optionee's
disability or three years in the event of an optionee's death) after the
optionee's termination of employment or termination as a director. In no event,
however, will an option be exercisable after its expiration date. The Committee
has the power to accelerate the vesting of options not exercisable on the
optionee's termination date. The exercise price of an option granted under the
Plan may be paid in cash, shares of Common Stock having a fair market value
equal to the exercise price (either shares then owned by the optionee or to be
issued upon exercise of the option) or a combination of cash and Common Stock.
In addition, an optionee may
55
<PAGE>
utilize a broker to effect a contemporaneous sale of sufficient shares subject
to the option to pay the exercise price by following the procedure set forth in
the Plan.
Restricted stock awards will be subject to such terms, conditions,
restrictions and/or limitations as the Committee deems appropriate including,
but not limited to, restrictions on transferability and continued employment (or
service as a director in the case of non-employee directors).
Outstanding options become nonforfeitable and exercisable in full
immediately prior to the liquidation or dissolution of the Company or the merger
or consolidation of the Company or sale of all or substantially all of the
Company's assets if provision is not made in such transaction for the assumption
by the acquiror of outstanding unvested options granted under the Plan or the
substitution of new options therefor. Unexercised outstanding options will
terminate upon the consummation of the dissolution or liquidation of the Company
or such merger, consolidation or sale of assets.
The Plan may be terminated or amended by the Board of Directors at any time,
subject to stockholder approval in the case of amendments to increase the
aggregate number of shares of Common Stock subject to the Plan or to permit
options with below-market exercise prices. If not earlier terminated, the Plan
expires in 2008.
OFFICER AND DIRECTOR LIABILITY
As permitted by the provisions of the Delaware General Corporation Law, the
Company's Certificate of Incorporation, as amended (the "Certificate"),
eliminates in certain circumstances the monetary liability of directors of the
Company for a breach of their fiduciary duty as directors. These provisions do
not eliminate the liability of a director (i) for a breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
by a director not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for liability arising under Section 174 of the
Delaware General Corporation Law (relating to the declaration of dividends and
purchase or redemption of shares in violation of the Delaware General
Corporation Law) or (iv) for any transaction from which the director derived an
improper personal benefit. In addition, these provisions do not eliminate the
liability of a director for violations of federal securities law, nor do they
limit the rights of the Company or its stockholders, in appropriate
circumstances, to seek equitable remedies such as injunctive or other forms of
non-monetary relief. Such remedies may not be effective in all cases.
The Certificate and the Company's Bylaws, as amended (the "Bylaws"), provide
that the Company shall indemnify all of its directors and officers to the full
extent permitted by the Delaware General Corporation Law. Under such provisions,
any director or officer, who in his capacity as such, is made or threatened to
be made a party to any suit or proceeding, may be indemnified if the Board of
Directors determines such director or officer acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interest of
the Company. The Certificate, Bylaws and the Delaware General Corporation Law
further provide that such indemnification is not exclusive of any other rights
to which such individuals may be entitled under the Certificate, the Bylaws, any
agreement, vote of stockholders or disinterested directors or otherwise.
The Company expects to enter into indemnity agreements with each of its
directors and executive officers. Under each indemnity agreement, the Company
will pay on behalf of the indemnitee, and the indemnitee's executors,
administrators and heirs, any amount which he or she is or becomes legally
obligated to pay because of (i) any claim or claims from time to time threatened
or made against him or her by any person because of any act or omission or
neglect or breach of duty, including any actual or alleged error or misstatement
or misleading statement, which he or she commits or suffers while acting in his
or her capacity as a director and/or officer of the Company or an affiliate or
(ii) being a party, or being threatened to be made a party, to any threatened,
pending or contemplated action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
an officer, director, employee or agent of the Company or an affiliate or is or
was serving at the request of the
56
<PAGE>
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. The payments which the
Company will be obligated to make pursuant to such indemnity agreement include
damages, charges, judgments, fines, penalties, settlements and court costs,
costs of investigation and costs of defense of legal, equitable or criminal
actions, claims or proceedings and appeals therefrom, and costs of attachment,
supersedeas, bail, surety or other bonds. The Company also intends to provide
liability insurance for each of its directors and executive officers.
CERTAIN TRANSACTIONS
The Company redeemed all of its Series B Preferred Stock in January 1998.
The Series B Preferred Stock was issued in 1987 and 1988 for $10.00 per share.
Dr. Talley, Mr. Lee, Mrs. Bennett and Mr. Price beneficially owned in equal
amounts all of the issued and outstanding shares of Series B Preferred Stock.
The redemption price for each share of Series B Preferred Stock was $10.00 per
share, resulting in the payment of $174,130 to each holder, for an aggregate
redemption price of $696,520. The Company issued notes to each holder in the
principal amount of the redemption consideration, with each note payable on or
prior to February 10, 1998 together with interest at an annual rate of 8.5%
until paid. Each of Dr. Talley, Mr. Lee, Mrs. Bennett and Mr. Price has agreed
to guarantee sums due under the Credit Facility in amounts equal to the
respective redemption amounts paid to them, which guarantees will be
extinguished upon consummation of the Offering and the application of the net
proceeds therefrom to repay all sums due under the Credit Facility.
From May through November 1997, the Company employed William S. Price, a
principal stockholder of the Company, as a consultant to assist it in
identifying acquisition opportunities. Mr. Price received $15,000 per month
pursuant to a consulting agreement.
57
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of January 31, 1998 by (i) each director of the
Company who owns Common Stock, (ii) each Named Executive Officer who owns Common
Stock, (iii) each person known or believed by the Company to own beneficially 5%
or more of the Common Stock and (iv) all directors and executive officers as a
group. Unless otherwise indicated, each person has sole voting and dispositive
power with respect to such shares.
<TABLE>
<CAPTION>
SHARES OF
NAME OF BENEFICIAL OWNER COMMON STOCK PERCENT
- ----------------------------------------------------------------------------- -------------- -----------
<S> <C> <C>
William W. Talley II, Ph.D. (1)(2)(3) ....................................... 675,000 24.75%
9400 N. Broadway Extension
Oklahoma City, Oklahoma 73114
Larry E. Lee (1)(2) ......................................................... 675,000 24.75
5100 E. Skelly Drive
Suite 650
Tulsa, Oklahoma 74135
M. Helen Bennett (1)(4) ..................................................... 675,000 24.75
3333 Hagen Road
Napa, California 94558
William S. Price ............................................................ 702,000 25.74
13635 Deering Bay Drive #233
Coral Gables, Florida 33158
All executive officers and directors as a group (8 persons) ................. 2,025,000 74.26
</TABLE>
- ------------------------
(1) Director
(2) Named Executive Officer
(3) Such shares are held in a trust as to which Dr. Talley has sole voting and
dispositive power.
(4) Such shares are held in a trust as to which Mrs. Bennett has sole voting and
dispositive power.
58
<PAGE>
DESCRIPTION OF NOTES
The Notes will be issued pursuant to the Indenture, to be dated as of the
Issue Date, by and among RAM Energy, Inc., the Subsidiary Guarantors and United
States Trust Company of New York, as Trustee (the "Trustee"). The terms of the
Notes include those stated in the Indenture and those made part of the Indenture
by reference to the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). The following discussion is a summary of the material
provisions of the Indenture and the Notes, and it does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all of the provisions of the Indenture or the Notes, as applicable. Capitalized
terms used herein, and not otherwise defined herein, have the meanings defined
under the caption "-- Certain Definitions." ALL REFERENCES TO RAM ENERGY, INC.
IN THE FOLLOWING SUMMARY REFER EXCLUSIVELY TO RAM ENERGY, INC. AND NOT TO ANY OF
ITS SUBSIDIARIES. Other capitalized terms not otherwise defined herein have the
meanings assigned to them in the Indenture.
GENERAL
The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
will act as Paying Agent and Registrar for the Notes. The Notes may be presented
for registration of transfer and exchange at the office of the Registrar, which
currently is the Trustee's corporate trust office in New York, New York. RAM
Energy, Inc. may change the Paying Agent and Registrar without notice to Holders
of the Notes. RAM Energy, Inc. will pay principal (premium, if any) and interest
on the Notes at the corporate trust office of the Trustee or its agency in New
York, New York. In addition, in the event the Notes do not remain in book-entry
form, interest may be paid, at RAM Energy, Inc.'s option, by wire transfer or
check mailed to the registered addresses of the Holders as shown on the Note
Register.
The obligations of RAM Energy, Inc. under the Notes will be guaranteed by
the Subsidiary Guarantors. See "-- Ranking and Subsidiary Guarantees." All of
RAM Energy, Inc.'s Subsidiaries will be Subsidiary Guarantors unless, subject to
certain requirements of the Indenture, RAM Energy, Inc. designates one or more
future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will
not be subject to the restrictive covenants of the Indenture. See "-- Certain
Covenants -- Designation of Unrestricted Subsidiaries."
The Indenture will provide for the issuance of up to $115.0 million of Notes
in connection with the Offering (the "Offered Notes"). The Indenture will also
provide the Company the flexibility of issuing additional Notes in the future in
an unlimited amount; however, any issuance of such additional Notes would be
subject to the covenant described in the first paragraph under "-- Certain
Covenants -- Limitation on Incurrences of Additional Indebtedness and Issuances
of Disqualified Capital Stock." The Offered Notes and any such additional Notes
are collectively referred to as the "Notes" in this "Description of Notes."
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on , 2008. Interest on the Notes will
accrue at the rate of % per annum and will be payable semi-annually on each
and commencing on , 1998 to the Persons who are registered
Holders at the close of business on and immediately preceding the
applicable interest payment date. Interest on the Notes will accrue from and
including the most recent date to which interest has been paid or, if no
interest has been paid, from and including the Issue Date. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
OPTIONAL REDEMPTION
RAM Energy, Inc. will not have the right to redeem the Notes prior to
, 2003. Thereafter, RAM Energy, Inc. may redeem the Notes, at its
option, in whole or in part, at any time, at the
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following redemption prices (expressed as a percentage of the outstanding
principal amount) if redeemed during the twelve-month period commencing on
of the years set forth below, plus, in each case, accrued and unpaid
interest thereon to the date of redemption:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2003............................................................................. %
2004............................................................................. %
2005............................................................................. %
2006 and thereafter.............................................................. 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to , 2001,
RAM Energy, Inc. may redeem up to 35% of the aggregate principal amount of the
Notes originally issued, in cash, at a redemption price equal to % of the
principal amount of the Notes so redeemed, together with accrued and unpaid
interest thereon to the redemption date, with the net proceeds of any Public
Equity Offering, PROVIDED that (i) at least 65% of the aggregate principal
amount of the Notes originally issued remains outstanding immediately after the
occurrence of each such redemption and (ii) each such redemption occurs within
60 days of the date of the closing of each such Public Equity Offering.
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed, or if the
Notes are not listed, on a PRO RATA basis, by lot or by such other method as the
Trustee shall deem fair and appropriate, provided that no Note of $1,000 or less
shall be redeemed in part. Notice of redemption will be sent by first class
mail, at least 30 days and not more than 60 days prior to the date fixed for
redemption, to the Holder of each Note to be redeemed to such Holder's last
address as then shown upon the Note Register. Any notice which relates to a Note
to be redeemed in part only must state the portion of the principal amount to be
redeemed and must state that on and after the date fixed for redemption, upon
surrender of such Note, a new Note in a principal amount equal to the unredeemed
portion thereof will be issued. On and after the date fixed for redemption,
unless RAM Energy, Inc. defaults on its payment obligations, interest will cease
to accrue on the Notes or portions thereof called for redemption.
RANKING AND SUBSIDIARY GUARANTEES
The indebtedness of RAM Energy, Inc. evidenced by the Notes will rank senior
in right of payment to all Subordinated Indebtedness of RAM Energy, Inc. and
PARI PASSU in right of payment with all existing and future senior Indebtedness
of RAM Energy, Inc. Pursuant to the Subsidiary Guarantees, the Subsidiary
Guarantors will unconditionally guarantee, jointly and severally, on a senior
unsecured basis, to each Holder and the Trustee, the full and prompt payment and
performance of RAM Energy, Inc.'s obligations under the Indenture and the Notes,
including the payment of principal of, premium, if any, and interest on the
Notes. The Subsidiary Guarantees will rank PARI PASSU in right of payment with
all existing and future senior Indebtedness of each Subsidiary Guarantor. The
Notes and the Subsidiary Guarantees will be effectively subordinated, however,
to any secured Indebtedness of RAM Energy, Inc. and the Subsidiary Guarantors to
the extent of the collateral therefor, including any Indebtedness under the
Permitted Bank Credit Facility, which currently is secured by substantially all
of RAM Energy, Inc.'s oil and gas properties. As of December 31, 1997, on a pro
forma basis, after giving effect to the issuance of the Notes in the Offering,
and the application of the estimated net proceeds therefrom, RAM Energy, Inc.
would have had $0.2 million of senior Indebtedness outstanding, excluding the
Notes. See "Capitalization."
The Indenture also will provide that each of RB Operating Company and RLP
Gulf States, L.L.C., which constitute all of RAM Energy, Inc.'s Subsidiaries as
of the Issue Date, will be, and each Person (other than an Unrestricted
Subsidiary) that after the Issue Date becomes a Subsidiary of RAM Energy, Inc.
(whether by formation, acquisition or otherwise) shall, simultaneously with
becoming a
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Subsidiary of RAM Energy, Inc., become a Subsidiary Guarantor thereunder. See
"-- Certain Covenants -- Limitation on Incurrences of Additional Indebtedness
and Issuances of Disqualified Capital Stock."
The obligations of each Subsidiary Guarantor will be limited to the maximum
amount which, after giving effect to all other contingent and fixed liabilities
of such Subsidiary Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Subsidiary Guarantor in respect of
the obligations of such other Subsidiary Guarantor under its Subsidiary
Guarantee or pursuant to its contribution obligations under the Indenture, will
result in the obligations of such Subsidiary Guarantor under the Subsidiary
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
applicable federal or state law. Each Subsidiary Guarantor that makes a payment
or distribution under the Subsidiary Guarantee shall be entitled to a
contribution from each other Subsidiary Guarantor in a PRO RATA amount, based on
the net assets of RAM Energy, Inc. and each Subsidiary Guarantor, determined in
accordance with GAAP. See "Risk Factors -- Possible Limitations on
Enforceability of Subsidiary Guarantees."
The Indenture will provide that, subject to the following paragraph, each
Subsidiary Guarantor (including any existing or future Subsidiary Guarantor) may
not consolidate or merge with or into (whether or not such Subsidiary Guarantor
is the surviving Person) another Person or sell or convey all or substantially
all of its assets to another Person or group unless (i) the Person formed by or
surviving any such consolidation or merger (if other than such Subsidiary
Guarantor) or the transferee entity (a) is a corporation organized and existing
under the laws of the United States of America, any state thereof, or the
District of Columbia and (b) expressly assumes all the obligations of such
Subsidiary Guarantor pursuant to a supplemental indenture, in a form
satisfactory to the Trustee, under the Notes and the Indenture, and causes an
opinion of counsel in accordance with the terms of the Indenture to be delivered
to the Trustee, (ii) immediately before and after giving effect to such
transaction, no Default or Event of Default exists and immediately after giving
effect to such transaction, the resulting, surviving or transferee entity could
Incur $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to the covenant described herein under the caption "-- Certain
Covenants -- Limitation on Incurrences of Additional Indebtedness and Issuances
of Disqualified Capital Stock," and (iii) such Subsidiary Guarantor or the
Person formed by or surviving any such consolidation or merger or the transferee
entity on a pro forma basis will have Net Worth (immediately after giving effect
to the transaction) equal to or greater than the Net Worth of such Subsidiary
Guarantor immediately preceding the transaction. The foregoing will not apply to
a merger, consolidation, sale or other such transaction between Subsidiary
Guarantors or between RAM Energy, Inc. and any Subsidiary Guarantor.
The Indenture will provide that in the event of (i) the designation of any
Subsidiary Guarantor as an Unrestricted Subsidiary or (ii) a sale or other
disposition of all or substantially all of the properties or assets of any
Subsidiary Guarantor to a third party or an Unrestricted Subsidiary, by way of
merger, consolidation or otherwise, or a sale or other disposition of all of the
Capital Stock of any Subsidiary Guarantor, in either case, in a transaction or
manner that does not violate any of the covenants in the Indenture, then such
Subsidiary Guarantor (in the event of such a designation or a sale or other
disposition (other than a lease), by way of such a merger, consolidation or
otherwise, or a disposition of all of the Capital Stock of such Subsidiary
Guarantor) or the Person acquiring such properties or assets (in the event of a
sale or other disposition (other than a lease) of all or substantially all of
the properties or assets of such Subsidiary Guarantor) will be released from and
relieved of any obligations under its Subsidiary Guarantee, PROVIDED that (y)
any Net Cash Proceeds of such sale or other disposition are applied, and the
Trustee has received an officer's certificate from RAM Energy, Inc. that such
Net Cash Proceeds have been or shall be applied in accordance with the covenant
described under the caption "-- Certain Covenants -- Limitation on Asset Sales,"
and (z) all obligations of such Subsidiary Guarantor under all of its guarantees
of, and under all of its pledges of assets or other security interests that
secure, any other Indebtedness of RAM Energy, Inc. or any of the Subsidiary
Guarantors shall also terminate upon such release, sale or disposition.
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REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, RAM Energy, Inc. will be
obligated to make an irrevocable, unconditional offer to repurchase (a "Change
of Control Offer") and will, subject to the provisions described below,
repurchase on a Business Day not more than 60 nor less than 30 days following
the occurrence of such Change of Control (the date on which the repurchase is
effected being referred to herein as the "Change of Control Payment Date"), all
of the then outstanding Notes validly tendered pursuant to such Change of
Control Offer, at a cash purchase price equal to 101% of the principal amount
thereof (the "Change of Control Purchase Price"), plus accrued and unpaid
interest thereon to the Change of Control Payment Date. The Change of Control
Offer is required to remain open for at least 20 Business Days and until the
close of business of the fifth Business Day prior to the Change of Control
Purchase Date.
In order to effect such Change of Control Offer, RAM Energy, Inc. (i) will,
not later than five Business Days after the occurrence of the Change of Control,
notify the Trustee and (ii) will, not later than 20 Business Days after the
occurrence of the Change of Control, make a Change of Control Offer to the
Holders of all of the then outstanding Notes, by sending written notice of a
Change of Control Offer, by first class mail, to each Holder at its registered
address, with a copy to the Trustee. The notice to Holders will contain all
instructions and materials required by applicable law, will contain or make
available to Holders other information material to such Holders' decision to
tender Notes pursuant to the Change of Control Offer and will otherwise govern
the terms of the Change of Control Offer.
On or before the Change of Control Payment Date, RAM Energy, Inc. will, to
the extent lawful, (i) accept for payment Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount sufficient to pay the Change of Control Purchase Price of all
Notes so tendered, and (iii) deliver or cause to be delivered to the Trustee all
Notes so accepted, together with an officers' certificate listing the Notes or
portions thereof being purchased by RAM Energy, Inc. The Paying Agent will
promptly mail to the Holders of Notes so accepted payment in an amount equal to
the Change of Control Purchase Price for such Notes, plus accrued and unpaid
interest thereon to the Change of Control Payment Date, and the Trustee will
promptly cancel all Notes so accepted by RAM Energy, Inc. pursuant to the Change
of Control Offer and authenticate and mail (or cause to be transferred by book
entry) to such Holders new Notes equal in principal amount, as applicable, to
any unpurchased portion of the Note surrendered. Any Notes not so accepted will
be promptly mailed by RAM Energy, Inc. to the Holders thereof. RAM Energy, Inc.
will publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture will not contain
provisions that permit the Holders to require that RAM Energy, Inc. repurchase
or redeem the Notes in the event of a takeover, recapitalization or other
similar transaction of RAM Energy, Inc. The provisions of the Indenture may not
afford Holders protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger or other similar transaction affecting RAM
Energy, Inc. that may adversely affect the Holders if such transaction is not
the type of transaction included within the definition of "Change of Control."
For example, if RAM Energy, Inc. were to acquire by merger another entity in a
highly leveraged transaction that did not involve a Change of Control of RAM
Energy, Inc., such transaction would not result in a Change of Control as
contemplated by the Indenture. A transaction involving the management of RAM
Energy, Inc. or any other Affiliate or a transaction involving a
recapitalization of RAM Energy, Inc. will result in a Change of Control only if
it is the type of transaction specified in such definition.
The existence of a Holder's right to require RAM Energy, Inc. to repurchase
Notes in connection with a Change of Control may deter a third party from
acquiring RAM Energy, Inc. in a transaction that would constitute a Change of
Control.
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The source of funds for any repurchase of Notes upon a Change of Control
will be RAM Energy, Inc.'s cash or cash generated from operations or other
sources, including borrowings or sales of assets. The occurrence of a Change of
Control may result in a default under a Permitted Bank Credit Facility and give
the lenders the right to require RAM Energy, Inc. to repay all Indebtedness
outstanding thereunder; however, there can be no assurance that sufficient funds
will be available at the time of any Change of Control to repay all Indebtedness
owing or to make any required repurchase of the Notes. Any failure by RAM
Energy, Inc. to repurchase Notes tendered pursuant to a Change of Control Offer
will constitute an Event of Default. See "-- Events of Default and Remedies."
RAM Energy, Inc. will not be required to make a Change of Control Offer upon
a Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by RAM Energy,
Inc. and repurchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of RAM Energy, Inc. Although there is a developing body of
judicial opinions interpreting the phrase "all or substantially all," no precise
standard exists under New York law, which is the law governing the Indenture and
the Notes. Accordingly, the ability of a Holder of Notes to require RAM Energy,
Inc. to repurchase such Notes as a result of a sale, lease, transfer, conveyance
or other disposition of less than all of the assets of RAM Energy, Inc. to
another Person or group is uncertain.
To the extent applicable and if required by law, RAM Energy, Inc. will
comply with Section 14 of the Exchange Act, the provisions of Regulation 14E and
any other tender offer rules under the Exchange Act and other securities laws,
rules, and regulations which may then be applicable to any offer by RAM Energy,
Inc. to repurchase the Notes at the option of Holders upon a Change of Control;
and, if such laws, rules, and regulations require or prohibit any action
inconsistent with the foregoing, compliance by RAM Energy, Inc. with such laws,
rules, and regulations will not constitute a breach of RAM Energy, Inc.'s
obligations with respect to the foregoing.
CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants:
LIMITATION ON INCURRENCES OF ADDITIONAL INDEBTEDNESS AND ISSUANCES OF
DISQUALIFIED CAPITAL STOCK
The Indenture will provide that RAM Energy, Inc. may not, and may not permit
any of its Restricted Subsidiaries to, directly or indirectly, Incur any
Indebtedness or issue any Disqualified Capital Stock, except that RAM Energy,
Inc. or a Subsidiary Guarantor may Incur Indebtedness and RAM Energy, Inc. may
issue shares of Disqualified Capital Stock if, on a pro forma basis, after
giving effect to such Incurrence or issuance, as the case may be, and the
application of the proceeds therefrom, all of the following tests have been
satisfied:
(i) the Consolidated Fixed Charge Coverage Ratio for RAM Energy, Inc's.
Reference Period for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is
Incurred or such Disqualified Capital Stock is issued would have been (A) at
least 2.0 to 1.0 if such additional Indebtedness is Incurred or such
Disqualified Capital Stock is issued during the period commencing on the
Issue Date and ending on December 31, 1998 or (B) at least 2.5 to 1.0 if
such additional Indebtedness is Incurred or such Disqualified Capital Stock
is issued at any time thereafter;
(ii) no Default or Event of Default shall have occurred and be continuing at the
time such additional Indebtedness is Incurred or such Disqualified Capital
Stock is issued or would occur as the result of such Incurrence of such
additional Indebtedness or the issuance of such Disqualified Capital Stock;
and
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(iii) RAM Energy, Inc.'s Adjusted Consolidated Net Tangible Assets as of the
last day of the applicable Reference Period are equal to or greater than
150% of the consolidated Indebtedness of RAM Energy, Inc. and the Subsidiary
Guarantors.
Notwithstanding the foregoing, if no Default or Event of Default shall have
occurred and be continuing at the time or as a consequence of the Incurrence of
such Indebtedness, RAM Energy, Inc. and any Subsidiary Guarantor may Incur
Permitted Indebtedness.
Any Indebtedness Incurred or Disqualified Capital Stock issued by any Person
that is not a Subsidiary of RAM Energy, Inc. or a Restricted Subsidiary of RAM
Energy, Inc., which Indebtedness or Disqualified Capital Stock is outstanding at
the time such Person becomes a Restricted Subsidiary of, or is merged into, or
consolidated with RAM Energy, Inc. or a Restricted Subsidiary of RAM Energy,
Inc., as the case may be, shall be deemed to have been Incurred or issued, as
the case may be, at the time such Person becomes a Restricted Subsidiary of, or
is merged into, or consolidated with RAM Energy, Inc. or a Subsidiary Guarantor.
LIMITATION ON RESTRICTED PAYMENTS
(a) The Indenture will provide that RAM Energy, Inc. will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly (i) declare
or pay any dividend on, or make any other distribution to holders of, any shares
of Capital Stock of RAM Energy, Inc. or any of its Restricted Subsidiaries
(other than dividends or distributions payable solely in shares of Qualified
Capital Stock of RAM Energy, Inc. or any Restricted Subsidiary or dividends or
distributions payable to RAM Energy, Inc. or any wholly-owned Subsidiary of RAM
Energy, Inc. that is a Subsidiary Guarantor or warrants, rights or options to
acquire Qualified Capital Stock of RAM Energy, Inc. or any of its Restricted
Subsidiaries), (ii) purchase, redeem or otherwise acquire or retire for value
any such shares of Capital Stock of RAM Energy, Inc. or any Affiliate (other
than any Capital Stock owned by RAM Energy, Inc. or any wholly-owned Restricted
Subsidiary of RAM Energy, Inc. that is a Subsidiary Guarantor), or any options,
warrants or other rights to acquire such Capital Stock, (iii) make any principal
payment on or repurchase, redeem, defease or otherwise acquire or retire for
value any Subordinated Indebtedness, prior to any scheduled principal payment,
scheduled sinking fund payment or maturity, or (iv) make any Restricted
Investment (such payments or other actions described in clauses (i) through (iv)
being collectively referred to as a "Restricted Payment"), unless at the time of
and after giving effect to the proposed Restricted Payment (the amount of any
such Restricted Payment, if other than cash, shall be the amount determined by
the Board of Directors of RAM Energy, Inc., whose determination shall be
conclusive and evidenced by a Board resolution, a copy of which resolution shall
be delivered to the Trustee),
(1) no Default or Event of Default shall have occurred and be continuing,
(2) RAM Energy, Inc. could Incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in accordance with the covenant "-- Certain
Covenants -- Limitation on Incurrences of Additional Indebtedness and Issuances
of Disqualified Capital Stock," and
(3) the aggregate amount of all Restricted Payments declared or made after
the Issue Date shall not exceed the sum (without duplication) of the following:
(A) 50% of the Adjusted Consolidated Net Income of RAM Energy, Inc. accrued
on a cumulative basis during the period commencing with the first full quarter
after the Issue Date and ending on the last day of RAM Energy, Inc.'s last
fiscal quarter ending prior to the date of such proposed Restricted Payment (or
if Adjusted Consolidated Net Income is a loss, minus 100% of such loss), plus
(B) the aggregate Net Proceeds received after the Issue Date by RAM Energy,
Inc. from the issuance or sale (other than to any Restricted Subsidiary of RAM
Energy, Inc.) of shares of Qualified Capital Stock of RAM Energy, Inc. or any
options, warrants or rights to purchase such shares of Qualified Capital Stock
of RAM Energy, Inc., plus
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(C) the aggregate Net Proceeds received after the Issue Date by RAM Energy,
Inc. (other than from any Restricted Subsidiary of RAM Energy, Inc.) upon the
exercise of any options, warrants or rights to purchase shares of Qualified
Capital Stock of RAM Energy, Inc., plus
(D) the aggregate Net Proceeds received after the Issue Date by RAM Energy,
Inc. from the issuance or sale (other than to any Restricted Subsidiary of RAM
Energy, Inc.) of Indebtedness or shares of Disqualified Capital Stock that have
been converted into or exchanged for Qualified Capital Stock of RAM Energy,
Inc., together with the aggregate cash received by RAM Energy, Inc. at the time
of such conversion or exchange, minus
(E) the amount of any write-downs or writeoffs, other negative revaluations,
and other negative extraordinary charges not otherwise reflected in Adjusted
Consolidated Net Income of RAM Energy, Inc. during such period.
(b) Notwithstanding paragraph (a) above, RAM Energy, Inc. and the Subsidiary
Guarantors may take the following actions so long as (in the case of clauses (2)
and (3) below) no Default or Event of Default shall have occurred and be
continuing:
(1) the payment of any dividend on Capital Stock of RAM Energy, Inc. or any
Subsidiary Guarantor within 60 days after the date of declaration thereof, if at
such declaration date such declaration complied with the provisions of paragraph
(a) above;
(2) the repurchase, redemption or other acquisition or retirement of any
shares of any class of Capital Stock of RAM Energy, Inc. or any Subsidiary
Guarantor, in exchange for, or out of the aggregate Net Proceeds from, a
substantially concurrent issue and sale (other than to a Subsidiary Guarantor)
of shares of Qualified Capital Stock of RAM Energy, Inc.;
(3) the repurchase, redemption, repayment, defeasance or other acquisition
or retirement for value of any Subordinated Indebtedness in exchange for, or out
of the aggregate Net Proceeds from, a substantially concurrent issue and sale
(other than to a Subsidiary Guarantor) of (i) Subordinated Indebtedness
(provided such Indebtedness is on terms no less favorable to the Holders of the
Notes than the terms of the Subordinated Indebtedness being redeemed) or (ii)
shares of Qualified Capital Stock of RAM Energy, Inc.; and
(4) the redemption of 12 shares of Carlton's outstanding redeemable
preferred stock pursuant to the termination of all rights in respect of such
shares, except the right to receive the redemption price payable on the
scheduled redemption thereof as prescribed in Carlton's certificate of
incorporation, which redemption must occur no later than March 29, 1998.
The actions described in clause (1) of this paragraph (b) shall be
Restricted Payments that shall be permitted to be made in accordance with this
paragraph (b) but shall reduce the amount that would otherwise be available for
Restricted Payments under clause (3) of paragraph (a), PROVIDED that any
dividend paid pursuant to clause (1) of this paragraph (b) shall reduce the
amount that would otherwise be available under clause (3) of paragraph (a) when
declared, but not also when subsequently paid pursuant to clause (1) of this
paragraph (b), and provided that any Net Proceeds received under clauses (2) or
(3)(ii) of paragraph (b) shall not be included in subclauses (B) or (C) of
clause (3) of paragraph (a) above.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
The Indenture will provide that RAM Energy, Inc. may not, and may not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, or permit
or suffer to exist or become effective any consensual encumbrance or restriction
on the ability of any Restricted Subsidiary of RAM Energy, Inc. to (i) pay
dividends or make other distributions on its Capital Stock to RAM Energy, Inc.
or any other Restricted Subsidiary of RAM Energy, Inc., (ii) make loans or
advances or pay any Indebtedness or other obligations owed to RAM Energy, Inc.
or to any other Restricted Subsidiary of RAM Energy, Inc., or (iii) transfer any
of its properties or assets to RAM Energy, Inc. or to any other Restricted
Subsidiary of RAM Energy, Inc., except encumbrances and restrictions existing
under (a) the Indenture, any Permitted Bank Credit Facility
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as in effect on the Issue Date and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, PROVIDED that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings are no more
restrictive with respect to such dividend and other payment or transfer
restrictions than those contained in the Permitted Bank Credit Facility as in
effect on the Issue Date and (b) any agreement of a Person acquired by RAM
Energy, Inc. or a Restricted Subsidiary of RAM Energy, Inc., which restrictions
existed at the time of acquisition, were not put in place in anticipation of
such acquisition, and are not applicable to any Person or property, other than
the Person or any property of the Person so acquired.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Indenture will provide that RAM Energy, Inc. may not, and may not permit
any of its Restricted Subsidiaries to, enter directly or indirectly into, or
permit to exist, any transaction or series of related transactions with or for
the benefit of any Affiliate except for transactions made in good faith, the
terms of which are fair and reasonable to RAM Energy, Inc. or such Restricted
Subsidiary, as the case may be, and are at least as favorable as the terms which
could be obtained by RAM Energy, Inc. or such Restricted Subsidiary, as the case
may be, in a comparable transaction made on an arm's length basis with Persons
who are not Affiliates and RAM Energy, Inc. delivers to the Trustee (i) with
respect to any transaction or series of related transactions with an Affiliate
involving aggregate consideration in excess of $1 million, an officers'
certificate certifying that such transaction or transactions comply with this
covenant, (ii) with respect to any transaction or series of related transactions
with an Affiliate involving aggregate consideration in excess of $2 million, a
resolution of the Board of Directors set forth in an officers' certificate
certifying that such transaction or transactions comply with this covenant and
that such transaction or transactions have been approved in good faith by a
majority of the disinterested members of the Board of Directors (which
resolution shall be conclusive evidence of compliance with this provision),
PROVIDED that if there is not a majority of disinterested directors able to
approve such transaction, RAM Energy, Inc. shall also deliver an opinion as to
the fairness, from a financial point of view, to RAM Energy, Inc. or such
Restricted Subsidiary of such transaction or transactions issued by an
investment banking firm of recognized national standing, which opinion shall be
conclusive evidence of compliance with this provision, and (iii) with respect to
any transaction or series of related transactions with an Affiliate involving
aggregate consideration in excess of $5 million, an officers' certificate and a
board resolution as described in subclause (ii) above and an opinion as to the
fairness, from a financial point of view, to RAM Energy, Inc. or such Restricted
Subsidiary of such transaction or transactions issued by an investment banking
firm of recognized national standing, which resolution and opinion shall be
conclusive evidence of compliance with this provision; PROVIDED, however, that
this covenant will not restrict (a) transactions between RAM Energy, Inc. and
any of the Subsidiary Guarantors or transactions between Subsidiary Guarantors,
(b) Restricted Payments permitted by the provisions of the Indenture described
under the caption "-- Certain Covenants -- Limitation on Restricted Payments,"
(c) any employee compensation arrangement by RAM Energy, Inc. or any of its
Restricted Subsidiaries which has been approved by a majority of RAM Energy,
Inc.'s disinterested directors and found in good faith by such directors to be
in the best interests of RAM Energy, Inc. or such Restricted Subsidiary, as the
case may be, and (d) customary directors' fees and indemnification and similar
arrangements.
LIMITATION ON ASSET SALES
The Indenture will provide that RAM Energy, Inc. may not, and may not permit
any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) RAM
Energy, Inc. or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (as determined in good faith by resolution of the Board of Directors set
forth in an officers' certificate delivered to the Trustee, which determination
shall be conclusive evidence of compliance with this provision) of the assets or
Capital Stock being sold or issued or otherwise disposed of, and (ii) at least
85% of the value of the consideration for such Asset Sale consists of cash, Cash
Equivalents or Exchange Assets or any combination thereof; PROVIDED that the
amount of any liabilities (as shown on RAM
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Energy, Inc.'s or such Restricted Subsidiary's most recent balance sheet) of RAM
Energy, Inc. or any such Restricted Subsidiary (other than contingent
liabilities and liabilities that are Subordinated Indebtedness or otherwise by
their terms subordinated to the Notes or the Subsidiary Guarantees) that are
assumed by the transferee of such assets pursuant to a customary novation
agreement that releases RAM Energy, Inc. and such Restricted Subsidiary from
further liability shall also be deemed to be cash for purposes of this
provision.
Within 365 days after the receipt of any Net Cash Proceeds from an Asset
Sale, RAM Energy, Inc. or such Restricted Subsidiary may apply such Net Cash
Proceeds, at its option, in any order or combination (i) to repay and
permanently reduce Indebtedness outstanding under any Permitted Bank Credit
Facility to which it or any Subsidiary Guarantor is a party, (ii) to make
Capital Expenditures or (iii) to make other acquisitions of assets to be used in
RAM Energy, Inc.'s and the Subsidiary Guarantors' Oil and Gas Business. Pending
the final application of any such Net Cash Proceeds, RAM Energy, Inc. or such
Restricted Subsidiary may temporarily invest such Net Cash Proceeds in any
manner that is not prohibited by the terms of the Indenture, or temporarily
reduce outstanding revolving credit Indebtedness under Permitted Bank Credit
Facilities. Any Net Cash Proceeds from Asset Sales that are not applied as
provided in clauses (i) through (iii) of the first sentence of this paragraph
will (after expiration of the relevant periods) be deemed to constitute "Excess
Cash."
When the amount of Excess Cash exceeds $10.0 million (the date of such
occurrence, the "Excess Cash Offer Trigger Date"), RAM Energy, Inc. will make an
irrevocable, unconditional offer (an "Excess Cash Offer") to the Holders to
purchase the maximum amount of Notes which could be acquired by application of
such amount of Excess Cash as described herein (the "Excess Cash Offer Amount"),
in cash at the purchase price equal to 100% of the principal amount thereof (the
"Excess Cash Offer Price"), together with accrued and unpaid interest to the
Excess Cash Purchase Date.
Notice of an Excess Cash Offer will be sent at least 30 and not more than 60
days prior to the date on which the Notes tendered shall be accepted (the
"Excess Cash Purchase Date"), by first-class mail, by RAM Energy, Inc. to each
Holder at the address on the Note Register, with a copy to the Trustee. Such
notice will set forth the Excess Cash Purchase Date and the Excess Cash Offer
shall remain open for at least 20 Business Days and close no later than 30
Business Days after the date such notice is given. The notice to the Holders
will contain all information, instructions and materials required by applicable
law or otherwise material to such Holders' decision to tender Notes pursuant to
the Excess Cash Offer.
To the extent applicable and if required by law, RAM Energy, Inc. will
comply with Section 14 of the Exchange Act, the provisions of Regulation 14E and
any other tender offer rules under the Exchange Act and other securities laws,
rules and regulations which may then be applicable to any Excess Cash Offer by
RAM Energy, Inc.; and, if such laws, rules and regulations require or prohibit
any action inconsistent with the foregoing, compliance by RAM Energy, Inc. with
such laws, rules and regulations will not constitute a breach of its obligations
with respect to the foregoing.
On or before an Excess Cash Purchase Date, RAM Energy, Inc. will (i) accept
for payment Notes or portions thereof properly tendered pursuant to the Excess
Cash Offer, (ii) deposit with the Paying Agent money sufficient to pay the
Excess Cash Offer Price, plus accrued and unpaid interest thereon to the Excess
Cash Purchase Date of all Notes or portions thereof so accepted, and (iii)
deliver to the Trustee all Notes so accepted together with an officers'
certificate listing the Notes or portions thereof being purchased by RAM Energy,
Inc. The Paying Agent shall promptly mail to Holders of Notes so accepted
payment in an amount equal to the Excess Cash Offer Price, plus accrued and
unpaid interest thereon to the Excess Cash Purchase Date. The Trustee shall
promptly cancel all Notes accepted by RAM Energy, Inc. pursuant to the Excess
Cash Offer and authenticate and mail to the Holders of Notes so accepted new
Notes equal to the principal amount of any unpurchased portion of the Notes
surrendered. Any Notes not so accepted shall be promptly mailed by RAM Energy,
Inc. to the Holders thereof. RAM Energy, Inc. will publicly announce the results
of the Excess Cash Offer on or as soon as practicable after the Excess Cash
Purchase Date.
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If the amount required to acquire all Notes tendered by Holders pursuant to
the Excess Cash Offer (the "Excess Cash Acceptance Amount") shall be less than
the aggregate Excess Cash Offer Amount, then the excess of the Excess Cash Offer
Amount over the Excess Cash Acceptance Amount may be used by RAM Energy, Inc. or
any Subsidiary Guarantor for any of their respective general corporate purposes
to the extent such use is not prohibited or restricted by the Indenture. If the
aggregate principal amount of the Notes surrendered by Holders exceeds the
Excess Cash Offer Amount, then the Trustee shall select the Notes to be
purchased in compliance with the requirements of the principal national
securities exchange on which the Notes are listed or, if the Notes are not so
listed, on a PRO RATA basis by lot or by such method as the Trustee deems fair
and appropriate. Upon consummation of any Excess Cash Offer made in accordance
with the terms of the Indenture, the amount of Excess Cash will be reduced to
zero.
LIMITATION ON LIENS
The Indenture will provide that RAM Energy, Inc. may not, and may not permit
any of its Restricted Subsidiaries to, directly or indirectly, incur or suffer
to exist any Lien upon any of their respective properties or assets, whether now
owned or hereafter acquired, or any income, profits or proceeds therefrom, other
than Permitted Liens.
LIMITATION ON LINES OF BUSINESS
The Indenture will provide that RAM Energy, Inc. will not engage, and will
not permit any of its Restricted Subsidiaries to engage, in any line of business
other than the Oil and Gas Business.
DESIGNATION OF UNRESTRICTED SUBSIDIARIES
The Board of Directors of RAM Energy, Inc. may designate any Subsidiary to
be an Unrestricted Subsidiary if such designation would not cause a Default or
an Event of Default and following such designation, RAM Energy, Inc. could Incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the covenant described herein under the caption "-- Limitation on Incurrences of
Additional Indebtedness and Issuances of Disqualified Capital Stock." For
purposes of making such determination, all outstanding Investments by RAM
Energy, Inc. and its Restricted Subsidiaries in the Subsidiary so designated
which have not been repaid in cash will be deemed to be Restricted Payments at
the time of such designation and will reduce the amount available for Restricted
Payments under clause (3) of paragraph (a) of the covenant described under the
caption "-- Limitation on Restricted Payments." All such outstanding Investments
will be deemed to constitute Restricted Investments in an amount equal to the
greater of the fair market value or book value of such Investments at the time
of such designation. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Subsidiary otherwise meets
the definition of an Unrestricted Subsidiary. In addition, the definition of
"Unrestricted Subsidiary" set forth under the caption "-- Certain Definitions"
describes additional requirements that a Subsidiary of RAM Energy, Inc. must
satisfy before it may be designated as an Unrestricted Subsidiary by the Board
of Directors of RAM Energy, Inc.
The Indenture will provide that neither RAM Energy, Inc. nor any of its
Restricted Subsidiaries or Unrestricted Subsidiaries may take any action or omit
to take any action which would cause any requirement in the definition of
"Unrestricted Subsidiary" set forth under the caption "-- Certain Definitions"
not to be at all times satisfied with respect to any Unrestricted Subsidiary,
other than pursuant to a designation or redesignation as provided in the
following paragraph. If, at any time subsequent to the designation of a Person
as an Unrestricted Subsidiary and prior to a corresponding redesignation as
provided in the next paragraph, any requirement in the definition of
"Unrestricted Subsidiary" set forth under the caption "-- Certain Definitions"
is not met with respect to such Unrestricted Subsidiary, then such Unrestricted
Subsidiary shall thereafter cease to be an Unrestricted Subsidiary for purposes
of the Indenture and any Indebtedness of such Subsidiary shall be deemed
Incurred as of such date.
The Board of Directors of RAM Energy, Inc. may designate or redesignate (as
applicable) any Unrestricted Subsidiary of RAM Energy, Inc. as a Restricted
Subsidiary of RAM Energy, Inc.; PROVIDED THAT, (i) if the Unrestricted
Subsidiary has any Indebtedness outstanding or is otherwise liable for any
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Indebtedness or has a negative Net Worth, then immediately after giving pro
forma effect to such designation or redesignation, as applicable, RAM Energy,
Inc. could Incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the provisions described under the heading "--
Limitation on Incurrences of Additional Indebtedness and Issuances of
Disqualified Capital Stock" (assuming, for purposes of this calculation, that
each dollar of negative Net Worth is equal to one dollar of Indebtedness), (ii)
all Indebtedness of such Unrestricted Subsidiary shall be deemed to be Incurred
by a Restricted Subsidiary of Ram Energy, Inc. on the date such Unrestricted
Subsidiary becomes a Restricted Subsidiary, and (iii) no Default or Event of
Default would occur or be continuing after giving effect to such designation.
Any Subsidiary of an Unrestricted Subsidiary shall be an Unrestricted Subsidiary
for purposes of the Indenture.
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
The Indenture will provide that RAM Energy, Inc. will not, directly or
indirectly, sell or otherwise dispose of any shares of Capital Stock of any of
its Restricted Subsidiaries, and shall not permit any of its Restricted
Subsidiaries, directly or indirectly, to issue or sell or otherwise dispose of
any of its Capital Stock except (i) to RAM Energy, Inc. or a wholly-owned
Subsidiary of RAM Energy, Inc. that is a Subsidiary Guarantor, or (ii) if all
shares of Capital Stock of such Restricted Subsidiary are sold or otherwise
disposed of. In connection with any sale or disposition of Capital Stock of any
Restricted Subsidiary of RAM Energy, Inc., RAM Energy, Inc. will be required to
comply with the covenant described under the caption "-- Limitation on Asset
Sales."
OWNERSHIP AND RECOGNITION OF SUBSIDIARIES
The Indenture will provide (i) that all of the Capital Stock of each of its
Restricted Subsidiaries be owned, whether directly or indirectly, by RAM Energy,
Inc. and (ii) that all Persons (other than an Unrestricted Subsidiary) now or
hereafter becoming a Subsidiary of RAM Energy, Inc. (whether by formation,
acquisition or otherwise) shall be, and shall be recognized as, a Subsidiary
Guarantor for all purposes thereunder.
LIMITATION ON MERGER, SALE OR CONSOLIDATION
The Indenture will provide that RAM Energy, Inc. will not consolidate with
or merge with or into any other Person, or, directly or indirectly, sell, lease,
assign, transfer, or convey all or substantially all of its assets (computed on
a consolidated basis) to another Person or group of Persons acting in concert,
whether in a single transaction or through a series of related transactions,
unless (i) either (a) RAM Energy, Inc. is the continuing Person or (b) the
resulting, surviving, or transferee entity is a corporation organized under the
laws of the United States, any state thereof, or the District of Columbia, and
shall expressly assume all of the obligations of RAM Energy, Inc. under the
Indenture and the Notes by a supplemental indenture, executed and delivered to
the Trustee on or prior to the consummation of such transaction, in form
satisfactory to the Trustee, (ii) no Default or Event of Default shall exist or
shall occur immediately after giving effect to such transaction, (iii)
immediately after giving effect to such transaction on a pro forma basis, the
Net Worth of the resulting, surviving or transferee entity is at least equal to
the Net Worth of RAM Energy, Inc. immediately prior to such transaction, (iv)
except for a merger of RAM Energy, Inc. with or into any wholly-owned Subsidiary
of RAM Energy, Inc. that is a Subsidiary Guarantor, the resulting, surviving or
transferee entity would, at the time of such transaction and after giving effect
thereto, be permitted to Incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to the covenant described under the
caption "-- Limitation on Incurrences of Additional Indebtedness and Issuances
of Disqualified Capital Stock," (v) each Subsidiary Guarantor shall have
executed and delivered to the Trustee, in form satisfactory to the Trustee, a
supplemental indenture confirming such Subsidiary Guarantor's obligations to pay
the principal of and interest on the Notes pursuant to its Subsidiary Guarantee,
and (vi) the Trustee shall have received, in form and substance reasonably
satisfactory to the Trustee, an officers' certificate and an opinion of counsel,
each stating that such consolidation, merger or sale, conveyance or other
transfer and each supplemental indenture in respect thereto comply with this
provision and that all conditions precedent in the Indenture relating to such
transaction have been complied with, and also, such opinion of counsel shall
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further state that such consolidation, merger or sale, conveyance or other
transfer will not result in RAM Energy, Inc. being required to make any
withholding or similar deduction for or on account of taxes from payments made
under or in respect of the Notes. For purposes of this covenant, the
Consolidated Fixed Charge Coverage Ratio shall be determined on a pro forma
consolidated basis (after giving effect to the transaction) as if such
transaction had occurred at the beginning of the Reference Period immediately
preceding such transaction.
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of RAM Energy, Inc. in accordance with the foregoing, the
successor Person formed by such consolidation or merger or the Person to whom
such transfer is made, shall succeed to, and be substituted for, and may
exercise every right and power of, RAM Energy, Inc. under the Indenture with the
same effect as if such successor corporation had been named as RAM Energy, Inc.
therein, but RAM Energy, Inc. in the case of a conveyance, transfer or lease
shall not be released from the obligation to pay principal of, premium (if any)
and interest on the Notes.
This covenant will include a phrase relating to the sale, lease, transfer,
conveyance or other dispositions of "all or substantially all" of the assets of
RAM Energy, Inc. Although there is a developing body of judicial opinions
interpreting the phrase "all or substantially all," no precise standard exists
under applicable law. Accordingly, the ability of the Holders of the Notes to
declare an Event of Default as the result of such a disposition or series of
dispositions is uncertain.
FUTURE GUARANTORS
Simultaneously with the acquisition (by merger, consolidation, acquisition
of assets, stock or properties or otherwise) or formation of a Person which,
directly or indirectly, becomes a Subsidiary of RAM Energy, Inc., or the
occurrence of any other event, circumstance or transaction pursuant to which,
directly or indirectly, a Person becomes a Subsidiary of RAM Energy, Inc. (in
each case, other than a Person then designated an Unrestricted Subsidiary in
accordance with the provisions under the caption "-- Designation of Unrestricted
Subsidiaries"), RAM Energy, Inc. shall cause such Subsidiary to execute and
deliver a supplement to the Indenture pursuant to which such Subsidiary will
unconditionally guarantee to each Holder and the Trustee the full and prompt
payment and performance of RAM Energy, Inc.'s obligations under the Indenture
and Notes, including the payment of principal of, premium, if any, and interest
on the Notes, such guarantee being limited in maximum amount as otherwise
provided under the caption "-- Ranking and Subsidiary Guarantees," all in form
satisfactory to the Trustee.
DISCHARGE OF CERTAIN PREFERRED STOCK
On or before April 10, 1998, RAM Energy, Inc. shall fully and finally pay
and discharge, or cause to be fully and finally paid and discharged, the
redemption price referred to in clause (b)(4) under the caption "-- Limitation
on Restricted Payments," and if applicable, any interest on such redemption
price accruing from the third anniversary of the issuance of such stock until
the earlier of such date of payment and April 10, 1998. Contemporaneous with the
receipt of net proceeds from the Offering, RAM Energy, Inc. shall deposit in a
segregated bank account, an amount of cash equal to the sum of the redemption
price and maximum accrued interest referred to in the preceding sentence, and
neither RAM Energy, Inc. nor any Restricted Subsidiary of RAM Energy, Inc. shall
utilize any such deposited amount for any purpose other than the payment and
discharge of such redemption price and related accrued interest.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will define an Event of Default as (i) the failure by RAM
Energy, Inc. to pay installments of interest on the Notes as and when the same
become due and payable and the continuance of any such failure for 30 days, (ii)
the failure by RAM Energy, Inc. to pay all or any part of the principal or
premium, if any, on the Notes when and as the same becomes due and payable at
maturity, redemption, by acceleration or otherwise, (iii) the failure by RAM
Energy, Inc. to comply with the provisions described under the caption "--
Certain Covenants -- Repurchase of Notes at the Option of the Holder Upon a
Change of Control," "-- Limitation on Asset Sales" or "-- Limitation on Merger,
Sale or Consolidation,"
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(iv) the failure by RAM Energy, Inc. or any of its Restricted Subsidiaries to
observe or perform any other covenant or agreement contained in the Notes, the
Indenture or any Subsidiary Guarantee, and the continuance of such failure for a
period of 30 days after written notice is given to RAM Energy, Inc. by the
Trustee or to RAM Energy, Inc. and the Trustee by the Holders of at least 25% of
the principal amount of the Notes then outstanding, (v) certain events of
bankruptcy, insolvency or reorganization in respect of RAM Energy, Inc. or any
of the Subsidiary Guarantors, (vi) a default which extends beyond any stated
period of grace applicable thereto (including any extension thereof) under any
mortgage, indenture or instrument under which there is outstanding any
Indebtedness of RAM Energy, Inc. or any of its Restricted Subsidiaries
aggregating in excess of $1.0 million or is caused by a failure to pay principal
of or premium, if any, or interest on such Indebtedness prior to the expiration
of any applicable grace period, PROVIDED that a waiver by all of the lenders of
such Indebtedness of such default shall constitute a waiver hereunder for the
same period, (vii) one or more final judgments not covered by insurance
aggregating at least $1.0 million at any one time rendered against RAM Energy,
Inc. or any of its Restricted Subsidiaries and not stayed or discharged within
60 days, or (viii) any of the Indenture, the Notes or the Subsidiary Guarantees
ceases to be in full force and effect (other than by reason of release of a
Subsidiary Guarantor in accordance with the terms of the Indenture), or any of
the Indenture, the Notes or the Subsidiary Guarantees is declared to be null and
void or unenforceable, or the validity or enforceability of any of the
Indenture, the Notes or the Subsidiary Guarantees is denied or contested by the
Company, any Affiliate or any other Person.
The Indenture will provide that if an Event of Default occurs and is
continuing and if it is known to the Trustee, the Trustee must, within 90 days
after the occurrence of such Event of Default, give to the Holders notice of
such default; PROVIDED, that, except in the case of default in payment of
principal of, premium, if any, or interest on the Notes, the Trustee will be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interest of the Holders of the Notes.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (v) above), then in every such case, unless the
principal of all of the Notes shall have already become due and payable, either
the Trustee or the Holders of at least 25% of the principal amount of Notes then
outstanding, by notice in writing to RAM Energy, Inc. (and to the Trustee if
given by Holders), may declare all principal of, premium, if any, and accrued
interest on the Notes to be due and payable immediately. If an Event of Default
specified in clause (v) above occurs, all principal, premium, if any, and
accrued interest on the Notes will be immediately due and payable on all
outstanding Notes without any declaration or other act on the part of the
Trustee or the Holders. The Holders of not less than a majority of the principal
amount of then outstanding Notes are authorized to rescind such acceleration if
(i) any existing Events of Default, other than the non-payment of the principal
of, premium, if any, and interest on the Notes which have become due solely by
such acceleration, have been cured or waived in compliance with applicable
provisions of the Indenture and (ii) the rescission would not conflict with any
judgment or decree.
Prior to the declaration of acceleration of the Notes, the Holders of a
majority of the Notes at the time outstanding may waive on behalf of all the
Holders any Default or Event of Default, except a Default or Event of Default in
the payment of principal of, premium, if any, or interest on any Note not yet
cured, or a Default or Event of Default with respect to any covenant or
provision which cannot be modified or amended without the consent of all of the
Holders of the Notes. Subject to the provisions of the Indenture relating to the
duties of the Trustee, the Trustee will be under no obligation to exercise any
of its rights or powers under the Indenture at the request, order or direction
of any of the Holders, unless such Holders have offered to the Trustee
reasonable security or indemnity. Subject to all provisions of the Indenture,
the Holders of a majority of the Notes at the time outstanding will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE; SATISFACTION AND DISCHARGE OF THE
INDENTURE
RAM Energy, Inc. may, at its option and at any time, elect to have all of
the obligations of itself and the Subsidiary Guarantors discharged with respect
to the outstanding Notes ("Legal Defeasance") except
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as to (i) RAM Energy, Inc.'s obligations with respect to issuing temporary
Notes, registration of transfer, substitution and exchange of Notes, mutilated,
destroyed, lost or stolen Notes, the maintenance of an office or agency for
payment of money for security payments held in the trust referred to below, (ii)
rights of Holders to receive payments of principal of, premium, if any, and
interest on the Notes (but not the Change of Control Purchase Price or the
Excess Cash Offer Price) when such payments are due from the trust referred to
below, (iii) the rights, powers, trusts, obligations and immunities of the
Trustee under the Indenture, and RAM Energy, Inc.'s obligations in connection
therewith, and (iv) the Legal Defeasance provisions and certain other specified
provisions in the Indenture (the foregoing exceptions (i) through (iv) are
collectively referred to as the "Reserved Rights"). In addition, RAM Energy,
Inc. may, at its option and at any time, elect to have the obligations of itself
and the Subsidiary Guarantors released with respect to certain covenants that
are described in the Indenture ("Covenant Defeasance"), and thereafter any
omission to comply with such obligations shall not constitute a Default or Event
of Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under the caption "-- Events of
Default and Remedies" will no longer constitute an Event of Default with respect
to the Notes.
To exercise either Legal Defeasance or Covenant Defeasance, (i) RAM Energy,
Inc. must irrevocably deposit with the Trustee, in trust, for the benefit of the
Holders of the Notes, cash in U.S. dollars, non-callable Government Securities,
which through the payment of interest and principal will provide, no later than
one day before the due date of payment in respect of the Notes, cash in U.S.
dollars, or a combination thereof, in such amount, as will be sufficient, in the
opinion of a nationally recognized firm of independent public accountants, to
pay the principal of, premium, if any, and interest on the outstanding Notes on
the stated date for payment thereof or on the applicable redemption date, as the
case may be, and RAM Energy, Inc. must specify whether the Notes are being
defeased to maturity or to a particular redemption date, (ii) in the case of
Legal Defeasance, RAM Energy, Inc. shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
(who may be outside counsel to RAM Energy, Inc.) confirming that (A) RAM Energy,
Inc. has received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the date of the Indenture, there has been a change
in the applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred, (iii) in the
case of Covenant Defeasance, RAM Energy, Inc. shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred, (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit or, insofar as
Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day (or if a longer period for avoidance
or set aside is then applicable, then one day ending after the conclusion of
such longer period) after the date of deposit, (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute a
default under, any material agreement or instrument to which RAM Energy, Inc. or
any of its Subsidiaries is a party or by which RAM Energy, Inc. or any of its
Subsidiaries is bound, (vi) RAM Energy, Inc. must have delivered to the Trustee
an opinion of counsel to the effect that (A) such Legal Defeasance or Covenant
Defeasance shall not result in RAM Energy, Inc., any Subsidiary Guarantor, the
trust created with the deposit of funds or the Trustee being subject to
regulation under, or constituting an investment company within the meaning of,
the Investment Company Act of 1940, as amended, and (B) after the 91st day (or
if a longer period for avoidance or set aside is then applicable, then one day
ending after the conclusion of such longer period) after the date of deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, (vii) RAM Energy, Inc. must deliver to the Trustee an officers'
certificate stating
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that the deposit was not made by RAM Energy, Inc. with the intent of preferring
the Holders of Notes over the other creditors of RAM Energy, Inc. or any
Subsidiary Guarantor with the intent of defeating, hindering, delaying or
defrauding creditors of RAM Energy, Inc., any Subsidiary Guarantor or others,
(viii) no event or condition shall exist that would prevent RAM Energy, Inc.
from making payments of principal of, or premium, if any, or interest on, the
Notes on the date of such deposit or at any time during and ending on the 91st
day (or such longer period as referred to in clause (iv) or (vi)(B) above) after
the date of such deposit and (ix) RAM Energy, Inc. must deliver to the Trustee
an officers' certificate and an opinion of counsel, which, taken together, state
that all conditions precedent provided for relating to the Legal Defeasance or
the Covenant Defeasance have been complied with.
The Indenture will cease to be of further effect as to all outstanding Notes
when (i) all outstanding Notes have been delivered to the Trustee for
cancellation and (ii) RAM Energy, Inc. has paid or caused to be paid the
principal of, premium, if any, and interest on the Notes.
REPORTS
The Indenture will require RAM Energy, Inc. and each Subsidiary Guarantor to
furnish to the Trustee, together with, and at the same time as the delivery of,
the reports and information referred to in the next following paragraph, an
officers' certificate to the effect that responsible officers of RAM Energy,
Inc. have conducted or supervised a review of the activities of RAM Energy, Inc.
and the Subsidiary Guarantors and their respective Subsidiaries and of
performance under the Indenture and that, to the best of such officers'
knowledge, based on their review, each of RAM Energy, Inc. and the Subsidiary
Guarantors has fulfilled all of its obligations under the Indenture or, if there
has been a Default, specifying each Default known to them, its nature and its
status. RAM Energy, Inc. will also be required to notify the Trustee of any
changes in the composition of the Board of Directors of RAM Energy, Inc. or any
of its Subsidiaries or of any amendment to the charter or bylaws of RAM Energy,
Inc. or any of its Subsidiaries.
Each of RAM Energy, Inc. and its Subsidiaries, where applicable, shall
deliver to the Trustee and to each Holder, copies of all reports and information
that it is required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act. In addition, whether or not required by the rules and
regulations of the Commission, RAM Energy, Inc. will file a copy of all such
information with the Commission for public availability (unless the Commission
will not accept such a filing) and make such information available to investors
or prospective investors who request it in writing.
Concurrently with the reports delivered pursuant to the preceding paragraph,
RAM Energy, Inc. will be required to deliver to the Trustee and to each Holder
annual and quarterly financial statements with appropriate footnotes of RAM
Energy, Inc. and its consolidated Subsidiaries, all prepared and presented in a
manner substantially consistent with those of RAM Energy, Inc. required by the
preceding paragraph.
RAM Energy, Inc. is required upon becoming aware of any Default or Event of
Default to deliver to the Trustee a statement specifying such Default or Event
of Default.
AMENDMENTS AND SUPPLEMENTS
The Indenture will contain provisions permitting RAM Energy, Inc., the
Subsidiary Guarantors and the Trustee to amend or supplement the Indenture or
the Notes for limited purposes without the consent of the Holders, including
curing ambiguities, defects or inconsistencies, releasing Subsidiary Guarantees
as described under the caption "-- Ranking and Subsidiary Guarantees" or making
any other change with respect to matters arising under the Indenture, so long as
such change does not adversely affect the rights of any of the Holders. With the
consent of the Holders of not less than a majority of the principal amount of
the Notes then outstanding, RAM Energy, Inc., the Subsidiary Guarantors and the
Trustee will be permitted to otherwise amend or supplement the Indenture;
PROVIDED that no such modification may, without the consent of the Holders of
not less than 66 2/3% of the principal amount of the Notes then outstanding, (i)
prior to the date on which a Change of Control Offer is required to be made,
amend, change or modify the obligation of RAM Energy, Inc. to make and
consummate a Change of Control Offer as required by the covenant described
herein under the caption "-- Repurchase of Notes at the Option of the Holder
Upon a Change of Control," or (ii) prior to the date upon which an Excess Cash
Offer is
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required to be made, amend, change or modify the obligation of RAM Energy, Inc.
to make and consummate an Excess Cash Offer required by the covenant described
herein under the caption "-- Certain Covenants -- Limitation on Asset Sales,";
PROVIDED further, that no such modification may, without the consent of each
Holder (a) change the stated maturity date or the date any installment of
principal of, or any installment of interest on, any Note is due, or reduce the
principal amount thereof or the rate of interest thereon or any premium payable
upon the redemption thereof, change the coin or currency in which, any Note or
any premium or the interest thereon is payable or impair the right to institute
suit for the enforcement of any such payment on or after the stated maturity
date thereof (or, in the case of redemption, on or after the redemption date),
(b) after the date upon which a Change of Control Offer is required to be made,
alter the provisions of the covenant described herein under the caption "--
Repurchase of Notes at the Option of the Holder Upon a Change of Control", (c)
after the date upon which an Excess Cash Offer is required to be made, alter the
provisions of the covenant described under the caption "-- Limitation on Asset
Sales", (d) reduce the percentage in principal amount of outstanding Notes, the
consent of which is required for any such amendment, supplemental indenture, or
waiver provided for in the Indenture, (e) modify certain of the amendment or
waiver provisions, except to increase any required percentage or to provide that
certain other provisions of the Indenture cannot be modified or waived without
the consent of all Holders of the Notes, (f) except as otherwise permitted under
the caption "-- Limitation on Merger, Sale or Consolidation," consent to the
assignment or transfer by RAM Energy, Inc. or any Subsidiary Guarantor of any of
their respective rights and obligations under the Indenture, (g) adversely
affect the ranking of the Notes or the Subsidiary Guarantees, or (h) release any
Subsidiary Guarantee in any case otherwise than in accordance with the terms of
the Indenture.
CONCERNING THE TRUSTEE
The Indenture will contain certain limitations on the rights of the Trustee,
should it become a creditor of RAM Energy, Inc. or any Subsidiary Guarantor, to
obtain payment of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise. The Trustee will
be permitted to engage in other transactions; however, if it acquires any
conflicting interests, it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue as Trustee or resign.
The Holders of a majority of the principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture will provide that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent person in the
conduct of his or her own affairs. Subject to such provisions, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of the Notes.
NO PERSONAL LIABILITY OF STOCKHOLDERS, OFFICERS OR DIRECTORS
No stockholder, officer, or director, as such, past, present, or future, of
RAM Energy, Inc. or any of its Subsidiaries or any successor corporation of any
of them shall have any personal liability in respect of the obligations of RAM
Energy, Inc. or such Subsidiary under the Notes, the Indenture or any Subsidiary
Guarantees by reason of his, her or its status as such stockholder, officer, or
director. Such waiver may not be effective to waive liabilities under federal
securities law, and it is the view of the Commission that such a waiver is
against public policy.
GOVERNING LAW
The Indenture, the Notes and the Subsidiary Guarantees will be governed by
the laws of the State of New York.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms contained in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Adjusted Consolidated Net Income" of RAM Energy, Inc. for any period means
the Net Income of RAM Energy, Inc. and its Subsidiary Guarantors for such
period, determined in accordance with GAAP, excluding (i) the Net Income of any
Unrestricted Subsidiary of RAM Energy, Inc. which is a consolidated Subsidiary
of RAM Energy, Inc. for such period and (ii) the amount of the deduction from
Net Income of RAM Energy, Inc. attributable to the minority interest in any
Unrestricted Subsidiary of RAM Energy, Inc. which is a consolidated Subsidiary
of RAM Energy, Inc. for such period.
"Adjusted Consolidated Net Tangible Assets" means (without duplication), as
of the date of determination, (i) the sum of (a) discounted future net revenue
from proved oil and gas reserves of RAM Energy, Inc. and the Subsidiary
Guarantors calculated in accordance with Commission guidelines before any state
or federal income taxes, as estimated or audited by independent petroleum
engineers in one or more Reserve Reports prepared as of the end of RAM Energy,
Inc.'s most recently completed fiscal year as increased by, as of the date of
determination, the discounted future net revenue of (A) estimated proved oil and
gas reserves of RAM Energy, Inc. and the Subsidiary Guarantors attributable to
any acquisition consummated since the effective date of such year-end Reserve
Reports and (B) estimated oil and gas reserves of RAM Energy, Inc. and the
Subsidiary Guarantors attributable to extensions, discoveries and other
additions and upward revisions of estimates of proved oil and gas reserves due
to exploration, development or exploitation, production or other activities
conducted or otherwise occurring since the effective date of such year-end
Reserve Reports which, in the case of sub-clauses (A) and (B), would, in
accordance with standard industry practice, result in such increases, in each
case calculated in accordance with Commission guidelines (utilizing the prices
utilized in such year-end Reserve Reports), and decreased by, as of the date of
determination, the discounted future net revenue of (C) estimated proved oil and
gas reserves of RAM Energy, Inc. and the Subsidiary Guarantors produced or
disposed of since the effective date of such year-end Reserve Reports and (D)
reductions in the estimated oil and gas reserves of RAM Energy, Inc. and the
Subsidiary Guarantors since the effective date of such year-end Reserve Reports
attributable to downward revisions of estimates of proved oil and gas reserves
due to exploration, development or exploitation, production or other activities
conducted or otherwise occurring since the effective date of such year-end
Reserve Reports which would, in accordance with standard industry practice,
result in such revisions, in each case calculated in accordance with Commission
guidelines (utilizing the prices utilized in such year-end Reserve Reports);
PROVIDED that, in the case of each of the determinations made pursuant to
sub-clauses (A) through (D) above, such increases and decreases shall be as
estimated by RAM Energy, Inc.'s engineers, except that if there is a Material
Change and in connection with the Incurrence of Indebtedness for which the
Consolidated Fixed Charge Coverage Ratio must be determined, all or any part of
an increase in discounted future net revenue resulting from the matters
described in sub-clauses (A) and (B) above is needed to permit the Incurrence of
such Indebtedness, then the discounted future net revenue utilized for purposes
of this clause (i) (a) shall be confirmed in writing by independent petroleum
engineers, PROVIDED further that, if the events referred to in sub-clauses (C)
and (D) above, when taken alone, would not cause a Material Change, then such
written confirmation need only cover the incremental additions to discounted
future net revenue resulting from the determinations made pursuant to
sub-clauses (A) and (B) above to the extent needed to permit the Incurrence of
such Indebtedness, (b) the capitalized costs that are attributable to oil and
gas properties of RAM Energy, Inc. and the Subsidiary Guarantors to which no
proved oil and gas reserves are attributed, based on RAM Energy, Inc.'s books
and records as of a date no earlier than the date of RAM Energy, Inc.'s latest
annual or quarterly financial statements, (c) the Net Working Capital on a date
no earlier than the date of RAM Energy, Inc.'s latest annual or quarterly
financial statements and (d) the greater of (A) the net book value on a date no
earlier than the date of RAM Energy, Inc.'s latest annual or quarterly financial
statements
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and (B) the appraised value, as estimated by independent appraisers, of other
tangible assets (including the amount of Investments in unconsolidated
Subsidiaries) of RAM Energy, Inc. and the Subsidiary Guarantors, as of a date no
earlier than the date of RAM Energy, Inc.'s latest audited financial statements,
minus (ii) the sum of (a) minority interests, (b) any non-current portion of gas
balancing liabilities of RAM Energy, Inc. and its Subsidiary Guarantors
reflected in RAM Energy, Inc.'s latest annual or quarterly financial statements,
(c) the discounted future net revenue, calculated in accordance with Commission
guidelines (utilizing the prices utilized in RAM Energy, Inc.'s year-end Reserve
Reports), attributable to reserves which are required to be delivered to third
parties to fully satisfy the obligations of RAM Energy, Inc. and its Subsidiary
Guarantors with respect to Production Payments on the schedules specified with
respect thereto, (d) the discounted future net revenue, calculated in accordance
with Commission guidelines (utilizing the same prices utilized in RAM Energy,
Inc.'s year-end Reserve Reports), attributable to reserves subject to
participation interests, overriding royalty interests or other interests of
third parties, pursuant to participation, partnership, vendor financing or other
agreements then in effect, or which otherwise are required to be delivered to
third parties and (e) the amount of environmental liabilities payable by RAM
Energy, Inc. or any Subsidiary Guarantor. If RAM Energy, Inc. changes its method
of accounting from the full cost method to the successful efforts method or a
similar method of accounting, Adjusted Consolidated Net Tangible Assets will
continue to be calculated as if RAM Energy, Inc. was still using the full cost
method of accounting.
"Affiliate" means (i) any Person, directly or indirectly, controlling or
controlled by or under direct or indirect common control with RAM Energy, Inc.
or any Subsidiary of RAM Energy, Inc. or any officer, director, or employee of
RAM Energy, Inc. or any Subsidiary of RAM Energy, Inc. or of such Person, (ii)
the spouse, any immediate family member, or any other relative who has the same
principal residence of any Person described in clause (i) above, and any Person,
directly or indirectly, controlling or controlled by or under direct or indirect
common control with, such spouse, family member or other relative, and (iii) any
trust in which any Person described in clause (i) or (ii), above, is a fiduciary
or has a beneficial interest. For purposes of this definition, the term
"control" means (i) the power to direct the management and policies of a Person,
directly or through one or more intermediaries, whether through the ownership of
voting securities, by contract, or otherwise, or (ii) the beneficial ownership
of 10% or more of the Voting Stock of such Person (on a fully diluted basis) or
of warrants or other rights to acquire such equity (whether or not presently
exercisable).
"Asset Sale" means (i) any direct or indirect conveyance, sale, transfer or
other disposition (including through damage or destruction for which Insurance
Proceeds are paid or by condemnation), in one transaction or a series of related
transactions, of any of the properties, businesses or assets of RAM Energy, Inc.
or any of its Restricted Subsidiaries whether owned on the Issue Date or
thereafter acquired or (ii) any sale or other disposition by RAM Energy, Inc. of
any Capital Stock of any Affiliate, Unrestricted Subsidiary or any Restricted
Subsidiary of RAM Energy, Inc. Notwithstanding the foregoing, the following will
not be deemed to be an Asset Sale: (a) the conveyance, sale, lease, transfer or
other disposition by any Restricted Subsidiary of RAM Energy, Inc. of any or all
of its assets (upon voluntary liquidation or otherwise) to RAM Energy, Inc.; (b)
the conveyance, sale, lease, transfer or other disposition by any Restricted
Subsidiary of RAM Energy, Inc. of any or all of its assets (upon voluntary
liquidation or otherwise) to another Restricted Subsidiary of RAM Energy, Inc.;
(c) non-material dispositions of assets in the ordinary course of business; (d)
Asset Sales not otherwise included by clauses (a) through (c) or (f) and (g) of
this sentence PROVIDED that the aggregate proceeds from all such Asset Sales do
not exceed $1.0 million in any twelve-month period; (e) the disposition of all
or substantially all of the assets of (A) RAM Energy, Inc. and the Subsidiary
Guarantors, taken as a whole, or (B) RAM Energy, Inc., if such disposition is
governed by the provisions of the covenant captioned "-- Repurchase of Notes at
the Option of the Holder Upon a Change of Control" or "-- Certain Covenants --
Limitation on Merger, Sale or Consolidation;" (f) a conveyance, sale,
assignment, lease, license, transfer, abandonment or other disposal by RAM
Energy, Inc. and the Subsidiary Guarantors of (A) damaged, worn out,
unserviceable or other obsolete property in the ordinary course of business or
(B) other property no longer necessary for the
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proper conduct of their business; and (g) the conveyance, sale, transfer or
other disposition by RAM Energy, Inc. and its Restricted Subsidiaries of crude
oil and natural gas production and refined products in the ordinary course of
business of the Oil and Gas Business.
"Attributable Indebtedness" in respect of a Sale and Leaseback Transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP or,
in the event that such rate of interest is not reasonably determinable,
discounted at the rate of interest borne by the Notes) of the obligation of the
lessee for net rental payments during the remaining term of the lease included
in such Sale and Leaseback Transaction (including any period for which such
lease has been extended or may, at the option of the lessor, be extended).
"Business Day" means any day other than a Saturday, Sunday or any other day
on which banking institutions in the city of New York, New York are required or
authorized by law or other governmental action to be closed.
"Capital Expenditures" of a Person means expenditures (whether paid in cash
or accrued as a liability) by such Person or any of its Subsidiaries that, in
conformity with GAAP, are or would be included in "capital expenditures,"
"additions to property, plant, or equipment" or comparable items in the
consolidated financial statements of such Person consistent with prior
accounting practices.
"Capital Stock" means, with respect to any Person, (i) any capital stock of
such Person and shares, interests, participations or other ownership interests
(however designated) of such Person, including without limitation, each class of
common stock and preferred stock of such Person, if such Person is a
corporation, (ii) each general or limited partnership interest or other equity
interest of such Person, if such Person is a partnership, (iii) each membership
or similar interest of such Person, if such Person is a limited liability
company and (iv) each other interest or participation that confers on a Person
the right to receive a share of the profits or losses of, or distribution of
assets of, the issuing Person, in each case, including any rights (other than
debt securities convertible into any such interests), warrants or options to
purchase any of the foregoing.
"Capitalized Lease Obligation" means obligations under a lease that are
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligations shall be
the capitalized amount of such obligations, as determined in accordance with
GAAP.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than one
year from the date of acquisition, (iii) certificates of deposit with maturities
of one year or less from the date of acquisition, bankers' acceptances with
maturities not exceeding one year, and overnight bank deposits, in each case,
with any Eligible Institution, (iv) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clauses
(ii) and (iii) entered into with any Eligible Institution, (v) commercial paper
rated "P-l," "A-l" or the equivalent thereof by Moody's Investors Service, Inc.
or Standard & Poor's Ratings Services, respectively, and in each case maturing
within 180 days after the date of acquisition, (vi) shares of money market
funds, including those of the Trustee, that invest solely in United States
dollars and securities of the types described in clauses (i) through (v), and
(vii) demand and time deposits and certificates of deposit with an Eligible
Institution or with commercial banks insured by the Federal Deposit Insurance
Corporation.
"Change of Control" means the occurrence of (i) the sale, lease, transfer,
conveyance or other disposition, in one or a series of related transactions, of
all or substantially all of the assets of RAM Energy, Inc. to any person (as
such term is used in Section 13(d)(3) of the Exchange Act) other than to a
Subsidiary Guarantor, (ii) RAM Energy, Inc. consolidates with or merges into
another Person or any Person consolidates with, or merges into, RAM Energy,
Inc., in any such event pursuant to a transaction in
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which the outstanding Voting Stock of RAM Energy, Inc. is changed into or
exchanged for cash, securities or other property, other than any such
transaction where (a) the outstanding Voting Stock of RAM Energy, Inc. is
changed into or exchanged for Voting Stock of the surviving or resulting Person
that is Qualified Capital Stock and (b) the holders of the Voting Stock of RAM
Energy, Inc. immediately prior to such transaction own, directly or indirectly,
not less than a majority of the Voting Stock of the surviving or resulting
Person immediately after such transaction, (iii) the adoption of a plan relating
to the liquidation or dissolution of RAM Energy, Inc. not involving a merger or
consolidation or a sale or other disposition of assets described in clause (i)
above, (iv) the consummation of any transaction (including, without limitation,
any merger or consolidation) the result of which is that any person (as defined
above), excluding the Permitted Holders, becomes the "beneficial owner" (as that
term is used in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of more than 50% of the total voting power of RAM Energy, Inc.'s
then outstanding Voting Stock; PROVIDED that the sale of Voting Stock of RAM
Energy, Inc. to a Person or Persons acting as underwriters in connection with a
firm commitment underwriting shall not constitute a Change of Control, or (v)
the first day on which a majority of the members of the Board of Directors of
RAM Energy, Inc. are not Continuing Directors (other than by action of the
Permitted Holders). For purposes of this definition, any transfer of an equity
interest of an entity that was formed for the purpose of acquiring Voting Stock
of RAM Energy, Inc. will be deemed to be a transfer of such portion of such
Voting Stock as corresponds to the portion of the equity of such entity that has
been so transferred.
"Change of Control Offer" shall have the meaning given to it under the
caption "-- Repurchase of Notes at the Option of the Holder Upon a Change of
Control."
"Change of Control Payment Date" shall have the meaning given to it under
the caption "-- Repurchase of Notes at the Option of the Holder Upon a Change of
Control."
"Change of Control Purchase Price" shall have the meaning given to it under
the caption "-- Repurchase of Notes at the Option of the Holder Upon a Change of
Control."
"Commission" means the Securities and Exchange Commission.
"Consolidated Fixed Charge Coverage Ratio" on any date means, with respect
to RAM Energy, Inc., the ratio, on a pro forma basis, of (i) the aggregate
amount of EBITDA attributable to continuing operations and businesses (exclusive
of the amounts attributable to operations and businesses discontinued or
disposed of, on a pro forma basis as if such operations and businesses were
discontinued or disposed of on the first day of the Reference Period) for the
Reference Period to (ii) the aggregate Consolidated Interest Expense (exclusive
of amounts attributable to discontinued operations and businesses on a pro forma
basis as if such operations and businesses were discontinued or disposed of on
the first day of the Reference Period, but only to the extent that the
obligations giving rise to such Consolidated Interest Expense would no longer be
obligations contributing to Consolidated Interest Expense subsequent to the date
of discontinuation or disposal) during the Reference Period; PROVIDED, that for
purposes of such computation, in calculating EBITDA and Consolidated Interest
Expense, (a) the transaction giving rise to the need to calculate the
Consolidated Fixed Charge Coverage Ratio shall be assumed to have occurred on
the first day of the Reference Period, (b) the Incurrence of any Indebtedness or
issuance of Disqualified Capital Stock or the retirement of any Indebtedness or
Capital Stock during the Reference Period or subsequent thereto shall be assumed
to have occurred on the first day of such Reference Period, and (c) Consolidated
Interest Expense attributable to any Indebtedness (whether existing or being
Incurred) bearing a floating interest rate shall be computed as if the rate in
effect on the date of determination had been the applicable rate for the entire
period, unless RAM Energy, Inc. or any of the Subsidiary Guarantors is a party
to a Swap Obligation (that remains in effect for the 12-month period after the
date of determination) that has the effect of fixing the interest rate on the
date of computation, in which case such rate (whether higher or lower) shall be
used.
"Consolidated Interest Expense" means, for any period, the aggregate
interest expense (without duplication), during such period in respect of all
Indebtedness of RAM Energy, Inc. and the Subsidiary
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Guarantors (including all commissions, discounts, other fees and charges owed
with respect to letters of credit and banker's acceptance financing and costs
associated with Swap Obligations) determined on a consolidated basis in
accordance with GAAP. For purposes of this definition, (i) interest on a
Capitalized Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined to be the rate of interest implicit in such Capitalized
Lease Obligation in accordance with GAAP (including Statement of Financial
Accounting Standards No. 13 of the Financial Accounting Standards Board), and
(ii) Consolidated Interest Expense attributable to any Indebtedness guaranteed
by RAM Energy, Inc. or a Subsidiary of such Person other than with respect to
Indebtedness of RAM Energy, Inc. or a Subsidiary Guarantor shall be deemed to be
the interest expense attributable to the item guaranteed.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of RAM Energy, Inc. who (i) was a member of such Board of
Directors on the Issue Date or (ii) was nominated for election or elected to
such Board of Directors with the approval of a majority of the Continuing
Directors who were members of such Board of Directors at the time of such
nomination or election.
"Covenant Defeasance" shall have the meaning given to it under the caption
"-- Legal Defeasance and Covenant Defeasance; Satisfaction and Discharge of the
Indenture."
"Default" means an event or condition, the occurrence of which is, or with
the lapse of time or giving of notice or both would be, an Event of Default.
"Disqualified Capital Stock" means, with respect to any Person, any Capital
Stock of such Person or its Subsidiaries that, by its terms or by the terms of
any security into which it is convertible or exchangeable, is, or upon the
happening of an event or the passage of time would be, required to be redeemed
or repurchased by such Person or its Subsidiaries, including at the option of
the holder, in whole or in part, or has, or upon the happening of an event or
passage of time would have, a redemption or similar payment due, on or prior to
the Stated Maturity Date.
"EBITDA" means for any period the sum of the Adjusted Consolidated Net
Income for such period, plus the sum, without duplication (and only to the
extent such amounts are deducted from net revenues in determining such Adjusted
Consolidated Net Income), of (i) the provision for federal and state income
taxes for such period, (ii) depreciation, depletion, and amortization for such
period, (iii) Consolidated Interest Expense for such period, determined, in each
case, on a consolidated basis for RAM Energy, Inc. and the Subsidiary Guarantors
otherwise in accordance with GAAP, (iv) any charge associated solely with the
prepayment of any Indebtedness (provided that neither the Incurrence of such
Indebtedness nor the making of such prepayment occurred in violation of any
provision of the Indenture) and (v) any other non-cash charges.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million and that is rated "A"
(or higher) according to Moody's Investors Service, Inc. or Standard & Poor's
Ratings Services at the time as of which any investment or rollover therein is
made.
"Excess Cash Acceptance Amount" shall have the meaning given to it under the
caption"-- Certain Covenants -- Limitation on Asset Sales."
"Excess Cash Offer" shall have the meaning given to it under the caption "--
Certain Covenants -- Limitation on Asset Sales."
"Excess Cash Offer Amount" shall have the meaning given to it under the
caption "-- Certain Covenants -- Limitation on Asset Sales."
"Excess Cash Offer Price" shall have the meaning given to it under the
caption "-- Certain Covenants -- Limitation on Asset Sales."
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"Excess Cash Offer Trigger Date" shall have the meaning given to it under
the caption "-- Certain Covenants -- Limitation on Asset Sales."
"Excess Cash Purchase Date" shall have the meaning given to it under the
caption "-- Certain Covenants -- Limitation on Asset Sales."
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the Commission thereunder.
"Exchange Assets" means assets acquired by RAM Energy, Inc. or any
Subsidiary Guarantor in exchange for assets of RAM Energy, Inc. or any
Subsidiary Guarantor in connection with an Asset Sale, which acquired assets
include proved reserves with a value that, together with the cash or Cash
Equivalents received therefor by RAM Energy, Inc. or such Subsidiary Guarantor,
is equal to or greater than the value of the proved reserves included in the
assets disposed of by RAM Energy, Inc. or such Subsidiary Guarantor in
connection with such Asset Sale; provided, that (i) ownership of such assets
does not violate the covenant "Limitation on Lines of Business" and (ii) during
any fiscal year, RAM Energy, Inc. and the Subsidiary Guarantors can collectively
acquire assets (other than proved reserves, cash or Cash Equivalents) with a
fair market value of up to $500,000 in exchange for assets of RAM Energy, Inc.
and the Subsidiary Guarantors, and such assets acquired by such Person shall
constitute "Exchange Assets" hereunder.
"GAAP" means generally accepted accounting principles as in effect in the
United States on the Issue Date applied on a basis consistent with that used in
the preparation of the audited financial statements of RAM Energy, Inc. included
in this Prospectus.
"Government Securities" means securities that are (i) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation of the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Security
or a specific payment of principal of or interest on any such Government
Security held by such custodian for the account of the holder of such depository
receipt; provided, that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
Government Security or the specific payment of principal of or interest on the
Government Security evidenced by such depository receipt.
"Hedging Contract" means an oil, gas or oil and gas purchase or hedging
agreement, and other agreement or arrangements, in each case, that is designed
to provide protection against fluctuations in the prices of oil or gas, or both.
"Holder" means any Person from time to time in whose name any Note is
registered on the Note Register.
"Hydrocarbons" means oil, natural gas, condensate, and natural gas liquids.
"Incur" means, with respect to any Indebtedness, to create, incur, assume,
guarantee or otherwise become liable for, contingently or otherwise, any
Indebtedness, and the term "Incurrence" when used as a noun shall have a
correlative meaning. Neither the accrual of interest nor the accretion of
original issue discount, nor the accretion of principal of a non-interest
bearing or other discount security shall be deemed the Incurrence of
Indebtedness.
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"Indebtedness" means, with respect to any Person, without duplication (i)
all liabilities, contingent or otherwise, of such Person (a) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof), (b) evidenced by bonds, notes, debentures,
or similar instruments or letters of credit or representing the balance deferred
and unpaid of the purchase price of any property acquired by such Person or
services received by such Person, but excluding trade account payables and
accrued liabilities arising in the ordinary course of business that are not
overdue by 90 days or being contested in good faith by appropriate proceedings,
promptly instituted and diligently pursued, (c) evidenced by bankers'
acceptances or similar instruments issued or accepted by banks or Swap
Obligations, (d) for the payment of money relating to a Capitalized Lease
Obligation, (e) for the Attributable Indebtedness associated with any Sale and
Leaseback Transaction or (f) for Production Payments, (ii) reimbursement
obligations of such Person with respect to letters of credit, (iii) all
liabilities of others of the kind described in the preceding clause (i) or (ii)
that such Person has guaranteed or that is otherwise its legal liability (to the
extent of such guarantee or other legal liability) other than for endorsements,
with recourse, of negotiable instruments in the ordinary course of business, and
(iv) all obligations secured by a Lien (other than Permitted Liens, except to
the extent the obligations secured by such Permitted Liens are otherwise
included in clause (i), (ii) or (iii) of this definition and are obligations of
such Person) to which the property or assets (including, without limitation,
leasehold interests and any other tangible or intangible property rights) of
such Person are subject, regardless of whether the obligations secured thereby
shall have been assumed by or shall otherwise be such Person's legal liability
(but, if such obligations are not assumed by such Person or are not otherwise
such Person's legal liability, the amount of such Indebtedness shall be deemed
to be limited to the fair market value of such property or assets determined as
of the end of the preceding fiscal quarter).
"Insurance Proceeds" means the interest in and to all proceeds (net of costs
of collection, including attorneys' fees) which now or hereafter may be paid
under any insurance policies now or hereafter obtained by or on behalf of RAM
Energy, Inc. or any Subsidiary Guarantor in connection with any assets thereof,
together with interest payable thereon and the right to collect and receive the
same, including, without limitation, proceeds of casualty insurance, title
insurance, business interruption insurance and any other insurance now or
hereafter maintained with respect to such assets.
"Interest Rate or Currency Agreement" of any Person means any forward
contract, futures contract, swap, option or other financial agreement or
arrangement (including, without limitation, caps, floors, collars, puts and
similar agreements) relating to, or the value of which is dependent upon,
interest rates or currency exchange rates.
"Investment" by any Person in any other Person means (i) the acquisition
(whether for cash, property, services, securities or otherwise) of Capital
Stock, bonds, notes, debentures, partnership, or other ownership interests or
other securities of such other Person or any agreement to make any such
acquisition, (ii) the making by such Person of any deposit with, or advance,
loan or other extension of credit to, such other Person (including the purchase
of property from another Person subject to an understanding or agreement,
contingent or otherwise, to resell such property to such other Person) and
(without duplication) any amount committed to be advanced, loaned or extended to
such other Person, (iii) the entering into of any guarantee of, or other
contingent obligation with respect to, Indebtedness or other liability of such
other Person, (iv) the entering into of any Swap Obligation with such other
Person, or (v) the making of any capital contribution by such Person to such
other Person.
"Investment Grade Rating" means with respect to any Person or issue of debt
securities or preferred stock, a rating in one of the four highest letter rating
categories (without regard to "+" or "-" or other modifiers) by any rating
agency or if any such rating agency has ceased using letter rating categories or
the four highest of such letter rating categories are not considered to
represent "investment grade" ratings, then the comparable "investment grade"
ratings (as designated by any such rating agency).
"Issue Date" means the date of first issuance of the Notes under the
Indenture.
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"Legal Defeasance" shall have the meaning given to it under the caption "--
Legal Defeasance and Covenant Defeasance; Satisfaction and Discharge of the
Indenture."
"Lien" means any mortgage, lien, pledge, charge, security interest, or other
encumbrance of any kind, regardless of whether filed, recorded, or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement and any lease deemed to constitute a security interest and
any option or other agreement to give any security interest).
"Material Change" means an increase or decrease (excluding changes that
result solely from changes in prices) of more than either (i) 10% from the end
of the immediately preceding fiscal quarter in the estimated discounted future
net revenue from proved oil and gas reserves of RAM Energy, Inc. and its
Restricted Subsidiaries, or (ii) 20% from the end of the immediately preceding
year in the estimated discounted future net revenue from proved oil and gas
reserves of RAM Energy, Inc. and its Restricted Subsidiaries, in each case
calculated in accordance with clause (i) (a) of the definition of Adjusted
Consolidated Net Tangible Assets; PROVIDED, however, that the following will be
excluded from the calculation of Material Change: (a) any acquisitions of oil
and gas reserves made after the end of the immediately preceding year for which
the discounted future net revenues have been estimated by independent petroleum
engineers since the end of the preceding year and on which a Reserve Report or
Reserve Reports exist and (b) any disposition of properties existing at the
beginning of the current quarter or current year, as the case may be, for
purposes of clause (i) or clause (ii) above, that have been disposed of in
accordance with the covenant described under the caption "-- Certain Covenants
- -- Limitation on Asset Sales."
"Net Cash Proceeds" means an amount equal to (i) the aggregate amount of
cash and Cash Equivalents received by RAM Energy, Inc. or any Restricted
Subsidiary of RAM Energy, Inc. in respect of an Asset Sale, less (ii) the sum of
(a) all reasonable out-of-pocket fees, commissions, and other expenses incurred
in connection with such Asset Sale, including the amount (estimated in good
faith by RAM Energy, Inc.) of income, franchise, sales and other applicable
taxes to be paid, payable or accrued by RAM Energy, Inc. or such Restricted
Subsidiary (in each case as estimated in good faith by RAM Energy, Inc. without
giving effect to tax attributes unrelated to such Asset Sale) in connection with
such Asset Sale, and (b) the aggregate amount of cash and Cash Equivalents so
received which is used to retire any then existing Indebtedness of RAM Energy,
Inc. or any Subsidiary Guarantor (other than the Notes), as the case may be,
which is secured by a Lien on the property which is the subject of the Asset
Sale or which is required by the terms of such Indebtedness to be repaid in
connection with such Asset Sale.
"Net Income" of any Person for any period means the net income (loss) of
such Person for such period, determined on a consolidated basis in accordance
with GAAP, excluding (without duplication) (i) all extraordinary, unusual and
nonrecurring gains, (ii) the net income, if positive, of any other Person, in
which such Person or any of its consolidated Subsidiaries has an interest,
except to the extent of the amount of any dividends or distributions actually
paid in cash to such Person or a consolidated Subsidiary of such Person during
such period, (iii) the net income, if positive, of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition and (iv) the net income, if positive, of any Subsidiary of such
Person to the extent that the declaration or payment of dividends or similar
distributions is not at the time permitted by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule, or
governmental regulation applicable to such Subsidiary.
"Net Proceeds" means (i) in the case of any sale by a Person of Qualified
Capital Stock or other securities, the aggregate net cash proceeds received by
such Person from the sale of such securities (if such Person is RAM Energy,
Inc., other than to a Restricted Subsidiary of RAM Energy, Inc., and if such
Person is not RAM Energy, Inc., other than to any of its consolidated
Subsidiaries) after payment of reasonable out-of-pocket expenses, commissions
and discounts incurred in connection therewith, and (ii) in the case of any
exchange, exercise, conversion or surrender of any outstanding securities or
Indebtedness of such Person for or into shares of Qualified Capital Stock of
such Person, the net book
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value of such outstanding securities as adjusted on the books of such Person or
Indebtedness of such Person to the extent recorded in accordance with GAAP, in
each case, on the date of such exchange, exercise, conversion or surrender (plus
any additional amount required to be paid by the holder of such Indebtedness or
securities to such Person upon such exchange, exercise, conversion or surrender
and less (i) any and all payments made to the holders of such Indebtedness or
securities and (ii) all other expenses incurred by such Person in connection
therewith, in each case, in so far as such payments or expenses are incident to
such exchange, exercise, conversion, or surrender).
"Net Working Capital" of any Person means (i) all current assets of such
Person and if such Person is RAM Energy, Inc., the Subsidiary Guarantors, and if
such Person is not RAM Energy, Inc., its Restricted Subsidiaries, minus (ii) all
current liabilities of such Person and its consolidated Subsidiaries other than
the current portion of long term Indebtedness, each item to be determined on a
consolidated basis in conformity with GAAP.
"Net Worth" of any Person means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of such Person and if such Person is RAM Energy,
Inc., the Subsidiary Guarantors, and if such Person is not RAM Energy, Inc., its
Restricted Subsidiaries (which balance sheet shall be as of a date not more than
90 days prior to the date of such computation), less any amounts included
therein attributable to Disqualified Capital Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
(not otherwise deducted from stockholders' equity), and the principal amount of
any promissory notes receivable from the sale of the Capital Stock of such
Person or if such Person is RAM Energy, Inc., any of the Subsidiary Guarantors,
and if such Person is not RAM Energy, Inc., its Restricted Subsidiaries, each
item to be determined in conformity with GAAP.
"Note Register" means the register maintained by or for RAM Energy, Inc. in
which RAM Energy, Inc. shall provide for the registration of the Notes and the
transfer of the Notes.
"Oil and Gas Assets" means assets and properties used in the Oil and Gas
Business.
"Oil and Gas Business" means the business of acquiring, holding, leasing,
selling, exploiting and developing Oil and Gas Assets, including the exploration
for, and exploitation, development, production, processing (but not refining),
purchasing, marketing and transportation of, Hydrocarbons and other related oil
and gas businesses.
"Oil and Gas Securities" means the Voting Stock of a Person engaged in the
Oil and Gas Business, provided that such Voting Stock shall constitute a
majority of the Voting Stock of such Person in the event that such Voting Stock
is not subject to the reporting requirements of the Exchange Act.
"Permitted Bank Credit Facility" means, with respect to any Person, a term,
revolving credit or letter of credit facility, or any combination of such
facilities, with a commercial banking institution, the proceeds of which are
used to acquire Oil and Gas Securities or Oil and Gas Assets, for working
capital and other general corporate purposes, as the same may be amended,
extended or refinanced from time to time.
"Permitted Hedging Transactions" means non-speculative transactions in
futures, forwards, swaps or option contracts (including both physical and
financial settlement transactions) engaged in by RAM Energy, Inc. and the
Subsidiary Guarantors as part of their normal business operations as a risk-
management strategy or hedge against adverse changes in the prices of natural
gas, feedstock or refined products which arise in the ordinary course of
business of RAM Energy, Inc. and the Subsidiary Guarantors; PROVIDED, that such
transactions do not in the case of RAM Energy, Inc. and the Subsidiary
Guarantors, on a monthly basis, relate to more than 90% of their combined
average net natural oil and gas production per month for the most recent 3-month
period measured at the time of such transaction; PROVIDED, further, that, at the
time of such transaction (i) the counterparty to any such transaction is an
Eligible Institution or a Person that has an Investment Grade Rating or has an
issue of debt securities or preferred stock outstanding with an Investment Grade
Rating or (ii) such counterparty's obligation pursuant to such transaction is
unconditionally guaranteed in full by, or secured by a letter of credit issued
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by, an Eligible Institution or a Person that has an Investment Grade Rating or
that has an issue of debt securities or preferred stock outstanding with an
Investment Grade Rating.
"Permitted Holders" means Dr. William W. Talley II, Larry E. Lee, William
Stuart Price and M. Helen Bennett (or (i) their heirs, their estates or any
trusts in which they or any of their immediate family members own, directly or
indirectly, a beneficial interest in excess of 50% or (ii) any corporation,
partnership or other legal entity in which they own, directly or indirectly, a
beneficial interest in excess of 50%).
"Permitted Indebtedness" means, without duplication, (i) the Indebtedness
evidenced by the Offered Notes or the Subsidiary Guarantees, (ii) Indebtedness
owed by any Subsidiary Guarantor to RAM Energy, Inc. or any other Subsidiary
Guarantor or Indebtedness owed by RAM Energy, Inc. to any Subsidiary Guarantor;
PROVIDED that in each case, (a) such Indebtedness is Subordinated Indebtedness,
and (b) upon any subsequent issuance or transfer of any Capital Stock or any
other event that results in any such Subsidiary Guarantor ceasing to be a
Subsidiary Guarantor or any other subsequent transfer of any such Indebtedness
(except to RAM Energy, Inc. or a Subsidiary Guarantor), such Indebtedness shall
be deemed to be Incurred and shall be treated as an Incurrence of Indebtedness
for purposes of the "-- Limitation on Incurrences of Additional Indebtedness and
Issuances of Disqualified Capital Stock" covenant at the time the Subsidiary
Guarantor in question ceased to be a Subsidiary Guarantor or the time such
subsequent transfer occurred, (iii) Indebtedness outstanding under a Permitted
Bank Credit Facility so long as the aggregate principal amount of all
Indebtedness outstanding under all Permitted Bank Credit Facilities for RAM
Energy, Inc. and the Subsidiary Guarantors does not exceed $25.0 million less
the amount of Net Cash Proceeds from any Asset Sale applied pursuant to the
covenant "-- Limitation on Asset Sales" to repay or prepay such Indebtedness
that results in a permanent reduction relating thereto, (iv) Swap Obligations of
RAM Energy, Inc. or the Subsidiary Guarantors, (v) Indebtedness outstanding on
the Issue Date (and not repaid with the proceeds of the Offering), (vi)
Indebtedness owed by RAM Energy, Inc. or the Subsidiary Guarantors in an
aggregate principal amount outstanding not to exceed $5.0 million at any one
time, whether of the same type as permitted by clauses (i) through (iv) of this
definition or otherwise and (vii) Permitted Refinancing Indebtedness of RAM
Energy, Inc. and the Subsidiary Guarantors.
"Permitted Investment" means, when used with reference to RAM Energy, Inc.
or any Subsidiary Guarantor, (i) trade credit extended to Persons in the
ordinary course of business, (ii) purchases of Cash Equivalents, (iii)
Investments by RAM Energy, Inc. or the Subsidiary Guarantors in Persons which
are or which will, contemporaneously with the making of such Investment, become
wholly-owned Subsidiaries of RAM Energy, Inc. and Subsidiary Guarantors and are
engaged in the Oil and Gas Business, (iv) Investments in Oil and Gas Assets, (v)
Investments in any Person the sole consideration for which consists of Qualified
Capital Stock of RAM Energy, Inc., (vi) Interest Rate and Currency Agreements
with respect to Permitted Bank Credit Facilities entered into with one or more
financial institutions that are lender parties thereto in the ordinary course of
business and not for the purposes of speculation and that is designed to protect
RAM Energy, Inc. against risks or fluctuations in interest rates related to
payment obligations existing and arising under such Permitted Bank Credit
Facilities and Swap Obligations, (vii) advances to officers and employees of RAM
Energy, Inc. or any Subsidiary Guarantor in connection with the performance of
their duties in the ordinary course of business in an amount not to exceed
$250,000 in the aggregate outstanding at any time, (viii) margin deposits in
connection with Permitted Hedging Transactions, (ix) Investments and
expenditures made in the ordinary course of business by RAM Energy, Inc. or the
Subsidiary Guarantors, and of a nature that is or shall have become customary
in, the Oil and Gas Business as a means of actively exploiting, exploring for,
acquiring, developing, enhanced recovery of, processing, gathering, purchasing,
selling, marketing or transporting oil or gas through agreements, transactions,
interests or arrangements, including arrangements which permit a Person to share
risks or costs, comply with regulatory requirements regarding local ownership or
satisfy other objectives customarily achieved through the conduct of the Oil and
Gas Business jointly with third parties, including, without limitation, (a)
ownership interests in Oil and Gas Assets or gathering systems and
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(b) Investments and expenditures in the form of or pursuant to operating
agreements, processing agreements, farm-in agreements, farm-out agreements,
development agreements, area of mutual interest agreements, unitization
agreements, pooling arrangements, joint bidding agreements, service contracts,
joint venture agreements, partnership agreements (whether general or limited),
subscription agreements, stock purchase agreements and other similar agreements
with third parties; PROVIDED that in the case of any joint venture engaged in
processing, gathering, marketing or transporting oil or gas (1) all Indebtedness
of such joint venture (other than a joint venture that is an Unrestricted
Subsidiary) that would not otherwise constitute Indebtedness of RAM Energy, Inc.
or a Subsidiary Guarantor shall be deemed Indebtedness of such Person in
proportion to its direct or indirect ownership interest in such joint venture
and (2) such joint venture shall be reasonably calculated to enhance the value
of the reserves of such Person or marketability of production from such
reserves, (x) other Investments not in excess of $2.5 million at any time
outstanding, and (xi) loans made to officers, directors and employees of RAM
Energy, Inc. or any of the Subsidiary Guarantors approved by the applicable
Board of Directors (or by an authorized officer), the proceeds of which are used
solely to purchase stock or to exercise stock options received pursuant to an
employee stock option plan or other incentive plan, in a principal amount not to
exceed the purchase price of such stock or the exercise price of such stock
options, as applicable.
"Permitted Liens" with respect to any Person means (i) Liens imposed by
governmental authorities for taxes, assessments, or other charges not yet due or
which are being contested in good faith and by appropriate proceedings, if
adequate reserves with respect thereto are maintained on the books of any such
Person in accordance with GAAP, (ii) statutory Liens of landlords, carriers,
warehousemen, mechanics, materialmen, repairmen, vendors, mineral interest
owners, or other like Liens arising by operation of law in the ordinary course
of business PROVIDED that (a) the underlying obligations are not overdue for a
period of more than 60 days, or (b) such Liens are being contested in good faith
and by appropriate proceedings and adequate reserves with respect thereto are
maintained on the books of any such Person in accordance with GAAP, (iii)
deposits of cash or Cash Equivalents to secure the performance of bids, trade
contracts (other than borrowed money), leases, statutory obligations, surety
bonds, performance bonds, and other obligations of a like nature incurred in the
ordinary course of business (or to secure reimbursement obligations or letters
of credit issued to secure such performance or other obligations), (iv)
easements, rights-of-way, zoning, similar restrictions and other similar
encumbrances or title defects incurred in the ordinary course of business which,
in the aggregate, are not material in amount and which do not, in any case,
materially detract from the value of the property subject thereto or materially
interfere with the ordinary conduct of the business of such Person, (v) Liens
securing the Notes, any Subsidiary Guarantee or any Permitted Bank Credit
Facility, (vi) pledges or deposits made in the ordinary course of business in
connection with worker's compensation, unemployment insurance, other types of
social security legislation, property insurance and liability insurance, (vii)
Liens on the assets of any Person existing at the time such assets are acquired
by such Person, whether by merger, consolidation, purchase of assets or
otherwise so long as such Liens (a) are not created, incurred or assumed in
contemplation of such assets being acquired by such Person and (b) do not extend
to any other assets of such Person, (viii) leases or subleases granted to others
(to the extent of any such lessee's normal and customary usage rights
thereunder) or obtained from others (to the extent of any such lessor's title
thereunder), in either case, that do not materially interfere with the ordinary
course of business of any of such Person, (ix) Liens ordinarily and customarily
arising under operating agreements, and (x) any extension, renewal or
replacement of the Liens created pursuant to any of clauses (i) through (ix),
PROVIDED that such Liens would have otherwise been permitted under such clauses,
and PROVIDED further that the Liens permitted by this clause (x) do not secure
any additional Indebtedness or encumber any additional property.
"Permitted Refinancing Indebtedness" means any Indebtedness of a Person
issued in exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease or refund, other Indebtedness of such Person;
PROVIDED that (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) then outstanding of the Indebtedness for which
the exchange is made or so extended,
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refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith), (ii) such Permitted
Refinancing Indebtedness (other than Indebtedness under Permitted Bank Credit
Facilities) has a final maturity date later than the final maturity date of, and
has a weighted average life equal to or greater than the weighted average life
of, the Indebtedness for which the exchange is made or being extended,
refinanced, renewed, replaced, defeased or refunded, (iii) if the Indebtedness
for which the exchange is made or being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the Notes or any
Subsidiary Guarantee (as the case may be), such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes or any Subsidiary
Guarantee (as the case may be), on terms at least as favorable to the Holders of
Notes or any Subsidiary Guarantee (as the case may be) as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded, and (iv) with respect to any such Indebtedness
of RAM Energy, Inc. for which the exchange is made or being extended,
refinanced, renewed, replaced, defeased or refunded, such Permitted Refinancing
Indebtedness shall not be Incurred by any Subsidiary Guarantor.
"Person" means any corporation, individual, joint stock company, joint
venture, partnership, limited liability company, unincorporated association,
governmental regulatory entity, country, state, or political subdivision
thereof, trust, municipality, or other entity.
"Preferred Stock" means, with respect to any Person, any class or classes
(however designated) of Capital Stock of such Person that is preferred as to the
payment of dividends, or as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such Person over shares of Capital
Stock of any other class of such Person.
"Production Payment" means any volumetric or dollar-denominated production
payment or other similar burden on the property of RAM Energy, Inc. or any of
its Subsidiary Guarantors.
"Public Equity Offering" means an underwritten public offering, subsequent
to the Issue Date, by a nationally recognized member of the National Association
of Securities Dealers, Inc. of Qualified Capital Stock of RAM Energy, Inc.
pursuant to an effective registration statement filed with the Commission
pursuant to the Securities Act.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Reference Period" with regard to any Person means the four full fiscal
quarters of such Person ended on or immediately preceding any date upon which
any determination is to be made pursuant to the terms of the Notes or the
Indenture.
"Reserve Report" means a report prepared by independent petroleum engineers
with respect to Hydrocarbon reserves in accordance with guidelines published by
the Commission.
"Restricted Investment" means (i) the designation of a Subsidiary as an
Unrestricted Subsidiary in the manner described in the definition of
Unrestricted Subsidiary and (ii) any Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary of such Person.
"Sale and Leaseback Transaction" means an arrangement relating to property
owned on the Issue Date or thereafter acquired whereby a Person or a Subsidiary
of such Person transfers such property to another Person and leases it back from
such other Person.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Stated Maturity Date" means , 2008.
"Subordinated Indebtedness" means Indebtedness of RAM Energy, Inc. or a
Subsidiary Guarantor that (i) requires no payment of principal prior to or on
the Stated Maturity Date and (ii) is expressly subordinate and junior in right
of payment to the Notes or the Subsidiary Guarantees, as the case may be.
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"Subsidiary" with respect to any Person means, as of each relevant time, (i)
a corporation with respect to which such Person or its Subsidiaries (or any
combination thereof) own or control, directly or indirectly, at least 50% of
such corporation's Voting Stock, (ii) a partnership in which such Person or a
Subsidiary of such Person is, at the time, a general partner of such partnership
and has more than 50% of the total voting power of partnership interests, or
(iii) any other Person (other than a corporation or a partnership) in which such
Person, one or more Subsidiaries of such Person, or such Person and one or more
Subsidiaries of such Person, directly or indirectly, has (a) at least a 50%
ownership interest or (b) the power to elect or direct the election of the
directors or other governing body of such other Person.
"Subsidiary Guarantee" means any guarantee of the Notes by any Subsidiary
Guarantor pursuant to the provisions of the Indenture.
"Subsidiary Guarantors" means (i) RB Operating Company, a Delaware
corporation, (ii) RLP Gulf States, L.L.C., an Oklahoma limited liability
company, and (iii) each other Person that guarantees the payment and performance
of the Notes in accordance with the provisions of the Indenture, in each case,
until any such Person shall be released and relieved of its obligations as a
Subsidiary Guarantor pursuant to the provisions of the Indenture.
"Swap Obligation" of any Person means any Interest Rate or Currency
Agreement or Hedging Contract entered into with one or more financial
institutions or one or more futures exchanges in the ordinary course of business
and not for purposes of speculation that is designed to protect such Person
against risks or fluctuations that arise in the ordinary course of business of
RAM Energy, Inc. and the Subsidiary Guarantors in (i) interest rates related to
payment obligations on Indebtedness (other than Permitted Indebtedness)
permitted to be Incurred as described under the caption "-- Certain Covenants --
Limitation on Incurrences of Additional Indebtedness and Issuances of
Disqualified Capital Stock" and which shall have a notional amount no greater
than 100% of the principal amount of such Indebtedness being hedged thereby,
(ii) currency exchange rate fluctuations related to the payment obligations on
Indebtedness (other than Permitted Indebtedness) permitted to be Incurred as
described under the caption "-- Certain Covenants -- Limitation on Incurrences
of Additional Indebtedness and Issuances of Disqualified Capital Stock" or to
the foreign currency cash flows reasonably expected to be generated by RAM
Energy, Inc. and the Subsidiary Guarantors and the notional principal amount of
such currency exchange obligations does not exceed the amount of such foreign
currency cash flows to which they relate, or (iii) fluctuations in oil and gas
prices.
"Unrestricted Non-Recourse Indebtedness" of any Unrestricted Subsidiary
means (i) Indebtedness of such Person that is secured solely (other than with
respect to clause (ii) below) by a Lien upon the stock of an Unrestricted
Subsidiary of such Person and as to which there is no recourse (other than with
respect to clause (ii) below) against such Person or any of its assets other
than against such stock (and the dollar amount of any Indebtedness of such
Person as described in this clause (i) shall be deemed to be zero for purposes
of all other provisions of the Indenture) and (ii) guarantees of the
Indebtedness of Unrestricted Subsidiaries of such Person.
"Unrestricted Subsidiary" means, in respect of any Person, any other Person
("Other Person") that would, but for this definition of "Unrestricted
Subsidiary" be a Restricted Subsidiary of such Person organized or acquired
after the Issue Date as to which all of the following conditions apply: (i)
neither such Person nor any of its other Subsidiaries provides, or is obligated
to provide, any credit support of any Indebtedness, or other financial support,
of such Other Person (including any undertaking, agreement or instrument
evidencing such Indebtedness or maintenance or preservation of such Other
Person's financial condition or to cause such Other Person to achieve any
specified levels of operating results); (ii) such Other Person is not liable,
directly or indirectly, with respect to any Indebtedness other than Unrestricted
Subsidiary Indebtedness and does not own any Capital Stock of, or own or hold
any Lien on any property of, such Person or any of its other Restricted
Subsidiaries; (iii) neither such Person nor any of its Restricted Subsidiaries
has made an Investment in such Other Person unless such Investment was permitted
by the provisions as described under the caption "-- Certain Covenants --
Limitation on Restricted Payments," and neither such Person nor any of its
Restricted Subsidiaries has any obligations to make any Investment
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in such Other Person; (iv) such Other Person, either alone or in the aggregate
with all other Unrestricted Subsidiaries, does not operate or own, directly or
indirectly, any significant portion of the assets or business of such Person and
its other Subsidiaries; and (v) the Board of Directors of such Person, as
provided below, shall have designated such Other Person to be an Unrestricted
Subsidiary on or prior to the date of organization or acquisition of such Other
Person. Any such designation by the Board of Directors of such Person shall be
evidenced to the Trustee by delivering to the Trustee a resolution thereof
giving effect to such designation and an officers' certificate certifying that
such designation complies with the foregoing conditions and was permitted by the
covenant as described under the caption "-- Certain Covenants -- Limitation on
Restricted Payments." TEXTUAL REFERENCES HEREIN TO AN "UNRESTRICTED SUBSIDIARY"
SHALL REFER TO AN UNRESTRICTED SUBSIDIARY OF RAM ENERGY, INC., UNLESS THE
CONTEXT OTHERWISE EXPRESSLY PROVIDES.
"Unrestricted Subsidiary Indebtedness" means, as to any Unrestricted
Subsidiary of any Person, Indebtedness of such Unrestricted Subsidiary (i) as to
which neither such Person nor any Subsidiary of such Person (a) is directly or
indirectly liable (by virtue of such Person or any such Subsidiary being the
primary obligor on, guarantor of, general partner of, or otherwise liable in any
respect to, such Indebtedness), or (b) constitutes a lender, (ii) no default
with respect to which would permit any holder of any Indebtedness of such Person
or any Subsidiary of such Person to declare a default on such Indebtedness of
such Person or any Subsidiary of such Person or cause the payment thereof to be
accelerated or payable prior to its stated maturity, and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of such Person or any of its Subsidiaries.
"Voting Stock" means Capital Stock of a Person entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers, trustees or similar persons of such Person.
BOOK ENTRY; DELIVERY AND FORM
The Notes will initially be issued in the form of one or more fully
registered global notes (collectively, the "Global Note"). The Global Note will
be deposited on the Issue Date with, or on behalf of, The Depository Trust
Company, New York, New York (the "Depository") and registered in the name of
Cede & Co., as nominee of the Depository (such nominee being referred to herein
as the "Global Note Holder").
The Depository is a limited-purpose trust company organized under the
Banking Law of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. The Depository was created to hold securities for its
participating organizations (collectively, the "Participants" or the
"Depository's Participants") and to facilitate the clearance and settlement of
transactions in such securities between Participants through electronic book-
entry changes in accounts of its Participants. The Depository's Participants
include securities brokers and dealers (including the Underwriter), banks and
trust companies, clearing corporations and certain other organizations, some of
which (and/or representatives) own the Depository. Access to the Depository's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies (collectively, the "Indirect Participants" or the
"Depository's Indirect Participants") that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly. Persons who are
not Participants may beneficially own securities held by or on behalf of the
Depository only through the Depository's Participants or the Depository's
Indirect Participants.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Note, the Depository will credit the
accounts of Participants designated by the Underwriter with portions of the
principal amount of the Global Note and (ii) ownership of beneficial interests
in the Global Note will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the Depository (with respect to
such interests of the Depository's Participants), the Depository's Participants
and the Depository's Indirect Participants. A beneficial owner is the person who
has the right to sell, transfer or otherwise dispose of an interest in the Notes
and the right to receive the proceeds therefrom, as well as principal, premium
(if any) and interest payable in respect of the Notes. The
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beneficial owner must rely on the foregoing arrangements to evidence its
interest in the Notes. Beneficial ownership of the Notes may be transferred only
by complying with the procedures of a beneficial owner's Participant (e.g., a
brokerage firm) and the Depository. The laws of some states require that certain
persons take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer beneficial interests in the Global Note is
limited to such extent.
So long as the Global Note Holder is the registered owner of the Global
Note, the Global Note Holder will be considered the sole Holder under the
Indenture of the Notes for all purposes under the Indenture and any applicable
laws. Except as provided below, beneficial owners of the Global Note will not be
entitled to have the Notes registered in their names, will not receive or be
entitled to receive physical delivery of the Notes in definitive form and will
not be considered the owners or Holders thereof under the Indenture for any
purpose.
All rights of ownership must be exercised through the Depository and the
book-entry system, and notices that are to be given to registered owners by RAM
Energy, Inc. or the Trustee will be given only to the Depository. It is expected
that the Depository will forward notices to the Participants who will in turn
forward notices to the beneficial owners. Neither RAM Energy, Inc., the Trustee,
the Paying Agent nor the Registrar will have any responsibility or obligation to
assure that any notices are forwarded by the Depository to any Participant or by
any Participant to the beneficial owners. Neither RAM Energy, Inc., the Trustee,
the Paying Agent nor the Registrar will have any responsibility or liability for
any aspect of the records relating to, or payments made on account of,
beneficial ownership interests in the Global Note, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
Payments in respect of the principal of, premium, if any, and interest on
the Global Note registered in the name of the Global Note Holder on the
applicable record date will be made by RAM Energy, Inc. through the Paying Agent
to or at the direction of the Global Note Holder in its capacity as the
registered Holder under the Indenture. Under the terms of the Indenture, RAM
Energy, Inc. and the Trustee will treat the persons in whose names Notes,
including the Global Note, are registered as the owners thereof for the purpose
of receiving such payments. Consequently, neither RAM Energy, Inc. nor the
Trustee nor any Paying Agent has or will have any responsibility or liability
for the payment of such amounts to beneficial owners in the Global Note. RAM
Energy, Inc. believes, however, that it is currently the policy of the
Depository to immediately credit the accounts of the relevant Participants with
such payments, in amounts proportionate to their respective holdings of
beneficial interests in the relevant security as shown on the records of the
Depository. Payments by the Depository's Participants and the Depository's
Indirect Participants to the beneficial owners in the Global Note will be
governed by standing instructions and customary practice and will be the
responsibility of the Depository's Participants or the Depository's Indirect
Participants.
As long as the Notes are represented by a Global Note, the Depository's
nominee will be the Holder of the Notes and therefore will be the only entity
that can exercise a right to require the repurchase the Notes. See "-- Certain
Covenants -- Limitation on Asset Sales" and "-- Repurchase of Notes at the
Option of the Holder Upon a Change of Control." Notice by Participants or
Indirect Participants or by owners of beneficial interests in a Global Note held
through such Participants or Indirect Participants of the exercise of the option
to elect to require the repurchase of beneficial interests in Notes represented
by the Global Note must be transmitted to the Depository in accordance with its
procedures on a form required by the Depository and provided to Participants. To
ensure that the Depository's nominee will timely exercise a right to require
repurchase with respect to a particular Note, the beneficial owner of such Note
must instruct the broker or other Participant or Indirect Participant through
which it holds an interest in such Note to notify the Depository of its desire
to exercise a right to require repurchase. Different firms have different
cut-off times for accepting instructions from their customers and, accordingly,
each beneficial owner should consult the broker or other Participant or Indirect
Participant through which it holds an interest in a Note in order to ascertain
the cut-off time by which such an instruction must be given in order for timely
notice to be delivered to the Depository. RAM Energy, Inc. will not be liable
for any delay in delivery of notices of the exercise of any option to elect to
repurchase any Note.
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If (i) RAM Energy, Inc. notifies the Trustee in writing that the Depository
is no longer willing or able to act as a depository and RAM Energy, Inc. is
unable to locate and appoint a qualified successor within 90 days or (ii) RAM
Energy, Inc., at its option, notifies the Trustee in writing that it elects to
cause the issuance of Notes in the form of Definitive Notes (as defined herein)
under the Indenture, then, upon surrender by the Global Note Holder of its
Global Note, Notes in such form will be issued to each person that the Global
Note Holder and the Depository identify as being the beneficial owner of the
related Notes.
Neither RAM Energy, Inc. nor the Trustee will be liable for any delay by the
Global Note Holder or the Depository in identifying the beneficial owners of
Notes and RAM Energy, Inc. and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depository for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments on the Global Note (including
principal, premium, if any, and interest) registered in the name of the Global
Note Holder be made by wire transfer of immediately available funds to the
account specified by the Global Note Holder. With respect to Notes issued in
registered certificated form ("Definitive Notes"), RAM Energy, Inc. will make
all payments of principal, premium, if any, and interest by wire transfer of
immediately available funds to the accounts specified by the Holders thereof or,
if no such account is specified, by mailing a check to each such Holder's
registered address. The Notes represented by the Global Note are expected to
trade in the Depository's Same-Day Funds Settlement System, and any permitted
secondary market trading activity in such Notes will, therefore, be required by
the Depository to be settled in immediately available funds. RAM Energy, Inc.
expects that secondary trading in Definitive Notes will also be settled in
immediately available funds.
CERTAIN TAX CONSIDERATIONS
The following is a general discussion of certain U.S. federal income tax
considerations relevant to holders of the Notes. This discussion is based upon
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, Internal Revenue Service ("IRS") rulings and judicial decisions now
in effect, all of which are subject to change (possibly with retroactive effect)
or different interpretations. This discussion does not purport to deal with all
aspects of federal income taxation that may be relevant to a particular
investor's decision to purchase the Notes, and it is not intended to be wholly
applicable to all categories of investors, some of which, such as dealers in
securities, financial institutions, insurance companies, tax-exempt
organizations, or investors who have hedged the risk of owning Notes, may be
subject to special rules. In addition, this discussion is limited to persons
that will hold the Notes represented thereby as a "capital asset" within the
meaning of section 1221 of the Code.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF THE NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL TAX LAWS OR ANY STATE,
LOCAL OR FOREIGN TAX LAWS, AND ANY CHANGES (OR PROPOSED CHANGES) IN APPLICABLE
TAX LAWS OR INTERPRETATIONS THEREOF.
INTEREST INCOME
Interest on the Notes will be includable in the income of a holder as
ordinary income under the holder's regular method of accounting. The Notes will
not be treated as having been issued with original issue discount.
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MARKET DISCOUNT
Investors acquiring Notes pursuant to this Prospectus, other than at
original issuance of the Notes, should note that the resale of the Notes may be
adversely affected by the market discount provisions of sections 1276 through
1278 of the Code. Under the market discount rules, if a holder of a Note (other
than a holder who purchased the Note upon original issuance) purchases it at a
market discount (i.e., at a price below its stated redemption price at maturity)
in excess of a statutorily-defined de minimis amount and thereafter recognizes
gain upon a disposition or retirement of the Note, then the lesser of the gain
recognized or the portion of the market discount that accrued on a ratable basis
(or, if elected, on a constant interest rate basis) generally will be treated as
ordinary income at the time of the disposition. Moreover, any market discount in
a Note may be taxable to an investor to the extent of appreciation in the value
of the Note at the time of certain otherwise non-taxable transactions (e.g.,
gifts). Absent an election to include market discount in income as it accrues, a
holder of a market discount Note may be required to defer a portion of any
interest expense that otherwise may be deductible on any indebtedness incurred
or maintained to purchase or carry such Note until the holder disposes of the
Note in a taxable transaction.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
Each holder of a Note generally will recognize gain or loss on the sale,
exchange, redemption, retirement or other disposition of the Note measured by
the difference (if any) between (i) the amount of cash and the fair market value
of any property received (except to the extent that such cash or other property
is attributable to the payment of accrued interest not previously included in
income, which amount will be taxable as ordinary income) and (ii) the holder's
adjusted tax basis in the Note (generally, the cost of the Note plus any market
discount previously included in income by the holder, less any principal
payments received by the holder). Any such gain or loss recognized on the sale,
exchange, redemption, retirement or other disposition of a Note should be
capital gain or loss (except as discussed under "Market Discount" above), and
would be long-term capital gain or loss if the Note had been held for more than
one year at the time of the sale or exchange. If the Note had been held for more
than 18 months, such capital gain generally would be subject to tax at a maximum
20% rate.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A holder of Notes may be subject to "backup withholding" at a rate of 31%
with respect to certain "reportable payments," including interest payments and,
under certain circumstances, principal payments on the Notes. These backup
withholding rules apply if the holder, among other things, (i) fails to furnish
a social security number or other taxpayer identification number ("TIN")
certified under penalties of perjury within a reasonable time after the request
therefor, (ii) furnishes an incorrect TIN, (iii) fails to properly report
interest or (iv) fails to provide a certified statement, signed under penalties
of perjury, that the TIN furnished is the correct number and that such holder is
not subject to backup withholding. A holder who does not provide the Company
with its correct TIN also may be subject to penalties imposed by the IRS. Any
amount withheld from a payment to a holder under the backup withholding rules is
creditable against the holder's federal income tax liability, provided that the
required information is furnished to the IRS. Backup withholding will not apply,
however, with respect to payments made to certain holders, including
corporations and tax-exempt organizations ("exempt recipients"), provided their
exemptions from backup withholding are properly established.
The amount of any "reportable payments", including interest, made to the
holders of Notes (other than to holders which are exempt recipients) and the
amount of tax withheld, if any, with respect to such payments will be reported
to such holders and to the IRS for each calendar year.
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FOREIGN HOLDERS
The following discussion is a summary of certain U.S. federal income tax and
estate tax consequences to a Foreign Person that holds a Note. As used herein,
the term "Foreign Person" means a nonresident alien individual, a foreign
corporation, a nonresident alien fiduciary of a foreign estate or trust, or a
foreign partnership, but only if the income or gain on the Note is not
"effectively connected with the conduct of a trade or business within the U.S."
If the income or gain on the Note is "effectively connected with the conduct of
a trade or business within the U.S.," then the foreign individual, corporation,
estate, trust or partnership will be subject to tax on such income or gain in
essentially the same manner as a comparable U.S. holder of Notes, as discussed
above, and in the case of a foreign corporation, may also be subject to the
branch profits tax.
Under the portfolio interest exception to the general rules for the
withholding of tax on interest paid to a Foreign Person, a Foreign Person will
not be subject to U.S. federal income tax (or to withholding) on interest
payments on a Note, provided that (i) the Foreign Person does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of the Company entitled to vote and is not a controlled foreign
corporation with respect to the U.S. that is related to the Company actually or
constructively through stock ownership and (ii) the Company, its paying agent or
the person who would otherwise be required to withhold tax receives either (A) a
statement (an "Owner's Statement") signed under penalties of perjury by the
beneficial owner of the Note in which the owner certifies that the owner is not
a U.S. person, or, in the case of an individual, that he is neither a citizen
nor a resident of the United States, and which provides the owner's name and
address, or (B) a statement signed under penalties of perjury by the Financial
Institution holding the Note on behalf of the beneficial owner, together with a
copy of the Owner's Statement. As used herein, the term "Financial Institution"
means a securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
and that holds a Note on behalf of the owner of the Note. A Foreign Person who
does not qualify for the "portfolio interest" exception, would, under current
law, generally be subject to U.S. federal withholding tax at a flat rate of 30%
(or lower applicable treaty rate) on interest payments.
In general, gain recognized by a Foreign Person upon the redemption,
retirement, sale, exchange or other disposition of a Note (including any gain
representing accrued market discount) will not be subject to U.S. federal income
tax. However, a Foreign Person may be subject to U.S. federal income tax at a
flat rate of 30% (unless exempt by an applicable treaty) on any such gain if the
Foreign Person is an individual present in the U.S. for 183 days or more during
the taxable year of the disposition of the Note and certain other requirements
are met.
Backup withholding and information reporting requirements do not apply to
payments of interest made by the Company or a paying agent to Foreign Persons if
the Owner's Statement described above is received, provided that the payor does
not have actual knowledge that the holder is a United States holder. If any
payments of principal and interest are made to the beneficial owner of a Note by
or through the foreign office of a foreign custodian, foreign nominee or other
foreign agent of such beneficial owner, or if the foreign office of a foreign
"broker" (as defined in applicable Treasury Regulations) pays the proceeds of
the sale of a Note to the seller thereof, backup withholding and information
reporting will not apply. Information reporting requirements (but not backup
withholding) will apply, however, to a payment by a foreign office of a broker
that is a United States person, that derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the United States or
that is a "controlled foreign corporation" (generally, a foreign corporation
controlled by certain United States shareholders) with respect to the United
States unless the broker has no documentary evidence in its records that the
holder is a Foreign Person and certain other conditions are met or the holder
otherwise establishes an exemption. Payment by a United States office of a
broker is subject to both backup withholding at a rate of 31% and information
reporting unless the holder certifies under penalties of perjury that it is a
Foreign Person or otherwise establishes an exemption.
The procedures described above for withholding tax on interest payments, and
some of the associated backup withholding and information reporting rules, are
the subject of new, final regulations issued in 1997, which will be effective
for payments made after December 31, 1998, subject to certain transition
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rules. These final regulations modify the procedures for establishing an
exemption from withholding tax described above. PROSPECTIVE INVESTORS ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE EFFECT THAT THESE FINAL
REGULATIONS WILL HAVE ON PAYMENTS AFTER DECEMBER 31, 1998 WITH RESPECT TO THE
NOTES.
Subject to applicable estate tax treaty provisions, Notes held at the time
of death (or Notes transferred before death but subject to certain retained
rights or powers) by an individual who at the time of death is a Foreign Person
will not be included in such Foreign Person's gross estate for United States
federal estate tax purposes provided that the individual does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of the Company entitled to vote or hold the Notes in connection with a
United States trade or business.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 15,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock, par value of $.01 per
share ("Preferred Stock"). At January 31, 1998, 2,727,000 shares of Common Stock
and no shares of Preferred Stock were outstanding. The Company has reserved
550,000 shares of Common Stock for issuance under the Plan. See "Management --
Stock Incentive Plan."
The following description of certain matters relating to the capital stock
of the Company is a summary and is qualified in its entirety by the provisions
of the Certificate and the Bylaws, copies of which have been filed as exhibits
to the Registration Statement of which this Prospectus is a part.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders of the Company. In addition, such
holders are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the payment of preferential dividends with
respect to any Preferred Stock that from time to time may be outstanding. In the
event of the dissolution, liquidation or winding-up of the Company, the holders
of Common Stock are entitled to share ratably in all assets remaining after
payment of all liabilities of the Company and subject to the prior distribution
rights of the holders of any Preferred Stock that may be outstanding at that
time. The holders of Common Stock do not have cumulative voting rights or
preemptive or other rights to acquire or subscribe for additional, unissued or
treasury shares. All outstanding shares of Common Stock are, and when issued the
shares of Common Stock offered hereby will be, fully paid and nonassessable.
PREFERRED STOCK
The Company has an authorized class of Preferred Stock consisting of
5,000,000 shares, none of which are issued and outstanding. The Board of
Directors is authorized, subject to any limitations prescribed by law, without
further stockholder approval, to issue shares of Preferred Stock from time to
time. The Board of Directors may designate one or more series of Preferred
Stock. Each such series of Preferred Stock shall have such number of shares,
designations, preferences, voting powers, qualifications and special or relative
rights or privileges as shall be determined by the Board of Directors, which may
include, among others, dividend rights, voting rights, redemption and sinking
fund provisions, liquidation preferences and conversion rights.
The Board of Directors has the authority to issue shares of Preferred Stock
and to determine its rights and preferences to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could adversely affect the voting power of holders of
Common Stock and the likelihood that such holders will receive dividend payments
and payments upon liquidation and could have the effect of delaying, deferring
or preventing a change in control of the Company.
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ANTI-TAKEOVER PROVISIONS
The Certificate and Bylaws and the General Corporation Law of Delaware
include a number of provisions which may have the effect of encouraging persons
considering unsolicited tender offers or other unilateral takeover proposals to
negotiate with the Board of Directors rather than pursue non-negotiated takeover
attempts. These provisions include a classified board of directors, authorized
blank check preferred stock, restrictions on business combinations and the
availability of authorized but unissued Common Stock.
CLASSIFIED BOARD OF DIRECTORS. The Certificate contains provisions for a
staggered board of directors with only one-third of the board standing for
election each year. Directors can only be removed for cause. A staggered board
makes it more difficult for stockholders to change the majority of the directors
and instead promotes a continuity of existing management.
BLANK CHECK PREFERRED STOCK. The Certificate authorizes blank check
Preferred Stock. The Board of Directors can set the voting rights, redemption
rights, conversion rights and other rights relating to such Preferred Stock and
could issue such stock in either a private or public transaction. In some
circumstances, the blank check Preferred Stock could be issued and have the
effect of preventing a merger, tender offer or other takeover attempt which the
Board of Directors opposes.
DELAWARE TAKEOVER STATUTE. The Company is subject to Section 203 of the
Delaware General Corporation Law ("Section 203"). In general, Section 203
prevents an "interested stockholder" from engaging in a "business combination"
with a Delaware corporation for three years following the date such person
became an interested stockholder, unless (i) prior to the date such person
became an interested stockholder, the board of directors of the corporation
approved the transaction in which the interested stockholder became an
interested stockholder or approved the business combination, (ii) upon
consummation of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced, excluding stock held by directors who are also officers of the
corporation and stock held by certain employee stock plans, or (iii) on or
subsequent to the date of the transaction in which such person became an
interested stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders by the
affirmative vote of the holders of at least two-thirds of the outstanding voting
stock of the corporation not owned by the interested stockholder.
Section 203 defines a "business combination" to include (i) any merger or
consolidation involving the corporation and an interested stockholder, (ii) any
sale, transfer, pledge or other disposition involving an interested stockholder
of 10% or more of the assets of the corporation, (iii) subject to certain
exceptions, any transaction which results in the issuance or transfer by the
corporation of any stock of the corporation to an interested stockholder, (iv)
any transaction involving the corporation which has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder or (v) the receipt by an
interested stockholder of any loans, guarantees, pledges or other financial
benefits provided by or through the corporation. In addition, Section 203
defines an "interested stockholder" as any entity or person beneficially owning
15% or more of the outstanding voting stock of the corporation and any entity or
person affiliated with or controlling or controlled by such entity or person.
STOCK PURCHASE AND SUPER MAJORITY VOTING PROVISIONS. The Certificate
includes a provision which requires the affirmative vote of two-thirds of the
outstanding shares of capital stock entitled to vote generally in the election
of directors held by persons who are not interested stockholders (as defined in
the Certificate) to approve the repurchase of any equity securities of the
Company from an interested stockholder unless either (a) such repurchase is made
on the same terms offered to all holders of the same securities or (b) the
Company does not pay above the market price or fair market value of such
securities. The Certificate also includes a provision which requires the
affirmative vote of two-thirds of the outstanding shares of capital stock
entitled to vote generally in the election of directors to (i) sell all or
substantially all of the assets of the Company, (ii) merge or consolidate the
Company with or into any other
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corporation, partnership, limited liability company or other entity, (iii)
dissolve, liquidate or terminate the business of the Company or (iv) alter,
amend or repeal certain sections of the Certificate or the Bylaws.
STOCKHOLDER ACTION
Except as otherwise required by law or the Certificate, with respect to any
act or action required of or by the holders of the Common Stock, the affirmative
vote of the holders of a majority of the issued and outstanding shares of Common
Stock entitled to vote thereon is sufficient to authorize the act or action. See
"-- Anti-Takeover Provisions."
Pursuant to Delaware law, stockholders may take actions without the holding
of a meeting by written consent or consents signed by the holders of a
sufficient number of shares to approve the transaction had all of the
outstanding shares of the capital stock of the Company entitled to vote thereon
been present at a meeting.
UNDERWRITING
Subject to the terms and upon the conditions set forth in the Underwriting
Agreement, RAM Energy, Inc. has agreed to sell to Jefferies & Company, Inc. (the
"Underwriter"), and the Underwriter has agreed to purchase, the Notes at the
public offering price less the underwriting discount set forth on the cover page
of this Prospectus.
The Underwriting Agreement provides that the obligation of the Underwriter
to purchase the Notes offered hereby is subject to certain conditions. Under the
terms and upon the conditions of the Underwriting Agreement, the Underwriter is
committed to purchase all of the Notes offered hereby, if any are purchased. The
Underwriter proposes to offer the Notes to the public initially at the public
offering price set forth on the cover of this Prospectus. After the initial
public offering of the Notes, the public offering price may be changed by the
Underwriter.
Prior to the Offering, there has been no public market for the Notes. The
initial public offering price for the Notes will be determined by negotiations
between RAM Energy, Inc. and the Underwriter. Among the principal factors that
will be considered in determining such public offering price will be the
financial strength of the Company in recent periods, prevailing economic
prospects, offerings of companies in related businesses, the prospects for the
Company and the oil and gas industry, and the general conditions prevailing in
the securities markets. The Underwriter does not intend to confirm sales of the
Notes to any accounts over which it exercises discretionary authority.
RAM Energy, Inc. has agreed to indemnify the Underwriter against certain
liabilities that may be incurred in connection with the offering of the Notes,
including liabilities under the Securities Act, or to contribute to the payments
that the Underwriter may be required to make in respect thereof.
The Underwriter has advised the Company that it currently intends to make a
market in the Notes after the consummation of the Offering, as permitted by
applicable laws and regulations; however, it is not obligated to do so, and any
such market making, if commenced, may be discontinued at any time without
notice. Accordingly, there can be no assurance as to the liquidity of the
trading market for the Notes or that any active trading market for the Notes
will develop. See "Risk Factors -- Absence of a Public Market for the Notes."
The closing of the Offering is conditioned upon the simultaneous closing of
the Carlton Acquisition.
In connection with the closing of the Offering, Energy Spectrum Advisors
will receive a finder's fee equal to $150,000 payable from the underwriting
discount otherwise payable to the Underwriter.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the Company
by McAfee & Taft A Professional Corporation, Oklahoma City, Oklahoma. Certain
legal matters relating to the sale of the Notes will be passed upon for the
Underwriter by Fulbright & Jaworski L.L.P., Houston, Texas.
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EXPERTS
The consolidated financial statements of RAM Energy, Inc. as of December 31,
1995 and 1996 and for each of the years in the three-year period ended December
31, 1996, the financial statements of RAMCO-NYL 1987 Limited Partnership as of
December 31, 1995 and November 30, 1996 and for each of the years in the
two-year period ended December 31, 1995 and for the eleven-month period ended
November 30, 1996 and the consolidated financial statements of Carlton Resources
Corporation (and its predecessor) as of December 31, 1995 and 1996 and for the
year ended December 31, 1995, the eight-month period ended August 31, 1996 and
the four-month period ended December 31, 1996 appearing in this Prospectus and
in the Registration Statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
Information relating to the estimated proved reserves of oil and gas and the
related estimates of future net revenues and present values thereof as of
November 30, 1997 on an actual and pro forma basis was estimated by Forrest A.
Garb & Associates, Inc., independent petroleum engineers, and audited by
Netherland, Sewell & Associates, Inc., independent petroleum engineers. The
reserve and present value data for the Company's existing properties as of
December 31, 1994, 1995 and 1996 were estimated by Forrest A. Garb & Associates,
Inc. Such estimates are included herein in reliance on the authority of such
firms as experts in such matters.
AVAILABLE INFORMATION
Prior to the Offering, RAM Energy, Inc. has not been subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended. RAM
Energy, Inc. intends to furnish its stockholders with annual reports containing
audited consolidated financial statements examined and reported on, with an
opinion expressed by, independent public accountants following the end of each
fiscal year and such interim reports as it may determine to be necessary or
desirable.
RAM Energy, Inc. has filed with the Commission a Registration Statement on
Form S-1 (the "Registration Statement") under the Securities Act of 1933, as
amended, with respect to the securities offered pursuant to the Offering. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information contained in the Registration Statement and in
the exhibits and schedules thereto, certain portions of which are omitted as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the securities offered pursuant to
the Offering, reference is made to the Registration Statement, including the
exhibits and schedules thereto.
The Registration Statement and the exhibits and schedules thereto may be
inspected, without charge, and copies may be obtained at prescribed rates at the
Public Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, and at the regional offices of the
Commission at Citicorp Center, 500 West Madison Street, 14th Floor, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. The Commission maintains a web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. This web site can be visited at
http://www.sec.gov.
96
<PAGE>
GLOSSARY OF TERMS
The definitions set forth below shall apply to the indicated terms as used
in this Prospectus. All volumes of natural gas referred to herein are stated at
the legal pressure base of the state or area where the reserves exist and at 60
degrees Fahrenheit and in most instances are rounded to the nearest major
multiple.
BBL. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein
in reference to crude oil or other liquid hydrocarbons.
BCF. One billion cubic feet of natural gas.
BCFE. One billion cubic feet of natural gas equivalent, determined using
the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or
natural gas liquids.
COMPLETION. The installation of permanent equipment for the production of
oil or natural gas or, in the case of a dry hole, the reporting of abandonment
to the appropriate agency.
DEVELOPMENT WELL. A well drilled within the proved areas of an oil or
natural gas reservoir to the depth of a stratigraphic horizon known to be
productive.
DRY HOLE OR WELL. A well found to be incapable of producing hydrocarbons in
sufficient quantities such that proceeds from the sale of such production exceed
production expenses and taxes.
EXPLORATORY WELL. A well drilled to find and produce oil or natural gas
reserves not classified as proved, to find a new reservoir in a field previously
found to be productive of oil or natural gas in another reservoir or to extend a
known reservoir.
FIELD. An area consisting of a single reservoir or multiple reservoirs all
grouped on or related to the same individual geological structural feature
and/or stratigraphic condition.
GROSS ACRES OR GROSS WELLS. The total acres or wells, as the case may be,
in which a working interest is owned.
MBBLS. One thousand barrels of crude oil or other liquid hydrocarbons.
MCF. One thousand cubic feet of natural gas.
MCFD. One thousand cubic feet of natural gas per day.
MCFE. One thousand cubic feet of natural gas equivalent, determined using
the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or
natural gas liquids.
MMBBLS. One million barrels of crude oil or other liquid hydrocarbons.
MMCF. One million cubic feet of natural gas.
MMCFE. One million cubic feet of natural gas equivalent determined using
the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or
natural gas liquids.
NET ACRES OR NET WELLS. The sum of the fractional working interests owned
in gross acres or gross wells, as the case may be.
OIL. Crude oil, condensate and natural gas liquids.
PV-10 VALUE AND PRESENT VALUE. When used with respect to oil and natural
gas reserves, the estimated future gross revenues to be generated from the
production of proved reserves, net of estimated production and future
development costs, using prices and costs in effect as of the date indicated,
without giving effect
97
<PAGE>
to non-property related expenses such as general and administrative expenses,
debt service and future income tax expenses or to depreciation, depletion and
amortization, discounted using an annual discount rate of 10%.
PRODUCTIVE WELL. A well that is found to be capable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.
PROVED DEVELOPED PRODUCING RESERVES. Proved developed reserves that are
expected to be recovered from completion intervals currently open in existing
wells and capable of production.
PROVED DEVELOPED RESERVES. Proved reserves that are expected to be
recovered from existing wellbores, whether or not currently producing, without
drilling additional wells. Production of such reserves may require a
recompletion.
PROVED RESERVES. The estimated quantities of crude oil, natural gas and
natural gas liquids that geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
PROVED UNDEVELOPED LOCATION. A site on which a development well can be
drilled consistent with spacing rules for purposes of recovering proved
undeveloped reserves.
PROVED UNDEVELOPED RESERVES. Proved reserves that are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required for recompletion.
RECOMPLETION. The completion for production of an existing wellbore in
another formation from that in which the well has been previously completed.
RESERVE LIFE. A ratio determined by dividing the existing reserves
determined as of the stated measurement date by production from such reserves
for the prior twelve month period.
RESERVOIR. A porous and permeable underground formation containing a
natural accumulation of producible oil and/or natural gas that is confined by
impermeable rock or water barriers and is individual and separate from other
reservoirs.
ROYALTY INTEREST. An interest in an oil and gas property entitling the
owner to a share of oil or natural gas production free of costs of production.
UNDEVELOPED ACREAGE. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and gas regardless of whether such acreage contains proved reserves.
WELLBORE. The hole drilled by the bit.
WORKING INTEREST. The operating interest that gives the owner the right to
drill, produce and conduct operating activities on the property and a share of
production.
WORKOVER. Operations on a producing well to restore or increase production.
98
<PAGE>
RAM ENERGY, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
RAM ENERGY, INC. -- NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
Balance Sheet as of September 30, 1997 (unaudited)................................... F-2
Statements of Operations for the nine months ended September 30, 1996 and 1997
(unaudited)........................................................................ F-3
Statements of Cash Flows for the nine months ended September 30, 1996 and 1997
(unaudited)........................................................................ F-4
Notes to Unaudited Financial Statements.............................................. F-5
RAM ENERGY, INC. -- YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Report of Independent Auditors....................................................... F-9
Consolidated Balance Sheets as of December 31, 1995 and 1996......................... F-10
Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and
1996............................................................................... F-11
Consolidated Statements of Stockholders' Equity (Deficiency) for the years ended
December 31, 1994, 1995 and 1996................................................... F-12
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996............................................................................... F-13
Notes to Consolidated Financial Statements........................................... F-14
RAMCO-NYL 1987 LIMITED PARTNERSHIP
Report of Independent Auditors....................................................... F-27
Balance Sheets as of December 31, 1995 and November 30, 1996......................... F-28
Statements of Operations for the years ended December 31, 1994 and 1995 and for the
eleven months ended November 30, 1996.............................................. F-29
Statements of Partners' Equity for the years ended December 31, 1994 and 1995 and for
the eleven months ended November 30, 1996.......................................... F-30
Statements of Cash Flows for the years ended December 31, 1994 and 1995 and for the
eleven months ended November 30, 1996.............................................. F-31
Notes to Financial Statements........................................................ F-32
CARLTON RESOURCES CORPORATION (AND ITS PREDECESSOR)
Report of Independent Auditors....................................................... F-41
Consolidated Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997
(unaudited)........................................................................ F-42
Consolidated Statements of Operations for the year ended December 31, 1995, the eight
month period ended August 31, 1996, the four month period ended December 31, 1996
and the nine month period ended September 30, 1997 (unaudited)..................... F-43
Consolidated Statements of Stockholders' Equity (Deficit) for the year ended December
31, 1995, the eight month period ended August 31, 1996, the four month period ended
December 31, 1996 and the nine month period ended September 30, 1997 (unaudited)... F-44
Consolidated Statements of Cash Flows for the year ended December 31, 1995, the eight
month period ended August 31, 1996, the four month period ended December 31, 1996
and the nine month period ended September 30, 1997 (unaudited)..................... F-45
Notes to Consolidated Financial Statements........................................... F-46
</TABLE>
F-1
<PAGE>
RAM ENERGY, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
ASSETS
Current assets (NOTE 4):
Cash and cash equivalents........................................................................ $ 2,030,959
Accounts receivable:
Oil and gas sales.............................................................................. 2,897,636
Joint interest operations, net of allowance for doubtful accounts of $452,818.................. 1,398,874
Other.......................................................................................... 45,643
Prepaid expenses................................................................................. 254,261
-------------
Total current assets............................................................................... 6,627,373
Properties and equipment, at cost (NOTES 2, 3 AND 4):
Oil and gas properties and equipment, based on full cost accounting.............................. 69,064,229
Other equipment.................................................................................. 3,409,392
-------------
72,473,621
Less accumulated amortization and depreciation................................................... 12,373,486
-------------
Net properties and equipment....................................................................... 60,100,135
Other assets (NOTE 4):
Receivable from affiliate not expected to be collected within one year, net of allowance of
$139,695 (NOTE 7).............................................................................. 1,800,000
Loan origination fees, net of accumulated amortization of $253,555............................... 1,282,201
Other............................................................................................ 534,094
-------------
Total assets....................................................................................... $ 70,343,803
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable:
Oil and gas proceeds due others................................................................ $ 2,854,931
Trade.......................................................................................... 3,549,075
Accrued liabilities:
Interest....................................................................................... 401,503
Gas balancing liability........................................................................ 300,000
Other.......................................................................................... 98,200
Long-term debt due within one year (NOTE 4)...................................................... 9,243,900
-------------
Total current liabilities.......................................................................... 16,447,609
Gas balancing liability not expected to be settled within one year................................. 685,244
Long-term debt due after one year (NOTE 4)......................................................... 52,970,824
Contingencies...................................................................................... 600,000
Minority interest.................................................................................. 1,203,468
Stockholders' equity (deficiency):
Series A preferred stock, $.01 par value; authorized--100,000 shares; issued and
outstanding--77,714 shares (liquidating preference $10 per share).............................. 777
Series B preferred stock, $.01 par value; authorized--100,000 shares; issued and
outstanding--69,652 shares (liquidating preference $10 per share).............................. 697
Class A common stock, $225 par value; authorized--222 shares; issued and outstanding--101
shares......................................................................................... 22,725
Paid-in capital.................................................................................. 1,492,805
Accumulated deficit.............................................................................. (3,080,346)
-------------
Stockholders' equity (deficiency).................................................................. (1,563,342)
-------------
Total liabilities and stockholders' equity (deficiency)............................................ $ 70,343,803
-------------
-------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-2
<PAGE>
RAM ENERGY, INC.
STATEMENTS OF OPERATIONS (NOTE 1)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------
1996
------------- 1996 1997
PARTNERSHIP ------------ -------------
(PREDECESSOR) COMPANY COMPANY
------------- ------------ -------------
<S> <C> <C> <C>
Operating revenues:
Oil and gas sales.................................................... $ 18,744,175 $ 147,697 $ 16,819,429
Management fees from Partnership..................................... -- 1,224,660 --
Operator's overhead fees from Partnership -- 1,108,423 --
Consulting fees from related parties................................. -- 91,106 --
Other................................................................ -- 78,596 85,301
------------- ------------ -------------
Total operating revenues......................................... 18,744,175 2,650,482 16,904,730
Operating expenses (NOTE 3):
Oil and gas production expenses:
Operator fees to Managing General Partner.......................... 1,108,423 -- --
Other.............................................................. 6,152,880 61,591 4,795,344
Amortization and depreciation........................................ 4,160,423 264,128 5,268,012
General and administrative, overhead and other expenses, net:
Management fee to Managing General Partner......................... 1,209,770 -- --
Other.............................................................. 240,444 2,517,157 3,325,170
------------- ------------ -------------
Total operating expenses......................................... 12,871,940 2,842,876 13,388,526
------------- ------------ -------------
Operating income (loss)................................................ 5,872,235 (192,394) 3,516,204
Other income (expense):
Interest expense..................................................... (483,805) (13,979) (3,787,067)
Interest income...................................................... 91,477 22,000 42,611
Equity in income of partnership...................................... -- 54,800 --
Minority interest in net income of Partnership....................... -- -- (14,572)
------------- ------------ -------------
Net income (loss)...................................................... $ 5,479,907 $ (129,573) $ (242,824)
------------- ------------ -------------
------------- ------------ -------------
Net loss per share (NOTE 7)........................................................... $ (.05) $ (.09)
------------ -------------
------------ -------------
Weighted average shares outstanding (NOTE 7).......................................... 2,727,000 2,727,000
------------ -------------
------------ -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
RAM ENERGY, INC.
STATEMENTS OF CASH FLOWS (NOTE 1)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------
1996
-------------- 1996 1997
PARTNERSHIP -------------- --------------
(PREDECESSOR) COMPANY COMPANY
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................................................ $ 5,479,907 $ (129,573) $ (242,824)
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Amortization and depreciation.................................. 4,160,423 264,128 5,268,012
Provision for doubtful accounts receivable and other........... -- 105,403 80,000
Equity in income of Partnership................................ -- (54,800) --
Minority interest in net income after acquisition of
Partnership.................................................. -- -- 14,572
Cash provided (used) by changes in operating assets and
liabilities:
Prepaid expenses and deposits................................ 255,119 46,744 111,195
Accounts receivable.......................................... (871,261) 578,123 1,257,741
Accounts payable............................................. (506,112) (200,634) 866,918
Accrued liabilities.......................................... (420,000) (204,000) (934,840)
-------------- -------------- --------------
Total adjustments................................................ 2,618,169 534,964 6,663,598
-------------- -------------- --------------
Net cash provided by operating activities........................ 8,098,076 405,391 6,420,774
CASH FLOWS FROM INVESTING ACTIVITIES
Distributions from Partnership................................... -- 20,305 --
Payments for oil and gas properties and equipment................ (1,950,450) (21,905) (14,506,757)
Proceeds from sales of oil and gas properties and equipment...... 412,998 5,956 9,693,576
Payments for other property and equipment........................ -- (165,271) (185,086)
Proceeds from sales of other property and equipment.............. -- -- 15,139
Advances for development costs................................... (27,868) -- (226,371)
Purchases of other assets........................................ (60,000) -- (17,978)
Proceeds from sale of other assets............................... -- -- --
Other............................................................ -- (9,337) --
-------------- -------------- --------------
Net cash used by investing activities............................ (1,625,320) (170,252) (5,227,477)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt............................. (2,500,000) (41,502) (10,396,417)
Proceeds from borrowings on long-term debt....................... -- 120,559 9,626,714
Distributions to partners........................................ (2,030,439) -- --
-------------- -------------- --------------
Net cash provided (used) by financing activities................. (4,530,439) 79,057 (769,703)
-------------- -------------- --------------
Increase in cash and cash equivalents............................ 1,942,317 314,196 423,594
Cash and cash equivalents at beginning of period................. 1,265,980 523,506 1,607,365
-------------- -------------- --------------
Cash and cash equivalents at end of period....................... $ 3,208,297 $ 837,702 $ 2,030,959
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
RAM ENERGY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, ORGANIZATION AND BASIS OF
FINANCIAL STATEMENTS
The accompanying unaudited financial statements present the results of
operations and cash flows of RAM Energy, Inc. for the nine-month periods ended
September 30, 1996 and 1997 as well as that for RAM Energy, Inc.'s predecessor,
RAMCO-NYL 1987 Limited Partnership (the "Partnership"), for the nine-month
period ended September 30, 1996. These financial statements include all
adjustments, consisting of normal and recurring adjustments, which, in the
opinion of management, were necessary for a fair presentation of the financial
position and the results of operations for the indicated periods. The results of
operations for the nine months ended September 30, 1997 are not necessarily
indicative of the results to be expected for the full year ending December 31,
1997.
NATURE OF OPERATIONS AND ORGANIZATION
RAM Energy, Inc. (Note 7), formerly RAMCO Operating Company ("RAM"
collectively, when referring to RAM Energy, Inc. and its consolidated
subsidiaries, or "REI" when referring to RAM Energy, Inc. only) operates
exclusively in the oil and natural gas industry with activities including the
drilling, completion and operation of oil and natural gas wells. RAM conducts
the majority of its operations in the states of Oklahoma, Texas and New Mexico.
REI serves as the managing general partner of the Partnership. The
Partnership was activated on February 3, 1988 by REI, Oklahoma Double R
Corporation, the special general partner and an affiliate of REI, and New York
Life Insurance Company, the original limited partner. Under the terms of the
limited partnership agreement, as amended, for financial reporting purposes,
virtually all Partnership revenues, costs and expenses are allocated 1.0% to the
managing general partner, 2.5% to the special general partner and 96.5% to the
limited partner prior to Payout Nos. 1 and 2, as defined. Upon reaching these
payouts, the allocation to the managing general partner increases to 11.5% while
that of the limited partner decreases to 86.0%.
Effective November 30, 1996, REI's wholly-owned subsidiary, RB Operating
Company ("RBO"), purchased the limited partner's interest in the Partnership for
$60.0 million, as provided for under the terms of a purchase and sale agreement
previously executed by the parties (Note 2). Funding for the transaction was
obtained from borrowings under a credit agreement with a bank (Note 4).
PRINCIPLES OF CONSOLIDATION
The financial statements of RAM are presented on a consolidated basis and
include the accounts of REI, RBO and the accounts of REI's majority-owned
Partnership beginning December 1, 1996. All significant intercompany
transactions, including transactions between REI or RBO and the Partnership
(beginning December 1, 1996) have been eliminated.
2. ACQUISITIONS AND SALE
In August 1997, RAM purchased certain primarily producing oil and gas
properties and equipment located principally in Oklahoma, Louisiana and
Mississippi for $11.2 million (before closing adjustments). This transaction,
which has been accounted for under the purchase method of accounting, was
financed with additional borrowings under the credit agreement (Note 4).
As described in Note 1, RBO purchased the limited partner's interest in the
Partnership and has reflected this additional ownership in RAM's accompanying
consolidated financial statements beginning on December 1, 1996. This
transaction has been accounted for under the purchase method of accounting.
F-5
<PAGE>
RAM ENERGY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS AND SALE (CONTINUED)
RAM sold certain oil and gas properties in 1997 and received cash proceeds
of $10.4 million (before closing adjustments). As required by the credit
agreement (Note 4), such proceeds were used to pay down the principal balance
outstanding under the credit agreement.
3. RELATED PARTY TRANSACTIONS
The Partnership agreement under which REI serves as the managing general
partner, provides for reimbursement of certain Partnership overhead costs to
REI. The management fee is computed monthly as a percentage of adjusted
cumulative contributed capital, as defined, at the beginning of the month. The
fee for the nine months ended September 30, 1996 was $1,209,770. Additionally,
for the nine months ended September 30, 1996, $91,106 for technical personnel
costs were charged to the Partnership and were capitalized by the Partnership as
part of the full cost pool in the accompanying financial statements.
REI and RBO also serve as operator on many of the wells of the Partnership
and charge operator fees in connection therewith.
4. LONG-TERM DEBT
Long-term debt consists of the following at September 30, 1997:
<TABLE>
<S> <C>
Revolving note payable......................................... $55,000,000
Term note payable.............................................. 7,000,000
Installment loan agreements.................................... 214,724
----------
62,214,724
Less amount due within one year................................ 9,243,900
----------
$52,970,824
----------
----------
</TABLE>
During November 1996, the Partnership entered into a credit agreement with a
bank consisting of a revolving commitment which provides up to $65.0 million in
borrowings and letters of credit and a $10.8 million term commitment. Borrowings
under the credit agreement are secured by essentially all assets of RAM.
The original maturity date of the term commitment was October 31, 1997. The
maturity date on the term commitment has been extended to June 30, 1998. The
credit agreement, as amended in December 1997, contains various affirmative and
restrictive covenants. These covenants, among other things, restrict mergers
involving RAM and payment of dividends on REI's stock, limit additional
indebtedness and sales or other dispositions of assets, and require RAM to meet
certain financial covenants. In addition, the credit agreement requires RAM to
enter into certain interest rate swaps and collars to hedge the interest rate
exposure associated with the credit agreement.
Effective January 3, 1997, RAM had entered into interest rate swaps and
collars to hedge the interest rate exposure associated with the borrowings under
the credit agreement. As of September 30, 1997, RAM had entered into two
interest rate swaps with notional amounts of $10.0 million each to fix the
interest rate on the borrowings under the revolving commitment and entered into
an interest rate collar to cap the interest rate on an additional notional
amount of $10.0 million of the borrowings under the revolving commitment. Under
the terms of the interest rate swaps, RAM receives the LIBOR three-month rate
(5.66% at September 30, 1997) and pays an average of 6.35% for 1997. Under the
terms of the interest rate
F-6
<PAGE>
RAM ENERGY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
collar, RAM pays 5.50% in the event that the LIBOR three-month rate falls below
5.50% and receives 7.14% in the event that the LIBOR three-month rate exceeds
7.14%. The notional amounts under these interest rate swaps and collars are less
than the amounts outstanding under the credit agreement at September 30, 1997.
At September 30, 1997, the effective interest rate for the borrowings under the
revolving commitment was 8.47%. The interest rate swaps mature in January 2000
and January 2002 and the interest rate collar matures in January 1999.
For the interest rate swaps, the differential between the fixed rate and the
floating rate multiplied by the notional amount results in a gain or loss
related to the swap. For the interest rate collar, when the floating rate
exceeds the cap rate, the differential between the floating rate and the cap
rate results in a gain and when the floating rate is less than the floor rate,
the differential between the floating rate and the floor rate results in a loss.
Such gains or losses are included in interest expense in the period for which
the interest rate exposure was hedged. For the nine months ended September 30,
1997, the swap loss included in interest expense was $93,321 (there was no gain
or loss on the interest rate collar for the nine months ended September 30,
1997).
5. FIXED-PRICE CONTRACTS
RAM has entered into certain fixed price contracts to reduce its exposure to
unfavorable changes in natural gas prices which are subject to significant and
often volatile fluctuation. RAM's fixed-price contracts are comprised of
short-term physical delivery contracts. These contracts allow RAM to predict
with greater certainty the effective gas prices to be received from its hedged
production. As of September 30, 1997, these fixed-price contracts are in place
to hedge 1,740,000 MMbtu of RAM's estimated future production through April 1998
from proved gas reserves at a weighted average price of $2.73 per MMbtu.
6. FINANCIAL INSTRUMENTS
The following information is provided regarding the estimated fair value of
financial instruments employed by RAM as of September 30, 1997 and the method
and assumptions used to estimate the fair value of such financial instruments:
The carrying amounts reported in the accompanying balance sheet for cash and
cash equivalents and variable rate long-term debt approximate their fair
values.
The carrying value of RAM's interest rate swaps at September 30, 1997
exceeded the fair value by approximately $192,000, representing the amount
RAM would be required to pay to terminate the contracts at such date.
7. SUBSEQUENT EVENTS
Effective November 1, 1997, the Board of Directors of Oklahoma Double R
Corporation ("DRC") authorized the assignment to REI, in partial payment for the
$1,800,000 indebtedness owed by DRC to REI, of all assets and properties of the
Partnership otherwise distributable to DRC upon dissolution and liquidation of
the Partnership in respect of DRC's 2.5% special general partnership interest in
the Partnership.
Effective November 26, 1997, RBO was merged with and into REI, resulting in
REI becoming the direct owner of all of the assets and properties of RBO and
assuming all of its liabilities. Effective
F-7
<PAGE>
RAM ENERGY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
7. SUBSEQUENT EVENTS (CONTINUED)
December 1, 1997, REI, as managing general partner and sole limited partner of
the Partnership, and DRC, as special general partner of the Partnership,
authorized the dissolution of the Partnership, the liquidation of all of the
assets of the Partnership into REI and the assumption by REI of all liabilities
of the Partnership.
In November 1997, RAM entered into a letter of intent to purchase certain
producing oil and gas properties and equipment and pipeline gathering systems
located principally in Oklahoma for $43.0 million (subject to closing
adjustments). This transaction is expected to close simultaneously with the
offering of Senior Notes by RAM Energy, Inc.
On December 27, 1997, the Board of Directors of RAM Energy, Inc. approved a
27,000-for-1 stock split of RAM Energy, Inc. common stock and approved the
change of the name of RAM from RAMCO Operating Company to RAM Energy, Inc. The
effects of the stock split on the computations of net income (loss) per share
have been reflected retroactively in the accompanying financial statements.
F-8
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
RAM Energy, Inc.
We have audited the accompanying consolidated balance sheets of RAM Energy,
Inc. as of December 31, 1995 and 1996, and the related consolidated statements
of operations, stockholders' equity (deficiency), and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of RAM Energy,
Inc. at December 31, 1995 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
December 15, 1997,
except for the matters described in the last
paragraph of Note 11, as to which the date is
December 27, 1997
F-9
<PAGE>
RAM ENERGY, INC.
CONSOLIDATED BALANCE SHEETS (NOTE 1)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
<S> <C> <C>
1995 1996
----------- ------------
ASSETS
Current assets (NOTE 3):
Cash and cash equivalents........................................................... $ 523,506 $ 1,607,365
Accounts receivable:
Oil and gas sales................................................................. 24,327 5,051,508
Joint interest operations, net of allowance for doubtful accounts of $230,154 in
1995 and $370,693 in 1996....................................................... 768,650 464,826
Related parties (NOTE 2).......................................................... 1,349,412 9,500
Other............................................................................. 62,585 154,060
Prepaid expenses and deposits....................................................... 119,204 365,456
Oil and gas properties and equipment held for sale.................................. -- 5,400,000
----------- ------------
Total current assets.................................................................. 2,847,684 13,052,715
Properties and equipment, at cost (NOTES 2 AND 3):
Oil and gas properties and equipment, based on full cost accounting................. 1,006,495 58,807,298
Other property and equipment........................................................ 3,065,172 3,275,688
----------- ------------
4,071,667 62,082,986
Less accumulated amortization and depreciation...................................... 3,077,142 7,344,660
----------- ------------
Net properties and equipment.......................................................... 994,525 54,738,326
Other assets (NOTE 3):
Receivable from sister corporation not expected to be collected within one year, net
of allowance of $139,695 (NOTES 2 AND 11)......................................... 1,800,000 1,800,000
Loan origination fees, net of accumulated amortization of $33,862................... -- 1,532,927
Investment in Partnership, at equity (Notes 2 and 8)................................ 507,094 --
Other............................................................................... 335,374 285,712
----------- ------------
Total assets.......................................................................... $ 6,484,677 $ 71,409,680
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable:
Trade............................................................................. $ 3,006,309 $ 3,062,826
Oil and gas proceeds due others................................................... 2,021,230 2,474,262
Related parties (NOTE 2).......................................................... 2,548,344 --
Accrued liabilities:
Compensation...................................................................... 293,000 820,200
Interest.......................................................................... -- 384,653
Other (NOTE 2).................................................................... 295,561 300,000
Long-term debt due within one year (NOTE 3)......................................... 31,464 5,475,673
----------- ------------
Total current liabilities............................................................. 8,195,908 12,517,614
Gas balancing liability not expected to be settled within one year.................... -- 914,934
Long-term debt due after one year (NOTE 3)............................................ 17,439 57,508,754
Commitments and contingencies (NOTES 4 AND 8)......................................... -- 600,000
Minority interest..................................................................... -- 1,188,896
Stockholders' equity (deficiency) (NOTES 3, 6 AND 11):
Series A preferred stock, $.01 par value; authorized--100,000 shares; issued and
outstanding--77,714 shares (liquidating preference $10 per share)................. 777 777
Series B preferred stock, $.01 par value; authorized--100,000 shares; issued and
outstanding--69,652 shares (liquidating preference $10 per share)................. 697 697
Class A common stock, $225 par value; authorized--222 shares; issued and
outstanding--101 shares (NOTE 11)................................................. 22,725 22,725
Paid-in capital..................................................................... 1,492,805 1,492,805
Accumulated deficit................................................................. (3,245,674) (2,837,522)
----------- ------------
Stockholders' equity (deficiency)..................................................... (1,728,670) (1,320,518)
----------- ------------
Total liabilities and stockholders' equity (deficiency)............................... $ 6,484,677 $ 71,409,680
----------- ------------
----------- ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-10
<PAGE>
RAM ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (NOTE 1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
<S> <C> <C> <C>
1994 1995 1996
------------ ------------ ------------
Operating revenues (NOTE 2):
Oil and gas sales..................................................... $ 152,992 $ 165,627 $ 3,274,941
Management fees from Partnership...................................... 1,554,929 1,605,743 1,482,293
Operator's overhead fees from Partnership............................. 1,746,145 1,686,043 1,342,777
Consulting income from related parties................................ 236,402 162,748 152,648
Other................................................................. 119,311 85,277 567,536
------------ ------------ ------------
Total operating revenues............................................ 3,809,779 3,705,438 6,820,195
Operating expenses:
Oil and gas production expenses....................................... 75,791 77,209 826,825
Amortization and depreciation......................................... 405,728 353,449 990,032
General and administrative, overhead and other expenses, net of
operator's overhead fees to unrelated interests of $1,382,250,
$1,352,929, and $1,217,796 in 1994, 1995 and 1996, respectively..... 3,279,413 3,363,713 4,164,314
------------ ------------ ------------
Total operating expenses............................................ 3,760,932 3,794,371 5,981,171
------------ ------------ ------------
Operating Income (loss)................................................. 48,847 (88,933) 839,024
Other income (expense):
Interest expense...................................................... (22,691) (18,022) (541,526)
Interest income....................................................... 75,149 72,786 29,434
Equity in income (loss) of Partnership................................ (101,293) (23,129) 70,874
Minority interest in net loss of Partnership.......................... -- -- 10,346
------------ ------------ ------------
Net income (loss)....................................................... $ 12 $ (57,298) $ 408,152
------------ ------------ ------------
------------ ------------ ------------
Net income (loss) per share (NOTE 11)................................... $ -- $ (.02) $ .15
------------ ------------ ------------
------------ ------------ ------------
Weighted average shares outstanding (NOTE 11)........................... 2,727,000 2,727,000 2,727,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-11
<PAGE>
RAM ENERGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
PREFERRED STOCK CLASS A STOCKHOLDERS'
------------------------ COMMON PAID-IN ACCUMULATED EQUITY
SERIES A SERIES B STOCK CAPITAL DEFICIT (DEFICIENCY)
----------- ----------- --------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993................... $ 777 $ 697 $ 22,500 $ 1,472,186 $ (3,188,388) $ (1,692,228)
Net income..................................... -- -- -- -- 12 12
----- ----- --------- ------------ ------------- -------------
Balance at December 31, 1994................... 777 697 22,500 1,472,186 (3,188,376) (1,692,216)
Class A common stock issued (1 share).......... -- -- 225 20,619 -- 20,844
Net loss....................................... -- -- -- -- (57,298) (57,298)
----- ----- --------- ------------ ------------- -------------
Balance at December 31, 1995................... 777 697 22,725 1,492,805 (3,245,674) (1,728,670)
Net income..................................... -- -- -- -- 408,152 408,152
----- ----- --------- ------------ ------------- -------------
Balance at December 31, 1996................... $ 777 $ 697 $ 22,725 $ 1,492,805 $ (2,837,522) $ (1,320,518)
----- ----- --------- ------------ ------------- -------------
----- ----- --------- ------------ ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-12
<PAGE>
RAM ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
<S> <C> <C> <C>
1994 1995 1996
----------- ------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)....................................................... $ 12 $ (57,298) $ 408,152
Adjustments to reconcile net income (loss) to net cash provided (used)
by operating activities:
Amortization and depreciation......................................... 405,728 353,449 990,032
Provision for doubtful accounts receivable and other.................. 49,123 17,960 169,624
Provision for uncollectible receivable from sister corporation........ -- 139,695 --
(Gain) loss on sales of other property and equipment.................. (16,910) 2,693 (35,712)
Equity in (income) loss of Partnership................................ 101,293 23,129 (70,874)
Minority interest in net loss after acquisition of Partnership........ -- -- (10,346)
Cash provided (used) by changes in operating assets and liabilities:
Prepaid expenses and deposits....................................... 87,219 114,358 (40,946)
Accounts receivable................................................. (797,114) 1,418,267 (874,505)
Accounts payable.................................................... 34,692 (2,420,341) (971,148)
Accrued liabilities................................................. (15,572) 175,247 505,819
Deferred revenue.................................................... 295,561 -- --
----------- ------------ -------------
Total adjustments....................................................... 144,020 (175,543) (338,056)
----------- ------------ -------------
Net cash provided (used) by operating activities........................ 144,032 (232,841) 70,096
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for acquisition of limited partner's interest in the
Partnership, less cash acquired (NOTE 2).............................. -- -- (58,898,313)
Payments for loan origination fees...................................... -- -- (31,225)
Payments for oil and gas properties and equipment....................... (49,986) (47,098) (21,905)
Proceeds from sales of oil and gas properties and equipment............. 18,555 1,356 55,087
Payments for other property and equipment............................... (29,368) (284,750) (227,781)
Proceeds from sales of other property and equipment..................... -- 27,609 --
Cash distributions received from Partnership............................ 66,300 12,953 21,342
Payments for restricted temporary investments........................... (317,835) -- --
Other................................................................... -- 282,126 1,034
----------- ------------ -------------
Net cash used by investing activities................................... (312,334) (7,804) (59,101,761)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt.................................... (901,001) (629,275) (60,521)
Proceeds from borrowings on long-term debt.............................. 265,012 60,468 176,045
Proceeds from borrowings to acquire Partnership interest................ -- -- 60,000,000
Advances to sister corporation.......................................... (105,654) (146,237) --
Collection of advances to sister corporation............................ 126,500 32,383 --
Proceeds from issuance of Class A common stock.......................... -- 20,844 --
Other................................................................... (1,359) -- --
----------- ------------ -------------
Net cash provided (used) by financing activities........................ (616,502) (661,817) 60,115,524
----------- ------------ -------------
Increase (decrease) in cash and cash equivalents........................ (784,804) (902,462) 1,083,859
Cash and cash equivalents at beginning of year.......................... 2,210,772 1,425,968 523,506
----------- ------------ -------------
Cash and cash equivalents at end of year................................ $ 1,425,968 $ 523,506 $ 1,607,365
----------- ------------ -------------
----------- ------------ -------------
DISCLOSURE OF NONCASH ACTIVITIES
Offset of certain accounts payable and accounts receivable between the
Partnership and the Company........................................... $ -- $ (781,786) $ --
----------- ------------ -------------
----------- ------------ -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-13
<PAGE>
RAM ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, ORGANIZATION AND BASIS OF
FINANCIAL STATEMENTS
NATURE OF OPERATIONS AND ORGANIZATION
RAM Energy, Inc., (NOTE 11) formerly RAMCO Operating Company ("RAM"
collectively, when referring to RAM Energy, Inc. and its consolidated
subsidiaries, or "REI" when referring to RAM Energy, Inc. only) operates
exclusively in the oil and gas industry with activities including the drilling,
completion and operation of oil and gas wells. RAM conducts the majority of its
operations in the states of Oklahoma, Texas and New Mexico.
REI serves as the managing general partner of the RAMCO-NYL 1987 Limited
Partnership (the "Partnership"). The Partnership was activated on February 3,
1988 by REI, Oklahoma Double R Corporation, the special general partner and an
affiliate of REI, and New York Life Insurance Company, the original limited
partner. Under the terms of the limited partnership agreement, as amended, for
financial reporting purposes, virtually all Partnership revenues, costs and
expenses are allocated 1.0% to the managing general partner, 2.5% to the special
general partner and 96.5% to the limited partner prior to Payout Nos. 1 and 2,
as defined. Upon reaching these payouts, the allocation to the managing general
partner increases to 11.5% while that of the limited partner decreases to 86.0%.
Effective December 1, 1996, REI's wholly-owned subsidiary, RB Operating
Company ("RBO"), purchased the limited partner's interest in the Partnership for
$60.0 million, as provided for under the terms of a purchase and sale agreement
previously executed by the parties (NOTES 2 AND 8). Funding for the transaction
was obtained from borrowings under a credit agreement with a bank (NOTE 3).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of REI and RBO
and effective December 1, 1996, the accounts of REI's majority-owned
Partnership. All significant intercompany transactions, including transactions
between REI or RBO and the Partnership beginning December 1, 1996, have been
eliminated.
OIL AND GAS PROPERTIES AND EQUIPMENT HELD FOR SALE
RAM had certain oil and gas properties and equipment held for sale at
December 31, 1996 for which the proceeds totaling $10.4 million (before closing
adjustments) were closed by March 1997. Because the sales are not considered
extraordinary transactions under the full cost method of accounting for oil and
gas operations, the full cost pool was reduced by the proceeds from such sales
in 1997. As described in Note 3, the proceeds from the sales of the properties
were utilized in 1997 to reduce RAM's long-term debt due within one year by $5.4
million and long-term debt due after one year by $5.0 million. RAM has
classified the $5.4 million portion of the proceeds from oil and gas properties
and equipment held for sale that were used in 1997 to reduce long-term debt due
within one year as a current asset at December 31, 1996, in the accompanying
consolidated balance sheet.
PROPERTIES AND EQUIPMENT
RAM follows the full cost method of accounting for oil and gas operations.
Under this method, all productive and nonproductive costs incurred in connection
with the acquisition, exploration and development of oil and gas reserves are
capitalized. No gains or losses are recognized upon the sale or other
disposition of oil and gas properties except in extraordinary transactions.
F-14
<PAGE>
RAM ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, ORGANIZATION AND BASIS OF
FINANCIAL STATEMENTS (CONTINUED)
With the exception of the plugging and abandonment obligation further
described in Note 8, RAM does not believe that future costs related to
dismantlement, site restoration, and abandonment costs, net of estimated salvage
values, will have a significant effect on its results of operations or financial
position because the salvage value of equipment and related facilities should
approximate or exceed any future expenditures for dismantlement, restoration, or
abandonment. RAM has not incurred any net expenditures for costs of this nature
during the last two years.
To the extent that RAM's net capitalized costs of oil and gas properties and
equipment exceed estimated discounted future net revenues from proved reserves,
plus the lower of cost or estimated fair value of unproved properties (none at
December 31, 1995 and 1996) (the "ceiling amount"), such excess is charged to
expense in the period in which it occurs and is not subsequently reinstated.
Reserve estimates have been prepared by an independent petroleum engineering
firm.
Other property and equipment consists principally of furniture and equipment
and leasehold improvements. Other property and equipment and related accumulated
amortization and depreciation are relieved upon retirement or sale and the gain
or loss is included in operations. Renewals and replacements which extend the
useful life of property and equipment are treated as additions.
The discounted future net revenues at December 31, 1996 include
approximately $44.6 million related to undeveloped and nonproducing properties
on which estimated capital expenditures of approximately $14.9 million will be
required to develop and produce the reserves. Such amounts have been considered
in the calculation of the ceiling amount at December 31, 1996. The funding for
these projects is expected by RAM to be provided from cash flows from
operations.
AMORTIZATION AND DEPRECIATION
Amortization of oil and gas properties and equipment is computed based on
the unit-of-production method using total proved reserves. Depreciation on other
equipment is computed based on the double declining balance method over the
estimated useful lives of the assets which range from three to ten years.
Amortization of leasehold improvements is computed over the term of the
associated lease. Amortization of loan origination costs is computed based on
the straight-line method over the term of the related debt.
GAS BALANCING
RAM records oil and gas sales on the entitlement method, recognizing its net
share of all production as revenue. Any amount received in excess of or less
than RAM's revenue interest is recorded in the net gas balancing liability.
CASH EQUIVALENTS
RAM considers all highly liquid unrestricted investments with a maturity of
three months or less when purchased to be cash equivalents.
CREDIT AND MARKET RISK
RAM sells oil and gas to various customers and participates with other
parties in the drilling, completion and operation of oil and gas wells. Joint
interest and oil and gas sales receivables related to these operations are
generally unsecured. During 1994, 1995 and 1996, RAM's provisions for doubtful
F-15
<PAGE>
RAM ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, ORGANIZATION AND BASIS OF
FINANCIAL STATEMENTS (CONTINUED)
accounts receivable were $42,000, $18,000 and $141,000, respectively, while
charge-offs of the allowance in those periods were $28,000, $116,000 and none,
respectively. RAM has established joint interest operations accounts receivable
allowances which management believes are adequate for uncollectible amounts at
December 31, 1995 and 1996.
USE 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.
LIQUIDITY AND FUTURE OPERATIONS
RAM's consolidated financial statements have been presented on a going
concern basis which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. RAM has a deficiency in
stockholders' equity of $1,320,518 at December 31, 1996. RAM has been successful
in prior years in conducting its operations maintaining a working capital
deficit primarily as a result of the ability to control the timing of cash
disbursements in RAM's capacity as operator of oil and gas properties.
Management believes the acquisition of the limited partner interest in the
Partnership effective December 1, 1996 will improve RAM's cash flow. RAM intends
to continue to strive to improve cash flow, to conduct business effectively and
efficiently within the constraints of the available resources and to operate its
properties as a prudent operator. Management believes that these actions will
allow it to maintain operations and continue as a going concern. Accordingly,
the financial statements do not include any adjustments that might be necessary
should RAM be unable to continue as a going concern in its present form.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for cash and cash
equivalents and variable rate long-term debt approximate their fair values. As
more fully described in Note 2, RAM recorded a loss provision of $139,695 in
1995 (none in 1996), to reduce the carrying amount of the receivable from
Oklahoma Double R Corporation, a sister corporation to the estimated fair value
of the collateral.
2. ACQUISITION AND RELATED PARTY TRANSACTIONS
ACQUISITION
As described in Note 1, RBO purchased the limited partner's interest in the
Partnership and has reflected this additional ownership in the accompanying
consolidated financial statements beginning
F-16
<PAGE>
RAM ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITION AND RELATED PARTY TRANSACTIONS (CONTINUED)
December 1, 1996. This transaction has been accounted for under the purchase
method of accounting. Details of the acquisition are as follows:
<TABLE>
<S> <C>
Assets acquired:
Accounts receivable:
Oil and gas sales......................................... $ 4,029,383
Related parties -- REI and RBO............................ 2,509,149
Prepaid expenses and deposits............................... 205,306
Note receivable from RBO.................................... 60,000,000
Properties and equipment, net............................... 59,834,123
Loan origination fees and other............................. 1,567,317
-----------
128,145,278
Liabilities assumed:
Accounts payable:
Trade..................................................... 1,521,237
Related parties -- REI and RBO............................ 1,244,452
Accrued liabilities......................................... 95,890
Long-term debt, including amount due within one year........ 62,800,000
Gas balancing liability, including amount expected to be
settled within one year................................... 1,229,518
Commitments and contingencies............................... 600,000
-----------
67,491,097
-----------
60,654,181
Minority interest at December 1, 1996....................... (1,199,242)
Elimination of REI's equity investment in Partnership at
December 1, 1996.......................................... (556,626)
-----------
Net cash paid................................................. $58,898,313
-----------
-----------
</TABLE>
The above amounts are exclusive of certain acquired net natural gas
imbalances of approximately 1.9 billion cubic feet at December 1, 1996. These
imbalances were historically recorded by the Partnership on a net basis within
the cost of acquired oil and gas properties and equipment with balancing of the
net liability subsequently recorded on the sales method which recognizes
imbalances at such time as the remaining reserves on the respective properties
are less than the imbalance position. RAM has elected to continue this method of
accounting for these specific imbalances acquired from the Partnership.
F-17
<PAGE>
RAM ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITION AND RELATED PARTY TRANSACTIONS (CONTINUED)
Summarized financial information of the Partnership is as follows:
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------- --------------
<S> <C> <C>
Oil and gas sales.............................................. $ 21,801,849 $ 23,455,976
Other revenues................................................. 197,947 121,472
------------- --------------
Total revenues................................................. 21,999,796 23,577,448
Other costs and expenses:
Oil and gas production expenses:
Operator fees to REI....................................... 1,686,043 1,342,777
Other...................................................... 9,901,863 7,609,131
General and administrative:
Management fees to REI..................................... 1,605,743 1,482,293
Overhead and other......................................... 501,941 377,964
Interest expense............................................. 808,942 563,789
Amortization and depreciation................................ 9,808,191 5,114,112
------------- --------------
Total costs and expenses....................................... 24,312,723 16,490,066
------------- --------------
Net income (loss).............................................. $ (2,312,927) $ 7,087,382
------------- --------------
------------- --------------
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, NOVEMBER 30,
1995 1996
------------- --------------
<S> <C> <C>
Current assets................................................ $ 7,513,413 $ 13,245,525
Note receivable from RBO due after one year................... -- 54,600,000
Oil and gas properties and equipment and other assets......... 49,694,976 47,765,359
------------- --------------
$ 57,208,389 $ 115,610,884
------------- --------------
------------- --------------
Current liabilities........................................... $ 12,367,328 $ 8,561,579
Long-term debt due after one year............................. -- 57,400,000
Other noncurrent liabilities.................................. 1,674,587 1,529,518
Partners' equity.............................................. 43,166,474 48,119,787
------------- --------------
$ 57,208,389 $ 115,610,884
------------- --------------
------------- --------------
</TABLE>
The following pro forma data presents the results of RAM for the years ended
December 31, 1995 and 1996, as if the acquisition of the limited partner
interest in the Partnership had occurred on January 1, 1995. The pro forma
results of operations are presented for comparative purposes only and are not
necessarily indicative of the results which would have been obtained had the
acquisitions been consummated as presented. The following data reflect pro forma
adjustments to include the operating activity of
F-18
<PAGE>
RAM ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITION AND RELATED PARTY TRANSACTIONS (CONTINUED)
the Partnership adjusted to reflect RAM's adjusted basis since acquisition and
additional interest related to the acquisition.
<TABLE>
<CAPTION>
PRO FORMA YEAR
ENDED DECEMBER 31,
----------------------
1995 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
Revenues........................................... $22,300,400 $27,520,200
---------- ----------
---------- ----------
Net income (loss).................................. $(8,977,200) $1,598,500
---------- ----------
---------- ----------
Net income (loss) per share (NOTE 11).............. $ (3.29) $ .59
---------- ----------
---------- ----------
</TABLE>
RELATED PARTY TRANSACTIONS
The Partnership agreement under which REI serves as the managing general
partner, provides for reimbursement of certain Partnership overhead costs to
REI. The management fee is computed monthly as a percentage of adjusted
cumulative contributed capital, as defined, at the beginning of the month. The
fee for the years ended December 31, 1994 and 1995 and for the eleven-month
period ended November 30, 1996 (the period prior to the acquisition of the
limited partner interest described in Note 1) was $1,554,929, $1,605,743 and
$1,482,293, respectively. Additionally, for the years ended December 31, 1994
and 1995, and for the eleven-month period ended November 30, 1996, $183,582,
$132,063 and $152,648, respectively, for technical personnel costs were charged
to the Partnership and are included in consulting fees from related parties in
the accompanying consolidated financial statements. Upon RAM's purchase of the
limited partner's interest in the Partnership effective December 1, 1996, the
operations of the Partnership are consolidated in those of RAM and subsequent
charges for the management fees and technical personnel costs made by REI to the
Partnership have been eliminated through consolidating adjustments in the
consolidated financial statements.
During 1994, 1995 and 1996, REI and RBO served as operator on many of the
wells of the Partnership. In connection with their services as operator on these
wells, REI and RBO charged the Partnership operator fees of $1,746,145,
$1,686,043 and $1,342,777 in 1994, 1995 and 1996, respectively. At December 31,
1996, the payables and receivables related to transactions between REI and RBO
and the Partnership are intercompany accounts as a result of the acquisition of
the limited partner interest in 1996 and, accordingly, have been eliminated in
the consolidated financial statements.
During the years ended December 31, 1994 and 1995 and the eleven-month
period ended November 30, 1996, REI received cash distributions from the
Partnership of $66,300, $12,953 and $21,342, respectively. No cash contributions
were made in 1994, 1995 or 1996. These cash distributions and contributions are
exclusive of cash flow from operations of the Partnership utilized to fund
development of Partnership properties.
In 1993, REI and RBO identified approximately $554,000 of oil and gas sales
proceeds received and other items which required resolution as a result of a
dispute with the limited partner of the Partnership as to ownership of these
funds. At December 31, 1995, a settlement had been reached on all but $295,561
of the amount. In December 1996, upon completion of the purchase of the limited
partner's interest in the Partnership, the $295,561 was recorded as other income
by RAM.
F-19
<PAGE>
RAM ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITION AND RELATED PARTY TRANSACTIONS (CONTINUED)
In 1994 and 1995, RAM paid $861,490 and $339,910, respectively (none in
1996), for a sister corporation's debt service requirements on a joint long-term
debt obligation. RAM received net repayments on advances totaling $20,846 during
1994 and made net advances to the sister corporation of $113,854 in 1995 (none
in 1996).
In September 1994, RAM entered into a loan and security agreement under
which the sister corporation pledged as collateral on the amount due RAM, all of
the future distributions applicable to the sister corporation's investment
ownership interest in the Partnership. The ultimate realization of the
receivable from the sister corporation is dependent upon the value of the
collateral pledged under the loan and security agreement. Management believes
that the receivable is ultimately collectible. A fair market value analysis
using the estimated discounted cash flows from oil and gas reserves attributable
to the sister corporation's ownership interest in the Partnership resulted in a
provision for uncollectible receivable of $139,695 being included in the
consolidated financial statements for 1995 (none in 1994 or 1996). The net
amount of $1,800,000 due from the sister corporation at December 31, 1995 and
1996, is included in the accompanying consolidated balance sheets as a
receivable from the sister corporation not expected to be collected within one
year. (NOTE 11)
3. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Revolving note payable......................................... $ -- $ 52,000,000
Term note payable.............................................. -- 10,800,000
Installment loan agreements.................................... 48,903 184,427
------------- -------------
48,903 62,984,427
Less amount due within one year................................ 31,464 5,475,673
------------- -------------
$17,439 $ 57,508,754
------------- -------------
------------- -------------
</TABLE>
During November 1996, the Partnership entered into a credit agreement with a
bank consisting of a revolving commitment which provides up to $65.0 million in
borrowings and letters of credit including a $10.8 million term commitment. In
connection with the December 1, 1996 acquisition by RBO of the limited partner
interest in the Partnership, RBO borrowed from the Partnership $60.0 million of
the proceeds from the credit agreement. Borrowings under the credit agreement
are secured by essentially all assets of RAM.
The amount of the revolving commitment is subject to a borrowing base
calculation and certain other limitations as defined in the credit agreement.
The borrowing base relates to RAM's oil and gas reserve base and was $52.0
million at December 31, 1996. The borrowing base is subject to semiannual
redeterminations each April and October. In addition to the foregoing semiannual
redetermination, the lender has the right, at its sole discretion or at the
request of RAM, to make one additional redetermination of the borrowing base
during any twelve-month period. The revolving commitment reduces quarterly
commencing January 31, 1998 by 1/16th through October 31, 2001. Under the
revolving commitment, RAM has the ability to choose the index on which the
interest rate is based. At December 31, 1996, all borrowings under
F-20
<PAGE>
RAM ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT (CONTINUED)
the revolving commitment were accruing interest at a LIBOR-based interest rate
plus 2.5% (aggregate rate of 8%), and interest is payable currently.
The term commitment of $10.8 million has been fully drawn at December 31,
1996. The original maturity date of the term commitment was October 31, 1997.
The maturity date on the term commitment has been extended to June 30, 1998;
however, due to the repayment in 1997 of $5.4 million of the term note payable
as further described below, only the remaining $5.4 million balance of the term
commitment has been classified as due after one year. Interest on the borrowings
under the term commitment is based on the bank's reference rate plus 3% through
May 31, 1997 and 3.5% thereafter (aggregate of 11.25% at December 31, 1996), and
is payable monthly.
The credit agreement contains various affirmative and restrictive covenants.
These covenants, among other things, restrict mergers involving RAM and payment
of dividends on REI's stock, limit additional indebtedness and sales or other
dispositions of assets, and require RAM to meet certain financial covenants. In
addition, the credit agreement requires RAM to enter into certain interest rate
swaps and collars to hedge the interest rate exposure associated with the credit
agreement. Effective January 3, 1997, RAM entered into interest rate swaps to
fix the interest rate on notional amounts of $20.0 million of the borrowings
under the revolving commitment and entered into an interest rate collar to cap
the interest rate on an additional notional amount of $10.0 million of the
borrowings under the revolving commitment.
RAM sold certain oil and gas properties in 1997 and received cash proceeds
of approximately $10.4 million (before closing adjustments). As required by the
credit agreement, such proceeds were used to pay down the principal balance
outstanding under the credit agreement. The bank applied $5.0 million of such
proceeds to the revolving note payable as a result of a preliminary
redetermination of the borrowing base made in 1997 with the balance of $5.4
million applied to the term note payable.
The amount of principal payments required by the credit agreement during
each of the next five years as of December 31, 1996, including consideration of
the extension of the maturity date of the term commitment but exclusive of the
preliminary borrowing base redetermination discussed above, are as follows: 1997
- -- $5,400,000, 1998 -- $8,650,000, 1999 -- $16,250,000, 2000 -- $16,250,000, and
2001 -- $16,250,000.
Interest paid by RAM in 1994, 1995 and 1996 totaled $22,691, $18,022 and
$156,873, respectively.
4. OPERATING LEASES
RAM leases office space, equipment and vehicles under noncancelable
operating lease agreements which expire at various dates through 2000. The
leases provide that RAM pay insurance, taxes and maintenance related to the
leased assets. Rent expense of $552,569, $332,977 and $365,217 was incurred
under operating leases in 1994, 1995 and 1996, respectively.
Future minimum lease payments for operating leases at December 31, 1996 are
as follows:
<TABLE>
<S> <C>
1997................................................................. $ 255,245
1998................................................................. 255,245
1999................................................................. 255,245
2000................................................................. 137,821
---------
$ 903,556
---------
---------
</TABLE>
F-21
<PAGE>
RAM ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. DEFINED CONTRIBUTION PLAN
RAM has a defined contribution plan for the benefit of substantially all
employees. The plan allows eligible employees to contribute up to 17.5% of their
annual compensation, not to exceed approximately $9,600 in 1996. RAM matched the
first 3.0% of employee contributions through January 1994, and RAM's
contribution in 1994 was $12,111. RAM elected to make a discretionary
contribution of $76,635 in 1996 (none in 1995).
6. PREFERRED STOCK
The Series A and B noncumulative preferred shares are entitled to receive
preferential quarterly dividends at the discretion of REI's Board of Directors.
The maximum quarterly dividends for the Series A and B shares are $0.125 and
$0.30 per share, respectively (no dividends were declared in 1994, 1995 or
1996). Holders of these shares are entitled to a preference in liquidation in
the amount of $10.00 per share plus declared and unpaid dividends, but are not
entitled to vote. REI may redeem the preferred shares at any time at the
discretion of REI's Board of Directors at a price of $10.00 per share plus
declared and unpaid dividends; however, no more than 25,000 shares of the Series
B preferred stock may be redeemed within any twelve-month period.
The holders of the Series B preferred shares are entitled to convert 22,500
of these shares into one share of Class A common stock at any time. Authorized
but unissued Class A common shares are reserved in the amount necessary to
comply with this conversion feature (4 shares at December 31, 1996).
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
RAM's deferred tax assets and liabilities as of December 31, 1995 and 1996 are
as follows:
<TABLE>
<CAPTION>
1995 1996
------------- ------------
<S> <C> <C>
DEFERRED TAX ASSETS
Financial depreciation in excess of tax depreciation............. $ 79,269 $ 108,163
Financial charges which are deferred for tax purposes:
Provision for uncollectible receivable from sister
corporation.................................................. 53,084 53,084
Accrued compensation........................................... 77,520 222,680
Other, net..................................................... 111,012 166,725
Net operating loss carryforwards................................. 858,975 464,529
------------- ------------
Total deferred tax assets before valuation allowance............. 1,179,860 1,015,181
Less valuation allowance recognized.............................. (1,008,608) (851,920)
------------- ------------
Net deferred tax assets...................................... 171,252 163,261
</TABLE>
F-22
<PAGE>
RAM ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
1995 1996
------------- ------------
<S> <C> <C>
DEFERRED TAX LIABILITIES
Intangible drilling costs capitalized for financial purposes and
expensed for tax purposes...................................... 106,498 111,197
Tax losses from equity method investment in Partnership.......... 64,754 52,064
------------- ------------
Deferred tax liabilities..................................... 171,252 163,261
------------- ------------
Net deferred tax................................................. $ -- $ --
------------- ------------
------------- ------------
</TABLE>
The reconciliation of income taxes computed at the U.S. Federal statutory
tax rates to RAM's income tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Income tax (benefit) at statutory rate...... $ 5 $(19,481) $ 138,772
State income taxes.......................... -- (2,005) 17,916
Change in valuation allowance recognized.... (5) 21,486 (156,688)
--------- --------- ---------
Income tax expense.......................... $ -- $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
At December 31, 1996, RAM has federal income tax net operating loss
carryforwards of approximately $1.2 million which begin expiring in 2002.
8. COMMITMENTS AND CONTINGENCIES
In November 1993, the limited partner of the Partnership filed a lawsuit in
federal district court against REI, the special general partner, and certain
other affiliates of REI. In this lawsuit, the limited partner made numerous
allegations against REI and its affiliates related to REI's operation of the
Partnership as its general partner. In July 1996, the lawsuit was dismissed by
the federal court for lack of federal jurisdiction. The parties entered into a
purchase and sale agreement under which the limited partner's interest in the
Partnership was purchased effective December 1, 1996 (NOTES 1 AND 2). Upon
execution of the purchase and sale agreement, a complete release and discharge
of all claims by the limited partner against REI and its affiliates was
received.
In November 1995, the Partnership entered into a letter of intent to sell an
oil and gas property located in Louisiana state waters in Plaquemines Parish.
The sale was completed in early 1996. The property included several currently
uneconomical wells for which RAM estimates the plugging and abandonment ("P&A")
obligation is approximately $1,020,000. The purchaser provided a letter of
credit and a bond totaling $420,000 to ensure funding of a portion of the P&A
obligation. The P&A obligation would revert to the Partnership in the event the
purchaser does not complete the required P&A activities. As a result, in 1995
the Partnership recorded a contingent liability of $600,000, which is also
included in the accompanying December 31, 1996 consolidated balance sheet.
Effective January 1, 1996, RAM established a severance policy for three
senior officers and directors of REI. This policy provides for severance
benefits to be paid upon involuntary separation as a result of
F-23
<PAGE>
RAM ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
actions taken by RAM or its successors. Benefits under the policy are
principally based upon length of service to RAM. The covered officers and
directors are not entitled to these separation benefits upon voluntary
separation, including retirement. At December 31, 1996, the severance benefits
under this policy were approximately $630,000 with additional amounts payable
for group medical, health, and life benefits and other consulting fees for
services requested by RAM after termination of the individuals, as applicable. A
provision for these benefits would not be made unless an involuntary termination
was probable.
9. OIL AND GAS PRODUCING ACTIVITIES
Capitalized costs relating to crude oil and gas producing activities and
related accumulated depreciation and amortization are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------
<S> <C> <C> <C>
1994 1995 1996
----------- ------------ -------------
Proved crude oil and natural gas properties........ $ 960,754 $ 1,006,495 $ 64,207,298
Accumulated depreciation and amortization.......... (446,815) (518,815) (4,632,819)
----------- ------------ -------------
$ 513,939 $ 487,680 $ 59,574,479
----------- ------------ -------------
----------- ------------ -------------
</TABLE>
Costs incurred in oil and gas producing activities for the years ended
December 31, 1994, 1995 and 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Acquisition of proved properties......................... $ -- $ -- $ 59,834,123
Development costs........................................ $49,986 $47,098 $ 21,905
</TABLE>
10. SUPPLEMENTARY OIL AND GAS RESERVE INFORMATION (UNAUDITED)
RAM has interests in crude oil and gas properties that are principally
located in Oklahoma, Texas and New Mexico. RAM does not own or lease any oil and
gas properties outside the United States.
RAM retains independent engineering firms to provide year-end estimates of
RAM's future net recoverable oil, gas, and natural gas liquids reserves.
Estimated proved net recoverable reserves as shown below include only those
quantities that can be expected to be commercially recoverable at prices and
costs in effect at the balance sheet dates under existing regulatory practices
and with conventional equipment and operating methods.
Proved developed reserves represent only those reserves expected to be
recovered through existing wells. Proved undeveloped reserves include those
reserves expected to be recovered from new wells on undrilled acreage or from
existing wells on which a relatively major expenditure is required for
recompletion.
Net quantities of proved developed and undeveloped reserves of oil and gas,
including condensate and natural gas liquids, are provided below beginning in
1996, the year in which the purchase of the limited
F-24
<PAGE>
RAM ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SUPPLEMENTARY OIL AND GAS RESERVE INFORMATION (UNAUDITED) (CONTINUED)
partner interest in the Partnership occurred. Prior to this time, the amounts
were not significant and, therefore, have not been presented below:
<TABLE>
<CAPTION>
CRUDE OIL NATURAL GAS
(MILLION (MILLION
BARRELS) CUBIC FEET)
----------- -----------
<S> <C> <C>
December 31, 1995.................................................. 26 550
Purchase of reserves in place...................................... 4,294 83,025
Production......................................................... (38) (690)
----------- -----------
December 31, 1996.................................................. 4,282 82,885
----------- -----------
----------- -----------
Proved developed reserves at December 31, 1996..................... 3,511 62,319
----------- -----------
----------- -----------
</TABLE>
The following is a summary of a standardized measure of discounted net cash
flows beginning in 1996, related to RAM's proved oil and gas reserves. For these
calculations, estimated future cash flows from estimated future production of
proved reserves were computed using crude oil and natural gas prices as of the
end of the period presented. Future development and production costs
attributable to the proved reserves were estimated assuming that existing
conditions would continue over the economic lives of the individual leases and
costs were not escalated for the future. Estimated future income tax expenses
were calculated by applying future statutory tax rates (based on the current tax
law adjusted for permanent differences and tax credits) to the estimated future
pre-tax net cash flows related to proved crude oil and natural gas reserves,
less the tax basis of the properties involved.
RAM cautions against using this data to determine the fair value of its oil
and gas properties. To obtain the best estimate of fair value of the oil and gas
properties, forecasts of future economic conditions, varying discount rates, and
consideration of other than proved reserves would have to be incorporated into
the calculation. In addition, there are significant uncertainties inherent in
estimating quantities of proved reserves and in projecting rates of production
that impair the usefulness of the data.
The standardized measure of discounted future net cash flows relating to
proved crude oil and natural gas reserves at December 31, 1996 are summarized as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Future cash inflows........................................................... $ 414,079
Future production and development costs....................................... (125,634)
Future income tax expenses.................................................... (38,560)
--------------
Future net cash flows......................................................... 249,885
10% annual discount for estimated timing of cash flows........................ (110,474)
--------------
Standardized measure of discounted future net cash flows...................... $ 139,411
--------------
--------------
</TABLE>
F-25
<PAGE>
RAM ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SUPPLEMENTARY OIL AND GAS RESERVE INFORMATION (UNAUDITED) (CONTINUED)
The following are the principal sources of change in the standardized
measure of discounted future net cash flows for the period from December 31,
1995 to December 31, 1996:
<TABLE>
<S> <C>
Sales and transfers of oil and gas produced, net of production
costs........................................................... $ (2,448)
Purchases of reserves in place, including those from purchase of
limited partner interest in Partnership......................... 141,167
Accretion of discount............................................. 63
---------
Net change........................................................ $ 138,782
---------
---------
</TABLE>
During recent years, there have been significant fluctuations in the prices
paid for crude oil in the world markets. This situation has had a destabilizing
effect on the oil posted prices in the United States, including the posted
prices paid by purchasers of RAM's oil. The net weighted average prices of oil
and gas at December 31, 1996 used in the above table were $23.89 per barrel of
crude oil and $3.79 per thousand cubic feet of natural gas.
11. SUBSEQUENT EVENTS
Effective November 1, 1997, the Board of Directors of Oklahoma Double R
Corporation ("DRC") authorized the assignment to REI, in partial payment for the
$1,800,000 indebtedness owed by DRC to REI, of all assets and properties of the
Partnership otherwise distributable to DRC upon dissolution and liquidation of
the Partnership in respect of DRC's 2.5% special general partnership interest in
the Partnership.
In August 1997, RAM purchased certain primarily producing oil and gas
properties and equipment located principally in Oklahoma, Louisiana and
Mississippi for $11.2 million (before closing adjustments). The purchase was
financed with additional borrowings under the credit agreement.
Effective November 26, 1997, RBO was merged with and into REI, resulting in
REI becoming the direct owner of all of the assets and properties of RBO and
assuming all of its liabilities. Effective December 1, 1997, REI, as managing
general partner and sole limited partner of the Partnership, and DRC, as special
general partner of the Partnership, authorized the dissolution of the
Partnership, the liquidation of all of the assets of the Partnership into REI
and the assumption by REI of all liabilities of the Partnership.
In November 1997, RAM entered into a letter of intent to purchase certain
producing oil and gas properties and equipment and pipeline gathering systems
located principally in Oklahoma for $43.0 million (subject to closing
adjustments). This transaction is expected to close simultaneously with the
offering of Senior Notes by RAM Energy, Inc.
On December 27, 1997, the Board of Directors of RAM Energy, Inc. approved a
27,000-for-1 stock split of RAM Energy, Inc.'s common stock and approved the
change of the name of RAM from RAMCO Operating Company to RAM Energy, Inc. The
effects of the stock split on the computations of net income (loss) per share
have been reflected retroactively in the accompanying financial statements.
F-26
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
RAMCO-NYL 1987 Limited Partnership
We have audited the accompanying balance sheets of RAMCO-NYL 1987 Limited
Partnership as of December 31, 1995 and November 30, 1996, and the related
statements of operations, partners' equity and cash flows for each of the two
years in the period ended December 31, 1995 and for the eleven-month period
ended November 30, 1996. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of RAMCO-NYL 1987 Limited
Partnership at December 31, 1995, and November 30, 1996 and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1995 and for the eleven-month period ended November 30, 1996 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
December 15, 1997
F-27
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 1,265,980 $ 1,101,687
Restricted temporary investments, at cost which approximates market............... 280,000 --
Accounts receivable from affiliates (NOTES 1 AND 3):
Oil and gas sales............................................................... 4,666,293 4,029,383
Other........................................................................... 1,003,021 2,509,149
Prepaid expenses.................................................................. 298,119 205,306
Note receivable from RBO due within one year (NOTE 3)............................. -- 5,400,000
------------- -------------
Total current assets................................................................ 7,513,413 13,245,525
Note receivable from RBO due after one year (NOTE 3)................................ -- 54,600,000
Properties and equipment, at cost (NOTES 3 AND 4):
Oil and gas properties and equipment, based on full cost accounting............... 142,995,021 144,647,069
Other equipment................................................................... 124,707 124,707
------------- -------------
143,119,728 144,771,776
Less accumulated amortization and depreciation.................................... 93,518,299 98,573,734
------------- -------------
Net properties and equipment........................................................ 49,601,429 46,198,042
Loan origination fees, net of accumulated amortization of $131,973 in 1995 and
$190,650 in 1996.................................................................. 58,677 1,536,092
Other............................................................................... 34,870 31,225
------------- -------------
Total assets........................................................................ $ 57,208,389 $ 115,610,884
------------- -------------
------------- -------------
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable:
Affiliates (NOTE 3)............................................................. $ 1,347,412 $ 1,244,452
Trade........................................................................... -- 1,521,237
Long-term debt due within one year (NOTE 4)....................................... 10,000,000 5,400,000
Gas balancing liability........................................................... 500,000 300,000
Accrued liability for contingencies (NOTE 5)...................................... 420,000 --
Other accrued liabilities......................................................... 99,916 95,890
------------- -------------
Total current liabilities........................................................... 12,367,328 8,561,579
Gas balancing liability not expected to be settled within one year.................. 1,074,587 929,518
Long-term debt due after one year (NOTE 4).......................................... -- 57,400,000
Contingencies (NOTE 5).............................................................. 600,000 600,000
Partners' equity:
Managing General Partner.......................................................... 507,094 556,626
Special General Partner........................................................... 1,075,409 1,199,242
Limited Partner................................................................... 41,583,971 46,363,919
------------- -------------
Total partners' equity.............................................................. 43,166,474 48,119,787
------------- -------------
Total liabilities and partners' equity.............................................. $ 57,208,389 $ 115,610,884
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-28
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ELEVEN MONTH
YEAR ENDED DECEMBER 31, PERIOD ENDED
----------------------------- NOVEMBER 30,
1994 1995 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Operating revenues:
Oil and gas sales (NOTE 3)....................................... $ 24,481,019 $ 21,801,849 $ 23,455,976
Other............................................................ 59,630 139,431 6,929
-------------- ------------- -------------
Total operating revenues....................................... 24,540,649 21,941,280 23,462,905
Operating expenses:
Oil and gas production expenses (NOTES 3 AND 5).................. 9,838,892 9,901,863 7,609,131
Amortization and depreciation.................................... 11,607,625 9,808,191 5,114,112
Write-down of oil and gas properties and equipment (NOTE 1)...... 8,700,000 -- --
Management fee to Managing General Partner
(NOTE 3)....................................................... 1,554,929 1,605,743 1,482,293
Operator fees to Managing General Partner (NOTE 3)............... 1,746,145 1,686,043 1,342,777
General and administrative expenses.............................. 676,124 501,941 377,964
-------------- ------------- -------------
Total operating expenses....................................... 34,123,715 23,503,781 15,926,277
-------------- ------------- -------------
Operating income (loss)............................................ (9,583,066) (1,562,501) 7,536,628
Other income (expense):
Interest expense................................................. (587,361) (808,942) (563,789)
Interest income.................................................. 41,164 58,516 114,543
-------------- ------------- -------------
Net income (loss).................................................. $ (10,129,263) $ (2,312,927) $ 7,087,382
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-29
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
MANAGING SPECIAL
GENERAL GENERAL LIMITED
TOTAL PARTNER PARTNER PARTNER
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993..................... $ 61,534,001 $ 690,769 $1,534,597 $59,308,635
Cash distributions to partners................... (4,630,000) (46,300) (115,750) (4,467,950)
Net loss......................................... (10,129,263) (101,293) (253,231) (9,774,739)
-------------- -------------- -------------- --------------
Balance at December 31, 1994..................... 46,774,738 543,176 1,165,616 45,065,946
Cash distributions to partners................... (1,295,337) (12,953) (32,384) (1,250,000)
Net loss......................................... (2,312,927) (23,129) (57,823) (2,231,975)
-------------- -------------- -------------- --------------
Balance at December 31, 1995..................... 43,166,474 507,094 1,075,409 41,583,971
Cash distributions to partners................... (2,134,069) (21,342) (53,352) (2,059,375)
Net income....................................... 7,087,382 70,874 177,185 6,839,323
-------------- -------------- -------------- --------------
Balance at November 30, 1996..................... $ 48,119,787 $ 556,626 $1,199,242 $46,363,919
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-30
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ELEVEN MONTH
YEAR ENDED DECEMBER 31, PERIOD ENDED
-------------------------- NOVEMBER 30,
1994 1995 1996
------------- ----------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)..................................................... $ (10,129,263) $(2,312,927) $ 7,087,382
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Amortization and depreciation....................................... 11,607,625 9,808,191 5,114,112
Write-down of oil and gas properties and equipment.................. 8,700,000 -- --
Cash provided (used) by changes in operating assets and liabilities:
Accounts receivable from affiliates relating to operating
activities...................................................... (410,643) 1,539,106 (869,218)
Prepaid expenses.................................................. (121,404) (176,715) 92,813
Accounts payable to affiliates relating to operating activities... 1,100,250 (1,410,596) (102,960)
Other accrued liabilities......................................... 1,980 2,046 (4,026)
Accrued liability for contingencies............................... (50,000) 620,000 (420,000)
Gas balancing liability........................................... (730,000) (590,670) (345,069)
Restricted temporary investments and other........................ -- -- 283,645
------------- ----------- -------------
Total adjustments..................................................... 20,097,808 9,791,362 3,749,297
------------- ----------- -------------
Net cash provided by operating activities............................. 9,968,545 7,478,435 10,836,679
CASH FLOWS FROM INVESTING ACTIVITIES
Advance on note receivable from RBO................................... -- -- (60,000,000)
Payments for additions to oil and gas properties and equipment
exclusive of advances............................................... (4,308,533) (5,379,704) (3,310,238)
Proceeds from sales of oil and gas properties......................... 81,364 181,190 1,688,887
Advances paid for development costs................................... (1,106,511) (74,157) --
Payments for purchases of other equipment............................. (16,381) -- --
Proceeds from sales of other equipment................................ 13,762 -- --
------------- ----------- -------------
Net cash used by investing activities................................. (5,336,299) (5,272,671) (61,621,351)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowing on long-term debt............................. -- -- 62,800,000
Principal payments on long-term debt.................................. -- -- (10,000,000)
Distributions to partners............................................. (4,630,000) (1,295,337) (2,134,069)
Payments for loan origination fees.................................... -- -- (45,552)
------------- ----------- -------------
Net cash provided (used) by financing activities...................... (4,630,000) (1,295,337) 50,620,379
------------- ----------- -------------
Increase (decrease) in cash and cash equivalents...................... 2,246 910,427 (164,293)
Cash and cash equivalents at beginning of period...................... 353,307 355,553 1,265,980
------------- ----------- -------------
Cash and cash equivalents at end of period............................ $ 355,553 $ 1,265,980 $ 1,101,687
------------- ----------- -------------
------------- ----------- -------------
DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Oil and gas properties obtained utilizing advances for development
costs............................................................... $ 939,966 $ 262,211 $ --
------------- ----------- -------------
------------- ----------- -------------
Accounts payable includes costs related to the addition of loan
origination fees.................................................... $ -- $ -- $ 1,521,237
------------- ----------- -------------
------------- ----------- -------------
Offset of certain accounts payable and accounts receivable between
Managing General Partner and Limited Partner........................ $ -- $ 781,786 $ --
------------- ----------- -------------
------------- ----------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-31
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
RAMCO-NYL 1987 Limited Partnership (the "Partnership") was activated on
February 3, 1988 by RAM Energy, Inc., formerly RAMCO Operating Company (the
"Managing General Partner"), Oklahoma Double R Corporation (the "Special General
Partner"), and New York Life Insurance Company (the "Limited Partner"). On
November 30, 1996, the Limited Partner interest in the Partnership was sold to
RB Operating Company ("RBO"), a wholly-owned subsidiary of the Managing General
Partner (NOTE 8). The Partnership was formed for the purpose of acquiring and
developing interests in oil and gas properties.
The Partnership participates in the drilling, completion and acquisition of
oil and gas wells. While the Partnership's sales of oil and gas to various
purchasers are generally unsecured and distributed by an affiliate, the
Partnership has not experienced any significant credit losses from such sales.
PARTICIPATION IN REVENUES, COSTS AND EXPENSES
Under the terms of the limited partnership agreement, as amended (the
"Partnership Agreement"), for financial reporting purposes, virtually all
Partnership revenues, costs and expenses are allocated 1.0% to the Managing
General Partner, 2.5% to the Special General Partner and 96.5% to the Limited
Partner prior to Payout Nos. 1 and 2, as defined. Upon reaching these payouts,
the allocation to the Managing General Partner increases to 11.5% while that of
the Limited Partner decreases to 86.0%.
PROPERTIES AND EQUIPMENT
The Partnership follows the full cost method of accounting for oil and gas
operations. Under this method, all productive and nonproductive costs incurred
in connection with the acquisition, exploration and development of oil and gas
reserves are capitalized. No gains or losses are recognized upon the sale or
other disposition of oil and gas properties except in extraordinary
transactions.
With the exception of the plugging and abandonment obligation further
described in Note 5, the Partnership does not believe that future costs related
to dismantlement, site restoration, and abandonment costs, net of estimated
salvage values, will have a significant effect on its results of operations or
financial position because the salvage value of equipment and related facilities
should approximate or exceed any future expenditures for dismantlement,
restoration, or abandonment. The Partnership has not incurred any net
expenditures for costs of this nature in 1994, 1995 or 1996.
To the extent that the Partnership's net capitalized costs of oil and gas
properties and equipment exceed estimated discounted future net revenues from
proved reserves plus the lower of cost or estimated fair value of unproved
properties (none at December 31, 1995 or November 30, 1996) (the "ceiling
amount"), such excess is charged to expense in the period in which it occurs and
is not subsequently reinstated. The accompanying financial statements reflect
the pricing of oil and gas products used in the calculations of the
Partnership's oil and gas reserves in accordance with the guidelines established
by the Securities and Exchange Commission, which resulted in a write-down of oil
and gas properties and equipment of $8.7 million in 1994 (none in 1995 or 1996).
The discounted future net revenues at November 30, 1996 include
approximately $28.2 million related to properties on which estimated capital
expenditures of approximately $14.7 million will be required to develop and
produce the reserves. Such amounts have been considered in the calculation of
the ceiling
F-32
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
amount at November 30, 1996. The funding for these projects is expected by the
Managing General Partner to be provided from cash flows from operations.
AMORTIZATION AND DEPRECIATION
Amortization of oil and gas properties and equipment is computed based on
the unit-of-production method. Depreciation on other equipment is computed based
on the double declining balance method over the estimated useful lives of the
assets. Amortization of loan origination costs is computed based on the
straight-line method over the term of the related debt.
GAS BALANCING
The Partnership's policy when acquiring oil and gas properties and equipment
has been to record the assets acquired net of the related net gas balancing
liability, if any. The subsequent balancing of the net liability acquired is
recorded on the sales method. At November 30, 1996, the Partnership has a
remaining net overproduced position from the acquired imbalances of
approximately 1,900,000 thousand cubic feet of natural gas that is not reflected
in the gas balancing liability in the accompanying balance sheets.
For other gas imbalance activity subsequent to acquisitions, the Partnership
records sales on the entitlement method, recognizing its net share of all
production as revenue. Any amount received in excess of or less than the
Partnership's revenue interest is recorded in the net gas balancing liability.
CASH EQUIVALENTS
The Partnership considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
CREDIT AND MARKET RISK
The Partnership conducts a majority of its business in the states of
Oklahoma, Texas and New Mexico and engages exclusively in the oil and gas
industry. As further described in Note 3, the Managing General Partner and RBO
have served as operators on many of the Partnership wells and distribute all oil
and gas sales proceeds to the Partnership. The Managing General Partner and RBO
have certain oil and gas suspense payable accounts totaling approximately $1.7
million at November 30, 1996 related to oil and gas properties in which the
Partnership owns an interest. These suspended payables will ultimately require
funding when the appropriate parties to whom they are due are located or the
amounts become payable to the applicable states' authorities if the appropriate
parties to whom the funds are due cannot be located. In the event the Managing
General Partner or RBO are unable to fund the oil and gas suspense payable
accounts when due, the Partnership may be required to fund such obligations to
the extent they constitute obligations under the Partnership's leases. The
Managing General Partner and RBO are dependent upon the Partnership for future
management fees and other income. While the ultimate resolution of all these
matters and their effects on the accounts described above cannot be predicted
with certainty, the Managing General Partner does not expect such resolution to
have a material effect on the financial position of the Partnership.
F-33
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE 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.
INCOME TAXES
The income or loss of the Partnership for tax purposes is to be included in
the tax returns of the individual partners. Consequently, no provision for
income taxes has been reflected in these financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for cash and cash
equivalents, certificates of deposit with a one year maturity, and variable rate
note receivable from RBO and long-term debt approximate their fair values.
2. DISAGREEMENT AND LAWSUIT BETWEEN PARTNERS
In November 1993, the sole Limited Partner of the Partnership filed a
lawsuit in federal district court against the Managing General Partner, the
Special General Partner, which is a sister corporation of the Managing General
Partner, and certain affiliates of the Managing General Partner. In the lawsuit,
the Limited Partner sought dissolution of the Partnership, recovery of fees and
other charges claimed by the Limited Partner to be in excess of the amount
permitted by the Partnership Agreement, and recovery of interest charges on
Partnership funds claimed by the Limited Partner to have been improperly held in
the Managing General Partner's accounts. Although several motions for partial
summary judgment were filed by both sides, the court failed to rule on any
substantive issue in the case and in July 1996, dismissed the Limited Partner's
complaint for lack of jurisdiction.
On July 24, 1996, the Managing General Partner and the Limited Partner
entered into a Purchase and Sale Agreement pursuant to which the Managing
General Partner's subsidiary, RBO, purchased all of the Limited Partner's
interest in the Partnership (NOTE 8).
3. TRANSACTIONS WITH AFFILIATES
The Partnership Agreement provides for reimbursement of Partnership overhead
costs to the Managing General Partner. The management fee is computed monthly as
a percentage (.0833% prior to Payout No. 2 and .04167% thereafter) of adjusted
cumulative contributed capital, as defined, at the beginning of the month. The
management fee for 1994, 1995 and 1996 was $1,554,929, $1,605,743 and
$1,482,293, respectively. The Managing General Partner and RBO serve as
operators on many of the Partnership wells. In connection with their services as
operator on these wells, the Managing General Partner and RBO charged the
Partnership operator fees of $1,746,145, $1,686,083 and $1,342,777 in 1994,
1995, and 1996, respectively. In addition, the Managing General Partner and RBO
distribute all oil and gas sales, net of oil and gas production taxes, and bill
the Partnership for all operating and capital expenditures, including
F-34
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
charges for technical personnel costs provided by the Managing General Partner,
related to the Partnership wells. In connection with these and other
transactions, the Partnership has recorded oil and gas accounts receivable from
these affiliates of $4,666,293 and $4,029,383 at December 31, 1995 and November
30, 1996, respectively. The Partnership's recorded oil and gas accounts
receivable includes $1,414,382 and $1,941,746 at December 31, 1995 and November
30, 1996, respectively, that had actually been received by these affiliates from
purchasers at year end. In addition, the Partnership had advances to and other
receivables from these affiliates of $1,003,021 and $2,509,149 at December 31,
1995 and November 30, 1996, respectively, and accounts payable for oil and gas
operations to these affiliates of $1,347,412 and $1,244,452 at December 31, 1995
and November 30, 1996, respectively.
In connection with the December 1, 1996 acquisition by RBO of the Limited
Partner interest in the Partnership (NOTE 8), in November 1996, RBO borrowed
from the Partnership $60.0 million of the proceeds from the credit agreement
described in Note 4. The Partnership has a note receivable from RBO which is due
at the same time as payments are required under the credit agreement. In
addition, the note bears interest at the same rates and terms as provided for in
the credit agreement.
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
NOVEMBER NOVEMBER
31, 1995 30, 1996
----------- -----------
<S> <C> <C>
Revolving note payable.................................. $ -- $52,000,000
Term note payable....................................... -- 10,800,000
Note payable under credit agreement paid off in 1996.... 10,000,000 --
----------- -----------
10,000,000 62,800,000
Less amount due within one year......................... 10,000,000 5,400,000
----------- -----------
$ -- $57,400,000
----------- -----------
----------- -----------
</TABLE>
During November 1996, the Partnership entered into a credit agreement with a
bank consisting of a revolving commitment which provides up to $65.0 million in
borrowings and letters of credit including a $10.8 million term commitment.
Borrowings under the credit agreement are secured by essentially all assets of
the Partnership.
The amount of the revolving commitment is subject to a borrowing base
calculation and certain other limitations as defined in the credit agreement.
The borrowing base relates to the Partnership's oil and gas reserve base and was
$52.0 million at November 30, 1996. The borrowing base is subject to semiannual
redeterminations each April and October. In addition to the foregoing semiannual
redetermination, the lender has the right, at its sole discretion or at the
request of the Partnership, to make one additional redetermination of the
borrowing base during any twelve-month period. The revolving commitment reduces
quarterly commencing January 31, 1998 by 1/16(th) through October 31, 2001.
Under the revolving commitment, the Partnership has the ability to choose the
index on which the interest rate is based. At November 30, 1996, all borrowings
under the revolving commitment were accruing interest at a LIBOR-based interest
rate plus 2.5% (aggregate rate of 8%), and interest is payable currently.
F-35
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
The term commitment of $10.8 million has been fully drawn at November 30,
1996. The original maturity date of the term commitment was October 31, 1997.
The maturity date on the term commitment has been extended to June 30, 1998;
however, due to the repayment in 1997 of $5.4 million of the term note payable
as further described below, only the remaining $5.4 million balance of the term
commitment, which would otherwise be classified as a current liability in the
accompanying November 30, 1996 balance sheet, has been classified as due after
one year. Interest on the borrowings under the term commitment is based on the
bank's reference rate plus 3.0% through May 31, 1997 and 3.5% thereafter
(aggregate of 11.25% at November 30, 1996), and is payable monthly.
The credit agreement contains various affirmative and restrictive covenants.
These covenants, among other things, restrict mergers involving the Partnership
and the Managing General Partner, payment of distributions to partners by the
Partnership and payment of dividends on the Managing General Partner's stock,
limit additional indebtedness and sales or other dispositions of assets, and
require the Partnership and the Managing General Partner to meet certain
financial covenants. In addition, the credit agreement requires the Partnership
to enter into certain interest rate swaps and collars to hedge the interest rate
exposure associated with the credit agreement. Effective January 3, 1997, the
Partnership entered into interest rate swaps to fix the interest rate on
notional amounts of $20.0 million of the borrowings under the revolving
commitment and entered into an interest rate collar to cap the interest rate on
an additional notional amount of $10.0 million of the borrowings under the
revolving commitment.
The Partnership sold certain oil and gas properties in 1997 and received
cash proceeds of approximately $10.4 million (before closing adjustments). As
required by the credit agreement, such proceeds were used to pay down the
principal balance outstanding under the credit agreement. The bank applied $5.0
million of such proceeds to the revolving note payable as a result of a
preliminary redetermination of the borrowing base made in 1997 with the balance
of $5.4 million applied to the term note payable.
The amount of principal payments required by the credit agreement during
each of the next five years as of November 30, 1996, including consideration of
the extension of the maturity date of the term commitment but exclusive of the
preliminary borrowing base redetermination discussed above, are as follows: 1997
- -- $5,400,000, 1998 -- $8,650,000, 1999 -- $16,250,000, 2000 -- $16,250,000, and
2001 -- $16,250,000.
Interest paid by the Partnership in 1994, 1995 and 1996 totaled $587,361,
$808,942 and $563,789, respectively.
5. CONTINGENCIES
As a result of its acquisition of certain oil and gas properties, the
Partnership was a party to a lawsuit involving certain Indian leases in Custer
County, Oklahoma. The contingent liability of $400,000 was classified as a
current liability in the accompanying balance sheet at December 31, 1995. The
parties achieved a final settlement during 1996 and settlement payments of
approximately the recorded liability have been made and dismissals with
prejudice have been filed as required under the terms of the settlement.
In November 1995, the Partnership entered into an agreement to sell an oil
and gas property located in Louisiana state waters in Plaquemines Parish. The
property includes several currently uneconomical wells for which the Managing
General Partner estimates the plugging and abandonment ("P&A") obligation is
approximately $1,020,000. The purchaser provided a letter of credit and a bond
totaling $420,000 to ensure funding of a portion of the P&A obligation. The P&A
obligation would revert to the
F-36
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. CONTINGENCIES (CONTINUED)
Partnership in the event the purchaser does not complete the required P&A
activities. The Managing General Partner believes that the Partnership may
ultimately be required to fund a portion of the P&A obligation. As a result, the
Partnership has recorded a contingent liability of $600,000 in the accompanying
balance sheets.
6. OIL AND GAS PRODUCING ACTIVITIES
Capitalized costs relating to oil and gas producing activities and related
accumulated depreciation and amortization are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER
----------------------- 30,
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Proved oil and gas properties................ $138,271,641 $142,995,021 $144,647,069
Accumulated depreciation and amortization.... (83,664,092) (93,439,682) (98,495,117)
---------- ----------- -----------
$54,607,549 $49,555,339 $46,151,952
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
Costs incurred in crude oil and gas producing activities for the years ended
December 31, 1994 and 1995 and the period ended November 30, 1996, are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED
-------------------------- NOVEMBER 30,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Development costs.................................. $ 4,475,078 $ 5,191,650 $3,310,238
------------ ------------ ------------
------------ ------------ ------------
Amortization rate per equivalent MCF............... $ .92 $ .78 $ .51
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Revenues from one customer in 1996 (none in 1994 or 1995) exceeded 10% of
the Partnership's total crude oil and natural gas sales. The 1996 revenues from
Coastal Gas Marketing of approximately $2,740,000 represent approximately 11.7%
of such sales for the Partnership. The Partnership's management believes that
the loss of this customer would not have a significant impact on the
Partnership's results of operations or financial condition.
7. SUPPLEMENTARY OIL AND GAS RESERVE INFORMATION (UNAUDITED)
The Partnership has interests in crude oil and gas properties that are
principally located in Oklahoma, Texas and New Mexico. The Partnership does not
own or lease any crude oil and gas properties outside the United States.
The Partnership retains independent engineering firms to provide period-end
estimates of the Partnership's future net recoverable oil, gas, and natural gas
liquids reserves. Estimated proved net recoverable reserves as shown below
include only those quantities that can be expected to be commercially
recoverable at prices and costs in effect at the balance sheet dates under
existing regulatory practices and with conventional equipment and operating
methods.
Proved developed reserves represent only those reserves expected to be
recovered through existing wells. Proved undeveloped reserves include those
reserves expected to be recovered from new wells on
F-37
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SUPPLEMENTARY OIL AND GAS RESERVE INFORMATION (UNAUDITED) (CONTINUED)
undrilled acreage or from existing wells on which a relatively major expenditure
is required for recompletion.
Net quantities of proved developed and undeveloped reserves of oil and gas,
including condensate and natural gas liquids, are summarized as follows:
<TABLE>
<CAPTION>
CRUDE OIL NATURAL GAS
(THOUSAND (MILLION
BARRELS) CUBIC FEET)
----------- -----------
<S> <C> <C>
December 31, 1993................................................... 4,020 77,537
Extensions and discoveries.......................................... 131 8,136
Revisions of previous estimates..................................... 153 (836)
Production.......................................................... (534) (9,402)
----- -----------
December 31, 1994................................................... 3,770 75,435
Extensions and discoveries.......................................... 88 3,708
Revisions of previous estimates..................................... (63) (523)
Production.......................................................... (462) (9,700)
----- -----------
December 31, 1995................................................... 3,333 68,920
Extensions and discoveries.......................................... 247 12,071
Sales of minerals in place.......................................... (4) (929)
Revisions of previous estimates..................................... 705 4,383
Production.......................................................... (387) (7,594)
----- -----------
November 30, 1996................................................... 3,894 76,851
----- -----------
----- -----------
Proved developed reserves:
December 31, 1993................................................. 3,053 60,040
December 31, 1994................................................. 2,797 56,792
December 31, 1995................................................. 2,714 51,664
November 30, 1996................................................. 3,177 56,692
</TABLE>
The following is a summary of a standardized measure of discounted net cash
flows related to the Partnership's proved crude oil and natural gas reserves.
For these calculations, estimated future cash flows from estimated future
production of proved reserves were computed using oil and gas prices as of the
end of each period presented. Future development and production costs
attributable to the proved reserves were estimated assuming that existing
conditions would continue over the economic lives of the individual leases and
costs were not escalated for the future. Future income tax expenses were not
considered in computing the standardized measure since the Partnership does not
record income taxes as described in Note 1.
The Partnership cautions against using this data to determine the fair value
of its oil and gas properties. To obtain the best estimate of fair value of the
oil and gas properties, forecasts of future economic conditions, varying
discount rates, and consideration of other than proved reserves would have to be
incorporated into the calculation. In addition, there are significant
uncertainties inherent in
F-38
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SUPPLEMENTARY OIL AND GAS RESERVE INFORMATION (UNAUDITED) (CONTINUED)
estimating quantities of proved reserves and in projecting rates of production
that impair the usefulness of the data.
The standardized measure of discounted future net cash flows relating to
proved oil and gas reserves are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Future cash inflows.............................................. $ 191,531 $ 284,661
Future production and development costs.......................... (88,956) (113,155)
------------ ------------
Future net cash flows............................................ 102,575 171,506
10% annual discount for estimated timing of cash flows........... (38,662) (70,791)
------------ ------------
Standardized measure of discounted future net cash flows......... $ 63,913 $ 100,715
------------ ------------
------------ ------------
</TABLE>
The following are the principal sources of change in the standardized
measure of discounted future net cash flows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, PERIOD ENDED
---------------------- NOVEMBER 30,
1994 1995 1996
---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales and transfers of crude oil and natural gas
produced, net of production costs.................... $ (12,896) $ (10,214) $ (14,504)
Net changes in prices and production costs............. (10,373) 14,595 18,456
Extensions and discoveries, less related costs......... 7,177 3,980 13,510
Development costs incurred............................. 2,634 3,681 3,061
Sales of minerals in place............................. -- -- (712)
Revisions of previous quantity estimates............... 66 (847) 8,587
Accretion of discount.................................. 6,920 5,648 5,858
Other.................................................. (6,245) (9,410) 2,546
---------- ---------- ------------
Net change............................................. $ (12,717) $ 7,433 $ 36,802
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
During recent years, there have been significant fluctuations in the prices
paid for oil in the world markets. This situation has had a destabilizing effect
on the oil posted prices in the United States, including the posted prices paid
by purchasers of the Partnership's crude oil. The net weighted average prices of
oil and gas at December 31, 1994, December 31, 1995 and November 30, 1996 used
in the above table were $15.93, $17.22 and $22.44 per barrel of oil,
respectively, and $1.67, $1.94 and $2.56 per thousand cubic feet of natural gas,
respectively.
8. SUBSEQUENT EVENTS
Effective December 1, 1996, the Managing General Partner's wholly-owned
subsidiary, RB Operating Company, purchased the Limited Partner's interest in
the Partnership for $60 million, as provided for under the terms of a Purchase
and Sale Agreement previously executed by the parties. Upon execution of
F-39
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. SUBSEQUENT EVENTS (CONTINUED)
the Purchase and Sale Agreement, a complete release and discharge of all claims
by the Limited Partner against the Managing General Partner and its affiliates
was provided.
In August 1997, the Partnership purchased certain primarily producing oil
and gas properties and equipment located principally in Oklahoma, Louisiana and
Mississippi for $11.2 million (before closing adjustments). The purchase was
financed with additional borrowings by the Partnership under the credit
agreement.
Effective December 1, 1997, the Managing General Partner and sole limited
partner of the Partnership at that date, and the Special General Partner of the
Partnership, authorized the dissolution of the Partnership, the liquidation of
all of the assets of the Partnership into the Managing General Partner and the
assumption by the Managing General Partner of all liabilities of the
Partnership.
F-40
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Carlton Resources Corporation
We have audited the accompanying consolidated balance sheet of Carlton
Resources Corporation (the "Company") as of December 31, 1996 and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the four months then ended. We have audited the accompanying
consolidated balance sheet of Magic Circle Energy Corporation (the
"Predecessor") as of December 31, 1995, and the related consolidated statements
of operations, stockholders' equity (deficit), and cash flows for the year ended
December 31, 1995 and the eight months ended August 31, 1996. These financial
statements are the responsibility of the Company's and Predecessor's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company at
December 31, 1996, and the consolidated results of its operations and its cash
flows for the four months then ended, and the consolidated financial position of
the Predecessor at December 31, 1995 and the results of its operations and its
cash flows for the year then ended and for the eight months ended August 31,
1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Tulsa, Oklahoma
December 16, 1997
F-41
<PAGE>
CARLTON RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------ ---------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.......................................... $1,880,000 $1,335,000 $ 232,000
Restricted cash.................................................... -- 246,000 346,000
Investment securities.............................................. 2,729,000 -- --
Accounts receivable, less allowance for doubtful accounts of
$156,000 at December 31, 1995, $51,000 at December 31, 1996 and
$55,000 at September 30, 1997.................................... 908,000 1,806,000 1,270,000
Receivables from affiliates........................................ 2,141,000 143,000 214,000
Prepaid expenses and other current assets.......................... 168,000 285,000 826,000
------------ ------------ -------------
Total current assets................................................. 7,826,000 3,815,000 2,888,000
Property and equipment, at cost:
Oil and gas properties............................................. 19,395,000 22,732,000 23,442,000
Gathering and disposal systems..................................... 5,794,000 22,708,000 22,855,000
Other.............................................................. 770,000 410,000 336,000
------------ ------------ -------------
25,959,000 45,850,000 46,633,000
Less accumulated depreciation, depletion and amortization.......... 8,792,000 1,066,000 3,327,000
------------ ------------ -------------
Net property and equipment........................................... 17,167,000 44,784,000 43,306,000
Other assets......................................................... 3,000 433,000 403,000
------------ ------------ -------------
Total assets......................................................... $24,996,000 $49,032,000 $46,597,000
------------ ------------ -------------
------------ ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................... $1,252,000 $2,429,000 $ 1,938,000
Payables to affiliates............................................. -- 83,000 22,000
Accrued liabilities................................................ 62,000 690,000 354,000
Long-term debt in default.......................................... -- 24,820,000 24,572,000
------------ ------------ -------------
Total current liabilities............................................ 1,314,000 28,022,000 26,886,000
Deferred tax liability............................................... 5,485,000 20,805,000 20,445,000
------------ ------------ -------------
Total liabilities.................................................... 6,799,000 48,827,000 47,331,000
Redeemable preferred stock, $.01 par value; 120 shares authorized; 12
shares issued and outstanding; stated at redemption value.......... -- 475,000 550,000
Stockholders' equity (deficit):
Common stock....................................................... 1,000 -- --
Paid-in capital.................................................... 7,646,000 -- --
Retained earnings.................................................. 10,719,000 -- --
Treasury stock (at cost)........................................... (169,000) -- --
Common stock--10,000 shares of $0.01 par value authorized; 1,025
shares issued and outstanding...................................... -- 1,000 1,000
Paid-in capital.................................................... -- 31,000 31,000
Retained earnings (deficit)........................................ -- (302,000) (1,316,000)
------------ ------------ -------------
Total stockholders' equity (deficit)................................. 18,197,000 (270,000) (1,284,000)
------------ ------------ -------------
Total liabilities and stockholders' equity........................... $24,996,000 $49,032,000 $46,597,000
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-42
<PAGE>
CARLTON RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
---------------------------- ---------------------------
YEAR EIGHT MONTHS FOUR MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, AUGUST 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1996 1997
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Revenues:
Gathering systems.................................. $ 9,584,000 $11,731,000 $2,957,000 $ 7,468,000
Oil and gas sales.................................. 6,439,000 4,613,000 2,100,000 4,109,000
Supervision fees and overhead reimbursements....... 556,000 422,000 194,000 520,000
Management fees.................................... 515,000 18,000 4,000 8,000
------------- ------------- ------------ -------------
17,094,000 16,784,000 5,255,000 12,105,000
Costs and expenses:
Oil and gas purchases.............................. 3,518,000 4,993,000 1,664,000 4,785,000
Lease operating expenses and production taxes...... 2,582,000 1,524,000 863,000 1,593,000
Other charges to production........................ 457,000 580,000 174,000 377,000
Gathering system operations........................ 801,000 758,000 419,000 569,000
Depreciation, depletion and amortization........... 2,723,000 2,259,000 1,010,000 2,343,000
General and administrative expenses................ 2,336,000 1,430,000 966,000 1,860,000
------------- ------------- ------------ -------------
12,417,000 11,544,000 5,096,000 11,527,000
------------- ------------- ------------ -------------
4,677,000 5,240,000 159,000 578,000
Other income (expense):
Interest income.................................... 372,000 234,000 159,000 46,000
Interest expense................................... (4,000) -- (326,000) (2,305,000)
Other.............................................. 510,000 464,000 318,000 183,000
------------- ------------- ------------ -------------
878,000 698,000 151,000 (2,076,000)
------------- ------------- ------------ -------------
Income (loss) before income taxes.................... 5,555,000 5,938,000 310,000 (1,498,000)
Income taxes......................................... 2,289,000 2,206,000 118,000 (559,000)
------------- ------------- ------------ -------------
Net income (loss).................................... $ 3,266,000 $ 3,732,000 $ 192,000 $ (939,000)
------------- ------------- ------------ -------------
------------- ------------- ------------ -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-43
<PAGE>
CARLTON RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
RETAINED
COMMON PAID-IN EARNINGS TREASURY STOCK
STOCK CAPITAL (DEFICIT) AT COST TOTAL
----------- ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
PREDECESSOR
Balance at December 31, 1994................. $ 1,000 $ 7,646,000 $ 7,453,000 $ (134,000) $ 14,966,000
Purchase of treasury stock at cost........... -- -- -- (35,000) (35,000)
Net income for the year...................... -- -- 3,266,000 -- 3,266,000
----------- ------------ ------------- -------------- --------------
Balance at December 31, 1995................. 1,000 7,646,000 10,719,000 (169,000) 18,197,000
Net income for the eight months ended August
31, 1996................................... -- -- 3,732,000 -- 3,732,000
Purchase of treasury stock at cost........... -- -- -- (11,521,000) (11,521,000)
Distribution of properties to stockholders... -- -- (1,290,000) -- (1,290,000)
----------- ------------ ------------- -------------- --------------
Balance at August 31, 1996................... $ 1,000 $ 7,646,000 $ 13,161,000 $ (11,690,000) $ 9,118,000
----------- ------------ ------------- -------------- --------------
----------- ------------ ------------- -------------- --------------
COMPANY
Balance at September 1, 1996................. $ 1,000 $ 31,000 $ (461,000) $ -- $ (429,000)
Accretion of redeemable preferred stock to
redemption value........................... -- -- (33,000) -- (33,000)
Net income for the four months ended December
31, 1996................................... -- -- 192,000 -- 192,000
----------- ------------ ------------- -------------- --------------
Balance at December 31, 1996................. 1,000 31,000 (302,000) -- (270,000)
Accretion of redeemable preferred stock to
redemption value........................... -- -- (75,000) -- (75,000)
Net loss for the nine months ended September
30, 1997 (unaudited)....................... -- -- (939,000) -- (939,000)
----------- ------------ ------------- -------------- --------------
Balance at September 30, 1997 (unaudited).... $ 1,000 $ 31,000 $ (1,316,000) $ -- $ (1,284,000)
----------- ------------ ------------- -------------- --------------
----------- ------------ ------------- -------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-44
<PAGE>
CARLTON RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
COMPANY
PREDECESSOR ----------------------------
--------------------------- FOUR MONTHS
YEAR ENDED EIGHT MONTHS ENDED
DECEMBER 31, ENDED AUGUST DECEMBER 31,
1995 31, 1996 1996
------------ ------------- ------------- NINE MONTHS
ENDED
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................ $3,266,000 $ 3,732,000 $ 192,000 $ (939,000)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization............ 2,723,000 2,259,000 1,010,000 2,343,000
Deferred taxes...................................... 2,136,000 1,936,000 (300,000) (360,000)
Change in operating assets and liabilities:
Restricted cash................................... 157,000 (245,000) (1,000) (100,000)
Accounts receivable............................... 164,000 (692,000) 195,000 536,000
Receivables from affiliates....................... (570,000) 1,495,000 96,000 (71,000)
Prepaid expenses and other current assets......... (89,000) (662,000) (225,000) (541,000)
Other assets...................................... 17,000 -- 47,000 30,000
Accounts payable.................................. 589,000 785,000 174,000 (491,000)
Payables to affiliates............................ (109,000) -- 83,000 (61,000)
Accrued liabilities............................... (190,000) 245,000 (81,000) (336,000)
Deferred revenue.................................. (188,000) -- -- --
------------ ------------- ------------- -------------
Net cash provided by operating activities............. 7,906,000 8,853,000 1,190,000 10,000
INVESTING ACTIVITIES
Acquisition of common stock of Predecessor............ -- -- (24,800,000) --
Capital expenditures.................................. (9,125,000) (2,694,000) (164,000) (1,301,000)
Proceeds from asset dispositions...................... 795,000 827,000 -- 434,000
Investment sales and maturities....................... 1,000,000 2,729,000 -- --
Investment purchases.................................. (1,235,000) -- -- --
Other, net............................................ 76,000 4,000 248,000 2,000
------------ ------------- ------------- -------------
Net cash provided by (used in) investing activities... (8,489,000) 866,000 (24,716,000) (865,000)
FINANCING ACTIVITIES
Debt proceeds......................................... -- -- 24,800,000 1,585,000
Debt payments......................................... -- -- (16,000) (1,833,000)
Purchase of common stock.............................. (35,000) (11,521,000) -- --
------------ ------------- ------------- -------------
Net cash (used in) provided by financing activities... (35,000) (11,521,000) 24,784,000 (248,000)
------------ ------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents.. (618,000) (1,802,000) 1,258,000 (1,103,000)
Cash and cash equivalents at beginning of period...... 2,498,000 1,880,000 77,000 1,335,000
------------ ------------- ------------- -------------
Cash and cash equivalents at end of period............ $1,880,000 $ 78,000 $ 1,335,000 $ 232,000
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the periods for:
Interest............................................ $ 4,000 $ -- $ 326,000 $ 2,305,000
Income taxes........................................ $ 390,000 $ 558,000 $ 40,000 $ 510,000
</TABLE>
SEE ACCOMPANYING NOTES.
F-45
<PAGE>
CARLTON RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
1. COMPANY BUSINESS AND ACQUISITION
Carlton Resources Corporation (the "Company") is an independent oil and gas
company which owns operated and nonoperated interests in properties located
primarily in the Anadarko Basin in Oklahoma, the Gulf Coast of Texas, and the
Austin Chalk area of Texas. In addition, the Company owns and operates an oil
and gas gathering system and plant and a saltwater disposal system in the
Anadarko Basin of Oklahoma. As used herein the term "Company" refers to Carlton
Resources Corporation ("Carlton") and collectively to Carlton and the
Predecessor, Magic Circle Energy Corporation ("Magic").
Effective September 1, 1996, Carlton, which had no previous operations,
acquired all of the outstanding stock of Magic, for $24.8 million in cash. The
acquisition was accounted for under the purchase method of accounting. The
purchase price has been allocated to assets acquired and liabilities assumed
based on fair values at the date of acquisition and is summarized as follows:
<TABLE>
<S> <C>
Current assets......................................................... $2,620,000
Property and equipment................................................. 45,852,000
Other assets........................................................... 437,000
Current liabilities.................................................... (3,002,000)
Net deferred tax liabilities........................................... (21,107,000)
----------
$24,800,000
----------
----------
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries after elimination of all material intercompany
accounts and transactions. The Company's percentage interests in the assets and
liabilities of certain working interest oil and gas partnerships (for which the
Company serves as general partner) are proportionately consolidated in the
balance sheet.
OIL AND GAS PROPERTIES
Carlton follows the successful efforts method of accounting for its oil and
gas properties. Under this method, all costs to acquire oil and gas interests,
to drill and equip successful exploratory wells and to drill and equip
development wells are capitalized. Geological and geophysical costs and costs to
drill unsuccessful exploratory wells are expensed. When complete units of
depreciable property are retired or sold, the asset cost and related accumulated
depreciation are eliminated with any gain or loss reflected in income. When less
than complete units of depreciable property are disposed of or retired, the
difference between asset cost and salvage value is charged or credited to
accumulated depreciation.
The Predecessor followed the full cost method of accounting for oil and gas
operations. Under this method, all productive and nonproductive costs incurred
in connection with the acquisition, exploration and development of oil and gas
reserves are capitalized. No gains or losses are recognized upon the sale or
other disposition of oil and gas properties except in extraordinary
transactions.
Impairment of oil and gas properties is provided when the carrying value of
properties is less than their discounted estimated future net cash flows.
F-46
<PAGE>
CARLTON RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company's historical experience has been that the salvage value of
equipment on property abandonments will cover the costs of dismantlement and
property restoration.
Depletion, depreciation and amortization of capitalized costs are provided
on the units-of-production method based on proved developed oil and gas
reserves.
GATHERING AND SALTWATER DISPOSAL SYSTEMS
Depreciation of gathering and saltwater disposal systems is determined by
the units of production method based on connected oil and gas supplies.
PROPERTY AND EQUIPMENT--OTHER
Other property and equipment are depreciated using the straight-line method
over the estimated useful lives of the assets.
ENVIRONMENTAL LIABILITIES
Environmental liabilities, which have not been significant, are recognized
when it is probable that a loss has been incurred and the amount is estimable.
CASH AND CASH EQUIVALENTS
Cash equivalents are highly liquid short-term investments that are readily
convertible to known amounts of cash and generally have original maturities
within three months from their date of purchase.
RESTRICTED CASH
Certain amounts which have been posted as deposits or as surety bonds as
required by the Oklahoma Tax Commission have been classified as restricted cash.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash and cash equivalents, investment securities
and long-term debt reported in the balance sheets approximate fair value.
OIL AND GAS SALES
The Company recognizes oil and gas sales on the sales method, when oil and
gas is sold. Under this method the Company may sell more or less than its
entitled share creating an imbalance position. An asset or liability for the
imbalance position is only recorded when the position cannot be recovered from
remaining reserves. The Company's net imbalance positions at December 31, 1996
and 1995 were not material.
F-47
<PAGE>
CARLTON RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Deferred income taxes are computed using the liability method and are
provided on all temporary differences between the financial reporting basis and
the tax basis of the Company's assets and liabilities. Allowable tax credits are
applied currently as reductions of the provision for income taxes.
CONCENTRATION OF CREDIT RISK
The Company maintains a portion of its unrestricted cash in bank deposit
accounts which at times may exceed federally insured limits. The Company has not
experienced any losses in such accounts. The Company believes it is not exposed
to any significant credit risk on cash and cash equivalents.
The Company's accounts receivable relate primarily to the sale of oil and
natural gas to purchasers located in the midwestern portion of the United
States. The Company generally does not require collateral from its customers.
Credit losses have been within management's expectations.
DERIVATIVES
The Company does not engage in any hedging or other similar transactions
which are intended to manage risks related to movements in oil and natural gas
prices.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements at September
30, 1997 and for the nine-month period then ended include all adjustments,
consisting of normal and recurring adjustments, which, in the opinion of
management, were necessary for a fair presentation of the financial position at
September 30, 1997 and the results of operations for the nine-month period ended
September 30, 1997. The results of operations for the nine months ended
September 30, 1997 are not necessarily indicative of the results to be expected
for the full year ending December 31, 1997.
3. LONG-TERM DEBT
On November 22, 1996, the Company entered into a credit agreement with a
bank for borrowings up to $16,000,000. Proceeds from the borrowings were used to
satisfy the Company's liability for the purchase of the stock of Magic, see Note
1. The loan bears interest at the bank's base rate plus 1 1/4% (9.5% at December
31, 1996 and 10.4% at September 30, 1997) which is payable monthly. Principal
payments are due based upon the reduction in the Borrowing Base, as defined,
initially $16,000,000. The Borrowing Base is redetermined semiannually, based on
certain criteria, and is reduced $200,000 per month. The bank also, at its
discretion, may redetermine the Borrowing Base and the amount by which the
Borrowing Base is
F-48
<PAGE>
CARLTON RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
3. LONG-TERM DEBT (CONTINUED)
reduced each month. Any remaining principal or interest balance is due at
maturity (November 22, 1999). At September 30, 1997, $15,785,000 was outstanding
under the credit agreement. The credit agreement is secured by substantially all
of the Company's assets and requires the Company to meet certain financial
ratios and covenants.
Also on November 22, 1996 the Company entered into a pre-production payment
secured note agreement with an energy services company for borrowings up to
$8,800,000. Proceeds from this borrowing were also used to satisfy the Company's
liability for the purchase of the stock of Magic noted above. The borrowing
bears interest at 16% per annum which is payable monthly. Principal and interest
payments are due in the form of a monthly credit which the energy services
company withholds from monthly gas purchases under a gas supply agreement (see
Note 4). The amount of the credit is $135,000 per month through December 1997
and $310,000 per month thereafter until paid in full in December 2000. The
balance of this borrowing was $8,787,000 at September 30, 1997. The note is
secured by a secondary interest in substantially all of the Company's assets and
requires compliance with certain nonfinancial covenants.
In connection with the above borrowing, a contingent warrant agreement was
executed whereby the energy services company acquires the right, under certain
circumstances explained below, to purchase up to 8,800,000 shares, which would
represent 90% of the shares outstanding, subject to adjustment in certain
circumstances, of the Common Stock of Magic Circle Energy Corporation, a
wholly-owned subsidiary of Carlton through which operations are conducted, at $1
per share, plus an amount equal to 16% per annum from the date of the contingent
warrant agreement to date of exercise. Each warrant share becomes exercisable
for each dollar by which the monthly credit, described above, does not equal the
agreed monthly credit under the note agreement. Under certain conditions the
Company can repurchase the warrant shares at a redemption price of $1.25. At
September 30, 1997, no warrants had been issued.
The Company is not in compliance with certain provisions of the credit
agreement discussed above, related to current ratio, tangible net worth and debt
coverage ratio which also cause the Company not to be in compliance with
provisions of the pre-production payment secured note agreement. Accordingly,
the Company has classified the amounts payable under both agreements as a
current liability in the accompanying balance sheets. Management believes they
will be able to obtain waivers for the noncompliance or refinance the debt.
4. GAS PROCESSING AND SUPPLY CONTRACTS
The Company has a gas processing and compression contract which provides for
compression services to the Company in exchange for certain processing rights to
the processor. The contract provides for the processing of a minimum of 10,000
Mcf's of gas per day for the life of the oil and gas leases of the dedicated
area, as defined. Payment to the processor for compression services is in the
form of condensate and liquid hydrocarbons removed by the processor. Cash
payment for compression services is only required if gas volumes delivered fall
below 8,000 Mcf's per day. The Company does not expect to be required to make
any cash payments.
The Company also has a gas supply agreement with the energy services company
as discussed in Note 3 whereby the Company is required to sell to the energy
services company 10,000 Decatherms of
F-49
<PAGE>
CARLTON RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
4. GAS PROCESSING AND SUPPLY CONTRACTS (CONTINUED)
natural gas per day through October 2000. The energy services company has
options to extend the agreement through October 2004 and has a right of first
refusal on any gas volumes processed at the Company's facilities which exceed
11,000 Decatherms per day. The agreement provides for base volumes to be sold at
the current published index price less $0.01 and less $0.05 for all option
volumes. If the agreement is extended, base and option volumes will be sold at
the current published index price less $0.05.
5. INCOME TAXES
The income tax provisions on income reconciled to the tax computed at the
statutory federal rate were as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------- ------------
YEAR EIGHT MONTHS FOUR MONTHS
ENDED ENDED ENDED
DECEMBER 31, AUGUST 31, DECEMBER 31,
1995 1996 1996
------------ ------------- ------------
<S> <C> <C> <C>
Tax at statutory rate....................................... $2,111,000 $ 2,073,000 $ 118,000
Other....................................................... 178,000 133,000 --
------------ ------------- ------------
$2,289,000 $ 2,206,000 $ 118,000
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
The components of the provision (credit) for
income taxes are as follows:
Current....................................... $ 153,000 $ 270,000 $ 418,000
Deferred...................................... 2,136,000 1,936,000 (300,000)
----------- ----------- -----------
Total provision............................... $2,289,000 $2,206,000 $ 118,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-50
<PAGE>
CARLTON RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
5. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax asset and liability are
as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------- -------------
DECEMBER 31, DECEMBER 31,
1995 1996
------------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward........................................ $ 3,291,000 $ --
Investment tax credits................................................. 1,810,000 284,000
Original issue discount................................................ 2,435,000 1,353,000
Other.................................................................. 420,000 452,000
------------- -------------
7,956,000 2,089,000
Deferred tax liabilities:
Pre-acquisition basis difference resulting from debt
restructuring........................................................ 11,375,000 6,951,000
Property and equipment................................................. 2,066,000 15,943,000
------------- -------------
13,441,000 22,894,000
------------- -------------
Net long-term deferred tax liabilities................................... $ 5,485,000 $ 20,805,000
------------- -------------
------------- -------------
</TABLE>
At December 31, 1996, the Company has alternative minimum net operating loss
and investment tax credit carryforwards totaling $437,000 which expire through
the year 2008.
6. CONTINGENCIES
A former officer of the Predecessor who was also a limited partner in
certain of the limited partnership drilling programs sponsored by the
Predecessor has brought two separate actions in which the Company, among others,
is a defendant. The first is an adversary proceeding commenced in 1994 relating
to the bankruptcy proceeding of the Predecessor (which was filed in 1985). This
asserts several causes of actions based upon transfers of properties in 1987 by
the Predecessor pursuant to an order of the Bankruptcy Court to a newly formed
limited partnership for the benefit primarily of the secured lender and other
creditors of the Predecessor. The secured lender and the limited partnerships in
which the plaintiff was a limited partner were joined as additional defendants.
The other action was filed in 1996 in Oklahoma state court alleging breaches of
fiduciary duties, rights to an accounting, breaches of contracts and several
other claims relating to the dissolution of certain of the limited partnerships
in which the plaintiff was a limited partner. The plaintiff has purportedly
brought the actions on behalf of himself and the other limited partners in the
relevant limited partnerships, although the actions have not yet been certified
as class actions. The Company denies all allegations and has filed a motion for
summary judgment. While management cannot predict the outcome of these actions,
management believes that the results will not materially affect the Company's
financial position.
The Company is also a party to routine claims and actions incident to the
ordinary course of its business. Management, after review and consultation with
counsel, believes resolution of such contingencies will not materially affect
the financial position or results of operations of the Company.
F-51
<PAGE>
CARLTON RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
6. CONTINGENCIES (CONTINUED)
The Company is subject to various federal, state and local environmental
laws and regulations and as such is involved in environmental remediation
projects and ongoing compliance. The Company believes they are currently in
substantial compliance with applicable environmental requirements and does not
expect future costs related to known exposures to exceed amounts currently
accrued.
7. LEASES
Future minimum lease payments under noncancelable operating leases as of
December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997...................................................... $ 159,000
1998...................................................... 174,000
1999...................................................... 177,000
2000...................................................... 168,000
2001...................................................... 112,000
---------
$ 790,000
---------
---------
</TABLE>
Total rent expense for the year ended December 31, 1995, the eight months
ended August 31, 1996, and the four months ended December 31, 1996 was $133,000,
$89,000 and $47,000, respectively.
8. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) defined contribution plan which provides
employees the opportunity to defer a percentage, 1 to 15%, of their annual
compensation. Effective January 1, 1997, the Company will match employee
contributions 100% up to 3% of compensation deferred. Employees are vested in
Company matching contributions over a seven-year period. The Company contributed
$6,000 to the plan for the four months ended December 31, 1996. The Predecessor
contributed $31,000 and $5,000 for the year ended December 31, 1995 and the
eight months ending August 31, 1996, respectively.
9. RELATED PARTY TRANSACTIONS
Affiliate receivables represent amounts due from oil and gas partnerships in
which the Company has an interest. The Company pays operating expenses and
drilling costs for certain wells and bills the related parties for their
proportionate share. The amounts due also include the Company's share of
earnings of the partnerships that have not been distributed. Payable to
affiliates represents amounts due to oil and gas partnerships for undistributed
oil and gas receipts.
10. REDEEMABLE PREFERRED STOCK
The Company is authorized to issue preferred stock, in one or more series,
and to designate the preferences of each series. At December 31, 1996 (and
September 30, 1997), the Company had authorized 120 shares of Redeemable
Preferred Stock ("Preferred"), $.01 par value with a stated value of $25,000 per
share; 12 shares were issued and outstanding. The Preferred has no dividend
rights and is redeemable on the third anniversary of issuance, March 29, 1998
(scheduled redemption date), at 150% of the stated value plus shares of common
stock of the Company having an aggregate value of $12,500. The Company may, at
its option, redeem the Preferred prior to the scheduled redemption date at the
same amount required at
F-52
<PAGE>
CARLTON RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
10. REDEEMABLE PREFERRED STOCK (CONTINUED)
the scheduled redemption date, adjusted for the period the Preferred is
outstanding. Should the Company fail to redeem the Preferred at the scheduled
redemption date, the Preferred will convert into promissory notes payable to the
holders of each Preferred share in the amount of $50,000 per share (total of
$600,000 for the 12 shares outstanding) bearing interest at the then current
interest rate and due one year from the date of scheduled redemption. The
Preferred has preference over common shares in the event of liquidation, has no
voting rights and no dividends can be paid on the common stock as long as the
Preferred is outstanding. The carrying value of the Preferred is being accreted
to the redemption value ($600,000) by periodic changes to retained earnings over
the life of the issue.
11. CRUDE OIL AND NATURAL GAS PRODUCING ACTIVITIES
Capitalized costs relating to crude oil and natural gas producing activities
and related accumulated depreciation, depletion and amortization are summarized
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Proved crude oil and natural gas properties.............................. $ 19,350,000 $ 22,732,000
Accumulated depreciation, depletion and amortization..................... 7,293,000 708,000
------------- -------------
$ 12,057,000 $ 22,024,000
------------- -------------
------------- -------------
</TABLE>
Costs incurred in crude oil and natural gas producing activities for the
years ended December 31, 1995 and 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Acquisition of properties:
Proved.................................................................... $ 4,310,000 $ 512,000
Unproved.................................................................. 100,000 70,000
Exploration costs........................................................... 786,000 86,000
Development costs........................................................... 2,493,000 810,000
</TABLE>
The amortization rates per barrel of oil equivalent produced for the year
ended December 31, 1995 and the eight months ended August 31, 1996 were $3.12
and $2.99, respectively.
MAJOR CUSTOMERS
In the year ended December 31, 1995, approximately $14,126,000 and
$1,783,000 of the Company's gross revenue was from one customer and a second
customer, respectively. Revenue of $8,612,000 was from one customer for the
eight months ended August 31, 1996. For the four months ended December 31, 1996,
$1,108,000, $1,070,000, $1,004,000 and $630,983, respectively, of the Company's
gross revenue was received from four different customers.
The Company believes that the loss of these customers would not have a
significant impact on the Company's results of operations or financial
condition.
F-53
<PAGE>
CARLTON RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
12. SUPPLEMENTARY CRUDE OIL AND NATURAL GAS RESERVE INFORMATION (UNAUDITED)
The Company has interests in crude oil and natural gas properties that are
principally located in Oklahoma and Texas. The Company does not own or lease any
crude oil and natural gas properties outside the United States.
The Company retains independent engineering firms to provide year-end
estimates of the Company's future net recoverable crude oil, and natural gas
reserves. Estimated proved net recoverable reserves as shown below include only
those quantities that can be expected to be commercially recoverable at prices
and costs in effect at the balance sheet dates under existing regulatory
practices and with conventional equipment and operating methods.
Proved developed reserves represent only those reserves expected to be
recovered through existing wells. Proved undeveloped reserves include those
reserves expected to be recovered form new wells on undrilled acreage or from
existing wells on which a relatively major expenditure is required for
recompletion.
Net quantities of proved developed and undeveloped reserves of natural gas
and crude oil, including condensate and natural gas liquids, are provided below.
<TABLE>
<CAPTION>
NATURAL GAS
CRUDE OIL (THOUSAND
(BARRELS) CUBIC FEET)
---------- ------------
<S> <C> <C>
Proved reserves at December 31, 1994............................... 314,000 11,373,000
Purchase of reserves in place...................................... 166,000 6,157,000
Revisions of previous estimates.................................... 209,000 1,203,000
Production......................................................... (113,000) (2,675,000)
---------- ------------
Proved reserves at December 31, 1995............................... 576,000 16,058,000
Purchase of reserves in place...................................... 1,000 5,000
Revisions of previous estimates.................................... 749,000 24,408,000
Production......................................................... (102,000) (2,560,000)
Sales of reserves in place......................................... (50,000) (2,543,000)
---------- ------------
Proved reserves at December 31, 1996............................... 1,174,000 35,368,000
---------- ------------
---------- ------------
Proved developed reserves at December 31, 1995..................... 515,000 14,597,000
---------- ------------
---------- ------------
Proved developed reserves at December 31, 1996..................... 837,000 22,618,000
---------- ------------
---------- ------------
</TABLE>
The following is a summary of a standardized measure of discounted net cash
flows related to the Company's proved crude oil and natural gas reserves. For
these calculations, estimated future cash flows from estimated future production
of proved reserves were computed using crude oil and natural gas prices as of
the end of the period presented. Prices used were $17.70 and $23.62 per barrel
of crude oil at December 31, 1995 and 1996, respectively, and $1.63 and $3.47
per thousand cubic feet of natural gas at December 31, 1995 and 1996,
respectively. Future development and production costs attributable to the proved
reserves were estimated assuming that existing conditions would continue over
the economic lives of the individual leases and costs were not escalated for the
future. Estimated future income tax expenses were calculated by applying future
statutory tax rates (based on the current tax law adjusted for permanent
F-54
<PAGE>
CARLTON RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
12. SUPPLEMENTARY CRUDE OIL AND NATURAL GAS RESERVE INFORMATION (UNAUDITED)
(CONTINUED)
differences and tax credits) to the estimated future pretax net cash flows
related to proved crude oil and natural gas reserves, less the tax basis of the
properties involved.
The Company cautions against using this data to determine the fair value of
its crude oil and natural gas properties. To obtain the best estimate of fair
value of the crude oil and natural gas properties, forecasts of future economic
conditions, varying discount rates, and consideration of other than proved
reserves would have to be incorporated into the calculation. In addition, there
are significant uncertainties inherent in estimating quantities of proved
reserves and in projecting rates of production that impair the usefulness of the
data.
The standardized measure of discounted future net cash flows relating to
proved crude oil and natural gas reserves are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------ --------------
<S> <C> <C>
Future cash inflows.............................................. $ 35,893,000 $ 150,401,000
Future production and development costs.......................... 15,726,000 51,946,000
Future income tax expenses....................................... 7,663,000 37,413,000
------------ --------------
Future net cash flows............................................ 12,504,000 61,042,000
10% annual discount for estimated timing of cash flows........... 3,690,000 32,436,000
------------ --------------
Standardized measure of discounted future net cash flows......... $ 8,814,000 $ 28,606,000
------------ --------------
------------ --------------
</TABLE>
The following are the principal sources of change in the standardized
measure of discounted future net cash flows for the years ended December 31,
1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Discounted future net cash flows at the beginning of the year..... $ 5,814,000 $ 8,814,000
Changes during the year:
Sales and transfers of crude oil and natural gas produced, net
of production costs........................................... (3,651,000) (4,326,000)
Net changes in prices and production costs...................... 724,000 16,705,000
Development costs incurred during the period.................... 2,493,000 810,000
Changes in estimated future development costs................... (962,000) (627,000)
Purchases of reserves in place.................................. 5,258,000 2,000
Sales of reserves in place...................................... -- (2,142,000)
Extensions and discoveries, less related costs.................. 4,185,000 1,675,000
Revisions of previous quantity estimates........................ (289,000) 18,203,000
Accretion of discount........................................... 938,000 1,422,000
Net change in income taxes...................................... (1,839,000) (12,131,000)
Changes in production rates (timing) and other.................. (3,857,000) 201,000
------------ ------------
Total changes................................................... $ 3,000,000 $ 19,792,000
------------ ------------
------------ ------------
Discounted future net cash flows at the end of year............... $ 8,814,000 $ 28,606,000
------------ ------------
------------ ------------
</TABLE>
F-55
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING
DESCRIBED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Forward-Looking Statements................................................ 10
Risk Factors.............................................................. 11
The Company............................................................... 17
Use of Proceeds........................................................... 18
Capitalization............................................................ 19
Selected Historical and Pro Forma Financial Information and Operating
Data.................................................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 32
Business.................................................................. 39
Management................................................................ 52
Security Ownership of Management and Principal Stockholders............... 58
Description of Notes...................................................... 59
Certain Tax Considerations................................................ 90
Description of Capital Stock.............................................. 93
Underwriting.............................................................. 95
Legal Matters............................................................. 95
Experts................................................................... 96
Available Information..................................................... 96
Glossary of Terms......................................................... 97
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
$115,000,000
[LOGO]
RAM ENERGY, INC.
% SENIOR NOTES
DUE 2008
-----------------
PROSPECTUS
-----------------
JEFFERIES & COMPANY, INC.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an itemization of the costs expected to be incurred in
connection with the offer and sale of the securities registered hereby. With the
exception of the Securities Act and NASD fees, all amounts are estimates.
<TABLE>
<S> <C>
Securities Act Registration Fee................................. $ 42,528
NASD Filing Fee................................................. 14,916
Printing and Engraving Expenses................................. 200,000
Legal Fees and Expenses......................................... 492,000
Accounting Fees and Expenses.................................... 224,000
Independent Petroleum Engineer Fees............................. 60,000
Fees of Indenture Trustee....................................... 7,500
Miscellaneous................................................... 109,056
---------
Total....................................................... $1,150,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The General Corporation Law of Delaware, under which the Registrant is
incorporated, permits indemnification against expenses, including attorneys'
fees, actually and reasonably incurred by such persons in connection with the
defense of any action, suit or proceeding in which such a person is a party by
reason of his being or having been a director, employee or agent of the
Registrant, or of any corporation, partnership, joint venture, trust or other
enterprise in which he served as such at the request of the Registrant, provided
that he acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful, and provided further (if the threatened, pending or completed
action or suit is by or in the right of the corporation) that he shall not have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation (unless the court determines that indemnity would
nevertheless be proper under the circumstances). Article VIII of the
Registrant's Certificate of Incorporation and Article VII of the Registrant's
Bylaws provide for indemnification of the Registrant's directors and officers.
The Delaware General Corporation Law also permits the Registrant to purchase and
maintain insurance on behalf of the Registrant's directors and officers against
any liability arising out of their status as such, whether or not Registrant
would have the power to indemnify them against such liability. These provisions
may be sufficiently broad to indemnify such persons for liabilities arising
under the Securities Act of 1933 (the "Securities Act").
The Company has entered into indemnity agreements with each of its directors
and executive officers. Under each indemnity agreement, the Company will pay on
behalf of the indemnitee, and his executors, administrators and heirs, any
amount which he is or becomes legally obligated to pay because of (i) any claim
or claims from time to time threatened or made against him by any person because
of any act or omission or neglect or breach of duty, including any actual or
alleged error or misstatement or misleading statement, which he commits or
suffers while acting in his capacity as a director and/or officer of the Company
or an affiliate or (ii) being a party, or being threatened to be made a party,
to any threatened, pending or contemplated action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was an officer, director, employee or agent of the Company or an affiliate
or is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise. The payments which the Registrant will be obligated to make
hereunder shall include, INTER ALIA, damages, charges, judgments, fines,
penalties,
II-1
<PAGE>
settlements and costs, cost of investigation and cost of defense of legal,
equitable or criminal actions, claims or proceedings and appeals therefrom, and
costs of attachment, supersedeas, bail, surety or other bonds. The Company also
provides liability insurance for each of its directors and executive officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S> <C>
1 -- Form of Underwriting Agreement*
2 -- Stock Purchase Agreement dated December 16, 1997 among Rolf N. Hufnagel and
Robert E. Davis, Jr. and the Registrant with respect to the Carlton
Acquisition (the "Carlton Agreement")
2.1 -- Certain indemnification provisions set forth in Schedule 4.4 to the Carlton
Agreement*
3.1 -- Registrant's Amended and Restated Certificate of Incorporation*
3.2 -- Registrant's Amended and Restated Bylaws*
4.1 -- Form of Indenture dated as of , 1998 among the Registrant, as
issuer, RB Operating Company and RCP Gulf States, L.L.C., as Subsidiary
Guarantors, and United States Trust Company of New York, as trustee with
respect to % Senior Notes due 2008*
4.2 -- Form of % Senior Notes due 2008 (included in Exhibit 4.1)*
4.3 -- Registrant's Amended and Restated Certificate of Incorporation (filed as
Exhibit 3.1)*
4.4 -- Registrant's Amended and Restated Bylaws (filed as Exhibit 3.2)*
5 -- Opinion of McAfee & Taft A Professional Corporation, including consent*
10.1 -- Sale and Purchase Agreement by and between Quarles Drilling Corporation and
RAMCO-NYL 1987 Limited Partnership dated as of June 16, 1997
10.2 -- Sale and Purchase Agreement by and among RAMCO-NYL 1987 Limited Partnership and
RB Operating Company, and Wynn-Crosby 1996, Ltd., Wildcard Oil & Gas Company,
Wynn-Crosby (Texas), L.L.C. and Providence Energy Corp. dated as of February
13, 1997
10.3 -- Purchase and Sale Agreement by and among New York Life Insurance Company, RAMCO
Operating Company, Oklahoma Double R Corporation, RAMCO-NYL 1987 Limited
Partnership, William W. Talley II, individually and as trustee of the William
W. Talley II 1982 Revocable Trust, Larry E. Lee and M. Helen Bennett,
formerly Fisher, individually and as trustee of the M. Helen Fisher 1992
Trust dated as of July 24, 1996
10.4 -- RAM Energy, Inc. 1998 Stock Incentive Plan*
10.5 -- Special Severance Agreement by and between William W. Talley II and the
Registrant dated as of December 1, 1997
10.6 -- Employment Agreement by and between Larry E. Lee and the Registrant dated as of
December 1, 1997
10.7 -- Employment Agreement by and between John Longmire and the Registrant dated as
of December 8, 1997*
10.7.1 -- Employment Agreement by and between Larry Rampey and the Registrant dated as of
December 8, 1997*
10.7.2 -- Employment Agreement by and between Drake Smiley and the Registrant dated as of
December 8, 1997*
10.8 -- Form of RAM Energy, Inc. Indemnity Agreement
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S> <C>
10.9 -- Amended and Restated Credit Agreement among RAMCO Operating Company, as
Borrower, the Banks named in the Credit Agreement and Union Bank of
California, N.A. as Agent dated December 12, 1997 (the "Credit Agreement")
10.10 -- Form of Amended and Restated Revolving Note under the Credit Agreement
(included in Exhibit 10.9)
10.11 -- Form of Amended and Restated Term Note under the Credit Agreement (included in
Exhibit 10.9)
12 -- Historic statement re computation of ratio of earnings to fixed charges*
12.1 -- Pro forma statement re computation of ratio of earnings to fixed charges*
21 -- Subsidiaries of Registrant
23.1 -- Consent of Ernst & Young LLP*
23.2 -- Consent of Ernst & Young LLP*
23.3 -- Consent of John M. Reardon
23.4 -- Consent of Gerald R. Marshall
23.5 -- Consent of McAfee & Taft A Professional Corporation (included in Exhibit 5)*
23.6 -- Consent of Forrest A. Garb & Associates, Inc.*
23.7 -- Consent of Netherland, Sewell & Associates, Inc.*
24 -- Power of Attorney*
25 -- Statement of eligibility of trustee on Form T-1*
27 -- Financial Data Schedule*
</TABLE>
- ------------------------
* Filed herewith.
(b) Financial Statement Schedules--None
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the
Representatives of the Underwriters at the closing specified in the Underwriting
Agreement certificates for Common Stock in such denominations and registered in
such names as required by the Representatives of the Underwriters to permit
prompt delivery to each purchaser of Common Stock.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of the registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item
14, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of
the Registrant in the successful
II-3
<PAGE>
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
(4) The undersigned Registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of section 310 of the Trust Indenture Act ("Act") in
accordance with the rules and regulations prescribed by the Commission
under section 305(b)(2) of the Act.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Oklahoma City, State of Oklahoma, on February 2, 1998.
<TABLE>
<S> <C> <C>
RAM ENERGY, INC.
By: /s/ LARRY E. LEE
-----------------------------------------
Larry E. Lee, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement has been signed by the following persons in
the capacities indicated on February 2, 1998.
SIGNATURE TITLE
- ------------------------------ --------------------------
/s/ WILLIAM W. TALLEY II* Chairman of the Board and
- ------------------------------ Director of RAM Energy,
William W. Talley II Inc.
President and Chief
/s/ LARRY E. LEE Executive Officer and
- ------------------------------ Director (Principal
Larry E. Lee Executive Officer) of
RAM Energy, Inc.
Senior Vice President,
Secretary, Treasurer and
/s/ JOHN M. LONGMIRE* Chief Financial Officer
- ------------------------------ (Principal Financial
John M. Longmire Officer and Principal
Accounting Officer) of
RAM Energy, Inc.
/s/ M. HELEN BENNETT*
- ------------------------------ Director
M. Helen Bennett
/s/ GERALD R. MARSHALL*
- ------------------------------ Director
Gerald R. Marshall
/s/ JOHN M. REARDON*
- ------------------------------ Director
John M. Reardon
*By: /s/ LARRY E. LEE
------------------------------
Larry E. Lee
ATTORNEY-IN-FACT
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the following
additional Registrant has duly caused this Amendment No. 1 to this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Oklahoma City, State of Oklahoma, on February 2,
1998.
<TABLE>
<S> <C> <C>
RB OPERATING COMPANY
By: /s/ LARRY E. LEE
-----------------------------------------
Larry E. Lee, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement has been signed by the following persons in
the capacities indicated on February 2, 1998.
SIGNATURE TITLE
- ------------------------------ --------------------------
/s/ WILLIAM W. TALLEY II* Chairman of the Board and
- ------------------------------ Director of RB Operating
William W. Talley II Company
President and Chief
/s/ LARRY E. LEE Executive Officer and
- ------------------------------ Director (Principal
Larry E. Lee Executive Officer) of RB
Operating Company
Senior Vice President,
Secretary, Treasurer and
/s/ JOHN M. LONGMIRE* Chief Financial Officer
- ------------------------------ (Principal Financial
John M. Longmire Officer and Principal
Accounting Officer) of
RB Operating Company
/s/ M. HELEN BENNETT*
- ------------------------------ Director
M. Helen Bennett
*By: /s/ LARRY E. LEE
------------------------------
Larry E. Lee
ATTORNEY-IN-FACT
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the following
additional Registrant has duly caused this Amendment No. 1 to this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Oklahoma City, State of Oklahoma, on February 2,
1998.
<TABLE>
<S> <C> <C>
RLP GULF STATES, L.L.C.
By: RAM ENERGY, INC., MANAGER
By: /s/ LARRY E. LEE
-----------------------------------------
Larry E. Lee, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement has been signed by the following persons in
the capacities indicated on February 2, 1998.
SIGNATURE TITLE
- ------------------------------ --------------------------
/s/ WILLIAM W. TALLEY II* Chairman of the Board and
- ------------------------------ Director of RAM Energy,
William W. Talley II Inc.
President and Chief
/s/ LARRY E. LEE Executive Officer and
- ------------------------------ Director (Principal
Larry E. Lee Executive Officer) of
RAM Energy, Inc.
Senior Vice President,
Secretary, Treasurer and
/s/ JOHN M. LONGMIRE* Chief Financial Officer
- ------------------------------ (Principal Financial
John M. Longmire Officer and Principal
Accounting Officer) of
RAM Energy, Inc.
/s/ M. HELEN BENNETT*
- ------------------------------ Director
M. Helen Bennett
*By: /s/ LARRY E. LEE
------------------------------
Larry E. Lee
ATTORNEY-IN-FACT
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
1 -- Form of Underwriting Agreement*
2 -- Stock Purchase Agreement dated December 16, 1997 among Rolf N. Hufnagel and Robert E. Davis, Jr.
and the Registrant with respect to the Carlton Acquisition (the "Carlton Agreement")
2.1 -- Certain indemnification provisions set forth in Schedule 4.4 to the Carlton Agreement*
3.1 -- Registrant's Amended and Restated Certificate of Incorporation*
3.2 -- Registrant's Amended and Restated Bylaws*
4.1 -- Form of Indenture dated as of , 1998 among the Registrant, as issuer, RB Operating
Company and RCP Gulf States, L.L.C., as Subsidiary Guarantors, and United States Trust Company
of New York, as trustee with respect to % Senior Notes due 2008*
4.2 -- Form of % Senior Notes due 2008 (included in Exhibit 4.1)*
4.3 -- Registrant's Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1)*
4.4 -- Registrant's Amended and Restated Bylaws (filed as Exhibit 3.2)*
5 -- Opinion of McAfee & Taft A Professional Corporation, including consent*
10.1 -- Sale and Purchase Agreement by and between Quarles Drilling Corporation and RAMCO-NYL 1987
Limited Partnership dated as of June 16, 1997
10.2 -- Sale and Purchase Agreement by and among RAMCO-NYL 1987 Limited Partnership and RB Operating
Company, and Wynn-Crosby 1996, Ltd., Wildcard Oil & Gas Company, Wynn-Crosby (Texas), L.L.C.
and Providence Energy Corp. dated as of February 13, 1997
10.3 -- Purchase and Sale Agreement by and among New York Life Insurance Company, RAMCO Operating
Company, Oklahoma Double R Corporation, RAMCO-NYL 1987 Limited Partnership, William W. Talley
II, individually and as trustee of the William W. Talley II 1982 Revocable Trust, Larry E. Lee
and M. Helen Bennett, formerly Fisher, individually and as trustee of the M. Helen Fisher 1992
Trust dated as of July 24, 1996
10.4 -- RAM Energy, Inc. 1998 Stock Incentive Plan*
10.5 -- Special Severance Agreement by and between William W. Talley II and the Registrant dated as of
December 1, 1997
10.6 -- Employment Agreement by and between Larry E. Lee and the Registrant dated as of December 1, 1997
10.7 -- Employment Agreement by and between John Longmire and the Registrant dated as of December 8,
1997*
10.7.1 -- Employment Agreement by and between Larry Rampey and the Registrant dated as of December 8,
1997*
10.7.2 -- Employment Agreement by and between Drake Smiley and the Registrant dated as of December 8,
1997*
10.8 -- Form of RAM Energy, Inc. Indemnity Agreement
10.9 -- Amended and Restated Credit Agreement among RAMCO Operating Company, as Borrower, the Banks
named in the Credit Agreement and Union Bank of California, N.A. as Agent dated December 12,
1997 (the "Credit Agreement")
10.10 -- Form of Amended and Restated Revolving Note under the Credit Agreement (included in Exhibit
10.9)
10.11 -- Form of Amended and Restated Term Note under the Credit Agreement (included in Exhibit 10.9)
12 -- Historic statement re computation of ratio of earnings to fixed charges*
12.1 -- Pro forma statement re computation of ratio of earnings to fixed charges*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
21 -- Subsidiaries of Registrant
23.1 -- Consent of Ernst & Young LLP*
23.2 -- Consent of Ernst & Young LLP*
23.3 -- Consent of John M. Reardon
23.4 -- Consent of Gerald R. Marshall
23.5 -- Consent of McAfee & Taft A Professional Corporation (included in Exhibit 5)*
23.6 -- Consent of Forrest A. Garb & Associates, Inc.*
23.7 -- Consent of Netherland, Sewell & Associates, Inc.*
24 -- Power of Attorney*
25 -- Statement of eligibility of trustee on Form T-1*
27 -- Financial Data Schedule*
</TABLE>
- ------------------------
* Filed herewith.
<PAGE>
RAM ENERGY, INC.
(a Delaware corporation)
% Senior Notes due 2008
UNDERWRITING AGREEMENT
February __, 1998
Jefferies & Company, Inc.
650 Fifth Avenue, 4th Floor
New York, New York 10019
Dear Sirs:
RAM Energy, Inc., a Delaware corporation (the "Company"), and RB
Operating Company, a Delaware corporation ("RB"), and RLP Gulf States,
L.L.C., an Oklahoma limited liability company ("RLP" and, collectively with
RB, the "Guarantors") hereby confirm their agreement with you (the
"Underwriter") with respect to the issuance and sale by the Company and the
Guarantors and the purchase by the Underwriter of $115,000,000 aggregate
principal amount of the Company's ___% Senior Notes due February ___, 2008
(the "Notes") and the related Guaranties (as hereinafter defined). The Notes
are being issued pursuant to an indenture (the "Indenture") among the
Company, the Guarantors and United States Trust Company of New York, as
Trustee (the "Trustee"). The guaranties provided by the Guarantors pursuant
to the Indenture are herein referred to as the "Guaranties". The Notes and
the Guaranties are herein collectively referred to as the "Securities".
You have advised us that you desire to purchase the Securities and that
you propose to make a public offering of the Securities as soon as you deem
advisable after the Registration Statement referred to below becomes
effective upon the terms set forth in the Prospectus referred to below.
The terms that follow, when used in this Agreement, shall have the
meanings indicated. "Preliminary Prospectus" shall mean any preliminary
prospectus referred to in Section 1(a)(i) below and any preliminary
prospectus related to the Securities included in the Registration Statement
on the date that the Registration Statement becomes effective (the "Effective
Date") that omits Rule 430A Information (as defined below). "Registration
Statement" shall mean the registration statement referred to in Section
1(a)(i) below, including exhibits, as amended at the Representation Date (as
defined below) (or, if not effective at the Representation Date, in the form
in which it shall become effective) and, in the event any post-effective
amendment thereto becomes effective prior to the Closing Date (as defined in
Section 2 hereof), shall also mean such registration statement as so amended.
Such term shall include Rule 430A Information deemed to be included therein
at the Effective Date as provided by Rule 430A (as defined below). The
prospectus related to the Securities and constituting a part of the
Registration Statement (including the Rule 430A Information), as from time to
time amended or supplemented, is hereinafter referred to as the "Prospectus",
except that if any revised prospectus shall be provided to the Underwriter by
the Company that differs from the prospectus on file at the Securities and
Exchange Commission (the "Commission") at the Effective Date (whether or not
such revised prospectus is required to be filed by the Company pursuant to
Rule 424 of the Act Regulations), the term "Prospectus" shall refer to each
such revised prospectus from and after the time it is first provided to the
Underwriter for such use.
<PAGE>
"Rule 158", "Rule 424" and "Rule 430A" refer to such rules under the
Securities Act of 1933, as amended (the "Act"; and the rules and regulations
under the Act, the "Act Regulations"). "Rule 430A Information" means
information with respect to the Securities and the offering thereof permitted
to be omitted from the Registration Statement when it becomes effective
pursuant to Rule 430A. The "Trust Indenture Act" shall mean the Trust
Indenture Act of 1939, as amended, and the "Trust Indenture Act Regulations"
shall mean the rules and regulations under the Trust Indenture Act.
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) The Company and the Guarantors represent and warrant to the
Underwriter as of the date hereof (such date being referred to as the
"Representation Date") and as of the Closing Date, as follows; provided,
however, that all representations and warranties with respect to Carlton
Resources Corporation ("Carlton") on the Representation Date are, and as of the
Closing Date shall be, to the best knowledge of the Company's executive
officers:
(i) The Company and the Guarantors have filed with the Commission a
registration statement on Form S-1 (Registration No. 333-42641), including
a preliminary prospectus related to the Securities, and one or more
amendments thereto, including the related preliminary prospectus, each of
which has previously been furnished to the Underwriter, for the
registration under the Act of the offering and sale of the Securities. The
Company and the Guarantors will file with the Commission either (A) prior
to effectiveness of such registration statement, a further amendment to
such registration statement (including the form of final prospectus) or (B)
after effectiveness of such registration statement, a final prospectus in
accordance with Rules 430A and 424(b) or Rule 434 of the Act Regulations.
The Company and the Guarantors have included in such registration
statement, as amended at the Effective Date, all information (other than
Rule 430A Information in the case of clause (B)) required by the Act, the
Act Regulations, the Trust Indenture Act and the Trust Indenture Act
Regulations to be included in the prospectus with respect to the Securities
and the offering thereof. As filed, such amendment and form of final
prospectus, or such final prospectus, shall contain all Rule 430A
Information, together with all other such required information, with
respect to the Securities and the offering thereof and, except to the
extent the Underwriter shall agree in writing to a modification, shall be
in all substantive respects in the form furnished to the Underwriter prior
to the date hereof.
(ii) On the Effective Date, the Representation Date and the Closing
Date, the Registration Statement did and will, and when the Prospectus is
first filed (if required) in accordance with Rule 424(b) the Prospectus
will, comply in all material respects with the applicable requirements of
the Act, the Act Regulations, the Trust Indenture Act and the Trust
Indenture Act Regulations; on the Effective Date, the Representation Date
and the Closing Date, the Registration Statement did not and will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein not misleading; and, on the Effective Date, the
Representation Date and the Closing Date, and on the date of any filing
pursuant to Rule 424(b), the Prospectus did not and will not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, that the Company and the Guarantors make no
representation or warranty as to the information provided in writing to the
Company and the Guarantors by or on behalf of the Underwriter, expressly
for use in the Registration Statement or the Prospectus, and the Company
and the Guarantors agree that the only information provided in writing by
or on behalf of the Underwriter to the Company, expressly for use in the
-2-
<PAGE>
Registration Statement or the Prospectus, is that information contained
in the third paragraph in the section of the Prospectus entitled
"Underwriting" and the last paragraph on the cover page of the Prospectus.
(iii) The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Delaware, with
full corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Registration Statement and
the Prospectus, and is duly registered and qualified to conduct its
business and is in good standing in each jurisdiction where the nature or
location of its properties (owned or leased) or the conduct of its business
requires such registration or qualification, except where the failure so to
register or qualify would not have a Material Adverse Effect. As used
herein, the term "Material Adverse Effect" shall mean an adverse effect on
the condition (financial or other), business, properties, net worth or
results of operations of the Company or any of the Subsidiaries (as
hereinafter defined) that would be, singly or in the aggregate, material to
the Company and the Subsidiaries, taken as a whole, whether or not
occurring in the ordinary course of business, provided that fluctuations in
the market prices of oil and natural gas shall not be deemed to be the
occurrence of an adverse effect.
(iv) The only subsidiaries (as defined in the Act Regulations) of the
Company are the Guarantors and any other subsidiaries listed on Schedule 1
hereto (the Guarantors, any other such listed subsidiaries and Carlton
being collectively referred to as the "Subsidiaries"). Each of RB and
Carlton is a corporation duly organized and validly existing in good
standing under the laws of the State of Delaware, with full corporate power
and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and in the Prospectus.
RLP is a limited liability company duly organized and validly existing
under the laws of the State of Oklahoma, with all requisite power and
authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and Prospectus. Each
of the Subsidiaries is duly registered and qualified to conduct its
business and is in good standing in each jurisdiction where the nature or
location of its properties (owned or leased) or the conduct of its business
requires such registration or qualification, except where the failure so to
register or qualify would not have a Material Adverse Effect. The
Partnership (as hereinafter defined) has been dissolved and all of its
assets have been distributed to the Company or the Subsidiaries.
(v) As of each of the dates of its balance sheets included in the
Registration Statement and the Prospectus (the "Balance Sheet Dates"), the
RAMCO-NYL 1987 Limited Partnership, a Texas limited partnership (the
"Partnership"), was duly formed and validly existing as a limited
partnership under the laws of the State of Texas. As of each of the
Balance Sheet Dates, the Partnership (A) had all requisite power and
authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and Prospectus and was
duly qualified or registered as a foreign partnership in each jurisdiction
where the nature or location of its properties (owned or leased) or the
conduct of its business required such registration or qualification, except
where the failure so to register or qualify would not have a Material
Adverse Effect and (B) had all necessary authorizations, approvals, orders,
licenses, rights-of-way, operating rights, easements, certificates and
permits of and from, and had made all declarations and filings with, all
regulatory or governmental officials and bodies, all self-regulatory
organizations and all courts and other tribunals ("Permits"), to own or
lease its properties and to conduct its business described in the
Prospectus and the Registration, except where failure to have obtained or
made the same would not have a Material Adverse Effect.
-3-
<PAGE>
(vi) Each of the Company and the Subsidiaries has all necessary
Permits to own or lease its properties and to conduct its business
described in the Prospectus and the Registration Statement, except where
failure to have obtained or made the same would not have a Material Adverse
Effect, and neither the Company nor any of the Subsidiaries has received
any notice of proceedings relating to the revocation or modification of any
such Permits, where the failure to be so licensed or approved or where the
subject of an unfavorable decision, ruling or finding, would have a
Material Adverse Effect; each of the Company and the Subsidiaries has
fulfilled and performed all its current material obligations with respect
to such Permits and no event has occurred that allows, or after notice or
lapse of time, or both, would allow, revocation or termination thereof or
result in any other material impairment of the rights of the holder of any
such Permit; and such Permits contain no restrictions that are materially
burdensome to the Company or the Subsidiaries; and the Company and each of
the Subsidiaries is in compliance with all applicable laws, rules,
regulations, orders and consents, the violation of which could have a
Material Adverse Effect. The property and business of the Company and the
Subsidiaries conform in all material respects to the descriptions thereof
contained in the Prospectus and the Registration Statement.
(vii) All of the Company's authorized and outstanding capital
stock has been duly authorized, validly issued and is fully paid and
nonassessable and the capitalization of the Company conforms to the
descriptions thereof and the statements made with respect thereto in the
Registration Statement and the Prospectus as of the date set forth therein.
There are no outstanding securities convertible into or exchangeable for,
and no outstanding options, warrants or other rights to purchase, any
shares of the capital stock of the Company, nor any agreements or
commitments to issue any of the same, except as described in the
Registration Statement and the Prospectus, and there are no preemptive or
other rights to subscribe for or to purchase, and no restrictions upon the
voting or transfer of, any capital stock of the Company pursuant to the
Company's certificate of incorporation or by-laws or any agreement or other
instrument to which the Company is a party, except as described in the
Registration Statement and the Prospectus.
(viii) All the outstanding shares of capital stock of RB and
Carlton, and all of the outstanding membership interests of RLP, have been
duly authorized and are validly issued, fully paid and nonassessable and
were not issued in violation of or subject to any preemptive or similar
rights. Except as otherwise set forth in the Registration Statement and
the Prospectus, all outstanding shares of capital stock or membership
interests of RB and RLP, respectively, are owned by the Company, directly
or indirectly through another Subsidiary, free and clear of any security
interests, liens, encumbrances, equities or other claims.
(ix) Each of the Company and the Subsidiaries has defensible title to
all real property and to all personal property owned by it, including those
properties described in the Registration Statement and Prospectus, in each
case free and clear of all liens, charges, encumbrances and restrictions,
except such as are described in the Registration Statement and Prospectus
or such as would not have a Material Adverse Effect. Each of the Company
and the Subsidiaries has valid, subsisting and enforceable leases for the
properties described in the Registration Statement and the Prospectus as
leased by it, with such exceptions as are described in the Registration
Statement and the Prospectus or that in the aggregate would not have a
Material Adverse Effect.
(x) The Company and the Guarantors have all requisite power,
authority, authorizations, approvals, orders, licenses, certificates and
permits to enter into this Agreement and the Indenture and to carry out the
provisions and conditions hereof and thereof, and to issue and deliver to
the Underwriter the Securities that are being sold
-4-
<PAGE>
by the Company and the Guarantors as provided herein. This Agreement
has been duly authorized, executed and delivered by the Company and the
Guarantors and constitutes a legal, valid and binding agreement of the
Company and the Guarantors, enforceable against them in accordance with
its terms, except to the extent rights to indemnity hereunder may be
limited by federal or state securities laws or public policy underlying
such laws and except to the extent that such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by
equitable principles. The Indenture has been duly authorized and, when
executed and delivered by the Company, the Guarantors and the Trustee
and qualified under the Trust Indenture Act, will constitute a legal,
valid and binding agreement of the Company and the Guarantors,
enforceable against them in accordance with its terms, except to the
extent rights to indemnity thereunder may be limited by federal or
state securities laws or public policy underlying such laws and except
to the extent that such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating
to or affecting creditors' rights generally or by equitable principles.
(xi) Each of the Company and the Subsidiaries owns, or possesses
adequate rights to use, all trademarks, service marks and other rights
necessary for the conduct of its business as described in the Registration
Statement and the Prospectus, and neither the Company nor any of the
Subsidiaries has received a notice, or knows of any basis, of any conflict
with the asserted rights of others in any such respect that could have a
Material Adverse Effect.
(xii) The Securities have been duly and validly authorized and,
when issued, delivered and sold, and in the case of the Notes authenticated
by the Trustee, in accordance with this Agreement and the Indenture, will
have been duly and validly executed, issued and delivered, and in the case
of the Notes authenticated, and will constitute legal, valid and binding
obligations of the Company and the Guarantors, enforceable against the
Company and the Guarantors in accordance with their respective terms and
entitled to the benefits of the Indenture, except to the extent that such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other laws relating to or affecting
creditors' rights generally or by equitable principles. All corporate
action required to be taken by the Company and the Guarantors for the
authorization, issuance and sale of the Securities has been duly and
validly taken.
(xiii) Ernst & Young LLP are independent public accountants with
respect to the Company and the Subsidiaries as required by the Act.
(xiv) The consolidated financial statements and related notes and
schedules included in the Registration Statement or in the Prospectus
present fairly the financial position of the Partnership, the Company and
the Subsidiaries, as the case may be, on the basis stated in the
Registration Statement, as of the respective dates thereof and the
consolidated statements of operations, stockholders' equity (or partners'
equity, as the case may be) and cash flows of the Partnership, the Company
and the Subsidiaries, for the respective periods covered thereby; and such
financial statements and the related schedules and notes have been prepared
in conformity with generally accepted accounting principles applied on a
consistent basis throughout the entire period involved, except as otherwise
disclosed in the Registration Statement and the Prospectus. The selected
financial information included in the Registration Statement or the
Prospectus presents fairly the information shown therein and has been
compiled on a basis consistent with that of the audited financial
statements of the Company included therein. The pro forma financial
information in the Registration Statement or in the Prospectus complies in
all material respects with the applicable accounting
-5-
<PAGE>
requirements of Article 11 of Regulation S-X promulgated by the
Commission and presents fairly the information shown therein; the
assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the
transactions or circumstances referred to therein. No other financial
statements or schedules of the Partnership, the Company or the
Subsidiaries are required by the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder (collectively, the "Exchange Act"), the Act, the Act
Regulations, the Trust Indenture Act or the Trust Indenture Act
Regulations to be included in the Registration Statement or Prospectus.
(xv) The Securities and the Indenture conform in all material respects
to the descriptions thereof in the Registration Statement and Prospectus.
(xvi) Since the respective dates as of which information is provided
in the Registration Statement and Prospectus, except as otherwise
specifically stated therein, there has been no change or development with
respect to the condition (financial or otherwise) or business of the
Company and the Subsidiaries, taken as a whole, whether or not arising in
the ordinary course of business, that would have a Material Adverse Effect.
(xvii) Neither the Company nor any Subsidiary is in violation of
its certificate of incorporation or bylaws or other organizational
documents. Neither the Company nor any Subsidiary is, nor with the passage
of time or the giving of notice or both would be, in violation of any law,
ordinance, administrative or governmental rule or regulation applicable to
the Company or any of the Subsidiaries, or of any judgment, order or decree
of any court or governmental agency or body or of any arbitrator having
jurisdiction over the Company or any of the Subsidiaries, or in default in
the performance or observance of any obligation, agreement, covenant or
condition contained in any mortgage, loan agreement, note, bond, debenture,
credit agreement or any other evidence of indebtedness or in any agreement,
contract, indenture, lease or other instrument to which the Company or any
of the Subsidiaries is a party or by which it may be bound, or to which any
of the property or assets of the Company or any of the Subsidiaries is
subject, the effect of which violation or default in performance or
observance would have a Material Adverse Effect.
(xviii) There is no action, suit or proceeding pending before or by
any court, arbitrator or governmental agency or body or, to the Company's
knowledge, threatened against the Company or any of the Subsidiaries or to
which any of their respective property is subject (A) that is required to
be described in the Registration Statement or the Prospectus but is not
described as required or (B) that, if adversely determined, could
reasonably be expected to have a Material Adverse Effect. There is no
agreement, contract, indenture, lease or other document or instrument that
is required to be described in the Registration Statement or Prospectus or
to be filed as an exhibit to the Registration Statement that is not
described or filed as required.
(xix) No person has any right to the registration of any security
of the Company by reason of the filing of the Registration Statement with
the Commission or the consummation of the transactions contemplated hereby,
which right has not been waived or lapsed, except as described in the
Registration Statement or Prospectus.
(xx) Neither the Company nor any Guarantor is an "investment company"
within the meaning of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and neither the Company nor any Guarantor is
subject to registration under the Investment Company Act.
-6-
<PAGE>
(xxi) As of the date of the Prospectus, and except as described in
the Registration Statement and the Prospectus, neither the Company nor any
of the Subsidiaries is currently planning any probable acquisitions for
which disclosure of pro forma financial information would be required by
the Act.
(xxii) Since the respective dates as of which information is given
or otherwise described in the Registration Statement and the Prospectus (or
any amendment or supplement thereto), except as otherwise stated therein,
(A) neither the Company nor any of the Subsidiaries (1) has issued any
securities other than in connection with the exercise of any outstanding
options, (2) incurred any material liability or obligations, direct or
contingent, for borrowed money, (3) entered into any transaction, not in
the ordinary course of business, that is material to the Company and the
Subsidiaries, taken as a whole, (4) entered into any transaction with an
affiliate of the Company (as the term "affiliate" is defined in Rule 405 of
the Act Regulations) that would otherwise be required to be disclosed in
the Prospectus or the Registration Statement, or (5) declared or paid any
dividend on its capital stock, or made any other distribution to its equity
holders, (B) there has not been any material change in the capital stock or
other equity, or material increase in the short-term or long-term debt, of
the Company or any of the Subsidiaries and (C) there has been no change or
development with respect to the condition (financial or otherwise) or
business of the Company and the Subsidiaries, taken as a whole, whether or
not arising in the ordinary course of business, that would have a Material
Adverse Effect.
(xxiii) The Company has not distributed and, prior to the later to
occur of (A) the Closing Date and (B) completion of the distribution of the
Securities, will not distribute without your prior written consent any
offering material in connection with the offering and sale of the
Securities other than the Registration Statement, the Prospectus or other
materials, if any, permitted by the Act.
(xxiv) The Indenture has been duly qualified under the Trust
Indenture Act and complies with all applicable provisions of the Trust
Indenture Act and the Trust Indenture Act Regulations.
(xxv) Neither the Company nor any Subsidiary is involved in any
labor dispute and, to the knowledge of the Company, no such dispute is
threatened.
(xxvi) Neither the Company nor any Subsidiary nor, to the best of
its knowledge, any employee or agent of the Company or any Subsidiary has
made any payment of funds of the Company or any Subsidiary or received or
retained any funds of a character required to be disclosed in the
Prospectus.
(xxvii) The Company and each of the Subsidiaries have filed (or have
obtained extensions thereto) all federal, state and local tax returns that
are required to be filed, which returns are complete and correct in all
material respects, and have paid all taxes shown on such returns and all
assessments with respect thereto to the extent that the same have become
due, except where failure to file or pay would not have a Material Adverse
Effect.
(xxviii) Except for the membership interests of RLP and shares of
capital stock of each of RB, Gasco Energy Corporation and, as of the
Closing Date, Carlton, neither the Company nor any of the Subsidiaries owns
any shares of stock or any other securities of any corporation or has any
equity interest in any firm, partnership, association or other entity other
than as reflected in the consolidated financial statements included in the
Registration Statement and the Prospectus.
-7-
<PAGE>
(xxix) Neither the execution, delivery or performance of this
Agreement or the Indenture, the offer, issuance, sale or delivery of the
Securities that are being issued and sold by the Company and the Guarantors
nor the consummation by the Company and the Guarantors of the terms of this
Agreement and the Indenture (A) requires the consent, approval,
authorization or order of any court or governmental agency or body, except
such as have been obtained under the Act, the Trust Indenture Act and the
Trust Indenture Act Regulations and such as may be required under the blue
sky laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriter or such as may be
required by the National Association of Securities Dealers, Inc. (the
"NASD") and such other approvals as have been obtained, (B) will conflict
with, result in a breach of, or constitute a default under the terms of any
indenture, agreement, lease or other instrument to which the Company or any
of the Subsidiaries is a party or by which any of them or any of their
respective properties may be bound, or will result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets
of the Company or any of the Subsidiaries pursuant to the terms of any
agreement or instrument to which any of them is a party or by which any of
them may be bound or to which any of the property or assets of any of them
is subject, (C) will conflict with or violate any law, order, statute,
regulation, consent or memorandum of understanding applicable to the
Company or any Subsidiary of any court, regulatory body, administrative
agency, governmental body or arbitrator having jurisdiction over the
Company or any of the Subsidiaries (in the case of (B) or (C) above, where
such conflict, breach, default or violation, individually or in the
aggregate, would have a Material Adverse Effect), or (D) will conflict with
or violate the certificate of incorporation or by-laws or other constituent
documents of the Company or any Subsidiary.
(xxx) Neither the Company nor the Guarantors has taken, directly
or indirectly, any action designed to cause or result in or that has
constituted or that might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Securities.
(xxxi) Neither the Company nor the Guarantors is required to comply
with Section 517.075 of the Florida statutes.
(xxxii) The Company and each of the Subsidiaries (A) are in
compliance with any and all applicable federal, state, local and foreign
laws and regulations relating to the protection of human health and safety,
the environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (B) have received all permits,
licenses or other approvals required of them under applicable Environmental
Laws to conduct their business and (C) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or approvals or failure to comply with the terms and conditions of
such permits, licenses or approvals would not have a Material Adverse
Effect.
(xxxiii) There are no costs or liabilities, to the Company's
knowledge after due inquiry, associated with the effect of Environmental
Laws on the business, operations and properties of the Company and its
Subsidiaries that would have a Material Adverse Effect.
(b) Any certificate signed by any officer of the Company or the
Guarantors delivered to the Underwriter or to counsel for the Underwriter
pursuant to the terms of this Agreement shall be deemed a representation and
warranty by the Company and the Guarantors to the Underwriter as to the
matters covered thereby.
-8-
<PAGE>
SECTION 2. SALE AND DELIVERY TO THE UNDERWRITER; CLOSING
(a) Subject to the terms and conditions set forth herein, the Company
and the Guarantors agree to sell the Securities to the Underwriter on the
basis of the representations and warranties herein contained and subject to
the terms and conditions herein set forth, and the Underwriter agrees to
purchase the Securities from the Company, at a purchase price of ____% of the
$115,000,000 principal amount of the Securities. The Company and the
Guarantors will have no obligation to sell the Underwriter any of the
Securities that are being issued and sold by the Company and the Guarantors
hereunder unless the Underwriter purchases all of such Securities hereunder.
(b) Payment of the purchase prices for, and delivery of, the Securities
to be purchased by the Underwriter shall be made at the offices of Jefferies
& Company, Inc., 39 Broadway, New York, New York 10006, or at such other
place as shall be agreed upon by the Underwriter and the Company, at 10:00
A.M., New York City time, on the third (or, if pricing occurs after 4:30
p.m., New York City time, on any given day, on the fourth) business day
following the date hereof, or such other time not later than ten business
days after such date as shall be agreed upon by the Underwriter and the
Company (such time and date of payment and delivery being herein called the
"Closing Date"). Payment shall be made to the Company by wire transfer or
certified check payable to the order of the Company against delivery to the
Underwriter of the Securities.
(c) Certificates representing the Securities shall be in such
denominations and registered in such names as the Underwriter may request in
writing at least two business days before the Closing Date. The certificates
representing the Securities will be made available for examination and
packaging by the Underwriter not later than 1:00 P.M., New York City time, on
the last business day prior to the Closing Date at such place as is
designated by the Underwriter.
SECTION 3. COVENANTS OF THE COMPANY AND THE GUARANTORS.
The Company and the Guarantors covenant with the Underwriter as follows:
(a) The Company and the Guarantors will use their best efforts to cause
the Registration Statement, if not effective at the Representation Date, and
any amendment thereof, to become effective, as promptly as possible after the
filing thereof. The Company and the Guarantors will not file any amendment
to the Registration Statement or any amendment or supplement to the
Prospectus to which the Underwriter shall reasonably object in writing after
a reasonable opportunity to review such amendment or supplement. Subject to
the foregoing sentences in this clause (a), if the Registration Statement has
become or becomes effective pursuant to Rule 430A, or filing of the
Prospectus or supplement to the Prospectus is otherwise required under Rule
424(b), the Company will cause the Prospectus, properly completed, or such
supplement thereto to be filed with the Commission pursuant to the applicable
paragraph of Rule 424(b) within the time period prescribed and will provide
evidence satisfactory to the Underwriter of such timely filing. The Company
and the Guarantors will promptly advise the Underwriter (i) when the
Registration Statement, if not effective at the Representation Date, and any
amendment thereto, shall have become effective, (ii) when the Prospectus, and
any supplement thereto, shall have been filed (if required) with the
Commission pursuant to Rule 424(b), (iii) when any amendment to the
Registration Statement shall have been filed or become effective, (iv) of any
request by the Commission for any amendment of the Registration Statement or
supplement to any Prospectus or for any additional information, (v) of the
receipt by the Company or any Guarantor of any notification of, or if the
Company or any Guarantor otherwise has knowledge of, the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the institution or threatening of any proceeding for that
purpose and (vi) of the receipt by the
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Company or any Guarantor of any notification with respect to the suspension
of the qualification of the Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose. The Company
and the Guarantors will use their best efforts to prevent the issuance of any
such stop order and, if issued, to obtain as soon as possible the lifting
thereof.
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act or the Act Regulations, any event
occurs as a result of which the Prospectus as then amended or supplemented
would contain any 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, or if it shall be necessary to amend the Registration
Statement or amend or supplement the Prospectus to comply with the Act or the
Act Regulations, the Company and the Guarantors promptly will prepare and
file with the Commission, subject to the second sentence of paragraph (a) of
this Section 3, an amendment or supplement that will correct such statement
or omission or effect such compliance. Neither your consent to, nor your
delivery of, any such amendment or supplement shall constitute a waiver of
any of the conditions set forth in Section 5.
(c) The Company and the Guarantors consent to the use of the Prospectus
in accordance with the provisions of the Act and with the securities or blue
sky laws of the jurisdictions in which the Securities are offered by the
Underwriter and by all dealers to whom Securities may be sold, both in
connection with the offering and sale of the Securities and for such period
of time thereafter as the Prospectus is required by the Act to be delivered
in connection with the sales by the Underwriter or any dealer. The Company
and the Guarantors will comply with all requirements imposed upon them by the
Act, as now and hereafter amended, so far as necessary to permit the
continuance of sales of or dealing in the Securities in accordance with the
provisions hereof and the Prospectus.
(d) As soon as practicable, the Company will make generally available
to its securityholders and to the Underwriter a consolidated earnings
statement or statements of the Company and the Subsidiaries covering a
twelve-month period beginning after the Effective Date that will satisfy the
provisions of Section 11(a) of the Act and Rule 158 under the Act Regulations.
(e) The Company will furnish to the Underwriter, without charge, three
signed copies of the Registration Statement (including exhibits thereto and
all documents incorporated by reference therein) and, so long as delivery of
a prospectus by the Underwriter or a dealer may be required by the Act or the
Act Regulations, as many copies of the Prospectus and all amendments and
supplements thereto as the Underwriter may reasonably request.
(f) During the period of three years hereafter, the Company will
furnish to you, as soon as practicable after the end of each fiscal year, a
copy of its annual report to shareholders for such year; and the Company will
furnish to you as soon as available, a copy of each report or definitive
proxy statement of the Company filed with the Commission under Exchange Act
or mailed to stockholders.
(g) The Company and the Guarantors will comply with all the provisions
of any undertakings contained in the Registration Statement.
(h) The Company and the Guarantors will not at any time, directly or
indirectly, take any action intended, or that might reasonably be expected,
to cause or result in, or that will cause, stabilization of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities.
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(i) The Company will apply the net proceeds from the offering and sale
of the Securities to be sold in accordance with the description set forth in
the "Use of Proceeds" section of the Prospectus.
(j) The Company and the Guarantors will cooperate with the Underwriter
and its counsel in connection with endeavoring to obtain and maintain the
qualification or registration, or exemption from qualification, of the
Securities for offer and sale under the applicable securities laws of such
states and other jurisdictions of the United States as the Underwriter may
designate; provided, that in no event shall the Company or the Guarantors be
obligated to qualify to do business in any jurisdiction where they are not
now so qualified or to take any action that would subject them to taxation or
general service of process in any jurisdiction where they are not now so
subject.
SECTION 4. PAYMENT OF EXPENSES.
The Company will pay, or reimburse if paid by the Underwriter, all
actual and reasonable costs and expenses incident to the performance of the
obligations of the Company and the Guarantors under this Agreement, including
(i) the fees, disbursements and expenses of counsel for the Underwriter and
counsel and accountants for the Company and all other expenses in connection
with the preparation, printing and filing of the Registration Statement, any
Preliminary Prospectus, the Prospectus, the Statement of Eligibility and
Qualification under the Trust Indenture Act of the Trustee (the "Form T-1"),
and any amendments or supplements thereto, and the mailing and delivery of
copies thereof to the Underwriter and dealers, (ii) the fees and
disbursements of the Trustee and its counsel; (ii) the cost of printing the
Agreement Among Underwriters, this Agreement, the Indenture, the Form T-1,
the Selling Agreement, any Dealer Agreements, the Underwriter Questionnaire
and the Blue Sky Memorandum (in both preliminary and final form); (iii) all
expenses in connection with qualification of the Securities for offering and
sale under state securities laws, including filing and registration fees and
the fees, disbursements and expenses of counsel for the Underwriter in
connection with such qualification and in connection with blue sky surveys;
(iv) the filing fees incident to securing any required review by the NASD;
(v) the cost of preparing certificates representing the Securities; (vi) all
fees of the Company's transfer agent and registrar; (vii) all fees and
expenses of nationally recognized statistical rating organizations (as
defined for purposes of Rule 436(g) under the Act); and (viii) all other
costs and expenses incident to the performance of the Company's and the
Guarantors' obligations hereunder that are not otherwise specifically
provided for in this Section.
If this Agreement is terminated by the Underwriter because of any
failure or refusal on the part of the Company or the Guarantors to comply
with the terms or fulfill any of the conditions of this Agreement, the
Company shall reimburse the Underwriter for all of its reasonable
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriter. The Company shall not in any event be liable to
the Underwriter for consequential damages including loss of anticipated
profits from the transactions covered by this Agreement.
SECTION 5. CONDITIONS OF THE UNDERWRITER'S OBLIGATION.
The obligation of the Underwriter to purchase the Securities hereunder
is subject to the continued accuracy of the representations and warranties of
the Company and the Guarantors herein contained, to the accuracy of the
statements of the Company and the Guarantors made in any certificates
pursuant to the provisions hereof, to the performance by the Company and the
Guarantors of their obligations hereunder and to the following further
conditions:
(a) The Registration Statement shall have become effective, and you
shall have received notice thereof, not later than 5:30 p.m., Washington D.C.
time, on the date hereof, or
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such later time and date as shall be approved by the Underwriter and the
Company and shall remain effective at the Closing Date. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued under the Act or proceedings therefor initiated or threatened by the
Commission. No order suspending the effectiveness of the Registration
Statement or the qualification or registration of the Securities under the
securities or blue sky laws of any jurisdiction shall be in effect or
proceedings therefor initiated or threatened by the Commission or the
authorities of any such jurisdiction. If the Company and the Guarantors have
elected to rely upon Rule 430A, the price of the Securities and any
price-related or other information previously omitted from the effective
Registration Statement pursuant to Rule 430A shall have been transmitted to
the Commission for filing pursuant to Rule 424(b) within the prescribed time
period, and, prior to the Closing Date, the Company and the Guarantors shall
have provided evidence satisfactory to the Underwriter of such timely filing,
or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A.
(b) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting particularly the business, properties,
condition (financial or other) or results of operations of the Company and
the Subsidiaries, taken as a whole, which, in the reasonable judgment of the
Underwriter, materially impairs the investment quality of the Securities and
constitutes a Material Adverse Effect; (ii) any material loss or interference
with the business or properties of the Company or any of the Subsidiaries
from fire, explosion, flood or other casualty, whether or not covered by
insurance, or from any labor dispute or any court or legislative or other
governmental action, order or decree, that is not set forth in the
Registration Statement and the Prospectus, if in the reasonable judgment of
the Underwriter any such development makes it impracticable or inadvisable to
proceed with completion of the sale of and payment for the Securities; (iii)
any suspension or limitation of trading in securities generally on the New
York Stock Exchange or the Nasdaq National Market System, or any setting of
minimum prices for trading on such exchange or system, or any suspension of
trading of any securities of the Company on any exchange or system or in the
over-the-counter market; (iv) any banking moratorium declared by federal or
New York authorities; or (v) any outbreak or escalation of major hostilities
in which the United States is involved, any declaration of war by Congress or
any other substantial national or international calamity or emergency if, in
the reasonable judgment of the Underwriter, the effect of any such outbreak,
escalation, declaration, calamity or emergency makes it impractical or
inadvisable to proceed with completion of the sale of and payment for the
Securities.
(c) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no
litigation or other proceeding instituted against the Company or any of the
Subsidiaries or any of their respective officers or directors in their
capacities as such, before or by any federal, state or local court,
commission, regulatory body, administrative agency or other governmental
body, domestic or foreign, or arbitrator, in which litigation or proceeding
an unfavorable ruling, decision or finding would have a Material Adverse
Effect.
(d) Each of the representations and warranties of the Company and the
Guarantors contained herein shall be true and correct in all material
respects at the Closing Date, as if made at the Closing Date, and all
covenants and agreements contained herein to be performed on the part of the
Company and the Guarantors, and all conditions contained herein to be
fulfilled or complied with by the Company and the Guarantors at or prior to
the Closing Date, shall have been duly performed, fulfilled or complied with.
(e) The Underwriter shall have received an opinion from McAfee & Taft A
Professional Corporation, counsel for the Company and the Guarantors,
satisfactory in form
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and substance to counsel for the Underwriter, dated as of the Closing Date,
to the effect set forth in Exhibit A.
(f) The Underwriter shall have received a favorable opinion, dated as
of the Closing Date, of Fulbright & Jaworski L.L.P., counsel for the
Underwriter, with respect to such matters as may be reasonably requested by
the Underwriter, and you shall have provided such counsel with such papers
and information as they may reasonably request to enable them to provide such
opinion.
(g) The following conditions contained in clauses (i), (ii) and (iii)
of this Section 5(g) shall have been satisfied on and as of the Closing Date
and the Company shall have furnished to the Underwriter a certificate of the
Company, signed by the President and the principal financial or accounting
officer of the Company, and each of the Guarantors shall have furnished to
the Underwriter a certificate of such Guarantor, signed by the President and
the principal financial or accounting officer of such Guarantor, each dated
the Closing Date to the effect that the signers of such certificates have
carefully examined the Registration Statement, the Prospectus, any supplement
or amendment to the Prospectus, and this Agreement and that:
(i) the representations and warranties of the Company and the
Guarantors, respectively, in this Agreement are true and correct in all
material respects on and as of the Closing Date with the same effect as if
made on the Closing Date and the Company and the Guarantors, respectively,
have complied with all the agreements and satisfied all the conditions
under this Agreement on their part to be performed or satisfied at or prior
to the Closing Date;
(ii) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or, to the Company's and the Guarantors' knowledge, threatened;
and
(iii) since the date of the most recent financial statements
included in the Prospectus, there has been no change that would have a
Material Adverse Effect.
(h) At the Representation Date and at the Closing Date, Ernst & Young
LLP shall have furnished to the Underwriter a letter or letters, dated
respectively as of the date of this Agreement and the Closing Date, in form
and substance satisfactory to the Underwriter, containing statements and
information of the type customarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and certain
financial and statistical information pertaining to the Partnership, the
Company and the Subsidiaries contained in the Registration Statement and the
Prospectus.
(i) As of the Closing Date, the Securities shall have been rated "_____"
by Standard & Poor's and "_____" by Moody's Investors Service, Inc., and such
ratings shall not have been rescinded. The Company shall have delivered to
the Underwriter letters from such rating organizations, or other evidence
satisfactory to the Underwriter, confirming that the Securities have such
ratings.
(j) The Indenture shall have been duly executed and delivered by the
parties thereto.
(k) At the Closing Date, counsel for the Underwriter shall have been
furnished with such information, certificates and documents as they may
reasonably require for the purpose of enabling them to pass upon the issuance
and sale of the Securities as contemplated herein and related proceedings, or
to evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained, or otherwise in
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connection with the offering contemplated hereby; and all opinions and
certificates mentioned above or elsewhere in this Agreement shall be
reasonably satisfactory in form and substance to the Underwriter and counsel
for the Underwriter.
(l) At the time of the closing of the offering of the Securities, a
simultaneous closing occurs with respect to the acquisition by the Company of
all of the outstanding common stock of Carlton pursuant to a Stock Purchase
Agreement, dated as of December 16, 1997, among the Company, Rolf N. Hufnagel
and Robert E. Davis, Jr. (the "Carlton Acquisition").
(m) The Underwriters shall have been expressly entitled to rely on any
and all legal opinions delivered in connection with the closing of the
Carlton Acquisition.
(n) On or prior to the Closing Date, the Company shall have redeemed
all of the issued and outstanding shares of all classes of its Preferred
Stock.
If any condition specified in this Section 5 shall not have been
fulfilled in all material respects when and as required to be fulfilled, this
Agreement may be terminated by the Underwriter by notice to the Company and
such termination shall be without liability of any party to any other party
except as provided in Section 4.
SECTION 6. CONDITIONS OF THE COMPANY'S OBLIGATION.
The obligation of the Company to issue and sell the Securities hereunder
is subject to the condition that, at the time of the closing of the offering
of the Securities, a simultaneous closing occurs with respect to the Carlton
Acquisition.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and the Guarantors jointly and severally agree to
indemnify, defend and hold harmless the Underwriter and its officers,
shareholders, employees and directors and any person who controls the
Underwriter within the meaning of Section 15 of the Act from and against any
loss, expense, liability or claim (including the reasonable cost of
investigating such claim) that the Underwriter or any such officer,
shareholder, employee, director or controlling person may incur under the
Act, the Exchange Act or otherwise, as such expenses are incurred, insofar as
such loss, expense, liability or claim arises out of or is based upon any
untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement (or in the Registration Statement as amended by
any post-effective amendment thereof) or any omission or alleged omission to
state a material fact required to be stated in such Registration Statement or
necessary to make the statements made therein not misleading or any untrue
statement or alleged untrue statement of a material fact contained in a
Prospectus (the term Prospectus for the purpose of this Section 7 being
deemed to include any Preliminary Prospectus, the Prospectus, the Prospectus
as amended or supplemented and any document filed under the Exchange Act and
incorporated by reference into the Prospectus) or any omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, the Company and the
Guarantors will not be liable in any such case to the extent any such loss,
expense, liability or claim arises out of or is based upon any untrue
statement or omission or alleged untrue statement or omission that has been
made therein or omitted therefrom in reliance upon and in conformity with the
information provided in writing to the Company by or on behalf of the
Underwriter, expressly for use in the Registration Statement or the
Prospectus; and provided, further that with respect to any untrue statement
or omission or alleged untrue statement or omission made in any Preliminary
Prospectus, the indemnity agreement contained in this Section 7(a) shall not
inure to the benefit of the Underwriter or its officers, shareholders,
employees and directors, and the Company and the Guarantors shall not be
liable to the
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Underwriter or its officers, shareholders, employees and directors, from whom
the person asserting any such losses, claims, damage, or liabilities
purchased the Securities concerned, to the extent that any such loss, claim,
damage or liability of the Underwriter or its officers, shareholders,
employees and directors results from the fact that there was not sent or
given to such person at or prior to the written confirmation of the sale of
such shares to such person, a copy of the Prospectus, as the same may be
amended or supplemented, and the untrue statement or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact
in such Preliminary Prospectus was corrected in such Prospectus and the
Company had previously furnished copies thereof to the Underwriter on a
timely basis to permit the Prospectus (as the same may be amended or
supplemented) to be sent or given. The Company and the Guarantors agree that
the only such information provided in writing by or on behalf of the
Underwriter to the Company, expressly for use in the Registration Statement
or the Prospectus, is that information contained in the third paragraph in
the section of the Prospectus entitled "Underwriting" and the last paragraph
on the cover page of the Prospectus. The foregoing indemnity agreement shall
be in addition to any liability that the Company and the Guarantors may
otherwise have.
(b) The Underwriter agrees to indemnify, defend and hold harmless the
Company, the Guarantors and their respective officers, stockholders,
employees and directors and any person who controls the Company or the
Guarantors within the meaning of Section 15 of the Act from and against any
loss, expense, liability or claim (including the reasonable cost of
investigating such claim) that the Company, the Guarantors or any such
officer, stockholder, employee, director or controlling person may incur
under the Act, the Exchange Act or otherwise to the same extent as the
provisions of Section 7(a) above, but only insofar as such loss, expense,
liability or claim arises out of or is based upon any untrue statement or
omission or alleged untrue statement or omission made in reliance or in
conformity with information relating to the Underwriter furnished in writing
to the Company by or on behalf of the Underwriter, expressly for use in the
Registration Statement or the Prospectus. The Company and the Guarantors
agree that the only information provided in writing by or on behalf of the
Underwriter to the Company, expressly for use in the Registration Statement
or the Prospectus, is that information contained in the third paragraph in
the section of the Prospectus entitled "Underwriting" and the last paragraph
on the cover page of the Prospectus.
(c) If any action is brought against an indemnified party under this
Section 7, the indemnified party or parties shall promptly notify the
indemnifying party in writing of the institution of such action (provided
that the failure to give such notice shall not relieve the indemnifying party
of any liability that it may have pursuant to this Agreement, unless and to
the extent the indemnifying party did not otherwise learn of such action and
such failure has resulted in the forfeiture of substantive rights or defenses
by the indemnifying party) and the indemnifying party shall assume the
defense of such action, including the employment of counsel and payment of
reasonable expenses. The indemnified party or parties shall have the right to
employ its or their own counsel in any such case, but the fees and expenses
of such counsel shall be at the expense of the indemnified party or parties
unless (i) the employment of such counsel shall have been authorized in
writing by the indemnifying party in connection with the defense of such
action, (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to take charge of the
defense of such action within a reasonable time after notice of the
institution of such action, (iii) such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
that are different from or additional to those available to the indemnifying
party or (iv) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict of
interest (in which case the indemnifying party shall not have the right to
direct the defense of such action on behalf of the indemnified party or
parties), in any of which events such fees and expenses shall be borne by the
indemnifying party and paid as incurred; provided that the indemnifying party
shall only be responsible for the fees and expenses of one counsel for the
indemnified party or parties hereunder. Anything
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in this paragraph to the contrary notwithstanding, the indemnifying party
shall not be liable for any settlement of any such claim or action effected
without its written consent, which consent shall not be unreasonably withheld.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under subsection (a) or (b) of this
Section 7 in respect of any losses, damages, expenses, liabilities or claims
referred to therein, then each applicable indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, expenses, liabilities or claims (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Guarantors on the one hand and the Underwriter on the other hand from the
offering of the Securities or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company and the Guarantors on
the one hand and the Underwriter on the other hand in connection with the
statements or omissions that resulted in such losses, expenses, liabilities
or claims, as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Guarantors on the one hand
and the Underwriter on the other hand shall be deemed to be in the same
proportion as the total proceeds from the offering of the Securities (net of
underwriting discounts and commissions but before deducting expenses)
received by the Company bear to the total underwriting discounts and
commissions received by the Underwriter. The relative fault of the Company
and the Guarantors on the one hand and of the Underwriter on the other hand
shall be determined by reference to, among other things, whether the untrue
statement or alleged untrue statement of a material fact or omission or
alleged omission relates to information supplied by the Company, the
Guarantors or by the Underwriter and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the losses,
expenses, liabilities and claims referred to above shall be deemed to include
any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any claim or action.
(e) The Company, the Guarantors and the Underwriter agree that it would
not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to in Section
7(d) above. Notwithstanding the provisions of this Section 7, the
Underwriter shall not be required to contribute any amount in excess of the
underwriting discount received by it by reason of such untrue statement or
alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY.
The respective indemnity and contribution agreements contained in
Section 7, and the covenants, representations and warranties of the Company
and the Guarantors contained in this Agreement or contained in certificates
of officers of the Company or the Guarantors submitted pursuant hereto, shall
remain in full force and effect, regardless of any investigation, or
statement as to the results thereof, made by or on behalf of the Underwriter
or any of its officers, employees, directors, shareholders or any person who
controls the Underwriter, or by or on behalf of the Company or the Guarantors
or any of their respective officers or directors or any controlling person of
the Company or the Guarantors, and will survive delivery of and payment for
the Securities.
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SECTION 9. NOTICES.
All notices and other communications hereunder will be in writing and shall
be deemed to have been duly given if mailed or transmitted by standard form of
telecommunication. Notices to the Underwriter shall be directed to Jefferies &
Company, Inc. at 11100 Santa Monica Boulevard, Los Angeles, California 90071,
attn: Jerry Gluck, Esq., with a copy to Charles L. Strauss, Fulbright & Jaworski
L.L.P., 1301 McKinney, Suite 5100, Houston, Texas 77010-3095; and if sent to the
Company or the Guarantors, directed to RAM Energy, Inc., 5100 East Skelly Drive,
Suite 650, Tulsa, Oklahoma 74135, attn: Larry E. Lee, with a copy to Theodore M.
Elam, McAfee & Taft A Professional Corporation, 211 North Robinson, Suite 1000,
Oklahoma City, Oklahoma 73102.
SECTION 10. PARTIES.
This Agreement shall inure to the benefit of and be binding upon the
Underwriter, the Company and the Guarantors and their respective successors and
legal representatives. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to provide any person, firm or corporation, other
than the Underwriter, the Company and the Guarantors and their respective
successors and legal representatives and the controlling persons, officers,
employees, directors and shareholders referred to in Sections 7 and 8 and their
respective heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein or
therein contained. This Agreement and all conditions and provisions hereof are
intended to be for the sole and exclusive benefit of the Underwriter, the
Company and the Guarantors and their respective successors and legal
representatives, and such controlling persons, shareholders, officers and
directors and their respective heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities
from the Underwriter shall be deemed to be a successor by reason merely of such
purchase.
SECTION 11. GOVERNING LAW AND TIME.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to agreements made and to be performed
in such State. Specified times of day refer to New York time, unless otherwise
specified.
SECTION 12. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
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If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement among
the Company, the Guarantors and the Underwriter in accordance with its terms.
Very truly yours,
RAM ENERGY, INC.
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
RB OPERATING COMPANY
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
RLP GULF STATES, L.L.C.
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
JEFFERIES & COMPANY, INC.
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
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SCHEDULE 4.4
1. Lawsuit styled ROBERT HALL, ET AL., V. MAGIC CIRCLE ENERGY
CORPORATION, ET AL., Adversary Proceeding, Case No. 94-1365LN (other
case numbers assigned to this case as a result of apparent court clerk
error), in the United States Bankruptcy Court for the Western District
of Oklahoma.
2. Lawsuit styled ROBERT HALL V. MAGIC CIRCLE ENERGY CORPORATION, ET
AL, Case No. CJ-96-791-63, in the District Court of Oklahoma County,
Oklahoma.
3. Lawsuit styled MAGIC CIRCLE ENERGY CORPORATION, ET AL., V. DAVID W.
PREHN AND ELLIS & PREHN, P.C., Case No. 96-1212-B, in the District Court
of Nueces County, Texas.
4. Lawsuit styled STROMBERG V. CARLTON RESOURCES CORPORATION, case no.
CJ-97-8039 in the district court of Oklahoma County, Oklahoma.
5. The attorney representing Stromberg in #4 above also asserted a
claim against Carlton on behalf of Stromberg's son-in-law, Jeff Basch,
on the basis of an alleged agreement to employ him.
With respect to the related matters at 1 and 2 above (the "Hall
Litigation"), Sellers and Buyer have agreed as follows:
A. "Subject Amount" means the sum of all costs and expenses,
including judgments, settlement payments, attorneys' fees, court
costs, expert witness fees and other litigation expenses incurred
by both Sellers and Buyer in conjunction with the defense, handling,
settlement, trial, appeal or other proceedings in or relating to the
Hall Litigation subsequent to the Closing Date and prior to final
resolution thereof.
B. Sellers and Buyer (or the Company) will each pay one-half
of the Subject Amount to the extent of the first $100,000 so
incurred.
C. Sellers will indemnify and hold harmless Buyer from and with
respect to the entire Subject Amount to the extent the Subject
Amount exceeds $100,000. This indemnity is independent of the
indemnification provisions in Section 14.11.
D. Sellers shall be entitled to receive and retain the full
amount of any recovery in favor of the Company against the
plaintiff in the Hall Litigation to the extent such recovery exceeds
the portion of the Subject Amount paid by Buyer or the Company.
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
The undersigned, Larry E. Lee and John M. Longmire, certify that they are
the President and Secretary, respectively, of RAMCO Operating Company, formerly
known as RAMCO Holding Corp., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), and do hereby further certify
as follows:
1. The name of this Corporation is RAMCO Operating Company.
2. The name under which the Corporation was originally incorporated was
RAMCO Holding Corp. The original Certificate of Incorporation of the
Corporation was filed with the Secretary of State of Delaware on September 28,
1987, with amendments thereto filed on January 1, 1994 and August 9, 1994.
3. Certificates of Designation for Series A Preferred Stock and Series B
Preferred Stock were filed on October 1, 1987, Amended Certificates of
Designation were filed on July 17, 1995, and a Certificate of Correction was
filed on July 17, 1995. No shares of Series A Preferred Stock or Series B
Preferred Stock heretofore issued by the Corporation remain outstanding (or if
outstanding have been duly called for redemption) and no additional shares of
Series A Preferred Stock or Series B Preferred Stock subject to the previously
filed Certificates of Designation hereafter will be issued.
4. This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 242 and 245 of the
Delaware General Corporation Law (the "DGCL") by the written consent of the
holders of not less than a majority the outstanding stock of the Corporation
entitled to vote thereon, and written notice of the corporate action has been
given to the shareholders of the Corporation, if any, who have not so consented
in writing, all in accordance with the provisions of the DGCL.
5. The text of the Certificate of Incorporation of the Corporation is
amended and restated to read in its entirety as follows:
FIRST. The name of the Corporation is: RAM ENERGY, INC.
SECOND. The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, County of New
Castle, Wilmington, Delaware 19801. The name of the Corporation's registered
agent at such address is The Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the DGCL.
FOURTH. The total number of shares of capital stock which the Corporation
shall have authority to issue is 20,000,000 shares, divided into 15,000,000
shares designated as Common Stock, par value $.01 per share, and 5,000,000
shares designated as Preferred Stock, par value
<PAGE>
$.01 per share. The preferences, qualifications, limitations, restrictions
and the special or relative rights in respect of the shares of each class are
as follows:
PREFERRED.
The Preferred Stock may be issued from time to time in one or more series.
All shares of Preferred Stock shall be of equal rank and shall be identical,
except in respect of the matters that may be fixed and determined by the Board
of Directors of the Corporation (the "Board") as hereinafter provided, and each
share of each series shall be identical with all other shares of such series,
except as to the date from which dividends are cumulative, if applicable. The
Board hereby is authorized to cause such shares to be issued in one or more
series and with respect to each such series prior to the issuance thereof to fix
and determine the designation, powers, preferences and rights of the shares of
each such series and the qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each series shall include, but
not be limited to, determination of the following:
(a) The number of shares constituting that series and the distinctive
designation of that series;
(b) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges, and if so, the
terms and conditions of such conversion, including provisions for adjustment of
the conversion rate in such events as the Board shall determine;
(e) Whether or not shares of that series shall be redeemable, and if so,
the terms and conditions of such redemption, including the date or dates upon or
after which they shall be redeemable, and the amount per share payable in case
of redemption, which amount may vary under different conditions and at different
redemption dates;
(f) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and if so, the terms and amount of such
sinking fund;
(g) The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution and winding up of the Corporation, and the
relative rights of priority, if any, of payment of shares of that series; and
(h) Any other relative rights, preferences or limitations of that series.
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<PAGE>
Dividends on outstanding shares of Preferred Stock shall be paid or set
apart for payment before any dividends shall be paid or declared or set apart
for payment on the Common Stock with respect to the same dividend period.
If upon any voluntary or involuntary liquidation, dissolution or winding up
of the Corporation the assets available for distribution to holders of shares of
Preferred Stock of all series shall be insufficient to pay such holders the full
preferential amount to which they are entitled, then such assets shall be
distributed ratably among the shares of all series in accordance with the
respective preferential amounts (including unpaid cumulative dividends, if any)
payable with respect thereto.
COMMON.
Each of the shares of Common Stock of the Corporation shall be equal in all
respects to each other share. The holders of shares of Common Stock shall be
entitled to one vote for each share of Common Stock held with respect to all
matters as to which the Common Stock is entitled to be voted.
Subject to the preferential and other dividend rights applicable to
Preferred Stock, the holders of shares of Common Stock shall be entitled to
receive such dividends (payable in cash, stock or otherwise) as may be declared
on the Common Stock by the Board at any time or from time to time out of any
funds legally available therefor.
In the event of any voluntary or involuntary liquidation, distribution or
winding up of the Corporation, after distribution in full of the preferential
and/or other amounts to be distributed to the holders of shares of Preferred
Stock, the holders of shares of Common Stock shall be entitled to receive all of
the remaining assets of the Corporation available for distribution to its
shareholders, ratably in proportion to the number of shares of Common Stock held
by them.
FIFTH. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived any improper personal benefit. If
the DGCL is amended after approval by the stockholders of this article to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the DGCL, as
so amended.
SIXTH. For the purposes of this Section Sixth:
"Continuing Director" means any member of the Board who is unaffiliated
with the Interested Stockholder and was a member of the Board prior to the time
that the Interested Stockholder became an Interested Stockholder, and any
successor of a Continuing Director who
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<PAGE>
is unaffiliated with the Interested Stockholder and is recommended to succeed
a Continuing Director by a majority of Continuing Directors then on the Board.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means the highest closing price, during the 30-day
period ending on the date in question, of the Common Stock on the principal
securities exchange registered under the Exchange Act on which such stock is
listed, or in the national market system maintained by the National Association
of Securities Dealers, Inc., or, if the stock is not listed on any such exchange
or designated as a national market system security, the highest closing bid
quotation with respect to a share of such stock during the 30-day period ending
on the date in question on the National Association of Securities Dealers, Inc.
Automated Quotations System or any system then in use, or if no such quotations
are available, the fair market value on the date in question of a share of such
stock as determined by the Board in good faith.
"Interested Stockholder" has the meaning ascribed to such term under
Section 203 of the DGCL.
Any direct or indirect purchase by the Corporation, or any subsidiary of
the Corporation, of any Common Stock, or any securities convertible to Common
Stock, from a person or persons known by a majority of the Continuing Directors
of the Corporation to be an Interested Stockholder, or any agreement in respect
thereof, at a price in excess of the Fair Market Value shall require the
affirmative vote of not less than 66 2/3% of the votes cast by the holders of
all then outstanding shares of Common Stock, excluding for this purpose shares
of Common Stock owned beneficially by the Interested Stockholder, unless a
greater vote shall be required by law.
Such affirmative vote shall not be required for a purchase or other
acquisition of Common Stock, or any securities convertible to Common Stock,
pursuant to an offer made on substantially the same terms to all holders of
Common Stock, or securities convertible to Common Stock, and complying with
the applicable requirements of the Exchange Act and the rules and regulations
thereunder (or any subsequent provisions replacing the Exchange Act, rules or
regulations). Further, such affirmative vote shall not be required for any
purchase effected on the open market and not the result of a
privately-negotiated transaction.
The Continuing Directors of the Corporation shall have the power and duty
to determine for the purposes of this Section Sixth, on the basis of information
known to them after reasonable inquiry, whether a person is an Interested
Stockholder and the number of shares of Common Stock owned beneficially by any
person.
SEVENTH. The business and affairs of the Corporation shall be under the
direction of the Board.
The number of directors which shall constitute the Board (i) shall be not
less than three nor more than nine, and (ii) shall be determined by resolution
adopted either (A) by a vote of not less than two-thirds (2/3) of the members of
the Board then serving, or (B) at an annual or
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<PAGE>
special meeting of the shareholders of the Corporation by the affirmative
vote of the holders of not less than two-thirds (2/3) of the outstanding
stock entitled to vote for the election of directors. No reduction in the
number of directors shall have the effect of removing any director prior to
the expiration of such director's term.
The directors shall be divided into three classes, designated Class I,
Class II and Class III. Each class shall consist, as nearly as may be possible,
of one-third of the total number of directors constituting the entire Board.
The term of the initial Class I directors shall terminate on the date of the
1998 annual meeting of the shareholders of the Corporation (the "Annual
Meeting"), the term of the initial Class II directors shall terminate on the
date of the 1999 Annual Meeting, and the term of the initial Class III directors
shall terminate on the date of the 2000 Annual Meeting. At each Annual Meeting
beginning in 1998, successors to the class of directors whose term expires at
that Annual Meeting shall be elected for a three-year term. If the number of
directors is changed, any increase or decrease shall be apportioned by the Board
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional directors of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class. A director
shall hold office until the Annual Meeting for the year in which such director's
term expires and until such director's successor shall be elected and shall
qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Any vacancy on the Board, however, may
be filled by a majority of the directors then in office, even if less than a
quorum, or by the sole remaining director.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at any Annual
Meeting or any special meeting of the shareholders of the Corporation, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of the Certificate of Designation
attributable to such Preferred Stock or the resolution or resolutions adopted by
the Board pursuant to this Section, and such directors so elected shall not be
divided into classes pursuant to this Section unless expressly provided by such
terms.
Election of directors need not be by written ballot unless otherwise
provided in the Bylaws.
EIGHTH. The Corporation shall indemnify the following persons in the
following manner:
(a) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit, proceeding or investigation, whether civil, criminal or
administrative, and whether external or internal to the Corporation (other than
a judicial action or suit brought by or in the right of the Corporation), by
reason of the fact that such person is or was a director, officer, employee,
trustee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, trustee or agent of another
corporation, partnership, joint venture, trust or other
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<PAGE>
enterprise (all such persons being referred to hereafter as an "Agent"),
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by the Agent in
connection with such action, suit or proceeding if the Agent acted in good
faith and in a manner the Agent reasonably believed to be in or not opposed
to the best interests of the Corporation, and with respect to any criminal
action or proceeding, had no reasonable cause to believe the Agent's conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that (i) the Agent did
not act in good faith and in a manner which the Agent reasonably believed to
be in or not opposed to the best interests of the Corporation, or (ii) with
respect to any criminal action or proceeding, that the Agent had reasonable
cause to believe that the Agent's conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
judicial action or suit brought by or in the right of the Corporation to procure
a judgment in its favor by reason of the fact that such person is or was an
Agent (as defined above) against expenses (including attorneys' fees), actually
and reasonably incurred by the Agent in connection with the defense or
settlement of such action or suit if the Agent acted in good faith and in a
manner the Agent reasonably believed to be in or not opposed to the best
interests of the Corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which the Agent shall have been
adjudged to be liable for gross negligence or misconduct in the performance of
the Agent's duty to the Corporation, unless and only to the extent that the
Court of Chancery, or the court in which such action or suit was brought, shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, the Agent is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or other
such court shall deem proper.
(c) Any indemnification under Subsection (a) or (b) of this Section
(unless ordered by a court) shall be made by the Corporation unless a
determination is reasonably and promptly made (i) by the Board by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or (ii) if such a quorum is not obtainable or, even if
obtainable, if a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (iii) by the stockholders, that either
(y) the Agent did not act in good faith and in a manner which the Agent
reasonably believed to be in or not opposed to the best interests of the
Corporation, or (z) with respect to any criminal action or proceeding, that the
Agent had reasonable cause to believe that the Agent's conduct was unlawful.
(d) Notwithstanding the other provisions of this Section, to the
extent that an Agent has been successful on the merits or otherwise, including
the dismissal of an action without prejudice or the settlement of an action
without admission of liability, in defense of any proceeding or in defense of
any claim, issue or matter therein, such Agent shall be indemnified against all
expenses incurred in connection therewith.
(e) Except as limited by this Subsection (e), expenses incurred in
any action, suit, proceeding or investigation shall be paid by the Corporation
in advance of the final
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<PAGE>
disposition of such matter, if the Agent shall undertake to repay such amount
in the event that it is ultimately determined, as provided herein, that the
Agent is not entitled to indemnification. Notwithstanding the foregoing, no
advance shall be made by the Corporation if a determination is reasonably and
promptly made by the Board by a majority vote of a quorum of disinterested
directors, or (if such a quorum is not obtainable or, even if obtainable, a
quorum of disinterested-directors so directs) by independent legal counsel in
a written opinion, that, based upon the facts known to the Board or counsel
at the time such determination is made, the Agent acted in bad faith and in a
manner that the Agent did not believe to be in or not opposed to the best
interest of the Corporation, or, with respect to any criminal proceeding,
that Agent believed or had reasonable cause to believe the Agent's conduct
was unlawful. In no event shall any advance be made in instances where the
Board or independent legal counsel reasonably determines that the Agent
deliberately breached the Agent's duty to the Corporation or its shareholders.
(f) Any indemnification or advance under Subsections (a), (b), (c),
(d) or (e) of this Section shall be made promptly, and in any event within
ninety (90) days, upon the written request of the Agent, unless with respect to
applications under Subsections (a), (b), (c) or (e) of this Section, a
determination is reasonably and promptly made by the Board by a majority vote of
a quorum of disinterested directors that such Agent acted in a manner set forth
in such Subsections as to justify the Corporation in not indemnifying or making
an advance to the Agent. In the event no quorum of disinterested directors is
obtainable, the Board shall promptly direct that independent legal counsel shall
decide whether the Agent acted in the manner set forth in such Subsections as to
justify the Corporation not indemnifying or making an advance to the Agent. The
right to indemnification or advances as granted by this Section shall be
enforceable by the Agent in any court of competent jurisdiction, if the Board or
independent legal counsel denies the claim, in whole or in part, or if no
disposition of such claim is made within ninety (90) days. The Agent's expenses
incurred in connection with successfully establishing the Agent's right to
indemnification, in whole or in part, in any such proceeding shall also be
indemnified by the Corporation.
(g) The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which an Agent seeking indemnification may be
entitled under any Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in the Agent's official capacity and
as to action in another capacity while holding such office, and shall continue
as to a person who has ceased to be an Agent and shall inure to the benefit of
the heirs, executors and administrators of such a person. All rights to
indemnification under this Section shall be deemed to be provided by a contract
between the Corporation and the Agent who serves in such capacity at any time
while this Amended and Restated Certificate of Incorporation and the relevant
provisions of the DGCL and other applicable law, if any, are in effect. Any
repeal or modification thereof shall not affect any rights or obligations then
existing.
(h) Upon resolution passed by the Board, the Corporation may purchase
and maintain insurance on behalf of any person who is or was an Agent against
any liability asserted against such Agent and incurred by such Agent in any such
capacity, or arising out of the Agent's status as such, whether or not the
Corporation would have the power to indemnify the Agent against such liability
under the provisions of this Section.
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<PAGE>
(i) For the purposes of this Section, references to "the Corporation"
include all constituent corporations absorbed in a consolidation or merger as
well as the resulting or surviving corporation, so that any person who is or was
a director, officer, employee, trustee or agent of such a constituent
corporation or is or was serving at the request of such constituent corporation
as a director, officer, employee, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Section with respect to the resulting or
surviving corporation as such person would if such person had served the
resulting or surviving corporation in the same capacity.
(j) For purposes of this Section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee, trustee or agent of the Corporation
which imposes duties on, or involves services by, such director, officer,
employee, trustee or agent with respect to any employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner such person reasonable believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Section.
(k) If this Section or any portion thereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each Agent as to expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement with respect to any action,
suit, proceeding or investigation, whether civil, criminal or administrative,
and whether internal or external, including a grand jury proceeding and an
action or suit brought by or in the right of the Corporation, to the full extent
permitted by any applicable portion of this Section that shall not have been
invalidated, or by any other applicable agreement or law.
(l) The rights of indemnity created by this Section are and shall be
at all times subordinate to the right of prior payment of all obligations of the
Corporation for borrowed money to the extent they are due and payable at the
time any payment under this Section shall be due and payable.
NINTH. In furtherance and not in limitation of the powers conferred by
statute, the Board is expressly authorized to make, repeal, alter, amend and
rescind the Bylaws of the Corporation as set forth in the Bylaws.
TENTH. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code, or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279
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of Title 8 of the Delaware Code, order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths in value
of the creditors or class of creditors, and/or of the stockholders or class
of stockholders of this Corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of this Corporation as a
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders,
of this Corporation, as the case may be, and also on this Corporation.
ELEVENTH. The Corporation reserves, subject to the provisions of the
DGCL or any other applicable statute, the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation in the manner now or hereafter prescribed by statute, and all
rights conferred upon shareholders herein are granted subject to this
reservation. Notwithstanding anything contained in this Amended and Restated
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the issued
and outstanding stock of this Corporation having voting power, voting
together as a single class, shall be required to amend, repeal or adopt any
provisions inconsistent with Sections Fifth, Sixth, Seventh, Eighth and
Eleventh of this Amended and Restated Certificate of Incorporation.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by Larry E. Lee, its President, and
attested by John M. Longmire, its Secretary, this 29th day of December, 1997.
/s/ Larry E. Lee
--------------------------------------
Larry E. Lee, President
ATTEST:
/s/ John M. Longmire
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John M. Longmire, Secretary
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RAM ENERGY, INC.
(A DELAWARE CORPORATION)
AMENDED AND RESTATED BYLAWS
(INCLUDING ALL AMENDMENTS THROUGH
DECEMBER 31, 1997)
ARTICLE I
OFFICES
SECTION 1.01 REGISTERED OFFICE. The registered office of RAM Energy,
Inc. (hereinafter called the Corporation) in the State of Delaware shall be
at Corporation Trust Center, 1209 Orange Street, City of Wilmington, County
of New Castle, and the name of the registered agent in charge thereof shall
be The Corporation Trust Company.
SECTION 1.02 OTHER OFFICES. The Corporation may also have an office
or offices at such other place or places, either within or without the State
of Delaware, as the Board of Directors (hereinafter called the Board) may
from time to time determine or as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01 ANNUAL MEETINGS. Annual meetings of the stockholders of
the Corporation for the purpose of electing directors and for the transaction
of such other proper business as may come before such meetings may be held at
such time, date and place as the Board shall determine by resolution.
SECTION 2.02 SPECIAL MEETINGS. A special meeting of the stockholders
for the transaction of any proper business may be called at any time by the
Board or by the President.
SECTION 2.03 PLACE OF MEETINGS. All meetings of the stockholders
shall be held at such places, within or without the State of Delaware, as may
from time to time be designated by the person or persons calling the
respective meeting and specified in the respective notices or waivers of
notice thereof.
SECTION 2.04 NOTICE OF MEETINGS. Except as otherwise required by law,
notice of each meeting of the stockholders, whether annual or special, shall
be given not less than ten (10) nor more than sixty (60) days before the date
of the meeting to each stockholder of record entitled to vote at such meeting
by delivering a typewritten or printed notice thereof to such stockholder
personally, or by depositing such notice in the United States mail, in a
postage
<PAGE>
prepaid envelope, directed to such stockholder at such stockholder's address
as it appears on the records of the Corporation. Except as otherwise
expressly required by law, no publication of any notice of a meeting of the
stockholders shall be required. Every notice of a meeting of the
stockholders shall state the place, date and hour of the meeting, and, in the
case of a special meeting, shall also state the purpose or purposes for which
the meeting is called. Notice of any meeting of stockholders shall not be
required to be given to any stockholder who shall have waived such notice and
such notice shall be deemed waived by any stockholder who shall attend such
meeting in person or by proxy, except any stockholder who shall attend such
meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Except as otherwise expressly required by law,
notice of any adjourned meeting of the stockholders need not be given if the
time and place thereof are announced at the meeting at which the adjournment
is taken.
SECTION 2.05 QUORUM. Except in the case of any meeting for the
election of directors summarily ordered as provided by law, the holders of
record of a majority in voting interest of the shares of stock of the
Corporation entitled to be voted thereat, present in person or by proxy,
shall constitute a quorum for the transaction of business at any meeting of
the stockholders of the Corporation or any adjournment thereof. In the
absence of a quorum at any meeting or any adjournment thereof, a majority in
voting interest of the stockholders present in person or by proxy and
entitled to vote thereat or, in the absence therefrom of all the
stockholders, any officer entitled to preside at, or to act as secretary of,
such meeting may adjourn such meeting from time to time. At any such
adjourned meeting at which a quorum is present any business may be transacted
which might have been transacted at the meeting as originally called.
SECTION 2.06 VOTING.
(a) Each stockholder shall, at each meeting of the stockholders, be
entitled to vote in person or by proxy each share or fractional share of the
stock of the Corporation having voting rights on the matter in question and
which shall have been held by such stockholder and registered in such
stockholder's name on the books of the Corporation:
(i) On the date fixed pursuant to Section 6.05 of these Bylaws as
the record date for the determination of stockholders entitled to notice of
and to vote at such meetings, or
(ii) if no such record date shall have been so fixed, then (A) at
the close of business on the day next preceding the day on which notice of
the meeting shall be given or (B) if notice of the meeting shall be waived,
at the close of business on the day next preceding the day on which the
meeting shall be held.
(b) Shares of its own stock belonging to the Corporation, or to another
corporation if a majority of the shares entitled to vote for the election of
directors in such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary
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capacity shall be entitled to vote such stock. Persons whose stock is
pledged shall be entitled to vote, unless in the transfer by the pledgor on
the books of the Corporation the pledgor shall have expressly empowered the
pledgee to vote thereon, in which case only the pledgee, or the pledgee's
proxy, may represent such stock and vote thereon. Stock having voting power
standing of record in the names of two or more persons, whether fiduciaries,
members of a partnership, joint tenants, tenants in common, tenants by
entirety or otherwise, or with respect to which two or more persons have the
same fiduciary relationship, shall be voted in accordance with the provisions
of the General Corporation Law of the State of Delaware.
(c) Any such voting rights may be exercised by the stockholder entitled
thereto in person or by such stockholder's proxy appointed by an instrument
in writing, subscribed by such stockholder or by such stockholder's attorney
thereunto authorized and delivered to the secretary of the meeting; provided,
however, that no proxy shall be voted or acted upon after three years from
its date unless said proxy shall provide for a longer period. The attendance
at any meeting of a stockholder who may theretofore have given a proxy shall
not have the effect of revoking the same unless such stockholder shall in
writing so notify the secretary of the meeting prior to the voting of the
proxy. At any meeting of the stockholders all matters, except as otherwise
provided in the Certificate of Incorporation, in these Bylaws or by law,
shall be decided by the vote of a majority in voting interest of the
stockholders present in person or by proxy and entitled to vote thereat and
thereon, a quorum being present. The vote at any meeting of the stockholders
on any question need not be by ballot, unless so directed by the chairman of
the meeting. On a vote by ballot each ballot shall be signed by the
stockholder voting, or by such stockholder's proxy, if there be such proxy,
and it shall state the number of shares voted.
SECTION 2.07 LIST OF STOCKHOLDERS. The Secretary of the Corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
SECTION 2.08 JUDGES. If at any meeting of the stockholders a vote by
written ballot shall be taken on any question, the chairman of such meeting
may appoint a judge or judges to act with respect to such vote. Each judge
so appointed shall first subscribe an oath faithfully to execute the duties
of a judge at such meeting with strict impartiality and according to the best
of his ability. Such judges shall decide upon the qualification of the
voters and shall report the number of shares represented at the meeting and
entitled to vote on such question, shall conduct and accept the votes, and,
when the voting is completed, shall ascertain and report the number of shares
voted respectively for and against the question. Reports of judges shall be
in writing and subscribed and delivered by them to the Secretary of the
Corporation. The judges need not be stockholders of the Corporation, and any
officer of the Corporation may be a judge
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on any question other than a vote for or against a proposal in which such
judge shall have a material interest.
SECTION 2.09 ACTION WITHOUT MEETING. Any action required to be taken
or which may be taken at any annual or special meeting of stockholders of the
Corporation 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 holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01 GENERAL POWERS. The property, business and affairs of
the Corporation shall be managed by the Board.
SECTION 3.02 NUMBER AND TERM OF OFFICE. The number and term of office
of the directors shall be determined in accordance with the Corporation's
Certificate of Incorporation.
SECTION 3.03 ELECTION OF DIRECTORS. All elections of directors shall
be decided by a majority in voting interest of the stockholders present in
person or by proxy and entitled to vote thereon at the meeting at which such
election is held, a quorum being present.
SECTION 3.04 CHAIRMAN OF THE BOARD. The members of the Board shall
elect one of such members to serve as the Chairman of the Board of the
Corporation. The Chairman of the Board shall serve in such capacity until
such person resigns, is removed from the Board or is replaced by the majority
vote of the Board.
SECTION 3.05 RESIGNATIONS. Any director of the Corporation may resign
at any time by giving written notice to the Board or to the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified, it shall take effect immediately
upon its receipt; and unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
SECTION 3.06 VACANCIES. Except as otherwise provided in the
Certificate of Incorporation, any vacancy in the Board, whether because of
death, resignation, disqualification, an increase in the authorized number of
directors, or any other cause, may be filled by vote of the majority of the
remaining directors, although less than a quorum. Each director so chosen to
fill a vacancy shall hold office until such director's successor shall have
been elected and shall qualify or until such director shall resign or shall
have been removed in the manner hereinafter provided.
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SECTION 3.07 PLACE OF MEETING, ETC. The Board may hold any of its
meetings at such place or places within or without the State of Delaware as
the Board may from time to time by resolution designate or as shall be
designated by the person or persons calling the meeting or in the notice or a
waiver of notice of any such meeting. Directors may participate in any
regular or special meeting of the Board by means of conference telephone or
similar communications equipment pursuant to which all persons participating
in the meeting of the Board can hear each other, and such participation shall
constitute presence in person at such meeting.
SECTION 3.08 FIRST MEETING. The Board shall meet as soon as
practicable after each annual election of directors and notice of such first
meeting shall not be required.
SECTION 3.09 REGULAR MEETINGS. Regular meetings of the Board may be
held at such times as the Board shall from time to time by resolution
determine. If any day fixed for a regular meeting shall be a legal holiday
at the place where the meeting is to be held, then the meeting shall be held
at the same hour and place on the next succeeding business day not a legal
holiday. Except as provided by law, notice of regular meetings need not be
given.
SECTION 3.10 SPECIAL MEETINGS. Special meetings of the Board shall be
held whenever called by the President, the Chairman or a majority of the
directors then in office. Except as otherwise provided by law or by these
Bylaws, notice of the time and place of each such special meeting shall be
mailed to each director, addressed to such director's residence or usual
place of business, at least five (5) days before the day on which the meeting
is to be held, or shall be given by telephonic notice at least twenty-four
(24) hours before the time of such scheduled meeting. Except where otherwise
required by law or by these Bylaws, notice of the purpose of a special
meeting need not be given. Notice of any meeting of the Board shall not be
required to be given to any director who is present at such meeting, except a
director who shall attend such meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because
the meeting is not lawfully called or convened.
SECTION 3.11 QUORUM AND MANNER OF ACTING. Except as otherwise
provided in the Certificate of Incorporation, these Bylaws or by law, the
presence of a majority of directors then in office shall be required to
constitute a quorum for the transaction of business at any meeting of the
Board, and all matters shall be decided at any such meeting, a quorum being
present, by the affirmative votes of a majority of the directors present. In
the absence of a quorum, a majority of directors present at any meeting may
adjourn the same from time to time until a quorum shall be present. Notice
of any adjourned meeting need not be given. The directors shall act only as
a Board, and the individual directors shall have no power as such.
SECTION 3.12 ACTION BY CONSENT. Any action required or permitted to
be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of
the Board or of such committee, as the case may be, and such written consent
is filed with the minutes of proceedings of the Board or committee.
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SECTION 3.13 REMOVAL OF DIRECTORS. A director may be removed from
office for cause by the affirmative vote of a majority in voting interest of
the stockholders present in person or by proxy and entitled to vote thereon
at any special meeting of the stockholders called for such purpose, a quorum
being present.
SECTION 3.14 COMPENSATION. The directors shall receive only such
compensation for their services as directors as may be allowed by resolution
of the Board. The Board may also provide that the Corporation shall
reimburse each such director for any expense incurred by such director on
account of such director's attendance at any meetings of the Board or
committees of the Board. Neither the payment of such compensation nor the
reimbursement of such expenses shall be construed to preclude any director
from serving the Corporation or its subsidiaries in any other capacity and
receiving compensation therefor.
SECTION 3.15 COMMITTEES. The Board 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. Any such
committee, to the extent provided in the resolution of the Board, shall have
and may exercise all the powers and authority of the Board in the management
of the business and affairs of the Corporation. Any such committee shall
keep written minutes of its meetings and report the same to the Board at the
next regular meeting of the Board. 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 constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member.
SECTION 3.16 ADVISORY COMMITTEE. The Board may appoint such person or
persons as it may select to an advisory committee to the Board who shall be
authorized to participate in such meetings of the Board as determined by it.
Once established, this advisory committee shall be known as the Advisory
Board. Members of the Advisory Board shall not have the rights or obligations
of members of the Board and shall not participate in any voting thereof.
Members of the Advisory Board shall be entitled to such compensation as the
Board may determine from time to time.
ARTICLE IV
OFFICERS
SECTION 4.01 NUMBER. The officers of the Corporation shall be a
Chairman of the Board, a President, one or more Vice Presidents (the number
thereof and their respective titles to be determined by the Board), a
Secretary and a Treasurer.
SECTION 4.02 ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The
officers of the Corporation, except such officers as may be appointed in
accordance with Section 4.03, shall be elected annually by the Board at the
first meeting thereof held after the election thereof. Each officer shall
hold office until a successor shall have been duly chosen and shall qualify
or until such officer's resignation or removal in the manner hereinafter
provided.
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SECTION 4.03 ASSISTANTS, AGENTS AND EMPLOYEES, ETC. In addition to
the officers specified in Section 4.01, the Board may appoint other
assistants, agents and employees as it may deem necessary or advisable,
including one or more Assistant Secretaries, and one or more Assistant
Treasurers, each of whom shall hold office for such period, have such
authority, and perform such duties as the Board may from time to time
determine. The Board may delegate to any officer of the Corporation or any
committee of the Board the power to appoint, remove and prescribe the duties
of any such assistants, agents or employees.
SECTION 4.04 REMOVAL. Any officer, assistant, agent or employee of
the Corporation may be removed, with or without cause, at any time (i) in the
case of an officer, assistant, agent or employee elected by the Board, only
by resolution of the Board, and (ii) in the case of any other officer,
assistant, agent or employee, by any officer of the Corporation or committee
of the Board upon whom or which such power of removal may be conferred by the
Board.
SECTION 4.05 RESIGNATIONS. Any officer or assistant may resign at any
time by giving written notice of resignation to the Board or the Secretary of
the Corporation. Any such resignation shall take effect at the time
specified therein, or, if the time be not specified, upon receipt thereof by
the Board or the Secretary, as the case may be; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary
to make it effective.
SECTION 4.06 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or other cause, may be filled for the
unexpired portion of the term thereof in the manner prescribed in these
Bylaws for regular appointments or elections to such office.
SECTION 4.07 THE CHAIRMAN OF THE BOARD. The Chairman of the Board
shall preside at all meetings of the shareholders, of the Board and of all
committees of which he is a member. He shall have such power and perform
such duties as may be authorized by the Board.
SECTION 4.08 THE PRESIDENT AND CHIEF EXECUTIVE OFFICER. The President
shall be the chief executive officer of the Corporation. The President (i)
shall have the overall supervision of the business of the Corporation and
shall direct the affairs and policies of the Corporation, subject to any
directions which may be given by the Board, (ii) shall have authority to
designate the duties and powers of officers (other than the Chairman) and
delegate special powers and duties to specified officers, so long as such
designations shall not be inconsistent with the laws of the State of
Delaware, these Bylaws or any action of the Board, and (iii) shall, in
general, have all other powers and shall perform all other duties incident to
the chief executive officer of a corporation and such other powers and duties
as may be prescribed by the Board from time to time.
SECTION 4.09 THE VICE PRESIDENTS. Each Vice President shall have such
powers and perform such duties as the President or the Board may from time to
time prescribe. At the request of the President, or in case of the
President's absence or inability to act upon the
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request of the Board, a Vice President shall perform the duties of the
President and when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the President.
SECTION 4.10 THE SECRETARY. The Secretary (i) shall, if present,
record the proceedings of all meeting of the Board, of the stockholders, and
of all committees of which a secretary shall not have been appointed, in one
or more books provided for that purpose, (ii) shall see that all notices are
duly given in accordance with these Bylaws and as required by law, (iii)
shall be custodian of the seal of the Corporation and shall affix and attest
the seal to all documents to be executed on behalf of the Corporation under
its seal, and (iv) shall, in general, perform all the duties incident to the
office of Secretary and such other duties as may from time to time be
assigned by the Board.
SECTION 4.11 THE TREASURER. The Treasurer (i) shall have the general
care and custody of the funds and securities of the Corporation and shall
deposit all such funds in the name of the Corporation in such banks, trust
companies or other depositories as shall be selected by the Board, (ii) shall
receive, and give receipts for, moneys due and payable to the Corporation
from any source whatsoever, (iii) shall exercise general supervision over
expenditures and disbursements made by officers, agents and employees of the
Corporation and the preparation of such records and reports in connection
therewith as may be necessary or desirable, and (iv) shall, in general,
perform all other duties incident to the office of Treasurer and such other
duties as from time to time may be assigned by the Board.
SECTION 4.12 COMPENSATION. The compensation of the officers of the
Corporation shall be fixed from time to time by the Board.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 5.01 EXECUTION OF CONTRACTS. The Board, except as otherwise
provided in these Bylaws, may authorize any officer or officers, agent or
agents, to enter into any contract or execute any instrument in the name of
and on behalf of the Corporation, and such authority may be general or
confined to specific instances; and unless so authorized by the Board or by
these Bylaws, no officer, agent or employee shall have any power or authority
to bind the Corporation by any material contract or to incur on behalf of the
Corporation any indebtedness for borrowed money in any material amount.
SECTION 5.02 CHECKS, DRAFTS, ETC. All checks, drafts or other orders
for payment of money, notes or other evidence of indebtedness, issued in the
name of or payable to the Corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be
determined by resolution of the Board. Each such officer, assistant, agent
or attorney shall give such bond, if any, as the Board may require.
SECTION 5.03 DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the
Corporation in such banks,
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trust companies or other depositories as the Board may select, or as may be
selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. For the purpose of deposit and for the
purpose of collection for the account of the Corporation, the President, any
Vice President or the Treasurer (or any other officer or officers, assistant
or assistants, agent or agents, or attorney or attorneys of the Corporation
who shall from time to time be determined by the Board) may endorse, assign
and deliver checks, drafts and other orders for the payment of money which
are payable to the order of the Corporation.
SECTION 5.04 GENERAL AND SPECIAL BANK ACCOUNTS. The Board may from
time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board
may select or as may be selected by any officer or officers, assistant or
assistants, agent or agents, or attorney or attorneys of the Corporation to
whom such power shall have been delegated by the Board. The Board may make
such special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of these Bylaws, as it may deem expedient.
ARTICLE VI
SHARES AND THEIR TRANSFER
SECTION 6.01 CERTIFICATES FOR STOCK. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe, certifying the number and class of
shares of the stock of the Corporation owned by such stockholder. The
certificates representing shares of such stock shall be numbered in the order
in which they shall be issued and shall be signed in the name of the
Corporation by the President or a Vice President, and by the Secretary or an
Assistant Secretary or by the Treasurer or an Assistant Treasurer. Any of or
all of the signatures on the certificates may be a facsimile. In case any
officer, transfer agent or registrar who has signed, or whose facsimile
signature has been placed upon, any such certificate, shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued,
such certificate may nevertheless be issued by the Corporation with the same
effect as though the person who signed such certificate, or whose facsimile
signature shall have been placed thereupon, were such officer, transfer agent
or registrar at the date of issue. A record shall be kept of the respective
names of the persons, firms or corporations owning the stock represented by
such certificates, the number and class of shares represented by such
certificates, respectively, and the respective dates thereof, and in case of
cancellation, the respective dates of cancellation. Every certificate
surrendered to the Corporation for exchange or transfer shall be cancelled,
and no new certificate or certificates shall be issued in exchange for any
existing certificate until such existing certificate shall have been so
cancelled, except in cases provided for in Section 6.04.
SECTION 6.02 TRANSFERS OF STOCK. Transfers of shares of stock of the
Corporation shall be made only on the books of the Corporation by the
registered holder thereof, or by his attorney thereunto authorized by power
of attorney duly executed and filed with the Secretary, or with a transfer
clerk or a transfer agent appointed as provided in Section 6.03, and
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upon surrender of the certificate or certificates for such shares properly
endorsed and the payment of all taxes thereon. The person in whose name
shares of stock stand on the books of the Corporation shall be deemed the
owner thereof for all purposes as regards the Corporation. Whenever any
transfer of shares shall be made for collateral security, and not absolutely,
such fact shall be so expressed in the entry of transfer if, when the
certificate or certificates shall be presented to the Corporation for
transfer, both the transferor and the transferee request the Corporation to
do so.
SECTION 6.03 REGULATIONS. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with these Bylaws,
concerning the issue, transfer and registration of certificates for shares of
the stock of the Corporation. The Board may appoint, or authorize any
officer or officers to appoint, one or more transfer clerks or one or more
transfer agents and one or more registrars, and may require all certificates
for stock to bear the signature or signatures of any of them.
SECTION 6.04 LOST, STOLEN, DESTROYED, AND MUTILATED CERTIFICATES. In
any case of loss, theft, destruction, or mutilation of any certificate of
stock, another may be issued in its place upon proof of such loss, theft,
destruction, or mutilation and upon the giving of a bond of indemnity to the
Corporation in such form and in such sum as the Board may direct; provided,
however, that a new certificate may be issued without requiring any bond
when, in the judgment of the Board, it is proper to do so.
SECTION 6.05 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment
thereof, 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 other change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board may fix, in advance, a record date, which
shall not be more than sixty (60) nor less than ten (10) days before the date
of such meeting, nor more than sixty (60) days nor less than ten (10) days
prior to any other action. If no record date is fixed by the Board, the
record date for determining shareholders entitled to notice of or to vote at
a meeting of shareholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of such meeting;
provided, however, that the Board may fix a new record date for the adjourned
meeting.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01 SEAL. The Board shall, if required by the laws of any
applicable jurisdiction, adopt a corporate seal, which shall be in the form
of a circle and shall
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bear the name of the Corporation and showing that the Corporation was
incorporated in the State of Delaware.
SECTION 7.02 WAIVER OF NOTICES. Whenever notice is required to be
given by these Bylaws or the Certificate of Incorporation or by law, the
person entitled to said notice may waive such notice in writing, either
before or after the time stated therein, and such waiver shall be deemed
equivalent to notice.
SECTION 7.03 AMENDMENTS. Except otherwise set forth in the
Corporation's Certificate of Incorporation, these Bylaws, or any of them, may
be altered, amended or repealed, and new Bylaws may be made (i) by the Board,
by vote of a majority of the number of directors then in office, or (ii) by
the stockholders, at any annual meeting of stockholders, without previous
notice, or at any special meeting of stockholders, provided that notice of
such proposed amendment, modification, repeal or adoption is given in the
notice of special meeting. Any Bylaws made or altered by the stockholders
may be altered or repealed by either the Board or the stockholders in
accordance with the Corporation's Certificate of Incorporation and these
Bylaws.
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RAM ENERGY, INC.
AND
SUBSIDIARY GUARANTORS
INDENTURE
Dated as of February ______, 1998
UNITED STATES TRUST COMPANY OF NEW YORK
Trustee
________% SENIOR NOTES DUE 2008
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CROSS REFERENCE TABLE*
TRUST INDENTURE ACT SECTION INDENTURE SECTION
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.10
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.10
(a)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
(a)(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
311(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
312(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.3
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.3
313(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(b)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(b)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6;7.7
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.6;11.2
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
314(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.3;11.2
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.12
(c)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.4
(c)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.4
(c)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.3;11.4;11.5
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.5
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
315(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.5;11.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.11
316 (a)(last sentence). . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.12
317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
318(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.1
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.1
N.A. means not applicable.
*This Cross Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . 1
SECTION 1.1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2 OTHER DEFINITIONS. . . . . . . . . . . . . . . . . . . . 18
SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. . . . 18
SECTION 1.4 RULES OF CONSTRUCTION. . . . . . . . . . . . . . . . . . 19
ARTICLE 2
THE NOTES. . . . . . . . . . . . . . . . 20
SECTION 2.1 FORM AND DATING. . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.2 EXECUTION AND AUTHENTICATION . . . . . . . . . . . . . . 21
SECTION 2.3 REGISTRAR AND PAYING AGENT; DEPOSITORY APPOINTMENT . . . 22
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST. . . . . . . . . . . 22
SECTION 2.5 HOLDER LISTS . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.6 TRANSFER AND EXCHANGE. . . . . . . . . . . . . . . . . . 23
SECTION 2.7 REPLACEMENT NOTES. . . . . . . . . . . . . . . . . . . . 25
SECTION 2.8 OUTSTANDING NOTES. . . . . . . . . . . . . . . . . . . . 25
SECTION 2.9 TREASURY NOTES . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.10 TEMPORARY NOTES. . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.11 CANCELLATION . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.12 DEFAULTED INTEREST . . . . . . . . . . . . . . . . . . . 26
SECTION 2.13 CUSIP NUMBERS. . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 3
REDEMPTION AND PREPAYMENT. . . . . . . . . . . . 27
SECTION 3.1 NOTICES TO TRUSTEE . . . . . . . . . . . . . . . . . . . 27
SECTION 3.2 SELECTION OF NOTES TO BE REDEEMED. . . . . . . . . . . . 27
SECTION 3.3 NOTICE OF REDEMPTION . . . . . . . . . . . . . . . . . . 27
SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION . . . . . . . . . . . . . 28
SECTION 3.5 DEPOSIT OF REDEMPTION PRICE. . . . . . . . . . . . . . . 28
SECTION 3.6 NOTES REDEEMED IN PART . . . . . . . . . . . . . . . . . 29
SECTION 3.7 OPTIONAL REDEMPTION. . . . . . . . . . . . . . . . . . . 29
SECTION 3.8 MANDATORY REDEMPTION . . . . . . . . . . . . . . . . . . 29
SECTION 3.9 OFFER TO PURCHASE BY APPLICATION OF EXCESS CASH. . . . . 30
ARTICLE 4
COVENANTS. . . . . . . . . . . . . . . . 31
SECTION 4.1 PAYMENT OF NOTES . . . . . . . . . . . . . . . . . . . . 31
SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY. . . . . . . . . . . . . 32
SECTION 4.3 REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 4.4 COMPLIANCE CERTIFICATE . . . . . . . . . . . . . . . . . 33
SECTION 4.5 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 4.6 STAY, EXTENSION AND USURY LAWS . . . . . . . . . . . . . 34
SECTION 4.7 LIMITATION ON INCURRENCES OF ADDITIONAL INDEBTEDNESS
AND ISSUANCES OF DISQUALIFIED CAPITAL STOCK. . . . . . . 34
SECTION 4.8 LIMITATION ON RESTRICTED PAYMENTS. . . . . . . . . . . . 35
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SECTION 4.9 LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES OF THE COMPANY . . . . 37
SECTION 4.10 LIMITATION ON TRANSACTION WITH AFFILIATES. . . . . . . . 37
SECTION 4.11 LIMITATION ON ASSET SALES. . . . . . . . . . . . . . . . 38
SECTION 4.12 LIMITATION ON LIENS. . . . . . . . . . . . . . . . . . . 39
SECTION 4.13 LIMITATION ON LINE OF BUSINESS . . . . . . . . . . . . . 39
SECTION 4.14 DESIGNATION OF UNRESTRICTED SUBSIDIARIES . . . . . . . . 39
SECTION 4.15 LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF
RESTRICTED SUBSIDIARIES OF THE COMPANY . . . . . . . . . 40
SECTION 4.16 OWNERSHIP AND RECOGNITION OF SUBSIDIARIES; FUTURE
GUARANTORS . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 4.17 OFFER TO REPURCHASE UPON CHANGE OF CONTROL . . . . . . . 41
SECTION 4.18 DISCHARGE OF CERTAIN PREFERRED STOCK . . . . . . . . . . 42
ARTICLE 5
SUCCESSORS. . . . . . . . . . . . . . . . 42
SECTION 5.1 LIMITATION ON MERGER OR SALE OR CONSOLIDATION. . . . . . 42
SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED. . . . . . . . . . . . 43
ARTICLE 6
DEFAULTS AND REMEDIES. . . . . . . . . . . . . 43
SECTION 6.1 EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . 43
SECTION 6.2 ACCELERATION . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 6.3 OTHER REMEDIES . . . . . . . . . . . . . . . . . . . . . 45
SECTION 6.4 WAIVER OF PAST DEFAULTS. . . . . . . . . . . . . . . . . 45
SECTION 6.5 CONTROL BY MAJORITY. . . . . . . . . . . . . . . . . . . 46
SECTION 6.6 LIMITATION ON SUITS. . . . . . . . . . . . . . . . . . . 46
SECTION 6.7 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT. . . . . . 46
SECTION 6.8 COLLECTION SUIT BY TRUSTEE . . . . . . . . . . . . . . . 46
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM . . . . . . . . . . . . 47
SECTION 6.10 PRIORITIES . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 6.11 UNDERTAKING FOR COSTS. . . . . . . . . . . . . . . . . . 48
ARTICLE 7
TRUSTEE . . . . . . . . . . . . . . . . 48
SECTION 7.1 DUTIES OF TRUSTEE. . . . . . . . . . . . . . . . . . . . 48
SECTION 7.2 RIGHTS OF TRUSTEE. . . . . . . . . . . . . . . . . . . . 49
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE . . . . . . . . . . . . . . 50
SECTION 7.4 TRUSTEE'S DISCLAIMER . . . . . . . . . . . . . . . . . . 50
SECTION 7.5 NOTICE OF DEFAULT. . . . . . . . . . . . . . . . . . . . 50
SECTION 7.6 REPORT BY TRUSTEE TO HOLDERS OF THE NOTES. . . . . . . . 50
SECTION 7.7 COMPENSATION AND INDEMNITY . . . . . . . . . . . . . . . 51
SECTION 7.8 REPLACEMENT OF TRUSTEE . . . . . . . . . . . . . . . . . 51
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC . . . . . . . . . . . . 52
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION. . . . . . . . . . . . . . 52
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY. . 53
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE; SATISFACTION AND DISCHARGE . 53
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SECTION 8.1 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT
DEFEASANCE . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 8.2 LEGAL DEFEASANCE AND DISCHARGE . . . . . . . . . . . . . 53
SECTION 8.3 COVENANT DEFEASANCE. . . . . . . . . . . . . . . . . . . 54
SECTION 8.4 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE . . . . . . . 54
SECTION 8.5 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS. . . . . . . . . . 55
SECTION 8.6 REPAYMENT TO THE COMPANY . . . . . . . . . . . . . . . . 56
SECTION 8.7 REINSTATEMENT. . . . . . . . . . . . . . . . . . . . . . 56
SECTION 8.8 SATISFACTION AND DISCHARGE OF INDENTURE. . . . . . . . . 56
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER . . . . . . . . . . 57
SECTION 9.1 WITHOUT CONSENT OF HOLDERS OF NOTES. . . . . . . . . . . 57
SECTION 9.2 WITH CONSENT OF HOLDERS OF NOTES . . . . . . . . . . . . 58
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT. . . . . . . . . . . 59
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS. . . . . . . . . . . . 59
SECTION 9.5 NOTATION ON OR EXCHANGE OF NOTES . . . . . . . . . . . . 60
SECTION 9.6 TRUSTEE TO SIGN AMENDMENT ETC. . . . . . . . . . . . . . 60
ARTICLE 10
SUBSIDIARY GUARANTEES. . . . . . . . . . . . . 60
SECTION 10.1 SUBSIDIARY GUARANTEES. . . . . . . . . . . . . . . . . . 60
SECTION 10.2 ADDITIONAL SUBSIDIARY GUARANTEES . . . . . . . . . . . . 62
SECTION 10.3 LIMITATION OF SUBSIDIARY GUARANTORS' LIABILITY . . . . . 62
SECTION 10.4 SUBSIDIARY GUARANTORS MAY CONSOLIDATE ETC., ON CERTAIN
TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 10.5 RELEASES OF SUBSIDIARY GUARANTORS. . . . . . . . . . . . 63
SECTION 10.6 "TRUSTEE" TO INCLUDE PAYING AGENT. . . . . . . . . . . . 64
SECTION 10.7 CONTRIBUTION . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 10.8 EXECUTION OF SUBSIDIARY GUARANTEES . . . . . . . . . . . 64
ARTICLE 11
MISCELLANEOUS. . . . . . . . . . . . . . . 65
SECTION 11.1 TRUST INDENTURE ACT CONTROLS . . . . . . . . . . . . . . 65
SECTION 11.2 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 11.3 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF
NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 11.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT . . . 66
SECTION 11.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. . . . . . 67
SECTION 11.6 RULES BY TRUSTEE AND AGENTS. . . . . . . . . . . . . . . 67
SECTION 11.7 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES
AND SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . 67
SECTION 11.8 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . 67
SECTION 11.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. . . . . . 68
SECTION 11.10 SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 11.11 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 11.12 COUNTERPART ORIGINALS. . . . . . . . . . . . . . . . . . 68
SECTION 11.13 TABLE OF CONTENTS, HEADINGS, ETC . . . . . . . . . . . . 68
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<PAGE>
INDENTURE dated as of February ______, 1998, by and among RAM ENERGY,
INC., a Delaware corporation (the "COMPANY"), the Subsidiary Guarantors (as
defined herein) and UNITED STATES TRUST COMPANY OF NEW YORK, as trustee (the
"TRUSTEE").
The Company, the Subsidiary Guarantors and the Trustee agree as follows
for the benefit of one another and for the equal and ratable benefit of the
Holders of the ______% Senior Notes due 2008 of the Company (the "NOTES"),
without preference of any issuance of Notes under this Indenture over another:
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 DEFINITIONS.
"ADJUSTED CONSOLIDATED NET INCOME" of the Company for any period means
the Net Income of the Company and the Subsidiary Guarantors for such period,
determined in accordance with GAAP, excluding (i) the Net Income of any
Unrestricted Subsidiary of the Company which is a consolidated Subsidiary of
the Company for such period and (ii) the amount of the deduction from Net
Income of the Company attributable to the minority interest in any
Unrestricted Subsidiary of the Company which is a consolidated Subsidiary of
the Company for such period.
"ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS" means (without duplication),
as of the date of determination, (i) the sum of (a) discounted future net
revenue from proved oil and gas reserves of the Company and the Subsidiary
Guarantors calculated in accordance with Commission guidelines before any
state or federal income taxes, as estimated or audited by independent
petroleum engineers in one or more Reserve Reports prepared as of the end of
the Company's most recently completed fiscal year as INCREASED BY, as of the
date of determination, the discounted future net revenue of (A) estimated
proved oil and gas reserves of the Company and the Subsidiary Guarantors
attributable to any acquisition consummated since the effective date of such
year-end Reserve Reports and (B) estimated oil and gas reserves of the
Company and the Subsidiary Guarantors attributable to extensions, discoveries
and other additions and upward revisions of estimates of proved oil and gas
reserves due to exploration, development or exploitation, production or other
activities conducted or otherwise occurring since the effective date of such
year-end Reserve Reports which, in the case of the preceding sub-clauses (A)
and (B), would, in accordance with standard industry practice, result in such
increases, in each case calculated in accordance with Commission guidelines
(utilizing the prices utilized in such year-end Reserve Reports), and
DECREASED BY, as of the date of determination, the discounted future net
revenue of (C) estimated proved oil and gas reserves of the Company and the
Subsidiary Guarantors produced or disposed of since the effective date of
such year-end Reserve Reports and (D) reductions in the estimated oil and gas
reserves of the Company and the Subsidiary Guarantors since the effective
date of such year-end Reserve Reports attributable to downward revisions of
estimates of proved oil and gas reserves due to exploration, development or
exploitation, production or other activities conducted or otherwise occurring
since the effective date of such year-end Reserve Reports which would, in
accordance with standard industry practice, result in such revisions, in each
case calculated in accordance with Commission guidelines (utilizing the
prices utilized in such year-end Reserve Reports); PROVIDED THAT, in the case
of each of the determinations made pursuant to the preceding
1
<PAGE>
SUB-CLAUSES (A) THROUGH (D), such increases and decreases shall be as
estimated by the Company's engineers, except that if there is a Material
Change and in connection with the Incurrence of Indebtedness for which the
Consolidated Fixed Charge Coverage Ratio must be determined, all or any part
of an increase in discounted future net revenue resulting from the matters
described in the preceding SUB-CLAUSES (A) AND (B) is needed to permit the
Incurrence of such Indebtedness, then the discounted future net revenue
utilized for purposes of CLAUSE (I)(A) of this definition shall be confirmed
in writing by independent petroleum engineers, PROVIDED FURTHER THAT, if the
events referred to in the preceding SUB-CLAUSES (C) AND (D), when taken
alone, would not cause a Material Change, then such written confirmation need
only cover the incremental additions to discounted future net revenue
resulting from the determinations made pursuant to the preceding SUB-CLAUSES
(A) AND (B) to the extent needed to permit the Incurrence of such
Indebtedness, (b) the capitalized costs that are attributable to oil and gas
properties of the Company and the Subsidiary Guarantors to which no proved
oil and gas reserves are attributed, based on the Company's books and records
as of a date no earlier than the date of the Company's latest annual or
quarterly financial statements, (c) the Net Working Capital on a date no
earlier than the date of the Company's latest annual or quarterly financial
statements and (d) the greater of (A) the net book value on a date no earlier
than the date of the Company's latest annual or quarterly financial
statements and (B) the appraised value, as estimated by independent
appraisers, of other tangible assets (including the amount of Investments in
unconsolidated Subsidiaries) of the Company and the Subsidiary Guarantors, as
of a date no earlier than the date of the Company's latest audited financial
statements, MINUS (ii) the sum of (a) minority interests, (b) any non-current
portion of gas balancing liabilities of the Company and the Subsidiary
Guarantors reflected in the Company's latest annual or quarterly financial
statements, (c) the discounted future net revenue, calculated in accordance
with Commission guidelines (utilizing the prices utilized in the Company's
year-end Reserve Reports), attributable to reserves which are required to be
delivered to third parties to fully satisfy the obligations of the Company
and the Subsidiary Guarantors with respect to Production Payments on the
schedules specified with respect thereto, (d) the discounted future net
revenue, calculated in accordance with Commission guidelines (utilizing the
same prices utilized in the Company's initial or year-end Reserve Reports),
attributable to reserves subject to participation interests, overriding
royalty interests or other interests of third parties, pursuant to
participation, partnership, vendor financing or other agreements then in
effect, or which otherwise are required to be delivered to third parties and
(e) the amount of environmental liabilities payable by the Company or any
Subsidiary Guarantor. If the Company changes its method of accounting from
the full cost method to the successful efforts method or a similar method of
accounting, Adjusted Consolidated Net Tangible Assets will continue to be
calculated as if the Company was still using the full cost method of
accounting.
"AFFILIATE" means (i) any Person, directly or indirectly, controlling or
controlled by or under direct or indirect common control with the Company or
any Subsidiary of the Company or any officer, director, or employee of the
Company or any Subsidiary of the Company or of such Person, (ii) the spouse,
any immediate family member, or any other relative who has the same principal
residence of any Person described in clause (i) above, and any Person,
directly or indirectly, controlling or controlled by or under direct or
indirect common control with, such spouse, family member or other relative,
and (iii) any trust in which any Person described in CLAUSE (I) OR (II) of
this definition is a fiduciary or has a beneficial interest. For purposes of
this definition, the term "control" means (a) the power to direct the
management and policies of a Person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by
contract, or otherwise, or (b) the beneficial ownership of 10% or more of the
Voting Stock of such Person (on a fully diluted basis) or of warrants or
other rights to acquire such equity (whether or not presently exercisable).
2
<PAGE>
"AGENT" means any Registrar, Paying Agent or as appointed hereunder, any
co-registrar or authenticating agent.
"ASSET SALE" means (i) any direct or indirect conveyance, sale, transfer
or other disposition (including through damage or destruction for which
Insurance Proceeds are paid or by condemnation), in one transaction or a
series of related transactions, of any of the properties, businesses or
assets of the Company or any of its Restricted Subsidiaries, whether owned on
the Issue Date or thereafter acquired or (ii) any sale or other disposition
by the Company of any Capital Stock of any Affiliate, Unrestricted Subsidiary
or any Restricted Subsidiary of the Company. Notwithstanding the foregoing,
the following will not be deemed to be an Asset Sale: (a) the conveyance,
sale, lease, transfer or other disposition by any Restricted Subsidiary of
the Company of any or all of its assets (upon voluntary liquidation or
otherwise) to the Company; (b) the conveyance, sale, lease, transfer or other
disposition by any Restricted Subsidiary of any or all of its assets (upon
voluntary liquidation or otherwise) to another Restricted Subsidiary of the
Company; (c) non-material dispositions of assets in the ordinary course of
business; (d) Asset Sales not otherwise included by CLAUSES (a) THROUGH (c)
OR (f) AND (g) of this definition, PROVIDED THAT the aggregate proceeds from
all such Asset Sales do not exceed $1,000,000 in any twelve-month period; (e)
the disposition of all or substantially all of the assets of (A) the Company
and the Subsidiary Guarantors, taken as a whole, or (B) the Company, if such
disposition is governed by the provisions of SECTION 4.17 OR 5.01; (f) a
conveyance, sale, assignment, lease, license, transfer, abandonment or other
disposal by the Company and the Subsidiary Guarantors of (A) damaged, worn
out, unserviceable or other obsolete property in the ordinary course of
business or (B) other property no longer necessary for the proper conduct of
their business; and (g) the conveyance, sale, transfer or other disposition
by the Company and its Restricted Subsidiaries of crude oil and natural gas
production and refined products in the ordinary course of business of the Oil
and Gas Business.
"ATTRIBUTABLE INDEBTEDNESS" in respect of a Sale and Leaseback
Transaction means, at the time of determination, the present value
(discounted at the rate of interest implicit in such transaction, determined
in accordance with GAAP or, in the event that such rate of interest is not
reasonably determinable, discounted at the rate of interest borne by the
Notes) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such Sale and Leaseback Transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended).
"BANKRUPTCY CUSTODIAN" means any receiver, trustee, assignee, liquidator
or similar officer under any Bankruptcy Law.
"BANKRUPTCY LAW" means Title 11, U.S. Code or any similar federal or
state law of any jurisdiction, domestic or foreign to the United States of
America or any of its states, for the relief of debtors.
"BOARD OF DIRECTORS" means, with respect to a Person, the board of
directors of such Person or if not a board of directors, a comparable
governing body of such Person, or any authorized committee of such board or
governing body, as applicable.
"BOARD RESOLUTION" means, with respect to a Person, a copy of a
resolution certified by (i) the secretary or an assistant secretary of such
Person and (ii) the principal financial officer of such Person to have been
duly adopted by the Board of Directors of such Person and to be in full force
and effect on the date of such certification.
3
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"BUSINESS DAY" means any day other than a Saturday, Sunday or any other
day on which banking institutions in the City of New York, New York are
required or authorized by law or other governmental action to be closed.
"CAPITAL EXPENDITURES" of a Person means expenditures (whether paid in
cash or accrued as a liability) by such Person or any of its Subsidiaries
that, in conformity with GAAP, are or would be included in "capital
expenditures," "additions to property, plant, or equipment" or comparable
items in the consolidated financial statements of such Person consistent with
prior accounting practices.
"CAPITAL STOCK" means, with respect to any Person, (i) any capital stock
of such Person and shares, interests, participations or other ownership
interests (however designated) of such Person, including without limitation,
each class of common stock and preferred stock of such Person, if such Person
is a corporation, (ii) each general or limited partnership interest of such
Person, if such Person is a partnership, (iii) each membership or similar
interest of such Person, if such Person is a limited liability company and
(iv) each other interest or participation that confers on a Person the right
to receive a share of the profits or losses of, or distributions of assets
of, the issuing Person, in each case, including any rights (other than debt
securities convertible into any such interests), warrants or options to
purchase any of the foregoing.
"CAPITALIZED LEASE OBLIGATION" means obligations under a lease that are
required to be capitalized for financial reporting purposes in accordance
with GAAP, and the amount of Indebtedness represented by such obligations
shall be the capitalized amount of such obligations, as determined in
accordance with GAAP.
"CARLTON" means Carlton Resources Corporation, a Delaware corporation.
"CASH EQUIVALENTS" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than one year from the date of acquisition, (iii) certificates of
deposit with maturities of one year or less from the date of acquisition,
bankers' acceptances with maturities not exceeding one year, and overnight
bank deposits, in each case, with any Eligible Institution, (iv) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in CLAUSES (ii) AND (iii) of this definition entered
into with any Eligible Institution, (v) commercial paper rated "P-l," "A-l"
or the equivalent thereof by Moody's or Standard & Poor's, respectively, and
in each case maturing within 180 days after the date of acquisition, (vi)
shares of money market funds, including those of the Trustee, that invest
solely in United States dollars and securities of the types described in
CLAUSES (i) THROUGH (v) of this definition, and (vii) demand and time
deposits and certificates of deposit with an Eligible Institution or with
commercial banks insured by the Federal Deposit Insurance Corporation.
"CHANGE OF CONTROL" means the occurrence of (i) the sale, lease,
transfer, conveyance or other disposition, in one or a series of related
transactions, of all or substantially all of the assets of the Company to any
person (as such term is used in Section 13(d)(3) of the Exchange Act) other
than to a Subsidiary Guarantor, (ii) the Company consolidates with or merges
into another Person or any Person consolidates with, or merges into, the
Company, in any such event pursuant to a transaction in which the outstanding
Voting Stock of the Company is changed into or exchanged for cash, securities
or other property, other than any such transaction where (a) the outstanding
Voting Stock of the Company is changed into or exchanged for Voting Stock of
the surviving or resulting Person that is Qualified Capital Stock and (b) the
holders of the Voting Stock of the Company immediately prior to such
transaction
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own, directly or indirectly, not less than a majority of the Voting Stock of
the surviving or resulting Person immediately after such transaction, (iii)
the adoption of a plan relating to the liquidation or dissolution of the
Company not involving a merger or consolidation or a sale or other
disposition of assets described in CLAUSE (i) of this definition, (iv) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any person (as defined above),
excluding the Permitted Holders, becomes the "beneficial owner" (as that term
is used in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of more than 50% of the total voting power of the Company's then
outstanding Voting Stock; PROVIDED THAT the sale of Voting Stock of the
Company to a Person or Persons acting as underwriters in connection with a
firm commitment underwriting shall not constitute a Change of Control, or (v)
the first day on which a majority of the members of the Board of Directors of
the Company are not Continuing Directors (other than by action of the
Permitted Holders). For purposes of this definition, any transfer of an
equity interest of an entity that was formed for the purpose of acquiring
Voting Stock of the Company will be deemed to be a transfer of such portion
of such Voting Stock as corresponds to the portion of the equity of such
entity that has been so transferred.
"COMMISSION" means the Securities and Exchange Commission.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" on any date means, with
respect to the Company, the ratio, on a PRO FORMA basis, of (i) the aggregate
amount of EBITDA attributable to continuing operations and businesses
(exclusive of the amounts attributable to operations and businesses
discontinued or disposed of, on a PRO FORMA basis as if such operations and
businesses were discontinued or disposed of on the first day of the Reference
Period) for the Reference Period to (ii) the aggregate Consolidated Interest
Expense (exclusive of amounts attributable to discontinued operations and
businesses on a PRO FORMA basis as if such operations and businesses were
discontinued or disposed of on the first day of the Reference Period, but
only to the extent that the obligations giving rise to such Consolidated
Interest Expense would no longer be obligations contributing to Consolidated
Interest Expense subsequent to the date of discontinuation or disposal)
during the Reference Period; PROVIDED THAT, for purposes of such computation,
in calculating EBITDA and Consolidated Interest Expense, (a) the transaction
giving rise to the need to calculate the Consolidated Fixed Charge Coverage
Ratio shall be assumed to have occurred on the first day of the Reference
Period, (b) the Incurrence of any Indebtedness or issuance of Disqualified
Capital Stock or the retirement of any Indebtedness or Capital Stock during
the Reference Period or subsequent thereto shall be assumed to have occurred
on the first day of such Reference Period, and (c) Consolidated Interest
Expense attributable to any Indebtedness (whether existing or being Incurred)
bearing a floating interest rate shall be computed as if the rate in effect
on the date of determination had been the applicable rate for the entire
period, unless the Company or any Subsidiary Guarantor is a party to a Swap
Obligation (that remains in effect for the 12-month period after the date of
determination) that has the effect of fixing the interest rate on the date of
computation, in which case such rate (whether higher or lower) shall be used.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the aggregate
interest expense (without duplication), during such period in respect of all
Indebtedness of the Company and the Subsidiary Guarantors (including all
commissions, discounts, other fees and charges owed with respect to letters
of credit and banker's acceptance financing and costs associated with Swap
Obligations) determined on a consolidated basis in accordance with GAAP. For
purposes of this definition, (i) interest on a Capitalized Lease Obligation
shall be deemed to accrue at an interest rate reasonably determined to be the
rate of interest implicit in such Capitalized Lease Obligation in accordance
with GAAP (including Statement of Financial Accounting Standards No. 13 of
the Financial Accounting Standards Board), and (ii) Consolidated Interest
Expense attributable to any Indebtedness guaranteed by the Company or a
Subsidiary
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Guarantor, other than with respect to Indebtedness of the Company or a
Subsidiary Guarantor, shall be deemed to be the interest expense attributable
to the item guaranteed.
"CONTINUING DIRECTORS" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the Issue Date or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board of Directors at the time
of such nomination or election.
"CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be the address of the
Trustee specified in SECTION 11.2 or such other address as to which the
Trustee may give notice to the Company.
"DEFAULT" means an event or condition, the occurrence of which is, or
with the lapse of time or giving of notice or both would be, an Event of
Default.
"DEFINITIVE NOTES" means Notes that are in the form of the Note attached
hereto as EXHIBIT A, excluding the paragraphs referred to in footnotes 1 and
2 thereto and the schedule referred to in footnote 3 thereto, but including
the modification referred to in footnote a.
"DEPOSITORY" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in SECTION 2.3 as the
Depository with respect to the Notes, until a successor shall have been
appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depository" shall mean or include such successor.
"DISINTERESTED DIRECTOR" means, with respect to any transaction or
series of related transactions in respect of which the Board of Directors is
required to deliver a Board Resolution of such Board of Directors under this
Indenture, a member of such Board of Directors who does not have any material
direct or indirect financial interest (other than an interest arising solely
from the beneficial ownership of Capital Stock of the Company) in or with
respect to such transaction or series of transactions.
"DISQUALIFIED CAPITAL STOCK" means, with respect to any Person, any
Capital Stock of such Person or its Subsidiaries that, by its terms or by the
terms of any security into which it is convertible or exchangeable, is, or
upon the happening of an event or the passage of time would be, required to
be redeemed or repurchased by such Person or its Subsidiaries, including at
the option of the holder, in whole or in part, or has, or upon the happening
of an event or passage of time would have, a redemption or similar payment
due, on or prior to the Stated Maturity Date.
"EBITDA" means, for any period, (i) the sum of the Adjusted Consolidated
Net Income for such period, PLUS (ii) the sum, without duplication (and only
to the extent such amounts are deducted from net revenues in determining such
Adjusted Consolidated Net Income), of (a) the provision for federal and state
income taxes for such period, (b) depreciation, depletion, and amortization
for such period, (c) Consolidated Interest Expense for such period,
determined, in each case, on a consolidated basis for the Company and the
Subsidiary Guarantors otherwise in accordance with GAAP, (d) any charge
associated solely with the prepayment of any Indebtedness (PROVIDED THAT
neither the Incurrence of such Indebtedness nor the making of such prepayment
occurred in violation of any provision of this Indenture) and (e) any other
non-cash charges.
"ELIGIBLE INSTITUTION" means a commercial banking institution that has
combined capital and surplus of not less than $500,000,000 and that is rated
"A" (or higher) according to
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Moody's or Standard & Poor's at the time as of which any investment or
rollover therein is made.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the Commission thereunder.
"EXCHANGE ASSETS" means assets acquired by the Company or any Subsidiary
Guarantor in exchange for assets of the Company or any Subsidiary Guarantor
in connection with an Asset Sale, which acquired assets include proved
reserves with a value that, together with the cash or Cash Equivalents
received therefor by the Company or such Subsidiary Guarantor, is equal to or
greater than the value of the proved reserves included in the assets disposed
of by the Company or such Subsidiary Guarantor in connection with such Asset
Sale; PROVIDED, THAT (i) ownership of such assets does not violate the
provisions of SECTION 4.13 and (ii) during any fiscal year, the Company and
the Subsidiary Guarantors can collectively acquire assets (other than proved
reserves, cash or Cash Equivalents) with a fair market value of up to
$500,000 in exchange for assets of the Company and the Subsidiary Guarantors,
and such assets acquired by such Person shall constitute "Exchange Assets"
hereunder.
"GAAP" means generally accepted accounting principles as in effect in
the United States on the Issue Date applied on a basis consistent with that
used in the preparation of the audited financial statements of the Company
included in the Prospectus.
"GLOBAL NOTE" means a Note that is in the form of the Note attached
hereto as EXHIBIT A, including the paragraphs referred to in footnotes 1 and
2 thereto and the schedule referred to in footnote 3 thereto, but excluding,
to the extent therein referenced, the text referred to in footnote a thereto.
"GOVERNMENT SECURITIES" means securities that are (i) direct obligations
of the United States of America for the timely payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the timely payment of which is unconditionally guaranteed as a
full faith and credit obligation of the United States of America, which, in
either case, are not callable or redeemable as the option of the issuer
thereof, and shall also include a depository receipt issued by a bank (as
defined in Section 3(a)(2) of the Securities Act), as custodian with respect
to any such Government Security or a specific payment of principal of or
interest on any such Government Security held by such custodian for the
account of the holder of such depository receipt; PROVIDED, THAT (except as
required by law) such custodian is not authorized to make any deduction from
the amount payable to the holder of such depository receipt from any amount
received by the custodian in respect of the Government Security or the
specific payment of principal of or interest on the Government Security
evidenced by such depository receipt.
The term "GUARANTEE" means, as applied to any Indebtedness or other
obligation, (i) a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner, of any part or all of such Indebtedness or other
obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment
or performance (or payment of damages in the event of nonperformance) of all
or any part of such Indebtedness or other obligation, including, without
limiting the foregoing, the payment of amounts drawn down under letters of
credit. When used as a verb, "GUARANTEE" has a corresponding meaning.
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"HEDGING CONTRACT" means an oil, gas or oil and gas purchase or hedging
agreement, and other agreement or arrangements, in each case, that is
designed to provide protection against fluctuations in the prices of oil or
gas, or both.
"HOLDER" means any Person from time to time in whose name any Note is
registered on the Note Register.
"HYDROCARBONS" means oil, natural gas, condensate, and natural gas
liquids.
"INCUR" means, with respect to any Indebtedness, to create, incur,
assume, guarantee or otherwise become liable for, contingently or otherwise,
any Indebtedness, and the term "INCURRENCE" when used as a noun shall have a
correlative meaning. Neither the accrual of interest nor the accretion of
original issue discount, nor the accretion of principal of a non-interest
bearing or other discount security shall be deemed the Incurrence of
Indebtedness.
"INDEBTEDNESS" means, with respect to any Person, without duplication
(i) all liabilities, contingent or otherwise, of such Person (a) for borrowed
money (whether or not the recourse of the lender is to the whole of the
assets of such Person or only to a portion thereof), (b) evidenced by bonds,
notes, debentures, or similar instruments or letters of credit or
representing the balance deferred and unpaid of the purchase price of any
property acquired by such Person or services received by such Person, but
excluding trade account payables and accrued liabilities arising in the
ordinary course of business that are not overdue by 90 days or being
contested in good faith by appropriate proceedings, promptly instituted and
diligently pursued, (c) evidenced by bankers' acceptances or similar
instruments issued or accepted by banks or Swap Obligations, (d) for the
payment of money relating to a Capitalized Lease Obligation, (e) for the
Attributable Indebtedness associated with any Sale and Leaseback Transaction
or (f) for Production Payments, (ii) reimbursement obligations of such Person
with respect to letters of credit, (iii) all liabilities of others of the
kind described in CLAUSE (i) OR (ii) of this definition that such Person has
guaranteed or that is otherwise its legal liability (to the extent of such
guarantee or other legal liability) other than for endorsements, with
recourse, of negotiable instruments in the ordinary course of business, and
(iv) all obligations secured by a Lien (other than Permitted Liens, except to
the extent the obligations secured by such Permitted Liens are otherwise
included in CLAUSE (i), (ii) OR (iii) of this definition and are obligations
of such Person) to which the property or assets (including, without
limitation, leasehold interests and any other tangible or intangible property
rights) of such Person are subject, regardless of whether the obligations
secured thereby shall have been assumed by or shall otherwise be such
Person's legal liability (but, if such obligations are not assumed by such
Person or are not otherwise such Person's legal liability, the amount of such
Indebtedness shall be deemed to be limited to the fair market value of such
property or assets determined as of the end of the preceding fiscal quarter).
"INDENTURE" means this indenture, as amended or supplemented from time
to time.
"INSURANCE PROCEEDS" means the interest in and to all proceeds (net of
costs of collection, including attorneys' fees) which now or hereafter may be
paid under any insurance policies now or hereafter obtained by or on behalf
of the Company or any Subsidiary Guarantor in connection with any assets
thereof, together with interest payable thereon and the right to collect and
receive the same, including, without limitation, proceeds of casualty
insurance, title insurance, business interruption insurance and any other
insurance now or hereafter maintained with respect to such assets.
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"INTEREST RATE OR CURRENCY AGREEMENT" of any Person means any forward
contract, futures contract, swap, option or other financial agreement or
arrangement (including, without limitation, caps, floors, collars, puts and
similar agreements) relating to, or the value of which is dependent upon,
interest rates or currency exchange rates.
"INVESTMENT" by any Person in any other Person means (i) the acquisition
(whether for cash, property, services, securities or otherwise) of capital
stock, bonds, notes, debentures, partnership, or other ownership interests or
other Capital Stock or securities of such other Person or any agreement to
make any such acquisition, (ii) the making by such Person of any deposit
with, or advance, loan or other extension of credit to, such other Person
(including the purchase of property from another Person subject to an
understanding or agreement, contingent or otherwise, to resell such property
to such other Person) and (without duplication) any amount committed to be
advanced, loaned or extended to such other Person, (iii) the entering into of
any guarantee of, or other contingent obligation with respect to,
Indebtedness or other liability of such other Person, (iv) the entering into
of any Swap Obligation with such other Person, or (v) the making of any
capital contribution by such Person to such other Person.
"INVESTMENT GRADE RATING" means with respect to any Person or issue of
debt securities or preferred stock, a rating in one of the four highest
letter rating categories (without regard to "+" or "-" or other modifiers) by
any Rating Agency or if any such Rating Agency has ceased using letter rating
categories or the four highest of such letter rating categories are not
considered to represent "investment grade" ratings, then the comparable
"investment grade" ratings (as designated by any such Rating Agency).
"ISSUE DATE" means the first date on which the Notes are issued under
this Indenture.
"LIEN" means any mortgage, lien, pledge, charge, security interest, or
other encumbrance of any kind, regardless of whether filed, recorded, or
otherwise perfected under applicable law (including any conditional sale or
other title retention agreement and any lease deemed to constitute a security
interest and any option or other agreement to give any security interest).
"MATERIAL CHANGE" means an increase or decrease (excluding changes that
result solely from changes in prices) of more than either (i) 10% from the
end of the immediately preceding fiscal quarter in the estimated discounted
future net revenue from proved oil and gas reserves of the Company and its
Restricted Subsidiaries, or (ii) 20% from the end of the immediately
preceding year in the estimated discounted future net revenue from proved oil
and gas reserves of the Company and its Restricted Subsidiaries, in each case
calculated in accordance with CLAUSE (i)(a) of the definition of "Adjusted
Consolidated Net Tangible Assets"; PROVIDED, HOWEVER, that the following will
be excluded from the calculation of Material Change: (a) any acquisitions of
oil and gas reserves made after the end of the immediately preceding year for
which the discounted future net revenues have been estimated by independent
petroleum engineers since the end of the preceding year and on which a
Reserve Report or Reserve Reports exist and (b) any disposition of properties
existing at the beginning of the current quarter or current year, as the case
may be, for purposes of CLAUSE (i) or CLAUSE (ii) of this definition, that
have been disposed of in accordance with the provisions of SECTION 4.11.
"MOODY'S" means Moody's Investors Service, Inc. and any successor to the
rating agency business thereof.
"NET CASH PROCEEDS" means an amount equal to (i) the aggregate amount of
cash and Cash Equivalents received by the Company or any Restricted
Subsidiary of the Company in respect of an Asset Sale, LESS (ii) the sum of
(a) all reasonable out-of-pocket fees, commissions, and
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other expenses incurred in connection with such Asset Sale, including the
amount (estimated in good faith by the Company) of income, franchise, sales
and other applicable taxes to be paid, payable or accrued by the Company or
such Restricted Subsidiary (in each case as estimated in good faith by the
Company without giving effect to tax attributes unrelated to such Asset Sale)
in connection with such Asset Sale, and (b) the aggregate amount of cash and
Cash Equivalents so received which is used to retire any then existing
Indebtedness of the Company or any Subsidiary Guarantor (other than the
Notes), as the case may be, which is secured by a Lien on the property which
is the subject of the Asset Sale or which is required by the terms of such
Indebtedness to be repaid in connection with such Asset Sale.
"NET INCOME" of any Person for any period means the net income (loss) of
such Person for such period, determined on a consolidated basis in accordance
with GAAP, excluding (without duplication) (i) all extraordinary, unusual and
nonrecurring gains, (ii) the net income, if positive, of any other Person, in
which such Person or any of its consolidated Subsidiaries has an interest,
except to the extent of the amount of any dividends or distributions actually
paid in cash to such Person or a consolidated Subsidiary of such Person
during such period, (iii) the net income, if positive, of any Person acquired
in a pooling of interests transaction for any period prior to the date of
such acquisition and (iv) the net income, if positive, of any Subsidiary of
such Person to the extent that the declaration or payment of dividends or
similar distributions is not at the time permitted by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order,
statute, rule, or governmental regulation applicable to such Subsidiary.
"NET PROCEEDS" means (i) in the case of any sale by a Person of
Qualified Capital Stock or other securities, the aggregate net cash proceeds
received by such Person from the sale of such securities (if such Person is
the Company, other than to a Restricted Subsidiary of the Company, and if
such Person is not the Company, other than to any of its consolidated
Subsidiaries) after payment of reasonable out-of-pocket expenses, commissions
and discounts incurred in connection therewith, and (ii) in the case of any
exchange, exercise, conversion or surrender of any outstanding securities or
Indebtedness of such Person for or into shares of Qualified Capital Stock of
such Person, the net book value of such outstanding securities as adjusted on
the books of such Person or Indebtedness of such Person to the extent
recorded in accordance with GAAP, in each case, on the date of such exchange,
exercise, conversion or surrender (PLUS any additional amount required to be
paid by the holder of such Indebtedness or securities to such Person upon
such exchange, exercise, conversion or surrender and LESS (a) any and all
payments made to the holders of such Indebtedness or securities and (b) all
other expenses incurred by such Person in connection therewith, in each case,
in so far as such payments or expenses are incident to such exchange,
exercise, conversion, or surrender).
"NET WORKING CAPITAL" of any Person means (i) all current assets of such
Person and, if such Person is the Company, the Subsidiary Guarantors, and if
such Person is not the Company, its Restricted Subsidiaries, MINUS (ii) all
current liabilities of such Person and its consolidated Subsidiaries other
than the current portion of long term Indebtedness, each item to be
determined on a consolidated basis in conformity with GAAP.
"NET WORTH" of any Person means, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of such Person and, if such Person is the
Company, the Subsidiary Guarantors, and if such Person is not the Company,
its Restricted Subsidiaries (which balance sheet shall be as of a date not
more than 90 days prior to the date of such computation), LESS any amounts
included therein attributable to Disqualified Capital Stock or any equity
security convertible into or exchangeable for Indebtedness, the cost of
treasury stock (not otherwise deducted from stockholders' equity), and the
principal amount of any promissory notes receivable from the
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sale of the Capital Stock of such Person or, if such Person is the Company,
any of the Subsidiary Guarantor, and if such Person is not the Company, its
Restricted Subsidiaries, each item to be determined in conformity with GAAP.
"NOTE CUSTODIAN" means the Trustee, as custodian with respect to the
Global Notes, or any successor entity thereto.
"NOTE REGISTER" means the register maintained by or for the Company in
which the Company shall provide for the registration of the Notes and the
transfer of the Notes.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFERING" has the meaning assigned to such term in the Prospectus.
"OFFICER" means, with respect to any Person, its chief or principal
executive officer, president, chief or principal financial officer, principal
accounting officer, treasurer, secretary or any vice president of such Person.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers of
the Company, at least one of whom shall be the principal executive officer,
principal accounting officer or principal financial officer of the Company,
that meets the requirements of SECTION 11.5.
"OIL AND GAS ASSETS" means assets and properties used in the Oil and Gas
Business.
"OIL AND GAS BUSINESS" means the business of acquiring, holding,
leasing, selling, exploring and developing Oil and Gas Assets, including the
exploration for, and exploitation, development, production, processing (but
not refining), purchasing, marketing and transportation of, Hydrocarbons and
other related oil and gas businesses.
"OIL AND GAS SECURITIES" means the Voting Stock of a Person engaged in
the Oil and Gas Business, PROVIDED THAT such Voting Stock shall constitute a
majority of the Voting Stock of such Person in the event that such Voting
Stock is not subject to the reporting requirements of the Exchange Act.
"OPINION OF COUNSEL" means a written opinion of legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of SECTION
11.5. The counsel may be an employee of or counsel to the Company.
"OPINION OF INDEPENDENT COUNSEL" means a written opinion of legal
counsel which is issued by a Person who is not an employee, director or
consultant (other than non-employee legal counsel) of the Company or any of
its Subsidiaries, who may be outside counsel to the Company and who shall be
reasonably acceptable to the Trustee.
"PERMITTED BANK CREDIT FACILITY" means, with respect to any Person, a
term, revolving credit or letter of credit facility, or any combination of
such facilities, with a commercial banking institution, the proceeds of which
are used to acquire Oil and Gas Securities or Oil and Gas Assets, for working
capital and other general corporate purposes, as the same may be amended,
extended or refinanced from time to time.
"PERMITTED HEDGING TRANSACTIONS" means non-speculative transactions in
futures, forwards, swaps or option contracts (including both physical and
financial settlement
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transactions) engaged in by the Company and the Subsidiary Guarantors as part
of their normal business operations as a risk-management strategy or hedge
against adverse changes in the prices of natural gas, feedstock or refined
products which arise in the ordinary course of business of the Company and
the Subsidiary Guarantors; PROVIDED, THAT such transactions do not in the
case of the Company and the Subsidiary Guarantors, on a monthly basis, relate
to more than 90% of their combined average net natural oil and gas production
per month for the most recent 3-month period measured at the time of such
transaction; PROVIDED, FURTHER, THAT, at the time of such transaction (i) the
counterparty to any such transaction is an Eligible Institution or a Person
that has an Investment Grade Rating or has an issue of debt securities or
preferred stock outstanding with an Investment Grade Rating or (ii) such
counter party's obligation pursuant to such transaction is unconditionally
guaranteed in full by, or secured by a letter of credit issued by, an
Eligible Institution or a Person that has an Investment Grade Rating or that
has an issue of debt securities or preferred stock outstanding with an
Investment Grade Rating.
"PERMITTED HOLDERS" means Dr. William W. Talley II, Larry E. Lee,
William Stuart Price and M. Helen Bennett (or (i) their heirs, their estates
or any trusts in which they or any of their immediate family members own,
directly or indirectly, a beneficial interest in excess of 50% or (ii) any
corporation, partnership or other legal entity in which they own, directly or
indirectly, a beneficial interest in excess of 50%).
"PERMITTED INDEBTEDNESS" means, without duplication, (i) the
Indebtedness evidenced by the Original Notes or the Subsidiary Guarantees,
(ii) Indebtedness owed by any Subsidiary Guarantor to the Company or any
other Subsidiary Guarantor or Indebtedness owed by the Company to any
Subsidiary Guarantor; PROVIDED THAT in each case, (a) such Indebtedness is
Subordinated Indebtedness, and (b) upon any subsequent issuance or transfer
of any Capital Stock or any other event that results in any such Subsidiary
Guarantor ceasing to be a Subsidiary Guarantor or any other subsequent
transfer of any such Indebtedness (except to the Company or a Subsidiary
Guarantor), such Indebtedness shall be deemed to be Incurred and shall be
treated as an Incurrence of Indebtedness for purposes of the provisions of
SECTION 4.7 at the time the Subsidiary Guarantor in question ceased to be a
Subsidiary Guarantor or the time such subsequent transfer occurred, (iii)
Indebtedness outstanding under a Permitted Bank Credit Facility so long as
the aggregate principal amount of all Indebtedness outstanding under all
Permitted Bank Credit Facilities for the Company and the Subsidiary
Guarantors does not exceed $25,000,000 LESS the amount of Net Cash Proceeds
from any Asset Sale applied pursuant to the provisions of SECTION 4.11 to
repay or prepay such Indebtedness that results in a permanent reduction
relating thereto, (iv) Swap Obligations of the Company or the Subsidiary
Guarantors, (v) Indebtedness outstanding on the Issue Date (and not repaid
with the proceeds of the Offering), (vi) Indebtedness owed by the Company or
the Subsidiary Guarantors in an aggregate principal amount outstanding not to
exceed $5,000,000 at any one time, and (vii) Permitted Refinancing
Indebtedness of the Company and the Subsidiary Guarantors.
"PERMITTED INVESTMENT" means, when used with reference to the Company or
any Subsidiary Guarantor, (i) trade credit extended to Persons in the
ordinary course of business, (ii) purchases of Cash Equivalents, (iii)
Investments by the Company or the Subsidiary Guarantors in Persons which are
or which will, contemporaneously with the making of such Investment, become
Wholly Owned Subsidiary Guarantors and are engaged in the Oil and Gas
Business, (iv) Investments in Oil and Gas Assets, (v) Investments in any
Person the sole consideration for which consists of Qualified Capital Stock
of the Company, (vi) Interest Rate and Currency Agreements with respect to
Permitted Bank Credit Facilities entered into with one or more financial
institutions that are lender parties thereto in the ordinary course of
business and not for purposes of speculation and that is designed to protect
the Company
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against risks or fluctuations in interest rates related to payment
obligations existing and arising under such Permitted Bank Credit Facilities
and Swap Obligations, (vii) advances to officers and employees of the Company
or any Subsidiary Guarantor in connection with the performance of their
duties in the ordinary course of business in an amount not to exceed $250,000
in the aggregate outstanding at any time, (viii) margin deposits in
connection with Permitted Hedging Transactions, (ix) Investments and
expenditures made in the ordinary course of business by the Company or the
Subsidiary Guarantors, and of a nature that is or shall have become customary
in, the Oil and Gas Business as a means of actively exploiting, exploring
for, acquiring, developing, enhanced recovery of, processing, gathering,
purchasing, selling, marketing or transporting oil or gas through agreements,
transactions, interests or arrangements, including arrangements which permit
a Person to share risks or costs, comply with regulatory requirements
regarding local ownership or satisfy other objectives customarily achieved
through the conduct of the Oil and Gas Business jointly with third parties,
including, without limitation, (a) ownership interests in oil and gas
properties or gathering systems and (b) Investments and expenditures in the
form of or pursuant to operating agreements, processing agreements, farm-in
agreements, farm-out agreements, development agreements, area of mutual
interest agreements, unitization agreements, pooling arrangements, joint
bidding agreements, service contracts, joint venture agreements, partnership
agreements (whether general or limited), subscription agreements, stock
purchase agreements and other similar agreements with third parties; PROVIDED
THAT in the case of any joint venture engaged in processing, gathering,
marketing or transporting oil or gas (1) all Indebtedness of such joint
venture (other than a joint venture that is an Unrestricted Subsidiary of the
Company) that would not otherwise constitute Indebtedness of the Company or a
Subsidiary Guarantor shall be deemed Indebtedness of such Person in
proportion to its direct or indirect ownership interest in such joint venture
and (2) such joint venture shall be reasonably calculated to enhance the
value of the reserves of such Person or marketability of production from such
reserves, (x) other Investments not in excess of $2,500,000 at any time
outstanding, and (xi) loans made to officers, directors and employees of the
Company or any Subsidiary Guarantor approved by the applicable Board of
Directors (or by an authorized officer), the proceeds of which are used
solely to purchase stock or to exercise stock options received pursuant to an
employee stock option plan or other incentive plan, in a principal amount not
to exceed the purchase price of such stock or the exercise price of such
stock options, as applicable.
"PERMITTED LIENS" with respect to any Person means (i) Liens imposed by
governmental authorities for taxes, assessments, or other charges not yet due
or which are being contested in good faith and by appropriate proceedings, if
adequate reserves with respect thereto are maintained on the books of any
such Person in accordance with GAAP, (ii) statutory Liens of landlords,
carriers, warehousemen, mechanics, materialmen, repairmen, vendors, mineral
interest owners, or other like Liens arising by operation of law in the
ordinary course of business PROVIDED THAT (a) the underlying obligations are
not overdue for a period of more than 60 days, or (b) such Liens are being
contested in good faith and by appropriate proceedings and adequate reserves
with respect thereto are maintained on the books of any such Person in
accordance with GAAP, (iii) deposits of cash or Cash Equivalents to secure
the performance of bids, trade contracts (other than borrowed money), leases,
statutory obligations, surety bonds, performance bonds, and other obligations
of a like nature incurred in the ordinary course of business (or to secure
reimbursement obligations or letters of credit issued to secure such
performance or other obligations), (iv) easements, rights-of-way, zoning,
similar restrictions and other similar encumbrances or title defects incurred
in the ordinary course of business which, in the aggregate, are not material
in amount and which do not, in any case, materially detract from the value of
the property subject thereto or materially interfere with the ordinary
conduct of the business of such Person, (v) Liens securing the Notes, any
Subsidiary Guarantee or any Permitted Bank Credit Facility, (vi) pledges or
deposits made in the ordinary course of business in connection with worker's
compensation, unemployment
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insurance, other types of social security legislation, property insurance and
liability insurance, (vii) Liens on the assets of any Person existing at the
time such assets are acquired by such Person, whether by merger,
consolidation, purchase of assets or otherwise so long as such Liens (a) are
not created, incurred or assumed in contemplation of such assets being
acquired by such Person and (b) do not extend to any other assets of such
Person, (viii) leases or subleases granted to others (to the extent of any
such lessee's normal and customary usage rights thereunder) or obtained from
others (to the extent of any such lessor's title thereunder), in either case,
that do not materially interfere with the ordinary course of business of any
of such Person, (ix) Liens ordinarily and customarily arising under operating
agreements, and (x) any extension, renewal or replacement of the Liens
created pursuant to any of CLAUSES (i) THROUGH (ix) of this definition,
PROVIDED THAT such Liens would have otherwise been permitted under such
clauses, and PROVIDED FURTHER THAT the Liens permitted by this clause (x) do
not secure any additional Indebtedness or encumber any additional property.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of a Person
issued in exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease or refund, other Indebtedness of such
Person; PROVIDED THAT (i) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount (or accreted value, if applicable) then outstanding of the
Indebtedness for which the exchange is made or so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable
expenses incurred in connection therewith), (ii) such Permitted Refinancing
Indebtedness (other than Indebtedness under Permitted Bank Credit Facilities)
has a final maturity date later than the final maturity date of, and has a
weighted average life equal to or greater than the weighted average life of,
the Indebtedness for which the exchange is made or being extended,
refinanced, renewed, replaced, defeased or refunded, (iii) if the
Indebtedness for which the exchange is made or being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment
to the Notes or any Subsidiary Guarantee (as the case may be) such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to, the Notes or
any Subsidiary Guarantee (as the case may be), on terms at least as favorable
to the Holders of Notes or any Subsidiary Guarantee (as the case may be) as
those contained in the documentation governing the Indebtedness for which the
exchange is made or being extended, refinanced, renewed, replaced, defeased
or refunded, and (iv) with respect to any such Indebtedness of the Company
for which the exchange is made or being extended, refinanced, renewed,
replaced, defeased or refunded, such Permitted Refinancing Indebtedness shall
not be Incurred by any Subsidiary Guarantor.
"PERSON" means any corporation, individual, joint stock company, joint
venture, partnership, limited liability company, unincorporated association,
governmental regulatory entity, country, state, or political subdivision
thereof, trust, municipality, or other entity.
"PREFERRED STOCK" means, with respect to any Person, any class or
classes (however designated) of Capital Stock of such Person that is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such Person
over shares of Capital Stock of any other class of such Person.
"PRODUCTION PAYMENT" means any volumetric or dollar-denominated
production payment or other similar burden on the property of the Company or
any Subsidiary Guarantor.
"PROSPECTUS" means the "Prospectus" regarding the issuance of the Notes,
which is included as a part of the Company's Registration Statement on Form
S-1, as amended (Registration No. 333-42641), which was filed with the
Commission on December 18, 1997 and declared effective by the Commission on
____________ ____, 199__.
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"PUBLIC EQUITY OFFERING" means an underwritten public offering, subsequent
to the Issue Date, by a nationally recognized member of the National Association
of Securities Dealers, Inc. of Qualified Capital Stock of the Company pursuant
to an effective registration statement filed with the Commission pursuant to the
Securities Act.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.
"RATING AGENCIES" means Standard and Poor's and Moody's, or any successor
to the respective rating agency businesses thereof.
"REFERENCE PERIOD" with regard to any Person means the four full fiscal
quarters of such Person ended on or immediately preceding any date upon which
any determination is to be made pursuant to the terms of the Notes or this
Indenture.
"RESERVE REPORT" means a report prepared by independent petroleum engineers
with respect to Hydrocarbon reserves in accordance with guidelines published by
the Commission.
"RESPONSIBLE OFFICER", when used with respect to the Trustee, means any
officer within the corporate trust department of the Trustee (or any successor
group of the Trustee) with the direct responsibility for the administration of
this Indenture and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his or her
knowledge of and familiarity with the particular subject.
"RESTRICTED INVESTMENT" means (i) the designation of a Subsidiary as an
Unrestricted Subsidiary in the manner described in the definition of
"Unrestricted Subsidiary" and (ii) any Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary of such Person.
"SALE AND LEASEBACK TRANSACTION" means an arrangement relating to property
owned on the Issue Date or thereafter acquired whereby a Person or a Subsidiary
of such Person transfers such property to another Person and leases it back from
such other Person.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"STANDARD AND POOR'S" means Standard and Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc., and any successor to the rating
agency business thereof.
"STATED MATURITY DATE" means __________________, 2008.
"SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company or a
Subsidiary Guarantor that (i) requires no payment of principal prior to or on
the Stated Maturity Date and (ii) is expressly subordinate and junior in right
of payment to the Notes or the Subsidiary Guarantees, as the case may be.
"SUBSIDIARY" with respect to any Person means, as of each relevant time,
(i) a corporation with respect to which such Person or its Subsidiaries (or any
combination thereof) own or control, directly or indirectly, at least 50% of
such corporation's Voting Stock, (ii) a partnership in which such Person or a
Subsidiary of such Person is, at the time, a general partner of such partnership
and has more than 50% of the total voting power of partnership interests, or
(iii) any other Person (other than a corporation or a partnership) in which such
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Person, one or more Subsidiaries of such Person, or such Person and one or more
Subsidiaries of such Person, directly or indirectly, has (a) at least a 50%
ownership interest or (b) the power to elect or direct the election of the
directors or other governing body of such other Person.
"SUBSIDIARY GUARANTEE" means any guarantee of the Notes by any Subsidiary
Guarantor pursuant to the provisions of this Indenture.
"SUBSIDIARY GUARANTORS" means (i) RB Operating Company, a Delaware
corporation, (ii) RLP Gulf States, L.L.C., an Oklahoma limited liability
company, and (iii) each other Person that guarantees the payment and performance
of the Notes in accordance with the provisions of this Indenture, in each case,
until any such Person shall be released and relieved of its obligations as a
Subsidiary Guarantor pursuant to the provisions of this Indenture.
"SWAP OBLIGATION" of any Person means any Interest Rate or Currency
Agreement or Hedging Contract entered into with one or more financial
institutions or one or more futures exchanges in the ordinary course of business
and not for purposes of speculation that is designed to protect such Person
against risks or fluctuations that arise in the ordinary course of business of
the Company and the Subsidiary Guarantors in (i) interest rates related to
payment obligations on Indebtedness (other than Permitted Indebtedness)
permitted to be Incurred pursuant to the provisions of SECTION 4.7(a) and which
shall have a notional amount no greater than 100% of the principal amount of
such Indebtedness being hedged thereby, (ii) currency exchange rate fluctuations
related to the payment obligations on Indebtedness (other than Permitted
Indebtedness) permitted to be Incurred pursuant to the provisions of
SECTION 4.7(a) or to the foreign currency cash flows reasonably expected to be
generated by the Company and the Subsidiary Guarantors and the notional
principal amount of such currency exchange obligations does not exceed the
amount of such foreign currency cash flows to which they relate, or (iii)
fluctuations in oil and gas prices.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA, except as provided in SECTION 9.3; PROVIDED, HOWEVER, that, in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by such amendments, the Trust
Indenture Act of 1939 as so amended.
"TRUSTEE" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.
"UNRESTRICTED NON-RECOURSE INDEBTEDNESS" of any Unrestricted Subsidiary
means (i) Indebtedness of such Person that is secured solely (other than with
respect to clause (ii) below) by a Lien upon the stock of an Unrestricted
Subsidiary of such Person and as to which there is no recourse (other than with
respect to clause (ii) below) against such Person or any of its assets other
than against such stock (and the dollar amount of any Indebtedness of such
Person as described in this clause (i) shall be deemed to be zero for purposes
of all other provisions of this Indenture) and (ii) guarantees of the
Indebtedness of Unrestricted Subsidiaries of such Person.
"UNRESTRICTED SUBSIDIARY" means, in respect of any Person, any other Person
("Other Person") that would, but for this definition of "Unrestricted
Subsidiary", be a Restricted Subsidiary of such Person organized or acquired
after the Issue Date as to which all of the following conditions apply:
(i) neither such Person nor any of its other Subsidiaries provides, or is
obligated to provide, any credit support of any Indebtedness, or other financial
support, of such Other Person (including any undertaking, agreement or
instrument evidencing such
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Indebtedness or maintenance or preservation of such Other Person's financial
condition or to cause such Other Person to achieve any specified levels of
operating results); (ii) such Other Person is not liable, directly or
indirectly, with respect to any Indebtedness other than Unrestricted
Subsidiary Indebtedness and does not own any Capital Stock of, or own or hold
any Lien on any property of, such Person or any of its other Restricted
Subsidiaries; (iii) neither such Person nor any of its Restricted
Subsidiaries has made an Investment in such Other Person unless such
Investment was permitted by the provisions of SECTION 4.8, and neither such
Person nor any of its Restricted Subsidiaries has any obligations to make any
Investment in such Other Person; (iv) such Other Person, either alone or in
the aggregate with all other Unrestricted Subsidiaries, does not operate or
own, directly or indirectly, any significant portion of the assets or
business of such Person and its other Subsidiaries; and (v) the Board of
Directors of such Person, as provided below, shall have designated such Other
Person to be an Unrestricted Subsidiary on or prior to the date of
organization or acquisition of such Other Person. Any such designation by the
Board of Directors of such Person shall be evidenced to the Trustee by
delivering to the Trustee a Board Resolution thereof giving effect to such
designation and an Officers' Certificate certifying that such designation
complies with the foregoing conditions and was permitted by the provision of
SECTION 4.8.
"UNRESTRICTED SUBSIDIARY INDEBTEDNESS" means, as to any Unrestricted
Subsidiary of any Person, Indebtedness of such Unrestricted Subsidiary (i) as to
which neither such Person nor any Subsidiary of such Person (a) is directly or
indirectly liable (by virtue of such Person or any such Subsidiary being the
primary obligor on, guarantor of, general partner of, or otherwise liable in any
respect to, such Indebtedness), or (b) constitutes a lender, (ii) no default
with respect to which would permit any holder of any Indebtedness of such Person
or any Subsidiary of such Person to declare a default on such Indebtedness of
such Person or any Subsidiary of such Person or cause the payment thereof to be
accelerated or payable prior to its stated maturity, and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of such Person or any of its Subsidiaries.
"VOTING STOCK" means Capital Stock of a Person entitled (without regard to
the occurrence of any contingency) to vote in the election of the directors,
managers, trustees or similar Persons of such Person.
"WHOLLY OWNED SUBSIDIARY" means any Subsidiary to the extent (i) all of the
Capital Stock or other ownership interests in such Subsidiary, other than any
directors' qualifying shares mandated by applicable law, is owned directly or
indirectly by the Company or (ii) such Subsidiary is organized in a foreign
jurisdiction and is required by the applicable laws and regulations of such
foreign jurisdiction to be partially owned by the government of such foreign
jurisdiction or individual or corporate citizens of such foreign jurisdiction or
another foreign jurisdiction in order for such Subsidiary to transact business
in such foreign jurisdiction, PROVIDED THAT the Company, directly or indirectly,
owns the remaining Capital Stock or ownership interests in such Subsidiary and,
by contract or otherwise, controls the management and business of such
Subsidiary and derives the economic benefits of ownership of such Subsidiary to
substantially the same extent as if such Subsidiary were a wholly owned
Subsidiary.
"WHOLLY OWNED SUBSIDIARY GUARANTOR" means any Subsidiary Guarantor to the
extent (i) all of the Capital Stock or other ownership interests in such
Subsidiary Guarantor, other than any directors' qualifying shares mandated by
applicable law, is owned directly or indirectly by the Company or (ii) such
Subsidiary Guarantor is organized in a foreign jurisdiction and is required by
the applicable laws and regulations of such foreign jurisdiction to be partially
owned by the government of such jurisdiction or individual or corporate citizens
of such foreign jurisdiction or another foreign jurisdiction in order for such
Subsidiary
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Guarantor to transact business in such foreign jurisdiction, PROVIDED THAT
the Company, directly or indirectly, owns the remaining Capital Stock or
ownership interests in such Subsidiary Guarantor and, by contract or
otherwise, controls the management and business of such Subsidiary Guarantor
and derives the economic benefits of ownership of such Subsidiary Guarantor
to substantially the same extent as if such Subsidiary Guarantor were a
Wholly Owned Subsidiary of the Company.
SECTION 1.2 OTHER DEFINITIONS.
Defined in
Term Section
---- ----------
"ADJUSTED NET ASSETS"........................... 10.7
"AGENT MEMBERS"................................. 2.1
"BENEFITTED PARTY".............................. 10.1
"CHANGE OF CONTROL OFFER"....................... 4.17
"CHANGE OF CONTROL PAYMENT DATE"................ 4.17
"CHANGE OF CONTROL PURCHASE PRICE".............. 4.17
"COVENANT DEFEASANCE"........................... 8.3
"DTC"........................................... 2.3
"EVENT OF DEFAULT".............................. 6.1
"EXCESS CASH"................................... 4.11
"EXCESS CASH ACCEPTANCE AMOUNT.................. 4.11
"EXCESS CASH OFFER"............................. 4.11
"EXCESS CASH OFFER AMOUNT"...................... 4.11
"EXCESS CASH OFFER PRICE"....................... 4.11
"EXCESS CASH OFFER TRIGGER DATE"................ 4.11
"EXCESS CASH PURCHASE DATE"..................... 4.11
"FUNDING GUARANTOR"............................. 10.7
"INTEREST PAYMENT DATE"......................... Exhibit A
"LEGAL DEFEASANCE".............................. 8.2
"OFFER PERIOD".................................. 3.9
"ORIGINAL NOTES"................................ 2.2
"PAYING AGENT".................................. 2.3
"REGISTRAR"..................................... 2.3
"RESTRICTED PAYMENT"............................ 4.8
"SUBSIDIARY GUARANTEE".......................... 10.1
SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"INDENTURE SECURITIES" means the Notes and the Subsidiary Guarantees;
"INDENTURE SECURITY HOLDER" means a Holder of a Note;
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"INDENTURE TO BE QUALIFIED" means this Indenture;
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee;
"OBLIGOR" on the Notes means the Company, any Subsidiary Guarantor and any
successor obligor upon the Notes.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by Commission rule under the TIA
have the meanings so assigned to them.
SECTION 1.4 RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(iii) "OR" is not exclusive, and "INCLUDING" means "including
without limitation", "including but not limited to" or words of similar
import;
(iv) words in the singular include the plural, and in the plural
include the singular;
(v) the words "HEREIN", "HEREOF" and "HEREUNDER" and other words
of similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
(vi) all references herein to particular Articles, Sections,
clauses or subclauses of Sections and Exhibits refer to this Indenture unless
expressly otherwise as indicated;
(vii) provisions apply to successive events and transactions;
and
(viii) references to sections of or rules under the Securities
Act or the Exchange Act shall be deemed to include substitute, replacement
of successor sections or rules adopted by the Commission from time to time.
ARTICLE 2
THE NOTES
SECTION 2.1 FORM AND DATING.
(a) GENERAL. The Notes, the notation thereon relating to the Subsidiary
Guarantees and the Trustee's certificate of authentication shall be
substantially in the form of EXHIBIT A. The Notes may have notations, legends
or endorsements required by law, stock exchange rule or usage. Each Note shall
be issued in fully-registered form, without coupon, in minimum
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denominations of $1,000 and integral multiples thereof, and shall be dated
the date of its authentication.
All Notes issued pursuant to this Indenture shall be considered
collectively to be a single class for all purposes of this Indenture, including,
waivers, amendments, redemptions and offers to purchase.
The terms and provisions contained in the form of the Notes and the
notation thereon relating to the Subsidiary Guarantees annexed hereto as
EXHIBIT A and the Subsidiary Guarantees shall constitute, and are hereby
expressly made, a part of this Indenture, and the Company, the Subsidiary
Guarantors and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby.
(b) GLOBAL NOTES.
(i) GENERALLY. The Notes initially offered and sold pursuant to the
Prospectus shall be issued in the form of one or more permanent global notes and
shall be substantially in the form of EXHIBIT A (including the text referred to
in footnotes 1 and 2 thereto and the schedule referred to in footnote 3 thereto,
but excluding, to the extent therein referenced, the text referred to in
footnote a thereto). Each Global Note shall be deposited on behalf of the
purchasers of the Notes represented thereby with, or on behalf of, the
Depository, registered in the name of the Depository or its designated nominee,
duly executed by the Company and authenticated by the Trustee as herein
provided. Each Global Note shall represent such of the outstanding Notes as
shall be specified therein, and each shall provide that it shall represent the
aggregate amount of outstanding Notes from time to time endorsed thereon and
that the aggregate amount of outstanding Notes represented thereby may from time
to time be increased, subject to the limitation set forth in SECTION 2.2, or
decreased, by adjustments made on the records of the Trustee and the Depository
or its nominee as herein provided. Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the amount of outstanding Notes
represented thereby shall be made by the Trustee or the Note Custodian, at the
direction of the Trustee, in accordance with instructions given by the Holder
thereof as required by SECTION 2.6. The Notes shall remain in the form of
Global Notes until the occurrence of either of the events specified in CLAUSE
(y) OR (z) of SECTION 2.6(b)(ii) and the completion of the cancellation and
reissuance procedures therein provided.
(ii) BOOK-ENTRY PROVISIONS. The Company shall execute and the Trustee
shall, in accordance with SECTION 2.2, authenticate and deliver each Global Note
that shall be (i) registered in the name of the Depository or its nominee and
(ii) delivered by the Trustee to the Depository or pursuant to the Depository's
instructions or held by the Trustee as Note Custodian for the Depository. With
respect to the Notes that are represented by a Global Note, the Company
authorizes the execution and delivery by the Trustee of a letter of
representation or other similar agreement or instrument in the form customarily
provided by the Depositary appointed with respect to such Global Note.
Members of, or participants in, the Depository ("AGENT MEMBERS") shall have
no rights either under this Indenture with respect to any Global Note held on
their behalf by the Depository (or its nominee), or the Note Custodian as its
custodian, or under such Global Note, and the Depository may be treated by the
Company, the Subsidiary Guarantors, the Trustee and any agent of the Company,
the Subsidiary Guarantors or the Trustee as the absolute owner and Holder of
such Global Note for all purposes whatsoever, including the Person (i) through
whom all rights of ownership may be exercised, (ii) to whom all notices are
required to be made, and (iii) entitled to receive payments from or at the
direction of the Company with respect to the Notes. Notwithstanding the
foregoing, (y) the registered Holder of a Global
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Note may grant proxies and otherwise authorize any Person, including Agent
Members and Persons that may hold interests through Agent Members, to take
action that a Holder is entitled to take under this Indenture or the Notes
and (z) nothing herein shall prevent the Company, the Subsidiary Guarantors,
the Trustee or any agent of the Company, the Subsidiary Guarantors or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or shall impair, as between the
Depository and its Agent Members, the operation of customary practices and
procedures of such Depository governing the exercise of the rights of an
owner of a beneficial interest of any Note.
(c) DEFINITIVE NOTES. Notes shall be issued in definitive form upon
either of the occurrences specified in CLAUSE (y) OR (z) of SECTION 2.6(b)(II),
and when so issued, shall be substantially in the form of EXHIBIT A (including
the modification provided for in footnote a thereto, but excluding the text
referred to in footnotes 1 and 2 thereto and the schedule referred to in
footnote 3 thereto) and executed, authenticated and delivered as provided for
in, or referred to by, SECTION 2.6(b)(II).
SECTION 2.2 EXECUTION AND AUTHENTICATION.
One Officer shall sign the Notes for the Company by manual or facsimile
signature. If an Officer whose signature is on a Note no longer holds that
office at the time the Trustee authenticates the Note, the Note shall
nevertheless be valid. Each Subsidiary Guarantor shall execute its Subsidiary
Guarantee in the manner set forth in SECTION 10.8.
A Note shall not be valid until authenticated by the manual signature of
the Trustee. The signature shall be conclusive evidence that the Note has been
authenticated under this Indenture. The form of Trustee's certificate of
authentication to be borne by the Notes shall be substantially as set forth in
EXHIBIT A.
The Trustee shall authenticate (i) the Notes for original issue on the
Issue Date in the aggregate principal amount of $115,000,000 (the "ORIGINAL
NOTES") and (ii) additional Notes for original issue from time to time after the
Issue Date in such principal amount as may be set forth in a written order of
the Company delivered to the Trustee, which written order shall specify (a) the
amount of Notes to be authenticated and the date of original issue thereof and
(b) the amount of Notes to be issued in global form or definitive form. The
aggregate principal amount of Notes outstanding at any time may not exceed
$115,000,000 PLUS such additional principal amounts as may be issued and
authenticated pursuant to CLAUSE (ii) of this paragraph, except as provided in
SECTION 2.7.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Notes. An authenticating agent may authenticate Notes whenever
the Trustee may do so. Each reference in this Indenture to authentication by
the Trustee includes authentication by such agent. An authenticating agent has
the same rights as an Agent to deal with the Company or an Affiliate of the
Company.
At any time and from time to time after the execution of this Indenture,
the Trustee or an authenticating agent shall upon receipt of a written order of
the Company signed by two Officers or by an Officer and either an assistant
secretary or an assistant treasurer of the Company authenticate for original
issue Notes in the aggregate principal amount specified in such order; PROVIDED
THAT the Trustee shall be entitled to receive an Officers' Certificate and an
Opinion of Counsel of the Company that it may reasonably request in connection
with such authentication of Notes. Such order shall specify the amount of Notes
to be authenticated, the date on which the original issue of Notes is to be
authenticated and the aggregate principal amount of Notes then authorized.
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SECTION 2.3 REGISTRAR AND PAYING AGENT; DEPOSITORY APPOINTMENT.
The Company shall maintain an office or agency where Notes may be presented
for registration of transfer or for exchange ("REGISTRAR") and an office or
agency where Notes may be presented for payment ("PAYING AGENT"). The Registrar
shall keep a register of the Notes and of their transfer and exchange. The
Company may appoint one or more co-registrars and one or more additional paying
agents. The term "REGISTRAR" includes any co-registrar and the term "PAYING
AGENT" includes any additional paying agent. The Company may change any Paying
Agent or Registrar without notice to any Holder. The Company shall notify the
Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any
domestically incorporated Wholly Owned Subsidiary Guarantor may act as Paying
Agent, Registrar or co-registrar. The Company shall enter into an appropriate
agency agreement with any Registrar or Paying Agent not a party to this
Indenture. The agreement shall implement the provisions of this Indenture that
relate to such Agent.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Note Custodian with respect to the Global Notes.
The Company initially appoints The Depository Trust Company ("DTC") to act
as Depository with respect to the Global Notes.
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent (other than the Trustee) to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, of premium, if any, or interest on the Notes and will notify the
Trustee of any default by the Company in making any such payment. While any
such default continues, the Trustee may require a Paying Agent to pay all money
held by it to the Trustee and to account for any funds disbursed. The Company
at any time may require a Paying Agent to pay all money held by it to the
Trustee and to account for any funds disbursed. Upon payment over to the
Trustee and upon accounting for all funds disbursed, the Paying Agent (if other
than the Company or a Subsidiary thereof) shall have no further liability for
the money. If the Company or a Subsidiary thereof acts as Paying Agent, it
shall segregate and hold in a separate trust fund for the benefit of the Holders
all money held by it as Paying Agent. Upon any bankruptcy or reorganization
proceedings relating to the Company, the Trustee shall serve as Paying Agent for
the Notes. Each Paying Agent shall otherwise comply with TIA Section 317(b).
SECTION 2.5 HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee
is not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each Interest Payment Date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes, and the Company shall otherwise comply with TIA Section 312(a).
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SECTION 2.6 TRANSFER AND EXCHANGE.
(a) TRANSFER AND EXCHANGE NOTES - GENERALLY. When a Note is presented by
a Holder to the Registrar or co-registrar with a request:
(y) to register the transfer of the Note; or
(z) to exchange such Note for an equal principal amount of Notes
of other authorized denominations,
the Registrar or a co-registrar shall register the transfer or make the exchange
as requested if its requirements for such transactions are met; PROVIDED,
HOWEVER, that each Note presented or surrendered for register of transfer or
exchange shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar or a co-registrar duly executed
by such Holder or by its attorney, duly authorized in writing.
To permit registrations of transfers and exchanges, the Company shall
execute and the Trustee shall authenticate Notes at the Registrar's or a co-
registrar's request and upon surrender and submission of the applicable Note or
Notes. No service charge shall be made to a Holder for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or similar governmental charge
payable upon exchange or transfer pursuant to SECTIONS 3.7, 3.9, 4.11, 4.17 and
9.5). Neither the Registrar nor a co-registrar shall be required to register
the transfer or exchange of (i) any Note selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part, or (ii)
any Note the transfer of which is not required by the Company pursuant to this
SECTION 2.6(a). All Notes issued upon any registration of transfer or exchange
pursuant to the applicable terms of this Indenture shall be the valid
obligations of the Company, evidencing the same debt, and entitled to the same
benefits under this Indenture, as the Notes surrendered upon such registration
of transfer or exchange.
The Company shall not be required:
(w) to issue, to register the transfer or exchange of, or
to exchange, Notes during a period beginning at the opening of
business 15 days before the day of any selection of Notes for
redemption under SECTION 3.2 or repurchase under SECTION 3.9, 4.11 OR
4.17, and ending at the close of business on the day of selection;
(x) to register the transfer or exchange of or to exchange
any Note so selected for redemption or repurchase in whole or in part,
except the unredeemed or unpurchased portion of any Note being
redeemed or repurchased in part;
(y) to register the transfer of or to exchange a Note
between a record date and the next succeeding interest payment date;
or
(z) to register the transfer of or to exchange a Note other
than in amounts of $1,000 or integral multiples thereof.
Prior to due presentment for the registration of a transfer or exchange of
any Note, the Trustee, any Agent and the Company may deem and treat the Person
in whose name any Note is registered as the absolute owner of such Note for the
purpose of receiving payment of
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principal of and premium (if any) and interest on such Note and for all other
purposes whatsoever (whether or not the Note is overdue), and neither the
Trustee, any Agent nor the Company shall be affected by notice to the
contrary.
(b) TRANSFER AND EXCHANGE OF GLOBAL NOTES.
(i) GENERALLY. Notwithstanding anything to the contrary contained in
SECTION 2.6(a), transfers of Global Notes shall be limited to transfers thereof
in whole, but not in part, and may be transferred as a whole only by the
Depository to a nominee of the Depository or by a nominee of the Depository to
the Depository or another nominee of the Depository or by the Depository or any
such nominee to a successor Depository or a nominee of such successor
Depository; PROVIDED, that each such transfer is effected through the
Depository, its applicable rules and procedures and otherwise in accordance with
this Indenture. The transfer and exchange of beneficial interests in the Global
Notes shall be effected through the Depository, in accordance with this
Indenture and the rules and procedures of the Depository that apply to such
transfer or exchange.
(ii) EXCHANGE OF GLOBAL NOTES FOR DEFINITIVE NOTES; AUTHENTICATION OF
DEFINITIVE NOTES. Definitive Notes shall be transferred to all beneficial owners
of Global Notes in exchange for their beneficial interest in such Global Notes
IF, AND ONLY IF, either (y) the Company notifies the Trustee in writing that the
Depository has notified it that the Depository is unwilling or unable to
continue as Depository for the Global Notes and a qualified successor Depository
for the Global Notes is not appointed by the Company within 90 days after
delivery of such notice; or (z) the Company, at its option, notifies the Trustee
in writing that it elects to cause the issuance of Definitive Notes under this
Indenture. Then, upon surrender of the Global Notes by the Depository or on
behalf of the Depository by its nominee or the Note Custodian, the Company shall
execute, and the Trustee shall, upon receipt of an authentication order in
accordance with SECTION 2.2, authenticate and deliver, Definitive Notes to the
Persons that the Depository and, if applicable, its nominee identify as being
the owners of the respective beneficial interests in the Global Notes, in an
aggregate principal amount equal to the principal amount of the Global Notes in
exchange for such Global Notes. Neither the Company nor the Trustee will be
liable for any delay by the Holder of a Global Note or the Depository or any
Agent Member in identifying the beneficial owners of the Notes, and the Company
and the Trustee may rely on, and will be protected in relying on, instructions
from, or pursuant to proxies or similar instruments granted by, the Holder of a
Global Note or the Depository for all such purposes.
(iii) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTES. At such
time as all beneficial interests in Global Notes have been exchanged for
Definitive Notes, redeemed, repurchased or canceled, all Global Notes shall be
surrendered to or retained and cancelled by the Trustee in accordance with
SECTION 2.11. At any time prior to such cancellation, if any beneficial
interest in a Global Note is redeemed, repurchased or cancelled, the principal
amount of Notes represented by such Global Note shall be reduced accordingly by
adjustments made on the records of the Trustee and the Depository and further
reflected by an endorsement made on a schedule to such Global Note by the
Trustee or the Note Custodian, at the direction of the Trustee, to reflect such
reduction.
SECTION 2.7 REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee or the Company, and the
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Note, the Company shall issue and the Trustee shall authenticate a
replacement Note if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by
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the Holder that is sufficient in the judgment of the Trustee and the Company
to protect the Company, the Trustee, any Agent and any authenticating agent
from any loss that any of them may suffer if a Note is replaced. The Company
may charge for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and shall
be entitled to all of the benefits of this Indenture equally and proportionately
with all other Notes duly issued hereunder.
SECTION 2.8 OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those canceled by it, those delivered to it for cancellation,
those redeemed, those repurchased pursuant to SECTION 3.9, 4.11 OR 4.17, those
reductions in the interest in a Global Note effected by the Trustee in
accordance with the provisions hereof and those described in this Section as not
outstanding. Except as set forth in SECTION 2.9, a Note does not cease to be
outstanding because the Company, any of the Subsidiary Guarantors or any
Affiliate of the Company or any of the Subsidiary Guarantors holds the Note.
If a Note is replaced pursuant to SECTION 2.7, it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Note is
held by a bona fide purchaser.
If the principal amount of any Note is considered paid under SECTION 4.1
and the Paying Agent is not prohibited from paying such money to the Holders on
the date due for the payment of such money, it ceases to be outstanding and
interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an Affiliate
of any thereof) holds, on a redemption date or maturity date, money sufficient
to pay Notes payable on that date, then on and after that date such Notes shall
be deemed to be no longer outstanding and shall cease to accrue interest.
SECTION 2.9 TREASURY NOTES.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, any of the Subsidiary Guarantors or any Affiliate of the Company or any
of the Subsidiary Guarantors, shall be considered as though not outstanding,
except that for the purposes of determining whether the Trustee shall be
protected in relying on any such direction, waiver or consent, only Notes as to
which either (i) a Responsible Officer actually knows are so owned, or
(ii) written notice of such ownership has been given to the Trustee by the
Company, the Depository or the Registrar, shall be so disregarded.
SECTION 2.10 TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Company may prepare and
the Trustee shall authenticate temporary Notes upon a written order of the
Company signed by two Officers thereof. Temporary Notes shall be substantially
in the form of Global Notes or Definitive Notes, as applicable, but may have
variations that the Company considers appropriate for temporary Notes and as
shall be reasonably acceptable to the Trustee. Without unreasonable delay, the
Company shall prepare and the Trustee shall authenticate Definitive Notes or the
Global Note, as applicable, in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of this
Indenture.
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SECTION 2.11 CANCELLATION.
The Company at any time may deliver Notes to the Trustee for cancellation.
The Registrar and Paying Agent shall forward to the Trustee any Notes
surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, redemption, repurchase, replacement or cancellation
and shall destroy (subject to record retention requirements of the Exchange Act)
such cancelled Notes. The Trustee shall provide a certificate of destruction to
the Company from time to time, at the written request of the Company. The
Company may not issue new Notes to replace Notes that it has redeemed,
repurchased, paid or that have been delivered to the Trustee for cancellation.
If the Company or any Subsidiary Guarantor shall acquire any of the Notes (other
than pursuant to SECTION 3.9, 4.11 OR 4.17), such acquisition shall not operate
as a redemption, repurchase or satisfaction of the Indebtedness represented by
such Notes unless and until the same are surrendered to the Trustee for
cancellation pursuant to this SECTION 2.11.
SECTION 2.12 DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, it shall pay
the defaulted interest in any lawful manner plus, to the extent lawful, interest
payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, in each case at the rate provided in the Notes
and in SECTION 4.1. The Company shall notify the Trustee in writing of the
amount of defaulted interest proposed to be paid on each Note and the date of
the proposed payment. The Company shall fix or cause to be fixed each such
special record date and payment date, provided that no such special record date
shall be less than 10 days prior to the related payment date for such defaulted
interest. At least 15 days before the special record date, the Company (or,
upon the written request of the Company, the Trustee in the name and at the
expense of the Company) shall mail or cause to be mailed to Holders a notice
that states the special record date, the related payment date and the amount of
such interest to be paid.
SECTION 2.13 CUSIP NUMBERS.
The Company in issuing the Notes may use "CUSIP" numbers (if then generally
in use), and, if so, the Trustee shall use CUSIP numbers in notices of
redemption or repurchase (as applicable) as a convenience to Holders; PROVIDED
THAT any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Notes or as contained in
any notice of a redemption or repurchase (as applicable) and that reliance may
be placed only on the other identification numbers printed on the Notes, and any
such redemption or repurchase (as applicable) shall not be affected by any
defect in or omission of such numbers. The Company shall promptly notify the
Trustee of any change in the CUSIP numbers.
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ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.1 NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional redemption
provisions of SECTION 3.7, it shall furnish to the Trustee, at least 45 days but
not more than 60 days before a redemption date, an Officers' Certificate setting
forth (i) the clause of this Indenture pursuant to which the redemption shall
occur, (ii) the redemption date, (iii) the principal amount of Notes to be
redeemed and (iv) the redemption price.
SECTION 3.2 SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed at any time, the Trustee
shall select the Notes to be redeemed among the Holders of the Notes in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed or, if the Notes are not so listed, on a
PRO RATA basis, by lot or in accordance with any other method the Trustee
considers fair and appropriate; PROVIDED THAT no Note of $1,000 or less will be
redeemed in part. In the event that less than all of the Notes are to be
redeemed by lot, the particular Notes to be redeemed shall be selected, unless
otherwise provided herein, not less than 30 nor more than 60 days prior to the
redemption date by the Trustee from the outstanding Notes not previously called
for redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder shall be redeemed. Except as
provided in the preceding sentence, provisions of this Indenture that apply to
Notes called for redemption also apply to portions of Notes called for
redemption.
The provisions of the two preceding paragraphs of this SECTION 3.2 shall
not apply with respect to any redemption affecting only a Global Note, whether
such Global Note is to be redeemed in whole or in part. In case of any such
redemption in part, the unredeemed portion of the principal amount of the Global
Note shall be in an authorized denomination.
SECTION 3.3 NOTICE OF REDEMPTION.
Subject to the provisions of SECTION 3.9, at least 30 days but not more
than 60 days before a redemption date, the Company shall mail or cause to be
mailed, by first class mail, a notice of redemption to each Holder whose Notes
are to be redeemed at its registered address. Failure to receive such notice or
any defect in the notice to any such Holder shall not affect the validity of the
proceedings for the redemption of any other Notes or portion thereof.
The notice shall identify the Notes to be redeemed (including CUSIP number)
and shall state:
(i) the redemption date;
(ii) the redemption price;
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(iii) if any Note is being redeemed in part, the portion of
the principal amount of such Note to be redeemed and that, after the
redemption date upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion shall be issued upon
cancellation of the original Note;
(iv) the name and address of the Paying Agent;
(v) that Notes called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(vi) that, unless the Company defaults in making such
redemption payment, interest on Notes called for redemption ceases to
accrue on and after the redemption date;
(vii) the paragraph of the Notes and/or Section of this
Indenture pursuant to which the Notes called for redemption are being
redeemed; and
(viii) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed on
the Notes.
If any of the Notes to be redeemed is in the form of a Global Note, then
the Company shall modify such notice to the extent necessary to accord with the
procedures of the Depository applicable to redemption.
At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at its expense; PROVIDED, HOWEVER, that the Company
shall have delivered to the Trustee, at least 45 days (unless the Trustee and
the Company agree to a shorter period) prior to the redemption date, an
Officers' Certificate requesting that the Trustee give such notice and setting
forth the information to be stated in such notice as provided in the preceding
paragraph.
SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with SECTION 3.3, Notes
called for redemption become irrevocably due and payable on the redemption date
at the redemption price. A notice of redemption may not be conditional.
SECTION 3.5 DEPOSIT OF REDEMPTION PRICE.
On or prior to the redemption date, the Company shall deposit with the
Trustee or with the Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in SECTION 2.4) money sufficient
to pay the redemption price of and accrued interest on all Notes to be redeemed
on that date. The Trustee or the Paying Agent shall promptly return to the
Company any money deposited with the Trustee or the Paying Agent by the Company
in excess of the amounts necessary to pay the redemption price of, and accrued
interest on, all Notes to be redeemed.
If the Company complies with the provisions of the preceding paragraph, on
and after the redemption date, interest shall cease to accrue on the Notes or
the portions of Notes called for redemption. If a Note is redeemed on or after
an interest record date but on or prior to the related interest payment date,
then any accrued and unpaid interest shall be paid to the Person in whose name
such Note was registered at the close of business on such record date. If any
Note called for redemption shall not be so paid upon surrender for redemption
because of the
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failure of the Company to comply with the preceding paragraph, interest shall
be paid on the unpaid principal, from the redemption date until such
principal is paid, and to the extent lawful on any interest not paid on such
unpaid principal, in each case at the rate provided in the Note and in
SECTION 4.1.
SECTION 3.6 NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company shall issue
and the Trustee shall authenticate for the Holder at the expense of the Company
a new Note equal in principal amount to the unredeemed portion of the Note
surrendered.
SECTION 3.7 OPTIONAL REDEMPTION.
(a) The Notes will not be redeemable at the Company's option prior to
________ ____, 2003. Thereafter, the Notes will be subject to redemption at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' written notice, at the redemption prices (expressed as percentages of
principal amount) set forth below, plus accrued and unpaid interest thereon, if
any, to the applicable redemption date, if redeemed during the 12-month period
beginning on ________ ____ of the years indicated below:
YEAR PERCENTAGE
2003 ________%
2004 ________%
2005 ________%
2006 and thereafter 100.0000%
(b) Notwithstanding the foregoing, at any time on or prior to
________ ____, 2001, the Company may redeem up to an aggregate of 35% of the
aggregate principal amount of Notes originally issued, in cash, at a redemption
price of _______% of the principal amount thereof, together with accrued and
unpaid interest thereon to the redemption date, with the net proceeds of a
Public Equity Offering; PROVIDED that (i) at least 65% of the aggregate
principal amount of Notes originally issued remains outstanding immediately
after the occurrence of each such redemption and (ii) each such redemption shall
occur within 60 days of the date of the closing of each such Public Equity
Offering.
(c) Any redemption pursuant to this SECTION 3.7 shall be made pursuant to
the provisions of SECTIONS 3.1 THROUGH 3.6.
SECTION 3.8 MANDATORY REDEMPTION.
Except as set forth under SECTIONS 4.11 AND 4.17, the Company shall not be
required to make mandatory redemption payments or sinking fund payments with
respect to the Notes.
SECTION 3.9 OFFER TO PURCHASE BY APPLICATION OF EXCESS CASH.
(a) In the event that, pursuant to SECTION 4.11, the Company shall be
required to commence an Excess Cash Offer, it shall follow the procedures
specified below.
(i) The Excess Cash Offer shall be made to all Holders and shall
remain open for a period of at least 20 Business Days following its
commencement and no longer than 30 Business Days thereafter, except to the
extent that a longer period is required by applicable law (the "OFFER
PERIOD").
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(ii) If the Excess Cash Purchase Date is on or after an interest
record date and on or before the related interest payment date, any accrued
and unpaid interest thereon, if any, shall be paid to the Person in whose
name a Note is registered at the close of business on such record date, and
no additional interest shall be payable to Holders who tender Notes
pursuant to the Excess Cash Offer.
(iii) Within 10 days following any Excess Cash Offer Trigger Date,
the Company shall send, by first class mail, a notice to each of the
Holders at such Holder's registered address, with a copy to the Trustee.
The notice, which shall govern the terms of the Excess Cash Offer, shall
contain all instructions and materials necessary to enable such Holders to
tender Notes pursuant to the Excess Cash Offer, and shall state:
(A) that the Excess Cash Offer Trigger Date has occurred
pursuant to SECTION 4.11 and that the Company is offering to purchase
Notes in the aggregate principal amount of the Excess Cash Offer
Amount, in cash, at the corresponding Excess Cash Offer Price,
together with accrued and unpaid interest thereon, if any, to the
Excess Cash Purchase Date, which shall be a Business Day that is not
earlier than 30 days nor later than 60 days from the date such notice
is mailed;
(B) the amount of accrued and unpaid interest, if any, as
of the Excess Cash Offer Purchase Date;
(C) that any Note subject to the Excess Cash Offer not
tendered shall continue to accrue interest;
(D) that, unless the Company defaults in the payment of the
purchase price for the Notes payable pursuant to the Excess Cash
Offer, any such Notes accepted for payment pursuant to the Excess Cash
Offer shall cease to accrue interest after the Excess Cash Offer
Purchase Date;
(E) that Holders electing to have a Note purchased pursuant
to an Excess Cash Offer may only elect to have all of such Note
purchased (subject to the provisions of SECTION 3.9(a)(iii)(H)) and
may not elect to have only a portion of such Note purchased;
(F) that Holders electing to have a Note purchased pursuant
to any Excess Cash Offer shall be required to surrender the Note, with
the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Note completed to the Company or a Paying Agent at the address
specified in the notice at least three Business Days before the Excess
Cash Purchase Date;
(G) any Holder shall be entitled to withdraw its election
if the Company or the Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a facsimile
transmission or letter setting forth the name of the Holder, the
principal amount of the Note the Holder delivered for purchase and a
statement that such Holder is withdrawing its election to have such
Note purchased;
(H) that, if the aggregate principal amount of Notes
surrendered by Holders exceeds the Excess Cash Offer Amount or less
than all of the Notes tendered pursuant to the Excess Cash Offer are
accepted for
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payment by the Company for any reason consistent with this Indenture,
the Trustee shall select the Notes to be purchased in compliance with
the requirements of the principal national securities exchange, if
any, on which the Notes are listed or, if the Notes are not so listed,
on a PRO RATA basis, by lot or by such method as the Trustee deems
fair and appropriate; PROVIDED that Notes accepted for payment in part
will only be purchased in integral multiples of $1,000; and
(I) that Holders whose Notes were purchased only in part
shall be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered.
If any of the Notes subject to an Excess Cash Offer is in the form of a
Global Note, then the Company shall modify such notice to the extent necessary
to accord with the procedures of the Depository applicable to repurchases.
(b) On or before an Excess Cash Purchase Date, the Company shall comply
with each of the matters set forth in CLAUSES (i) THROUGH (iii) of
SECTION 4.11(f). The Paying Agent shall promptly mail to Holders of Notes so
accepted payment in an amount equal to the Excess Cash Offer Price, plus accrued
and unpaid interest thereon to the Excess Cash Purchase Date. The Trustee shall
promptly cancel all Notes accepted by the Company pursuant to the Excess Cash
Offer and authenticate and mail to the Holders of Notes so accepted a new Note
equal to the principal amount of any unpurchased portion of the Notes
surrendered. Any Notes not so accepted shall be promptly mailed by the Company
to the Holders thereof.
(c) Other than as specifically provided in this SECTION 3.9, any purchase
pursuant to this SECTION 3.9 shall be made pursuant to the provisions of
SECTIONS 3.1 THROUGH 3.6.
ARTICLE 4
COVENANTS
SECTION 4.1 PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company or a Subsidiary
Guarantor, holds as of 11:00 a.m. Eastern Time on the due date money deposited
by the Company in immediately available funds and designated for and sufficient
to pay all principal, premium, if any, and interest then due.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
at the rate that is 1% per annum in excess of the then applicable interest rate
on the Notes to the extent lawful; it shall pay interest (including post-
petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest (without regard to any applicable grace period) at the
same rate to the extent lawful.
SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar
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or co-registrar) where Notes may be presented for payment, surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served.
The Company shall give prompt written notice to the Trustee of the location,
and any change in the location, of such office or agency. If at any time the
Company shall fail to maintain any such required office or agency or shall
fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; PROVIDED, HOWEVER,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
the City of New York for such purposes. The Company shall give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee as
one such office or agency of the Company in accordance with SECTION 2.3.
SECTION 4.3 REPORTS.
(a) Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, the Company shall furnish to
the Trustee and the Holders of Notes (i) either the actual Forms 10-Q and 10-K
filed with the Commission within 15 days following the filing thereof, or all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such Forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" that describes the
consolidated financial condition and results of operations of the Company and,
with respect to the annual information only, a report thereon by the Company's
certified independent accountants, in each case, within 15 days following the
date such filing would be required to be filed with the Commission, and
(ii) either any actual Form 8-K filed with the Commission, or all information
that would be required to be contained in a filing with the Commission on
Form 8-K if the Company were required to file such Form. In addition, whether
or not required by the rules and regulations of the Commission, the Company
shall file a copy of all such information and reports with the Commission for
public availability (unless the Commission will not accept such a filing) and
make such information available to securities analysts and prospective investors
upon request. The Company shall at all times comply with TIA Section 314(a).
(b) Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company'
compliance with any of the covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 4.4 COMPLIANCE CERTIFICATE.
(a) The Company and each Subsidiary Guarantor shall deliver to the
Trustee, together with, and at the same time as the delivery of, the filings,
reports and information referred to in SECTION 4.3(a), an Officers' Certificate
stating that a review of the activities of the Company, the Subsidiary
Guarantors and their respective Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether each of the Company and the Subsidiary Guarantors has kept,
observed,
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performed and fulfilled its covenants and obligations under this Indenture,
and further stating, as to each such Officer signing such certificate, that
to the best of his or her knowledge, each of the Company and the Subsidiary
Guarantors has kept, observed, performed and fulfilled each and every
covenant and obligation contained in this Indenture and is not in default in
the performance or observance of any of the terms, provisions and conditions
of this Indenture (or, if a Default or Event of Default shall have occurred
and is continuing, describing all such Defaults or Events of Default of which
he or she may have knowledge and what action each of the Company and the
Subsidiary Guarantors (as applicable) is taking or proposes to take with
respect thereto) and that to the best of his or her knowledge, no event has
occurred and remains in existence by reason of which payments on account of
the principal of or premium, if any, or interest on the Notes are prohibited
or if such event has occurred, a description of the event and what action the
Company is taking or proposes to take with respect thereto. In addition, the
Company shall notify the Trustee of each change in the composition of the
Board of Directors of the Company and each of the Subsidiary Guarantors and
of each amendment to the charter or bylaws of the Company or each of the
Subsidiary Guarantors, in each case, such notification being made in writing
to the Trustee promptly following the occurrence of each such change in
composition or amendment.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to SECTION 4.3 shall be accompanied by a written
statement of the Company's independent public accountants (who shall be a firm
of established national reputation) that in making the examination necessary for
certification of such financial statements, nothing has come to their attention
that would lead them to believe that the Company has violated any provisions of
ARTICLE 4 or ARTICLE 5 or, if any such violation has occurred, specifying the
nature and period of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to any Person for any
failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
SECTION 4.5 TAXES.
The Company shall pay, and shall cause each of its Restricted Subsidiaries
to pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate proceedings
or where the failure to effect such payment is not adverse in any material
respect to the Holders of the Notes.
SECTION 4.6 STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
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SECTION 4.7 LIMITATION ON INCURRENCES OF ADDITIONAL INDEBTEDNESS AND
ISSUANCES OF DISQUALIFIED CAPITAL STOCK.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, Incur any Indebtedness or issue any
Disqualified Capital Stock, except that the Company or a Subsidiary Guarantor
may Incur Indebtedness and the Company may issue shares of Disqualified Capital
Stock if, on a PRO FORMA basis, after giving effect to such Incurrence or
issuance, as the case may be, and the application of the proceeds therefrom, all
of the following tests have been satisfied:
(i) the Consolidated Fixed Charge Coverage Ratio for the
Company's Reference Period for which internal financial statements are
available immediately preceding the date on which such additional
Indebtedness is Incurred or such Disqualified Capital Stock is issued
would have been (A) at least 2.0 to 1.0 if such additional
Indebtedness is Incurred or such Disqualified Capital Stock is issued
during the period commencing on the Issue Date and ending on
December 31, 1998 or (B) at least 2.5 to 1.0 if such additional
Indebtedness is Incurred or such Disqualified Capital Stock is issued
at any time thereafter;
(ii) no Default or Event of Default shall have occurred and be
continuing at the time such additional Indebtedness is Incurred or
such Disqualified Capital Stock is issued or would occur as the result
of such Incurrence of such additional Indebtedness or the issuance of
such Disqualified Capital Stock; and
(iii) the Company's Adjusted Consolidated Net Tangible Assets
as of the last day of the applicable Reference Period are equal to or
greater than 150% of the consolidated Indebtedness of the Company and
the Subsidiary Guarantors.
(b) Notwithstanding the foregoing, if no Default or Event of Default shall
have occurred and be continuing at the time or as a consequence of the
Incurrence of such Indebtedness, the Company and any Subsidiary Guarantor may
Incur Permitted Indebtedness.
(c) Any Indebtedness Incurred or Disqualified Capital Stock issued by any
Person that is not a Subsidiary of the Company or a Restricted Subsidiary of the
Company, which Indebtedness or Disqualified Capital Stock is outstanding at the
time such Person becomes a Restricted Subsidiary of, or is merged into, or
consolidated with the Company or such Restricted Subsidiary, as the case may be,
shall be deemed to have been Incurred or issued, as the case may be, at the time
such Person becomes a Restricted Subsidiary of, or is merged into, or
consolidated with the Company or a Subsidiary Guarantor.
SECTION 4.8 LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, (i) declare or pay any dividend on, or
make any other distribution to holders of, any shares of Capital Stock of the
Company or any Restricted Subsidiary of the Company (other than dividends or
distributions payable solely in shares of Qualified Capital Stock of the Company
or any Restricted Subsidiary of the Company or dividends or distributions
payable to the Company or any Wholly Owned Subsidiary Guarantor or warrants,
rights or options to acquire Qualified Capital Stock of the Company or any
Restricted
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Subsidiary of the Company), (ii) purchase, redeem or otherwise acquire or
retire for value any such shares of Capital Stock of the Company or any
Affiliate (other than any Capital Stock owned by the Company or any of its
Wholly Owned Subsidiary Guarantors), or any options, warrants or other rights
to acquire such Capital Stock, (iii) make any principal payment on or
repurchase, redeem, defease or otherwise acquire or retire for value any
Subordinated Indebtedness, prior to any scheduled principal payment,
scheduled sinking fund payment or maturity, or (iv) make any Restricted
Investment (such payments or other actions described in clauses (i) through
(iv) being collectively referred to as a "RESTRICTED PAYMENT"), unless at the
time of and after giving effect to the proposed Restricted Payment (the
amount of any such Restricted Payment, if other than cash, shall be the
amount determined by the Board of Directors of the Company, whose
determination shall be conclusive and evidenced by a Board Resolution, a copy
of which Board Resolution shall be delivered to the Trustee),
(1) no Default or Event of Default shall have occurred and be
continuing,
(2) the Company could Incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in accordance with the provisions of
SECTION 4.7(a), and
(3) the aggregate amount of all Restricted Payments declared or made
after the Issue Date shall not exceed the sum (without duplication) of the
following:
(A) 50% of the Adjusted Consolidated Net Income of the Company
accrued on a cumulative basis during the period commencing with the
first full quarter after the Issue Date and ending on the last day of
the Company's last fiscal quarter ending prior to the date of such
proposed Restricted Payment (or if Adjusted Consolidated Net Income is
a loss, MINUS 100% of such loss), PLUS
(B) the aggregate Net Proceeds received after the Issue Date by
the Company from the issuance or sale (other than with respect to the
Offering and other than to any Restricted Subsidiary of the Company)
of shares of Qualified Capital Stock of the Company or any options,
warrants or rights to purchase such shares of Qualified Capital Stock
of the Company, PLUS
(C) the aggregate Net Proceeds received after the Issue Date by
the Company (other than from any Restricted Subsidiary of the Company)
upon the exercise of any options, warrants or rights to purchase
shares of Qualified Capital Stock of the Company, PLUS
(D) the aggregate Net Proceeds received after the Issue Date by
the Company from the issuance or sale (other than to any Restricted
Subsidiary of the Company) of Indebtedness or shares of Disqualified
Capital Stock that have been converted into or exchanged for Qualified
Capital Stock of the Company, together with the aggregate cash
received by the Company at the time of such conversion or exchange,
MINUS
(E) the amount of any write-downs or writeoffs, other negative
revaluations, and other negative extraordinary charges not otherwise
reflected in Adjusted Consolidated Net Income of the Company during
such period.
(b) Notwithstanding SECTION 4.8(a), the Company and the Subsidiary
Guarantors may take the following actions so long as (in the case of CLAUSES
(2) AND (3) immediately below) no Default or Event of Default shall have
occurred and be continuing:
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(1) the payment of any dividend on Capital Stock of the Company or
any Subsidiary Guarantor within 60 days after the date of declaration
thereof, if at such declaration date such declaration complied with the
provisions of SECTION 4.8(a) above;
(2) the repurchase, redemption or other acquisition or retirement of
any shares of any class of Capital Stock of the Company or any Subsidiary
Guarantor, in exchange for, or out of the aggregate Net Proceeds from, a
substantially concurrent issue and sale (other than to a Subsidiary
Guarantor) of shares of Qualified Capital Stock of the Company;
(3) the repurchase, redemption, repayment, defeasance or other
acquisition or retirement for value of any Subordinated Indebtedness in
exchange for, or out of the aggregate Net Proceeds from, a substantially
concurrent issue and sale (other than to a Subsidiary Guarantor) of
(i) Subordinated Indebtedness (provided such Indebtedness is on terms no
less favorable to the Holders of the Notes than the terms of the
Subordinated Indebtedness being redeemed) or (ii) shares of Qualified
Capital Stock of the Company; and
(4) the redemption of 12 shares of Carlton's outstanding redeemable
preferred stock pursuant to the termination of all rights in respect of
such shares, except the right to receive the redemption price payable on
the scheduled redemption thereof as prescribed in Carlton's certificate of
incorporation, which redemption must occur no later than March 29, 1998.
The actions described in CLAUSE (1) of this SECTION 4.8(b) shall be
Restricted Payments that shall be permitted to be made in accordance with this
SECTION 4.8(b) but shall reduce the amount that would otherwise be available for
Restricted Payments under CLAUSE (3) of SECTION 4.8(a), PROVIDED THAT any
dividend paid pursuant to CLAUSE (1) of this SECTION 4.8(a) shall reduce the
amount that would otherwise be available under CLAUSE (3) of SECTION 4.8(a) when
declared, but not also when subsequently paid pursuant to CLAUSE (1) of this
SECTION 4.8(b), and PROVIDED THAT any Net Proceeds received under CLAUSES (2) OR
(3)(ii) of this SECTION 4.8(b) shall not be included in SUBCLAUSES (B) OR (C) of
CLAUSE (3) of SECTION 4.8(a).
SECTION 4.9 LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
RESTRICTED SUBSIDIARIES OF THE COMPANY.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, or permit or suffer to exist or
become effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company to (i) pay dividends or make other
distributions on its Capital Stock to the Company or any other Restricted
Subsidiary of the Company, (ii) make loans or advances or pay any Indebtedness
or other obligations owed to the Company or to any other Restricted Subsidiary
of the Company, or (iii) transfer any of its properties or assets to the Company
or to any other Restricted Subsidiary of the Company, except encumbrances and
restrictions existing under (a) this Indenture, any Permitted Bank Credit
Facility as in effect on the Issue Date and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, PROVIDED THAT such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings are no more restrictive with respect to such dividend and other
payment or transfer restrictions than those contained in the Permitted Bank
Credit Facility as in effect on the Issue Date and (b) any agreement of a Person
acquired by the Company or a Restricted Subsidiary of the Company, which
restrictions existed at the time of acquisition, were not put in place in
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anticipation of such acquisition, and are not applicable to any Person or
property, other than the Person or any property of the Person so acquired.
SECTION 4.10 LIMITATION ON TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter directly or indirectly into, or permit to exist, any
transaction or series of related transactions with or for the benefit of any
Affiliate except for transactions made in good faith, the terms of which are
fair and reasonable to the Company or such Restricted Subsidiary, as the case
may be, and are at least as favorable as the terms which could be obtained by
the Company or such Restricted Subsidiary, as the case may be, in a comparable
transaction made on an arm's length basis with Persons who are not Affiliates
and the Company delivers to the Trustee (i) with respect to any transaction or
series of related transactions with an Affiliate involving aggregate
consideration in excess of $1,000,000, an Officers' Certificate certifying that
such transaction or transactions comply with this covenant, (ii) with respect to
any transaction or series of related transactions with an Affiliate involving
aggregate consideration in excess of $2,000,000, a Board Resolution of the Board
of Directors of the Company set forth in an Officers' Certificate certifying
that such transaction or transactions comply with this covenant and that such
transaction or transactions have been approved in good faith by a majority of
the Disinterested Directors of such Board of Directors (which Board Resolution
shall be conclusive evidence of compliance with this provision), PROVIDED THAT
if there is not a majority of Disinterested Directors able to approve such
transaction, the Company shall also deliver an opinion as to the fairness, from
a financial point of view, to the Company or such Restricted Subsidiary of such
transaction or transactions issued by an investment banking firm of recognized
national standing, which opinion shall be conclusive evidence of compliance with
this provision, and (iii) with respect to any transaction or series of related
transactions with an Affiliate involving aggregate consideration in excess of
$5,000,000, a Board Resolution of the Board of Directors of the Company set
forth in an Officers' Certificate as described in SUBCLAUSE (ii) immediately
above and an opinion as to the fairness, from a financial point of view, to the
Company or such Restricted Subsidiary of such transaction or transactions issued
by an investment banking firm of recognized national standing, which Board
Resolution and opinion shall be conclusive evidence of compliance with this
provision; PROVIDED, HOWEVER, that this covenant will not restrict (a)
transactions between the Company and any Subsidiary Guarantor or transactions
between Subsidiary Guarantors, (b) Restricted Payments permitted by the
provisions of SECTION 4.8, (c) any employee compensation arrangements by the
Company or any of its Restricted Subsidiaries which has been approved by a
majority of the Company's Disinterested Directors and found in good faith by
such directors to be in the best interests of the Company or such Restricted
Subsidiary, as the case may be, and (d) customary directors' fees and
indemnification and similar arrangements.
SECTION 4.11 LIMITATION ON ASSET SALES.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company or such
Restricted Subsidiary, as the case may be, receives consideration at the time of
such Asset Sale at least equal to the fair market value (as determined in good
faith by a Board Resolution of the Board of Directors of the Company set forth
in an Officers' Certificate delivered to the Trustee, which determination shall
be conclusive evidence of compliance with this provision) of the assets or
Capital Stock being sold or issued or otherwise disposed of, and (ii) at least
85% of the value of the consideration for such Asset Sale consists of cash, Cash
Equivalents or Exchange Assets or any combination thereof; PROVIDED THAT the
amount of any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or such Restricted
Subsidiary (other than contingent liabilities and liabilities that are
Subordinated Indebtedness
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or otherwise by their terms subordinated to the Notes or the Subsidiary
Guarantees) that are assumed by the transferee of such assets pursuant to a
customary novation agreement that releases the Company and such Restricted
Subsidiary from further liability shall also be deemed to be cash for
purposes of this provision.
(b) Within 365 days after the receipt of any Net Cash Proceeds from an
Asset Sale, the Company or such Restricted Subsidiary may apply such Net Cash
Proceeds, at its option, in any order or combination (i) to repay and
permanently reduce Indebtedness outstanding under any Permitted Bank Credit
Facility to which it or any Subsidiary Guarantor is a party, (ii) to make
Capital Expenditures or (iii) to make other acquisitions of assets to be used in
the Company's and the Subsidiary Guarantors' Oil and Gas Business. Pending the
final application of any such Net Cash Proceeds, the Company or such Restricted
Subsidiary may temporarily invest such Net Cash Proceeds in any manner that is
not prohibited by the terms of this Indenture or temporarily reduce outstanding
revolving credit borrowings under Permitted Bank Credit Facilities. Any Net
Cash Proceeds from Asset Sales that are not applied as provided in CLAUSES
(i) THROUGH (iii) of the first sentence of this SECTION 4.11(b) will (after
expiration of the relevant periods) be deemed to constitute "EXCESS CASH".
(c) When the amount of Excess Cash exceeds $10,000,000 (the date of such
occurrence, the "EXCESS CASH OFFER TRIGGER DATE"), the Company will make an
irrevocable, unconditional offer (an "EXCESS CASH OFFER") to the Holders to
purchase the maximum amount of Notes which could be acquired by application of
such amount of Excess Cash as described herein (the "EXCESS CASH OFFER AMOUNT"),
in cash at the purchase price equal to 100% of the principal amount thereof (the
"EXCESS CASH OFFER PRICE"), together with accrued and unpaid interest to the
Excess Cash Purchase Date. Such Excess Cash Offer shall be effected pursuant to
the provisions of SECTION 3.9 and this SECTION 4.11.
(d) Notice of an Excess Cash Offer will be sent at least 30 and not more
than 60 days prior to the date on which the Notes tendered shall be accepted
(the "EXCESS CASH PURCHASE DATE"), by first-class mail, by the Company to each
Holder at the address on the Note Register, with a copy to the Trustee. Such
notice will set forth the Excess Cash Purchase Date and the Excess Cash Offer
shall remain open for at least 20 Business Days and close no later than 30
Business Days after the date such notice is given. The notice to the Holders
will contain all information, instructions and materials required by applicable
law or otherwise material to such Holders' decision to tender Notes pursuant to
the Excess Cash Offer.
(e) To the extent applicable and if required by law, the Company will
comply with Section 14 of the Exchange Act, the provisions of Regulation 14E and
any other tender offer rules under the Exchange Act and other securities laws,
rules and regulations which may then be applicable to any Excess Cash Offer by
the Company; and, if such laws, rules, and regulations require or prohibit any
action inconsistent with the foregoing, compliance by the Company with such
laws, rules, and regulations will not constitute a breach of its obligations
with respect to the foregoing.
(f) On or before an Excess Cash Purchase Date, the Company shall
(i) accept for payment Notes or portions thereof properly tendered pursuant to
the Excess Cash Offer, (ii) deposit with the Paying Agent money sufficient to
pay the Excess Cash Offer Price, plus accrued and unpaid interest thereon to the
Excess Cash Purchase Date of all Notes or portions thereof so accepted, and
(iii) deliver to the Trustee all Notes so accepted together with an Officers'
Certificate listing the Notes or portions thereof being purchased by the
Company. The Company will publicly announce the results of the Excess Cash
Offer on or as soon as practicable after the Excess Cash Purchase Date.
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(g) If the amount required to acquire all Notes tendered by Holders
pursuant to the Excess Cash Offer (the "EXCESS CASH ACCEPTANCE AMOUNT") shall be
less than the aggregate Excess Cash Offer Amount, then the excess of the Excess
Cash Offer Amount over the Excess Cash Acceptance Amount may be used by the
Company or any Subsidiary Guarantor for any of their respective general
corporate purposes, PROVIDED THAT no such purpose is prohibited or restricted by
this Indenture. Upon consummation of any Excess Cash Offer made in accordance
with the terms of this Indenture, the amount of Excess Cash will be reduced to
zero.
SECTION 4.12 LIMITATION ON LIENS.
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, incur or suffer to exist any Lien upon any of their
respective properties or assets, whether now owned or acquired after the Issue
Date, or any income, profits or proceeds therefrom, other than Permitted Liens.
SECTION 4.13 LIMITATION ON LINE OF BUSINESS.
The Company shall not engage, and shall not permit any of its Restricted
Subsidiaries to engage, in any line of business other than the Oil and Gas
Business.
SECTION 4.14 DESIGNATION OF UNRESTRICTED SUBSIDIARIES.
(a) The Board of Directors of the Company may designate any Subsidiary of
the Company to be an Unrestricted Subsidiary of the Company if such designation
would not cause a Default or an Event of Default and following such designation,
the Company could Incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to SECTION 4.7(a). For purposes of making such
determination, all outstanding Investments by the Company and its Restricted
Subsidiaries in the Subsidiary so designated which have not been repaid in cash
will be deemed to be Restricted Payments at the time of such designation and
will reduce the amount available for Restricted Payments under CLAUSE (3) of
SECTION 4.8(a). All such outstanding Investments will be deemed to constitute
Restricted Investments in an amount equal to the greater of the fair market
value or book value of such Investments at the time of such designation. Such
designation will only be permitted if such Restricted Payment would be permitted
at such time and if such Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary. In addition, the definition of "Unrestricted
Subsidiary" set forth in SECTION 1.1 describes additional requirements that a
Subsidiary of the Company must satisfy before it may be designated as an
Unrestricted Subsidiary of the Company by the Board of Directors of the Company.
(b) Neither the Company nor any Restricted Subsidiary of the Company nor
any Unrestricted Subsidiary of the Company may take any action or omit to take
any action which would cause any requirement in the definition of "Unrestricted
Subsidiary" set forth in SECTION 1.1 not to be at all times satisfied with
respect to any Unrestricted Subsidiary of the Company, other than pursuant to a
designation or redesignation (as applicable) as provided in SECTION 4.14(c).
If, at any time subsequent to the designation of a Person as an Unrestricted
Subsidiary of the Company and prior to a corresponding redesignation as provided
in SECTION 4.14(c), any requirement in the definition of "Unrestricted
Subsidiary" set forth in SECTION 1.1 is not met with respect to such
Unrestricted Subsidiary, then such Unrestricted Subsidiary shall thereafter
cease to be an Unrestricted Subsidiary of the Company for purposes of this
Indenture, and any Indebtedness of such Subsidiary shall be deemed Incurred as
of such date.
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(c) The Board of Directors of the Company may designate or redesignate (as
applicable) any Unrestricted Subsidiary of the Company as a Restricted
Subsidiary of the Company; PROVIDED THAT, (i) if such Unrestricted Subsidiary
has any Indebtedness outstanding or is otherwise liable for any Indebtedness or
has a negative Net Worth, then immediately after giving PRO FORMA effect to such
designation or redesignation, as applicable, the Company could Incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the provisions of SECTION 4.7(a) (assuming, for purposes of this calculation,
that each dollar of negative Net Worth is equal to one dollar of Indebtedness),
(ii) all Indebtedness of such Unrestricted Subsidiary shall be deemed to be
Incurred by a Restricted Subsidiary of the Company on the date such Unrestricted
Subsidiary becomes a Restricted Subsidiary, and (iii) no Default or Event of
Default would occur or be continuing after giving effect to such designation or
redesignation, as applicable. Any Subsidiary of an Unrestricted Subsidiary shall
be an Unrestricted Subsidiary for purposes of this Indenture.
SECTION 4.15 LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES OF THE COMPANY.
The Company shall not, directly or indirectly, sell or otherwise dispose of
any shares of Capital Stock of any of its Restricted Subsidiaries and shall not
permit any of its Restricted Subsidiaries, directly or indirectly, to issue or
sell or otherwise dispose of any of its Capital Stock except (i) to the Company
or a Wholly Owned Subsidiary Guarantor, or (ii) if all shares of Capital Stock
of such Restricted Subsidiary are sold or otherwise disposed of. In connection
with any sale or disposition of Capital Stock of any Restricted Subsidiary of
the Company, the Company shall comply with the provisions of SECTION 4.11.
SECTION 4.16 OWNERSHIP AND RECOGNITION OF SUBSIDIARIES; FUTURE GUARANTORS.
The Company shall at all times own, directly or indirectly, all of the
Capital Stock of each of its Restricted Subsidiaries. The Company and each
Subsidiary of the Company recognize and agree that all Persons (other than an
Unrestricted Subsidiary of the Company) now or hereafter becoming a Subsidiary
of the Company (whether by formation, acquisition or otherwise) shall be, and
shall be recognized as, a Subsidiary Guarantor for all purposes of this
Indenture. In furtherance (but not in limitation) of the foregoing,
simultaneously with the acquisition (by merger, consolidation, acquisition of
assets, stock or properties or otherwise) or formation of a Person which,
directly or indirectly, becomes a Subsidiary of the Company, or the occurrence
of any other event, circumstance or transaction pursuant to which, directly or
indirectly, a Person becomes a Subsidiary of the Company (in each case, other
than a Person then designated an Unrestricted Subsidiary of the Company in
accordance with SECTION 4.14), the Company shall cause such Person to become a
Subsidiary Guarantor pursuant to SECTION 10.2.
SECTION 4.17 OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, the Company shall make an
irrevocable, unconditional offer to repurchase (a "CHANGE OF CONTROL OFFER") and
shall, subject to the provisions of this SECTION 4.17 described below,
repurchase on a Business Day not more than 60 nor less than 30 days following
the occurrence of such Change of Control (the date on which the repurchase is
effected being referred to herein as the "CHANGE OF CONTROL PAYMENT DATE"), all
of the then outstanding Notes validly tendered pursuant to such Change of
Control Offer, at a cash purchase price equal to 101% of the principal amount
thereof (the "CHANGE OF CONTROL PURCHASE PRICE"), plus accrued and unpaid
interest thereon to the Change of Control Payment Date. The Change of Control
Offer shall remain open for at least 20 Business Days
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and until the close of business of the fifth Business Day prior to the Change
of Control Purchase Date.
(b) To effect such Change of Control Offer, the Company (i) shall, not
later than 5 Business Days after the occurrence of the Change of Control, notify
the Trustee and (ii) shall, not later than 20 Business Days after the occurrence
of the Change of Control, make a Change of Control Offer to the Holders of all
of the then outstanding Notes, by sending written notice of a Change of Control
Offer, by first class mail, to each Holder at its registered address, with a
copy to the Trustee. The notice to Holders shall contain all instructions and
materials required by applicable law, shall contain or make available to Holders
other information material to such Holders' decision to tender Notes pursuant to
the Change of Control Offer and shall otherwise govern the terms of the Change
of Control Offer.
(c) On or before the Change of Control Payment Date, the Company shall, to
the extent lawful, (i) accept for payment Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount sufficient to pay the Change of Control Purchase Price of all
Notes so tendered, and (iii) deliver or cause to be delivered to the Trustee all
Notes so accepted, together with an Officers' Certificate listing the Notes or
portions thereof being purchased by the Company. The Paying Agent will promptly
mail to the Holders of Notes so accepted payment in an amount equal to the
Change of Control Purchase Price for such Notes, plus accrued and unpaid
interest thereon to the Change of Control Payment Date, and the Trustee will
promptly cancel all Notes so accepted by the Company pursuant to the Change of
Control Offer and authenticate and mail (or cause to be transferred by book
entry) to such Holders new Notes equal in principal amount, as applicable, to
any unpurchased portion of the Note surrendered. Any Notes not so accepted will
be promptly mailed by the Company to the Holders thereof. The Company shall
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
(d) The Change of Control provisions of this SECTION 4.17 described above
shall be applicable whether or not any other provisions of this Indenture are
applicable.
(e) The Company shall not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer in
the manner, at the times and otherwise in compliance with the requirements set
forth in this Indenture applicable to a Change of Control Offer made by the
Company and repurchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
(f) To the extent applicable and if required by law, the Company shall
comply with Section 14 of the Exchange Act, the provisions of Regulation 14E and
any other tender offer rules under the Exchange Act and other securities laws,
rules and regulations which may then be applicable to any offer by the Company
to repurchase the Notes at the option of Holders upon a Change of Control; and,
if such laws, rules and regulations require or prohibit any action inconsistent
with the foregoing, compliance by the Company with such laws, rules, and
regulations will not constitute a breach of the Company's obligations with
respect to the foregoing.
SECTION 4.18 DISCHARGE OF CERTAIN PREFERRED STOCK.
On or before April 10, 1998, the Company shall fully and finally pay and
discharge, or cause to be fully and finally paid and discharged, the redemption
price referred to in SECTION 4.8(B)(4), and, if applicable, any interest on such
redemption price accruing from April 1, 1998 and until the earlier of such date
of payment and April 10, 1998.
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Contemporaneous with the receipt of net proceeds from the Offering, the
Company shall deposit in a segregated bank account, an amount of cash equal
to the sum of the redemption price and maximum accrued interest referred to
in the preceding sentence, and neither the Company nor any Restricted
Subsidiary of the Company shall utilize any such deposited amount for any
purpose other than the payment and discharge of such redemption price and
related accrued interest.
ARTICLE 5
SUCCESSORS
SECTION 5.1 LIMITATION ON MERGER OR SALE OR CONSOLIDATION.
The Company shall not consolidate with or merge with or into any other
Person, or, directly or indirectly, sell, lease, assign, transfer or convey all
or substantially all of its assets (computed on a consolidated basis) to another
Person or group of Persons acting in concert, whether in a single transaction or
through a series of related transactions, unless (i) either (a) the Company is
the continuing Person or (b) the resulting, surviving or transferee entity is a
corporation organized under the laws of the United States, any state thereof or
the District of Columbia, and shall expressly assume all of the obligations of
the Company under this Indenture and the Notes by a supplemental indenture,
executed and delivered to the Trustee on or prior to the consummation of such
transaction, in form satisfactory to the Trustee, (ii) no Default or Event of
Default shall exist or shall occur immediately after giving effect to such
transaction, (iii) immediately after giving effect to such transaction on a PRO
FORMA basis, the Net Worth of the resulting, surviving or transferee entity is
at least equal to the Net Worth of the Company immediately prior to such
transaction, (iv) except for a merger of the Company with or into any Wholly
Owned Subsidiary Guarantor, the resulting, surviving or transferee entity would,
at the time of such transaction and after giving effect thereto, be permitted to
Incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to SECTION 4.7(a), (v) each Subsidiary Guarantor shall
have executed and delivered to the Trustee, in form satisfactory to the Trustee,
a supplemental indenture confirming such Subsidiary Guarantor's obligations to
pay the principal of and interest on the Notes pursuant to its Subsidiary
Guarantee, and (vi) the Trustee shall have received, in form and substance
reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion
of Counsel, each stating that such consolidation, merger or sale, conveyance or
other transfer and each supplemental indenture in respect thereto comply with
this provision and that all conditions precedent in this Indenture relating to
such transaction have been complied with, and also, such Opinion of Counsel
shall further state that such consolidation, merger or sale, conveyance or other
transfer will not result in the Company being required to make any withholding
or similar deduction for or on account of taxes from payments made under or in
respect of the Notes. For purposes of this SECTION 5.1, the Consolidated Fixed
Charge Coverage Ratio shall be determined on a PRO FORMA consolidated basis
(after giving effect to the transaction) as if such transaction had occurred at
the beginning of the Reference Period immediately preceding such transaction.
SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company in accordance with SECTION 5.1, the successor
Person formed by such consolidation or merger or the Person to whom such
transfer is made, shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Indenture with the same effect
as if such successor corporation had been named as the Company therein,
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but the Company in the case of a conveyance, transfer or lease shall not be
released from the obligation to pay principal of, premium (if any) and
interest on the Notes.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1 EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" occurs upon:
(i) the failure to pay interest on any Note when the same
becomes due and payable and such failure continues for a period of 30 days;
(ii) the failure to pay the principal of, or premium, if any,
on, any Note when the same becomes due and payable, at maturity, upon
redemption, by acceleration or otherwise (including the failure to make a
payment to purchase Notes tendered pursuant to a Change of Control Offer or
an Excess Cash Offer);
(iii) a default in the performance or breach of the provisions
of SECTION 4.11, 4.17 OR 5.1 hereof;
(iv) a default in the observance or performance of any covenant
or agreement contained in this Indenture, the Notes or any Subsidiary
Guarantee (other than a covenant or agreement referred to in any of the
preceding CLAUSES (i), (ii) OR (iii)), which default continues for 30 days
after written notice thereof is given to the Company by the Trustee or to
the Company and the Trustee by Holders of at least 25% of the principal
amount of the Notes then outstanding;
(v) a default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any Restricted Subsidiary
of the Company (or the payment of which is guaranteed by the Company or any
Restricted Subsidiary of the Company) whether such Indebtedness or
guarantee now exists, or is created after the Issue Date, which default
(A) extends beyond any stated period of grace applicable thereto (including
any extensions thereof) or (B) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness on the date of
such default, and, in each case, the outstanding principal amount of any
such Indebtedness of the Company or such Restricted Subsidiary aggregates
in excess of $1,000,000, and PROVIDED, FURTHER, that if any such default is
waived by all lenders, holders or obligees (as applicable) of such
Indebtedness, then such Event of Default under this SECTION 6.1(v) shall be
deemed waived and any consequential acceleration of the Notes shall be
automatically rescinded, so long as such rescission does not conflict with
any judgment or decree;
(vi) a final judgment or final judgments for the payment of
money are entered by a court or courts of competent jurisdiction against
the Company or any Restricted Subsidiary of the Company, and such judgment
or judgments remain unpaid and undischarged for a period (during which
execution shall not be effectively stayed) of 60 consecutive days, PROVIDED
THAT the aggregate of all such unpaid and undischarged judgments exceed
applicable and in force insurance contracts (as to which all coverage
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corresponding to the claim or claims made a basis of such judgment or
judgments have been acknowledged and confirmed for timely payment on such
judgment or judgments by the respective insurers of then financial standing
capable of paying such amount or amounts) by at least $1,000,000;
(vii) any of this Indenture, the Notes or the Subsidiary
Guarantees shall for any reason cease to be, or be asserted by the Company
or any Subsidiary Guarantor, as applicable, not to be, in full force and
effect (except pursuant to the release of any Subsidiary Guarantee in
accordance with this Indenture) or shall be declared null and void or
unenforceable, or the validity or enforceability thereof shall be denied or
contested by the Company, any Affiliate or any other Person;
(viii) the Company or any Subsidiary Guarantor, pursuant to or
within the meaning of Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it
in an involuntary case,
(C) consents to the appointment of a Bankruptcy Custodian
of it or for all or substantially all of its property,
(D) makes a general assignment for the benefit of its
creditors, or
(E) generally is not paying its debts as they become due;
or
(ix) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief, in an involuntary case, against the
Company or any Subsidiary Guarantor;
(B) appoints a Bankruptcy Custodian of the Company or any
Subsidiary Guarantor, for all or substantially all of the property of
the Company or any Subsidiary Guarantor; or
(C) orders the liquidation of the Company or any Subsidiary
Guarantor, for all of substantially all of the property of the Company
or any Subsidiary Guarantor;
and the order or decree remains unstayed and in effect for 60 consecutive
days.
SECTION 6.2 ACCELERATION.
If any Event of Default (other than an Event of Default specified in
CLAUSE (viii) OR (ix) of SECTION 6.1) occurs and is continuing, the Trustee or
the Holders of at least 25% in aggregate principal amount of the then
outstanding Notes by written notice to the Company (and to the Trustee if given
by such Holders) may declare all principal of, premium, if any, and accrued
interest on the Notes to be due and payable immediately. Upon any such
declaration, such principal, premium and accrued interest on the Notes shall
become due and payable immediately. If an Event of Default specified in
CLAUSE (viii) OR (ix) of SECTION 6.1 hereof
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occurs, all principal, premium, if any, and accrued interest on the Notes
will be immediately due and payable on all outstanding Notes without further
declaration or other act on the part of any Person.
The Holders of not less than a majority in aggregate principal amount of
the then outstanding Notes by written notice to the Trustee may on behalf of all
of the Holders rescind any such acceleration and its consequences if (i) any
existing Events of Default, other than the non-payment of the principal,
premium, if any, or interest on the Notes which have become due solely by such
acceleration, have been cured or waived in compliance with applicable provisions
of this Indenture and (ii) the rescission would not conflict with any judgment
or decree.
SECTION 6.3 OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of principal, premium, if any, and
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 6.4 WAIVER OF PAST DEFAULTS.
Prior to the declaration of acceleration of the Notes, the Holders of not
less than a majority in aggregate principal amount of the then outstanding Notes
by notice to the Trustee may waive on behalf of the Holders of all of the Notes
an existing Default or Event of Default and its consequences hereunder, except a
continuing Default or Event of Default in the payment of interest on, or the
principal of, any Note not yet cured (including in connection with a redemption
or an offer to purchase pursuant to SECTIONS 3.7, 3.9, 4.11 OR 4.17) or a
Default or Event of Default with respect to any covenant or provision which
cannot be modified or amended without the consent of the Holders of all the
Notes. Upon any such waiver, such Default or Event of Default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
cured for every purpose of this Indenture; but no such waiver shall extend to
any subsequent or other Default or Event of Default or impair any right
consequent thereon.
SECTION 6.5 CONTROL BY MAJORITY.
The Holders of a majority in aggregate principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on the Trustee. However, the Trustee may refuse to
follow any direction that conflicts with law or this Indenture, that the Trustee
determines may be unduly prejudicial to the rights of other Holders of Notes or
that may involve the Trustee in personal liability.
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SECTION 6.6 LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this Indenture or
the Note only if:
(i) the Holder of a Note gives to the Trustee written notice
of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount
of the then outstanding Notes make a written request to the Trustee to
pursue the remedy;
(iii) such Holder or Holders of Notes offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee against any
loss, liability or expense;
(iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision
of indemnity; and
(v) during such 60-day period the Holders of a majority in
aggregate principal amount of the then outstanding Notes do not give the
Trustee a direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
SECTION 6.7 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium, if any, and interest
on the Note, on or after the respective due dates expressed in the Note
(including in connection with a redemption or an offer to purchase pursuant to
SECTIONS 3.7, 3.9, 4.11 OR 4.17), or to bring suit for the enforcement of any
such payment on or after such respective dates, shall not be impaired or
affected without the consent of such Holder.
SECTION 6.8 COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in SECTION 6.1(i) OR (ii) occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and as
trustee of an express trust against the Company for the whole amount of
principal of, premium, if any, and interest remaining unpaid on the Notes and
interest on overdue principal and, to the extent lawful, interest and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due to
the Trustee under SECTION 7.7.
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due to the Trustee under SECTION 7.7) and the Holders of the Notes
allowed in any judicial proceedings relative to the Company (or any other
obligor upon the Notes), its creditors or its property and shall be entitled and
empowered to collect, receive and distribute any money or other property payable
or deliverable on any such
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claims and any custodian in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee, and in the event that
the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under SECTION 7.7. To the
extent that the payment of any such compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under SECTION 7.7 out of the estate in any such proceeding shall
be denied for any reason, payment of the same shall be secured by a Lien on,
and shall be paid out of, any and all distributions, dividends, money,
securities and other properties that the Holders may be entitled to receive
in such proceeding whether in liquidation or under any plan of reorganization
or arrangement or otherwise. Nothing herein contained shall be deemed to
authorize the Trustee to authorize or consent to or accept or adopt on behalf
of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize
the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10 PRIORITIES.
If the Trustee collects any money pursuant to this ARTICLE 6, it shall pay
out the money in the following order:
FIRST: to the Trustee, its agents and attorneys for amounts due under
SECTION 7.7, including payment of all compensation, expense and liabilities
incurred, and all advances made, by the Trustee and the costs and expenses
of collection;
SECOND: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium, if any, and interest, ratably, without preference
or priority of any kind, according to the amounts due and payable on the
Notes for principal, premium, if any, and interest, respectively; and
THIRD: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this SECTION 6.10.
SECTION 6.11 UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in the suit, having due regard for the
merits and good faith of the claims or defenses made by the party litigant.
This SECTION 6.11 does not apply to a suit by the Trustee, a suit by a Holder of
a Note pursuant to SECTION 6.6, or a suit by Holders of more than 10% in
aggregate principal amount of the then outstanding Notes.
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ARTICLE 7
TRUSTEE
SECTION 7.1 DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise, as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into
this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, in the case of any such certificates or
opinions that by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall examine the certificates
and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(iii) this paragraph does not limit the effect of PARAGRAPH (B)
of this SECTION 7.1;
(iv) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(v) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to SECTION 6.5.
(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to PARAGRAPHS (a),
(b) AND (c) of this SECTION 7.1.
(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
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(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.2 RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed by it to
be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel of its selection and the advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from liability
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not be
responsible for the misconduct or negligence of any attorney or agent appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from the Company shall be sufficient if signed by
an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities that might be
incurred by it in compliance with such request or direction.
(g) The Trustee shall not be charged with knowledge of any Default or
Event of Default with respect to the Notes of any series for which it is acting
as Trustee unless either (1) a Responsible Officer shall have actual knowledge
of such Default or Event of Default or (2) written notice of such Default or
Event of Default shall have been given to the Trustee by the Company or any
other obligor on such Notes or by any Holder of such Notes.
(h) The Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture.
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Notes and may otherwise deal with the Company or any Affiliate of the
Company with the same rights it would have if it were not Trustee. However, in
the event that the Trustee acquires any "conflicting interest" (within the
meaning of Section 3.10(b) of the TIA), it must eliminate such conflict within
90 days, apply to the Commission for permission to continue as
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trustee or resign. Any Agent may do the same with like rights and duties.
The Trustee is also subject to SECTIONS 7.1 AND 7.11.
SECTION 7.4 TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
SECTION 7.5 NOTICE OF DEFAULT.
If an Event of Default occurs and is continuing and if it is known to the
Trustee, the Trustee shall mail to Holders of Notes a notice of the Event of
Default within 90 days after it occurs; PROVIDED THAT, except in the case of a
default in payment of principal of, premium, if any, or interest on any Notes,
the Trustee may withhold, and shall be protected in withholding, the notice if
and so long as a committee of its Responsible Officers in good faith determines
that the withholding of such notice is in the interest of the Holders of the
Notes.
SECTION 7.6 REPORT BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, and for so long as Notes remain outstanding, the Trustee
shall mail to the Holders of the Notes a brief report dated as of such reporting
date that complies with TIA Section 313(a) (but if no event described in
TIA Section 313(a) has occurred within the 12 months preceding the reporting
date, no report need be transmitted). The Trustee also shall comply with
TIA Section 313(b)(2) and Section 313(b)(1). The Trustee shall also transmit by
mail all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders of Notes
shall be mailed to the Company and filed with the Commission and each stock
exchange on which the Notes are listed in accordance with TIA Section 313(d).
The Company shall promptly notify the Trustee when the Notes are listed on any
stock exchange.
SECTION 7.7 COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time such compensation as
shall be agreed between the Company and the Trustee for its acceptance of this
Indenture and services hereunder. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee promptly upon request for all reasonable
disbursements, advances and expenses incurred or made by it in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify each of the Trustee and any successor Trustee
against any and all losses, liabilities, damages, claims or expenses, including
taxes (other than taxes based on the income of the Trustee), incurred by it
arising out of or in connection with the acceptance or administration of its
duties under this Indenture, including the costs and expenses of enforcing this
Indenture against the Company (including this SECTION 7.7) and
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defending itself against any claim (whether asserted by the Company or any
Holder or any other Person) or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except to the extent
any such loss, liability or expense may be attributable to its negligence or
bad faith. The Trustee shall notify the Company promptly of any claim for
which it may seek indemnity. Failure by the Trustee to so notify the Company
shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable
fees and expenses of much counsel. The Company need not pay for any
settlement made without its consent, which consent shall not be unreasonably
withheld.
The obligations of the Company under this SECTION 7.7 shall survive the
resignation or removal of the Trustee and the satisfaction and discharge of this
Indenture.
To secure the Company's payment obligations in this SECTION 7.7, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal, premium,
if any, and interest on particular Notes. Such Lien shall survive the
satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in SECTION 6.1(viii) OR (ix) occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law. The Trustee shall also be entitled to receive compensation for
extraordinary services in default administration.
The Trustee shall comply with the provisions of TIA Section 313 (b)(2) to
the extent applicable.
SECTION 7.8 REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this SECTION 7.8.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Company. The Holders of Notes of a
majority in aggregate principal amount of the then outstanding Notes may remove
the Trustee by so notifying the Trustee and the Company in writing. The Company
may remove the Trustee if:
(i) the Trustee fails to comply with SECTION 7.10;
(ii) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law;
(iii) a Bankruptcy Custodian or public officer takes charge of the
Trustee or its property; or
(iv) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in aggregate principal amount of
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the then outstanding Notes may appoint a successor Trustee to replace the
successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of Notes of at least 10% in aggregate principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note who has been
a Holder of a Note for at least six months, fails to comply with SECTION 7.10,
such Holder of a Note may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon, the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its succession to
Holders of the Notes. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, provided all sums owing to the
Trustee hereunder have been paid and subject to the Lien provided for in
SECTION 7.7. Notwithstanding replacement of the Trustee pursuant to this
SECTION 7.8, the Company's obligations under SECTION 7.7 shall continue for the
benefit of the retiring Trustee.
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to another corporation, the
successor corporation without any further act shall be the successor Trustee.
As soon as practicable, the successor Trustee shall mail a notice of its
succession to the Company and the Holders of the Notes.
SECTION 1.701 ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has (together with its parent bank holding company, if any)
a combined capital and surplus of at least $200,000,000 as set forth in its most
recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section
310(b).
SECTION 1.71 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
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ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE; SATISFACTION AND DISCHARGE
SECTION 8.1 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors evidenced by a
Board Resolution set forth in an Officers' Certificate delivered to the Trustee,
at any time, elect to have either SECTION 8.2 OR 8.3 be applied to all
outstanding Notes upon compliance with the conditions set forth below in this
ARTICLE 8.
SECTION 8.2 LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under SECTION 8.1 of the option applicable to
this SECTION 8.2, the Company and each Subsidiary Guarantor shall, subject to
the satisfaction of the conditions set forth in SECTION 8.4 and continuance of
certain provisions hereinafter referenced, be deemed to have been discharged
from its obligations with respect to all outstanding Notes on the date the
conditions set forth below are satisfied (hereinafter, "LEGAL DEFEASANCE"). For
this purpose, Legal Defeasance means that the Company and each Subsidiary
Guarantor shall be deemed to have paid and discharged the entire Indebtedness
represented by the outstanding Notes, which shall thereafter be deemed to be
"outstanding" only for the purposes of SECTION 8.5 and the other Sections of
this Indenture referred to in CLAUSES (i) AND (ii) of this SECTION 8.2, and the
Company and each Subsidiary Guarantor shall be deemed to have satisfied all of
its other obligations under such Notes or Subsidiary Guarantee (as applicable)
and this Indenture (and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging the same), except for
the following provisions, which shall survive until otherwise terminated or
discharged hereunder: (i) the rights of Holders of outstanding Notes to receive
solely from the trust fund described in SECTION 8.4, and as more fully set forth
in such Section, payments in respect of the principal of, premium, if any, and
interest on such Notes when such payments are due; (ii) the Company's
obligations with respect to such Notes under ARTICLE 2 and SECTION 4.2;
(iii) the rights, powers, trusts, duties, obligations and immunities of the
Trustee hereunder, including the Trustee's rights under SECTION 7.7, and the
Company's obligations in connection therewith; (iv) SECTIONS 10.3 AND 10.7; and
(v) this ARTICLE 8. Subject to compliance with this ARTICLE 8, the Company may
exercise its option under this SECTION 8.2 notwithstanding the prior exercise of
its option under SECTION 8.3.
SECTION 8.3 COVENANT DEFEASANCE.
Upon the Company's exercise under SECTION 8.1 hereof of the option
applicable to this SECTION 8.3, the Company shall, subject to the satisfaction
of the conditions set forth in SECTION 8.4, be released from its obligations
under the covenants contained in SECTIONS 4.5, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12,
4.13, 4.14, 4.15, 4.16, AND 4.17 and ARTICLE 10 (other than SECTION 10.3 AND
SECTION 10.7) hereof with respect to the outstanding Notes on and after the date
the conditions set forth below are satisfied (hereinafter, "COVENANT
DEFEASANCE"), and such Notes shall thereafter be deemed not "outstanding" for
the purposes of any direction, waiver, consent or declaration or act of Holders
(and the consequences of any thereof) in connection with such covenants, but
shall continue to be deemed "outstanding" for all other purposes hereunder (it
being understood that such Notes shall not be deemed outstanding for accounting
purposes). For this purpose, Covenant Defeasance means that, with respect to
the outstanding Notes, the Company and each Subsidiary Guarantor may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason
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of any reference in any such covenant to any other provision herein or in any
other document and such omission to comply shall not constitute a Default or
an Event of Default under SECTION 6.1(iii) or SECTION 6.1(iv) (as
applicable), but, except as specified above, the remainder of this Indenture
and such Notes shall be unaffected thereby.
SECTION 8.4 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either
SECTIONS 8.2 OR 8.3 to the outstanding Notes:
(a) the Company shall irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders, (i) cash in United States dollars, (ii) non-callable
Government Securities which through the payment of interest and principal will
provide, no later than one day before the due date of payment in respect of such
Notes, cash in United States dollars in an amount, or (iii) or a combination
thereof, in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay and discharge the
principal of, premium, if any, and interest on the outstanding Notes on the
stated date for payment thereof or on the applicable redemption date, as the
case may be, and the Company must specify whether the Notes are being defeased
to maturity or to a particular redemption date;
(b) in the case of an election under SECTION 8.2, the Company shall have
delivered to the Trustee an Opinion of Independent Counsel in the United States
stating that (i) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling or (ii) since the date of this Indenture,
there has been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such Opinion of Independent Counsel shall
confirm that, the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(c) in the case of an election under SECTION 8.3, the Company shall have
delivered to the Trustee an Opinion of Independent Counsel in the United States
stating that the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit or insofar as SECTION 6.1(viii) OR 6.1(ix) is
concerned, at any time in the period ending on the 91st day (or, if such
irrevocable deposit may be subject to set aside or avoidance under then
applicable bankruptcy or insolvency laws for a period of time longer than 90
days, then one day after the conclusion of such longer period of time) after the
date of the irrevocable deposit referred to in SECTION 8.4(a) (it being agreed
and understood that this condition shall not be satisfied until the expiration
of such period);
(e) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material agreement or
instrument (other than this Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound;
(f) the Company shall have delivered to the Trustee an Opinion of
Independent Counsel to the effect that, as of the date such opinion, (i) such
Legal Defeasance or Covenant
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Defeasance shall not result in the Company, any Subsidiary Guarantor, the
trust arising from the irrevocable deposit referred to in SECTION 8.4(a) or
the Trustee being subject to regulation under, or constituting an investment
company within the meaning of, the Investment Company Act of 1940, as
amended, and (ii) assuming no intervening bankruptcy of the Company between
the date of deposit and the 91st day following the deposit or if a longer
period, the day following the end of such other preference period in effect
at the time of such opinion, as applicable, following the deposit, the trust
funds irrevocably deposited pursuant to SECTION 8.4(a) will not be subject to
the effects of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally under any applicable
United States or state law;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the irrevocable deposit referred in SECTION 8.4(a) was
not made by the Company with the intent of preferring the Holders of Notes over
any other creditors of the Company or any Subsidiary Guarantor with the intent
of defeating, hindering, delaying or defrauding creditors of the Company, any
Subsidiary Guarantor or others;
(h) no event or condition shall exist that would prevent the Company from
making payments of the principal of, or premium, if any, or interest on, the
Notes on the date of the irrevocable deposit referred to in SECTION 8.4(a) or at
any time during and ending on the 91st day (or such longer period as referred to
in SECTIONS 8.4(d) and (f)(ii)) after the date of such deposit; and
(i) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, which, taken together, state that all
conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
SECTION 8.5 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to SECTION 8.6, all money and non-callable Government Securities
(including the proceeds thereof) deposited with the Trustee (or other qualifying
trustee, collectively for purposes of this SECTION 8.5, the "TRUSTEE") pursuant
to SECTION 8.4 in respect of the outstanding Notes shall be held in trust and
applied by the Trustee, in accordance with the provisions of such Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as Paying Agent) as the Trustee may determine, to
the Holders of such Notes of all sums due and to become due thereon in respect
of principal, premium, if any, and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or non-callable Government
Securities deposited pursuant to SECTION 8.4 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of the outstanding Notes.
Anything in this ARTICLE 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the request of the
Company any money or non-callable Government Securities held by it as provided
in SECTION 8.4 that, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under
SECTION 8.4(a)), are in excess of the amount thereof that would then be required
to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
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SECTION 8.6 REPAYMENT TO THE COMPANY.
Subject to the applicable escheat and abandoned property laws, any money
deposited with the Trustee or any Paying Agent, or then held by the Company, in
trust for the payment of the principal of, premium, if any, or interest on any
Note and remaining unclaimed for two years after such principal, and premium, if
any, or interest has become due and payable shall be paid to the Company on its
request or (if then held by the Company) shall be discharged from such trust;
and the Holder of such Notes shall thereafter, as a secured creditor, look only
to the Company for payment thereof, and all liability of the Trustee or such
Paying Agent with respect to such trust money, and all liability of the Company
as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee
or such Paying Agent, before being required to make any such repayment, may at
the expense of the Company cause to be published once, in The New York Times and
The Wall Street Journal (national edition), notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such notification or publication, any unclaimed balance
of such money then remaining will be repaid to the Company.
SECTION 8.7 REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States dollars
or non-callable Government Securities in accordance with SECTION 8.5 by reason
of any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, then the Company's
obligations under this Indenture and the Notes and the Subsidiary Guarantors'
obligations under this Indenture and the Subsidiary Guarantees shall be revived
and reinstated as though no deposit had occurred pursuant to SECTIONS 8.2 OR 8.3
until such time as the Trustee or Paying Agent is permitted to apply all such
money in accordance with SECTION 8.5; PROVIDED, HOWEVER, that, if the Company
makes any payment of principal of, premium, if any, or interest on any Note
following the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Notes to receive such payment from the
money held by the Trustee or Paying Agent.
SECTION 8.8 SATISFACTION AND DISCHARGE OF INDENTURE.
In addition to the options to effect Legal Defeasance and Covenant
Defeasance, and the effects thereof, this Indenture shall cease to be of further
effect (subject to SECTION 8.7) when all outstanding Notes theretofore
authenticated and issued hereunder have been delivered (other than any Notes
which shall have been destroyed, lost or stolen and which shall have been
replaced or paid as provided in SECTION 2.7) to the Trustee for cancellation and
the Company has paid all sums payable hereunder and under the Notes.
Notwithstanding the satisfaction and discharge referred to in this SECTION 8.8,
the provisions of this Indenture referred to at CLAUSES (i) THROUGH (v) of
SECTION 8.2 shall survive until otherwise terminated or discharged hereunder.
For the avoidance of doubt, in addition to and distinct from this SECTION 8.8,
the Company may elect Legal Defeasance or Covenant Defeasance (or both) as
provided for in SECTION 8.1 THROUGH 8.4.
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ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.1 WITHOUT CONSENT OF HOLDERS OF NOTES.
(a) Notwithstanding SECTION 9.2, the Company, the Subsidiary Guarantors
and the Trustee may amend or supplement this Indenture or the Notes without the
consent of any Holder of a Note:
(i) to cure any ambiguity, defect or inconsistency;
(ii) to provide for uncertificated Notes in addition to or in place
of certificated Notes;
(iii) to provide for the assumption of the Company's obligations
to the Holders of the Notes pursuant to ARTICLE 5 or SECTION 10.4(b);
(iv) to secure the Notes;
(v) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the
legal rights under this Indenture of any such Holder;
(vi) to add any Restricted Subsidiary as an additional Subsidiary
Guarantor as provided in SECTION 10.2 or to evidence the succession of
another Person to any Subsidiary Guarantor pursuant to SECTION 10.4 and the
assumption by any such successor of the covenants and agreements of such
Subsidiary Guarantor contained herein and in the Subsidiary Guarantee of
such Subsidiary Guarantor;
(vii) to release a Subsidiary Guarantor from its obligations under
this Indenture and its Subsidiary Guarantee pursuant to SECTION 10.5, or
(viii) to comply with requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the TIA.
(b) Upon the request of the Company accompanied by a Board Resolution of
its Board of Directors authorizing the execution of any such amendment or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in SECTION 9.6, the Trustee shall join with the Company and the
Subsidiary Guarantors in the execution of any amended or supplemental Indenture
authorized or permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee shall not be obligated to enter into such amended or supplemental
Indenture that affects its own rights, duties or immunities under this Indenture
or otherwise.
SECTION 9.2 WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this SECTION 9.2, the Company and the Trustee
may amend or supplement this Indenture, the Subsidiary Guarantees or the Notes
with the consent of the Holders of at least a majority in aggregate principal
amount of the Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, Notes) and, subject to SECTIONS 6.4 AND 6.7, any existing Default or Event
of Default (other than a Default or Event of Default in the payment of the
principal of,
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premium, if any, or interest on the Notes, except a payment default resulting
from an acceleration that has been rescinded) or compliance with any
provision of this Indenture or the Notes may be waived with the consent of
the Holders of a majority in aggregate principal amount of the then
outstanding Notes (including consents obtained in connection with a purchase
of, tender offer or exchange offer for Notes).
Upon the request of the Company accompanied by a Board Resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as herein provided, and upon
receipt by the Trustee of the documents described in SECTION 9.6, the Trustee
shall join with the Company and the Subsidiary Guarantors in the execution of
such amended or supplemental Indenture unless such amended or supplemental
Indenture affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise, in which case the Trustee may in its discretion, but
shall not be obligated to, enter into such amended or supplemental Indenture.
Subject to SECTIONS 6.4 AND 6.7, the Holders of a majority in aggregate
principal amount of the Notes then outstanding may waive compliance in a
particular instance by the Company and the Subsidiary Guarantors with any
provision of this Indenture or the Notes. However, without the consent of each
Holder affected, an amendment or waiver may not (with respect to any Notes held
by a non-consenting Holder):
(i) change the Stated Maturity Date or the date specified in any
Note as the fixed date on which any principal thereof, or any installment
of interest thereon, is due and payable, or change to an earlier date any
redemption date of, or waive a default in the payment of the principal or
interest on, any such Note or reduce the principal amount thereof or the
rate of interest thereon or any premium payable upon the redemption
thereof, or change the coin or currency in which the principal of any Note
or any premium or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the
Stated Maturity Date or the date specified in any Note as the fixed date on
which any principal thereof or any installment of interest thereon is due
and payable (or, in the case of redemption, on or after the redemption
date);
(ii) after the date upon which a Change of Control Offer or Excess
Cash Offer, as the case may be, is required to be made, amend, change or
modify the obligation of the Company to make and consummate an Excess Cash
Offer with respect to any Asset Sale in accordance with SECTION 4.11 or the
obligation of the Company to make and consummate a Change of Control Offer
in the event of a Change of Control in accordance with SECTION 4.17,
including, in each case, amending, changing or modifying any provisions of
such Sections or any definitions relating thereto;
(iii) reduce the percentage in principal amount of the outstanding
Notes, the consent of whose Holders is required for any such amendment,
supplemental indenture, or the consent of whose Holders is required for any
waiver or compliance with certain provisions of this Indenture;
(iv) modify any of the provisions of this SECTION 9.2 OR SECTION
6.4, except to increase the percentage of such outstanding Notes required
for any such actions or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holder of
each such Note affected thereby;
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(v) except as otherwise permitted under ARTICLE FIVE, consent to
the assignment or transfer by the Company or any Subsidiary Guarantor of
any of its rights and obligations hereunder;
(vi) alter, modify or change the ranking of any of the Notes or any
Subsidiary Guarantee relative to the payment of other Indebtedness or
obligations of the Company or any Subsidiary Guarantor, or otherwise
adversely affect the ranking of the Notes or Subsidiary Guarantees; or
(vii) release any Subsidiary Guarantee in any manner otherwise
than in accordance with the terms of this Indenture, or amend, modify or
change any provision of this Indenture (including the Subsidiary Guarantee)
which provides for the release of any Subsidiary Guarantee.
In addition, without the consent of Holders of not less than 66-2/3% in
aggregate principal amount of the Notes then outstanding, no such amendment,
supplement or waiver may, prior to the date on which a Change of Control Offer
or Excess Cash Offer, as the case may be, is required to be made, amend, change
or modify the obligation of the Company to make and consummate a Change of
Control Offer in the event of a Change of Control or make and consummate an
Excess Cash Offer with respect to any Asset Sale or modify any of the provisions
or definitions with respect thereto (including SECTIONS 4.11 AND 4.17).
It shall not be necessary for the consent of the Holders of Notes under
this SECTION 9.2 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this SECTION 9.2 becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver.
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes shall be set
forth in an amended or supplemental Indenture that complies with the TIA as then
in effect.
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent to it
by a Holder of a Note is a continuing consent by the Holder of a Note and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. However, any such Holder of a Note or subsequent Holder of a Note may
revoke the consent as to its Note if the Trustee receives written notice of
revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
SECTION 9.5 NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may
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issue and the Trustee shall authenticate new Notes that reflect the
amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.6 TRUSTEE TO SIGN AMENDMENT ETC.
The Trustee shall sign any amendment or supplemental indenture to this
Indenture authorized pursuant to this ARTICLE 9 if the amendment or supplement
does not adversely affect the rights, duties, liabilities or immunities of the
Trustee. The Company may not sign an amendment or supplemental indenture to
this Indenture until its Board of Directors approves it. In executing any
amendment or supplemental indenture to this Indenture, the Trustee shall be
entitled to receive, and (subject to SECTION 7.1) shall be fully protected in
relying upon, in addition to the documents required by SECTION 11.4, Officers'
Certificates and Opinions of Counsel stating that the execution of such
amendment or supplemental indenture to this Indenture is authorized or permitted
by this Indenture.
ARTICLE 10
SUBSIDIARY GUARANTEES
SECTION 10.1 SUBSIDIARY GUARANTEES.
(a) Each of the Subsidiary Guarantors and each Subsidiary of the Company
that in accordance with SECTION 10.2 is required to guarantee the obligations of
the Company under the Notes and this Indenture hereby jointly and severally and
unconditionally guarantees, on a senior basis (each such guarantee being a
"SUBSIDIARY GUARANTEE"), to each Holder of a Note authenticated and delivered by
the Trustee irrespective of the validity or enforceability of this Indenture,
the Notes or the obligations of the Company under this Indenture or the Notes,
that: (i) the principal of, premium, if any, and interest on the Notes shall be
paid in full when due, whether at the maturity or interest payment or optional
or mandatory redemption date, by acceleration, call for redemption or otherwise,
and interest on the overdue principal and interest, if any, of the Notes and all
other obligations of the Company to the Holders or the Trustee under this
Indenture or the Notes shall be promptly paid in full or performed, all in
accordance with the terms of this Indenture and the Notes and (ii) in case of
any extension of time of payment or renewal of any Notes or any of such other
obligations, they shall be paid in full when due or performed in accordance with
the terms of the extension or renewal, whether at maturity, by acceleration or
otherwise. Failing payment when due of any amount so guaranteed for whatever
reason, each Subsidiary Guarantor shall be obligated to pay the same whether or
not such failure to pay has become an Event of Default that could cause
acceleration pursuant to SECTION 6.2. Each Subsidiary Guarantor agrees that
this is a guarantee of payment not a guarantee of collection.
(b) Each Subsidiary Guarantor hereby agrees that its obligations with
regard to its Subsidiary Guarantee shall be unconditional, irrespective of the
validity or enforceability of the Notes or the obligations of the Company under
this Indenture, the absence of any action to enforce the same, the recovery of
any judgment against the Company or any other obligor with respect to this
Indenture, the Notes or the obligations of the Company under this Indenture or
the Notes, any action to enforce the same or any other circumstances (other than
complete performance) that might otherwise constitute a legal or equitable
discharge or defense of a Subsidiary Guarantor. Each Subsidiary Guarantor
further, to the extent permitted by
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law, waives and relinquishes all claims, rights and remedies accorded by
applicable law to guarantors and agrees not to assert or take advantage of
any such claims, rights or remedies, including but not limited to: (i) any
right to require the Trustee, the Holders or the Company (each, a "BENEFITTED
PARTY") to proceed against the Company or any other Person or to proceed
against or exhaust any security held by a Benefitted Party at any time or to
pursue any other remedy in any Benefitted Party's power before proceeding
against such Subsidiary Guarantor; (ii) the defense of the statute of
limitations in any action hereunder or in any action for the collection of
any Indebtedness or the performance of any obligation hereby guaranteed;
(iii) any defense that may arise by reason of the incapacity, lack of
authority, death or disability of any other Person or the failure of a
Benefitted Party to file or enforce a claim against the estate (in
administration, bankruptcy or any other proceeding) of any other Person; (iv)
demand, protest and notice of any kind, including but not limited to, notice
of the existence, creation or incurring of any new or additional Indebtedness
or obligation or of any action or non-action on the part of such Subsidiary
Guarantor, the Company, any Benefitted Party, any creditor of such Subsidiary
Guarantor, the Company or on the part of any other Person whomsoever in
connection with any Indebtedness or obligations hereby guaranteed; (v) any
defense based upon an election of remedies by a Benefitted Party, including
but not limited to, an election to proceed against such Subsidiary Guarantor
for reimbursement; (vi) any defense based upon any statute or rule of law
that provides that the obligation of a surety must be neither larger in
amount nor in other respects more burdensome than that of the principal;
(vii) any defense arising because of a Benefitted Party's election, in any
proceeding instituted under any Bankruptcy Law, of the application of Section
1111(b)(2) under the Bankruptcy Law; (viii) any defense based on any
borrowing or grant of a security interest under Section 364 under the
Bankruptcy Law or (ix) any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever. Each Subsidiary
Guarantor hereby covenants that its Subsidiary Guarantee will not be
discharged except by complete performance of all of the obligations contained
in its Subsidiary Guarantee, the Notes and this Indenture.
(c) If any Holder or the Trustee is required by any court or otherwise to
return to either the Company or any Subsidiary Guarantor, or any custodian,
trustee, or similar official acting in relation to either the Company or such
Subsidiary Guarantor, any amount paid by the Company or such Subsidiary
Guarantor to the Trustee or such Holder, the applicable Subsidiary Guarantee, to
the extent theretofore discharged, shall be reinstated in full force and effect.
Each Subsidiary Guarantor agrees that it will not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all obligations guaranteed hereby.
(d) Each Subsidiary Guarantor further agrees that, as between such
Subsidiary Guarantor, on the one hand, and the Holders and the Trustee, on the
other hand, (i) the maturity of the obligations guaranteed hereby may be
accelerated as provided in SECTION 6.2 for the purposes of this Subsidiary
Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such acceleration as to the Company or any other obligor on the Notes of the
obligations guaranteed hereby and (ii) in the event of any declaration of
acceleration of those obligations as provided in SECTION 6.2, those obligations
(whether or not due and payable) will forthwith become due and payable by such
Subsidiary Guarantor for the purpose of this Subsidiary Guarantee.
SECTION 10.2 ADDITIONAL SUBSIDIARY GUARANTEES.
(a) Simultaneously with (i) the acquisition (by merger, consolidation,
acquisition of assets, stock or properties or otherwise) or formation of a
Person which, directly or indirectly, becomes a Subsidiary of the Company, or
(ii) the occurrence of any other event, circumstance or transaction pursuant to
which, directly or indirectly, a Person becomes a Subsidiary of the
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Company, in each case referred to in the immediately preceding CLAUSES (i)
AND (ii), other than a Person then designated an Unrestricted Subsidiary of
the Company in accordance with SECTION 4.14, the Company then shall (y) cause
such Person to execute a supplemental indenture to this Indenture agreeing to
be bound by its terms applicable to a Subsidiary Guarantor and providing for
a Subsidiary Guarantee of the Notes by such Person, in accordance with the
terms of this Indenture and (z) deliver such supplemental indenture to the
Trustee, accompanied by the Opinion of Counsel and Officers' Certificate
required pursuant to SECTION 9.6.
(b) In furtherance of SECTION 10.2(a), but in no regard diminishing the
immediacy of its requirement that upon a Person becoming a Subsidiary it
simultaneously becomes a Subsidiary Guarantor, in no event whatsoever shall the
Company permit any of its Restricted Subsidiaries, other than a Subsidiary
Guarantor, directly or indirectly, to (i) incur any Indebtedness or guarantee or
secure through the granting of Liens the payment of any Indebtedness of the
Company or any other Restricted Subsidiary or (ii) pledge any intercompany notes
representing obligations of any of its Restricted Subsidiaries to secure the
payment of its or any of the Company's or other Restricted Subsidiary's
Indebtedness, in each case, unless the Company shall (y) cause such Restricted
Subsidiary to execute a supplemental indenture to this Indenture agreeing to be
bound by its terms applicable to a Subsidiary Guarantor and providing for a
Subsidiary Guarantee of the Notes by such Person in accordance with the terms of
this Indenture and (z) deliver such supplemental indenture to the Trustee,
accompanied by the Opinion of Counsel and an Officers' Certificate, required
pursuant to SECTION 9.6.
SECTION 10.3 LIMITATION OF SUBSIDIARY GUARANTORS' LIABILITY.
(a) Each Subsidiary Guarantor and by its acceptance hereof, each
beneficiary hereof, hereby confirm that it is its intention that the Subsidiary
Guarantee by such Subsidiary Guarantor not constitute a fraudulent transfer or
conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance
Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to
the extent applicable to any of the Subsidiary Guarantees. To effectuate the
foregoing intention, each such Person hereby irrevocably agrees that the
obligations of such Subsidiary Guarantor under its Subsidiary Guarantee under
this ARTICLE 10 shall be limited to the maximum amount as will, after giving
effect to all other contingent and fixed liabilities of such Subsidiary
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Subsidiary Guarantor in respect of the obligations of
such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to
its contribution obligations under this Indenture, result in the obligations of
such Subsidiary Guarantor under the Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law.
(b) For purposes of such limitations and the applicable fraudulent
conveyance laws, any indebtedness of a Subsidiary Guarantor incurred from time
to time pursuant to a Permitted Bank Credit Facility and secured by a perfected
Lien on the assets of such Subsidiary Guarantor (assuming, for purposes of such
determination, that the incurrence of any such indebtedness and the granting of
any such security interest did not violate any such fraudulent conveyance laws)
shall be deemed, to the extent of the value of the assets subject to such Lien,
to have been incurred prior to the incurrence by such Subsidiary Guarantor of
liability under its Subsidiary Guarantee.
(c) Each beneficiary under the Subsidiary Guarantees, by accepting the
benefits hereof, confirms its intention that, in the event of a bankruptcy,
reorganization or other similar proceeding of the Company or any Subsidiary
Guarantor in which concurrent claims
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are made upon such Subsidiary Guarantor hereunder, to the extent such claims
will not be fully satisfied, each such claimant with a valid claim against
the Company shall be entitled to a ratable share of all payments by such
Subsidiary Guarantor in respect of such concurrent claims.
SECTION 10.4 SUBSIDIARY GUARANTORS MAY CONSOLIDATE ETC., ON CERTAIN TERMS.
(a) No Subsidiary Guarantor may consolidate with or merge with or into
(whether or not such Subsidiary Guarantor is the surviving Person) another
Person or, subject to SECTION 10.5, sell, convey or otherwise transfer all or
substantially all of its assets to another Person or group, unless (i) subject
to the provisions of the following paragraph, the Person formed by or surviving
any such consolidation or merger (if other than such Subsidiary Guarantor)
(A) is a corporation organized and existing under the laws of the United States
of America, any state thereof or the District of Columbia, and (B) expressly
assumes all the obligations of such Subsidiary Guarantor by executing and
delivering a supplemental indenture to this Indenture to the Trustee agreeing to
be bound by its terms applicable to a Subsidiary Guarantor and providing for a
Subsidiary Guarantee of the Notes by such Person, in accordance with the terms
of this Indenture; (ii) immediately before and after giving effect to such
transaction, no Default or Event of Default exists and immediately after giving
effect to such transaction, the resulting, surviving or transferee entity could
Incur $1.00 of additional Indebtedness pursuant to SECTION 4.7(A); and
(iii) such Subsidiary Guarantor, or any Person formed by or surviving any such
consolidation or merger, would have a Net Worth (immediately after giving effect
to such transaction), equal to or greater than the Net Worth of such Subsidiary
Guarantor immediately preceding the transaction. In connection with any
consolidation, merger or sale, conveyance or other transfer contemplated by this
provision, the Subsidiary Guarantor shall deliver, or cause to be delivered, to
the Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or sale, conveyance or other transfer and the supplemental
indenture in respect thereto comply with this provision and that all conditions
precedent in this Indenture provided for relating to such transaction or
transactions have been complied with.
(b) Notwithstanding the foregoing, (i) a Subsidiary Guarantor may
consolidate with or merge with or into, or sell, convey or otherwise transfer
all or substantially all of its assets to, the Company, PROVIDED THAT the
surviving corporation (if other than the Company) shall expressly assume by
supplemental indenture complying with the requirements of this Indenture, the
due and punctual payment of the principal of, premium, if any, and interest on
all of the Notes, and the due and punctual performance and observance of all the
covenants and conditions of this Indenture to be performed by the Company and
(ii) a Subsidiary Guarantor may consolidate with or merge with or into, or sell,
convey or otherwise transfer all or substantially all of its assets to, any
other Subsidiary Guarantor.
SECTION 10.5 RELEASES OF SUBSIDIARY GUARANTORS.
In the event of (i) the designation of any Subsidiary Guarantor as an
Unrestricted Subsidiary of the Company pursuant to the provisions of
SECTION 4.14 or (ii) a sale, conveyance, transfer or other disposition of all or
substantially all of the properties or assets of any Subsidiary Guarantor to a
Person other than the Company or any other Subsidiary Guarantor or an
Unrestricted Subsidiary of the Company, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the Capital Stock of any
Subsidiary Guarantor, in either case, in a transaction or manner that does not
violate any of the covenants or other provision of this Indenture, then such
Subsidiary Guarantor (in the event of such a designation or a sale, conveyance,
transfer or other disposition (other than a lease), by way of such a merger,
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consolidation or otherwise, or a disposition of all of the Capital Stock of
such Subsidiary Guarantor) or the Person acquiring such properties or assets
(in the event of a sale, conveyance, transfer or other disposition (other
than a lease) of all or substantially all of the properties or assets of such
Subsidiary Guarantor) will be released from and relieved of any obligations
under this Indenture and its Subsidiary Guarantee, PROVIDED that (y) any Net
Cash Proceeds of such sale or other disposition are applied in accordance
with SECTION 4.11 as evidenced by an Officers' Certificate to such effect,
and (z) all obligations of such Subsidiary Guarantor under all of its
guarantees of, and under all of its pledges of assets or other security
interests that secure, any other Indebtedness of the Company or its
Restricted Subsidiaries shall also terminate upon such release, sale or
disposition.
SECTION 10.6 "TRUSTEE" TO INCLUDE PAYING AGENT.
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this ARTICLE 10 shall in such case (unless the context shall otherwise
require) be construed as extending to and including such Paying Agent within its
meaning as fully and for all intents and purposes as if such Paying Agent were
named in this ARTICLE 10 in place of the Trustee.
SECTION 10.7 CONTRIBUTION.
In order to provide for just and equitable contribution among the
Subsidiary Guarantors, the Subsidiary Guarantors agree, INTER SE, that in the
event any payment or distribution is made by any Subsidiary Guarantor (a
"FUNDING GUARANTOR") under a Subsidiary Guarantee, such Funding Guarantor shall
be entitled to a contribution from all other Subsidiary Guarantors in a PRO RATA
amount based on the Adjusted Net Assets (as defined below) of each Subsidiary
Guarantor (including the Funding Guarantor) for all payments, damages and
expenses incurred by that Funding Guarantor in discharging the Company's
obligations with respect to the Notes or any other Subsidiary Guarantor's
obligations with respect to such Subsidiary Guarantee. "ADJUSTED NET ASSETS" of
such Subsidiary Guarantor at any date shall mean the lesser of the amount by
which (x) the fair value of the property of such Subsidiary Guarantor exceeds
the total amount of liabilities, including, without limitation, contingent
liabilities, but excluding liabilities under the Subsidiary Guarantee of such
Subsidiary Guarantor at such date and (y) the present fair salable value of the
assets of such Subsidiary Guarantor at such date exceeds the amount that will be
required to pay the probable liability of such Subsidiary Guarantor on its debts
(after giving effect to all other fixed and contingent liabilities incurred or
assumed on such date and after giving effect to any collection from any
Subsidiary of such Subsidiary Guarantor in respect of the obligations of such
subsidiary under the Subsidiary Guarantees), excluding debt in respect of the
Subsidiary Guarantees, as they become absolute and matured.
SECTION 10.8 EXECUTION OF SUBSIDIARY GUARANTEES.
To evidence its guarantee to each Holder of Notes, each of the Subsidiary
Guarantors hereby agrees to execute its Subsidiary Guarantee in substantially
the form of EXHIBIT A recited to be endorsed on each Note ordered to be
authenticated and delivered by the Trustee. Each Subsidiary Guarantor hereby
agrees that its Subsidiary Guarantee set forth in SECTION 10.1 shall remain in
full force and effect notwithstanding any failure to endorse on each Note a
notation of such Subsidiary Guarantee. Each such Subsidiary Guarantee shall be
signed on behalf of each Subsidiary Guarantor by one Officer of such Subsidiary
Guarantor who shall have been duly authorized by all requisite corporate
actions, and the delivery of such Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of such Subsidiary Guarantee on
behalf of such Subsidiary Guarantor. Such signatures upon
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the Subsidiary Guarantee may be by manual or facsimile signature of such
Officer and may be imprinted or otherwise reproduced on the Subsidiary
Guarantee, and in case any such Officer who shall have signed the Subsidiary
Guarantee shall cease to be such Officer before the Note on which such
Subsidiary Guarantee is endorsed shall have been authenticated and delivered
by the Trustee or disposed of by the Company, such Note nevertheless may be
authenticated and delivered or disposed of as though the person who signed
the Subsidiary Guarantee had not ceased to be such officer of the Subsidiary
Guarantor.
ARTICLE 11
MISCELLANEOUS
SECTION 11.1 TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA Section 318(c), the imposed duties shall control.
SECTION 11.2 NOTICES.
Any notice or communication by the Company, any of the Subsidiary
Guarantors or the Trustee to any of the others is duly given if in writing and
delivered in person or mailed by first class mail (registered or certified,
return receipt requested), facsimile or overnight air courier guaranteeing next-
day delivery, to such other's address:
If to the Company or any Subsidiary Guarantor:
RAM Energy, Inc.
------------------------------
------------------------------
Facsimile No.:
-------------------
Attention:
-------------------
with a copy to:
C. David Stinson, Esq.
McAfee & Taft
211 North Robinson, Suite 1000
Oklahoma City, Oklahoma 73102
PROVIDED, HOWEVER, the failure to provide or any delay in providing any
"with a copy to" notice or communication shall not impair the effect and
validity of any notice or communication made to the Company, in person, by
first class mail, facsimile or overnight air courier, in each case as
provided in this SECTION 11.2, at its address above or otherwise designated
pursuant to the provisions of this SECTION 11.2.
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If to the Trustee:
United States Trust Company of New York
114 West 47th Street
25th Floor
New York, New York 10036
Facsimile No.: (212) 852-1626
Attention: Corporate Trust Department
Ms. Patricia Stermer
The Company, any of the Subsidiary Guarantors or the Trustee, by notice
to the others, may designate additional or different addresses for subsequent
notices or communications.
All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if
personally delivered; 5 Business Days after being deposited in the United
States mail, postage prepaid, if mailed; when receipt acknowledged, if sent
by facsimile; the next Business Day after timely delivery to the courier, if
sent for overnight delivery by a courier guaranteeing next-day delivery; and
the second Business Day after timely delivery to the courier, if sent for
second-day delivery by a courier guaranteeing second-day delivery.
Any notice or communication to a Holder shall be mailed by first class
U.S. mail to its address shown on the register kept by the Registrar. Any
notice or communication shall also be so mailed to any Person described in
TIA Section 313(c), to the extent required by the TIA. Failure to mail a
notice or communication to a Holder or any defect in it shall not affect its
sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall mail
a copy to the Trustee and each Agent at the same time.
SECTION 11.3 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Subsidiary Guarantors, the Trustee, the Registrar and anyone
else shall have the protection of TIA Section 312(c).
SECTION 11.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, such requesting entity shall furnish to the
Trustee:
(i) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in SECTION 11.5) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(ii) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in SECTION 11.5)
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stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been satisfied.
SECTION 11.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA
Section 314(e) and shall include:
(i) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of such Person, he or
she has made such examination or investigation as is necessary to enable
him or her to express an informed opinion as to whether or not such
covenant or condition has been satisfied; and
(iv) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.
SECTION 11.6 RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 11.7 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
SHAREHOLDERS.
NO STOCKHOLDER, OFFICER OR DIRECTOR, AS SUCH, PAST, PRESENT OR FUTURE,
OF THE COMPANY OR ANY SUBSIDIARY GUARANTOR, SHALL HAVE ANY PERSONAL LIABILITY
FOR ANY OBLIGATIONS OF THE COMPANY OR SUCH SUBSIDIARY GUARANTOR UNDER THE
NOTES, THIS INDENTURE OR THE SUBSIDIARY GUARANTEES, AS THE CASE MAY BE, BY
REASON OF HIS OR HER OR ITS STATUS AS SUCH STOCKHOLDER, OFFICER OR DIRECTOR.
EACH HOLDER BY ACCEPTING A NOTE WAIVES AND RELEASES ALL SUCH LIABILITY. THE
WAIVER AND RELEASE ARE PART OF THE CONSIDERATION FOR ISSUANCE OF THE NOTES
AND THE SUBSIDIARY GUARANTEES. SUCH WAIVER MAY NOT BE EFFECTIVE TO WAIVE
LIABILITIES UNDER THE FEDERAL SECURITIES LAWS, AND IT IS THE VIEW OF THE
COMMISSION THAT SUCH A WAIVER IS AGAINST PUBLIC POLICY.
SECTION 11.8 GOVERNING LAW.
THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES.
SECTION 11.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
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This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Company or its Subsidiaries or of any other Person.
Any such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 11.01 SUCCESSORS.
All agreements of the Company or any Subsidiary Guarantor in this
Indenture, the Subsidiary Guarantees and the Notes shall bind its successors
and as provided herein, its assigns. All agreements of the Trustee in this
Indenture shall bind its successors.
SECTION 11.11 SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 11.12 COUNTERPART ORIGINALS.
The parties hereto may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
SECTION 11.13 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross Reference Table and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Indenture as
of the date first written above.
"COMPANY"
RAM ENERGY, INC.,
a Delaware corporation
By
---------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
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"SUBSIDIARY GUARANTORS"
RB OPERATING COMPANY,
a Delaware corporation
By
---------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
RLP GULF STATES, L.L.C.,
a Oklahoma limited liability company
By
----------------------------------------
[its sole] [a] Member
By
----------------------------------------
Name:
--------------------------------
Title:
-------------------------------
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"TRUSTEE"
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By
---------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
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EXHIBIT A
[FORM OF NOTE]
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW
YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER
ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO, HAS AN INTEREST
HEREIN.(1)
_____% SENIOR NOTES DUE 2008
REGISTERED CUSIP: ____________
No. $
RAM ENERGY, INC., a Delaware corporation (the "COMPANY", which term
includes any successor Person under the Indenture hereinafter referred to), for
value received, promises to pay to ____________ ___________________ or
registered assigns, the principal sum of _____________________ Dollars [or such
lesser amount as may be set forth in APPENDIX 1 hereto in accordance with the
Indenture](2) on __________, 2008.
Interest Payment Dates: ________ ____ and _______ ____
Record Dates: ________ ____ and _________ ____
- -------------------
(1) This paragraph should be included in the Note only if issued in global form.
(2) This paragraph should be included in the Note only if issued in global form.
A-1
<PAGE>
Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
Dated: RAM ENERGY, INC.
---------------------------
By
-----------------------------------
Name:
--------------------------------
Title:
-------------------------------
ATTEST:
- ------------------------------------
Name:
-------------------------------
Title:
------------------------------
TRUSTEE'S CERTIFICATE OF AUTHENTICATION:
This is one of the _________% Notes referred to in the within-mentioned
Indenture:
Dated:
------------------------------
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By:
---------------------------------
Authorized Signatory
A-2
<PAGE>
[REVERSE OF NOTE]
RAM ENERGY, INC.
______% SENIOR NOTES DUE 2008
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. INTEREST. RAM Energy, Inc., a Delaware corporation (the "COMPANY",
which term includes any successor Person under the Indenture hereinafter
referred to), promises to pay interest on the principal amount of this Note at
______% per annum from ______________ ____, ______, until maturity. The Company
shall pay interest semi-annually on ___________ ____ and ___________ ____ of
each year (each, an "INTEREST PAYMENT DATE"), or if any such day is not a
Business Day, on the next succeeding Business Day. Interest on the Notes shall
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance; PROVIDED that if
there is no existing Default or Event of Default in the payment of interest, and
if this Note is authenticated between a record date referred to in the face
hereof and the next succeeding Interest Payment Date, interest shall accrue from
such next succeeding Interest Payment Date, except in the case of the original
issuance of Notes, in which case interest shall accrue from the date of
authentication. The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal and
premium, if any, from time to time on demand at a rate that is 1% per annum in
excess of the rate then in effect on this Note to the extent lawful; it shall
pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. METHOD OF PAYMENT. The Company shall pay interest on the Notes
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the ____________ ____ or ___________ ____ next
preceding the Interest Payment Date, even if such Notes are canceled after such
record date and on or before such Interest Payment Date, except as provided in
Section 2.12 of the Indenture with respect to defaulted interest. The Notes
will be payable as to principal, premium and interest at the office or agency of
the Company maintained for such purpose within or without the City and State of
New York, [or, at the option of the Company, payment of interest may be made by
wire transfer or check mailed to the Holders at their addresses set forth in the
register of Holders,](a) and provided that payment by wire transfer of
immediately available funds will be required with respect to principal of,
and interest and premium on, all Global Notes and all other Notes the Holders
of which shall have provided written wire transfer instructions to the
Company or the Paying Agent at least 10 Business Days prior to the applicable
payment date. Such payment shall be in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts.
- --------------------------
(a) This bracketed clause will be inserted in Notes in the event the Notes do
not remain in global form, and in such instance, the proviso completing
this sentence will, to the extent it refers to Global Notes, be deleted.
A-3
<PAGE>
3. PAYING AGENT AND REGISTRAR. Initially, United States Trust Company of
New York, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any domestically incorporated Wholly Owned
Subsidiary Guarantor may act in any such capacity.
4. INDENTURE AND SUBSIDIARY GUARANTEES. The Company issued the Notes
under an Indenture dated as of February ____, 1998 (the "INDENTURE"), among the
Company, the Subsidiary Guarantors and the Trustee. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections
77aaa-77bbbb). The Notes are subject to all such terms, and Holders are
referred to the Indenture and such Act for a statement of such terms. The Notes
are general unsecured obligations of the Company limited to $115,000,000 in
aggregate principal amount in the case of Notes issued on the Issue Date.
Payment on each Note is guaranteed on a senior unsecured basis, jointly and
severally, by the Subsidiary Guarantors pursuant to Article 10 of the Indenture.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in SUBPARAGRAPH (b) of this PARAGRAPH 5, the
Company shall not have the option to redeem the Notes prior to
____________ ____, 2003. Thereafter, the Company shall have the option to
redeem the Notes, in whole or in part, upon not less than 30 nor more than 60
days' written notice, at the redemption prices (expressed as percentages of
principal amount) set forth below, plus accrued and unpaid interest thereon, if
any, to the applicable redemption date, if redeemed during the 12-month period
beginning on ____________ ____ of the years indicated below:
YEAR PERCENTAGE
---- ----------
2003............................................. __________%
2004............................................. __________%
2005............................................. __________%
2006 and thereafter.............................. 100.0000%
(b) Notwithstanding the provisions of SUBPARAGRAPH (a) of this
PARAGRAPH 5, at any time on or prior to ____________ ____, 2001, the Company may
redeem up to an aggregate of 35% of the aggregate principal amount of Notes
originally issued, in cash, at a redemption price of ________% of the principal
amount thereof, together with accrued and unpaid interest thereon to the
redemption date, with the net proceeds of a Public Equity Offering; PROVIDED
that (i) at least 65% of the aggregate principal amount of Notes originally
issued remains outstanding immediately after the occurrence of each such
redemption and (ii) each such redemption shall occur within 60 days of the date
of the closing of each such Public Equity Offering.
6. MANDATORY REDEMPTION. The Company shall not be required to make
mandatory redemption payments or sinking fund payments with respect to the
Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, the Company shall be
required to make an offer (a "CHANGE OF CONTROL OFFER") to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at
a purchase price equal to 101% of the aggregate principal amount thereof, plus
accrued and any unpaid interest thereon, if any, to the Change of Control
Payment Date (the "CHANGE OF CONTROL PAYMENT"). Within 5
A-4
<PAGE>
Business Days after the occurrence of a Change of Control, the Company shall
notify the Trustee in writing of such proposed occurrence and shall, not
later than 20 Business Days after the occurrence of the Change of Control,
make a Change of Control Offer to the Holders of all of the outstanding Notes
by sending written notice to each Holder at its registered address setting
forth the procedures governing the Change of Control Offer as required by the
Indenture.
(b) If the Company or a Restricted Subsidiary consummates any Asset
Sale, within 10 days following each Excess Cash Offer Trigger Date, the Company
shall commence an offer to all Holders of Notes (an "EXCESS CASH OFFER")
pursuant to Section 3.9 of the Indenture to purchase the maximum principal
amount of Notes that may be purchased out of the Excess Cash at an offer price
in cash in an amount equal to 100% of the principal amount thereof plus accrued
and unpaid interest thereon, if any, to the Excess Cash Purchase Date in
accordance with the procedures set forth in the Indenture. To the extent that
the aggregate amount of Notes tendered pursuant to an Excess Cash Offer is less
than the Excess Cash, the Company (or any Subsidiary Guarantor) may use such
excess for any of their respective general corporate purposes PROVIDED THAT no
such purpose is prohibited or restricted by the Indenture. Holders of Notes
that are the subject of an offer to purchase will receive an Excess Cash Offer
from the Company prior to any related purchase date and may elect to have such
Notes purchased by completing the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least
30 days but not more than 60 days before a redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions thereof
called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000.
The transfer of Notes may be registered and Notes may be exchanged as provided
in the Indenture. The Registrar and the Trustee may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, it need not
exchange or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or during the period between a record date and
the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated
as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in aggregate principal amount of the then
outstanding Notes, and any existing default or compliance with any provision of
the Indenture or the Notes may be waived with the consent of the Holders of a
majority in aggregate principal amount of the then outstanding Notes. Without
the consent of any Holder of a Note, the Indenture or the Notes may be amended
or supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
in case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the
A-5
<PAGE>
Holders of the Notes or that does not adversely affect the legal rights under
the Indenture of any such Holder, to secure the Notes, to add or release any
Subsidiary Guarantor pursuant to the terms of the Indenture or to comply with
the requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the TIA.
12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30
days in the payment when due of interest on the Notes; (ii) default in payment
when due of principal of or premium, if any, on the Notes whether the same
becomes due and payable at maturity, upon redemption (including in connection
with an offer to purchase) or otherwise, (iii) a default in the performance or
breach of Section 4.11, 4.17 or 5.1 of the Indenture; (iv) a default in the
observance or performance of any other covenant or agreement, which default
continues for 30 days after written notice thereof to the Company by the Trustee
or to the Company and the Trustee by the Holders of at least 25% in aggregate
principal amount of the Notes then outstanding; (v) default under certain other
agreements relating to Indebtedness of the Company or any Restricted Subsidiary
of the Company, which default (A) extends beyond a stated period of grace
applicable thereto (including any extensions thereof) or (B) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness on the
date of such default, and in each case, the outstanding principal amount of such
Indebtedness aggregates in excess of $1,000,000, and PROVIDED, FURTHER, that if
any such default is waived by all obligees thereof, then such Event of Default
under the Indenture shall be deemed waived and any consequential acceleration of
the Notes shall be automatically rescinded, so long as such rescission does not
conflict with any judgment or decree; (vi) certain final judgments for the
payment of money that remain undischarged for a period of 60 consecutive days;
(vii) any of the Indenture, the Notes or the Subsidiary Guarantees shall for any
reason cease to be, or be asserted by the Company or any Subsidiary Guarantor,
as applicable, not to be, in full force and effect (except pursuant to the
release of any Subsidiary Guarantee in accordance with the Indenture),or shall
be declared null and void or unenforceable, or the validity or enforceability
thereof shall be denied or contested; and (viii) certain events of bankruptcy or
insolvency with respect to the Company or any Subsidiary Guarantor. If any
Event of Default occurs and is continuing, the Trustee or the Holders of at
least 25% in aggregate principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company or any Subsidiary
Guarantor, all outstanding Notes will become due and payable without further
action or notice. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest. The
Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes. The Company is required to deliver
to the Trustee quarterly (other than for the final quarter of its fiscal year)
and annually a statement regarding compliance with the Indenture, and the
Company is required upon becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event of Default.
13. DISCHARGE AND DEFEASANCE. Subject to the continuance of certain
administrative obligations with respect to the Notes, the Indenture (including
the Subsidiary Guarantees) shall be discharged and cancelled upon the payment of
all of the Notes. Further, subject to certain conditions of the Indenture, the
Company and the Subsidiary Guarantors may be
A-6
<PAGE>
discharged from all of their respective obligations under the Indenture, the
Notes and the Subsidiary Guarantees, except for the continuance of certain
administrative obligations with respect to the Notes, or may be released from
the compliance with restrictive covenants of the Indenture, upon the
irrevocable deposit with the Trustee of funds or Government Securities
sufficient for payment.
14. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
15. NO RECOURSE AGAINST OTHERS. NO PAST, PRESENT OR FUTURE STOCKHOLDER,
OFFICER OR DIRECTOR OF THE COMPANY OR ANY SUBSIDIARY GUARANTOR, AS SUCH, SHALL
HAVE ANY PERSONAL LIABILITY FOR ANY OBLIGATIONS OF THE COMPANY OR SUCH
SUBSIDIARY GUARANTOR UNDER THE NOTES, THE INDENTURE OR THE SUBSIDIARY
GUARANTEES, AS THE CASE MAY BE, BY REASON OF HIS OR HER OR ITS STATUS AS SUCH
STOCKHOLDER, OFFICER OR DIRECTOR. EACH HOLDER BY ACCEPTING THIS NOTE WAIVES AND
RELEASES ALL SUCH LIABILITY. THE WAIVER AND RELEASE ARE PART OF THE
CONSIDERATION FOR THE ISSUANCE OF THE NOTES AND THE SUBSIDIARY GUARANTEES. SUCH
WAIVER MAY NOT BE EFFECTIVE TO WAIVE LIABILITIES UNDER THE FEDERAL SECURITIES
LAWS, AND IT IS THE VIEW OF THE COMMISSION THAT SUCH A WAIVER IS AGAINST PUBLIC
POLICY.
16. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee.
17. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts
to Minors Act).
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
19. GOVERNING LAW. THIS NOTE AND THE GUARANTEE NOTATION HEREON SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES THEREOF.
The Company shall furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to:
RAM Energy, Inc.
__________________________
__________________________
______________, _______ _______
Facsimile No.: (______) ______-________
Attention: Chief Financial Officer
A-7
<PAGE>
[FORM OF NOTATION ON NOTE RELATING TO SUBSIDIARY GUARANTEES]
For value received, each of the undersigned hereby, jointly and severally,
unconditionally guarantees to the Holder of this Note the payment of all
principal of, premium, if any, and interest on this Note, upon which this
Subsidiary Guarantee is endorsed, in the amounts and at the time when due and
payable, whether at the maturity or interest payment or mandatory redemption
date, by acceleration, call for redemption or repurchase or otherwise, and
interest on the overdue principal and interest, if any, of this Note, if lawful,
and all other obligations of the Company to the Holders or the Trustee under the
Indenture, all in accordance with, and subject to the terms and limitations of,
this Note and Article 10 of the Indenture. Each Subsidiary Guarantor agrees
that this is a guarantee of payment, not a guarantee of collection. Capitalized
terms used herein have the meanings assigned to them in the Indenture unless
otherwise indicated. The Subsidiary Guarantees shall not be valid or obligatory
for any purpose until the certificate of authentication on this Note on which
this Subsidiary Guarantee is noted shall have been executed by the Trustee.
THIS SUBSIDIARY GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES
THEREOF. The Indebtedness evidenced by this Subsidiary Guarantee is, to the
extent and in the manner provided in the Indenture, the senior unsecured
obligation of each Subsidiary Guarantor.
By each of the following, and any other Subsidiary Guarantor as may be
added or substituted from time to time, as Subsidiary Guarantors:
SUBSIDIARY GUARANTORS:
-----------------------------
---------------------------------------------
By
-------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
(for each of the above-listed Subsidiary
Guarantors)
A-8
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date:
----------------------------
Your Signature:
---------------------------------------
(Sign exactly as your name appears on the face of this
Note)
Signature Guarantee.
A-9
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to
Section 4.11 or 4.17 of the Indenture, check the box below:
/ / Section 4.11 / / Section 4.17
If you want to elect to have only part of the Note purchased by the Company
pursuant to Section 4.11 or Section 4.17 of the Indenture, state the amount you
elect to have purchased:
$ (Must be in $1,000 Denominations)
--------------
Date:
--------------------------
Your Signature:
---------------------------------------
(Sign exactly as your name appears on the face of this
Note)
Signature Guarantee:
A-10
<PAGE>
APPENDIX 1
SCHEDULE OF ADJUSTMENTS TO GLOBAL NOTE(3)
The following increases or decreases in the principal amount of this Global
Note in accordance with the Indenture have been made:
<TABLE>
Amount of Signature of
decrease in Principal Amount of authorized
Principal Amount of increase this Global Note signatory of
Date of Amount of this in Principal Amount following such Trustee or Note
Exchange Global Note of this Global Note decrease (or increase) Custodian
-------- -------------- ------------------- ---------------------- ---------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
- ------------------------
(3) This schedule should be included only if the Note is issued in global form.
A-11
<PAGE>
Law Offices
McAfee & Taft
A Professional Corporation
Tenth Floor, Two Leadership Square
211 North Robinson
Oklahoma City, Oklahoma 73102-7103
(405) 235-9621
Fax (405) 235-0439
February 2, 1998
Ram Energy, Inc.
Meridian Tower
5100 East Skelley Dr., Suite 650
Tulsa, Oklahoma 74135
Gentlemen:
We have been requested to render our opinion as to certain matters
regarding ____% Senior Notes due 2008 (the "Notes") of RAM Energy, Inc., a
Delaware corporation ("RAM Energy") which are to be issued pursuant to an
Indenture dated as of February ___, 1998, among United States Trust Company
of New York, as Trustee, RAM Energy and the Subsidiary Guarantors (the
"Indenture"). We have examined RAM Energy's minute books and other corporate
records, the Form S-1 Registration Statement (File No. 333-42641) filed with
the Securities and Exchange Commission on December 18, 1997 and Amendment No.
One thereto filed on February 2, 1998 (the "Registration Statement), the
underwriting agreement between RAM Energy and the underwriter named therein
for the sale of the Notes (the "Underwriting Agreement") filed as an exhibit
to the Registration Statement, the Indenture filed as an exhibit to the
Registration Statement, the form of Notes filed as an exhibit to the
Registration Statement, and have made such other investigation as we deemed
necessary in order to render the opinions expressed herein.
Based on the foregoing, we are of the opinion that:
RAM Energy is duly incorporated and validly existing under the laws
of the State of Delaware, with full power and authority to own its properties
and to conduct its business as described in the preliminary prospectus
contained in the Registration Statement.
The $115,000,000 in aggregate principal amount of the Notes and
Subsidiary Guarantees (as defined in the Registration Statement), when issued
to the underwriter against payment therefore in accordance with the terms of
the Underwriting Agreement and the
<PAGE>
Indenture, will constitute binding obligations of RAM Energy and the
Subsidiary Guarantors (as defined in the Registration Statement), enforceable
against RAM Energy and the Subsidiary Guarantors in accordance with the terms
of the Indenture and the Notes, subject to (a) applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar
laws relating to creditors' rights and remedies generally, and (b) general
principles of equity (whether enforcement is sought in a proceeding at law or
in equity).
We hereby consent to the inclusion of this opinion as an exhibit to
the above Registration Statement and to the reference to our firm under the
caption "Legal Matters" and elsewhere in the Prospectus which is a part of
the Registration Statement.
Very truly yours,
McAFEE & TAFT A PROFESSIONAL
CORPORATION
DJK/mls
<PAGE>
RAM ENERGY, INC.
1998 STOCK INCENTIVE PLAN
<PAGE>
RAM ENERGY, INC.
1998 STOCK INCENTIVE PLAN
TABLE OF CONTENTS
Page
----
ARTICLE I PURPOSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 PURPOSE. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 ESTABLISHMENT. . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3 SHARES SUBJECT TO THE PLAN . . . . . . . . . . . . . . . . 1
Section 1.4 SHAREHOLDER APPROVAL . . . . . . . . . . . . . . . . . . . 1
ARTICLE II DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE III ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.1 ADMINISTRATION BY COMMITTEE. . . . . . . . . . . . . . . . 4
Section 3.2 COMMITTEE TO MAKE RULES AND INTERPRET PLAN . . . . . . . . 4
ARTICLE IV GRANT OF AWARDS . . . . . . . . . . . . . . . . . . . . . 5
Section 4.1 COMMITTEE TO GRANT AWARDS . . . . . . . . . . . . . . . . 5
ARTICLE V ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE VI STOCK OPTIONS . . . . . . . . . . . . . . . . . . . . . . 6
Section 6.1 GRANT OF OPTIONS. . . . . . . . . . . . . . . . . . . . . 6
Section 6.2 CONDITIONS OF OPTIONS . . . . . . . . . . . . . . . . . . 6
Section 6.3 OPTIONS NOT QUALIFYING AS INCENTIVE STOCK OPTIONS . . . . 7
ARTICLE VII RESTRICTED STOCK AWARDS . . . . . . . . . . . . . . . . . 7
Section 7.1 GRANT OF RESTRICTED STOCK AWARDS. . . . . . . . . . . . . 7
Section 7.2 CONDITIONS OF RESTRICTED STOCK AWARDS . . . . . . . . . . 7
ARTICLE VIII STOCK ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . 8
ARTICLE IX GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 9.1 AMENDMENT OR TERMINATION OF PLAN. . . . . . . . . . . . . 9
Section 9.2 DIVIDENDS AND DIVIDEND EQUIVALENTS. . . . . . . . . . . . 9
Section 9.3 ACCELERATION OF OTHERWISE UNEXERCISABLE STOCK OPTIONS
ON DEATH, DISABILITY OR OTHER SPECIAL CIRCUMSTANCES . . 9
Section 9.4 NON-TRANSFERABILITY OF OPTIONS. . . . . . . . . . . . . . 9
Section 9.5 WITHHOLDING TAXES . . . . . . . . . . . . . . . . . . . . 9
Section 9.6 AMENDMENTS TO AWARDS. . . . . . . . . . . . . . . . . . . 9
Section 9.7 SECURITIES LAWS . . . . . . . . . . . . . . . . . . . . . 10
Section 9.8 CHANGE OF CONTROL . . . . . . . . . . . . . . . . . . . . 10
Section 9.9 NO RIGHT TO CONTINUED EMPLOYMENT. . . . . . . . . . . . . 10
Section 9.10 RELIANCE ON REPORTS . . . . . . . . . . . . . . . . . . . 10
Section 9.11 CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . . 10
Section 9.12 INCENTIVE STOCK OPTIONS AND NONQUALIFIED STOCK OPTIONS
GRANTED SEPARATELY. . . . . . . . . . . . . . . . . . . 10
Section 9.13 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE X ACCELERATION OF OPTIONS UPON CORPORATE EVENT. . . . . . . 10
-i-
<PAGE>
ARTICLE I
PURPOSE
SECTION 1.1 PURPOSE. This Stock Incentive Plan is established by RAM
Energy, Inc., a Delaware corporation (the "Company"), to create incentives which
are designed to motivate Participants to put forth maximum effort toward the
success and growth of the Company and to enable the Company to attract and
retain experienced individuals who by their position, ability and diligence are
able to make important contributions to the Company's success. Toward these
objectives, the Plan provides for the granting of Options and Restricted Stock
Awards to Participants on the terms and subject to the conditions set forth in
the Plan.
SECTION 1.2 ESTABLISHMENT. The Plan is effective as of January 19,
1998, and for a period of ten years from such date. The Plan will terminate on
January 18, 2008, however, it will continue in effect until all matters relating
to the payment of Awards and administration of the Plan have been settled.
SECTION 1.3 SHARES SUBJECT TO THE PLAN. Subject to Articles IV, VIII
and IX of this Plan, shares of stock covered by Options and Restricted Stock
Awards shall consist of 550,000 shares of Common Stock.
SECTION 1.4 SHAREHOLDER APPROVAL. The Plan shall be approved by the
holders of a majority of the outstanding shares of Common Stock (i) present, or
represented, and entitled to vote at a meeting called for such purposes, or (ii)
by written consent in lieu of a meeting, which approval must occur within the
period ending twelve months after the date the Plan is adopted by the Board.
Pending such approval by the shareholders, Awards under the Plan may be granted
to Participants, but no such Awards may be exercised or paid prior to receipt of
shareholder approval. In the event shareholder approval is not obtained within
such twelve-month period, all such Awards shall be void.
ARTICLE II
DEFINITIONS
SECTION 2.1 "Affiliated Entity" means any partnership or limited
liability company, a majority of the partnership or other similar interest
thereof is owned or controlled, directly or indirectly, by the Company or one or
more of its Subsidiaries or Affiliated Entities or a combination thereof. For
purposes hereof, the Company, a Subsidiary or an Affiliate Entity shall be
deemed to have a majority ownership interest in a partnership or limited
liability company if the Company, such Subsidiary or Affiliated Entity shall be
allocated a majority of partnership or limited liability company gains or losses
or shall be or control the managing director or a general partner of such
partnership or limited liability company.
SECTION 2.2 "Award" means any Option or Restricted Stock Award granted
under the Plan to a Participant by the Committee pursuant to such terms,
conditions, restrictions, and/or limitations, if any, as the Committee may
establish by the Award Agreement or otherwise.
SECTION 2.3 "Award Agreement" means any written instrument that
establishes the terms, conditions, restrictions, and/or limitations applicable
to an Award in addition to those established by this Plan and by the Committee's
exercise of its administrative powers.
SECTION 2.4 "Board" means the Board of Directors of the Company.
SECTION 2.5 "Change of Control Date" means the date on which one of the
following events occurs:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3
<PAGE>
promulgated under the Exchange Act) of 30% or more of either (i) the then
outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting Securities"); provided,
however, that the following acquisitions shall not constitute a Change of
Control: (i) any acquisition directly from the Company, (ii) any acquisition
by the Company, (iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company, or (iv) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i), (ii), and (iii) of
subsection (c) below; or
(b) Individuals who, as of the effective date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the effective date hereof whose election, appointment or
nomination for election by the Company's shareholders was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board,
but excluding, for purposes of this definition, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(c) Approval by the shareholders of the Company of a reorganization,
share exchange, merger or consolidation (a "Business Combination"), in each
case, unless, following such Business Combination, (i) all or substantially all
of the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns the
Company through one or more subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (ii) no Person (excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 30% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination, and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Incumbent
Board providing for such Business Combination, or were elected, appointed or
nominated by the Incumbent Board; or
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other disposition
of all or substantially all of the assets of the Company, other than to a
corporation with respect to which following such sale or other disposition, (A)
more than 50% of, respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) less than 30% of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by any Person (excluding any
employee benefit plan (or related trust) of the Company or such corporation),
except to the extent that such Person owned 30% or more of the Outstanding
Company Common Stock or Outstanding Company Voting Securities prior to the sale
or disposition, and (C) at least a majority of the members of the board
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of directors of such corporation were members of the Incumbent Board at the
time of the execution of the initial agreement, or of the action of the
Incumbent Board providing for such sale or other disposition of assets of the
Company, or were elected, appointed or nominated by the Incumbent Board.
SECTION 2.6 "Code" means the Internal Revenue Code of 1986, as amended.
Reference in the Plan to any Section of the Code shall be deemed to include any
amendments or successor provisions to such Section and any regulations under
such Section.
SECTION 2.7 "Committee" means the Compensation Committee of the Board,
or such other committee designated by the Board consisting of two or more
Nonemployee Directors.
SECTION 2.8 "Common Stock" means the common stock, par value $.01 per
share, of the Company, and after substitution, such other stock as shall be
substituted therefor as provided in Article VIII.
SECTION 2.9 "Date of Grant" means the date on which the granting of an
Award is authorized by the Committee or such later date as may be specified by
the Committee in such authorization.
SECTION 2.10 "Disability" has the meaning set forth in Section 22(e)(3)
of the Code.
SECTION 2.11 "Eligible Employee" means any employee of the Company, a
Subsidiary or an Affiliated Entity.
SECTION 2.12 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
SECTION 2.13 "Fair Market Value" means (i) during such time as the Common
Stock is listed upon the New York Stock Exchange or other stock exchanges or
exchange or the Nasdaq National Market, the closing price of the Common Stock on
the principal stock exchange on which the Common Stock is listed or the Nasdaq
National Market on the day for which such value is to be determined, or if no
sale of the Common Stock shall have been made on any such stock exchange or the
Nasdaq National Market that day, on the next preceding day on which there was a
sale of such Common Stock or (ii) during any such time as the Common Stock is
not listed upon a stock exchange or the Nasdaq National Market, the mean between
dealer "bid" and "ask" prices of the Common Stock in the over-the-counter market
on the day for which such value is to be determined, as reported by the National
Association of Securities Dealers, Inc., or (iii) during any such time as the
Common Stock cannot be valued pursuant to (i) or (ii) above, the fair market
value shall be as determined by the Board considering all relevant information
including, by example and not by limitation, the services of an independent
appraiser.
SECTION 2.14 "Incentive Stock Option" means an Option within the meaning
of Section 422 of the Code.
SECTION 2.15 "Nonemployee Director" means any person who is a member of
the Board, is not an Eligible Employee, and is a "Non-Employee Director" as that
term is defined in Rule 16 b-3 promulgated under the Exchange Act.
SECTION 2.16 "Nonqualified Stock Option" means an Option which is not an
Incentive Stock Option.
SECTION 2.17 "Option" means an Award granted under Article VI of the Plan
and includes both Non-qualified Stock Options and Incentive Stock Options to
purchase shares of Common Stock.
SECTION 2.18 "Participant" means a Nonemployee Director or an Eligible
Employee to whom an Award under the Plan has been granted by the Committee.
SECTION 2.19 "Plan" means RAM Energy, Inc. 1998 Stock Incentive Plan.
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SECTION 2.20 "Restricted Stock Award" means an Award granted under
Article VII of the Plan.
SECTION 2.21 "Subsidiary" has the meaning set forth in Section 424 of the
Code.
ARTICLE III
ADMINISTRATION
SECTION 3.1 ADMINISTRATION BY COMMITTEE. The Committee shall administer
the Plan. The Committee shall hold meetings at such times and places as it may
determine. A majority of the Committee shall constitute a quorum, and the acts
of a majority of the members present at any meeting at which a quorum is present
or acts reduced to or approved in writing by a majority of the members of the
Committee shall be the valid acts of the Committee.
Subject to the provisions of the Plan, the Committee shall have exclusive
power to:
(a) Select the Participants to be granted Awards.
(b) Determine the time or times when Awards will be made.
(c) Determine the form of an Award, whether an Incentive Stock
Option, Nonqualified Stock Option or Restricted Stock Award, the number of
shares of Common Stock subject to the Award, all the terms, conditions
(including performance requirements), restrictions and/or limitations, if any,
of an Award, including the time and conditions of exercise or vesting, and the
terms of any Award Agreement, which may include the waiver or amendment of prior
terms and conditions or acceleration or early vesting or payment of an Award
under certain circumstances determined by the Committee.
(d) Determine whether Awards will be granted singly or in
combination.
(e) Accelerate the vesting, exercise or payment of an Award or the
performance period of an Award when such action or actions would be in the best
interest of the Company.
(f) Take any and all other action it deems necessary or advisable for
the proper operation or administration of the Plan.
SECTION 3.2 COMMITTEE TO MAKE RULES AND INTERPRET PLAN. The Committee
in its sole discretion shall have the authority, subject to the provisions and
the general purpose and intent of the Plan, to (i) modify the requirements of
the Plan to conform with the law or to meet special circumstances not
anticipated or covered by the Plan; (ii) suspend or discontinue the Plan; (iii)
establish, adopt, or revise rules and regulations with respect to the Plan; and
(iv) make all such determinations relating to the Plan as it may deem necessary
or advisable for the administration of the Plan. The Committee's interpretation
of the Plan or any Awards granted pursuant thereto and all decisions and
determinations by the Committee with respect to the Plan shall be final,
binding, and conclusive on all parties.
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ARTICLE IV
GRANT OF AWARDS
SECTION 4.1 COMMITTEE TO GRANT AWARDS. The Committee may, from time to
time, grant Awards to one or more Participants, provided, however, that:
(a) Subject to Article VIII, the aggregate number of shares of Common
Stock made subject to the Award of Options and/or Restricted Stock to any
Participant in any year may not exceed 25,000.
(b) Any shares of Common Stock related to Awards which terminate by
expiration, forfeiture, cancellation or otherwise without the issuance of shares
of Common Stock shall be available again for grant under the Plan.
(c) Common Stock delivered by the Company issued pursuant to an Award
under the Plan may be authorized and unissued Common Stock or Common Stock held
in the treasury of the Company or may be purchased on the open market or by
private purchase.
(d) Upon the exercise of an Option, the Company shall issue and
deliver to the Participant a certificate representing the Common Stock purchased
thereby.
(e) Awards may only be granted to Nonemployee Directors by the Board,
and when the Board acts with respect to Awards made to Nonemployee Directors,
the Board shall have all of the powers granted herein to the Committee.
ARTICLE V
ELIGIBILITY
Subject to the provisions of the Plan, Eligible Employees and Nonemployee
Directors shall be eligible to receive Awards under the Plan.
ARTICLE VI
STOCK OPTIONS
SECTION 6.1 GRANT OF OPTIONS. The Committee may, from time to time,
subject to the provisions of the Plan and such other terms and conditions as it
may determine, grant Options to Participants. These Options may be Incentive
Stock Options or Nonqualified Stock Options, or a combination of both. Each
grant of an Option shall be evidenced by an Award Agreement executed by the
Company and the Participant, and shall contain such terms and conditions and be
in such form as the Committee may from time to time approve, subject to the
requirements of Section 6.2.
SECTION 6.2 CONDITIONS OF OPTIONS. Each Option so granted shall be
subject to the following conditions:
(a) EXERCISE PRICE. As limited by Section 6.2(e) below, each Option
shall state the exercise price which shall be set by the Committee at the Date
of Grant; provided, however, no Option shall be granted at an exercise price
which is less than the Fair Market Value of the Common Stock on the Date of
Grant.
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(b) FORM OF PAYMENT. The exercise price of an Option may be paid (i)
in cash or by check, bank draft or money order payable to the order of the
Company; (ii) by delivering shares of Common Stock or other equity securities of
the Company having a Fair Market Value on the date of payment equal to the
amount of the exercise price; (iii) by directing the Company to withhold from
the shares of Common Stock to be delivered to the Participant upon exercise of
the Option, shares of Common Stock with a Fair Market Value on the date of
payment equal to the amount of the exercise price; or (iv) a combination of the
foregoing. In addition to the foregoing, any Option granted under the Plan may
be exercised through a broker-dealer acting on behalf of a Participant if (A)
the broker-dealer has received from the Participant or the Company a notice
evidencing the exercise of such Option by the Participant and instructions
signed by the Participant requesting the Company to deliver the shares of Common
Stock subject to such Option to the broker-dealer on behalf of the Participant
and specifying the account into which such shares should be deposited, (B)
adequate provision has been made with respect to the payment of the exercise
price of the Option and of any withholding taxes due upon such exercise or, in
the case of an Incentive Stock Option, upon the premature disposition of such
shares and (C) the broker-dealer and the Participant have otherwise complied
with Section 220.3(e)(4) of Regulation T, 12 CFR, Part 220 and any successor
rules and regulations applicable to such exercise.
(c) EXERCISE OF OPTIONS. Options granted under the Plan shall be
exercisable, in whole or in such installments and at such times, and shall
expire at such time, as shall be provided by the Committee in the Award
Agreement. Exercise of an Option shall be by written notice stating the
election to exercise in the form and manner determined by the Committee. Every
share of Common Stock acquired through the exercise of an Option shall be deemed
to be fully paid at the time of exercise and payment of the exercise price.
(d) OTHER TERMS AND CONDITIONS. Among other conditions that may be
imposed by the Committee, if deemed appropriate, are those relating to (i) the
period or periods and the conditions of exercisability of any Option; (ii) the
minimum periods during which Participants must be employed by the Company, its
Subsidiaries or an Affiliated Entity, or must hold Options before they may be
exercised; (iii) the minimum periods during which shares acquired upon exercise
of Options must be held before sale or transfer shall be permitted; (iv)
conditions under which such Options or shares may be subject to forfeiture; (v)
the frequency of exercise or the minimum or maximum number of shares that may be
acquired at any one time and (vi) the achievement by the Company or the
Participant of specified performance criteria.
(e) SPECIAL RESTRICTIONS RELATING TO INCENTIVE STOCK OPTIONS.
Options issued in the form of Incentive Stock Options shall not be granted to
Directors who are not also Eligible Employees of the Company or a Subsidiary and
shall, in addition to being subject to all applicable terms, conditions,
restrictions and/or limitations established under the Plan or by the Committee,
comply with the requirements of Section 422 of the Code (or any successor
Section thereto), including, without limitation, the requirement that the
exercise price of an Incentive Stock Option not be less than 100% of the Fair
Market Value of the Common Stock on the Date of Grant, the requirement that each
Incentive Stock Option, unless sooner exercised, terminated or cancelled, expire
no later than ten years from its Date of Grant, and the requirement that the
aggregate Fair Market Value (determined on the Date of Grant) of the Common
Stock with respect to which Incentive Stock Options are exercisable for the
first time by a Participant during any calendar year (under this Plan or any
other plan of the Company, its parent or any Subsidiary) not exceed $100,000.
No Incentive Stock Options shall be granted to any Eligible Employee if,
immediately before the grant of an Incentive Stock Option, such Eligible
Employee owns more than 10% of the total combined voting power of all classes of
stock of the Company or its Subsidiaries (as determined in accordance with the
stock attribution rules contained in Sections 422 and 424(d) of the Code).
Provided, the preceding sentence shall not apply if, at the time the Incentive
Stock Option is granted, the exercise price is at least 110% of the Fair Market
Value of the Common Stock subject to the Incentive Stock Option, and such
Incentive Stock Option by its terms is exercisable no more than five years from
the date such Incentive Stock Option is granted. This Plan and any Incentive
Stock Options granted hereunder shall be deemed to have incorporated by
reference all the provisions and requirements of Section 422 of the Code (and
the Treasury Regulations issued thereunder) which are required to provide that
all Incentive Stock Options granted hereunder shall be "incentive stock options"
described in Section 422 of the Code.
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(f) APPLICATION OF FUNDS. The cash proceeds received by the Company
from the sale of Common Stock pursuant to Options will be used for general
corporate purposes. Shares received by the Company in lieu of cash payment will
be considered as treasury stock and may be retired at the Company's discretion.
(g) SHAREHOLDER RIGHTS. No Participant shall have any rights as a
shareholder with respect to Common Stock subject to an Option prior the to the
purchase of such Common Stock upon exercise of the Option.
SECTION 6.3 OPTIONS NOT QUALIFYING AS INCENTIVE STOCK OPTIONS. With
respect to all or any portion of any Option granted under this Plan not
qualifying as an "incentive stock option" under Section 422 of the Code, such
Option shall be considered as a Nonqualified Stock Option granted under this
Plan for all purposes. Further, in the event that the Committee grants
Incentive Stock Options under this Plan to a Participant and the applicable
limitation contained in Section 6.2(e) herein is exceeded, such Incentive Stock
Options in excess of such limitation shall be treated as Nonqualified Stock
Options under this Plan subject to the terms and provisions of the applicable
Award Agreement, except to the extent modified to reflect recharacterization of
the Incentive Stock Options as Nonqualified Stock Options.
ARTICLE VII
RESTRICTED STOCK AWARDS
SECTION 7.1 GRANT OF RESTRICTED STOCK AWARDS. The Committee may, from
time to time, subject to the provisions of the Plan and such other terms and
conditions as it may determine, grant a Restricted Stock Award to any
Participant. Restricted Stock Awards shall be awarded in such number and at
such times during the term of the Plan as the Committee shall determine. Each
Restricted Stock Award may be evidenced in such manner as the Committee deems
appropriate, including, without limitation, a book-entry registration or
issuance of a stock certificate or certificates, and by an Award Agreement
setting forth the terms of such Restricted Stock Award.
SECTION 7.2 CONDITIONS OF RESTRICTED STOCK AWARDS. The grant of a
Restricted Stock Award shall be subject to the following:
(a) RESTRICTION PERIOD. In addition to any vesting conditions
determined by the Committee, including, but not by way of limitation, the
achievement by the Company or Participant of specified performance criteria,
vesting of each Restricted Stock Award shall require the holder to remain a
Director of the Company or in the employment of the Company, a Subsidiary or an
Affiliated Entity for a prescribed period (a "Restriction Period"). The
Committee shall determine the Restriction Period or Periods which shall apply to
the shares of Common Stock covered by each Restricted Stock Award or portion
thereof. At the end of the Restriction Period, assuming the fulfillment of all
specified vesting conditions, the restrictions imposed by the Committee shall
lapse with respect to the shares of Common Stock covered by the Restricted Stock
Award or portion thereof. In the event such vesting conditions have not been
satisfied, the unvested portion of the Restricted Stock Award (including the
shares of Common Stock represented thereby) shall be forfeited and neither the
Participant nor any other person shall have any interest therein in any manner
whatsoever. The Committee may, in its sole discretion, modify or accelerate the
vesting of a Restricted Stock Award under such circumstances as it deems
appropriate.
(b) RESTRICTIONS. The holder of a Restricted Stock Award may not
sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of the
shares of Common Stock represented by a Restricted Stock Award during any
applicable Restriction Period. The Committee shall impose such other
restrictions and conditions on any shares of Common Stock covered by a
Restricted Stock Award as it may deem advisable including, without limitation,
restrictions under applicable Federal or state securities laws, and may legend
the certificates representing shares of Common Stock subject to the Restricted
Stock Award to give appropriate notice of such restrictions.
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(c) RIGHTS AS SHAREHOLDERS. During any Restriction Period, the
Committee may, in its discretion, grant to the holder of a Restricted Stock
Award all or any of the rights of a shareholder with respect to the shares
subject to the Restricted Stock Award, including, but not by way of limitation,
the right to vote such shares and to receive dividends. If any dividends or
other distributions are paid in shares of Common Stock, all such shares shall be
subject to the same restrictions on transferability as the shares of Common
Stock subject to the Restricted Stock Award with respect to which they were
paid.
ARTICLE VIII
STOCK ADJUSTMENTS
In the event that the shares of Common Stock, as presently constituted,
shall be changed into or exchanged for a different number or kind of shares of
stock or other securities of the Company or of another corporation (whether by
reason of merger, consolidation, recapitalization, reclassification, stock
split, combination of shares or otherwise), or if the number of such shares of
Common Stock shall be increased through the payment of a stock dividend, or a
dividend on the shares of Common Stock or rights or warrants to purchase
securities of the Company shall be made, then there shall be substituted for or
added to each share available under and subject to the Plan as provided in
Section 1.3 hereof, and each share subject or which may become subject to
Options or Restricted Stock Awards under the Plan, the number and kind of shares
of stock or other securities into which each outstanding share of Common Stock
shall be so changed or for which each such share shall be exchanged or to which
each such share shall be entitled, as the case may be, on a fair and equivalent
basis in accordance with the applicable provisions of Section 424 of the Code;
provided, however, with respect to Options, in no such event will such
adjustment result in a modification of any Option as defined in Section 424(h)
of the Code. In the event there shall be any other change in the number or kind
of the outstanding shares of Common Stock, or any stock or other securities into
which the Common Stock shall have been changed or for which it shall have been
exchanged, then if the Committee shall, in its sole discretion, determine that
such change equitably requires an adjustment in the shares available under and
subject to the Plan, or in any Award theretofore granted or which may be granted
under the Plan, such adjustments shall be made in accordance with such
determination, except that no adjustment of the number of shares of Common Stock
available under the Plan or to which any Award relates that would otherwise be
required shall be made unless and until such adjustment either by itself or with
other adjustments not previously made would require an increase or decrease of
at least 1% in the number of shares of Common Stock available under the Plan or
to which any Award relates immediately prior to the making of such adjustment
(the "Minimum Adjustment"). Any adjustment representing a change of less than
such minimum amount shall be carried forward and made as soon as such adjustment
together with other adjustments required by this Article VIII and not previously
made would result in a Minimum Adjustment. Notwithstanding the foregoing, any
adjustment required by this Article VIII which otherwise would not result in a
Minimum Adjustment shall be made with respect to shares of Common Stock relating
to any Award immediately prior to exercise, payment or settlement of such Award.
No fractional shares of Common Stock or units of other securities shall be
issued pursuant to any such adjustment, and any fractions resulting from any
such adjustment shall be eliminated in each case by rounding downward to the
nearest whole share.
ARTICLE IX
GENERAL
SECTION 9.1 AMENDMENT OR TERMINATION OF PLAN. The Board may suspend or
terminate the Plan at any time. In addition, the Board may, from time to time,
amend the Plan in any manner, but may not without shareholder approval adopt any
amendment which would increase the aggregate number of shares of Common Stock
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available under the Plan (except by operation of Article VIII) or decrease the
minimum exercise price to less than the Fair Market Value on the Date of Grant,
provided, that any amendment to the Plan shall require approval of the
shareholders if, in the opinion of counsel to the Company, such approval is
required by any Federal or state law or any regulations or rules promulgated
thereunder.
SECTION 9.2 DIVIDENDS AND DIVIDEND EQUIVALENTS. The Committee may
choose, at the time of the grant of any Award or any time thereafter up to the
time of payment of such Award, to include as part of such Award an entitlement
to receive dividends or dividend equivalents subject to such terms, conditions,
restrictions, and/or limitations, if any, as the Committee may establish.
Dividends and dividend equivalents granted hereunder shall be paid in such form
and manner (i.e., lump sum or installments), and at such time as the Committee
shall determine. All dividends or dividend equivalents which are not paid
currently may, at the Committee's discretion, accrue interest or be reinvested
into additional shares of Common Stock.
SECTION 9.3 ACCELERATION OF OTHERWISE UNEXERCISABLE OPTIONS ON DEATH,
DISABILITY OR OTHER SPECIAL CIRCUMSTANCES. The Committee, in its sole
discretion, may permit (i) a Participant who terminates employment due to a
Disability, (ii) the personal representative of a deceased Participant, or (iii)
any other Participant who terminates employment upon the occurrence of special
circumstances (as determined by the Committee) to purchase all or any part of
the shares subject to any unvested Option on the date of the Participant's
Disability, death, or as the Committee otherwise so determines. With respect to
Options which have already vested at the date of such termination or the vesting
of which is accelerated by the Committee in accordance with the foregoing
provision, the Participant or the personal representative of a deceased
Participant shall automatically have the right to exercise such vested Options
within three months of such date of termination of employment (or such longer
period as shall be provided in the Award Agreement) or one year in the case of a
Participant suffering a Disability or three years in the case of a deceased
Participant; provided, however, in no event shall the Option be exercisable
beyond the original expiration date of the Option.
SECTION 9.4 NON-TRANSFERABILITY OF OPTIONS. Except as otherwise herein
provided, any Option granted shall not be transferable otherwise than by will or
the laws of descent and distribution, and the Option may be exercised, during
the lifetime of the Participant, only by him or her. More particularly (but
without limiting the generality of the foregoing), the Option shall not be
assigned, transferred (except as provided above), pledged or hypothecated in any
way whatsoever, shall not be assignable by operation of law and shall not be
subject to execution, attachment, or similar process. Any attempted assignment,
transfer, pledge, hypothecation, or other disposition of the Option contrary to
the provisions hereof shall be null and void and without effect.
SECTION 9.5 WITHHOLDING TAXES. A Participant may pay the amount of
taxes required by law upon the exercise or payment of an Award (i) in cash, (ii)
by delivering to the Company shares of Common Stock having a Fair Market Value
on the date of payment equal to the amount of such required withholding taxes,
or (iii) by directing the Company to withhold from the shares of Common Stock to
be delivered to the Participant upon exercise or payment of the Award shares of
Common Stock having a Fair Market Value on the date of payment equal to the
amount of such required withholding taxes.
SECTION 9.6 AMENDMENTS TO AWARDS. The Committee may at any time amend
the terms of any Award Agreement, whether or not presently exercisable, earned,
paid or vested, to accelerate vesting of Awards.
SECTION 9.7 SECURITIES LAWS. The Company shall have no obligation to
issue or deliver certificates representing shares of Common Stock subject to
Awards prior to:
(a) the obtaining of any approval from, or satisfaction of any
waiting period or other condition imposed by, any governmental agency which the
Committee shall, in its sole discretion, determine to be necessary or advisable;
and
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(b) the completion of any registration or other qualification of such
shares under any state or Federal law or ruling of any governmental body which
the Committee shall, in its sole discretion, determine to be necessary or
advisable.
SECTION 9.8 CHANGE OF CONTROL. Awards granted under the Plan to any
Participant may, in the discretion of the Committee, provide that such Awards
shall be immediately vested, fully earned and exercisable upon the Change of
Control Date.
SECTION 9.9 NO RIGHT TO CONTINUED EMPLOYMENT. Participation in the Plan
shall not give any Director any right to remain a Director of the Company or any
Eligible Employee any right to remain in the employ of the Company, any
Subsidiary or any Affiliated Entity. The adoption of this Plan shall not be
deemed to give any Director, Eligible Employee or any other individual any right
to be selected as a Participant or to be granted an Award.
SECTION 9.10 RELIANCE ON REPORTS. Each member of the Committee and each
member of the Board shall be fully justified in relying or acting in good faith
upon any report made by the independent public accountants of the Company and
its Subsidiaries and upon any other information furnished in connection with the
Plan by any person or persons other than himself. In no event shall any person
who is or shall have been a member of the Committee or of the Board be liable
for any determination made or other action taken or any omission to act in
reliance upon any such report or information or for any action taken, including
the furnishing of information, or failure to act, if in good faith.
SECTION 9.11 CONSTRUCTION. The masculine gender, where appearing in the
Plan, shall be deemed to include the feminine gender, unless the context clearly
indicates to the contrary. Any word appearing herein in the plural shall
include the singular, where appropriate, and likewise the singular shall include
the plural, unless the context clearly indicates to the contrary.
SECTION 9.12 INCENTIVE STOCK OPTIONS AND NONQUALIFIED STOCK OPTIONS
GRANTED SEPARATELY. Since the Committee is authorized to grant Nonqualified
Stock Options and Incentive Stock Options to Participants, the grants thereof
and Award Agreements relating thereto will be made separately and totally
independent of each other. Except as it relates to the total number of shares
of Common Stock which may be issued under the Plan, the grant or exercise of a
Nonqualified Stock Option shall in no manner affect the grant and/or exercise of
any Incentive Stock Option. Similarly, the grant and exercise of an Incentive
Stock Option shall in no manner affect the grant and/or exercise of any
Nonqualified Stock Option.
SECTION 9.13 GOVERNING LAW. The Plan shall be governed by and construed
in accordance with the laws of the State of Oklahoma except as superseded by
applicable Federal law.
ARTICLE X
ACCELERATION OF OPTIONS UPON CORPORATE EVENT
If the Company shall, pursuant to action by the Board, at any time propose
to dissolve or liquidate or merge into, consolidate with, or sell or otherwise
transfer all or substantially all of its assets to another corporation and
provision is not made pursuant to the terms of such transaction for the
assumption by the surviving, resulting or acquiring corporation of outstanding
Options under the Plan, or for the substitution of new options therefor, the
Committee shall cause written notice of the proposed transaction to be given to
each Participant no less than forty days prior to the anticipated effective date
of the proposed transaction, and his Option shall become 100% vested and, prior
to a date specified in such notice, which shall be not more than ten days prior
to the anticipated effective date of the proposed transaction, each Participant
shall have the right to exercise his Option to purchase any or all
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<PAGE>
of the Common Stock then subject to such Option. Each Participant, by so
notifying the Company in writing, may, in exercising his Option, condition
such exercise upon, and provide that such exercise shall become effective at
the time of, but immediately prior to, the consummation of the transaction,
in which event such Participant need not make payment for the Common Stock to
be purchased upon exercise of such Option until five days after written
notice by the Company to such Participant that the transaction has been
consummated. If the transaction is consummated, each Option, to the extent
not previously exercised prior to the date specified in the foregoing notice,
shall terminate on the effective date of such consummation. If the
transaction is abandoned, (i) any Common Stock not purchased upon exercise of
such Option shall continue to be available for purchase in accordance with
the other provisions of the Plan and (ii) to the extent that any Option not
exercised prior to such abandonment shall have vested solely by operation of
this Article X, such vesting shall be deemed annulled, and the vesting
schedule set forth in the Participant's Award Agreement shall be
reinstituted, as of the date of such abandonment.
-11-
<PAGE>
Mr. John M. Longmire, Vice President
RAMCO Operating Company
One Benham Place, Suite 130
9400 N. Broadway
Oklahoma City, OK 73114
Re: Employment and Severance Agreement
Dear John:
This letter agreement (this "Agreement"), when executed by you in the
time and manner hereinafter provided, will constitute an employment and
severance agreement between you and RAMCO Operating Company (the "Company"),
superseding all existing employment, severance and similar agreements between
you and the Company; provided, however, that the existing Employment and
Severance Agreement between you and the Company dated March 31, 1997, shall
continue in effect until December 31, 1997. The terms of this Agreement are
as follows:
1. TERM. The term of this Agreement shall commence January 1, 1998,
and shall continue until December 31, 1998.
2. TITLE; DUTIES. You job title will be "Senior Vice President and
Treasurer" of the Company. You will perform duties commensurate with your
position and as assigned to you by the President or Chairman of the Company
or their designee. During the term of this Agreement you will devote your
full time and attention during normal business hours to the business of the
Company and will not be employed by or perform any professional work or
services, including consulting for any other person, firm or entity.
3. SALARY. Your base salary will be $11,666.67 per month, payable
twice monthly in equal installments, less applicable withholding and other
payroll taxes and deposits. Additionally, you will receive life, disability
and health insurance, expense account and other benefits as are available to
other non-director officers of the Company, and three weeks paid vacation
annually during the term hereof.
4. TERMINATION OF EMPLOYMENT.
4.1 BY THE COMPANY. Your employment may be terminated by the
Company at any time upon two weeks prior written notice (except where
termination is for gross neglect of your duties, breach by you of the terms
of this Agreement or willful misconduct, hereinafter referred to as "Good
Cause", in which event termination may be effective immediately upon notice).
Subject to the provisions in Section 4.3 hereof regarding termination of
employment following a "Change of Control" (as hereinafter defined), in the
event your employment is terminated by the Company at any time (i) prior to
June 30, 1998 (other than for Good Cause), you will be entitled to receive as
a severance payment (A) an amount equal to your monthly base salary times the
number of months (pro rated for any partial month if the effective date of
the termination is other than the
<PAGE>
end of a month) remaining until the expiration of the term hereof, plus (B)
an amount equal to your monthly base salary times the number of years (pro
rated for any partial year) you have been employed by the Company, or (ii)
after June 30, 1998 (other than for Good Cause), you will be entitled to
receive as a severance payment (A) an amount equal to six (6) times your
monthly base salary, plus (B) an amount equal to your monthly base salary
times the number of years (pro rated for any partial year) you have been
employed by the Company, all less applicable withholding and other payroll
taxes and deposits. For purposes of the foregoing, the date of your initial
employment with the Company shall be conclusively determined to be June 1,
1990, such that each full year of your employment with the Company shall end
on May 31 of each subsequent year. In addition to the payment described at
(i) or (ii) above, whichever is applicable, you also shall be entitled to
receive payment for accrued but unused vacation based on your monthly base
salary. In the event your employment is terminated by the Company at any
time for Good Cause, you shall not be entitled to receive any severance
payment other than for accrued but unused vacation. In the event the Company
fails to make any salary payment due under this Agreement after the due date,
and provided you are not in breach of the terms of this Agreement, you may
terminate your employment at any time thereafter (but prior to the time the
delinquent payment is made) by a written notice to the President or Chairman
of the Company, in which event your employment will be deemed to have been
terminated by the Company for purposes of this Section 4.1 as of the date
such notice is delivered.
4.2 BY YOU. If during the term hereof you terminate (other than a
termination by you pursuant to the last sentence of Section 4.1) or are
deemed to have terminated (by becoming an employee of or performing
professional work for or consulting with any other person, firm or entity)
your employment with the Company, then you shall not be entitled to receive
any severance payment (other than for accrued but unused vacation as
provided in Section 4.1 above).
4.3 TERMINATION FOLLOWING A CHANGE IN CONTROL. In the event a
Change of Control occurs during the term hereof, and following such Change of
Control (i) your employment is terminated by the Company (other than for Good
Cause) during the term hereof, or (ii) you are not offered, prior to December
1, 1998, a renewal contract for calendar year 1999 for employment by the
Company (or its successor by merger), in a comparable position in the same
general location (i.e., the same city or metropolitan area in which you are
employed by the Company at the time such Change of Control occurs), at not
less than the same salary, and with comparable severance and other benefits
as provided under this Agreement (other than a Change of Control provision
such as this Section 4.3), then upon the effective date of termination of
your employment (in the case of clause (ii) next above, December 31, 1998),
you will be entitled to receive as a severance payment the same amount
calculated pursuant to Section 4.1 hereof, EXCEPT that the amount calculated
pursuant to clause (i) (B) or (ii) (B) of Section 4.1, whichever is
applicable, shall be doubled, that is, in addition to the amount calculated
pursuant to clause (i) (A) or (ii) (A), you shall receive two (2) month's
base salary for each year of employment by the Company (pro rated for a
partial year). As used herein, the term "Change of Control" shall mean any
change in the composition of the Board of Directors of the Company (the
"Board") resulting in the current directors (M. Helen Bennett, Larry E. Lee
and William W. Talley, II) or their designees (in the event one or more of
the current directors chooses not to serve as a director), comprise less than
one-half (1/2) of the members of the Board. Notwithstanding the foregoing,
in no event
-2-
<PAGE>
shall you ever be entitled to receive as a severance payment upon a Change of
Control an amount that would result in the imposition of the excise tax
provided for in Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Excise Tax"), and in the event the severance payment calculated
pursuant to this Section 4.3 would result in the imposition of the Excise
Tax, the amount so calculated shall be reduced to the amount that is one
dollar ($1) less than the amount that would result in the imposition of the
Excise Tax.
4.4 DEATH OR DISABILITY. In the event you die during the term
hereof, your employment will be deemed to have terminated by the Company
(other than for cause) as of the date of death. In the event you become
permanently disabled during the term hereof, you shall continue to receive
your base salary for a period of 12 months following the date of disability
and shall be deemed an employee of the Company during such 12-month period
for purposes of other employee benefit plans and programs, except to the
extent prohibited by the terms of any such plan.
5. RENEWAL. In the event the Company desires to continue your
employment with the Company beyond December 31, 1998, the Company will so
notify you during the month of November 1998, but in no event later than
November 30, 1998. In such event, the President of the Company will discuss
with you the Company's proposal for renewal of this Agreement for an
additional one-year term on substantially the same terms and conditions as
this Agreement at a salary not less than the salary provided herein. In the
event a renewal agreement as hereinabove described is not offered by the
Company, then provided you have complied with the provisions of Section 2 of
this Agreement at all times prior thereto, your employment will be deemed
terminated by the Company effective December 31, 1998. In the event a renewal
agreement as hereinabove described is offered by the Company but rejected by
you, then provided you have complied with the provisions of Section 2 of this
Agreement at all times prior thereto, your employment will be deemed
terminated by you effective December 31, 1998; however, and notwithstanding
the provisions of Section 4.2 hereof, in such event you will be entitled to
receive as a severance payment upon such termination an amount equal to three
(3) times your monthly base salary, plus an amount for accrued but unused
vacation based on your monthly salary, less applicable withholding and other
payroll taxes and deposits.
6. EXCLUSIVE OBLIGATION. You acknowledge and agree that the Company
has no obligation to continue your employment or to make any severance
payment of any nature upon termination of you employment except as provided
herein or in a subsequent written agreement by you and the Company.
7. INDEMNIFICATION. To the fullest extent allowed by the Delaware
General Corporation Law and the Company's bylaws with respect to its officers
and directors, the Company agrees to indemnify you and to hold you harmless
from and against any and all losses, claims, damages, liabilities and legal
and other expenses (including costs of investigation) incurred by you and
arising out of the performance of your duties and responsibilities under this
Agreement, regardless of the time such claim or cause of action is asserted.
8. CONFIDENTIALITY. The terms of this Agreement shall be held by you
in strict confidence and shall not be released or disclosed by you to any
third party.
9. GOVERNING LAW. This Agreement shall be governed by and construed
-3-
<PAGE>
and enforced in accordance with the laws of the State of Oklahoma applicable
to contracts made and to be performed entirely therein.
10. BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors
(including successors by merger or reorganization) and assigns; provided,
however, that your obligations hereunder are personal in nature and may not
be assigned, and that the obligations of the Company hereunder may be
assigned only with your prior written consent.
If you are in agreement with the terms hereof, please so indicate by
executing a copy of this letter in the space provided and returning it to us
within five days of the date hereof.
Very truly yours,
RAMCO Operating Company
By /s/ LARRY E. LEE
-----------------------------------
Larry E. Lee, President
Agreed to and accepted
this 8th day of December, 1997
/s/ JOHN M. LONGMIRE
- ---------------------------------
John M. Longmire
-4-
<PAGE>
Mr. Larry G. Rampey, Vice President
RAMCO Operating Company
5100 East Skelly Drive, Suite 650
Tulsa, OK 74135
RE: Employment and Severance Agreement
Dear Larry:
This letter agreement (the "Agreement"), when executed by you in the
time and manner hereinafter provided, will constitute an employment and
severance agreement between you and RAMCO Operating Company (the "Company"),
superseding all existing employment, severance and similar agreements between
you and the Company; provided, however, that the existing Employment and
Severance Agreement between you and the Company dated March 31, 1997, shall
continue in effect until December 31, 1997. The terms of this Agreement are
as follows:
1. TERM. The term of this Agreement shall commence January 1, 1998,
and shall continue until December 31, 1998.
2. TITLE; DUTIES. Your job title will be "Senior Vice President--
Operations" of the Company. You will perform duties commensurate with your
position and as assigned to you by the President or Chairman of the Company
or their designee. During the term of this Agreement you will devote your
full time and attention during normal business hours to the business of the
Company and will not be employed by or perform any professional work or
services, including consulting, for any other person, firm or entity.
3. SALARY. Your base salary will be $12,500.00 per month, payable
twice monthly in equal installments, less applicable withholding and other
payroll taxes and deposits. Additionally, you will receive life, disability
and health insurance, expense account and other benefits as are available to
other non-director officers of the Company, and three weeks paid vacation
annually during the term hereof.
4. TERMINATION OF EMPLOYMENT.
4.1 BY THE COMPANY. Your employment may be terminated by the
Company at any time upon two weeks prior written notice (except where
termination is for gross neglect of your duties, breach by you of the terms
of this Agreement or willful misconduct, hereinafter referred to as "Good
Cause", in which event termination may be effective immediately upon notice).
Subject to the provisions in Section 4.3 hereof regarding termination of
employment following a "Change of Control" (as hereinafter defined), in the
event your employment is terminated by the Company at any time (i) prior to
June 30, 1998 (other than for Good Cause), you will be entitled to receive as
a severance payment (A) an amount equal to your monthly base salary times the
number of months (pro rated for any partial month if the effective date of
termination is other than the end of a month) remaining until the expiration
of the term hereof, plus (B) an
<PAGE>
amount equal to your monthly base salary times the number of years (pro rated
for any partial year) you have been employed by the Company, or (ii) after
June 30, 1998 (other than for Good Cause), you will be entitled to receive as
a severance payment (A) an amount equal to six (6) times your monthly base
salary, plus (B) an amount equal to your monthly base salary times the number
of years (pro rated for any partial year) you have been employed by the
Company, all less applicable withholding and other payroll taxes and
deposits. For purposes of the foregoing, the date of your initial employment
with the Company shall be conclusively determined to be June 1, 1990, such
that each full year of your employment with the Company shall end on May 31
of each subsequent year. In additional to the payment described at (i) or
(ii) above, whichever is applicable, you also shall be entitled to receive
payment for accrued but unused vacation based on your monthly base salary.
In the event your employment is terminated by the Company at any time for
Good Cause, you shall not be entitled to receive any severance payment other
than for accrued but unused vacation. In the event the Company fails to make
any salary payment due under this Agreement after the due date, and provided
you are not in breach of the terms of this Agreement, you may terminate your
employment at any time thereafter (but prior to the time the delinquent
payment is made) by a written notice to the President or Chairman of the
Company, in which event your employment will be deemed to have been
terminated by the Company for purposes of this Section 4.1 as of the date
such notice is delivered.
4.2 BY YOU. If during the term hereof you terminate (other than a
termination by you pursuant to the last sentence of Section 4.1) or are
deemed to have terminated (by becoming an employee of or performing
professional work for or consulting with any other person, firm or entity)
your employment with the Company, then you shall not be entitled to receive
any severance payment (other than for accrued but unused vacation as provided
in Section 4.1 above).
4.3 TERMINATION FOLLOWING A CHANGE OF CONTROL. In the event a
Change of Control occurs during the term hereof, and following such Change of
Control (i) your employment is terminated by the Company (other than for Good
Cause) during term hereof, or (ii) you are not offered, prior to December 1,
1998, a renewal contract for calendar year 1999 for employment by the Company
(or its successor by merger), in a comparable position in the same general
location (i.e., the same city or metropolitan area in which you are employed
by the Company at the time such Change of Control occurs), at not less than
the same salary, and with comparable severances and other benefits as
provided under this Agreement (other than a Change of Control provision such
as this Section 4.3), then upon the effective date of termination of your
employment (in the case of clause (ii) next above, December 31, 1998), you
will be entitled to receive as a severance payment the same amount calculated
pursuant to Section 4.1 hereof, EXCEPT that the amount calculated pursuant to
clause (i)(B) or (ii)(B) of section 4.1, whichever is applicable, shall be
doubled, that is, in addition to the amount calculated pursuant to clause
(i)(A) or (ii)(A), you shall receive two (2) month's salary for each year of
employment by the Company (pro rated for a partial year). As used herein,
the term "Change of Control" shall mean any change in the composition of the
Board of Directors of the Company (the "Board") resulting in the current
directors (M. Helen Bennett, Larry E. Lee and William W. Talley, II) or their
designees (in the event one of more the current directors chooses not to
serve as a director and causes his or her designee to be elected in lieu of
such director), comprise less than one-half (1/2) of the members of the
Board. Notwithstanding the foregoing, in no event shall you ever be entitled
to receive as a severance payment upon a Change of
-2-
<PAGE>
Control an amount that would result in the imposition of the excise tax
provided for in Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Excise Tax"), and in the event the severance payment calculated
pursuant to this Section 4.3 would result in the imposition of the Excise
Tax, the amount so calculated shall be reduced to the amount that is one
dollar ($1) less than the amount that would result in the imposition of the
Excise Tax.
4.4 DEATH OR DISABILITY. In the event you die during the term
hereof, your employment will be deemed to have been terminated by the Company
(other than for cause) as of the date of death. In the event you become
permanently disabled during the term hereof, you shall continue to receive
your base salary for a period of 12 months following the date of disability
and shall be deemed an employee of the Company during such 12-month period
for purposes of other employee benefit plans and programs, except to the
extent prohibited by the terms of any such plan.
5. RENEWAL. In the event the Company desires to continue your
employment with the Company beyond December 31, 1998, the Company will so
notify you during the month of November 1998, but in no event later than
November 30, 1998. In such event, the President of the Company will discuss
with you the Company's proposal for renewal of this Agreement for an
additional one-year term on substantially the same terms and conditions as
this Agreement at a salary not less than the salary provided herein. In the
event a renewal agreement as hereinabove described is not offered by the
Company, the provided you have complied with the provisions of Section 2 of
this Agreement at all times prior thereto, your employment will be deemed
terminated by the Company effective December 31, 1998. In the event a
renewal agreement as hereinabove described is offered by the Company but
rejected by you, then provided you have complied with the provisions of
Section 2 of this Agreement at all times prior thereto, your employment will
be deemed terminated by you effective December 31, 1998; however, and
notwithstanding the provisions of Section 4.2 hereof, in such event you will
be entitled to receive as a severance payment upon such termination an amount
equal to three (3) times your monthly base salary, plus an amount for accrued
but unused vacation based on your monthly salary, less applicable withholding
and other payroll taxes and deposits.
6. EXCLUSIVE OBLIGATION. You acknowledge and agree that the Company
has no obligation to continue your employment or to make any severance
payment of any nature upon termination of your employment except as provided
herein or in a subsequent written agreement executed by you and the Company.
7. INDEMNIFICATION. To the fullest extent allowed by the Delaware
General Corporation Law and the Company's bylaws with respect to its officers
and directors, the Company agrees to indemnify you and to hold you harmless
from and against any and all losses, claims, damages, liabilities and legal
and other expenses (including costs of investigation) incurred by you and
arising out of the performance of your duties and responsibilities under this
Agreement, regardless of the time such claim or cause of action is asserted.
8. CONFIDENTIALLY. The terms of this Agreement shall be held by you
in strict confidence and shall not be released or disclosed by you to any
third party.
9. GOVERNING LAW. This Agreement shall be governed by and construed
-3-
<PAGE>
and enforced in accordance with the laws of the State of Oklahoma applicable
to contracts made and to be performed entirely therein.
10. BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors
(including successors by merger or reorganization) and assigns; provided,
however, that your obligations hereunder are personal in nature and may not
be assigned, and that the obligations of the Company hereunder may be
assigned only with your prior written consent.
If you are in agreement with the terms hereof, please so indicate by
executing a copy of this letter in the space provided and returning it to us
within five days of the date hereof.
Very truly yours,
RAMCO Operating Company
By /s/ LARRY E. LEE
------------------------------------
Larry E. Lee, President
Agreed to and accepted
this 8th day of December, 1997
/s/ LARRY G. RAMPEY
- ----------------------------------
Larry G. Rampey
-4-
<PAGE>
Mr. Drake N. Smiley, Vice President
RAMCO Operating Company
5100 East Skelly Drive, Suite 650
Tulsa, OK 74135
RE: Employment and Severance Agreement
Dear Drake:
This letter agreement (the "Agreement"), when executed by you in the
time and manner hereinafter provided, will constitute an employment and
severance agreement between you and RAMCO Operating Company (the "Company"),
superseding all existing employment, severance and similar agreements between
you and the Company; provided, however, that the existing Employment and
Severance Agreement between you and the Company dated March 31, 1997, shall
continue in effect until December 31, 1997. The terms of this Agreement are
as follows:
1. TERM. The term of this Agreement shall commence January 1, 1998,
and shall continue until December 31, 1998.
2. TITLE; DUTIES. Your job title will be "Senior Vice President Land"
of the Company. You will perform duties commensurate with your position and
as assigned to you by the President or Chairman of the Company or their
designee. During the term of this Agreement you will devote your full time
and attention during normal business hours to the business of the Company and
will not be employed by or perform any professional work or services,
including consulting, for any other person, firm or entity.
3. SALARY. Your base salary will be $10,833.33 per month, payable
twice monthly in equal installments, less applicable withholding and other
payroll taxes and deposits. Additionally, you will receive life, disability
and health insurance, expense account and other benefits as are available to
other non-director officers of the Company, and three weeks paid vacation
annually during the term hereof.
4. TERMINATION OF EMPLOYMENT.
4.1 BY THE COMPANY. Your employment may be terminated by the
Company at any time upon two weeks prior written notice (except where
termination is for gross neglect of your duties, breach by you of the
terms of this Agreement or willful misconduct, hereinafter referred to
as "Good Cause", in which event termination may be effective immediately
upon notice). Subject to the provisions in Section 4.3 hereof regarding
termination of employment following a "Change of Control" (as hereinafter
defined), in the event your employment is terminated by the Company at
any time (i) prior to June 30, 1998 (other than for Good Cause), you will
be entitled to receive as a severance payment (A) an amount equal to your
monthly base salary times the number of months (pro rated for any partial
month if the effective date of termination is other than the end of the
month) remaining until the expiration of the term hereof, plus (B) an
amount equal to your monthly base salary times the number of years
(pro rated
<PAGE>
for any partial year) you have have been employed by the Company, or (ii)
after June 30, 1998 (other than for Good Cause), you will be entitled to
receive as a severance payment (A) an amount equal to six (6) times your
monthly base salary, plus (B) an amount equal to your monthly base salary
times the number of years (pro rated for any partial year) you have been
employed by the Company, all less applicable withholding and other payroll
taxes and deposits. For purposes of the foregoing, the date of your initial
employment with the Company shall be conclusively determined to be June 1,
1990, such that each full year of your employment with the Company shall end
on May 31 of each subsequent year. In addition to the payment described at
(i) or (ii) above, whichever is applicable, you also shall be entitled to
receive payment for accrued but unused vacation based upon you monthly base
salary. In the event your employment is terminated by the Company for Good
Cause, you shall not be entitled to receive any severance payment other than
for accrued but unused vacation. In the event the Company fails to make any
salary payment due under this Agreement after the due date, and provided you
are not in breach of the terms of this Agreement, you may terminate your
employment at any time thereafter (but prior to the time the delinquent
payment is made) by a written notice to the President or Chairman of the
Company, in which event your employment will be deemed to have been
terminated by the Company for purposes of this Section 4.1 as of the date
such notice is delivered.
4.2 BY YOU. If during the term hereof you terminate (other than a
termination by you pursuant to the last sentence of Section 4.1) or are
deemed to have terminated (by becoming an employee of or performing
professional work for or consulting with any other person, firm or entity)
your employment with the Company, then you shall not be entitled to receive
any severance payment (other than for accrued but unused vacation as provided
in Section 4.1 above).
4.3 TERMINATION FOLLOWING A CHANGE OF CONTROL. In the event a
Change of Control occurs during the term hereof, and following such Change of
Control (i) your employment is terminated by the Company (other than for Good
Cause) during the term hereof, or (ii) you are not offered, prior to December
1, 1998, a renewal contract for the calendar year 1999 for employment by the
Company (or its successor by merger), in a comparable position in the same
general location (i.e., the same city or metropolitan area in which you are
employed by the Company at the time such Change of Control occurs), at not
less than the same salary, and with comparable severances and other benefits,
as provided under this Agreement (other than a Change of Control provision
such as this Section 4.3), then upon the effective date of termination of your
employment (in the case of clause (ii) next above, December 31, 1998), you
will be entitled to receive as a severance payment the same amount calculated
pursuant to Section 4.1 hereof, EXCEPT that the amount calculated pursuant to
(i) (B) or (ii) (B) of Section 4.1, whichever is applicable, shall be
doubled, that is, in addition to the amount calculated pursuant to clause (i)
(A) or (ii) (A), you shall receive two (2) month's base salary for each year
of employment by the Company (pro rated for a partial year). As used herein,
the term "Change of Control" shall mean any change in the composition of the
Board of Directors of the Company (the "Board") resulting in the current
directors (M. Helen Bennett, Larry E. Lee and William W. Talley, II) or their
designees (in the event one of more of the current directors chooses not to
serve as a director and causes his or her designee to be elected in lieu of
such director), comprise less than one-half (1/2) of the members of the
Board. Notwithstanding the foregoing, in no event shall you ever be entitled
to receive as a severance payment upon a Change of Control an amount that
would result in the imposition of the excise tax
-2-
<PAGE>
provided for in Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Excise Tax"), and in the event the severance payment calculated
pursuant to this Section 4.3 would result in the imposition of the Excise
Tax, the amount so calculated shall be reduced to the amount that is one
dollar ($1) less than the amount that would result in the imposition of the
Excise Tax.
4.4 DEATH OR DISABILITY. In the event you die during the term
hereof, your employment will be deemed to have been terminated by the Company
(other than for cause) as of the date of death. In the event you become
permanently disabled during the term hereof, you shall continue to receive
your base salary for a period of 12 months following the date of disability
and shall be deemed an employee of the Company during such 12-month period
for purposes of other employee benefit plans and programs, except to the
extent prohibited by the terms of any such plan.
5. RENEWAL. In the event the Company desires to continue your
employment with the Company beyond December 31, 1998, the Company will so
notify you during the month of November 1998, but in no event later than
November 30, 1998. In such event, the President of the Company will discuss
with you the Company's proposal for renewal of this Agreement for an
additional one-year term on substantially the same terms and conditions as
this Agreement at a salary not less than the salary provided herein. In the
event a renewal agreement as hereinabove described is not offered by the
Company, then provided you have complied with the provisions of Section 2 of
this Agreement at all times prior thereto, your employment will be deemed
terminated by the Company effective December 31, 1998. In the event a
renewal agreement as hereinabove described is offered by the Company but
rejected by you, then provided you have complied with the provisions of
Section 2 of this Agreement at all times prior thereto, your employment will
be deemed terminated by you effective December 31, 1998; however, and
notwithstanding the provisions of Seciton 4.2 hereof, in such event you will
be entitled to receive as a severance payment upon such termination an amount
equal to three (3) times your monthly base salary, plus an amount for accrued
but unused vacation based on your monthly salary, less applicable withholding
and other payroll taxes and deposits.
6. EXCLUSIVE OBLIGATION. You acknowledge and agree that the
Company has no obligation to continue your employment or to make any
severance payment of any nature upon termination of your employment except as
provided herein or in a subsequent written agreement executed by you and the
Company.
7. INDEMNIFICATION. To the fullest extent allowed by the
Delaware General Corporation Law and the Company's bylaws with respect to its
officers and directors, the Company agrees to indemnify you and to hold you
harmless from and against any and all losses, claims, damages, liabilities
and legal and other expenses (including costs of investigation) incurred by
you and arising out of the performance of your duties and responsibilities
under this Agreement, regardless of the time such claim or cause of action is
asserted.
8. CONFIDENTIALITY. The terms of this Agreement shall be held by
you in strict confidence and shall not be released or disclosed by you to any
third party.
9. GOVERNING LAW. This Agreement shall be governed by and
construed and
-3-
<PAGE>
enforced in accordance with the laws of the State of Oklahoma applicable to
contracts made and to be performed entirely therein.
10. BINDING EFFECT. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors (including successors by merger or reorganization) and assigns;
provided, however, that your obligations hereunder are personal in nature
and may not be assigned, and that the obligations of the Company hereunder
may be assigned only with your prior written consent.
If you are in agreement with the terms hereof, please so indicate
by executing a copy of this letter in the space provided and returning it to
us within five days of the date hereof.
Very truly yours,
RAMCO Operating Company
By /s/ Larry E. Lee
----------------------------------
Larry E. Lee, President
Agreed to and accepted
this 8th day of December, 1997
/s/ Drake N. Smiley
- ---------------------------------
Drake N. Smiley
-4-
<PAGE>
EXHIBIT 12 - HISTORIC COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
RAM ENERGY, INC.
Nine Months Ended
Year Ended December 31, September 30,
-------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
Earnings(1) $458 $565 $ 0 $(57) $408 $(130) $ (243)
Fixed Charges(2) 278 45 23 18 542 14 3,787
Ratio 2.64:1 13.56:1 1.00:1 1.75:1
RAMCO-NYL 1987 LIMITED PARTNERSHIP
<TABLE>
Eleven Months Nine Months
Year Ended December 31, Ended Ended
------------------------------------ November 30, September 30,
1992 1993 1994 1995 1996 1996
---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Earnings(1) $1,096 $(15,154) $(10,129) $(2,313) $7,087 $5,480
Fixed Charges(2) 412 477 587 809 564 484
Ratio 3.66:1 13.57:1 12.33:1
</TABLE>
(1) "Earnings" represents income (loss) before provision for federal and
state income taxes or income tax benefits. There were no discontinued
operations, extraordinary items, or cumulative effects of accounting changes
for any of the included periods.
(2) "Fixed Charges" is interest expense. No interest has been capitalized;
no preferred stock dividends have been declared, and no rental expense has
been reclassified or treated as interest expense.
The ratio of earnings to fixed charges has been computed using an
assumed interest rate of 10.50%. An increase or decrease of 1/8th of 1%
would not affect the calculated ratio for either Pro Forma period.
<PAGE>
EXHIBIT 12.1 - PRO FORMA COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
RAM ENERGY, INC.
Pro Forma Pro Forma
Year Ended Nine Months Ended
December 31, 1996 September 30, 1997
----------------- ------------------
Earnings(1) 2,231 (1,841)
Fixed Charges(2) 12,554 9,420
Ratio 1.18:1 -
(1) "Earnings" represents income (loss) before provision for federal and
state income taxes or income tax benefits. There were no discontinued
operations, extraordinary items, or cumulative effects of accounting changes
for any of the included periods.
(2) Pro forma to give effect to the issuance of $115 million of Senior
Notes due 2008 with an assumed stated interest rate of 10.50% in
the Offering, and net proceeds to RAM Energy, Inc. of $110.4 million.
For purposes of computing the Ratio of Earnings to Fixed Charges,
interest expense includes interest on the Senior Notes together with
amortization of the underwriting discounts and expenses of the Offering;
for the period ended December 31, 1996, amortization expense was $460,000
and for the period ended September 30, 1997 amortization expense was
$345,000.
The ratio of earnings to fixed charges has been computed using an
assumed interest rate of 10.50%. An increase or decrease of 1/8th of 1%
would not affect the calculated ratio for either Pro Forma period.
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated December 15, 1997, except for the matters
discussed in the last paragraph of Note 11, as to which the date is December
27, 1997 with respect to the consolidated financial statements of RAM Energy,
Inc. and to the use of our report dated December 15, 1997 with respect to the
financial statements of RAMCO-NYL 1987 Limited Partnership, in Amendment No. 1
to the Registration Statement (Form S-1) and related Prospectus of RAM Energy,
Inc. for the registration of $115,000,000 of Senior Notes.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
January 30, 1998
<PAGE>
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated December 16, 1997, with respect to the
consolidated financial statements of Carlton Resources Corporation (and its
predecessor) included in Amendment No. 1 to the Registration Statement (Form
S-1) and related Prospectus of RAM Energy, Inc. for the registration of
$115,000,000 of Senior Notes.
ERNST & YOUNG LLP
Tulsa, Oklahoma
January 30, 1998
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT PETROLEUM ENGINEER
As independent petroleum engineers, we hereby consent to the use of our
report and to all references to our firm under the caption "Experts" and as
otherwise included in or made a part of Amendment No. 1 to the Registration
Statement of RAM Energy, Inc. on Form S-1.
FORREST A. GARB & ASSOCIATES, INC.
Independent Petroleum Engineers
February 2, 1998
- -----------------
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT PETROLEUM ENGINEER
As independent petroleum engineers and geologists, we hereby consent to
the use of our review and to all references to our firm under the caption
"Experts" and as otherwise included in or made a part of Amendment No. 1
to the Registration Statement of RAM Energy, Inc. on Form S-1.
NETHERLAND, SEWELL & ASSOCIATES, INC.
Independent Petroleum Engineers
Dallas, Texas
February 2, 1998
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
We, the undersigned directors of RAM Energy, Inc. (hereinafter, the
"Company"), hereby severally constitute William W. Talley II, Larry E. Lee and
John M. Longmire and each of them, severally, our true and lawful
attorneys-in-fact with full power to them and each of them to sign for us, and
in our names as officers or directors, or both, of the Company, a Registration
Statement on Form S-1, and any amendments thereto (including post-effective
amendments), and any registration statement that is to be effective upon filing
with the Securities and Exchange Commission pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, for the purpose of registering under the
Securities Act of 1933 shares of the Company's Common Stock, par value $.01 per
share, and % Senior Notes due 2008 granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and to perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, may lawfully do or cause to be done by virtue hereof.
DATED this 28th day of January, 1998.
<TABLE>
<S> <C>
/S/ JOHN M. REARDON /S/ GERALD R. MARSHALL
- -------------------------------------------- --------------------------------------------
John M. Reardon Gerald R. Marshall
Director of RAM Energy, Inc. Director of RAM Energy, Inc.
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
---------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
---------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
Section 305(b)(2) _______
---------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation or (I. R. S. Employer
organization if not a U. S. national bank) Identification Number)
114 West 47th Street 10036-1532
New York, New York (Zip Code)
(Address of principal
executive offices)
---------------
RAM ENERGY, INC.
(Exact name of OBLIGOR as specified in its charter)
Delaware 52-1535102
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
5100 East Skelly Drive, Suite 650 74135
Tulsa, Oklahoma (Zip code)
(Address of principal executive offices)
---------------
% Senior Note due 2008
(Title of the indenture securities)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
- 2 -
GENERAL
1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System).
Federal Deposit Insurance Corporation, Washington, D. C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
3,4,5,6,7,8,9,10,11,12,13,14 and 15.
The obligor is currently not in default under any of its outstanding
securities for which United States Trust Company of New York is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and
15 of Form T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
T-1.1 -- Organization Certificate, as amended, issued by the State of
New York Banking Department to transact business as a Trust
Company, is incorporated by reference to Exhibit T-1.1 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
- 3 -
16. LIST OF EXHIBITS (continued)
T-1.4 -- The By-laws of the United States Trust Company of New York,
as amended, is incorporated by reference to Exhibit T-1.4 to
Form T-1 filed on September 15, 1995 with the Commission pursuant
to the Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990 (Registration No. 33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
As of January 23, 1998, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U. S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility, as to matters
peculiarly within the knowledge of the obligor or its directors, the
trustee has relied upon information furnished to it by the obligor and will
rely on information to be furnished by the obligor and the trustee
disclaims responsibility for the accuracy or completeness of such
information.
---------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, United States Trust Company of New York, a corporation organized
and existing under the laws of the State of New York, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New
York, on the 23rd day of January, 1998.
UNITED STATES TRUST COMPANY OF
NEW YORK, Trustee
By:
-----------------------------------------
Patricia Stermer
Assistant Vice President
PST/pg(rv:011698)
<PAGE>
EXHIBIT T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of
1939, as amended by the Trust Indenture Reform Act of 1990, and subject to
the limitations set forth therein, United States Trust Company of New York
("U.S. Trust") hereby consents that reports of examinations of U.S. Trust by
Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
By:
----------------------------
/s/Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
SEPTEMBER 30, 1997
------------------
($ IN THOUSANDS)
ASSETS
Cash and Due from Banks $ 116,582
Short-Term Investments 183,652
Securities, Available for Sale 691,965
Loans 1,669,611
Less: Allowance for Credit Losses 16,067
----------
Net Loans 1,653,544
Premises and Equipment 61,796
Other Assets 125,121
----------
TOTAL ASSETS $2,832,660
----------
----------
LIABILITIES
Deposits:
Non-Interest Bearing $ 541,619
Interest Bearing 1,617,028
----------
Total Deposits 2,158,647
Short-Term Credit Facilities 365,235
Accounts Payable and Accrued Liabilities 141,793
----------
TOTAL LIABILITIES $2,665,675
----------
----------
STOCKHOLDER'S EQUITY
Common Stock 14,995
Capital Surplus 49,542
Retained Earnings 99,601
Unrealized Gains (Losses) on Securities
Available for Sale, Net of Taxes 2,847
----------
TOTAL STOCKHOLDER'S EQUITY 166,985
----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $2,832,660
----------
----------
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named
bank do hereby declare that this Statement of Condition has been prepared
in conformance with the instructions issued by the appropriate regulatory
authority and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
November 13, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED BALANCE SHEET AT 12/31/96 AND CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED 12/31/96, AND THE UNAUDITED CONSOLIDATED BALANCE SHEET AT
9/30/97 AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE 9 MOS. ENDING 9/30/97,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 1,607,365 2,030,959
<SECURITIES> 0 0
<RECEIVABLES> 5,516,334 4,296,510
<ALLOWANCES> 510,388 592,513
<INVENTORY> 0 0
<CURRENT-ASSETS> 13,052,715 6,627,373
<PP&E> 62,082,986 72,473,621
<DEPRECIATION> (7,344,660) (12,373,486)
<TOTAL-ASSETS> 71,409,680 70,343,803
<CURRENT-LIABILITIES> 12,517,614 16,447,609
<BONDS> 57,508,754 52,970,824
0 0
1,474 1,474
<COMMON> 22,725 22,725
<OTHER-SE> (1,344,717) (1,587,541)
<TOTAL-LIABILITY-AND-EQUITY> 71,409,680 70,343,803
<SALES> 3,274,941 16,819,429
<TOTAL-REVENUES> 6,820,195 16,904,730
<CGS> 826,825 4,795,344
<TOTAL-COSTS> 5,981,171 13,388,526
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 141,000 80,000
<INTEREST-EXPENSE> 541,526 3,787,067
<INCOME-PRETAX> 408,152 (242,824)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 408,152 (242,824)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 408,152 (242,824)
<EPS-PRIMARY> 0.15 (0.09)
<EPS-DILUTED> 0.00 0.00
</TABLE>
