<PAGE>
SCHEDULE 14A INFORMATION
(Rule 14a-101)
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
THE WISER OIL COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
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<PAGE>
THE WISER OIL COMPANY
8115 Preston Road, Suite 400
Dallas, Texas 75225
___________, 2000
Dear Stockholder:
We invite you to attend the special meeting of stockholders of The Wiser
Oil Company, a Delaware corporation (the "Company"), to be held at _______
__.m., local time, on _______________________________, 2000 at
____________________________, Dallas, Texas ______________. At the meeting, you
will be asked to consider and approve the sale to Wiser Investment Company, LLC
("WIC") of 1,000,000 shares of the Company's Series C Cumulative Convertible
Preferred Stock for $25 million in cash, and warrants to purchase shares of the
Company's Common Stock representing approximately 5% of the shares of the Common
Stock outstanding at any given time, pursuant to the terms of a Stock Purchase
Agreement (the "Stock Purchase Agreement") and a Warrant Purchase Agreement (the
"Warrant Purchase Agreement"), each dated December 13, 1999, by and between the
Company and WIC. A copy of the Stock Purchase Agreement is attached to the
enclosed proxy statement as Annex A. A copy of the Warrant Purchase Agreement is
attached as Annex B.
You will also be asked to consider, approve and adopt a new Restated
Certificate of Incorporation of the Company (the "New Charter"), which amends,
restates and replaces the Company's Restated Certificate of Incorporation as of
January 22, 1971, as amended (the "Current Charter"). The New Charter is
required to be approved and adopted by the Company's stockholders as a condition
to the closing of the transactions contemplated by the Stock Purchase Agreement
and the Warrant Purchase Agreement. A copy of the New Charter marked to show the
changes from a composite copy of the Current Charter is attached to the enclosed
proxy statement as Annex C.
Immediately following the closing of these transactions, I will be
resigning from my positions with the Company, George K. Hickox, Jr., one of the
principals of WIC, will become Chairman of the Board and Chief Executive Officer
of the Company and A. Wayne Ritter, the current Vice President-Acquisitions and
Production of the Company, will become President. Following the closing, the
Board of Directors will consist of four of the current directors and three new
directors designated by WIC, one of whom will be Mr. Hickox.
After careful consideration, your Board of Directors has determined that
the transactions contemplated by the Stock Purchase Agreement and the Warrant
Purchase Agreement are in the best interests of the stockholders and recommends
that the stockholders vote for the proposal to approve the sale of the preferred
stock and warrants to WIC and the proposal to approve the New Charter. A more
detailed description of these proposals is set forth in the enclosed proxy
statement.
Your vote is important. Regardless of the number of shares you own or
whether you plan to attend the special meeting, it is important that your shares
be represented and voted. Accordingly, we urge you to complete, sign and date
the enclosed proxy card and return it in the enclosed return envelope, whether
or not you plan to attend the meeting.
Sincerely yours,
Andrew J. Shoup, Jr.
President and Chief Executive Officer
<PAGE>
THE WISER OIL COMPANY
8115 Preston Road, Suite 400
Dallas, Texas 75225
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on _________, 2000
To the stockholders of The Wiser Oil Company:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of The Wiser
Oil Company, a Delaware corporation (the "Company"), will be held on
______________, at ________ __.m., local time, at
__________________________________________, Dallas, Texas _______________, for
the following purposes:
1. To consider and vote upon Proposal One, the approval of: (i) the issuance
and sale of 1,000,000 shares of the Company's Series C Cumulative
Convertible Preferred Stock, par value $10.00 per share, to Wiser
Investment Company, LLC, a Delaware limited liability company ("WIC"), for
an aggregate purchase price of $25 million in cash, pursuant to a Stock
Purchase Agreement by and between the Company and WIC dated December 13,
1999 (the "Stock Purchase Agreement"); (ii) the issuance of warrants (the
"Warrants") to purchase that number of shares of the Company's Common
Stock, par value $.01 per share (the "Common Stock"), representing
approximately 5% of the shares of Common Stock outstanding at any given
time during the term of the Warrants, pursuant to a Warrant Purchase
Agreement by and between the Company and WIC dated December 13, 1999 (the
"Warrant Purchase Agreement") and a related Warrant Agreement to be entered
into by and between the Company and WIC at the closing of the transactions
contemplated by the Stock Purchase Agreement and the Warrant Purchase
Agreement (the "Closing"); and (iii) the other transactions contemplated by
the Stock Purchase Agreement.
2. To consider and vote upon Proposal Two, the approval and adoption of a new
Restated Certificate of Incorporation of the Company (the "New Charter"),
which amends, restates and replaces the Company's Restated Certificate of
Incorporation as of January 22, 1971, as amended (the "Current Charter"),
and effects the following three principal changes to the Current Charter:
(i) increases the number of authorized shares of Common Stock from
20,000,000 to 30,000,000, and the number of authorized shares of Preferred
Stock from 300,000 to 1,300,000; (ii) decreases the par value per share of
Common Stock from $3.00 to $.01; and (iii) deletes Article Seventh, Article
Ninth and Article Tenth of the Current Charter, which Articles contain
certain anti-takeover provisions, including restrictions on business
combinations, fair price provisions, repurchase rights and prevention of
greenmail.
3. To transact such other business as may properly come before the special
meeting or any adjournment thereof.
The New Charter is required to be approved and adopted by the Company's
stockholders as a condition to the Closing. Consequently, a vote against
Proposal Two will have the same effect as a vote against both of the proposals.
On the other hand, the Closing is not required as a condition to implementing
the New Charter. Consequently, a vote against Proposal One will not affect the
vote on Proposal Two.
Only stockholders of record at the close of business on ________________,
2000 are entitled to notice of, and to vote at, the special meeting. For a
period of at least ten days prior to the special meeting, a complete list of
stockholders entitled to vote at the special meeting will be open for
examination by any stockholder during ordinary business hours at the offices of
the Company at 8115 Preston Road, Suite 400, Dallas, Texas 75225. Information
concerning the matters to be acted upon at the special meeting is set forth in
the accompanying Proxy Statement.
Your vote is important. Regardless of the number of shares you own or
whether you plan to attend the special meeting, it is important that your shares
be represented and voted. Please sign, date and return the accompanying proxy
card promptly in the enclosed envelope, which requires no postage if mailed in
the United States. You may revoke your proxy and vote in person if you decide to
attend the meeting.
<PAGE>
By Order of the Board of Directors
Lawrence J. Finn
Assistant Secretary
Dallas, Texas
___________, 2000
<PAGE>
The Wiser Oil Company
8115 Preston Road, Suite 400
Dallas, Texas 75225
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
To Be Held on ____________________, 2000
This Proxy Statement is furnished to stockholders of The Wiser Oil Company
(the "Company") in connection with the solicitation of proxies on behalf of the
Board of Directors of the Company (the "Board") for use at a special meeting of
stockholders of the Company to be held on _________________, 2000 at
_____________ _____.m., local time, at___________, Dallas, Texas______________
_________________, and at any adjournment(s) thereof (the "Special Meeting").
This Proxy Statement and the accompanying notice and proxy card are being sent
on or about ____________________________________, 2000 to stockholders of record
as of the close of business on _______________________, 2000.
At the Special Meeting, stockholders of the Company will be asked to
consider and vote upon the following two proposals:
Proposal One: Approval of: (i) the issuance and sale of 1,000,000 shares (the
"Preferred Shares") of the Company's Series C Cumulative
Convertible Preferred Stock, par value $10.00 per share (the
"Series C Preferred Stock"), to Wiser Investment Company, LLC, a
Delaware limited liability company ("WIC"), for an aggregate
purchase price of $25 million in cash, pursuant to a Stock
Purchase Agreement by and between the Company and WIC dated
December 13, 1999 (the "Stock Purchase Agreement"); (ii) the
issuance of warrants (the "Warrants") to purchase that number of
shares of the Company's Common Stock, par value $.01 per share
("Common Stock"), representing approximately 5% of the shares of
Common Stock outstanding at any given time during the term of the
Warrants, pursuant to a Warrant Purchase Agreement by and between
the Company and WIC dated December 13, 1999 (the "Warrant
Purchase Agreement") and a related Warrant Agreement to be
entered into by and between the Company and WIC (the "Warrant
Agreement") at the closing of the transactions contemplated by
the Stock Purchase Agreement and the Warrant Purchase Agreement
(the "Closing"); and (iii) the other transactions contemplated by
the Stock Purchase Agreement (collectively, the "Transaction").
Proposal Two: Approval and adoption of a new Restated Certificate of
Incorporation of the Company (the "New Charter"), which amends,
restates and replaces the Company's Restated Certificate of
Incorporation as of January 22, 1971, as amended (the "Current
Charter"), and effects the following three principal changes to
the Current Charter: (i) increases the number of authorized
shares of Common Stock from 20,000,000 to 30,000,000, and the
number of authorized shares of Preferred Stock from 300,000 to
1,300,000; (ii) decreases the par value per share of Common Stock
from $3.00 to $.01; and (iii) deletes Article Seventh, Article
Ninth and Article Tenth of the Current Charter, which Articles
contain certain anti-takeover provisions, including restrictions
on business combinations, fair price provisions, repurchase
rights and prevention of greenmail.
The Transaction is being submitted to the Company's stockholders for
approval because it is the policy of the New York Stock Exchange, Inc. (the
"NYSE"), which lists the Company's outstanding Common Stock, to require, as a
condition to the listing on the NYSE of additional shares of common stock of a
listed company, the approval by the stockholders of the company of a transaction
involving the issuance of common stock or securities convertible into or
exercisable for common stock if the present or potential issuance of common
stock or securities convertible into or exercisable for common stock could
result in an increase of 20% or more in the outstanding common stock of the
issuing company. If the Transaction is approved by the stockholders of the
Company and the Preferred Shares and Warrants are issued, the Preferred Shares
will be convertible into, and the Warrants will be exercisable for, shares of
Common Stock. The Preferred Shares, if fully converted, would entitle the holder
to receive a number of shares of Common Stock representing approximately 40% of
the outstanding Common Stock, based on (i) the number of shares of Common
Stock outstanding on the record date for the Special Meeting and (ii) a
conversion price of $4.25, which is the initial conversion price of the
Preferred Shares. The Warrants, if fully exercised, would entitle the holder to
receive a number of shares of Common Stock representing approximately 5% of the
outstanding Common Stock, based on the number of shares of Common Stock
outstanding on the record date for the Special Meeting and taking into account
the shares of Common Stock issuable upon conversion of the Preferred Shares, as
described in the preceding sentence. Therefore, stockholders are being asked to
approve the Transaction in accordance with the policy of the NYSE.
The New Charter is being submitted to the Company's stockholders for
approval and adoption because the Stock Purchase Agreement requires such
approval and adoption as a condition to the Closing.
If the Transaction is approved by the stockholders of the Company and
is consummated, then, immediately following the Closing, the following changes
will take place in the management of the Company: (i) Andrew J. Shoup, Jr., the
current President and Chief Executive Officer and a director of the Company,
along with two other current directors of the Company, will resign; (ii) George
K. Hickox, Jr., one of the principals of WIC, will replace Mr. Shoup as Chief
Executive Officer; (iii) A. Wayne Ritter, the current Vice President-
Acquisitions and Production of the Company, will become President; (iv) Mr.
Hickox and two other persons designated by WIC will fill the vacancies on the
Board created by the resignations of Mr. Shoup and the two other current
directors, and will also become members, along with one of the remaining current
directors of the Company, of a newly created Executive Committee of the Board;
and (v) Mr. Hickox will assume the position of Chairman of the Board. See
"Proposal One --Approval of the Transaction -- Changes in Company Management."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Voting on Proposal One and Proposal Two
Record Date and Voting Securities...................................................... 1
Quorum and Vote Required............................................................... 1
Proxies and Solicitation............................................................... 2
Dissenter's Rights of Appraisal........................................................ 2
Proposal One - Approval of the Transaction.................................................. 3
Board Approval......................................................................... 3
Background of the Transaction.......................................................... 3
Information Regarding WIC.............................................................. 3
Changes in Company Management.......................................................... 3
Stock Purchase Agreement and Warrant Purchase Agreement................................ 4
Management Agreement................................................................... 12
Stockholder Agreement.................................................................. 14
Employment Agreement with George K. Hickox, Jr......................................... 16
Description of Series C Preferred Stock................................................ 16
Warrants............................................................................... 18
Amendment to Stockholder Rights Plan; Certain Anti-Takeover Provisions................. 19
Effect of Transaction on Stockholders.................................................. 19
Other Effects.......................................................................... 20
Use of Proceeds........................................................................ 21
Reasons for Board Approval of the Transaction.......................................... 21
The Company's Financial Advisor........................................................ 22
Proposal Two - The New Charter.............................................................. 28
Purpose of the New Charter............................................................. 28
Increase to Authorized Shares.......................................................... 29
Decrease in Par Value of Common Stock.................................................. 29
Deletion of Certain Anti-Takeover Provisions........................................... 30
Other Changes Effected by the New Charter.............................................. 31
Management's Discussion and Analysis of Financial Condition and Results of Operations....... 32
Description of Capital Stock................................................................ 40
Security Ownership of Certain Beneficial Owners and Management.............................. 42
Stockholder's Proposals..................................................................... 44
Other Matters............................................................................... 44
Index to Consolidated Financial Statements.................................................. F-1
Annex A - Stock Purchase Agreement
Annex B - Warrant Purchase Agreement
Annex C - New Charter marked to show changes from a composite copy of the Current Charter
Annex D - Opinion of Petrie Parkman & Co., Inc.
</TABLE>
Disclosure Regarding Forward-Looking Statements
This Proxy Statement includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. All statements other than statements of
historical facts included in this Proxy Statement, including without limitation
statements in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" regarding the Company's financial position and liquidity,
its strategic plans and opportunities, cost reduction efforts 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, there can be no assurance that the actual results or
developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected consequences to or
effects on its business or operations. Among the factors that could cause actual
results to differ materially from the Company's expectations are the volatility
of oil and gas prices, the ability to acquire or find and successfully develop
additional oil and gas reserves, the uncertainty of estimates of reserves and
future net revenues, risks relating to acquisitions of producing properties,
drilling and operating risks, general economic conditions, competition, domestic
and foreign government regulations and other factors which are beyond the
Company's control. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by such factors. The Company assumes no obligation
to update any such forward-looking statements.
<PAGE>
VOTING ON PROPOSAL ONE AND PROPOSAL TWO
Record Date and Voting Securities
Only holders of record of Common Stock as reflected on the books of
the Company at the close of business on _______________, 2000 (the "Record
Date") will be entitled to notice of and to vote at the Special Meeting. As of
the close of business on the Record Date, the Company had [8,951,965] shares of
Common Stock outstanding. Holders of shares of Common Stock will have one vote
per share. There are no other classes of voting securities of the Company
outstanding.
Quorum and Vote Required
The presence at the Special Meeting of the holders of a majority of the
shares of Common Stock issued and outstanding on the Record Date, whether in
person or represented by proxy, will constitute a quorum for the transaction of
business at the Special Meeting.
To approve the Transaction (Proposal One), it is necessary to obtain the
affirmative vote of (i) a majority of the total votes cast on the proposal by
the holders of the Common Stock, provided that the total votes cast on the
proposal represent over 50% of all the shares of Common Stock entitled to vote
on the proposal, in accordance with the policy of the NYSE, and (ii) a majority
of the Common Stock present in person or represented by proxy at the Special
Meeting
1
<PAGE>
and entitled to vote on the proposal, in accordance with the Delaware
General Corporation Law (the "DGCL"). To approve and adopt the New Charter
(Proposal Two), it is necessary to obtain the affirmative vote of a majority of
the issued and outstanding shares of Common Stock entitled to vote on the
proposal, in accordance with the DGCL.
If the stockholders of the Company approve the Transaction but do not
approve and adopt the New Charter, the Transaction will not be consummated since
under the Stock Purchase Agreement the approval of the New Charter is a
condition to the consummation of the Transaction. This is because without the
changes effected by the New Charter, the Company will not have sufficient
authorized shares of preferred stock to issue the Preferred Shares, and the
existing par value of the Common Stock may prevent the issuance of Common Stock
in payment of accrued dividends on the Preferred Shares. However, the Closing is
not required as a condition to implementing the New Charter. Therefore, if the
stockholders of the Company approve and adopt the New Charter, it will be filed
by the Company with the Secretary of State of Delaware and become effective
promptly following the Special Meeting, whether or not the stockholders approve
the Transaction.
Neither the DGCL, the Current Charter nor the Company's bylaws contain any
provisions regarding the treatment of abstentions or broker nonvotes. "Broker
nonvotes" are shares that are present at the meeting and for which a broker or
nominee has received no instruction by the beneficial owner as to how that owner
wishes the shares to be voted. For purposes of the vote on the Transaction, an
abstention or a broker nonvote will have the effect of a vote against the
proposal, unless holders of more than 50% of all the shares of Common Stock
entitled to vote on the proposal cast votes, in which event neither an
abstention nor a broker nonvote will have any effect on the result of the vote.
For purposes of the vote on the New Charter, abstentions and broker nonvotes
will have the same effect as votes against the proposal, although they will
count toward the presence of a quorum.
Proxies and Solicitation
If the enclosed proxy card is properly executed and returned, it will be
voted at the Special Meeting in accordance with the specifications thereof. If
no instructions are specified in the proxy, the shares represented thereby will
be voted in favor of the Transaction and the New Charter. A proxy may be
revoked, at any time before it has been voted, upon written notice to the
Assistant Secretary of the Company, by submitting a subsequently dated proxy or
by attending the Special Meeting and withdrawing the proxy.
The cost of soliciting proxies will be borne by the Company. Solicitation
may be made, without additional compensation, by directors, officers and regular
employees of the Company in person or by mail, telephone, facsimile transmission
or telegram. The Company may also request banking institutions, brokerage firms,
custodians, trustees, nominees and fiduciaries to forward solicitation material
to the beneficial owners of the Common Stock held of record by such persons, and
the Company will reimburse the forwarding expense. All costs of preparing,
printing and mailing the proxy cards and the materials used in the solicitation
thereof will be borne by the Company.
Dissenter's Rights of Appraisal
Neither the DGCL, the Current Charter nor the Company's bylaws provides for
any rights to dissenters to the Transaction or the New Charter.
2
<PAGE>
PROPOSAL ONE -- APPROVAL OF THE TRANSACTION
Board Approval
On December 9, 1999, after receiving an oral opinion (which was
subsequently confirmed in writing) from Petrie Parkman & Co., Inc., the
Company's financial advisor ("Petrie Parkman"), regarding the fairness from a
financial point of view to the Company of the Consideration (which Petrie
Parkman defined for purposes of its opinion to include the aggregate purchase
price of $25 million in cash for the Preferred Shares and $14,834 in cash for
the Initial Warrants), the Board unanimously approved, and voted to recommend
that the stockholders of the Company approve, the Transaction. The Company
entered into the Stock Purchase Agreement and the Warrant Purchase Agreement on
December 13, 1999. Pursuant to the Stock Purchase Agreement, the Warrant
Purchase Agreement and the Warrant Agreement, WIC is to acquire the Preferred
Shares and the Warrants on terms more fully described below.
Background of the Transaction
The Company is an independent energy company engaged in the exploration,
production and acquisition of crude oil and natural gas reserves primarily in
the United States and Canada. Pressured by the lowest oil prices since 1986, the
Company implemented an aggressive cost reduction program in December 1998 which
included reducing its work force, suspending the payment of its regular dividend
on the Common Stock and curtailing drilling and other discretionary capital
expenditures in an effort to conserve the Company's cash. In April and May 1999
the Company sold certain oil and gas properties for $41 million in cash. These
properties represented approximately 19% of the Company's total proved oil and
gas reserves at December 31, 1998. The Company used approximately $20.5 million
of the proceeds from the sales of these properties to reduce existing
indebtedness under the Company's bank credit facilities, and the balance of the
proceeds is being used to fund capital expenditures and for general corporate
purposes.
In September 1998, the Company engaged Petrie Parkman as its financial
advisor to provide advisory and investment banking services with respect to
evaluating the Company's assets and opportunities and, if appropriate,
implementing strategic alternatives. During the course of this strategic review
process, the Company was in contact with a number of potential transaction
participants. In August 1999, the Board received written proposals from an
affiliate of WIC and one other potential strategic partner. The affiliate of WIC
proposed to make a $25 million investment in the Company to strengthen the
Company's balance sheet and provide the Company with additional liquidity, in
exchange for equity securities of the Company representing approximately 40% of
the Company's outstanding Common Stock on a fully diluted basis. The affiliate
of WIC also desired to obtain a majority of the directors on the Board and the
right to designate the Chief Executive Officer and Chief Financial Officer of
the Company. The terms of the proposal submitted by the one other potential
strategic partner restrict the Company from disclosing the identity of this
party or the terms of its proposal in this Proxy Statement.
The Company considered the affiliate of WIC's proposal along with the
proposal of the one other potential strategic partner. In the course of
discussions with the affiliate of WIC and the other party, the Board determined
that the affiliate of WIC's proposal presented the best course of action for the
Company. After discussions and negotiations among representatives of the
Company, Petrie Parkman and WIC, the Company and WIC agreed on the terms of the
Transaction as set forth in the Stock Purchase Agreement and the Warrant
Purchase Agreement and entered into such agreements on December 13, 1999.
Information Regarding WIC
WIC is a Delaware limited liability company formed in November 1999 for the
purpose of acquiring the Preferred Shares and the Warrants. The principals of
WIC are George K. Hickox, Jr., Douglas P. Heller and Scott W. Smith.
Changes in Company Management
The Board currently consists of seven directors. The Company has a
"staggered" Board, which means that the directors have been classified, in
respect to the time for which they hold office, by dividing them into three
classes, with one class of directors being elected each year for a three-year
term. At each annual meeting, the stockholders of the Company elect directors of
the class whose term expires at such annual meeting, to hold office until the
third succeeding annual meeting. Each director holds office for the three-year
term for which elected and until his or her successor is elected and qualified
or until his or her earlier resignation or removal.
In connection with the Transaction, the Company has agreed that,
immediately following the Closing, three persons designated by WIC (the "WIC
Designees") will become directors of the Company and members of a newly created
Executive Committee of the Board and one of the WIC Designees will become the
Chairman of the Board and Chief Executive Officer of the Company. WIC has
designated George K. Hickox, Jr., _______________ and ________________ as the
WIC Designees to serve on the Board and the Executive Committee of the Board and
has designated Mr. Hickox to serve as Chairman of the Board and Chief Executive
Officer. Mr. Hickox, Mr. ______________ and Mr. ______________ will replace
Andrew J. Shoup, Jr., Howard G. Hamilton and John W. Cushing III, who will have
resigned from the Board and (in the case of Mr. Shoup) as President and Chief
Executive Officer of the Company pursuant to letters of resignation that will
become effective immediately following the Closing. Mr. Hickox, who is replacing
Mr. Shoup on the Board, and Mr. _____________, who is replacing Mr. Cushing on
the
3
<PAGE>
Board, will each serve for the remainder of his predecessor's term, which
expires at the annual meeting of stockholders in 2002. Mr. _________, who is
replacing Mr. Hamilton on the Board, will serve for the remainder of Mr.
Hamilton's term, which expires at the annual meeting of stockholders in 2000.
Lorne H. Larson, Jon L. Mosle, Jr., A. W. Schenck III and C. Frayer Kimball
III, the remaining current directors of the Company, will continue to serve as
directors following the Closing, and Mr. Kimball will serve on the Executive
Committee of the Board along with the three WIC Designees.
In addition, immediately following the Closing, A. Wayne Ritter, the
current Vice President-Acquisitions and Production of the Company, will become
President of the Company.
Set forth below is certain information as of the date of this Proxy
Statement concerning the three WIC Designees who will serve on the Board,
including information with respect to the principal occupation or employment of
each such person during the past five years.
Mr. Hickox, age 41, is a private investor whose principal interests are in
the energy industry. In the early 1980's, Mr. Hickox worked for Texas Oil & Gas
Corporation and InterFirst Bank Houston N.A. Later, he was a vice president at
the investment banking firm of Copeland, Wickersham & Wiley where he focused on
restructuring transactions and mergers and acquisitions. Since 1991, Mr. Hickox
has been a principal in Heller Hickox Dimeling Schrieber & Park, a private
equity investment firm focused on the energy sector. Mr. Hickox presently serves
as an officer and director of several privately held companies. Mr. Hickox holds
petroleum engineering and geology degrees from Texas A&M University.
[biographical information for other two designees to be inserted prior to
mailing of this Proxy Statement]
Stock Purchase Agreement, Warrant Purchase Agreement and Warrant Agreement
A copy of the Stock Purchase Agreement, together with all exhibits thereto,
is attached hereto as Annex A and is incorporated herein by reference. A copy of
the Warrant Purchase Agreement, together with the Warrant Agreement, is attached
hereto as Annex B and is incorporated herein by reference. The following summary
of the Stock Purchase Agreement, the Warrant Purchase Agreement and the Warrant
Agreement is qualified in its entirety by reference to such agreements.
Capitalized terms defined in Section 1.1 of the Stock Purchase Agreement are
used herein with the same meanings unless otherwise defined herein.
Issuance of Preferred Shares and Warrants. The Stock Purchase Agreement
provides for:
. The issuance and sale by the Company to WIC at the Closing of
1,000,000 Preferred Shares at a purchase price of $25.00 per
Preferred Share, for an aggregate cash purchase price of $25
million. The Preferred Shares will be convertible into shares of
Common Stock at a conversion price of $4.25, subject to
adjustment to prevent dilution. The Preferred Shares, if
converted at such conversion price, would entitle the holder to
receive a total of 5,882,353 shares of Common Stock, representing
approximately 40% of the outstanding Common Stock (based on the
number of shares of Common Stock outstanding on the Record Date).
For a description of the terms of the Preferred Shares, see "--
Description of Series C Preferred Stock" below.
. The execution at the Closing of a Management Agreement between
the Company and WIC (the "Management Agreement"), a Stockholder
Agreement between the Company and WIC (the "Stockholder
Agreement") and an Employment Agreement between the Company and
George K. Hickox, Jr. (the "Employment Agreement"). These
agreements provide for, among other things, a new Board
consisting of four of the current directors of the Company and
the three WIC Designees, one of whom will be George K. Hickox,
Jr., and the employment of Mr. Hickox as Chairman of the Board
and Chief Executive Officer of the Company. For a description of
the terms of these agreements, see " --Management Agreement",
"-- Stockholder Agreement" and " --Employment Agreement with
George K. Hickox, Jr." below.
The Warrant Purchase Agreement and the Warrant Agreement provide for:
. The issuance and sale by the Company to WIC at the Closing of
Warrants to purchase 741,716 shares of Common Stock (representing
5% of the sum of the number of shares of Common Stock outstanding
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on the date of the Stock Purchase Agreement plus the number of
shares of Common Stock issuable upon conversion of the Preferred
Shares) at a purchase price of $.02 per Warrant, for an aggregate
cash purchase price of $14,834.32 (the "Initial Warrants"). The
exercise price of the Initial Warrants is $4.25 per share,
subject to adjustment to prevent dilution.
. The issuance by the Company to WIC of additional Warrants (the
"Additional Warrants") if after the Closing the Company issues
any shares of Common Stock (other than pursuant to the Warrant
Agreement, the terms of the Series C Preferred Stock or awards
granted after the Closing under the Company's stock option plans
or other director, officer or employee equity plans, contracts or
arrangements (the "Excluded Shares")), so that the shares of
Common Stock issuable upon exercise of the Initial Warrants and
the Additional Warrants continue to represent approximately 5% of
the shares of Common Stock outstanding (not including the
Excluded Shares) at any given time during the term of the
Warrants. The exercise price of any Additional Warrants is based
on the time of their issuance, with such exercise prices
increasing from $4.25 per share at a rate of 10% per year
following the Closing. The Initial Warrants and any Additional
Warrants will become exercisable commencing on the second
anniversary of the Closing and will expire seven years after the
Closing. For additional information regarding the terms of the
Warrants, see " -- Warrants" below.
The closing sales price of the Common Stock on the NYSE was $2.75 on
December 13, 1999, the date of the execution of the Stock Purchase Agreement and
the Warrant Purchase Agreement, $___________ on __________, 2000, the Record
Date, and $_________ on ___________, 2000, the date immediately prior to the
mailing of this Proxy Statement. The $4.25 per share initial conversion price of
the Preferred Shares and exercise price of the Initial Warrants represent a
premium of approximately 55 % over the $2.75 closing sales price on December 13,
1999, a premium of approximately ______________% over the $________________
closing sales price on the Record Date, and a premium of approximately ____%
over the $__________ closing sales price on _______________, 2000.
Assignment of WIC Rights. Under the terms of the Stock Purchase Agreement,
with the prior written consent of the Company, WIC may assign (i) all of its
rights and obligations to purchase the Preferred Shares to a corporation,
partnership or limited liability company formed by WIC in connection with the
Financing (as defined below) and in which it has a significant equity interest
or (ii) such rights and obligations with respect to a portion of the Preferred
Shares to up to eight accredited investors, in either case provided that such
assignee or assignees agree to be bound by all of the terms and conditions of
the Stock Purchase Agreement (each, a "WIC Assignee"). As used herein, the term
"Purchaser" means WIC or any WIC Assignee, as the case may be, as the
purchaser(s) of the Preferred Shares under the Stock Purchase Agreement.
Under the terms of the Warrant Purchase Agreement, prior to the date of the
Special Meeting, WIC may assign all of its rights, interests and obligations
under the Warrant Purchase Agreement to a corporation, partnership or limited
liability company or other entity, provided that (i) the equity ownership of
such entity is limited to WIC, the members of WIC as of the date of the Warrant
Purchase Agreement or any other entity whose equity owners are limited to the
foregoing and (ii) any such assignee expressly assumes all of WIC's rights,
interests and obligations under the Warrant Purchase Agreement, makes the same
representations, warranties, covenants and agreements made by WIC under Sections
3.2 and 4.11 and Article VIII of the Stock Purchase Agreement and agrees to
become a party to the Stockholder Agreement at the Closing.
Financing. The Stock Purchase Agreement provides that WIC shall use its
reasonable best efforts to obtain debt or equity financing or other funds in an
aggregate amount sufficient to consummate the purchase of the Preferred Shares
(the "Financing") and that WIC's obligation to purchase the Preferred Shares is
subject to WIC's receipt of the proceeds of the Financing. On __________, 2000,
WIC delivered to the Company a commitment letter pursuant to which WIC
represented to the Company that it had received conditional assurances from
other parties regarding the Financing and that based on these assurances WIC
believes in good faith that it will be able to deliver the Financing by the date
of the Closing. Pursuant to the terms of the Stock Purchase Agreement, as a
result of the delivery of this commitment letter, WIC's obligation to purchase
the Preferred Shares is no longer subject to the receipt of the Financing or to
the satisfaction of any other condition relating to the Financing.
Representations and Warranties. The Stock Purchase Agreement contains
various representations and warranties on the part of the Company relating to,
among other things:
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. the corporate organization and good standing of the Company and its
subsidiaries;
. the capital structure of the Company and its subsidiaries;
. the due authorization, execution, delivery, performance and
enforceability of the Stock Purchase Agreement and the other
Transaction Documents;
. the absence of conflicts with other agreements, instruments, laws and
regulations;
. required consents, approvals and filings;
. the due authorization and issuance of the Preferred Shares, the due
authorization and reservation of the shares of Common Stock issuable
upon conversion of the Preferred Shares and the due authorization and
reservation of the shares of Common Stock issuable in payment of
dividends payable on the Preferred Shares;
. the due authorization and issuance of the Warrants and the due
authorization and reservation of the shares of Common Stock issuable
upon exercise of the Warrants;
. the actions taken by the Company so that WIC and Purchaser are not
subject to certain anti-takeover provisions as a result of the
Transaction;
. the reports and other documents filed by the Company with the SEC and
the accuracy of the information contained therein;
. the accuracy of information supplied by the Company for inclusion in
this Proxy Statement;
. the absence of certain changes or events;
. the absence of undisclosed liabilities;
. no default under debt instruments and no violation of the Current
Charter or the Company's bylaws;
. compliance with applicable laws and permits;
. pending and threatened litigation;
. Material Contracts;
. title to oil and gas properties and other material properties and
assets owned by the Company or its subsidiaries;
. taxes;
. employee benefit and labor matters;
. intangible property;
. environmental matters;
. insurance;
. no brokers or finders;
. various matters related to the oil and gas operations of the Company
and its subsidiaries;
6
<PAGE>
. effect of the Year 2000 problem;
. no failure to meet NYSE minimum listing requirements for continued
listing; and
. the fair market value of certain of the Company's assets relative to
the availability of an exemption for the Transaction from the
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
The Stock Purchase Agreement also contains certain representations and
warranties on the part of WIC and Purchaser relating to, among other things:
. the organization and good standing of WIC and Purchaser;
. the due authorization, execution, delivery, performance and
enforceability of the Stock Purchase Agreement and the other
Transaction Documents;
. the absence of conflicts with other agreements, instruments, laws and
regulations;
. required consents, approvals and filings;
. the accuracy of information supplied by WIC or Purchaser for inclusion
in this Proxy Statement;
. pending and threatened litigation;
. investment intent, accreditation and access to information;
. no brokers or finders; and
. no shares of the Company's capital stock owned by WIC, Purchaser or
their affiliates.
Covenants Regarding Stockholder Approval of Transaction and New Charter.
The Stock Purchase Agreement requires that the Company take all action necessary
to call and hold a meeting of its stockholders as promptly as practicable to
consider and vote on the approval of the Transaction and the New Charter. The
Stock Purchase Agreement provides that, subject to its fiduciary duties to the
Company and the Company's stockholders under applicable law, the Board will (i)
not withdraw, modify or change its recommendation that the Company's
stockholders approve the Transaction and the New Charter and (ii) continue to
recommend to the stockholders of the Company the approval of the Transaction and
the New Charter.
Each of the directors and executive officers of the Company has agreed with
WIC to vote certain shares of Common Stock beneficially owned by such person in
favor of the proposals to approve the Transaction and the New Charter at the
Special Meeting. These agreements cover an aggregate of 79,820 shares of Common
Stock, representing less than 1% of the shares of Common Stock outstanding as of
the Record Date.
Covenant Regarding NYSE Listing. The Stock Purchase Agreement requires the
Company to use its reasonable best efforts to cause the shares of Common Stock
issuable (i) upon conversion of the Preferred Shares, (ii) upon exercise of the
Warrants and (iii) in payment of dividends payable on the Preferred Shares (the
"Underlying Common Shares"), to be approved for listing on the NYSE.
Covenants Regarding Conduct of Business Prior to Closing. Under the Stock
Purchase Agreement, the Company has agreed that, at all times prior to the
earlier of the Closing or the termination of the Stock Purchase Agreement, the
Company will conduct its business in the ordinary and usual course. Except as
otherwise contemplated by the Stock Purchase Agreement, neither the Company nor
any subsidiary of the Company may, without the prior consent of WIC and
Purchaser:
. acquire any corporation or other business organization, or otherwise
acquire any assets of any other person (other than the purchase of
assets in the ordinary course of business and consistent with past
practice);
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. dispose of any assets other than in the ordinary course of business;
. amend the Current Charter or the Company's bylaws or make any material
changes in its capital structure;
. change in any material respect any method of accounting, make or
rescind any tax election, settle or compromise any litigation, audit
or controversy relating to taxes or change any of its methods of
reporting income or deductions from those used in preparing the
Company's tax returns for the year ended December 31, 1998, except as
may be required by law or GAAP, or file any material amended tax
return;
. incur any Debt, except in the ordinary course of business consistent
with past practice or Debt not to exceed $2,000,000 in the aggregate
at any time outstanding;
. make any loans or advances to any person, subject to certain
exceptions;
. declare or pay any dividend or make any other distribution with
respect to its capital stock other than dividends paid by
subsidiaries;
. issue, sell or deliver any of its capital stock or other securities
other than pursuant to stock options outstanding on the date of the
Stock Purchase Agreement, or purchase or otherwise acquire any of its
capital stock, employee or director stock options or debt securities;
. enter into, adopt, amend or terminate any collective bargaining
agreement or employee benefit plan;
. approve or implement any employee severance arrangements (other than
payments made under the Company's severance policy), authorize or
enter into any employment, severance, consulting services or other
agreements with any officers or executive management personnel, or
change the compensation or benefits provided to any director, officer
or (except in the ordinary and usual course of business) employee as
of the date of the Stock Purchase Agreement;
. materially amend, terminate or fail to use all commercially reasonable
efforts to renew any Material Contract, or default in any material
respect under any Material Contract;
. waive any material right relating to the Company's oil and gas
properties that would not be waived by a reasonably prudent operator;
. release or abandon any of the Company's oil and gas properties, except
in the ordinary course of business;
. dispose of any interest in the Company's oil and gas properties,
except in the ordinary course of business;
. with respect to the period commencing on the date of the Stock
Purchase Agreement and ending on December 31, 1999 and with respect to
each three-month period thereafter, engage in any material operations
on any oil and gas properties that the Company or a subsidiary has not
previously committed to and that may be expected to cost the Company
or a subsidiary during such period in excess of $5,000,000 in the
aggregate, except in the ordinary course of business; and
. enter into any Hedging transactions, except in the ordinary course of
business and consistent with past practice.
Covenants Regarding No Solicitation. Under the Stock Purchase Agreement,
the Company and its subsidiaries, officers, directors, employees, agents and
representatives are prohibited from, directly or indirectly, soliciting any
offer from, or participating or engaging in any discussions or negotiations
with, any person or group (other than WIC, Purchaser or their affiliates)
concerning any of the following transactions (each an "Alternative
Transaction"):
. a transaction regarding the acquisition of more than five percent of
the outstanding shares of any class of equity securities of the
Company;
8
<PAGE>
. a merger, consolidation or other business combination involving the
Company pursuant to which any third party acquires more than five
percent of the outstanding equity securities of the Company or the
entity surviving such merger, consolidation or business combination;
or
. a transaction pursuant to which any third party acquires or would
acquire control of assets of the Company or any of its subsidiaries
having a fair market value equal to more than five percent of the fair
market value of all the assets of the Company and its subsidiaries,
taken as a whole, immediately prior to such transaction.
Notwithstanding the foregoing, the Company may:
. comply with Rules 14d-9 and 14e-2 promulgated under the Securities
Exchange Act of 1934 with regard to a potential Alternative
Transaction; or
. provide information to, or participate or engage in any discussions or
negotiations with, any person who has made an unsolicited proposal
regarding a potential Alternative Transaction if and only to the
extent that:
. the Board determines in good faith that such proposal is
reasonably capable of being completed and would, if consummated,
result in a transaction more favorable to the Company's
stockholders than the Transaction (a "Superior Proposal");
. the Board determines in good faith that the failure to do so
would be inconsistent with its fiduciary obligations under
applicable law;
. before providing any information or data to any person in
connection with any Superior Proposal by such person, the Board
receives from such person an executed confidentiality agreement;
and
. before providing any information or data to any person or
entering into discussions or negotiations with any person, the
Board notifies WIC and Purchaser of such proposals or offers
received by, any such information requested from, or any such
discussions or negotiations sought to be initiated or continued
with, the Company, any of its subsidiaries or any of their
respective representatives indicating, in connection with such
notice, the identity of such person and the material terms and
conditions of any proposals or offers.
Notwithstanding the extensive strategic alternatives review process that
the Company undertook before entering into the Stock Purchase Agreement, it is
possible that a transaction alternative to the Transaction could be submitted to
the Board following the date of this Proxy Statement. In the event a proposal
for an Alternative Transaction is received by the Board, the Board would
consider that proposal in relation to its fiduciary duties and the Company's
obligations under the Stock Purchase Agreement.
Conditions to Closing. The respective obligations of the Company, WIC and
Purchaser to effect the transactions contemplated by the Stock Purchase
Agreement and the Warrant Purchase Agreement are subject to the satisfaction on
or prior to the Closing of the following conditions:
. The stockholders of the Company shall have approved the Transaction
and the New Charter by the requisite votes at the Special Meeting.
. All approvals of, or expirations of waiting periods imposed by, any
governmental entity necessary for the consummation of the transactions
contemplated by the Stock Purchase Agreement and the Warrant Purchase
Agreement shall have been filed, occurred or been obtained.
. No temporary restraining order, preliminary or permanent injunction,
or other order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the
transactions contemplated by the Stock Purchase Agreement and the
Warrant Purchase Agreement will be in effect.
. No action shall have been taken, and no statute, rule or regulation
shall have been enacted, by any governmental entity that makes the
consummation of the transactions contemplated by the Stock Purchase
Agreement and the Warrant Purchase Agreement illegal.
The obligations of WIC and Purchaser to effect the transactions
contemplated by the Stock Purchase Agreement and the Warrant Purchase Agreement
to be consummated at the Closing are subject to the satisfaction of the
following conditions unless waived, in whole or in part, by WIC and Purchaser:
9
<PAGE>
. The accuracy in all material respects of the representations and
warranties of the Company set forth in the Stock Purchase Agreement.
. The performance in all material respects by the Company of all
obligations required to be performed by it under the Stock Purchase
Agreement prior to the Closing.
. No Material Adverse Effect with respect to the Company has occurred.
Under the Stock Purchase Agreement, "Material Adverse Effect" is
defined as any effect, change, event or occurrence that is materially
adverse to the business, operations, properties, condition, results of
operations, assets, liabilities or prospects of the Company and its
subsidiaries taken as a whole, other than as a result of (i) changes
in oil or gas prices or (ii) general conditions in the Company's
industry not relating solely to the Company or a subsidiary in any
specific manner.
. The receipt of evidence reasonably satisfactory to WIC and Purchaser
of the consent or approval of each person that is a party to a
Material Contract and whose consent or approval is required in order
to prevent the consummation of the transactions contemplated by the
Stock Purchase Agreement and the Warrant Purchase Agreement from
causing or resulting in a breach of such Material Contract or the
creation in favor of such person of a right to terminate such Material
Contract.
. The receipt by WIC and Purchaser of an opinion of counsel to the
Company as to the matters set forth in Exhibit G to the Stock Purchase
Agreement.
. The acceptance by the Secretary of State of Delaware of the filing of
the New Charter and the Certificate of Designations creating the
Series C Preferred Stock in accordance with the DGCL.
. The resignations from the Board of Andrew J. Shoup, Jr., Howard G.
Hamilton and John W. Cushing III, and Board approval of the filling of
such vacancies with the three WIC Designees, and the creation of an
Executive Committee of the Board comprised of the three WIC Designees
and one current member of the Board.
. The approval of the Underlying Common Shares for listing on the NYSE,
subject to official notice of issuance.
. The delivery to WIC and Purchaser of all documents, instruments,
certificates or other items required to be delivered by the Company
pursuant to Section 6.2(b) of the Stock Purchase Agreement.
The obligation of the Company to effect the transactions contemplated by
the Stock Purchase Agreement and the Warrant Purchase Agreement to be
consummated at the Closing is subject to the satisfaction of the following
conditions unless waived, in whole or in part, by the Company:
. The accuracy in all material respects of the representations and
warranties of WIC and Purchaser set forth in the Stock Purchase
Agreement.
. The performance in all material respects by WIC and Purchaser of all
obligations required to be performed by them under the Stock Purchase
Agreement prior to the Closing.
. The receipt by the Company of an opinion of counsel to WIC and
Purchaser as to the matters set forth in Exhibit H to the Stock
Purchase Agreement.
. The delivery to the Company of all documents, instruments,
certificates or other items required to be delivered by WIC and
Purchaser pursuant to Section 6.2(a) of the Stock Purchase Agreement.
It is anticipated that all such conditions will be satisfied.
Termination. The Stock Purchase Agreement may be terminated at any time
prior to the Closing:
. By mutual consent of WIC, Purchaser and the Company;
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. By either WIC and Purchaser, on the one hand, or the Company, on the
other:
(a) in the event of a breach by the other party of any
representation, warranty, covenant or agreement contained in the
Stock Purchase Agreement which (i) would give rise to the failure
of a condition to the Closing and (ii) cannot be cured or, if it
is capable of being cured, has not been cured within 20 days
following receipt by the breaching party of written notice of
such breach (the "Cure Period"); provided that in no event may
the Cure Period extend beyond the date the Closing is scheduled
to take place and there is no Cure Period for breaches of the
covenants (i) requiring the Board to recommend the approval of
the Transaction and the New Charter to the stockholders and (ii)
prohibiting the solicitation of Alternative Transactions; or
(b) if a court of competent jurisdiction or other governmental entity
issues an order, decree or ruling or takes any other actions in
each case permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by the Stock Purchase
Agreement, and such order, decree, ruling or other action becomes
final and nonappealable; or
(c) if the stockholders of the Company do not approve the Transaction
and the New Charter at the Special Meeting by the requisite
votes; or
(d) if the Closing does not occur by the later of (i) May 31, 2000
and (ii) any date to which the Closing is extended by agreement
of the Company, WIC and Purchaser; provided that the right to
terminate the Stock Purchase Agreement under these circumstances
is not available to any party whose breach of the Stock Purchase
Agreement has been the cause of, or resulted in, the failure of
the Closing to occur on or before such date;
. By the Company, if, as a result of a Superior Proposal received by the
Company, the Board determines in good faith that its fiduciary
obligations under applicable law require that such Superior Proposal
be accepted; provided that the Company may not effect such termination
unless and until:
(a) WIC and Purchaser receive at least one week's prior written
notice from the Company of its intention to effect such
termination;
(b) during such week, the Company and its financial and legal
advisors consider any adjustment in the terms and conditions of
the Stock Purchase Agreement and the other Transaction Documents
that WIC and Purchaser may propose; and
(c) the Board concludes in good faith, after considering applicable
provisions of law and after giving effect to all adjustments
which may be offered by WIC and Purchaser, and on the basis of
advice of its outside counsel, that such action is necessary for
the Board to act in a manner consistent with its fiduciary duties
under applicable law;
provided that it is a condition to the effectiveness of termination by
the Company under these circumstances that the Company pay a $500,000
termination fee to WIC (as described below under "Termination
Payments");
. By WIC and Purchaser, if the Company or the Board withdraws, modifies
or changes its recommendation of the Stock Purchase Agreement and the
transactions contemplated thereby in a manner adverse to WIC and
Purchaser or approves, recommends or declares advisable any proposed
Alternative Transaction; or
. By the Company, if (a) WIC or Purchaser breaches its agreement to
execute and deliver at the Closing the Management Agreement, the
Stockholder Agreement or the Warrant Agreement or (b) Purchaser does
not receive the proceeds of the Financing by, or is otherwise unable
or refuses to deliver the purchase price of the Preferred Shares on,
the date the Closing is to take place.
The Warrant Purchase Agreement will automatically terminate upon the
termination of the Stock Purchase Agreement as provided above.
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Termination Payments. The Company has agreed that, if the Stock Purchase
Agreement is terminated by WIC and Purchaser because the Company or the Board
withdraws, modifies or changes its recommendation of the Transaction or
approves, recommends or declares advisable any proposed Alternative Transaction,
or if the Stock Purchase Agreement is terminated by the Company in order to
accept a Superior Proposal, and provided that neither WIC nor Purchaser is then
in material breach of its obligations under the Stock Purchase Agreement, the
Company will pay WIC a termination fee in the amount of $500,000.
In addition, WIC has deposited in escrow the amount of $500,000 (the
"Deposit") under an Escrow Agreement dated December 9, 1999 between the Company,
WIC and BankOne, Texas, N.A., as escrow agent. If the Closing occurs, the
Deposit will be disbursed to the Company and applied to the purchase price to be
paid by Purchaser for the Preferred Shares. However, if the Stock Purchase
Agreement is terminated by the Company because (i) WIC or Purchaser has breached
its agreement to execute and deliver at the Closing the Management Agreement,
the Stockholder Agreement or the Warrant Agreement or (ii) Purchaser has not
received the proceeds of the Financing by, or is otherwise unable or refuses to
deliver the purchase price of the Preferred Shares on, the date the Closing is
to take place, and provided the Company is not then in material breach of its
obligations under the Stock Purchase Agreement, the Deposit will be disbursed to
the Company as liquidated damages and as the sole remedy available to the
Company in such case. If the Stock Purchase Agreement is terminated and the
Company is not entitled to a disbursement of the Deposit, WIC is entitled to a
return of the Deposit following such termination.
Indemnification. The Stock Purchase Agreement contains mutual
indemnification obligations for breaches of representations, warranties or
covenants under the Stock Purchase Agreement or any other Transaction Document.
The indemnification obligation of each Purchaser under the Stock Purchase
Agreement is several and not joint, and is further limited to a share of the
total indemnified costs that is proportionate to such Purchaser's share of the
purchase price of the Preferred Shares.
Expenses. Except for the payments described above under "--Termination
Payments," each party will bear all costs and expenses incurred by such party in
connection with the Stock Purchase Agreement and the other Transaction Documents
and the transactions contemplated thereby.
Time of Closing. The Stock Purchase Agreement provides that the Closing
will occur on the second business day following the approval by the stockholders
of the Company of the Transaction and the New Charter, provided that all other
conditions to the Closing have been either satisfied or waived.
Management Agreement
At the Closing, the Company and WIC will enter into the Management
Agreement pursuant to which WIC will provide to the Company certain management
and transaction advisory services. The following summary of the Management
Agreement is qualified in its entirety by reference to such agreement, a copy of
which is attached as Exhibit D to the Stock Purchase Agreement.
The initial term of the Management Agreement will continue until the second
anniversary of the Closing. Upon expiration of the initial term, the Management
Agreement will automatically renew for successive one-year terms unless
terminated by either party by written notice delivered to the other party at
least 30 days prior to the expiration of the then current term.
Management Services. WIC will provide the following management services to
the Company under the Management Agreement:
. WIC will furnish the three WIC Designees to serve as members of the
Board and the Executive Committee of the Board.
. WIC will cause one of the WIC Designees to serve as the Chief
Executive Officer of the Company. Such individual will be an employee
of the Company and will enter into an employment agreement with the
Company in substantially the form set forth as Exhibit C to the Stock
Purchase Agreement, as amended from time to time by mutual agreement
of such individual, WIC and the Company. The duties of such individual
as Chief Executive Officer of the Company will be as set forth in such
employment agreement, the Company's bylaws or as established from time
to time by the Board to the extent consistent with such employment
agreement and bylaws. WIC has designated George K. Hickox, Jr. as the
initial Chief Executive Officer of the Company. For a description of
the terms of the employment agreement to be entered into by the
Company and Mr. Hickox at the Closing, see "--Employment Agreement
with George K. Hickox, Jr." below.
. WIC may from time to time select and furnish an individual to serve as
Chief Financial Officer of the Company. Such individual will be an
employee of the Company pursuant to an employment agreement
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<PAGE>
mutually acceptable to such individual, WIC and the Company. WIC has
informed the Company that it intends to commence a search with respect
to the Chief Financial Officer following the Closing.
Transaction Advisory Services. WIC will provide the following transaction
advisory services to the Company under the Management Agreement:
. WIC will diligently seek to identify opportunities for the Company to
acquire properties, businesses, companies or other assets located in
the United States and Canada that generate or receive more than 33% of
their gross revenue from the exploration, development, production or
marketing of oil or natural gas (any such opportunity being referred
to as a "Business Opportunity"). However, the term "Business
Opportunity" will not include any opportunity if:
. WIC determines in its sole discretion that neither WIC (or any of
its affiliates) nor the Company should pursue such opportunity;
. the expenditures required to be incurred with respect to such
opportunity, net to WIC and its affiliates, in the aggregate, are
less than $1 million over any 90-day period; or
. on or before the Closing, WIC and the Company have agreed in
writing that such opportunity is to be excluded from the meaning
of such term.
. WIC will cause George K. Hickox, Jr. and Scott W. Smith (or such other
individual or individuals as may be reasonably acceptable to the
Company) to devote a substantial amount of their working time and
effort toward the identification of Business Opportunities on behalf
of WIC.
. WIC will refer to the Company any and all Business Opportunities that
may present themselves or become known to WIC or any affiliate of WIC
(excluding any affiliate that is a Purchaser under the Stock Purchase
Agreement).
. Neither WIC nor any of its affiliates will pursue a Business
Opportunity for its own account unless the referral obligations under
the Management Agreement are satisfied.
. Promptly after becoming aware of a Business Opportunity, WIC will
determine whether the Company should or should not pursue such
Business Opportunity and will notify the Company's Chief Executive
Officer and President in writing of such Business Opportunity and of
WIC's recommendation (a "Referral Notice").
. If WIC or an affiliate desires to pursue a particular Business
Opportunity for its own account, then WIC will include in the Referral
Notice a request that the Company approve the pursuit of the Business
Opportunity by WIC or such affiliate, and WIC will also address such
Referral Notice to the non-WIC Designee members of the Board (the
"Review Committee"). Within 15 days after the receipt of such Referral
Notice, the Review Committee will consider the Business Opportunity
and determine by majority vote whether to release WIC or such
affiliate to pursue the Business Opportunity.
Concurrently with the execution of the Stock Purchase Agreement and as
envisioned by the Management Agreement, the Company and WIC entered into a
letter agreement pursuant to which they agreed to exclude six potential business
opportunities from the definition of Business Opportunity and from the related
referral obligation under the Management Agreement. Each of the excluded
opportunities represents a potential transaction to which WIC or its affiliates
have devoted substantial time and resources for their own account prior to
entering into the agreements for the Transaction and without the Company's
involvement. WIC will have no contractual obligation to refer such opportunities
to the Company, but may nevertheless elect to do so. The Company believes that
WIC's investments in the Series C Preferred Stock and the Warrants will provide
it with a significant incentive to act in the Company's best interests with
respect to these excluded opportunities.
Fees. As compensation for WIC's services under the Management Agreement,
the Company will pay WIC an annual fee of $300,000. The Company has also agreed
to pay or reimburse WIC for all reasonable disbursements and out-of-pocket
expenses (including costs of travel, postage, deliveries and communications)
incurred by WIC or its
13
<PAGE>
affiliates for the account of the Company or in connection with the performance
by WIC or its affiliates of services under the Management Agreement.
Indemnification; Insurance. The Company is obligated to indemnify and hold
harmless WIC, its affiliates and their respective directors, officers, partners,
members, controlling persons (within the meaning of Section 15 of the Securities
Act of 1933 or Section 20(a) of the Securities Exchange Act of 1934), if any,
agents and employees from and against any and all claims, liabilities, losses,
damages and expenses incurred by any indemnified person (excluding those
resulting from the gross negligence or willful misconduct of the indemnified
person) and fees and disbursements of the respective indemnified person's
counsel which are related to or arise out of (i) actions taken or omitted to be
taken by the Company or its subsidiaries, (ii) actions taken or omitted to be
taken by an indemnified person with the Company's or a subsidiary's consent or
in conformity with its instructions or (iii) WIC's engagement under the
Management Agreement, as well as any additional engagement of WIC by the Company
in different capacities.
At the inception of any individual's service as the Chief Executive
Officer or Chief Financial Officer of the Company or a member of the Board (or
its Executive Committee) pursuant to the terms of the Management Agreement, the
Company will enter into an indemnification agreement with such individual in
substantially the form as agreements then providing indemnification for other
members of the Board. On ____________________________, 2000, the Company
entered into an indemnification agreement with each of its current directors and
executive officers. Such agreements provide for advancement of litigation
expenses and indemnification upon resolution of the litigation matter if
warranted under the agreements.
The Company will purchase and maintain insurance on behalf of any
individual serving as a member of the Board (or its Executive Committee) or as
the Chief Executive Officer or Chief Financial Officer of the Company pursuant
to the terms of the Management Agreement against any liability that may be
asserted against or expense that may be incurred by such individual in
connection with the Company's activities. Such insurance shall be of a nature
and amount that is consistent with other, similar publicly traded companies, and
shall be at least as extensive as that purchased on behalf of the Company's
other officers and directors, if applicable.
Confidential Information. WIC agrees not to divulge any confidential
information, secret processes or trade secrets disclosed by the Company to WIC
solely in its capacity as a financial advisor, unless the Company consents to
the divulging thereof or such information, secret processes or trade secrets are
publicly available or otherwise available to WIC without restriction or breach
of any confidentiality agreement or unless required by any governmental
authority or in response to any valid legal process.
Stockholder Agreement
At the Closing, the Company, WIC and Purchaser will enter into the
Stockholder Agreement. The following summary of the Stockholder Agreement is
qualified in its entirety by reference to such agreement, a copy of which is
attached as Exhibit F to the Stock Purchase Agreement.
Board Representation. The Company will fill the vacancies created by the
resignations of Andrew J. Shoup, Jr., Howard G. Hamilton and John W. Cushing
III with the three WIC Designees, one of whom, George K. Hickox, Jr., will serve
as the Chairman of the Board.
Executive Committee. The Company will also create an Executive Committee of
the Board comprised of the three WIC Designees and C. Frayer Kimball III, a
current director of the Company, which committee will have and may exercise all
of the powers and authority of the Board in the management of the business and
affairs of the Company on matters which by law do not need whole Board approval.
The affirmative vote of a majority of the members of the Executive Committee
must approve a particular matter for it to be the act of the Executive
Committee, and if such vote cannot be obtained, such matter must be submitted to
the whole Board for approval. Executive Committee approval is required to
approve operating or capital expenditures exceeding $1 million per transaction,
unless such expenditures were specifically approved by the Board as part of the
annual budget. Whole Board approval will be required to approve:
. any operating or capital expenditure or series of related expenditures
exceeding $2.5 million, unless such expenditure or expenditures were
specifically approved by the Board as part of the annual budget;
. the nomination of persons for election to the Board;
14
<PAGE>
. the filling of vacancies on the Board, the Executive Committee or
other Board committees; and
. transactions between the Company, on the one hand, and any Purchaser
or any affiliate of a Purchaser, on the other hand.
Other Committees. The Company will take all necessary action so that one
WIC Designee who is not an executive officer of the Company is appointed to
serve as a member of each committee of the Board, other than the Executive
Committee.
Certain Executive Officers. After the Closing, Purchaser will have the
right to make all nominations of individuals for election to the offices of
Chief Executive Officer and Chief Financial Officer of the Company.
Continuation of Governance Rights. Purchaser's rights to designate the
three WIC Designees to serve on the Board and the Executive Committee and
to designate one WIC Designee who is not an executive officer of the Company to
serve on each other committee of the Board will continue as long as the
Purchaser Group (as defined below) beneficially owns 4,600,000 or more Fully-
Diluted Shares (as defined below). Otherwise, Purchaser has the right to
designate that number of WIC Designees to the Board and the Executive Committee
corresponding to the Purchaser Group's beneficial ownership of Fully-Diluted
Shares as set forth below:
<TABLE>
<CAPTION>
Number of Fully-Diluted Shares Number of WIC Designees
------------------------------ -----------------------
<S> <C>
From 2,800,000 to 4,600,000 Two
From 800,000 to 2,800,000 One
Less than 800,000 Zero
</TABLE>
In addition, at such time as the Purchaser Group beneficially owns fewer
than 2,800,000 Fully-Diluted Shares, Purchaser is no longer entitled to
designate the Chairman of the Board or a WIC Designee to serve on other
committees of the Board or to nominate the Chief Executive Officer and Chief
Financial Officer. As long as Purchaser is entitled to designate one or more WIC
Designees, the Company will continue to cause WIC Designee(s) or their
respective successor(s) designated by Purchaser to be nominated for election to
the Board at each annual or special meeting of stockholders at which directors
are elected.
Because of the Company's "staggered" Board structure, the Stockholder
Agreement provides for a mechanism to determine whether WIC Designees that
Purchaser is no longer entitled to designate as a result of a decrease in the
Purchaser Group's stock ownership are entitled to continue to serve the
remainder of their respective terms of office. If the Company ceases to have a
staggered Board (in which case the stockholders of the Company will be entitled
to elect the entire Board at each annual meeting of stockholders), then WIC
Designees that Purchaser is no longer entitled to designate may continue to
serve the remainder of their respective terms of office.
Under the Stockholder Agreement, the term "Purchaser Group" means each
Purchaser together with its respective affiliates, and the term "Fully-Diluted
Shares" means, at any time, the then outstanding shares of Common Stock plus all
shares of Common Stock issuable upon the exercise, conversion or exchange of all
then outstanding rights, warrants, options, convertible securities or
indebtedness, exchangeable securities or indebtedness, or other rights,
exercisable for or convertible or exchangeable into Common Stock or securities
convertible or exchangeable into Common Stock.
Registration Rights. The Company will extend certain registration rights to
the Underlying Common Shares and any other securities issued or issuable with
respect thereto by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise (the "Registrable Shares"). Purchaser is entitled to
two demand registrations, which may be effected for the sale of Registrable
Shares in a single transaction or by means of a "shelf" registration statement
for an offering to be made on a continuous basis under the Securities Act of
1933, subject to certain limitations. The Stockholder Agreement also provides
certain "piggyback" registration rights to Purchaser whenever the Company
proposes to register an offering of any of its capital stock under the
Securities Act of 1933 until such time as the Purchaser Group ceases to
beneficially own at least five percent of the Fully-Diluted Shares. The
"piggyback" registration rights are subject to certain limitations, including a
pro rata reduction if, in the reasonable opinion of the managing underwriter of
the offering, such a reduction is necessary to prevent an adverse effect on the
marketability or offering price of all the securities proposed to be offered in
the offering. The Company is generally responsible for the registration costs of
all registrations effected pursuant to the
15
<PAGE>
Stockholder Agreement; provided that Purchaser has agreed to pay half of the
expenses incurred in connection with the second demand registration. The
Stockholder Agreement contains mutual indemnification obligations on the part of
the Company and members of the Purchaser Group for certain liabilities,
including liabilities under the Securities Act of 1933.
Transfer Restrictions. Purchaser generally is prohibited from selling or
otherwise disposing of any of the Preferred Shares or the Warrants at any time.
Purchaser generally is prohibited from selling or otherwise disposing of any of
the Registrable Shares for two years after the Closing and thereafter generally
may not sell (i) blocks of Common Stock representing more than 10% of the Fully-
Diluted Shares to any person or (ii) shares of Common Stock representing more
than one percent of the Fully-Diluted Shares to any person who already
beneficially owns five percent or more of the Fully-Diluted Shares.
Employment Agreement with George K. Hickox, Jr.
At the Closing, the Company and George K. Hickox, Jr. will enter into the
Employment Agreement. The following summary of the Employment Agreement is
qualified in its entirety by reference to such agreement, a copy of which is
attached as Exhibit C to the Stock Purchase Agreement.
The employment of Mr. Hickox by the Company will be for a two-year period
commencing on the date of the Closing, unless extended by mutual agreement of
the parties or terminated in accordance with the terms thereof. During the
employment term, Mr. Hickox will serve as Chief Executive Officer and (to the
extent elected or appointed as a director of the Company) Chairman of the Board
of the Company, accountable only to the Board. The Employment Agreement requires
that Mr. Hickox devote a substantial majority of his time and attention to the
business and affairs of the Company. The Company acknowledges that Mr. Hickox
has outside business interests and has agreed that he may devote a portion of
his time and attention to such business interests provided they do not
materially interfere with the performance of his duties under the Employment
Agreement.
During the employment term, the Company will pay to Mr. Hickox for his
services a base salary at the rate of $1.00 per year, provided that such base
salary may be adjusted from time to time by the Board in its discretion. In
addition to base salary, Mr. Hickox may be paid bonuses in such amounts as may
be determined by the Board in its discretion. Mr. Hickox will be entitled to
participate in all employee benefit plans and programs provided by the Company
to its executive officers generally, subject to the terms, conditions and
administration of such plans and programs. However, Mr. Hickox has agreed that,
unless otherwise determined by the Board, he will not be entitled to receive any
stock options, restricted stock or other similar stock-based awards under the
Company's stock incentive plans. The Employment Agreement also contains
provisions regarding the Company furnishing an automobile and housing for Mr.
Hickox's use in Dallas, and the reimbursement by the Company of certain of his
travel expenses.
The Board may terminate Mr. Hickox's employment for cause (as defined in
the Employment Agreement), and Mr. Hickox has the right to terminate his
employment at any time by providing at least 30 days prior written notice of
termination to the Company.
Description of Series C Preferred Stock
The Stock Purchase Agreement requires that the Company issue to Purchaser
shares of a newly created Series C Cumulative Convertible Preferred Stock. The
Board has the power and discretion to establish one or more series of preferred
stock of the Company pursuant to the authority vested in it by the Current
Charter and will continue to have such power and discretion under the New
Charter.
The terms of the Series C Preferred Stock are set forth in the Certificate
of Designations of Series C Cumulative Convertible Preferred Stock of The Wiser
Oil Company (the "Certificate of Designation") attached as Exhibit B to the
Stock Purchase Agreement. The following summary of the material features of the
Series C Preferred Stock is qualified in its entirety by reference to the
Certificate of Designation.
Dividends. The Series C Preferred Stock will pay dividends in shares of
Common Stock or cash, at the Company's option, at an annual rate of seven
percent of the $25.00 per share liquidation value (the "Liquidation Value") of
the Series C Preferred Stock. Dividends on each share of Series C Preferred
Stock will accrue from the date of issuance of such share until the first to
occur of (i) the date on which the Liquidation Value of such share (plus all
accrued and unpaid dividends thereon) is due and payable to the holder in
connection with the liquidation, dissolution or winding up of the
16
<PAGE>
Company, (ii) the date on which such share is converted into shares of Common
Stock or (iii) the date on which such share is otherwise acquired by the
Company. Dividends will be payable quarterly on March 31, June 30, September 30
and December 31 of each year, beginning on the first such dividend payment date
following the Closing. If the Company elects to pay any dividends accruing on
the Series C Preferred Stock by the issuance or delivery of shares of Common
Stock, the number of shares of Common Stock to be issued or delivered in payment
of such dividends will be determined by dividing the amount of cash that would
otherwise be paid by the average market price of the Common Stock for the ten
trading days immediately preceding the date of the payment of such dividend.
Liquidation. Each share of Series C Preferred Stock will rank prior to each
share of Common Stock with respect to the distribution of assets upon a
liquidation, dissolution or winding up of the Company. In the event of any such
liquidation, dissolution or winding up, each holder of a share of Series C
Preferred Stock will be entitled to receive, before any distribution to the
holders of Common Stock, a liquidation preference equal to the Liquidation Value
of such share, plus all accrued and unpaid dividends thereon.
Priority on Dividends and Redemptions. So long as any Series C Preferred
Stock remains outstanding, without the prior written consent of the holders of
at least two-thirds of the outstanding Series C Preferred Stock, the Company may
not, nor may any subsidiary, redeem, purchase or otherwise acquire for value any
Common Stock, nor may the Company declare or pay any dividend or make any
distribution upon the Common Stock, if at the time of or immediately after any
such redemption, purchase, acquisition, dividend or distribution the Company has
failed to pay the full amount of dividends accrued on the Series C Preferred
Stock for all quarterly dividend periods terminating on or prior to the date on
which such redemption, purchase, acquisition, dividend or distribution is to
occur.
Voting Rights. Holders of Series C Preferred Stock will have the right to
vote together as a single class with the holders of Common Stock on all matters
coming before the holders of the Common Stock and, except for matters for which
class voting is required under the Certificate of Designation (as described
below) or the DGCL, will not have the right to vote as a separate class. Each
share of Series C Preferred Stock has one vote per share, except that when the
holders of the Series C Preferred Stock and the Common Stock vote together as a
single class, each holder of Series C Preferred Stock is entitled to the number
of votes with respect to such holder's shares equal to the number of whole
shares of Common Stock into which such shares are convertible on the record date
for determining stockholders entitled to vote on the particular matter.
Without the affirmative vote or consent of holders of at least two-thirds
of the shares of Series C Preferred Stock voting as a separate class, the
Company may not adopt any amendment to the New Charter that would alter or
change the powers, preferences or special rights of the Series C Preferred Stock
so as to affect them adversely. Without the affirmative vote or consent of the
holders of a majority of the shares of Series C Preferred Stock voting as a
separate class, the Company may not issue any capital stock of the Company that
ranks pari passu with or senior to the Series C Preferred Stock as to dividends
or assets, or issue any capital stock of the Company that is required to be
redeemed by the Company at any time that any shares of Series C Preferred Stock
are outstanding.
In the event (i) the Company is in arrears in the payment of dividends on
the shares of Series C Preferred Stock for a total of four quarterly dividend
periods or (ii) the Company or a significant subsidiary of the Company becomes
bankrupt or insolvent (either of such events, an "Event of Noncompliance"), then
the size of the Board will automatically be increased by two additional
directors and the holders of Series C Preferred Stock, voting as a separate
class, will have the exclusive right to elect two directors at a special meeting
called by the holders of the Series C Preferred Stock and at the next and every
subsequent annual meeting of stockholders. The right of the holders of the
Series C Preferred Stock to elect such two directors will terminate when the
Event of Noncompliance no longer exists.
Conversion. At any time after the 90th day following the Closing, any
holder of Series C Preferred Stock may convert all or any portion of the Series
C Preferred Stock held by such holder into a number of shares of Common Stock
computed by dividing the total amount of Liquidation Value (plus the aggregate
accrued but unpaid dividends, if any) represented by the shares to be converted
by the conversion price for the Series C Preferred Stock then in effect. The
initial conversion price for the Series C Preferred Stock is $4.25 and is
subject to customary adjustments to prevent dilution. See " -- Anti-Dilution
Provisions" below. The 1,000,000 shares of Series C Preferred Stock to be sold
to Purchaser at the Closing will be convertible into a total of 5,882,353 shares
of Common Stock at the $4.25 conversion price (which shares will represent
approximately 40% of the outstanding shares of Common Stock based on the number
of shares of Common Stock outstanding on the Record Date).
17
<PAGE>
If, at any time after the Closing, the market price of the Common Stock
exceeds $10 per share for a period of 60 consecutive trading days, then all
shares of Series C Preferred Stock then outstanding will convert automatically
into Common Stock at the close of business on the last day of such 60-day
period. All shares of Series C Preferred Stock that remain outstanding at the
close of business on the third anniversary of the Closing will convert
automatically into Common Stock at the close of business on such date. Finally,
the Company has the right, at its option, to convert all, but not less than all,
of the then outstanding shares of Series C Preferred Stock into shares of Common
Stock upon any recapitalization, reorganization, reclassification,
consolidation, merger or sale of all or substantially all of the Company's
assets, in each case which is effected in such a manner that the holders of
Common Stock are entitled to receive stock, securities or assets in exchange for
Common Stock.
Anti-Dilution Provisions. If, after the Closing, the Company issues or
sells, or is deemed to have issued or sold (through the issuance of options or
convertible securities), for cash, marketable securities or cash equivalents,
any shares of Common Stock for a consideration per share less than the average
market price of the Common Stock for the 30 trading days immediately preceding
the date of such issue or sale, then the conversion price of the Series C
Preferred Stock will be reduced to the conversion price determined by
multiplying the conversion price in effect immediately prior to such issue or
sale by a fraction, the numerator of which will be the sum of (i) the number of
shares of Common Stock deemed outstanding immediately prior to such issue or
sale plus (ii) the number of shares of Common Stock which the aggregate
consideration received or deemed to be received by the Company upon such issue
or sale would purchase at such average market price, and the denominator of
which will be the number of shares of Common Stock deemed outstanding
immediately after such issue or sale. However, no such adjustment of the
conversion price will be made (i) upon the conversion of the Series C Preferred
Stock or the payment in Common Stock of any dividends accrued on the Series C
Preferred Stock, (ii) upon the issue or sale of Common Stock or securities
convertible into or exercisable for Common Stock to directors, officers and
employees of the Company pursuant to the terms of any employee benefit or
similar plans of the Company or (iii) upon the issuance or sale of the Warrants
or shares of Common Stock upon the exercise of the Warrants.
The conversion price of the Series C Preferred Stock will be
proportionately adjusted upon any subdivision or combination of the outstanding
shares of Common Stock. In addition, if the Company pays a dividend on the
Common Stock payable otherwise than in cash or other property out of earnings or
earned surplus (except for a stock dividend payable in shares of Common Stock),
the Company will pay to the holders of the Series C Preferred Stock at the time
of payment thereof the dividend which would have been paid to such holders had
such Series C Preferred Stock been converted into Common Stock immediately prior
to the record date for such dividend. Also, if at any time the Company grants,
issues or sells any options, convertible securities or other rights to purchase
stock, warrants, securities or other property pro rata to the record holders of
the Common Stock, then each holder of the Series C Preferred Stock will be
entitled to acquire, upon the terms applicable to such rights, the aggregate
rights which such holder could have acquired if such holder had held a number of
shares of Common Stock acquirable upon conversion of such holder's Series C
Preferred Stock immediately before the record date for the grant, issuance or
sale of such rights.
Warrants
At the Closing, the Company and WIC will enter into the Warrant Agreement
pursuant to which the Company will issue the Warrants. The following summary of
the Warrant Agreement is qualified in its entirety by reference to such
agreement, a copy of which is attached as Exhibit A to the Warrant Purchase
Agreement.
At the Closing, the Company will issue the Initial Warrants to WIC at a
purchase price of $.02 per Initial Warrant, for an aggregate consideration of
$14,834.32. The initial exercise price of the Initial Warrants is $4.25 per
share. Under the terms of the Warrant Agreement, if the Company issues any
shares of its Common Stock after the Closing (other than the Excluded Shares),
the Company will issue to WIC that number of Additional Warrants determined by
multiplying the number of shares purchasable under the Warrant Agreement
immediately prior such issuance of Common Stock times a fraction, of which the
numerator is the number of shares of Common Stock outstanding immediately after
such issuance of Common Stock and the denominator is the number of shares of
Common Stock outstanding immediately prior to such issuance of Common Stock, and
subtracting from the resulting product the number of shares purchasable under
the Warrant Agreement immediately prior to such issuance of Common Stock. Any
Additional Warrants will have an exercise price based on the time of their
issuance, with such exercise price increasing from $4.25 per share at a rate of
10% per year following the Closing.
18
<PAGE>
Under the terms of the Warrant Agreement, WIC may exercise the Initial
Warrants and any Additional Warrants in whole or in part at any time during the
five-year period commencing on the second anniversary of the Closing. WIC may
exercise such Warrants by paying the exercise price in cash or, if the fair
market value of a share of Common Stock exceeds the per share exercise price of
the Warrants, by surrendering the Warrants to be exercised in exchange for a
number of shares of Common Stock equal to (i) the number of shares of Common
Stock subject to such Warrants, multiplied by (ii) a fraction, the numerator of
which will be the then current market price per share of the Common Stock minus
the per share exercise price of the Warrants, and the denominator of which will
be the then current market price per share of the Common Stock.
In addition to the adjustment provisions that require the issuance of
Additional Warrants, the Warrant Agreement also contains provisions for the
adjustment of the exercise price of the Warrants and the shares of Common Stock
issuable upon exercise of the Warrants in the case of any dividends paid on the
Common Stock in shares of Common Stock and any subdivisions and combinations of
the outstanding shares of Common Stock. In addition, an adjustment to the
exercise price of the Warrants will be made upon any distribution by the Company
to the holders of the Common Stock of interests in the Company (other than
Common Stock), indebtedness or assets of the Company (excluding cash dividends
or distributions) or rights or warrants to subscribe for or purchase such
interests, indebtedness or assets.
In case of any consolidation or merger of the Company with or into another
entity or any sale or conveyance to another entity of the property of the
Company as an entirety or substantially as an entirety (a "Corporate Change"),
then as a condition to such Corporate Change, the Company or the successor
entity shall execute and deliver to WIC a supplemental warrant agreement
providing that WIC shall have the right thereafter to receive, upon exercise of
the then unexercised Warrants, the kind and amount of corporate interests and
other securities and property receivable upon such Corporate Change by the
holder of a number of shares of Common Stock for which the Warrants might have
been exercised immediately prior to such Corporate Change. In addition, WIC will
have the right, for a period of 30 days immediately prior to the consummation of
a Corporate Change, to exercise the Warrants in whole or in part,
notwithstanding that such Corporate Change may occur prior to the date the
Warrants otherwise become exercisable.
Amendment to Stockholder Rights Plan; Certain Anti-Takeover Provisions
The Board approved an amendment to the Company's Stockholder Rights Plan
(the "Rights Plan Amendment") at the same time it approved the Stock Purchase
Agreement and the transactions contemplated thereby. For a description of the
Stockholder Rights Plan, see "Description of Capital Stock -- Stockholder Rights
Plan." The Rights Plan Amendment prevents the triggering of the protections of
the Stockholder Rights Plan that would otherwise result from the consummation of
the Transaction. Specifically, the Rights Plan Amendment amends the definition
of "Acquiring Person" in the Stockholder Rights Plan to exclude therefrom WIC
and any WIC Assignee in connection with the execution, delivery and performance
of the Stock Purchase Agreement and the other Transaction Documents, the
consummation of the transactions contemplated thereby and the beneficial
ownership of WIC and any WIC Assignee of stock in the Company resulting
therefrom, unless and until WIC or any WIC Assignee acquires beneficial
ownership of more than 1% of the Common Stock then outstanding other than as
permitted by the Stock Purchase Agreement and the other Transaction Documents.
The Board also approved each of WIC and Purchaser and of WIC and Purchaser
as a "group" (as such term is used in Rule 13d-5 under the Securities Exchange
Act of 1934) becoming an "interested stockholder" within the meaning of Section
203 of the DGCL as a result of the Transaction. The effect of such approval
for purposes of Section 203 is that WIC or Purchaser may engage in future
"business combinations" involving the Company (e.g., a merger, consolidation,
sale of assets, issuance of securities or receipt of other financial benefits)
without the requirement under Section 203 that such business combination be
authorized at a meeting of the Company's stockholders by the affirmative vote of
the holders of at least two-thirds of the Company's outstanding voting stock not
owned by WIC or Purchaser. See "Description of Capital Stock -- Anti-Takeover
Provisions" for a summary of Section 203 of the DGCL.
Both the Rights Plan Amendment and the Board's approval of WIC and
Purchaser becoming an "interested stockholder" within the meaning of Section 203
of the DGCL were required by WIC as a condition of entering into the Stock
Purchase Agreement and the Warrant Purchase Agreement.
Effect of Transaction on Stockholders
If the Transaction is approved by the stockholders of the Company and the
Preferred Shares and Warrants are issued, the Preferred Shares will be
convertible into and the Warrants will be exercisable for shares of Common
Stock. The Preferred Shares, if fully converted, would entitle the holder to
receive a number of shares of Common Stock representing approximately 40% of the
outstanding Common Stock, based on (i) the number of shares of Common Stock
outstanding on the Record Date and (ii) a conversion price of $4.25, which is
the initial conversion price of the Preferred Shares. The Warrants, if fully
exercised, would entitle the holder to receive a number of shares of Common
Stock
19
<PAGE>
representing approximately 5% of the outstanding Common Stock, based on the
number of shares of Common Stock outstanding on the Record Date and taking into
account the shares of Common Stock issuable upon conversion of the Preferred
Shares, as described in the preceding sentence. In addition, if the Transaction
is consummated, the three WIC Designees will become directors of the Company and
members of the Executive Committee of the Board, George K. Hickox, Jr. will
become Chairman of the Board and Chief Executive Officer of the Company and A.
Wayne Ritter will become President of the Company.
The following table shows the unaudited stockholders' equity of the Company
as of September 30, 1999 and the unaudited pro forma stockholders' equity giving
effect to the Transaction:
<TABLE>
<CAPTION>
At September 30, 1999
----------------------
Actual Pro Forma
------ ---------
(In thousands, except share data)
<S> <C> <C>
Stockholders' Equity:
Common stock - $3 par value, actual; $.01 par value, pro forma; 20,000,000
shares authorized, actual; 30,000,000 shares authorized, pro forma; 9,128,169
shares issued, actual and pro forma; 8,951,965 shares outstanding, actual and
pro forma....................................................................... $ 27,385 $ 91
Preferred Stock, Series C Cumulative Convertible; $10 par value; no shares
issued and outstanding, actual; 1,000,000 shares issued and outstanding, pro
forma........................................................................... --- 10,000
Paid-in capital.................................................................. 3,223 45,257 (1)
Retained Earnings................................................................ 32,286 32,286
Foreign Currency Translation..................................................... 1,036 1,036
Treasury stock; 176,204 shares, at cost (2,729) (2,729)
------------ --------
Total stockholders' equity.................................................... $ 61,201 $ 85,941
============ ========
</TABLE>
- ---------------
(1) Includes the aggregate purchase price of $14,834 in cash for the Initial
Warrants. At the Closing, the fair value of the Warrants will be measured
and the total proceeds from the Transaction will be allocated between the
Warrants and the Preferred Shares based on that measurement. Also includes
approximately $27,294,000 transferred from the stated capital account for
the Common Stock to paid-in capital as a result of the decrease in the par
value per share of the Common Stock from $3.00 to $.01. Also includes
$14,725,000, which is the excess of (i) the aggregate purchase price of
$25,000,000 in cash for the Preferred Shares over (ii) the aggregate par
value of $10,000,000 of the Preferred Shares, less certain expenses payable
by the Company in connection with the Transaction, estimated to be
approximately $275,000.
Complete pro forma financial statements are not, in the opinion of the
Board, necessary to an informed decision on the Transaction and have not been
included in this Proxy Statement.
While the Board has determined that the Transaction is in the best
interests of the Company and its stockholders, the Board recognizes that the
issuance of the Preferred Shares and the Warrants to Purchaser and WIC in
connection with the Transaction may have certain disadvantages. The Preferred
Shares will have a liquidation preference that is senior to the Common Stock.
The issuance of the Preferred Shares, shares of Common Stock in payment of
dividends accrued on the Preferred Shares and shares of Common Stock upon
exercise of the Warrants will also dilute the voting power of the Common Stock.
The issuance of the Preferred Shares and the Warrants could also make it less
likely that a takeover or other change of control of the Company by a third
party would take place.
Other Effects
1991 Stock Incentive Plan. Under the terms of the Company's 1991 Stock
Incentive Plan (the "Stock Incentive Plan"), if the Transaction is consummated,
unless otherwise provided under an optionee's option agreement, (i) all
outstanding stock options under the Stock Incentive Plan will become immediately
and fully exercisable, and (ii) all stock options under the Stock Incentive Plan
held by a grantee whose employment with the Company or a subsidiary terminates
within one year of the Transaction for any reason other than voluntary
termination with the consent of the Company or a subsidiary, retirement under
any retirement plan of the Company or a subsidiary or death will be exercisable
for a period of three months from the date of such termination of employment
(but in no event after the expiration date of the option), notwithstanding that,
under the provisions of the Stock Incentive Plan, such stock options would
otherwise automatically terminate upon such termination of employment.
20
<PAGE>
Non-Employee Directors Equity Compensation Plan. The Company's Equity
Compensation Plan for Non-Employee Directors (the "Equity Plan") allows non-
employee directors of the Company to use their annual retainer fees to obtain
"phantom shares" of the Company. A "phantom share" is a right to receive from
the Company one share of Common Stock, which right will automatically be
exercised upon the earlier to occur of (i) the termination of the director's
service as a director of the Company or (ii) a change in control (as defined in
the Equity Plan) of the Company. If the Transaction is consummated, it will
constitute a change in control of the Company for purposes of the Equity Plan.
Employment Agreements. The Company has entered into employment agreements
with Andrew J. Shoup, Jr., A. Wayne Ritter, Lawrence J. Finn and Allen J. Simus,
each an executive officer of the Company. The agreements provide that if
employment is terminated by the Company or the employee for any reason (other
than by the Company for cause) within 12 months after a "Change in Control", the
employee will receive a severance payment. If the Transaction is consummated, it
will be such a Change in Control and all terms of the agreements will be
honored.
Use of Proceeds
If the Transaction is consummated, the Company intends to use the proceeds
from the sale of the Preferred Shares and the Initial Warrants (i) to continue
the Company's exploration and exploitation efforts on its existing properties,
(ii) to pursue acquisition opportunities that build on its strategy of acquiring
interests in oil and gas properties with significant potential for increasing
reserves and production through development, exploration (including enhanced
recovery techniques) or exploitation and that are located in close proximity to
the Company's existing core operating areas, (iii) to pursue corporate
acquisition or merger opportunities that have arisen as a result of general
consolidation trends in the industry or related to situations involving
financial distress, and (iv) for general corporate purposes. See " -- Management
Agreement -- Transaction Advisory Services" regarding acquisition opportunities
that are excluded from WIC's obligation to refer Business Opportunities to the
Company under the Management Agreement.
Reasons for Board Approval of the Transaction
The Board has unanimously approved the Transaction and has determined that
the Transaction is in the best interests of the stockholders and recommends that
the stockholders vote "for" the approval of the Transaction.
Prior to approving the Transaction, the Board considered various
alternatives to the Transaction. In approving the Transaction, the Board
concluded that the sale of the Preferred Shares and the Warrants to Purchaser
and WIC presented the best course of action for the Company at this time. The
Board did not pursue the other alternatives considered in that such alternatives
would likely have been to the exclusion of the Transaction with WIC without any
assurance that a better offer or transaction could be realized.
The material factors considered by the Board in making such recommendation
include the following:
. The $4.25 per share conversion price of the Preferred Shares and
exercise price of the Initial Warrants represent a premium of
approximately 55% over the $2.75 closing sales price of the Common
Stock on the NYSE on December 13, 1999, the date of the execution of
the Stock Purchase Agreement, and a premium of approximately 45% over
the 52-week average (ending December 9, 1999) of $2.93 per share of
Common Stock.
. The Transaction will provide the Company with substantial cash thereby
providing it with greater financial flexibility to continue its
exploration and exploitation efforts on existing properties and to
pursue acquisition opportunities in the oil and gas industry.
. On December 9, 1999, the Board received an oral opinion (which was
subsequently confirmed in writing) from Petrie Parkman regarding the
fairness from a financial point of view to the Company of the
Consideration (which Petrie Parkman defined for purposes of its
opinion to include the aggregate purchase price of $25 million in cash
for the Preferred Shares and $14,834 in cash for the Initial
Warrants). See " -- The Company's Financial Advisor" below.
. The Transaction provides the Company with a strong equity partner.
George K. Hickox, Jr. will serve as Chairman of the Board and Chief
Executive Officer of the Company following the Closing. The Board will
include three new directors designated by WIC, one of whom will be Mr.
Hickox. Mr.
21
<PAGE>
Hickox and WIC's other principals have substantial experience
evaluating and pursuing strategic acquisition opportunities in the
energy industry. WIC will also assist the Company in the
identification of attractive acquisition opportunities pursuant to the
Management Agreement.
. In September 1998, the Board began a strategic alternatives review
process to seek out additional ways to maximize shareholder value
during which a number of potential transaction participants were
contacted. The Board considered the Transaction along with the
proposal of one other potential transaction participant and determined
that the Transaction presented the best course of action for the
Company. See " -- Background of the Transaction" above.
The Company's Financial Advisor
The Company engaged Petrie Parkman as its financial advisor in September
1998 to provide advisory and investment banking services with respect to
evaluating the Company's assets and opportunities and, if appropriate,
implementing strategic alternatives. On December 9, 1999, Petrie Parkman
rendered to the Board its oral opinion (which was subsequently confirmed in
writing) that, as of that date and based upon and subject to the matters
reviewed with the Board, the Consideration was fair from a financial point of
view to the Company. The Company did not impose any limitations upon Petrie
Parkman with respect to the investigations made or procedures followed by Petrie
Parkman in rendering its opinion.
Attached to this Proxy Statement as Annex D is the full text of Petrie
Parkman's opinion dated December 9, 1999, which contains a description of the
assumptions made, the matters considered by Petrie Parkman and the limits of its
review, and the opinion is incorporated in this Proxy Statement by reference.
The Company's stockholders are encouraged to read the opinion carefully in its
entirety. Petrie Parkman's opinion was provided to the Board for its information
and addresses only the fairness from a financial point of view of the
Consideration to the Company and does not constitute a recommendation to any
holder of Common Stock as to how that holder should vote at the Special Meeting.
Petrie Parkman was not asked to consider, and its opinion does not address, the
price at which the Common Stock will actually trade following the announcement
or consummation of the Transaction. The opinion also does not address the merits
of the underlying decision by the Company to engage in the Transaction or any
strategic alternatives that may be available to the Company. Petrie Parkman's
opinion and its presentation to the Board on December 9, 1999 were among many
factors taken into consideration by the Board in making its determination to
approve and recommend the Transaction.
In arriving at its opinion, Petrie Parkman:
(i) reviewed certain publicly available business and financial
information relating to the Company, including (a) the Annual Report
on Form 10-K and related audited financial statements for the fiscal
year ended December 31, 1998, and (b) the Quarterly Reports on Form
10-Q and related unaudited financial statements for the fiscal
quarters ended March 31, 1999, June 30, 1999, and September 30, 1999;
(ii) reviewed certain estimates of the Company's reserves, including (a)
estimates of proved and probable oil and gas reserves prepared by
DeGolyer & MacNaughton ("D&M") and Gilbert Laustsen Jung Associates
Ltd. ("Gilbert") as of December 31, 1998, (b) estimates of proved and
probable oil and gas reserves prepared by the management and staff of
the Company as of August 31, 1999 that were based on the D&M and
Gilbert estimates that gave effect to the sale of certain properties
and hydrocarbon production between December 31, 1998 and August 31,
1999, and (c) estimates of oil and gas reserves associated with
exploration projects prepared by the management and staff of the
Company as of June 30, 1999;
(iii) analyzed certain historical financial and operating data of the
Company prepared and furnished to Petrie Parkman by the management of
Company;
(iv) discussed the current and projected operations and prospects of the
Company with the management and operating staff of the Company;
22
<PAGE>
(v) reviewed the historical trading history of the Common Stock of the
Company;
(vi) compared recent stock market capitalization indicators for the
Company with the recent stock market capitalization indicators for
certain other publicly-traded independent energy companies;
(vii) compared the financial terms of the Transaction with the financial
terms of certain other transactions that Petrie Parkman deemed to
be relevant;
(viii) participated in certain discussions and negotiations among the
representatives of the Company and WIC and their legal advisors;
(ix) reviewed a draft dated December 1, 1999 of the Stock Purchase
Agreement and a draft dated December 2, 1999 of the Warrant
Purchase Agreement;
(x) reviewed a draft dated December 4, 1999 of the Stockholder
Agreement, a draft dated December 2, 1999 of the Warrant Agreement,
a draft dated December 4, 1999 of the Management Agreement, a draft
dated December 1, 1999 of the Certificate of Designation (the
Certificate of Designation, together with the Stock Purchase
Agreement, the Warrant Purchase Agreement and the Warrant
Agreement, the "Agreements") and a draft dated December 1, 1999 of
the New Charter; and
(xi) reviewed such other financial studies and analyses and preformed
such other investigations and took into account such other matters
as Petrie Parkman deemed necessary or appropriate.
Petrie Parkman assumed and relied upon, without assuming any responsibility
for, or independently verifying, the accuracy and completeness of any
information supplied or otherwise made available to, discussed with, or reviewed
by or for it. Petrie Parkman further relied upon the assurances of the
management of the Company that they were unaware of any facts that would make
the information provided to Petrie Parkman incomplete or misleading in any
material respect. With respect to the estimates of oil and gas reserves, Petrie
Parkman assumed that they have been reasonably prepared on bases reflecting the
best available estimates and judgments of the Company or its engineering
consultants relating to the oil and gas properties of the Company. Petrie
Parkman did not make an independent evaluation or appraisal of the assets or
liabilities of the Company nor, except for the estimates of oil and gas reserves
referred to above, had Petrie Parkman been furnished with such an evaluation or
appraisal. In addition, Petrie Parkman did not assume any obligation to conduct,
nor did it conduct, any physical inspection of the properties or facilities of
the Company.
Petrie Parkman relied upon the Company as to certain legal, tax, and
accounting aspects of the Transaction. Petrie Parkman assumed that the final
forms of the Agreements would be substantially similar to the last drafts
reviewed by it. Petrie Parkman further assumed that the Transaction would be
consummated on the terms and conditions contemplated by the Agreements.
The following is a summary of the financial analyses performed by Petrie
Parkman in connection with the preparation of its opinion dated December 9, 1999
and presented to the Board.
Discounted Cash Flow Analysis. Petrie Parkman conducted a discounted cash
flow analysis for the purpose of determining the equity reference value range
per share of Common Stock. Petrie Parkman applied various discount rates which,
depending on reserve category, ranged from ten to forty percent, to the after-
tax cash flows, and assumed a carry-over of the Company's tax positions as of
December 31, 1998. In doing so, Petrie Parkman first determined the enterprise
reference value range by adding the net present value of estimates of future
after-tax cash flows for the Company's oil and gas reserve assets based on the
reserve estimates referred to above, and for the Company's non-reserve assets
utilizing information provided by the Company. Petrie Parkman then calculated
the equity reference value range by subtracting the Company's long-term debt of
$125 million as of September 30, 1999 from the enterprise reference value range
and dividing the difference by the number of shares of Common Stock outstanding
as of September 30, 1999.
Petrie Parkman evaluated four scenarios in which the principal variables
were oil and gas prices. The four pricing scenarios were based on benchmarks for
spot sales of West Texas Intermediate crude oil and for spot sales of Henry Hub
gas and referred to by Petrie Parkman as "Pricing Case I", "Pricing Case II",
"Pricing Case III" and the "Strip
23
<PAGE>
Pricing Case". Petrie Parkman applied quality and transportation adjustments to
these benchmarks, consistent with adjustments made in the reserve projections
provided by the Company. Benchmark oil prices for Pricing Cases I, II and III
were projected to be $16.00, $18.00 and $20.00 per barrel, respectively, for the
fiscal year 2000 and were escalated annually thereafter at the rate of 3.0%. The
Strip Pricing Case, as of the close of the futures market on December 6, 1999,
assumed benchmark oil prices of $22.67, $19.04, $18.44, $17.95, and $17.83 for
the years 2000, 2001, 2002, 2003, and 2004, respectively, and were escalated
annually thereafter at the rate of 3.0%. Benchmark gas prices for Pricing Cases
I, II and III were projected to be $2.10, $2.30 and $2.50 per million British
thermal units ("MMBtu"), respectively, for the fiscal year 2000 and were
escalated annually thereafter at the rate of 3.0%. The Strip Pricing Case, as of
the close of the futures market on December 6, 1999, assumed benchmark prices of
gas of $2.35, $2.48, $2.50 for the years 2000, 2001, and 2002, respectively, and
were escalated annually thereafter at the rate of 3.0%. Operating and capital
costs provided by the Company as of September 30, 1999 were escalated at 3.0%
per year.
The discounted cash flow analysis indicated enterprise reference value
ranges and equity reference value ranges as shown in the table below:
<TABLE>
<CAPTION>
======================================================================================
Enterprise Reference Equity Reference
Value Range Value Range
Methodology ($MM) ($/sh.)
- ----------------------- -------------------- ---------------------
<S> <C> <C>
Discounted Cash Flow Analysis
Case I $ 114 - $ 135 ($1.17) - $ 1.12
Case II 133 - 158 0.91 - 3.74
Case III 153 - 183 3.12 - 6.48
Strip Pricing as of 12/6/99 129 - 152 0.43 - 3.05
</TABLE>
Comparable Transactions Analysis. Petrie Parkman reviewed publicly
available information on 59 oil and gas property acquisition transactions (and 2
such transactions for which Petrie Parkman had non-public information) involving
primarily Permian Basin, Gulf Coast/Texas Onshore and Canadian assets that took
place between January 1998 and December 1999. Petrie Parkman calculated purchase
price multiples of reserves for the acquired assets in each transaction. The
highest, average and lowest multiples of equivalent reserves for the Permian
Basin, Gulf Coast/Texas Onshore and Canada per barrel of oil equivalent using
one barrel of oil to six thousand cubic feet of gas conversion ratio ("BOE6")
are shown below:
<TABLE>
<CAPTION>
Implied $/BOE6 in Recent Transactions
----------------------------------------
Highest Average Lowest
--------- --------- --------
<S> <C> <C> <C>
Permian Basin $7.81 $ 4.64 $ 3.47
Gulf Coast/Texas Onshore $9.81 $ 5.17 $ 2.21
Canada $7.10 $ 4.60 $ 2.43
</TABLE>
Petrie Parkman determined that, with respect to the Company's assets
located in, and taking into account current performance levels of, the Permian
Basin, the appropriate benchmark multiples for proved reserves were in the range
of $2.00 to $4.00 per BOE6. Petrie Parkman determined that, with respect to
assets located in the Gulf Coast and onshore Texas, the appropriate benchmark
multiples for proved reserves were in the range of $4.50 to $5.00 per BOE6.
Petrie Parkman determined that, with respect to assets located in Canada, the
appropriate benchmark multiples for proved reserves were in the range of $5.00
to $5.50 per BOE6. Petrie Parkman applied the benchmark multiples to the
Company's corresponding proved reserve figures to yield asset reference value
ranges for the Company's reserves. Following adjustments for the Company's non-
reserve assets, Petrie Parkman determined a composite enterprise reference value
range of $154 million to $178 million. After deducting long-term debt of $125
million and adding net working capital of $21 million and other assets of $2
million at fifty percent of book value as of September 30, 1999 and dividing by
the number of shares of Common Stock outstanding as of September 30, 1999, the
resulting equity reference value range per share of Common Stock was $3.27 to
$5.90.
24
<PAGE>
In addition, Petrie Parkman reviewed selected publicly available
information on the following 25 company acquisition transactions and offers for
control involving companies in the oil and gas exploration and production
industry that took place between March 1997 and August 1999:
<TABLE>
<CAPTION>
Date of Announcement Acquiror or Bidder for Control Target
-------------------- ------------------------------ ------
<S> <C> <C>
August 25, 1999 Calpine Corporation Sheridan Energy
June 27, 1999 St. Mary Land & Exploration Company King Ranch Energy, Inc.
May 20, 1999 Devon Energy Corporation PennzEnergy
January 14, 1999 Santa Fe Energy Resources, Inc. Snyder Oil Corporation
December 23, 1998 Chevron Corporation Rutherford-Moran Oil Corporation
November 25, 1998 Seagull Energy Corporation Ocean Energy, Inc.
October 15, 1998 Kerr-McGee Corporation Oryx Energy Company
May 29, 1998 Pogo Producing Company Arch Petroleum Inc.
May 12, 1998 Lomak Petroleum, Inc. Domain Energy Corporation
May 4, 1998 Atlantic Richfield Company Union Texas Petroleum Holdings, Inc.
March 31, 1998 Seneca Resources Corporation HarCor Energy, Inc.
December 23, 1997 Ocean Energy, Inc. United Meridian Corporation
November 24, 1997 Sonat, Inc. Zilkha Energy Company
November 13, 1997 Chesapeake Energy Corporation Hugoton Energy Corporation
November 3, 1997 Belco Oil & Gas Corporation Coda Energy, Inc.
September 9, 1997 Titan Exploration, Inc. Offshore Energy Development Corporation
August 18, 1997 Texaco Inc. Monterey Resources, Inc.
July 17, 1997 Burlington Resources Inc. Louisiana Land & Exploration Company
July 8, 1997 The Meridian Resource Corporation Cairn Energy USA, Inc.
June 24, 1997 Louis Dreyfus Natural Gas Corp. American Exploration Company
June 20, 1997 Forcenergy Inc Convest Energy Corporation
June 17, 1997 Monterey Resources, Inc. McFarland Energy, Inc.
May 27, 1997 The Columbia Gas System Inc. Alamco, Inc.
April 7, 1997 Mesa Inc. Parker & Parsley Petroleum Company
March 31, 1997 Texas Pacific Group, Inc. Belden & Blake Corporation
</TABLE>
Using publicly available information, Petrie Parkman calculated the implied
purchase price of reserves, which Petrie Parkman defined for the purposes of
this analysis as total investment less undeveloped acreage value and other
assets at book value, using multiples of proved reserves per BOE6 for the target
company in each transaction. Petrie Parkman also calculated purchase price of
equity multiples of discretionary cash flow and total investment, which Petrie
Parkman defined for the purposes of this analysis as purchase price of equity
plus net obligations assumed, using multiples of earnings before interest,
taxes, depreciation, depletion, and amortization and exploration expense
("EBITDX") for the target company in each transaction. The highest, average and
lowest implied multiples in these transactions were as follows:
<TABLE>
<CAPTION>
Implied Multiples in Recent Transactions
------------------------------------------
Highest Average Lowest
--------- --------- --------
<S> <C> <C> <C>
Discretionary Cash Flow 20.0x 7.2x 1.9x
EBITDX 23.6x 8.3x 2.5x
Proved Reserves ($/BOE6) $ 23.07 $ 8.04 $ 3.50
</TABLE>
Petrie Parkman determined that, with respect to the Company, the
appropriate benchmark multiples for discretionary cash flow, EBITDX and proved
reserves per BOE6, were in the ranges of 2.0 to 3.0x, 5.0 to 7.0x and $3.50 to
$4.50 per BOE6, respectively. In order to determine the reference value range,
Petrie Parkman applied these
25
<PAGE>
benchmark multiples to the Company's historical last twelve months ended
September 30, 1999 ("LTM") of discretionary cash flow, EBITDX and proved
reserves per BOE6.
Petrie Parkman also performed a premium analysis for the same universe of
company acquisition transactions and offers for control, in which it compared
the offer price per target company share with the target company's share price
for the periods of one day, 30 days and 60 days prior to public announcement of
the offer. The highest, average and lowest premiums, which Petrie Parkman
defined for the purposes of this analysis as excess of offer price over target
company's price stated as a percentage above the target company's share price,
for these periods were as follows:
<TABLE>
<CAPTION>
Implied Premiums in Recent Transactions
------------------------------------------
Highest Average Lowest
--------- --------- --------
<S> <C> <C> <C>
One Day Prior 75.0% 19.1% (9.8%)
30 Days Prior 99.0% 30.3% (7.5%)
60 Days Prior 164.6% 24.7% (55.2%)
</TABLE>
Petrie Parkman determined that, with respect to the Company, the
appropriate benchmarks for premium to target company's price one day prior, 30
days prior, and 60 days prior were in the ranges of 15% to 25%, 20% to 30%, and
20% to 30%, respectively. In order to determine the equity reference value
range, Petrie Parkman applied these premium benchmarks to the corresponding
stock prices of the Company.
From the equity reference ranges implied by the company acquisition and
premium analyses, Petrie Parkman determined a composite equity reference value
range per share of Common Stock of $3.00 to $6.00.
Capital Market Comparison. Using publicly available information, Petrie
Parkman calculated market capitalization multiples of LTM discretionary cash
flow for eight publicly-traded companies with operating and financial
characteristics comparable to the Company. Petrie Parkman also calculated
enterprise value multiples of LTM discretionary cash flow, LTM EBITDX, LTM
operating cash flow, and proved reserves per BOE6 for those companies. Petrie
Parkman defined market capitalization for purposes of this analysis as the
market value of common equity as of December 3, 1999. Petrie Parkman determined
the enterprise value of each company by adding its long-term debt to the sum of
the market value of its common equity, the market value of its preferred stock
(or, if not publicly traded, liquidation or book value) and the book value of
its minority interest in other companies and subtracting net working capital.
Petrie Parkman determined that the following companies were relevant to an
evaluation of the Company based upon Petrie Parkman's view that the operating
and financial characteristics of such companies were comparable to the Company:
. Belco Oil & Gas Corporation . Denbury Resources, Inc.
. Bellwether Exploration Company . Nuevo Energy Company
. Berry Petroleum Company . Plains Resources Inc.
. Comstock Resources, Inc. . Vintage Petroleum, Inc.
Petrie Parkman determined that, with respect to the Company, the
appropriate benchmark market capitalization multiples for LTM ending September
30, 1999 for discretionary cash flow were in the range of 4.0 to 5.0x and that
the appropriate benchmarks for enterprise valuation multiples for LTM EBITDX,
LTM operating cash flow ending September 30, 1999, and proved reserves per BOE6
were in the ranges of 6.0 to 8.0x, 5.0 to 7.0x, and $4.50 to $6.00,
respectively. Petrie Parkman applied these benchmark multiples to the Company's
LTM discretionary cash flow, LTM EBITDX, LTM operating cash flow, and proved
reserves per BOE6. From the enterprise reference value ranges implied by these
multiples, Petrie Parkman determined a composite enterprise reference value
range under this method of $160 million to $185 million. After deducting long-
term debt of $125 million, adding net working capital of $21 million as of
September 30, 1999 and dividing by the number of shares of Common Stock
outstanding as of September 30, 1999, the composite equity reference value range
per share of Common Stock was $3.91 to $6.70.
Going Concern Analysis. Petrie Parkman projected the potential financial
performance of the Company without giving effect to the transaction for the
four-year period ending December 2003 using the Strip Pricing Case. Petrie
26
<PAGE>
Parkman prepared these projections utilizing certain operating assumptions
reviewed by the Company and reserve projections prepared and provided by the
Company regarding potential future operating and financial performance. In this
analysis, future capital expenditures ("Capex") were broken down into two
components. The first component of Capex was associated with proved reserves
provided in the Reserve Report and referred to by Petrie Parkman as Reserve
Report Capex. The second component of Capex represented the investment of all
free cash flow after debt service of the Company at the Company's 5-year
historical finding cost of $7.54 per BOE6, referred to by Petrie Parkman as
Incremental Capex. Exploration expense was assumed to be 20% of Incremental
Capex, reflecting the historical drilling success rates provided by the Company.
Operating expenses for additional reserves were assumed to be $5.28/BOE6 in 1999
and $5.00/BOE6 in 2000 and escalated 3% thereafter, consistent with assumptions
reviewed by the Company. General and administration expense per BOE6 was
$1.83/BOE6 in 1999 and held constant thereafter at $1.80/BOE6. Petrie Parkman
calculated a range of terminal equity values by applying terminal multiples of
3.0x, 4.0x and 5.0x to projected year 2003 discretionary cash flow plus a
dividend of projected cash available on-hand at year-end 2003 less cash needed
in year 2004 to fund working capital requirements, and applied discount rates of
15.0% to 17.5% to terminal equity values. Throughout its analysis, Petrie
Parkman utilized the Company's tax position as of December 31, 1998.
The equity reference value ranges per share of Common Stock were $3.19 to
$3.73, $4.25 to $4.98, and $5.32 to $6.22 for capitalization multiplies of
discretionary cash flow of 3.0, 4.0, and 5.0x, respectively.
The following is a summary of the Company's implied reference ranges of
enterprise and equity values derived from Petrie Parkman's discounted cash flow
analysis, comparable transaction analysis, capital market comparison, and going
concern analysis.
<TABLE>
<CAPTION>
======================================================================================
Enterprise Reference Equity Reference
Value Range Value Range
Methodology ($MM) ($/sh.)
- ----------------------- -------------------- ---------------------
<S> <C> <C>
Discounted Cash Flow Analysis
Case I $ 114 - $ 135 ($1.17) - $ 1.12
Case II 133 - 158 0.91 - 3.74
Case III 153 - 183 3.12 - 6.48
Strip Pricing as of 12/6/99 129 - 152 0.43 - 3.05
Comparable Transactions Analysis
Property Transaction Analysis 154 - 178 3.27 - 5.90
Company Transaction Analysis 131 - 157 3.00 - 6.00
Capital Market Comparison Analysis 160 - 185 3.91 - 6.70
Going Concern Analysis
3.0x DsCF Terminal Multiple 132 - 137 3.19 - 3.73
4.0x DsCF Terminal Multiple 142 - 148 4.25 - 4.98
5.0x DsCF Terminal Multiple 151 - 159 5.32 - 6.22
</TABLE>
The description set forth above constitutes a summary of the analyses
employed by Petrie Parkman in rendering its opinion to the Board. Petrie Parkman
believes that its analyses must be considered as a whole and that selecting
portions of its analyses, without considering all analyses and factors, could
create an incomplete view of the process underlying its opinion. The preparation
of a fairness opinion is a complex, analytical process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and is not necessarily susceptible to partial analysis or summary description.
In arriving at its opinion, Petrie Parkman did not attribute any particular
weight to any analysis considered by it, but rather made
27
<PAGE>
qualitative judgments as to the significance and relevance of each analysis. Any
estimates resulting from the analyses are not necessarily indicative of actual
values, which may be significantly more or less favorable than as set forth
herein. In addition, analyses based on forecasts of future results are not
necessarily indicative of future results, which may be significantly more or
less favorable than suggested by these analyses. Estimates of reference values
of companies do not purport to be appraisals or necessarily reflect the prices
at which companies may actually be sold. Because the estimates are inherently
subject to uncertainty and based upon numerous factors or events beyond the
control of the parties, no assurances can be given that such estimates will
prove to be accurate.
No company used in the analysis of other publicly-traded companies nor
any transaction used in the analyses of comparable transactions summarized above
is identical to the Company or the Transaction. Accordingly, these analyses must
take into account differences in the financial and operating characteristics of
the selected companies and differences in the structure and timing of the
selected transactions and other factors that would affect the public trading
value and acquisition value of the companies considered.
Petrie Parkman, as part of its investment banking business, is
continually engaged in the evaluation of energy-related businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. The Company
selected Petrie Parkman as its financial advisor because it is a nationally
recognized investment banking firm that has substantial experience dealing with
similar transactions. Petrie Parkman has in the past provided financial advisory
services to the Company and has received customary fees for such services. In
the ordinary course of business, Petrie Parkman or its affiliates may trade in
the debt or equity securities of the Company for its account and the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
Pursuant to the terms of the engagement letter between Petrie Parkman
and the Company dated September 2, 1998, as amended on April 6, 1999 and
December 3, 1999, the Company paid Petrie Parkman a monthly financial advisory
fee of $10,000 and has agreed to pay Petrie Parkman a transaction fee,
contingent upon the consummation of the Transaction, in an amount of $750,000.
Whether or not the Transaction is consummated, the Company has also agreed to
reimburse Petrie Parkman for its reasonable out-of-pocket expenses, including
fees and expenses of counsel, and to indemnify Petrie Parkman and certain
related persons against liabilities relating to or arising out of its
engagement, including liabilities under federal securities laws.
PROPOSAL TWO -- THE NEW CHARTER
Purpose of the New Charter
The Board has recommended the approval and adoption of the New Charter
which, among other things, (i) increases the number of authorized shares of
Common Stock from 20,00,000 to 30,000,000, and the number of authorized shares
of Preferred Stock from 300,000 to 1,300,000, (ii) decreases the par value per
share of the Common Stock from $3.00 to $.01 and (iii) deletes Article Seventh,
Article Ninth and Article Tenth of the Current Charter, which Articles contain
certain anti-takeover provisions, including restrictions on business
combinations, fair price provisions, repurchase rights and prevention of
greenmail.
The New Charter is being submitted to the Company's stockholders for
approval and adoption because many of the changes effected by the New Charter
are necessary for the Transaction to be completed, and its approval and adoption
is therefore a condition to the Closing under the Stock Purchase Agreement.
However, as discussed below, the Board believes that the changes effected by the
New Charter are desirable, irrespective of the Transaction. Therefore, if the
stockholders of the Company approve and adopt the New Charter, it will be filed
by the Company with the Secretary of State of Delaware and become effective
promptly following the Special Meeting, whether or not the stockholders approve
the Transaction.
The following is a summary of the principal changes effected by the
New Charter. This discussion is qualified in its entirety by reference to the
New Charter, a marked copy reflecting additions to and deletions from a
composite copy of the Current Charter is attached hereto as Annex C.
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Increase in Authorized Shares
The authorized capital stock of the Company under the Current Charter
consists of 20,000,000 shares of Common Stock, par value $3.00 per share, and
300,000 shares of Preferred Stock, par value $10.00 per share. On the Record
Date, [8,951,965] shares of Common Stock were outstanding and no shares of
Preferred Stock were outstanding, although 20,000 shares of Preferred Stock have
been designated as Series B Preferred Stock and reserved for issuance pursuant
to the Company's Stockholder Rights Plan. A total of 1,233,575 shares of Common
Stock are reserved for issuance upon the exercise of outstanding options granted
under the Company's stock option plans.
The Stock Purchase Agreement provides for the sale of 1,000,000 shares
of Series C Preferred Stock of the Company. Since the Current Charter only
authorizes 300,000 shares of Preferred Stock, the increase in the number of
authorized shares of Preferred Stock effected by the New Charter is necessary to
allow the Company to issue the Preferred Shares to Purchaser in the Transaction.
Upon (i) conversion of the Preferred Shares based on the initial
conversion price of $4.25, (ii) exercise of the Initial Warrants to purchase
741,716 shares of Common Stock and (iii) exercise of all the outstanding options
under the Company's stock option plans, there will be [16,802,609] shares of
Common Stock issued and outstanding. In addition, dividends accrue on the
Preferred Shares at an annual rate of 7% and may be paid at the Company's
election in cash or in shares of Common Stock. If the Company elects to pay all
of the dividends that accrue on the Preferred Shares in shares of Common Stock,
the Company will issue up to approximately 1,900,000 additional shares of Common
Stock (based on the $2.75 per share closing sales price of the Common Stock on
the NYSE on December 13, 1999, and assuming that all the Preferred Shares remain
outstanding and none of them is converted into Common Stock until the third
anniversary of the Closing, when the Preferred Shares convert automatically into
Common Stock). As a result of all these issuances, there will only be
approximately 1,300,000 shares of Common Stock authorized under the Current
Charter and available for future issuances.
The increase in the number of authorized shares of Common Stock and
Preferred Stock effected by the New Charter not only allows the Company to
complete the Transaction, but provides the Company with additional flexibility
to effect future acquisitions and financing without the delay and expense
associated with obtaining the approval or consent of stockholders at the same
time the shares are needed. The Company expects that its future growth may
require the use of its Common Stock from time to time, either as consideration
for acquisitions or to obtain financing for the Company through the issuance of
Common Stock or securities convertible into Common Stock. Such shares may be
issued in conjunction with both public offerings and private placements of
shares of Common Stock.
Other than the Transaction, the Company does not have any current
plans, proposals or understandings that would require the issuance of additional
authorized shares of Preferred Stock or Common Stock. The Company, however,
anticipates that some portion of the additional shares could be used by the
Company in the future for acquisitions as well for public offerings or private
placements of Preferred Stock or Common Stock or securities convertible into or
exchangeable for shares of Common Stock. Additional shares of Common Stock could
also be used for the Company's stock based compensation plans, such as the 1991
Stock Incentive Plan and Equity Plan. Other than the Transaction, unless
required by law, regulatory authorities or applicable rules and policies of the
NYSE, it is not anticipated that any future authorization by a vote of
stockholders will be sought for the issuance of any shares of Preferred Stock or
Common Stock. Stockholders of the Company do not have any preemptive rights to
purchase additional shares of Preferred Stock or Common Stock, whether now or
hereafter authorized.
Decrease in Par Value of Common Stock
The Current Charter provides that the par value per share of the
Common Stock is $3.00. The Board recommends that the par value of each share of
Common Stock be reduced from $3.00 to $.01.
For a period of time in late 1998 and early 1999 and around the time
of the announcement of the Transaction, the market price for a share of Common
Stock fell below the $3.00 par value per share of the Common Stock. If the
market price for the Common Stock should be less than the par value, the Company
would effectively be prevented from issuing shares of Common Stock, including
the issuance of Common Stock in payment of accrued dividends on the Preferred
Shares, since the DGCL does not permit the issuance of Common Stock for a
consideration less than par value.
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The Board does not have any current plans, proposals or understandings that
would require the issuance of any shares of Common Stock for a consideration
less than par value, other than shares issued in connection with the
Transaction. The Board, however, believes that the Company should be in a
position to issue shares of Common Stock whenever such action becomes desirable,
for example, in connection with acquisitions and financing and the issuance of
shares under the Company's stock based compensation plans, such as the 1991
Stock Incentive Plan and Equity Plan. The decrease in par value will also have
the benefit of reducing the Company's franchise tax payable to the State of
Delaware since the amount of such tax is based, in part, on the aggregate par
value of the Company's authorized Common Stock.
If the New Charter is adopted, then, upon the filing of the New
Charter with the Secretary of State of Delaware, each outstanding and treasury
share of Common Stock, par value $3.00 per share, will immediately and
automatically be reclassified as and converted into one outstanding or treasury
share of new Common Stock of the par value of $.01 per share. In such case, the
Board intends to reduce the Company's stated capital account for the Common
Stock by transferring all amounts in excess of $ .01 per issued share from such
stated capital account to the Company's capital surplus (paid-in capital)
account. The reduction in par value of the Common Stock will not result in any
increase or decrease in total stockholders' equity and will not require stock
certificates to be exchanged.
Deletion of Certain Anti-Takeover Provisions
The New Charter will delete Article Seventh, Article Ninth and Article
Tenth of the Current Charter in their entirety and renumber the remaining
Articles. Articles Seventh, Ninth and Tenth of the Current Charter contain
certain anti-takeover provisions, including restrictions on business
combinations, fair price provisions, repurchase rights and prevention of
greenmail. The Company agreed to submit for approval and adoption by the
Company's stockholders the New Charter which deletes Articles Seventh, Ninth and
Tenth as a condition to the Closing so that the Company and WIC would, in the
future, be able to engage in transactions of the type restricted by these
Articles without having to satisfy additional requirements than what is
otherwise required under the DGCL. Except for the Transaction, WIC has no
present plans or proposals which relate to or would result in the acquisition of
additional securities of the Company or disposition of securities of the
Company. Although WIC may consider the possibility of the future acquisition of
control of the Company, whether by means of a tender offer, merger or other
business combination, open market purchases, private transactions or otherwise,
WIC does not have any definitive plan or intention to attempt to acquire control
of the Company nor has WIC or the Company entered into any contracts,
arrangements or understandings with the Company or its affiliates for this
purpose. Moreover, to allow for the Transaction, the Company's Stockholder
Rights Plan was amended to exclude WIC and any WIC Assignee from the definition
of "Acquiring Person," unless and until WIC or any WIC Assignee acquires
beneficial ownership of more than 1% of the Common Stock then outstanding other
than as permitted by the Stock Purchase Agreement and the other Transaction
Documents. The Stockholder Rights Plan, as amended, effectively prevents WIC or
any WIC Assignee from acquiring an additional 1% of the then outstanding shares
of Common Stock except as expressly permitted by the Stock Purchase Agreement or
as negotiated with the whole Board in advance. See "Proposal One - Approval of
the Transaction--Amendment to Stockholder Rights Plan; Certain Anti-Takeover
Provisions."
Articles Seventh, Ninth and Tenth of the Current Charter were approved
by the stockholders of the Company at the annual meeting of stockholders held on
September 24, 1985. At that time, the provisions of these Articles were
considered desirable by management in order to provide more affirmative
resistance to unsolicited takeover attempts or "greenmail" transactions that
might be adverse to the interests of the Company and its stockholders. Since
then, the Company adopted its Stockholder Rights Plan. The Stockholder Rights
Plan permits the Board to effectively deal with unsolicited takeover attempts
and "greenmail" transactions that the Board determines are not in the best
interests of the Company and its stockholders by making it prohibitively
expensive for a person to acquire over 20% of the Company's outstanding voting
securities in a tender offer or otherwise without negotiation with the Board.
The Board believes that Articles Seventh, Ninth and Tenth are no longer
necessary to protect the interests of the Company and its stockholders in light
of the Stockholder Rights Plan, as amended, and should, therefore, be deleted
from the Current Charter by adoption of the New Charter, whether or not the
Transaction is approved. For a description of the Stockholder Rights Plan, see
"Description of Capital Stock--Stockholder Rights Plan."
Article Seventh - Certain Definitions. Article Seventh, in its present
form, sets forth definitions used primarily in Article Ninth and Article Tenth
of the Current Charter. In cases where terms defined in Article Seventh are used
in Articles not deleted by the New Charter, the applicable provisions have been
either revised to replace such deleted terms or new definitions that are
substantially the same as the deleted terms have been added, as described below:
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. Section 8.2 of Article Eighth of the Current Charter requires that
the number of Board members shall be determined by the Board
pursuant to a resolution adopted by a two-thirds vote of the
"Disinterested Directors". In the New Charter, this section is
renumbered as Section 7.2 of Article Seventh and revised to provide
that such resolution be adopted by a two-thirds vote of all of the
directors in office. "Disinterested Directors" is defined in Article
Seventh of the Current Charter to mean a member of the Board then in
office, except that if at any time there exists an "Interested
Person", then the term means a director of the Company who is
unaffiliated with any Interested Person and either (i) was a
director of the Company immediately prior to the time that the
Interested Person became such, or (ii) was recommended for election
by a majority of Disinterested Directors. An "Interested Person" at
any particular time generally means any person or group of
affiliated or associated persons which beneficially owns, in the
aggregate, shares representing 20% or more of the voting power of
the then outstanding voting stock of the Company ("Voting Stock"),
except that as used in the provisions of the Current Charter
intended to prevent "greenmail" the beneficial ownership requirement
to be an Interested Person is 5% or more of the voting power of the
Voting Stock.
. Section 11.1 of Article Eleventh of the Current Charter, which is
renumbered as Section 8.1 of Article Eighth of the New Charter, is
revised to delete the requirement that an amendment to the Company's
Bylaws must be approved by a majority of the voting power of the
outstanding shares of Voting Stock which are not beneficially owned
by an Interested Person, and to provide that the Bylaws of the
Company may be adopted, amended or repealed by the Company's
stockholders by a vote of two-thirds of the voting power of the
outstanding shares of Voting Stock, voting together as a single
class.
. Section 11.2 of Article Eleventh of the Current Charter, which is
renumbered as Section 8.2 of Article Eighth of the New Charter, is
revised to delete the requirement that amendments to the Current
Charter must be approved by a majority of the voting power of the
outstanding shares of Voting Stock which are not beneficially owned
by an Interested Person, and to provide that two-thirds of the
voting power of the outstanding shares of Voting Stock of the
Company, voting together as a single class, is required to amend the
provisions of Articles Seventh and Eighth of the New Charter or
delete any provision of any such article.
Article Ninth - Restrictions on Business Combinations, Fair Price
Provision and Repurchase Rights. Article Ninth of the Current Charter generally
provides that a business combination (e.g., a merger, consolidation,
disposition, recapitalization, or liquidation) between the Company and an
Interested Person must be approved by holders of at least a majority of the
voting power of the outstanding shares of Voting Stock which are not
beneficially owned by such Interested Person, unless the proposed business
combination is approved by a resolution duly adopted by a two-thirds vote of the
Disinterested Directors of the Company or certain minimum price and procedural
requirements are met. In addition, Section 9.3 of Article Ninth of the Current
Charter requires that the Company repurchase all or a portion of the Voting
Stock of a person who becomes the beneficial owner of more than 50% of the
outstanding voting securities pursuant to a tender offer. In view of the desire
of the Board to have greater flexibility in connection with transactions of the
type restricted by Article Ninth, whether with WIC or another party, the Board
considers it desirable to delete Article Ninth in its entirety.
Article Tenth - Prevention of Greenmail. The New Charter deletes
Article Tenth of the Current Charter, which provides that any direct or indirect
purchase or other acquisition of shares of any class of Voting Stock from an
Interested Person (i.e., a person that beneficially owns 5% or more of the
voting power of the Voting Stock outstanding) that has beneficially owned such
shares of Voting Stock for less than two years prior to the date of such
purchase, or any agreement in respect thereof, requires the affirmative vote of
a majority of the voting power of the outstanding shares of Voting Stock which
are not beneficially owned by such Interested Person. Although WIC or any member
of the Purchaser Group is prohibited from selling any shares of Common Stock
acquired in connection with the Transaction prior to the second anniversary of
the Closing, such persons are authorized to sell or transfer their shares prior
to such two-year period to any other member of the Purchaser Group. It is not
clear whether transfers among the Purchaser Group would be subject to the
provisions of Article Tenth. Therefore, to eliminate any uncertainty as to the
effect of Article Tenth on the Transaction, WIC has required as a condition to
the Closing that the Company's stockholders approve and adopt the New Charter
which deletes Article Tenth. The Stockholder Rights Plan, as amended, also
permits the Board to effectively deal with "greenmail" transactions where an
acquiring person seeks a large short-term profit at the expense of the Company
and its stockholders.
Other Changes Effected by the New Charter
Subsection (a) of Article Fifth of the Current Charter, which gives
the Board the power to make, alter or repeal the Company's bylaws, has been
moved to the first sentence of Section 8.1 of Article Eighth of the New Charter
which otherwise relates to the powers of the Board and the Company's
stockholders to amend the Company's bylaws. The first sentence of Section 8.1 of
Article Eighth of the New Charter provides that the Board has the power to
adopt, amend or repeal the Company's bylaws, except to the extent that bylaws
adopted by the stockholders may otherwise provide.
The marked copy of the New Charter attached as Annex C to this Proxy
Statement reflects all other changes effected by the New Charter which are
principally in the nature of changes to Section and Article references as a
result of the deletion of Articles Seventh, Ninth and Tenth and the renumbering
of the remaining Articles, and other changes which do not materially change the
substance or meaning of the provisions in the Current Charter.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist in an understanding of
the Company's historical financial position and results of operations for each
year in the three-year period ended December 31, 1998 and for the unaudited
quarterly periods ended September 30, 1999 and September 30, 1998. The Company's
Consolidated Financial Statements and notes thereto included elsewhere in this
Proxy Statement contain detailed information that should be referred to in
conjunction with the following discussion.
General
The Company's future results of operations and growth are
substantially dependent upon (i) its ability to acquire or find and successfully
develop additional oil and gas reserves and (ii) the prevailing prices for oil
and gas. At December 31, 1998, the Company's proved reserves were comprised of
approximately 95% proved developed reserves, and the Company does not have a
large inventory of development drilling locations or enhanced recovery projects
to pursue after 1998. If the Company is unable to economically acquire or find
significant new reserves for development and exploitation, the Company's oil and
gas production, and thus its revenues, would likely decline gradually as its
reserves are produced. In addition, oil and gas prices are dependent upon
numerous factors beyond the Company's control, such as economic, political and
regulatory developments and competition from other sources of energy. The oil
and gas markets have historically been very volatile. In particular, oil prices
during 1998 were at their lowest levels since 1986. As a result, the Company's
results of operations were adversely affected. Any significant and extended
decline in the price of oil or gas would have a material adverse effect on the
Company's financial condition and results of operations, and could result in a
reduction in the carrying value of the Company's proved reserves and adversely
affect its access to capital.
The Company liquidated portions of its marketable securities portfolio
in order to fund a portion of the Company's capital and exploration expenditures
in 1997 and 1996. The Company recognized pretax gains from the sale of
marketable securities of $7.5 million and $13.0 million in 1997 and 1996,
respectively. In the absence of such gains, the Company would have reported net
losses in 1997 and 1996. The Company completed the liquidation of its marketable
securities portfolio in 1997.
During 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which requires the Company to assess the need for an impairment of capitalized
costs of oil and gas properties on a property-by-property (rather than a
company-wide) basis. Applying SFAS No. 121, the Company recognized non-cash
property impairment charges of $3.8 million in 1998, $3.3 million in 1997 and
$12.1 million in 1996.
Subsequent Events
As described elsewhere herein, the Company and WIC have entered into
the Stock Purchase Agreement and the Warrant Purchase Agreement providing for,
among other things, the issuance and sale by the Company to WIC of 1,000,000
shares of Series C Preferred Stock for a purchase price of $25 million in cash,
and the issuance of Warrants to purchase shares of Common Stock representing
approximately 5% of the outstanding shares of Common Stock at any given time.
On May 10, 1999, the Company entered into a Restated Credit Agreement
(the "BankOne Revolver") with Bank One, Texas, N.A. The Company repaid in full
the outstanding principal balance under the Credit Agreement with Bank of
America (formerly Nations Bank of Texas N.A.) (the "Credit Agreement") and the
Credit Agreement was terminated. The BankOne Revolver provides the Company with
up to a $25 million line of credit through April 30, 2001. The amounts available
for borrowing are based on the Company's oil and gas reserves and the Company's
Borrowing Base at September 30, 1999 was $8 million. Available loan and interest
options are (i) Prime Rate Loans, at the bank's prime interest rate and (ii)
Eurodollar Loans, at LIBOR plus 2.5%, 2.75%, or 3% depending on the percentage
of the Borrowing Base actually borrowed by the Company. The commitment fee on
the unused Borrowing Base is 0.5%. The BankOne Revolver imposes certain
restrictions on sales of assets, payment of dividends and incurrence of
indebtedness and requires the Company to, among other things, maintain certain
financial ratios and make monthly escrow deposits of $990,000 to fund the semi-
annual interest payments on the 9 1/2% Senior Subordinated Notes which were
issued in May 1997 (the "2007 Notes").
During 1999, the Company entered into various forward-sale agreements
to hedge a portion of the Company's oil and gas production. For the fourth
quarter of 1999, the Company hedged an average of 4,233 barrels ("Bbls") of oil
production per day with a floor price of $16.50 per Bbl and a ceiling price of
$20.00 per Bbl. For the first quarter of 2000, the Company hedged an average of
1,000 Bbls of oil production per day with a floor price of $18.50 per Bbl and a
ceiling price of $26.60 per Bbl. The Company also hedged 2,700 Bbls of oil
production per day for the first quarter of 2000 at a fixed swap price of $24.00
per Bbl. For the second, third and fourth quarters of 2000, the Company hedged
3,500 Bbls, 3,400 Bbls and 3,300 Bbls per day of oil production, respectively,
at a fixed swap price of $22.30, $21.07 and $19.78 per Bbl, respectively. The
Company also entered into forward-sale agreements for gas production for the
months of February through September 2000 that hedge an average of 5,261 MMBTU
per day of gas production at an average price of $2.29 per MMBTU. These hedges
amount to approximately 90% of the Company's estimated oil production for the
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year 2000 and approximately 25% of the Company's estimated gas production for
the eight months of February through September 2000.
Results of Operations
Production information presented below includes volumes of natural gas
purchased for resale; however, per unit of production information with respect
to production and operating expenses, depreciation, depletion and amortization
and general and administrative costs is calculated without including such
volumes. Such volumes were 148 million cubic feet ("MMcf") and 442 MMcf for the
nine months ended September 30, 1999 and 1998, respectively, and 608 Mmcf, 629
MMcf and 605 MMcf for the years ended December 31, 1998, 1997 and 1996,
respectively.
Comparison of Nine Months Ended September 30, 1999 and September 30, 1998
In April and May of 1999, the Company sold certain oil and gas
properties for $41 million which represented approximately 19% of the Company's
total proved oil and gas reserves at December 31, 1998. The Company recognized a
gain of $3.0 million from the property sales in the first nine months of 1999.
Revenues. Revenues for the first nine months of 1999 decreased $8.7
million or 18% from the first nine months of 1998, due primarily to lower oil
and gas sales. Oil sales for the first nine months of 1999 were $5.1 million
lower than the first nine months of 1998 as net oil production for the first
nine months of 1999 was 1,310,000 Bbls, down 28% from 1,831,000 Bbls in the
first nine months of 1998. The decrease in oil production in the first nine
months of 1999 was attributable to declining production at the Maljamar field in
New Mexico and the Evi and Provost fields in Canada combined with the oil and
gas property sales discussed above. The average price received for oil sales in
the first nine months of 1999 was $14.09 per Bbl, up $1.22 per Bbl or 9% from
the first nine months of 1998. Gas sales for the first nine months of 1999 were
$6.0 million lower than the first nine months of 1998 as net gas production for
the first nine months of 1999 was 8,133 MMcf, down 2,581 MMcf or 24% from the
first nine months of 1998. The decrease in gas production was due primarily to
the sale of oil and gas properties discussed above. The average price received
for gas sales during the first nine months of 1999 was $1.72 per one thousand
cubic feet ("Mcf"), a decrease of $0.15 per Mcf or 8% from the first nine months
of 1998. During the first nine months of 1999, oil and gas sales were reduced by
$1.5 million from the Company's hedging activities. There were no adjustments to
oil and gas sales for hedging activities in the first nine months of 1998.
Costs and Expenses. Production and operating expense for the first
nine months of 1999 decreased $5.1 million or 25% from the first nine months of
1998 primarily as a result of the oil and gas property sales discussed above and
cost cutting measures implemented at the Maljamar and Wellman fields. On a
barrels of oil equivalent ("BOE") basis (excluding 148 MMcf and 442 MMcf of gas
purchased for resale during the first nine months of 1999 and 1998,
respectively), production and operating expense during the first nine months of
1999 decreased to $5.27 per BOE from $5.29 per BOE during the first nine months
of 1998. Depreciation, depletion and amortization ("DDA") for the first nine
months of 1999, decreased $6.1 million or 30% from the first nine months of 1998
due primarily to the oil and gas property sales discussed above. Exploration
expense for the first nine months of 1999 was $5.6 million, down $4.9 million
from the first nine months of 1998 due primarily to substantially reduced
exploration activities in 1999.
General and administrative expense ("G&A) in the first nine months of
1999 was $5.1 million, down $2.5 million from the first nine months of 1998 due
to substantial reductions in office staff that were made in December 1998.
Interest expense during the first nine months of 1999 was $10.2 million, up $0.4
million or 4% from the first nine months of 1998 due to the issuance of the 2007
Notes and fees associated with refinancing the Credit Agreement with the
Restated Credit Agreement in the second quarter of 1999. The effective income
tax rate during the first nine months of 1999 was 7% compared to 25% in the
first nine months of 1998. The net loss before income taxes of $11.7 million in
the first nine months of 1999 will generate income tax benefits only if the net
loss can be carried forward and applied against future taxable income. Since
full realization of the future income tax benefits associated with the net loss
is not more likely than not assured at this time, income tax benefits were
recorded in the first nine months of 1999 only to the extent of the Company's
existing deferred income tax liability of $0.7 million.
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The Company realized a net loss of $10.8 million and net loss per
share of $1.21 in the first nine months of 1999 compared to net loss of $16.4
million and net loss per share of $1.83 during the first nine months of 1998.
Comparison of 1998 to 1997
Revenues. Oil and gas sales decreased 23% to $59.2 million in 1998
from $76.7 million in 1997, primarily because of lower oil and gas prices
received during 1998. The average oil price received in 1998 decreased 31% to
$12.46 per Bbl from $18.02 per Bbl in 1997 and the average gas price received in
1998 decreased 17% to $1.84 per Mcf from $2.21 per Mcf in 1997. Gas production
during 1998 increased 12% to 14.4 billion cubic feet ("Bcf") from 12.8 Bcf in
1997. The increase in gas production was primarily attributable to the Welder
Ranch field in South Texas which produced 2.3 Bcf of gas during 1998 compared to
0.8 Bcf of gas in 1997. The Welder Ranch field was acquired in June 1997. Oil
production in 1998 decreased 2% to 2,393 thousand Bbls ("MBbls") from 2,441
MBbls in 1997. As a result of development activity in 1997 and 1998, oil
production in 1998 from the Evi and Provost fields in Canada was 88 MBbls and
150 MBbls higher than 1997, respectively. Oil production from the Maljamar and
Wellman fields in 1998 was 102 MBbls and 70 MBbls lower than 1997, respectively,
as development activities at these fields was substantially complete in 1997. As
a result of hedging activities, oil and gas sales were increased by $0.2 million
in 1998 and reduced by $2.4 million during 1997. On an equivalent unit basis,
total production increased 4% to 5,109 million BOE ("MBOE") in 1998 from 4,898
MBOE in 1997.
Dividends and interest decreased 76% to $0.3 million in 1998 compared
to $1.1 million in 1997 as the Company completed the liquidation of its
remaining marketable securities in 1997.
Marketable security sales gains were $7.5 million in 1997 as the
Company completed the liquidation of its remaining marketable securities in
1997.
Other revenues decreased 53% to $1.2 million in 1998 from $2.5 million
in 1997 primarily as a result of lower sales of non-strategic oil and gas
properties in 1998.
Costs and Expenses. Production and operating expense decreased 2% to
$26.5 million in 1998 from $27.2 million in 1997 primarily due to lower
production taxes associated with lower oil and gas sales in 1998. On a BOE
basis, production and operating expense decreased 7% to $5.29 per BOE in 1998
from $5.67 per BOE in 1997 as a result of higher BOE production and lower
production taxes in 1998.
DD&A increased 12% to $25.8 million in 1998 from $23.0 million in 1997
and increased 8% to $5.15 per BOE in 1998 from $4.79 per BOE in 1997. The
increases were primarily attributable to additional wells drilled at the
Maljamar field combined with increased depletion from the Welder field in South
Texas.
Impairment expense increased 17% to $3.8 million in 1998 from $3.3
million in 1997. Impairment expense in 1998 and 1997 was due primarily to low
oil prices used to value reserves at year-end 1998 and year-end 1997.
Exploration expense increased 59% to $15.3 million in 1998 from $9.7
million in 1997 as the Company increased its exploration activities during 1998.
Dry hole expense increased 49% to $6.1 million in 1998 from $4.1 million in 1997
and included dry hole expense of $1.6 million in Peru and $2.0 million in South
Texas during 1998. Surrendered and abandoned lease expense in 1998 increased
227% to $4.9 million from $1.5 million in 1997 primarily as a result of
increased lease abandonment expense associated with unsuccessful exploration
drilling in 1998 and the curtailment of exploration activities due to low oil
prices.
G&A increased slightly to $9.8 million in 1998 from $9.7 million in
1997 and decreased 3% to $1.96 per BOE in 1998 from $2.02 per BOE in 1997. The
decrease in G&A per BOE was attributable primarily to higher BOE production in
1998 compared to 1997.
Interest expense increased 33% to $13.1 million in 1998 from $9.8
million in 1997 due primarily to incurring a full year of interest expense in
1998 under 2007 Notes, and increased long-term debt in 1998 compared to 1997.
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<PAGE>
Income tax expense decreased $11.0 million to a benefit of $10.7
million in 1998 from tax expense of $0.3 million in 1997 primarily as a result
of a decrease in earnings before income taxes of $38.8 million.
Net income decreased $27.8 million to a net loss of $24.5 million in
1998 from net income of $3.3 million in 1997 primarily as a result of lower oil
and gas prices and higher DD&A, exploration and interest expense in 1998.
Comparison of 1997 to 1996
Revenues. Oil and gas sales increased 7% to $76.7 million in 1997 from
$72.0 million in 1996, primarily because of higher gas production and higher gas
prices received during 1997. Gas production during 1997 increased 4% to 12.8 Bcf
from 12.3 Bcf in 1996. The increase in gas production was primarily attributable
to the acquisition of the Welder Ranch field in South Texas which added 0.8 Bcf
of gas production during 1997. The average gas price received in 1997 increased
25% to $2.21 per Mcf from $1.77 per Mcf in 1996. Oil production in 1997
increased less than 1% to 2,441 MBbls from 2,425 MBbls in 1996. The Company
completed 50 wells in the Maljamar field during 1997 which increased 1997
production by 246 MBbls over 1996 and offset declining oil production in other
fields during 1997. The average oil price received in 1997 decreased 4% to
$18.02 per Bbl from $18.81 per Bbl in 1996. As a result of hedging activities,
oil and gas sales were reduced by $2.4 million and $6.9 million during 1997 and
1996, respectively. On an equivalent unit basis, total production increased 2%
to 4,898 MBOE in 1997 from 4,824 MBOE in 1996.
Marketable security sales gains decreased 42% to $7.5 million in 1997
from $13.0 million in 1996 as the Company completed the liquidation of its
remaining marketable securities in 1997.
Other revenues increased 144% to $2.5 million in 1997 from $1.0
million in 1996 primarily as a result of the sale of non-strategic oil and gas
properties in Michigan during 1997.
Costs and Expenses. Production and operating expense increased 13% to
$27.2 million in 1997 from $24.0 million in 1996 and also increased 12% to $5.67
per BOE in 1997 from $5.07 per BOE in 1996. The increases were primarily
attributable to additional wells drilled at the Maljamar and Provost fields and
increased production taxes associated with the 7% increase in oil and gas sales
during 1997.
DD&A increased 17% to $23.0 million in 1997 from $19.7 million in 1996
and increased 15% to $4.79 per BOE in 1997 from $4.16 per BOE in 1996. The
increases were primarily attributable to additional wells drilled at the
Maljamar field to develop proved undeveloped reserves combined with increased
depletion from the Shouldice and other Canadian properties which have a higher
than average cost basis and shorter than average reserve life.
Impairment expense decreased 73% to $3.3 million in 1997 from $12.1
million in 1996. Impairment expense in 1997 was due primarily to low oil prices
used to value reserves at year-end 1997 while impairment expense in 1996 was due
primarily to downward revisions in reserve estimates for certain properties in
Michigan and Canada.
Exploration expense increased 131% to $9.7 million in 1997 from $4.2
million in 1996 as the Company increased its exploration activities in the U.S.
during 1997. Dry hole expense increased 141% to $4.1 million in 1997 from $1.7
million in 1996. Dry hole expense in 1997 included $1.2 million at the South
Lakeside prospect in Louisiana, $1.0 million at the Tecumseh prospect in
Louisiana and $0.7 million at the Bronson prospect in Canada. Seismic expense
also increased to $3.4 million in 1997 from $0.3 million in 1996.
G&A increased 3% to $9.7 million in 1997 from $9.4 million in 1996 and
also increased 2% to $2.02 per BOE in 1997 from $1.98 per BOE in 1996. The
increase in G&A was attributable primarily to the addition of exploration
personnel and higher compensation costs.
Interest expense increased 81% to $9.8 million in 1997 from $5.5
million in 1996 as a result of the increase in long-term debt and the higher
interest rate associated with the sale of the 2007 Notes on May 21, 1997.
Income tax expense decreased $3.8 million to $0.3 million in 1997 from
$4.1 million in 1996 as a result of a decrease in earnings before income taxes
of $6.9 million combined with a lower effective tax rate of 7% in 1997 compared
to 39% in 1996. The lower effective tax rate in 1997 was attributable primarily
to the inclusion of Canadian
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<PAGE>
operations in the Company's consolidated tax return beginning in 1997.
Net income decreased 48% to $3.3 million in 1997 from $6.4 million in
1996 primarily as a result of higher production and operating expense, DD&A,
exploration and interest expense in 1997.
Liquidity and Capital Resources
Cash Flows
Operating cash flows during the first nine months of 1999 were $5.6
million, up $2.1 million from the first nine months of 1998. Operating cash
flows before changes in working capital for the first nine months of 1999 were
$4.7 million lower than the first nine months of 1998 due primarily to lower oil
and gas sales which were offset in part by lower production and operating
expense and lower general and administrative expense. Changes in working capital
during the first nine months of 1999 provided $6.8 million more operating cash
flow than changes in working capital during the first nine months of 1998.
Capital and exploration expenditures during the first nine months of 1999 were
$5.9 million, down $31.1 million from the first nine months of 1998. The Company
has reduced its capital and exploration budget for 1999 to a range of $8 million
to $10 million. The Company received $41.0 million in net sales proceeds from
the sale of oil and gas properties during the first nine months of 1999 compared
to $3.0 million in proceeds received during the first nine months of 1998.
Cash flows from operating activities were $7.1 million in 1998
compared to $34.5 million in 1997. Cash flows from operating activities in 1998
were $27.4 million lower than 1997 due primarily to lower oil and gas sales,
higher interest expense and a $7.9 million reduction in accounts payable. Cash
flows from financing activities of $19.9 million in 1998 were provided primarily
by $21 million in borrowings under the Credit Agreement. In 1997, the sale of
the 2007 Notes provided $120.9 million of net cash proceeds to the Company, and
$78.7 million of borrowings under the Credit Agreement and the Company's
Maljamar Credit Facility were repaid during 1997. The Maljamar Credit Facility
was terminated in 1997 in connection with such repayment of borrowings. Cash
flows used in investing activities in 1998 were $37.5 million compared to $66.9
million in 1997. Capital and exploration expenditures were $40.4 million in
1998, a decrease of $37.9 million from 1997. The major components of capital and
exploration expenditures for 1998 were $21.6 million for development activities,
$14.3 million for exploration activities and $4.1 million for property
acquisitions. Proceeds from the sale of marketable securities and oil and gas
properties were $2.9 million in 1998, down $8.5 million from 1997, primarily as
a result of reduced oil and gas property sales and the absence of marketable
securities sales in 1998.
Financial Position
In the first nine months of 1999, cash and cash equivalents increased
$20.2 million as the Company used approximately half of the proceeds from the
sales of oil and gas properties to reduce the current portion of long-term debt
and retained the remaining sales proceeds in cash and cash equivalents. Capital
and exploration expenditures during the first nine months of 1999 of $5.9
million were funded primarily by operating cash flows of $5.6 million. Working
capital of $21.3 million at September 30, 1999 was $40.6 million higher than
working capital at December 31, 1998 due primarily to sale of oil and gas
properties in the second quarter of 1999. Total assets decreased $30.8 million
from December 31, 1998 to September 30, 1999 and stockholder's equity decreased
$10.9 million during the same period.
At September 30, 1999, capitalization totaled $186.2 million and
consisted of $125.0 million of long-term debt (67%) and $61.2 million of
stockholders' equity (33%).
Cash and cash equivalents were utilized to fund capital and
exploration expenditures in 1998 resulting in a decrease in cash and cash
equivalents of $10.5 million during 1998 to $2.8 million at December 31, 1998.
Working capital of $1.7 million at December 31, 1998 was $6.1 million lower than
working capital at December 31, 1997 due primarily to reduced cash and cash
equivalents offset by lower accounts payable. Total assets decreased $22.7
million during 1998 to $231.8 million at December 31, 1998, and stockholders'
equity decreased $25.3 million during 1998 to $72.1 million at December 31,
1998.
At December 31, 1998, capitalization totaled $217.5 million and
consisted of $145.5 million of long-term debt (67%) and $72.1 million of
stockholders' equity (33%).
Capital Sources
Funding for the Company's business activities has been provided by
cash flow from operations, borrowings and sales of marketable securities. The
Company completed the liquidation of its marketable securities in 1997 and,
accordingly, this source of funds is no longer available.
While the Company regularly engages in discussions relating to
potential acquisitions of oil and gas properties, the Company has no current
agreement or commitment with respect to any such acquisitions which would be
material to the Company. Any future acquisitions may require additional
financing and will be dependent upon financing arrangements available at the
time.
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The Company entered into the Credit Agreement with a group of banks
which provides for the issuance of letters of credit and for revolving credit
loans to the Company. On March 23, 1999, a financial institution ("New Lender")
purchased all of the rights and obligations of the Credit Agreement from Nations
Bank of Texas, N.A. and the Bank of Montreal and became the new Agent under the
Credit Agreement.
In April 1999, the Company used $10 million of proceeds from the sale
of oil and gas properties to reduce the outstanding balance under the Credit
Agreement to $11 million. On May 10, 1999, the Company entered into the BankOne
Revolver. The Company borrowed $11 million under the BankOne Revolver and repaid
in full the outstanding principal balance of $11 million under the Credit
Agreement and the Credit Agreement was terminated. Also in May 1999, the Company
used $10.5 million of proceeds from the sale of oil and gas properties to reduce
the BankOne Revolver balance to $0.5 million.
The BankOne Revolver provides the Company with up to a $25 million
line of credit through April 30, 2001. The amounts available for borrowing are
based on the Company's oil and gas reserves and the Company's Borrowing Base at
September 30, 1999 was $8 million. Available loan and interest options are (i)
Prime Rate Loans, at the bank's prime interest rate and (ii) Eurodollar Loans,
at LIBOR plus 2.5%, 2.75% or 3% depending on the percentage of the Borrowing
Base actually borrowed by the Company. The commitment fee on the unused
Borrowing Base is 0.5%. The BankOne Revolver imposes certain restrictions on
sales of assets, payment of dividends and incurrence of indebtedness and
requires the Company to, among other things, maintain certain financial ratios
and make monthly escrow deposits of $1.0 million to fund the semi-annual
interest payments on the 9 1/2% Senior Subordinated Notes.
On April 13, 1999, the Company entered into a Purchase and Sale
Agreement with Prince Minerals, Ltd. to sell certain producing and non-producing
mineral interests ("Mineral Properties") for $10 million effective April 1,
1999. The sale closed on April 21, 1999. The producing portion of the oil and
gas properties comprising the Mineral Properties represented approximately 2% of
the Company's total proved oil and gas reserves at December 31, 1998. The sales
proceeds were used to reduce the outstanding balance under the Credit Agreement
to approximately $11 million.
On April 12, 1999, the Company entered into a Purchase and Sale
Agreement with Columbia Natural Resources to sell all of the Company's oil and
gas properties in Kentucky, Tennessee and West Virginia ("Appalachia
Properties") for $28 million effective April 1, 1999. The sale closed on May 12,
1999. The oil and gas properties comprising the Appalachia Properties
represented approximately 15% of the Company's total proved oil and gas reserves
at December 31, 1998. The sales proceeds were used to reduce the outstanding
balance under the Credit Agreement to approximately $11 million, and for general
corporate purposes.
In addition, the Company sold a number of smaller, non-strategic oil
and gas properties in Texas and New Mexico for an aggregate sales price of $4.3
million. This sale closed on May 25, 1999. The sales proceeds from these
properties were used for general corporate purposes.
The Company believes that cash flows from operations and borrowings
under the BankOne Revolver will be sufficient to meet anticipated capital and
exploration expenditure requirements (excluding any material property
acquisitions) in 1999. If the Company's cash flows from operations and
borrowings under the Credit Agreement are not sufficient to satisfy its capital
and exploration expenditure requirements, there is no assurance that additional
equity or debt financing will be available to meet such requirements.
Capital and Exploration Expenditures
The Company requires capital primarily for the acquisition,
development and exploitation of, and the exploration for, oil and gas
properties, the repayment of indebtedness and general working capital needs.
During 1999, subject to market conditions and drilling and operating results,
the Company expects to spend approximately $2.7 million on acquisition,
development, exploitation and exploration activities.
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<PAGE>
Other Matters
Environmental and Other Regulatory Matters
The Company's business is subject to certain federal, state,
provincial and local laws and regulations relating to the development,
exploitation, production and gathering of, and the exploration for, oil and gas,
including those relating to the protection of the environment. Many of these
laws and regulations have become more stringent in recent years, often imposing
greater liability on a larger number of potentially responsible parties.
Although the Company believes it is in substantial compliance with all
applicable laws and regulations, the requirements imposed by laws and
regulations are frequently changed and subject to interpretation, and the
Company is unable to predict the ultimate cost of compliance with these
requirements or their effect on its operations. Although significant
expenditures may be required to comply with governmental laws and regulations
applicable to the Company, compliance has not had a material adverse effect on
the earnings or competitive position of the Company.
Year 2000 Issue
Although the transition to the year 2000 did not have any significant
impact on the Company or its reporting systems and operations, the Company will
continue to assess the impact of the "Year 2000" ("Y2K") issue on its reporting
systems and those of its primary business partners, suppliers and vendors during
the Year 2000. The Y2K issue exists because many computer systems and
applications used two-digit date fields to designate a year, which meant that
two-digit date systems would recognize the year 2000 as 1900 or not at all. This
inability to recognize or properly treat the year 2000 may cause systems to
process critical financial and operational information incorrectly.
In 1998 and the first quarter of 1999, the Company's U.S. and Canadian
computerized accounting systems were upgraded to versions which are Y2K
compliant. These upgrades were completed at a nominal cost to the Company. In
addition, the Company's personal computer systems were analyzed for Y2K
compliance during 1998 and certain components were upgraded at a nominal cost to
the Company. Virtually all of the Company's personal computer systems are
currently Y2K compliant. The Company also reviewed its computer-controlled oil
field equipment for Y2K compliance and the suppliers of such equipment provided
upgrades or modifications, if necessary, at a nominal cost to the Company. The
Company also surveyed its primary business partners, suppliers and vendors to
seek assurances that they will be Y2K compliant during 2000. Despite these
efforts to seek assurances, the Company cannot provide assurance that all
significant business partners, suppliers and vendors will achieve Y2K compliance
in a timely manner. If there is a high risk that a business partner, supplier or
vendor will not be Y2K compliant in a timely manner, an alternate business
partner, supplier or vendor will be used to minimize the Y2K risk.
New Accounting Standards
The Company adopted the following pronouncements in 1998:
SFAS No. 130, "Reporting Comprehensive Income" requires that all items
that are to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements, and
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" requires reporting of financial and descriptive information about a
company's reportable operating segments. The Company has identified only one
operating segment, which is the exploration for and production of oil and gas.
The Company will be required to comply with the provisions of SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities," as amended,
which must be adopted for fiscal years beginning after June 15, 2000. SFAS No.
133 requires that derivatives be reported on the balance sheet at fair value
and, if the derivative is not designated as a hedging instrument, changes in
fair value must be recognized in earnings in the period of change. If the
derivative is designated as a hedge and to the extent such hedge is determined
to be effective, changes in fair value are either offset by the change in fair
value of the hedged asset or liability (if applicable) or reported as a
component of other comprehensive income in the period of change, and
subsequently recognized in earnings when the offsetting hedged transaction
occurs. The definition of derivatives has also been expanded to include
contracts that require physical delivery
38
<PAGE>
of oil and gas if the contract allows for net cash settlement. The Company
currently uses derivatives to hedge oil and gas price risk and gains or losses
on such derivatives are recorded as adjustments to oil and gas sales.
Accordingly, adoption of SFAS No. 133 should not have a significant impact on
reported earnings, but could have a material impact on comprehensive income and
the reported financial position of the Company.
Quantitative and Qualitative Disclosures about Market Risk
The Company only uses derivative financial instruments such as
commodity futures agreements to hedge against fluctuations in oil and gas
prices. Gains and losses on these derivative instruments are recorded as
adjustments to oil and gas sales. The Board has adopted a policy governing the
use of derivative instruments which requires that all derivatives used by the
Company relate to an anticipated transaction and prohibits the use of
speculative or leveraged derivatives.
Interest Rate Risk
Total debt at September 30, 1999 included $124.5 million of fixed-rate
debt and $0.5 million of floating-rate debt attributed to borrowings under the
Bank One Revolver. As a result, the Company's annual interest cost will
fluctuate based on changes in short-term interest rates. The impact on annual
cash flow of a 10% change in the short-term interest rate (approximately 80
basis points) would not be material.
At September 30, 1999, it was not practicable to estimate the fair
value of the Company's fixed-rate debt of $124.5 million because the trading
volume was too small to establish a reasonable basis of fair value. The fixed-
rate debt will mature in May 2007 and the floating-rate debt will mature in
March 2002.
Commodity Price Risk
The Company has in the past entered into and may in the future enter
into hedging arrangements with respect to portions of its oil, natural gas and
NGL production to reduce its sensitivity to volatile commodity prices. The
Company believes that hedging, although not free of risk, allows the Company to
achieve a more predictable cash flow and to reduce exposure to price
fluctuations. However, hedging arrangements limit the benefit to the Company of
increases in the prices of the hedged commodity. Moreover, the Company's hedging
arrangements apply only to a portion of its production and provide only partial
price protection against declines in prices. Such arrangements may expose the
Company to risk of financial loss in certain circumstances. The Company expects
that the amount of production it hedges will vary from time to time.
During the first nine months of 1999, the Company entered into various
forward sale agreements to hedge a portion of the Company's oil and gas
production. The Company's forward sales agreements at September 30, 1999 were as
follows:
<TABLE>
<CAPTION>
Period Daily Volume -- Product Price (Floor / Ceiling)(a)
- --------------- ----------------------- --------------------------
<S> <C> <C>
October 1999 4,200 Bbls - Crude Oil $16.50/20.00 per Bbl
November 1999 4,300 Bbls - Crude Oil $16.50/20.00 per Bbl
December 1999 4,200 Bbls - Crude Oil $16.50/20.00 per Bbl
January 2000 1,000 Bbls - Crude Oil $18.50/26.60 per Bbl
February 2000 1,000 Bbls - Crude Oil $18.50/26.60 per Bbl
March 2000 1,000 Bbls - Crude Oil $18.50/26.60 per Bbl
</TABLE>
(a) These are "collar" hedges whereby the Company will receive the
actual market price if the actual market price is between the floor
price and the ceiling price. If the actual market price is below or
above the floor or ceiling prices, the price received by the Company
will be limited to the floor price or ceiling price, respectively.
Oil and gas sales were reduced by $1.0 million in the third quarter of
1999 and by $1.5 million in the first nine months of 1999 from the Company's
hedging activities. At September 30, 1999, the Company's outstanding forward
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<PAGE>
sale agreements had a fair value loss of $1.7 million. The aggregate effect of a
hypothetical 10% change in oil price would result in a change of $0.9 million in
the fair value of these instruments at September 30, 1999.
The Company continuously reevaluates its hedging program in light of
market conditions, commodity price forecasts, capital spending and debt service
requirements. Also see Note 1 to the Company's Consolidated Financial Statements
included elsewhere in this Proxy Statement.
Foreign Currency Exchange Risk
The Company receives a substantial portion of its revenue in Canadian
dollars (27% in the first nine months of 1999). As a result, fluctuations in the
exchange rates of the Canadian dollar with respect to the U.S. dollar could have
an adverse effect on the Company's financial condition and results of
operations. Historically however, exchange rate fluctuations have not been
material to the Company.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company currently consists of
20,000,000 shares of Common Stock, par value $3.00 per share (which, if the New
Charter is approved and adopted at the Special Meeting, will be increased to
30,000,000 shares of Common Stock, par value $.01 per share), and 300,000 shares
of Preferred Stock, par value $10.00 per share (which, if the New Charter is
approved and adopted at the Special Meeting, will be increased to 1,300,000
shares of Preferred Stock). At the Record Date for the Special Meeting,
[8,951,965] shares of Common Stock were outstanding, no shares of Preferred
Stock were outstanding and a total of 1,223,575 shares of Common Stock were
reserved for issuance upon the exercise of outstanding options granted under the
Company's stock option plans.
Preferred Stock
Under the New Charter, the Board is authorized, without stockholder
approval action, to issue Preferred Stock in one or more series and to fix the
number of shares and the rights, preferences and limitations of each series.
Among the specific matters that may be determined by the Board are the dividend
rate, the redemption price, if any, conversion rights, if any, the amount
payable in the event of any voluntary liquidation or dissolution of the Company
and voting rights, if any.
The Stock Purchase Agreement requires that the Company issue shares of
a newly created Series C Cumulative Convertible Preferred Stock to Purchaser.
The Board has the power and discretion to establish the Series C Preferred Stock
pursuant to the authority vested in it by the New Charter. See "Proposal
One --Approval of the Transaction -- Description of Series C Preferred Stock"
for a summary of the material terms of the Series C Preferred Stock.
Common Stock
Holders of Common Stock are entitled to one vote for each share held.
Stockholders do not have preemptive rights or the right to cumulate votes for
the election of directors. Shares are not subject to redemption nor to any
liability for further calls. Holders of the Common Stock are entitled to receive
dividends as they are declared by the Board out of funds legally available
therefor and are entitled to participate on a pro rata basis in the assets of
the Company available for distribution to the holders of Common Stock in the
event of the liquidation or dissolution of the Company after satisfaction of any
liquidation preference on any series of the Company's Preferred Stock.
Stockholder Rights Plan
On October 25, 1993, the Board adopted the Company's Stockholder
Rights Plan (the "Rights Plan") and the Company declared a dividend distribution
of one preferred stock purchase right (a "Right") for each outstanding share of
Common Stock. Each Right entitles the registered holder to purchase from the
Company one-thousandth of a share (a "Unit") of Series B Preferred Stock, $10.00
par value per share, at an exercise price of $72.00 (the "Purchase Price") per
Unit, subject to adjustment. The description and terms of the Rights are set
forth in the Rights Agreement, as amended, between the Company and ChaseMellon
Shareholder Services, L.L.C., as successor Rights Agent. The Rights Agreement
was amended immediately prior to the execution of the Stock Purchase Agreement
pursuant to the Rights Plan
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<PAGE>
Amendment. See "Proposal One - Approval of the Transaction -- Amendment to
Stockholder Rights Plan; Certain Anti-Takeover Provisions".
The Rights are initially evidenced by the Common Stock certificates as
no separate Rights certificates have been distributed. The Rights separate from
the Common Stock and a "Distribution Date" will occur at the close of business
on the earliest of (i) the tenth business day following a public announcement
that a person or group of affiliated or associated persons (the "Acquiring
Person") has acquired, or obtained the right to acquire, beneficial ownership of
20% or more of the outstanding shares of Common Stock, or (ii) the tenth
business day (or such later date as may be determined by action of the Board)
following the commencement of or announcement of an intention to commence a
tender offer or exchange offer that would result in a person or group becoming
an Acquiring Person. The Rights Amendment excludes WIC and any WIC Assignee and
their respective affiliates and associates as an Acquiring Person unless and
until WIC or any WIC Assignee acquires beneficial ownership of more than 1% of
the then outstanding shares of Common Stock except as permitted by the Stock
Purchase Agreement and the other Transaction documents.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on October 25, 2003, unless earlier redeemed by
the Company. Until the Distribution Date, the Rights will be evidenced by the
Common Stock certificates and will be transferred with and only with such Common
Stock certificates. As soon as practicable after the Distribution Date, separate
certificates evidencing the Rights will be mailed to holders of record of Common
Stock as of the close of business on the Distribution Date. Until a Right is
exercised, the holder has no rights as a stockholder of the Company, including,
without limitation, the right to vote or receive dividends.
In the event (a "Flip-In Event") that a person becomes an Acquiring
Person (except pursuant to certain offers for all outstanding shares of Common
Stock approved by disinterested directors of the Company), each holder of a
Right will thereafter have the right to receive, upon exercise, Common Stock
(or, in certain circumstances, cash, property or other securities of the
Company) having a value equal to two times the exercise price of the Right.
However, Rights are not exercisable following a Flip-In Event until such time as
the Rights are no longer redeemable by the Company as described below. Following
a Flip-In Event, all Rights beneficially owned by an Acquiring Person will be
null and void.
In the event (a "Flip-Over Event") that, at any time after the time an
Acquiring Person becomes such, (i) the Company is acquired in a merger or other
business combination transaction in which the Company is not the surviving
corporation, or in which the Company is the surviving corporation, but its
Common Stock is changed or exchanged (other than pursuant to certain offers for
all outstanding shares of Common Stock approved by disinterested directors of
the Company), or (ii) more than 50% of the Company's assets, cash flow or
earning power is sold or transferred, each holder of a Right (except Rights
which previously have been voided as set forth above) shall thereafter have the
right to receive upon exercise, Common Stock of the acquiring company having a
value equal to two times the exercise price of the Right.
At any time after an Acquiring Person becomes such and prior to the
acquisition by such Acquiring Person of 50% or more of the outstanding Common
Stock, the disinterested directors of the Company may cause the Company to
exchange the Rights (other than Rights owned by an Acquiring Person, as the case
may be, which will have become null and void), in whole or in part, at an
exchange ratio equal to one-half the number of shares of Common Stock or other
property that would be issuable upon exercise of one Right .
At any time on or prior to the close of business on the tenth day
after the first public announcement of a Flip-In Event, the Company may redeem
the Rights in whole, but not in part, at a price of $.001 per Right ("Redemption
Price"), payable, at the Company's option, in cash, shares of Common Stock or
other consideration deemed appropriate by the Board. Immediately upon the
effective time of the action of the Company authorizing redemption of the
Rights, the right to exercise the Rights will terminate and the only right of
the holders of Rights will be to receive the Redemption Price.
Other than certain terms which materially effect the holders of
Rights, any of the provisions of the Rights Agreement may be amended by the
Company in any manner.
The Rights Plan has certain anti-takeover effects including making it
prohibitively expensive for a raider to try to control or take over the Company
unilaterally and without negotiation with the Board. Although intended to
preserve for the stockholders the long term value of the Company, the Rights
Plan may make it more difficult for stockholders of the Company to benefit from
certain transactions which are opposed by the incumbent Board of Directors.
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Anti-Takeover Provisions
In addition to the Rights Plan, the DGCL includes certain provisions
which may have the effect of delaying or deterring a change in control or
management of the Company or encouraging persons considering unsolicited tender
offers or other unilateral takeover proposals to negotiate with the Board rather
than pursue non-negotiated takeover attempts. Generally, Section 203 of the DGCL
prohibits the Company from engaging in a "business combination" (as defined in
Section 203) with an "interested stockholder" (defined generally as a person
owning 15% or more of the Company's outstanding voting stock) for three years
following the date that person becomes an interested stockholder, unless (a)
before that person became an interested stockholder, the Board approved the
transaction in which the interested stockholder became such or approved the
business combination; (b) upon completion of the transaction that resulted in
the interested stockholder's becoming such, the interested stockholder owns at
least 85% of the voting stock outstanding at the time the transaction commenced
(excluding stock held by directors who are also officers of the Company and by
employee stock plans that do not provide employees with the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer) or (c) following the transaction in which that person
became an interested stockholder, the business combination is approved by the
Board and authorized at a meeting of stockholders by the affirmative vote of the
holders at least two-thirds of the outstanding voting stock not owned by the
interested stockholder. Under Section 203, these restrictions also do not apply
to certain business combinations proposed by an interested stockholder following
the announcement or notification of one of certain extraordinary transactions
involving the Company and the person who is not an interested stockholder during
the previous three years or who became an interested stockholder with the
approval of a majority of the Company's directors, if that extraordinary
transaction is approved or not opposed by a majority of the directors who were
directors before any person became an interested stockholder in the previous
three years or who were recommended for election or elected to succeed such
directors by a majority of such directors then in office. The Board has
approved the Transaction for purposes of Section 203. See "Proposal One -
Approval of the Transaction -- Amendment ot Stockholder Rights Plan; Certain
Anti-Takeover Provisions."
In addition, the ability of the Board to issue additional shares of
Common Stock or Preferred Stock could create voting impediments or frustrate
persons seeking to effect a takeover or gain control of the Company. The
additional shares of Common Stock or Preferred Stock could be issued without
stockholder approval. Shares could be privately placed with purchasers who might
join with the Board in opposing a hostile takeover bid or could be sold with or
without an option or requirement on the part of the Company to repurchase the
shares. The Board could also authorize holders of the Preferred Stock to vote as
a class either separately or with the holders of Common Stock on any merger,
sale or exchange of assets by the Company or any other extraordinary corporate
transaction.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of ________________, 2000, unless
otherwise indicated, the beneficial ownership of Common Stock by: (i) the only
persons known by the Company to beneficially own in excess of 5% of the
outstanding Common Stock; (ii) each director of the Company; (iii) the Chief
Executive Officer and each of the other four most highly compensated executive
officers of the Company for the year ended December 31, 1998; and (iv) all of
the directors and executive officers of the Company as a group. Except as
otherwise indicated, each of the persons named has sole voting and investment
power with respect to the shares of Common Stock beneficially owned by that
person.
<TABLE>
<CAPTION>
Shares Beneficially
Owned
--------------------------------
Name of Beneficial Owner Number Percent
- ------------------------ ------------------- -------
<S> <C> <C>
Directors and Executive Officers:
John W. Cushing, III.................................................... 11,431 (1)(2) *
Howard G. Hamilton...................................................... 48,436 (1)(2) *
Jon L. Mosle, Jr........................................................ 27,700 (1)(2) *
A. W. Schenck, III...................................................... 10,540 (2) *
Lorne H. Larson......................................................... 9,000 (2) *
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially
Owned
------------------------------------
Name of Beneficial Owner Number Percent
- ------------------------ ------------------------------------
<S> <C> <C>
C. Frayer Kimball, III.................................................. 19,583 (1)(3) *
Andrew J. Shoup, Jr..................................................... 333,750 (4) 3.60%
A. Wayne Ritter......................................................... 216,875 (5) 2.37%
Kent E. Johnson......................................................... 105,750 (6) 1.17%
Lawrence J. Finn........................................................ 115,500 (7) 1.27%
Allan J. Simus.......................................................... 115,000 (1)(8) 1.27%
All Directors and executive officers as a group (11 persons, including
those named above)...................................................... 1,013,565 (1)(9) 10.29%
Holders of 5% of More Not Named Above:
Dimensional Fund Advisors Inc........................................... 567,575 (10) 6.34%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Cross Timbers Oil Company............................................... 775,000 (11) 8.70%
810 Houston St., Suite 2000
Fort Worth, Texas 76102
Cross Timbers Trading Company
810 Houston St., Suite 2000
Fort Worth, Texas 76102
Paul F. Glenn, Trustee.................................................. 477,500 (12) 5.33%
Paul F. Glenn Revocable Trust
P. O. Box 50310
Santa Barbara, California 93108
</TABLE>
_________________
* Represents less than 1% of outstanding Common Stock.
(1) Includes shares owned by spouses and children (Mr. Cushing, 665 shares; Mr.
Hamilton, 33,500 shares; Mr. Kimball, 455 shares; Mr. Mosle, 5,000 shares;
Mr. Simus, 500 shares; and all directors and executive officers as a group,
40,120 shares), as to which, in each case, the directors and executive
officers disclaim beneficial ownership.
(2) Includes, for each such person, 8,000 shares covered by presently
exercisable stock options under the 1991 Non-Employee Directors' Stock
Option Plan.
(3) Includes 7,250 shares covered by presently exercisable stock options under
the 1991 Non-Employee Directors' Stock Option Plan.
(4) Includes 313,750 shares covered by presently exercisable stock options
under the 1991 Stock Incentive Plan.
(5) Includes 211,875 shares covered by presently exercisable stock options
under the 1991 Stock Incentive Plan.
(6) Includes 103,750 shares covered by presently exercisable stock options
under the 1991 Stock Incentive Plan.
(7) Includes 107,500 shares covered by presently exercisable stock options
under the 1991 Stock Incentive Plan.
(8) Includes 110,500 shares covered by presently exercisable stock options
under the 1991 Stock Incentive Plan.
(9) Includes an aggregate of 894,625 shares covered by presently exercisable
stock options held by directors and executive officers.
(10) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 567,575 shares of the
Company's Common Stock as of December 31, 1998, all of which shares are
held in portfolios of four investment companies for which Dimensional
serves as an investment advisor, and
43
<PAGE>
certain other investment vehicles including commingled group trusts, for
which Dimensional serves as an investment manager. In its capacity as
investment advisor and investment manager, Dimensional possesses both
voting and investment power over these shares. Dimensional disclaims
beneficial ownership of all such shares. The foregoing information was
obtained from Dimensional and from a Schedule 13G dated February 11, 1999
filed by Dimensional with the Securities and Exchange Commission.
(11) Cross Timbers Oil Company, a Delaware corporation, is deemed to have
beneficial ownership of 775,000 shares of Common Stock, including 525,000
shares of Common Stock held by Cross Timbers Trading Company, a Texas
corporation and a wholly-owned subsidiary of Cross Timbers Oil Company.
Cross Timbers Oil Company has the sole voting power and dispositive power
with respect to the 250,000 shares of Common Stock it beneficially owns
directly, and shares voting and dispositive power with Cross Timbers
Trading Company with respect to the 525,000 shares of Common Stock it
beneficially owns indirectly through Cross Timbers Trading Company. These
shares were purchased for and are held for investment purposes by Cross
Timbers Oil Company and Cross Timbers Trading Company. The foregoing
information was obtained from Cross Timbers Oil Company and from a Schedule
13D dated October 19, 1998 filed by Cross Timbers Oil Company and Cross
Timbers Trading Company with the Securities and Exchange Commission.
(12) Paul F. Glenn, Trustee, Paul F. Glenn Revocable Trust (the "Trustee") is
deemed to have beneficial ownership of 477,500 shares of Common Stock,
including 77,500 shares of Common Stock held by the Glenn Foundation. The
Trustee has the sole power to vote or direct the vote and to dispose or
direct the disposition of 400,000 shares of Common Stock and has shared
power to vote or direct the vote and to dispose or direct the disposition
of 77,500 shares of Common Stock held by the Glenn Foundation. The
foregoing information was obtained from a Schedule 13D dated November 2,
1999 filed by the Trustee with the Securities and Exchange Commission.
STOCKHOLDERS' PROPOSALS
If a stockholder intends to present a proposal for action at the 2000
annual meeting and wishes to have such proposal considered for inclusion in the
Company's proxy materials in reliance on Rule 14a-8 under the Securities
Exchange Act of 1934, as amended, the proposal must have been submitted in
writing and received by the Company by December 10, 1999. Such proposals must
also meet the other requirements of the rules of the Securities and Exchange
Commission relating to stockholders' proposals.
In addition, if a stockholder submits a proposal outside of Rule 14a-8
for the 2000 annual meeting, then the Company's proxy may confer discretionary
authority on the persons being appointed as proxies on behalf of management to
vote on the proposal.
Proposals and nominations should be addressed to the Assistant
Secretary of the Company, Lawrence J. Finn, 8115 Preston Road, Suite 400,
Dallas, Texas 75225.
OTHER MATTERS
The Board does not intend to bring any other matters before the
Special Meeting and does not know of any matter which anyone else proposes to
present for action at the Special Meeting. However, if any other matters
properly come before the Special Meeting, the persons named in the accompanying
proxy, or their duly constituted substitutes acting at the Special Meeting, will
be deemed to be authorized to vote or otherwise act thereon in accordance with
their judgment.
By Order of the Board of Directors
Lawrence J. Finn
Assistant Secretary
_________________, 2000
Dallas, Texas
44
<PAGE>
THE WISER OIL COMPANY
Index to Consolidated Financial Statements
Page
----
Report of Independent Auditors........................................... F-2
Consolidated Statements of Income, For the Years Ended December 31, 1998,
1997 and 1996......................................................... F-3
Consolidated Balance Sheets, December 31, 1998 and 1997.................. F-4
Consolidated Statements of Changes in Stockholders Equity,
For the Years Ended December 31, 1998, 1997 and 1996.................. F-5
Consolidated Statements of Cash Flows, For the Years Ended December 31,
1998, 1997 and 1996................................................... F-6
Notes to Consolidated Financial Statements, For the Years Ended
December 31, 1998, 1997 and 1996...................................... F-7
Consolidated Statement of Income, For the Nine Months Ended
September 30, 1999 and 1998 (unaudited)............................... F-27
Consolidated Balance Sheets, September 30, 1999 (unaudited) and
December 31, 1998..................................................... F-28
Consolidated Statement of Changes in Stockholders Equity,
For the Nine Months Ended September 30, 1999 (unaudited).............. F-29
Consolidated Statements of Cash Flow, For the Nine Months Ended
September 30, 1999 and 1998 (unaudited)............................... F-30
Notes to Consolidated Financial Statements, For the Nine Months Ended
September 30, 1999 (unaudited)........................................ F-31
F-1
<PAGE>
Report of Independent Public Accountants
To the Shareholders of The Wiser Oil Company:
We have audited the accompanying consolidated balance sheets of The Wiser Oil
Company (a Delaware corporation) and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the years ended December 31, 1998, 1997
and 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 The Wiser Oil
Company and subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for the years ended December 31, 1998,
1997 and 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
April 15, 1999
F-2
<PAGE>
THE WISER OIL COMPANY
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(000's except per share data)
Revenues:
<S> <C> <C> <C>
Oil and gas sales..................................................... $ 59,197 $ 76,729 $ 72,012
Dividends and interest................................................ 269 1,113 683
Marketable security sales............................................. -- 7,495 12,977
Other................................................................. 1,164 2,478 1,017
-------- -------- --------
60,630 87,815 86,689
-------- -------- --------
Costs and Expenses:
Production and operating.............................................. 26,529 27,183 23,970
Purchased natural gas................................................. 1,440 1,622 1,462
Depreciation, depletion and amortization.............................. 25,811 22,977 19,653
Property impairments.................................................. 3,838 3,289 12,112
Exploration........................................................... 15,328 9,655 4,176
General and administrative............................................ 9,793 9,661 9,364
Interest expense...................................................... 13,097 9,845 5,452
-------- -------- --------
95,836 84,232 76,189
-------- -------- --------
Earnings (Loss) Before Income Taxes...................................... (35,206) 3,583 10,500
Income Tax Expense (Benefit)............................................. (10,740) 264 4,072
-------- -------- --------
NET INCOME (LOSS)........................................................ $(24,466) $ 3,319 $ 6,428
======== ======== ========
Earnings (Loss) Per Share (Note 12):
Basic................................................................. $ (2.73) $ 0.37 $ 0.72
======== ======== ========
Diluted............................................................... $ (2.73) $ 0.37 $ 0.72
======== ======== ========
Cash Dividends Per Share................................................. $ 0.12 $ 0.12 $ 0.12
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
THE WISER OIL COMPANY
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
(000's)
Assets
Current Assets:
Cash and cash equivalents..................................... $ 2,779 $ 13,255
Accounts receivable........................................... 9,102 13,765
Inventories................................................... 669 1,007
Income taxes receivable....................................... 1,270 725
Prepaid expenses.............................................. 1,035 438
--------- ---------
Total current assets..................................... 14,855 29,190
--------- ---------
Property, Plant and Equipment, at cost:
Oil and gas properties (successful efforts method)............ 367,974 346,655
Other properties.............................................. 5,523 5,399
--------- ---------
373,497 352,054
Accumulated depreciation, depletion and amortization.......... (160,202) (131,346)
--------- ---------
Net property, plant and equipment............................. 213,295 220,708
Other Assets....................................................... 3,660 4,658
--------- ---------
$ 231,810 $ 254,556
========= =========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable.............................................. $ 10,473 $ 18,396
Current portion of long-term debt............................. 21,000 --
Accrued liabilities........................................... 2,730 2,985
--------- ---------
Total current liabilities................................ 34,203 21,381
--------- ---------
Long-Term Debt..................................................... 124,452 124,304
Deferred Benefit Cost.............................................. 378 1,169
Deferred Income Taxes.............................................. 686 10,278
Stockholders' Equity:
Common stock - $3 par value; 20,000,000 shares authorized;
9,128,169 shares issued; 8,951,965 shares outstanding...... 27,385 27,385
Paid-in capital............................................... 3,223 3,223
Retained earnings............................................. 43,090 68,630
Foreign currency translation.................................. 1,122 915
Treasury stock; 176,204 shares, at cost....................... (2,729) (2,729)
--------- ---------
Total stockholders' equity............................... 72,091 97,424
--------- ---------
$ 231,810 $ 254,556
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
THE WISER OIL COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Marketable
Securities Foreign
Common Paid-in Retained Valuation Currency Treasury
Total Stock Capital Earnings Adjustment Translation Stock
--------- ------- ------- -------- ----------- ----------- --------
(000's)
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1995............................... $ 101,132 $ 27,347 $ 3,078 $ 61,030 $ 11,684 $ 722 $ (2,729)
Net income................................. 6,428 -- -- 6,428 -- -- --
Other comprehensive income (loss),
net of tax............................ (7,225) -- -- -- (7,356) 131 --
---------
Comprehensive income (loss)................ (797) -- -- -- -- -- --
Dividends paid............................. (1,073) -- -- (1,073) -- -- --
--------- -------- ------- -------- ---------- ----------- --------
December 31, 1996............................... 99,262 27,347 3,078 66,385 4,328 853 (2,729)
Net income................................. 3,319 -- -- 3,319 -- -- --
Other comprehensive income (loss),
net of tax............................ (4,266) -- -- -- (4,328) 62 --
---------
Comprehensive income (loss)................ (947) -- -- -- -- -- --
Stock options exercised.................... 183 38 145 -- -- -- --
Dividends paid............................. (1,074) -- -- (1,074) -- -- --
--------- -------- ------- -------- ---------- ----------- --------
December 31, 1997............................... 97,424 27,385 3,223 68,630 -- 915 (3,729)
Net income (loss).......................... (24,466) -- -- (24,466) -- -- --
Other comprehensive income (loss),
net of tax............................ 207 -- -- -- -- 207 --
---------
Comprehensive income (loss)................ (24,259) -- -- -- -- -- --
Dividends paid............................. (1,074) -- -- (1,074) -- -- --
--------- -------- ------- -------- ---------- ----------- --------
December 31, 1998............................... $ 72,091 $ 27,385 $ 3,223 $ 43,090 $ -- $ 1,122 $ (2,729)
========= ======== ======= ======== ========== =========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
THE WISER OIL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(000's except per share data)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)........................................................ $(24,466) $ 3,319 $ 6,428
Adjustments to reconcile to cash flows from
operating activities:
Depreciation, depletion and amortization................................. 25,811 22,977 19,653
Deferred income taxes.................................................... (9,592) 1,530 2,056
Marketable securities and property sales gains........................... (615) (9,370) (13,099)
Exploration expense...................................................... 15,328 9,655 4,176
Property impairments..................................................... 3,838 3,289 12,112
Foreign currency translation............................................. 207 62 (2)
Amortization of other assets............................................. 556 282 --
Other changes:
Accounts receivable.................................................... 4,663 326 (3,665)
Inventories............................................................ 338 282 228
Income taxes receivable................................................ (545) (725) --
Prepaid expenses....................................................... (597) 35 360
Accounts payable....................................................... (7,923) 3,400 4,853
Accrued income taxes................................................... -- (1,697) 170
Accrued liabilities.................................................... (255) 1,449 88
Deferred benefit costs................................................. (791) (328) 376
Other.................................................................. 1,149 -- 553
-------- -------- --------
Operating Cash Flows.............................................. 7,106 34,486 34,287
-------- -------- --------
Cash Flows From Investing Activities:
Capital and exploration expenditures..................................... (40,402) (78,323) (47,115)
Proceeds from sales of property, plant and equipment..................... 2,894 3,288 1,022
Proceeds from sales of marketable securities............................. -- 8,115 14,035
-------- -------- --------
Investing Cash Flows.............................................. (37,508) (66,920) (32,058)
-------- -------- --------
Cash Flows From Financing Activities:
Borrowings of long-term debt............................................. 21,000 125,000 25,508
Repayments of long-term debt............................................. -- (78,654) (22,191)
Long-term debt issuance costs and fees................................... -- (5,636) --
Common stock issued...................................................... -- 183 --
Dividends paid........................................................... (1,074) (1,074) (1,073)
-------- -------- --------
Financing Cash Flows.............................................. 19,926 39,819 2,244
-------- -------- --------
Net Increase (Decrease) in Cash............................................. (10,476) 7,385 4,473
Cash and Cash Equivalents, beginning of year................................ 13,255 5,870 1,397
Cash and Cash Equivalents, end of year...................................... $ 2,779 $ 13,255 $ 5,870
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 and 1996
1. Summary of Significant Accounting Policies
a. Principles of Consolidation -- The consolidated financial statements
include the accounts of The Wiser Oil Company (Company), a Delaware corporation,
and its wholly owned subsidiaries: T.W.O.C., Inc., The Wiser Marketing Company,
Maljamar Wiser Inc., Maljamar Development Partnership, L.P., and The Wiser Oil
Company of Canada ("Wiser Canada"). T.W.O.C., Inc. is a Delaware holding company
responsible for the management of investment activities. The Wiser Marketing
Company functions as a natural gas marketer and broker. Maljamar Wiser Inc. was
formed in 1995 as a wholly-owned subsidiary of the Company. It was formed in
order for the Company to fund its $53,000,000 development of the Maljamar area
with the use of nonrecourse debt. The Maljamar Development Partnership, L.P. was
formed in 1995 for the same reason. The Company is the limited partner of the
Maljamar Development Partnership, L.P. and owns 99% of the partnership. Maljamar
Wiser Inc. owns 1% of the Maljamar Development Partnership, L.P. as a general
partner. Effective May 14, 1997, Maljamar Wiser Inc. was merged into The Wiser
Oil Company and Maljamar Development Partnership, L.P. was terminated. Wiser
Canada was formed in 1994 to conduct the Company's Canadian activities. Prior to
the formation of Wiser Canada, the Company's oil and gas operations were
conducted primarily in the United States. Intercompany accounts and transactions
have been eliminated. Certain reclassifications have been made to conform prior
years' amounts to current presentation.
b. Risks and Uncertainties -- 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.
c. Oil and Gas Properties -- The Company is engaged in the exploration
and development of oil and gas in the United States and Canada. The Company
follows the "successful efforts" method of accounting for its oil and gas
properties. Under this method of accounting, all costs of property acquisitions
and exploratory wells are initially capitalized. If a well is unsuccessful, the
capitalized costs of drilling the well, net of any salvage value, are charged to
expense. The capitalized costs of unproven properties are periodically assessed
to determine whether their value has been impaired below the capitalized cost,
and if such impairment is indicated, a loss is recognized. Geological and
geophysical costs and the costs of retaining undeveloped properties are expensed
as incurred. Expenditures for maintenance and repairs are charged to expense,
and renewals and betterments are capitalized. Upon disposal, the asset and
related accumulated depreciation, depletion and amortization are removed from
the accounts, and any resulting gain or loss is reflected currently in income.
Prior to 1995, the Company evaluated the carrying value of its oil and gas
properties based on undiscounted future net revenues on a company wide basis.
During 1995, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived assets and for
Long-Lived Assets to Be Disposed Of". SFAS 121 requires the Company to assess
the need for an impairment of capitalized costs of oil and gas properties on a
property-by-property basis. If an impairment is indicated based on undiscounted
expected future cash flows, then an impairment is recognized to the extent that
net capitalized costs exceed discounted future cash flows. For 1998, the
impairment test was based on estimates of future cash flows for each field.
Crude oil price estimates were based on NYMEX future prices, which were $12.35,
$13.63 and $14.57 per barrel for 1999, 2000 and 2001, respectively, and
increased 3% per year thereafter up to a maximum of $20 per barrel. Gas price
estimates were also based on NYMEX future prices, which where $1.96, $2.25,
$2.34 and $2.55 per MMBTU for 1999, 2000, 2001 and 2002, respectively, and
increased 3% per year thereafter up to a maximum of $3.50 per MMBTU. These
prices were applied to production profiles developed by the Company's engineers
using proved developed reserves at December 31, 1998. During 1998, 1997 and
1996, the Company provided impairments of $3,838,000, $3,289,000 and
$12,112,000, respectively. The impairments were determined based on the
difference between the carrying value of the assets and the present value of
future cash flows discounted at 10%. It is reasonably possible that a change in
reserve or price estimates could occur in the near term and adversely impact
management's estimate of future cash flows and consequently the carrying value
of properties.
F-7
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 and 1996
d. Depreciation, Depletion and Amortization ("DD&A") -- DD&A of the
capitalized costs of producing oil and gas properties are computed for
individual properties using the units-of-production method based on total proved
reserves. Depreciation of transportation, office and other properties is
computed generally using the straight-line method over the estimated useful
lives of these assets.
e. Cash and Cash Equivalents -- Cash equivalents generally consist of
short- term investments maturing in three months or less from the date of
acquisition. These investments of $2,675,000 at December 31, 1998 and
$15,083,000 at December 31, 1997 are recorded at cost plus accrued interest,
which approximates market.
f. Inventories -- Oil and gas product inventories are recorded at the
average cost of production. Materials and supplies are recorded at the lower of
average cost or market.
g. Accrued Liabilities -- Accrued liabilities include accrued vacation
and payroll of $323,000 at December 31, 1998 and $334,000 at December 31, 1997.
h. Postretirement Benefits -- SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", has no significant impact on the
Company. The Company has no significant liabilities for postretirement benefits,
other than pensions, and has historically recognized such liabilities as they
are incurred.
i. Gas Imbalances -- Gas imbalances are accounted for using the sales
method. The Company's net imbalance position is not material at December 31,
1998 and 1997.
j. Financial Instruments -- The following table sets forth the book value
and estimated fair values of financial instruments at December 31, 1998 and
1997, respectively (000's):
<TABLE>
<CAPTION>
1998 1997
------------------- ---------------------
Book Fair Book Fair
Value Value Value Value
-------- ------- --------- ---------
<S> <C> <C> <C> <C>
Cash and equivalents $ 2,779 $ 2,779 $ 13,255 $ 13,255
Floating-rate debt 21,000 21,000 -- --
Fixed-rate debt 124,452 (A) 124,304 (A)
</TABLE>
(A) It was not practicable to estimate the fair value of the Company's
fixed-rate debt because the trading volume was too small to establish a
reasonable basis of fair value.
During 1998, the Company entered into various natural gas forward sale
agreements and during 1997 and 1996, the Company entered into natural gas price
swap and oil price collar agreements to hedge against price fluctuations. Oil
and gas sales in the accompanying Consolidated Statements of Income are adjusted
for the effects of hedging transactions as the underlying hedged production is
sold. Adjustments to oil and gas sales from the Company's hedging activities
resulted in an increase in revenues of $210,000 in 1998 and reductions in
revenues of $2,372,000 and $6,923,000 in 1997 and 1996, respectively. As of
December 31, 1998 and December 31, 1997, the Company had no deferred net gains
or net losses. In February, March and April of 1999, the Company entered into
forward sale agreements to hedge a portion of the Company's oil and gas
production as follows:
<TABLE>
<CAPTION>
Period Daily Volume -- Product Price (Floor / Ceiling)
- ----------------------------------- -------------------------- -----------------------
<S> <C> <C>
March 1, 1999 to July 31, 1999 23,832 MMBTU - Natural Gas $1.72 per MMBTU
May 1, 1999 to August 31, 1999 800 Bbls - Crude Oil $13.40 per Bbl
May 1, 1999 to August 31, 1999 455 Bbls - Crude Oil $14.50/16.60 per Bbl
May 1, 1999 to September 30, 1999 500 Bbls - Crude Oil $13.00/17.35 per Bbl
</TABLE>
F-8
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 and 1996
The 455 Bbls per day crude oil hedge is a "collar" hedge whereby the
Company will receive the actual market price if the actual market price is
between the floor price of $14.50 per Bbl and the ceiling price of $16.60 per
Bbl. If the actual market price is below or above the floor or ceiling prices,
the price received by the Company will be limited to the floor price or ceiling
price, respectively.
The 500 Bbls per day crude oil hedge is also a "collar" hedge whereby the
Company will receive the actual market price if the actual market price is
between $15.00 per Bbl and the ceiling price of $17.35 per Bbl. If the actual
market price is between the floor price of $13.00 per Bbl and $15.00 per Bbl,
the Company will receive $15.00 per Bbl. If the actual market price is less than
the floor price of $13.00 per Bbl, the Company will receive the actual market
price plus $2.00 per Bbl. If the actual market price is above the ceiling price
of $17.35 per Bbl, the price received by the Company will be limited to $17.35
per Bbl.
k. Foreign Currency Translation -- The functional currency of Wiser
Canada is the Canadian dollar. In accordance with SFAS No. 52, "Foreign Currency
Translation", Wiser Canada's financial statements have been translated from
Canadian dollars to U.S. dollars with the cumulative translation adjustment gain
of $1,122,000 for 1998 and $915,000 for 1997 classified in Stockholders' Equity.
l. Comprehensive Income -- In 1998, the Company adopted Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income"("SFAS
130") which establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
Comprehensive income includes net income and other comprehensive income, which
includes, but is not limited to, unrealized gains for marketable securities and
future contracts, foreign currency translation adjustments and minimum pension
liability adjustments. The impact of adopting SFAS No. 130 for the three years
ended December 31, 1998 was not material.
2. Liquidity
On March 23, 1999, a financial institution ("New Lender") purchased all of
the rights and obligations of the Credit Agreement from NationsBank of Texas,
N.A. and the Bank of Montreal and became the new Agent under the Credit
Agreement. The outstanding borrowings by the Company under the Credit Agreement
at March 23,1999 and through April 15, 1999 are $21 million.
Subsequently, the Company notified the New Lender that the Company was not
able to maintain one of the ratios required under the Financial Covenants of the
Credit Agreement as of December 31, 1998, and through the date of notification.
On April 15, 1999, the Company and the New Lender entered into an agreement
whereby the Company will repay the outstanding balance under the Credit
Agreement of $21 million plus interest and fees from the anticipated cash
proceeds available from the sale of oil and gas properties as discussed further
below. The Company began negotiating various purchase and sale agreements to
sell a portion of its oil and gas properties prior to March 1999, and plans to
use the sales proceeds to reduce existing debt, fund capital expenditures and
for general corporate purposes.
The New Lender has agreed to waive any default or possible event of default
through December 31, 1998, and has agreed to stand still and not to enforce any
remedies under the Credit Agreement relating to any default or event of default
that has occurred or may occur through May 14, 1999. The New Lender also agreed
to deliver releases of its liens on any properties to be sold by the Company
until the outstanding balance of $21 million is repaid in full. The Company is
not in default of any covenants under the 9 1/2% Senior Subordinated Notes due
in May 2007.
The Company is pursuing several alternatives that would allow it to repay
the outstanding balance under the Credit Agreement through the sale of oil and
gas properties and/or refinancing. The Company believes the Credit Agreement
F-9
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 and 1996
will be repaid in full on or before May 14, 1999 from the proceeds of property
sales and/or refinancing as discussed below.
On April 13, 1999, the Company entered into a Purchase and Sale Agreement
with Prince Minerals, Ltd. to sell certain producing and non-producing mineral
interests ("Mineral Properties") for $10 million effective April 1, 1999. The
sale is expected to close by April 23, 1999. The producing portion of the oil
and gas properties comprising the Mineral Properties represent approximately 2%
of the Company's total proved oil and gas reserves at December 31, 1998. The
sales proceeds will be used to reduce the outstanding balance under the Credit
Agreement to approximately $11 million. The Purchase and Sale Agreement with
Prince Minerals, Ltd. is subject to the buyer successfully completing a due
diligence review, which was substantially complete as of April 15, 1999. The
Company is not aware of and does not anticipate any conditions that would delay
or terminate the closing of this sale.
On April 12, 1999, the Company entered into a Purchase and Sale Agreement
with Columbia Natural Resources to sell all of the Company's oil and gas
properties in Kentucky, Tennessee and West Virginia ("Appalachia Properties")
for $28 million effective April 1, 1999. The sale is expected to close on or
before May 12, 1999. The oil and gas properties comprising the Appalachia
Properties represent approximately 15% of the Company's total proved oil and gas
reserves at December 31, 1998. The sales proceeds will be used to repay in full
the outstanding balance under the Credit Agreement, and for general corporate
purposes. The Purchase and Sale Agreement with Columbia Natural Resources is
also subject to the buyer successfully completing a due diligence review, which
was in progress as of April 15, 1999. The Company is not aware of and does not
anticipate any conditions that would delay or terminate the closing of this
sale.
In addition, the Company is negotiating several other purchase and sale
agreements involving a number of smaller, non-strategic oil and gas properties
in Texas and New Mexico that the Company plans to sell for an aggregate sales
price in the range of $7 million to $8 million. These sales are expected to
close in the second quarter of 1999. The sales proceeds will be used for general
corporate purposes.
The Company is currently negotiating with a bank to obtain a new credit
facility. The Company expects to complete the negotiations and obtain a new
credit facility in the second quarter of 1999, however successful completion of
these negotiations cannot be assured. The Company plans to use any funds
provided by a new credit facility to fund capital expenditures and for general
corporate purposes. If a new credit facility is available prior to the closing
date of the Appalachia Properties sale, the Company may use funds provided by a
new credit facility to reduce any existing indebtedness under the Credit
Agreement with the New Lender. Management of the Company is highly confident
that the purchase and sale agreements for the Mineral and Appalachia Properties
discussed above will be closed as planned and that the funds provided by the
property sales will enable the Company to reduce indebtedness and continue to
meet all of its financial obligations while maintaining a smaller level of
capital expenditures during 1999.
3. Marketable Securities
The Company follows the accounting procedures as established by SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities". Under
SFAS No. 115 marketable securities, such as those owned by the Company, are
classified as available-for-sale securities and are to be reported at market
value, with unrealized gains and losses, net of income taxes, excluded from
earnings and reported as a separate component of stockholders' equity. All of
these securities were liquidated during 1997.
The Company recognized a pretax gain of $7,495,000 and $12,977,000 for 1997
and 1996, respectively, from the sale of its marketable securities.
F-10
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 and 1996
4. Long-Term Debt
a. On May 21, 1997, the Company sold $125 million in principal amount of
9 1/2% Senior Subordinated Notes ("2007 Notes") due May 15, 2007, providing net
proceeds to the Company of $120,898,000. The original issue price was 99.718%.
The Company used the net proceeds from the sale of the 2007 Notes to repay all
outstanding indebtedness under the Credit Agreement and the Maljamar Credit
Facility and for general corporate purposes.
The 2007 Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after May 15, 2002 at a redemption price of 104.75%,
plus accrued interest to the date of redemption, and declining at the rate of
1.583% per year to May 15, 2005 and 100% thereafter. Prior to May 15, 2000, the
Company may, at its option, redeem up to 33 1/3% of the original principal
amount at a redemption price of 109.5%, plus accrued interest to the date of
redemption, with the net proceeds from any future public offering of Company
stock.
Under the terms of the 2007 Notes, the Company must meet certain tests
before it is able to pay cash dividends or make other restricted payments, incur
additional indebtedness, engage in transactions with its affiliates, incur liens
and engage in certain sale and leaseback arrangements. The terms of the 2007
Notes also limit the Company's ability to undertake a consolidation, merger or
transfer of all or substantially all of its assets. In addition, the Company is,
subject to certain conditions, obligated to offer to repurchase the 2007 Notes
at par value plus accrued interest to the date of repurchase with the net cash
proceeds of certain sales or dispositions of assets. Upon a change of control,
as defined, the Company will be required to make an offer to purchase the 2007
Notes at 101% of the principal amount thereof, plus accrued interest to the date
of purchase.
b. On June 23, 1994, the Company entered into a Credit Agreement with
NationsBank of Texas, N. A. as agent, which provided for a term loan to Wiser
Canada and a revolving credit facility to the Company. On December 23, 1997, the
Credit Agreement was renewed under the same basic terms. The Credit Agreement
provides the Company with up to a $150 million line of credit through March 31,
2002. The amounts available for borrowing are determined under formulas related
to oil and gas reserves and the Company's borrowing base at December 31, 1998
was $25 million. The indebtedness outstanding under the Credit Agreement is
secured by a guaranty from Wiser Canada. Available loan and interest options are
(i) Base Rate Advances, at the bank's prime interest rate plus the Applicable
Margin and (ii) Eurodollar Advances, at LIBOR plus the Applicable Margin. Based
on the amount of outstanding advances, the Applicable Margin ranges between 0%
and 1.25% and the commitment fee on the unused borrowing base ranges from 0.25%
to 0.375%. The average interest rate during 1998 under the Credit Agreement was
6.15%. The Credit Agreement requires the Company to, among other things,
maintain certain financial ratios and imposes certain restrictions on sales of
assets, payment of dividends and incurrence of indebtedness. At December 31,
1998 and through March 31, 1999, the Company was not able to maintain one of the
financial ratios required by the Credit Agreement. After March 31, 1999 and
through April 15, 1999, the Company was not able to maintain two of the
financial ratios required by the Credit Agreement. The Company intends to repay
the indebtedness under the Credit Agreement in full in 1999. Accordingly, the
outstanding balance of $21 million has been classified as a current liability at
December 31, 1998 in the accompanying Consolidated Balance Sheets. See Note 2
for further discussion.
c. On November 29, 1995, the Company entered into a credit agreement with
NationsBank of Texas, NA as agent (the "Maljamar Credit Facility"). The Maljamar
Credit Facility provided the Company with up to a $50 million nonrecourse
facility to develop the expanded Maljamar project area. The average interest
rate during 1997 under the Maljamar Credit Facility was 7.49%. The Maljamar
Credit Facility was repaid and canceled in May 1997.
The Company paid $12,375,000 in interest during 1998, $8,120,000 during
1997, and $4,971,000 during 1996.
F-11
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 and 1996
Long-term debt consists of the following (000's):
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
---------- -----------
<S> <C> <C>
2007 Notes 9.5% interest rate at December 31, 1998.......... $ 124,452 $ 124,304
Credit Agreement - 6.2% interest rate at December 31, 1998.. 21,000 --
---------- -----------
145,452 124,304
Less current maturities..................................... 21,000 --
---------- -----------
$ 124,452 $ 124,304
========== ===========
</TABLE>
The annual requirements for reduction of principal of long-term debt outstanding
as of December 31, 1998 are estimated as follows (000's):
<TABLE>
<S> <C>
1999.............................................................. $ --
2000.............................................................. --
2001.............................................................. --
2002.............................................................. --
Thereafter........................................................ 124,452
----------
$ 124,452
==========
</TABLE>
5. Income Taxes
The Company provides deferred income taxes for differences between the tax
reporting basis and the financial reporting basis of assets and liabilities. The
Company follows the accounting procedures established by SFAS No. 109,
"Accounting for Income Taxes". The Company paid income taxes of $566,000 in 1997
and $900,000 in 1996.
Income tax expense (benefit) for the three years ended December 31, 1998
were as follows (000's):
<TABLE>
Current:
<S> <C> <C> <C>
Federal...................................................................... $ (1,248) $ 375 $1,911
State........................................................................ 100 200 105
-------- ------- ------
(1,148) 575 2,016
-------- ------- ------
Deferred:
Federal...................................................................... (9,592) (311) 1,919
State........................................................................ -- -- 137
-------- ------- ------
(9,592) (311) 2,056
-------- ------- ------
Total income tax expense (benefit) $(10,740) $ 264 $4,072
======== ======= ======
</TABLE>
F-12
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 and 1996
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
Statutory federal income tax rate............................................. 34.0% 34.0% 34.0%
Statutory depletion in excess of cost basis................................... -- (5.4) (2.0)
Non-deductible Canadian operating loss........................................ -- -- 22.6
State taxes, net of federal income taxes...................................... -- 5.8 1.5
Dividends received credit..................................................... -- (1.3) (1.2)
Non-conventional fuels credit................................................. -- (7.3) (14.6)
Other......................................................................... (3.5) (18.4) (1.5)
------- ------ -------
Effective tax rate............................................................ 30.5% 7.4% 38.8%
======= ====== =======
</TABLE>
The deferred tax liabilities and assets at December 31, 1998 and 1997 were
as follows (000's):
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Deferred tax liabilities (assets):
Intangible drilling and development cost................................. $ 13,041 $ 14,966
Deferred pensions and compensation....................................... (296) (468)
Alternative minimum tax credit carryforwards............................. (3,040) (3,040)
Property impairment reserve.............................................. (2,424) (1,118)
Net operating loss carryforward.......................................... (6,013) --
Wiser Canada excess property basis....................................... (3,866) (3,866)
Valuation allowance...................................................... 3,866 3,866
Other.................................................................... (582) (62)
---------- ---------
$ 686 $ 10,278
========== =========
</TABLE>
The Company will only realize the benefits of alternative minimum tax
credit carryforwards by generating future regular tax liability in excess of
alternative minimum tax liability. In addition, the Company will only realize
the benefit of the net operating loss carryforward by generating future taxable
income. The Company believes it is more likely than not that both the net
operating loss carryforward and the alternative minimum tax credits will be
fully realized. As of December 31, 1998, Wiser had Canadian net deferred tax
assets of $3,866,000 and a valuation allowance has been provided against the
Canadian net deferred tax assets at December 31, 1998. Beginning in 1997, Wiser
Canada's operating results are included in the Company's consolidated federal
income tax return.
6. Oil and Gas Producing Activities
Set forth below is certain information regarding the aggregate capitalized
costs of oil and gas properties and costs incurred in oil and gas property
acquisitions, exploration and development activities (000's):
<TABLE>
<CAPTION>
U.S. Canada Total
---------- --------- ----------
<S> <C> <C> <C>
December 31, 1998:
- -----------------
Capitalized Costs:
Proved properties............................................ $ 261,361 $ 83,668 $ 345,029
Unproved properties.......................................... 18,007 4,938 22,945
--------- -------- ---------
</TABLE>
F-13
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
U.S. Canada Total
----------- ----------- -----------
<S> <C> <C> <C>
Total................................................. 279,368 88,606 367,974
Accumulated DD&A........................................... (114,769) (41,825) (156,594)
----------- ----------- -----------
Net capitalized cost....................................... $ 164,599 $ 46,781 $ 211,380
=========== =========== ===========
Costs Incurred during 1998:
Property acquisition....................................... $ 2,946 $ 1,181 $ 4,127
Exploration (A)............................................ 12,162 2,147 14,309
Development................................................ 10,226 11,397 21,623
(A) U.S. includes $1,615 for exploration in Peru.
December 31, 1997:
- ------------------
Capitalized Costs:
Proved properties.......................................... $ 247,809 $ 76,325 $ 324,134
Unproved properties........................................ 17,315 5,206 22,521
----------- ----------- -----------
Total................................................. 265,124 81,531 346,655
Accumulated DD&A........................................... (95,038) (34,589) (129,627)
----------- ----------- -----------
Net capitalized cost....................................... $ 170,086 $ 46,942 $ 217,028
=========== =========== ===========
Costs Incurred during 1997:
Property acquisition....................................... $ 22,399 $ 5,377 $ 27,776
Exploration................................................ 8,906 3,461 12,367
Development................................................ 27,380 9,593 36,973
December 31, 1996:
- ------------------
Capitalized Costs:
Proved properties.......................................... $ 226,411 $ 62,937 $ 289,348
Unproved properties........................................ 9,659 7,709 17,368
----------- ----------- -----------
Total................................................. 236,070 70,646 306,716
Accumulated DD&A........................................... (100,016) (29,094) (129,110)
----------- ----------- -----------
Net capitalized cost....................................... $ 136,054 $ 41,552 $ 177,606
=========== =========== ===========
Costs Incurred during 1996:
Property acquisition....................................... $ 1,782 $ 1,054 $ 2,836
Exploration................................................ 875 1,888 2,763
Development................................................ 33,994 6,230 40,224
Gas plants................................................. 408 -- 408
</TABLE>
The Company has a noncontributory defined benefit pension plan, which
covers substantially all full-time employees. Plan participants become fully
vested after five years of continuous service. The retirement benefit formula is
based on the employee's earnings, length of service and age at retirement.
Contributions required to fund plan benefits are determined according to the
Projected Unit Credit Method. The assets of the plan are primarily invested in
equity
F-14
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 and 1996
and debt securities. An amendment to the pension plan, effective January
1, 1993, reduced the normal retirement age from 65 years to 62 years. Effective
December 11, 1998, the pension plan was further amended to curtail certain
pension benefits.
The net periodic pension costs (000's) and principal assumptions utilized
in computing pension expense were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current service cost..................................... $ 375 $ 345 $ 381
Interest cost on projected benefit obligation............ 729 682 824
Actual return on assets.................................. (711) (930) 1,890
Curtailment adjustment................................... (778) -- --
Net amortization and deferral............................ 126 384 (2,652)
---------- ---------- ----------
Net periodic pension cost (credit)....................... $ (259) $ 481 $ 443
========== ========== ==========
Discount rate............................................ 7.0% 8.0% 8.0%
Rate of return on plan assets............................ 8.5% 8.5% 8.5%
Rate of increase in compensation levels.................. 5.0% 5.0% 5.0%
</TABLE>
F-15
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 and 1996
The following table presents the actuarial valuation of the plan's funded
status, as of December 31 (000's):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Actuarial present value of pension benefits obligations:
Vested......................................................... $ 9,666 $ 8,212 $ 8,155
Nonvested...................................................... -- 289 415
---------- ---------- ----------
Accumulated.................................................... 9,666 8,501 8,570
Projected salary increases..................................... -- 768 751
---------- ---------- ----------
Projected benefits obligations................................. 9,666 9,269 9,321
Plan assets at fair value...................................... 9,477 8,547 8,010
---------- ---------- ----------
Plan assets less than projected benefits obligations........... $ 189 $ 722 $ 1,311
========== ========== ==========
Items not yet recognized:
Unrecognized net gain.......................................... $ 16 $ 1,032 $ 473
Unamortized transition amount.................................. 65 87 121
Unamortized prior service cost................................. -- (812) (957)
---------- ---------- ----------
Net pension liability.......................................... $ 270 $ 1,029 $ 948
========== ========== ==========
</TABLE>
As a result of the curtailment of certain pension benefits in 1998, the
Company's net pension liability was reduced by $778,000.
8. Employee Savings Plan
The Company has a qualified Savings Plan available to all employees. An
employee may elect to have up to 15% of the employee's base monthly
compensation, exclusive of other forms of special or extra compensation,
withheld and placed in the Savings Plan account. On a monthly basis, the Company
contributes to this account an amount equal to 50% of the employee's
contribution, limited to 3% of the employee's base compensation. Company
contributions to the Savings Plan were $156,000, $142,000 and $126,000, in 1998,
1997 and 1996, respectively.
9. Business Segment Information
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" which requires reporting of financial and
descriptive information about a company's reportable operating segments. The
Company has identified only one operating segment, which is the exploration for
and production of oil and gas with sales made to domestic and Canadian energy
customers. Sales to major customers for the year ended December 31, 1998 were
$20,684,000 to Highland Energy Company and $7,656,000 to Koch Oil Co. Ltd. which
represented 34% and 13%, respectively, of the Company's total oil and gas
revenues. The sales to Koch Oil Co. Ltd. accounted for approximately 55% of the
Company's revenues from sales of its Canadian production in 1998. However, due
to the nature of the oil and gas industry, the Company is not dependent upon any
of these customers. The loss of any major customer would not have a material
adverse impact on the Company's business.
F-16
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997 and 1996
The following table summarizes the oil and gas activity of the Company by
geographic area for the years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
U.S. Canada Total
----------- ----------- -----------
<S> <C> <C> <C>
1998:
- -----
Total revenues......................................................... $ 46,328 $ 14,302 $ 60,630
Costs and expenses:
Production and operating............................................ 22,217 4,312 26,529
Purchased natural gas............................................... 1,440 -- 1,440
DD&A................................................................ 16,548 9,263 25,811
Property impairments................................................ 1,766 2,072 3,838
Exploration......................................................... 13,046 2,282 15,328
Other operating..................................................... 20,891 1,999 22,890
----------- ----------- -----------
Total costs and expenses....................................... 75,908 19,928 95,836
----------- ----------- -----------
Earnings (loss) before income taxes.................................... (29,580) (5,626) (35,206)
Income tax expense (benefit)........................................... (10,740) -- (10,740)
----------- ----------- -----------
Net income (loss)...................................................... $ (18,840) $ (5,626) $ (24,466)
=========== =========== ===========
Identifiable assets (end of year)...................................... $ 181,013 $ 50,797 $ 231,810
=========== =========== ===========
1997:
- -----
Total revenues......................................................... $ 71,706 $ 16,109 $ 87,815
Costs and expenses:
Production and operating............................................ 23,058 4,125 27,183
Purchased natural gas............................................... 1,622 -- 1,622
DD&A................................................................ 14,032 8,945 22,977
Property impairments................................................ 1,786 1,503 3,289
Exploration......................................................... 6,956 2,699 9,655
Other operating..................................................... 16,407 3,099 19,506
----------- ----------- -----------
Total costs and expenses....................................... 63,861 20,371 84,232
----------- ----------- -----------
Earnings before income taxes........................................... 7,845 (4,262) 3,583
Income tax expense..................................................... 264 -- 264
----------- ----------- -----------
Net income............................................................. $ 7,581 $ (4,262) $ 3,319
=========== =========== ===========
Identifiable assets (end of year)...................................... $ 202,474 $ 52,082 $ 254,556
=========== =========== ===========
1996:
- -----
Total revenues......................................................... $ 69,595 $ 17,094 $ 86,689
Costs and expenses:
Production and operating............................................ 20,288 3,682 22,970
Purchased natural gas............................................... 1,462 -- 1,462
DD&A................................................................ 11,783 7,870 19,653
Property impairments................................................ 7,276 4,836 12,112
Exploration......................................................... 1,837 2,339 4,176
Other operating..................................................... 9,475 5,341 14,816
----------- ----------- -----------
</TABLE>
F-17
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
U.S. Canada Total
-------- ------- --------
<S> <C> <C> <C>
Total costs and expenses........ 52,121 24,068 76,189
-------- ------- --------
Earnings before income taxes............. 17,474 (6,974) 10,500
Income tax expense....................... 4,072 -- 4,072
-------- ------- --------
Net income............................... $ 13,402 $(6,974) $ 6,428
======== ======= ========
Identifiable assets (end of year)........ $161,687 $46,930 $208,617
======== ======= ========
</TABLE>
10. Stock Compensation Plans
Stock Options
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages
but does not require companies to record compensation cost for stock-based
employee compensation plans at fair value. During 1996, the Company adopted the
disclosure provisions of SFAS No. 123. The Company continues to apply the
accounting provisions of APB Opinion 25, "Accounting for Stock Issued to
Employees," and related interpretations to account for stock-based compensation.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock.
The Company has two stock option plans, the 1991 Stock Incentive Plan
("Incentive Plan") and the 1991 Non-Employee Directors' Stock Option Plan
("Directors' Plan"). The Incentive Plan provides for the issuance of ten- year
options with a variable vesting period and a grant price equal to the fair
market value at the issue date. The Directors' Plan, as amended, provides for
the issuance of ten-year options with a six month vesting period and a grant
price equal to the fair market value at the issue date.
A summary of the status of the Company's two stock option plans at
December 31, 1998, 1997 and 1996 and changes during the years then ended
follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ---------------------- ---------------------
Exercise Exercise Exercise
Shares Price (1) Shares Price (1) Shares Price (1)
----------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.. 1,022,475 $15.62 879,500 $15.02 254,500 $16.88
Granted........................... 10,500 11.94 164,500 18.87 647,250 14.35
Exercised......................... -- -- (15,025) 15.68 -- --
Expired and cancelled............. (5,625) 11.25 (6,500) 15.76 (22,250) 16.88
---------- ------- --------- ------- -------- ------
Outstanding at end of year........ 1,027,350 $15.61 1,022,475 $15.62 879,500 $15.02
Exercisable at end of year........ 868,850 $15.40 773,975 $15.23 145,650 $16.47
Fair value of options granted(1).. $ 3.66 $ 6.07 $ 4.30
========== ========== ========
</TABLE>
(1) Weighted average per option granted.
667,750 of the 1,027,350 options outstanding at December 31,1998 have
exercise prices between $11 and $15, with a weighted average exercise price of
$14.35 and a weighted average remaining contractual life of 7.7 years. 609,750
of these options are currently exercisable with a weighted average exercise
price of $14.60. The remaining 359,600 options have exercise prices between $15
and $20, with a weighted average exercise price of $17.94 and a weighted average
contractual life of 6.3 years. 259,100 of these options are currently
exercisable with a weighted average exercise price of $17.30.
F-18
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997, and 1996
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants for both the Incentive Plan and the Directors' Plan:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Risk free interest rate......................... 5.58% 6.29% 6.36%
Expected dividend yields........................ 1.01% 0.64% 0.84%
Expected lives, in years........................ 5.00 5.06 4.85
Expected volatility............................. 25.99% 23.66% 22.22%
</TABLE>
Had compensation cost been determined consistent with SFAS No. 123, the
Company's net income and basic earnings per share would have been reduced to the
following pro forma amounts:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ------ ------
<S> <C> <C> <C>
Net income (loss) - as reported (in thousands).. $(24,466) $3,319 $6,428
Net income (loss) - pro forma (in thousands).... (24,685) 2,256 5,576
Earnings (loss) per share - as reported......... $ (2.73) $ .37 $ .72
Earnings (loss) per share - pro forma........... $ (2.76) $ .25 $ .62
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of compensation cost to be expected in future
years.
Share Appreciation Rights Plan
The Company has a share appreciation rights ("SARs") plan which authorizes
the granting of SARs to employees of the Company. Upon exercise, SARs allow the
holder to receive the difference between the SARs exercise price and the fair
market value of the Company's common stock covered by the SARs on the exercise
date. The holders of the SARs vest at 25% per year and the SARs expire at the
earlier of 5 years or termination of employment. At December 31, 1998, 85,000
SARs were outstanding with an exercise price of $14.63 per share.
11. Preferred Stock
In addition to Common Stock, the Company is authorized to issue 300,000
shares of Preferred Stock with a par value of $10 per share, none of which has
been issued.
12. Earnings Per Share
The Company accounts for earnings per share ("EPS") in accordance with SFAS
No. 128, "Earnings Per Share". Under SFAS No. 128, basic EPS is computed by
dividing net income by the weighted average common shares outstanding without
including any potentially dilutive securities. Diluted EPS is computed by
dividing net income by the weighted average common shares outstanding plus, when
their effect is dilutive, common stock equivalents consisting of stock options.
Previously reported EPS were equivalent to the diluted EPS calculated under SFAS
No. 128. Following are the weighted average common shares outstanding used in
the computation of basic EPS and diluted EPS for the years ended December 31,
1998, 1997 and 1996 (000's):
F-19
<PAGE>
THE WISER OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Basic EPS shares............................. 8,952 8,949 8,939
Diluted EPS shares........................... 8,952 8,982 8,954
</TABLE>
F-20
<PAGE>
THE WISER OIL COMPANY
SUPPLEMENTAL FINANCIAL INFORMATION
For the years ended December 31, 1998, 1997 and 1996 (Unaudited)
The following pages include unaudited supplemental financial
information as currently required by the Securities and Exchange Commission
(SEC) and the Financial Accounting Standards Board.
13. Estimated Quantities of Oil and Gas Reserves (Unaudited)
Proved reserves are the estimated quantities of crude oil, natural gas
and natural gas liquids, which upon analysis of geological and engineering data
appear with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions. Proved developed
reserves are proved reserves which can be expected to be recovered through
existing wells with existing equipment and under existing operating conditions.
The estimation of reserves requires substantial judgment on the part of
petroleum engineers and may result in imprecise determinations, particularly
with respect to new discoveries. Accordingly, it is expected that the estimates
of reserves will change as future production and development information becomes
available and that revisions in these estimates could be significant.
Following is a reconciliation of the Company's estimated net quantities of
proved oil and gas reserves, as estimated by independent petroleum consultants.
<TABLE>
<CAPTION>
Oil (Mbbls) Gas (Mmcf)
------------------------- --------------------------
U.S. Canada Total U.S. Canada Total
------- ------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995........................ 28,440 3,768 32,208 84,950 24,965 109,915
Revisions of previous estimates.............. (301) (25) (326) 2,738 (535) 2,203
Properties sold and abandoned................ (78) - (78) (72) - (72)
Reserves purchased in place.................. 12 - 12 17 505 522
Extensions, discoveries and other additions.. 2,040 533 2,573 10,787 1,705 12,492
Production................................... (2,033) (744) (2,777) (8,874) (2,809) (11,683)
------- ------ ------ ------- ------ -------
Balance December 31, 1996........................ 28,080 3,532 31,612 89,546 23,831 113,377
Revisions of previous estimates.............. (2,614) 274 (2,340) 1,208 1,988 3,196
Properties sold and abandoned................ (810) (344) (1,154) (902) (2,606) (3,508)
Reserves purchased in place.................. 1,493 1,013 2,506 8,961 - 8,961
Extensions, discoveries and other additions.. 1,205 653 1,858 7,601 2,667 10,268
Production................................... (2,037) (724) (2,761) (9,466) (2,734) (12,200)
------- ------ ------ ------- ------ -------
Balance December 31, 1997........................ 25,317 4,404 29,721 96,948 23,146 120,094
Revisions of previous estimates.............. (2,773) 689 (2,084) (4,001) 1,362 (2,639)
Properties sold and abandoned................ (215) (118) (333) (237) (882) (1,119)
Reserves purchased in place.................. 2,686 - 2,686 319 - 319
Extensions, discoveries and other additions.. 407 306 713 12,971 4,111 17,082
Production................................... (1,837) (878) (2,715) (10,535) (3,221) (13,756)
------- ------ ------ ------- ------ -------
Balance December 31, 1998........................ 23,585 4,403 27,988 95,465 24,516 119,981
======= ====== ====== ======= ====== =======
</TABLE>
F-21
<PAGE>
THE WISER OIL COMPANY
SUPPLEMENTAL FINANCIAL INFORMATION
For the years ended December 31, 1998, 1997 and 1996 (Unaudited)
Proved Developed Resources at December 31, (1):
<TABLE>
<CAPTION>
Oil (Mbbls) Gas (Mmcf)
--------------------------- --------------------------
U.S. Canada Total U.S. Canada Total
---- ------ ----- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
1995......................................... 17,939 3,617 21,556 77,915 24,111 102,026
1996......................................... 24,892 3,225 28,117 80,652 22,477 103,129
1997......................................... 23,798 4,404 28,202 87,688 21,771 109,459
1998......................................... 22,701 4,253 26,954 86,610 23,736 110,346
</TABLE>
(1) Reserve volumes as assigned by third party engineers have been increased to
reflect the effect of the Alberta Royalty Tax Credit refund. Total proved
approved developed reserves were increased by 186 MBBL and 1,258 MMCF for 1996,
364 MBBL and 1,914 MMCF for 1997 and 389 MBBL and 2,088 MMCF for 1998.
Standardized Measure of Discounted Future Net Cash Flows of Proved Oil and Gas
Reserves (Unaudited)
The Company has estimated the standardized measure of discounted future net
cash flows and changes therein relating to proved oil and gas reserves in
accordance with the standards established by the Financial Accounting Standards
Board through its Statement No. 69. The estimates of future cash inflows and
future production and development cost are based on current year end sales
prices for oil and gas. Estimated future production of proved reserves and
estimated future production and development costs of proved reserves are based
on current costs and economic conditions.
This standardized measure of discounted future net cash flows is an attempt
by the Financial Accounting Standards Board to provide the users of financial
statements with information regarding future net cash flows from proved
reserves. However, the users of these financial statements should use extreme
caution in evaluating this information. The assumptions required to be used in
these computations are subjective and arbitrary. Had other equally valid
assumptions been used, significantly different results of discounted future net
cash flows would result. Therefore, these estimates do not necessarily reflect
the current value of the Company's proved reserves or the current value of
discounted future net cash flows for the proved reserves.
The following are the Company's estimated standardized measure of
discounted future net cash flows from proved reserves (000's):
<TABLE>
<CAPTION>
U.S. Canada Total
---- ------ -----
December 31, 1998:
<S> <C> <C> <C>
Future cash flows....................................... $ 440,715 $ 87,869 $ 528,584
Future production and development costs................. (278,468) (31,147) (309,615)
Future income tax expense............................... (15,091) (5,063) (20,154)
---------- -------- ----------
Future net cash flows................................... 147,156 51,659 198,815
10% Annual discount for estimated timing of cash flows.. (67,065) (18,518) (85,583)
---------- -------- ----------
Standardized measure of discounted cash flows....... $ 80,091 $ 33,141 $ 113,232
========== ======== ==========
</TABLE>
F-22
<PAGE>
THE WISER OIL COMPANY
SUPPLEMENTAL FINANCIAL INFORMATION
For the years ended December 31, 1998, 1997 and 1996 (Unaudited)
<TABLE>
December 31, 1997:
<S> <C> <C> <C>
Future cash flows....................................... $ 650,810 $ 98,143 $ 748,953
Future production and development costs................. (357,598) (32,062) (389,660)
Future income tax expense............................... (60,477) (6,512) (66,989)
---------- -------- ----------
Future net cash flows................................... 232,735 59,569 292,304
10% Annual discount for estimated timing of cash flows.. (97,116) (20,699) (117,815)
---------- -------- ----------
Standardized measure of discounted cash flows....... $ 135,619 $ 38,870 $ 174,489
========== ======== ==========
December 31, 1996:
Future cash flows...................................... $1,029,971 $116,203 $1,146,174
Future production and development costs................ (415,276) (25,175) (440,451)
Future income tax expense.............................. (172,024) - (172,024)
---------- -------- ----------
Future net cash flows.................................. 442,671 91,028 533,699
10% Annual discount for estimated timing of cash flows. (187,332) (29,187) (216,519)
---------- -------- ----------
Standardized measure of discounted cash flows...... $ 255,339 $ 61,841 $ 317,180
========== ======== ==========
</TABLE>
The following are the sources of changes in the standardized measure of
discounted net cash flows (000's):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Standardized measure, beginning of year................. $174,489 $ 317,180 $194,602
Sales, net of production costs.......................... (31,445) (47,959) (46,580)
Net change in price and production costs................ (78,321) (204,859) 142,806
Reserves purchased in place............................. 1,817 30,570 581
Extensions, discoveries and improved recoveries......... 11,259 11,751 42,582
Change in future development costs...................... 9,316 16,339 27,080
Revisions of previous quantity estimates and disposals.. (4,846) (6,992) 314
Sales of reserves in place.............................. (1,698) (10,756) (987)
Accretion of discount................................... 21,007 41,431 23,542
Changes in timing and other............................. (13,327) (33,752) (10,440)
Net change in income taxes.............................. 24,981 61,536 (56,320)
Standardization measure, end of year.................... $113,232 $ 174,489 $317,180
======== ========= ========
</TABLE>
F-23
<PAGE>
THE WISER OIL COMPANY
SUPPLEMENTAL FINANCIAL INFORMATION
For the years ended December 31, 1998, 1997 and 1996 (Unaudited)
14. Quarterly Financial Date
The supplementary financial data in the table below for each
quarterly period within the years ended December 31, 1998 and 1997 are
derived from the unaudited consolidated financial statements of the Company.
<TABLE>
<CAPTION>
Net Earnings
Income (Loss)
Revenues (Loss) Per Share
-------- ------- ----------
(000's) (000's)
1998:
<S> <C> <C> <C>
First quarter.............................. $17,415 $(3,556) $(0.40)
Second quarter............................. 16,019 (4,675) (0.52)
Third quarter.............................. 13,833 (8,153) (0.91)
Fourth quarter............................. 13,363 (8,082) (0.90)
1997:
First quarter.............................. $25,575 $ 6,141 $ .69
Second quarter............................. 17,826 (1,944) (0.22)
Third quarter.............................. 17,027 (1,878) (0.21)
Fourth quarter............................. 27,387 1,000 0.11
</TABLE>
15. Summary of Guaranties of 9 1/2% Senior Subordinated Notes
In May 1997, the Company issued $125 million aggregate principal amount of
its 9 1/2% senior Subordinated Notes due 2007 pursuant to an offering exempt
from registration under the Securities Act of 1933. The notes are unsecured
obligations of the Company, subordinated in right of payment to all existing and
any future senior indebtedness of the Company. The notes rank pari passu with
any future senior subordinated indebtedness and senior to any future junior
subordinated indebtedness of the Company. The notes are fully and
unconditionally guaranteed, jointly and severally, on an unsecured, senior
subordinated basis by certain wholly owned subsidiaries of the Company (the
"Subsidiary Guarantors"). At the time of the initial issuance of the notes,
Wiser Oil Delaware, Inc., The Wiser Marketing Company, Wiser Delaware LLC,
T.W.O.C., Inc. and The Wiser Oil Company of Canada were the Subsidiary
Guarantors (the "Initial Subsidiary Guarantors"). Except for two wholly owned
subsidiaries that are inconsequential to the Company on a consolidated basis,
the Initial Subsidiary Guarantors comprise all of the Company's direct and
indirect subsidiaries.
Sections 13 and 15(d) of the Securities Exchange Act of 1934 require
presentation of the following unaudited summarized financial information of the
Subsidiary Guarantors. The Company has not presented separate financial
statements and other disclosures concerning each Subsidiary Guarantor because
such information is not material to investors. There are no significant
contractual restrictions on distributions from each of the Subsidiary Guarantors
to the Company.
F-24
<PAGE>
THE WISER OIL COMPANY
SUPPLEMENTAL FINANCIAL INFORMATION
For the Years Ended December 31, 1998, 1997 and 1996(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Guarantors
The Wiser
Wiser T.W.O.C. Marketing Combined
Canada (1) Inc. Company Total
----------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues:
For the Year Ended December 31, 1998............ $ 14,303 $ 1 $ 2,141 $ 16,476
For the Year Ended December 31, 1997............ 16,109 7,687 2304.00 26,100
For the Year Ended December 31, 1996............ 17,094 16,304 2237.00 35,635
Earnings (Loss) Before Income Taxes:
For the Year Ended December 31, 1998............ $ (5,626) $ (14) $ 243 $ (5,397)
For the Year Ended December 31, 1997............ (4,262) 7,671 231 3,640
For the Year Ended December 31, 1996............ (6,974) 16,287 338 9,651
Net Income (Loss):
For the Year Ended December 31, 1998............ $ (3,882) $ (10) $ 168 $ (3,724)
For the Year Ended December 31, 1997............ (3,947) 7,103 214 3,370
For the Year Ended December 31, 1996............ (6,974) 12,492 259 5,777
Current Assets:
December 31, 1998............................... $ 3,782 $ 3 $ 213 $ 3,998
December 31, 1997............................... 4,808 44 165 5,017
December 31, 1996............................... 4,958 53 170 5,181
Total Assets:
December 31, 1998............................... $ 50,797 $ 3 $ 526 $ 51,326
December 31, 1997............................... 52,083 44 492 52,619
December 31, 1996............................... 39,132 7,229 718 47,079
Current Liabilities:
December 31, 1998............................... $ 4,806 $ -- $ 361 $ 5,167
December 31, 1997............................... 6,646 -- 250 6,896
December 31, 1996............................... 4,931 -- 508 5,439
Noncurrent Liabilities:
December 31, 1998............................... $ 17,846 $ -- $ -- $ 17,846
December 31, 1997............................... 9,474 -- -- 9,474
December 31, 1996............................... 52,439 2,227 -- 54,666
Stockholders' Equity (Deficit):
December 31, 1998............................... $ 28,145 $ 3 $ 165 $ 28,313
December 31, 1997............................... 35,963 44 242 36,249
December 31, 1996............................... (18,238) 5,002 210 (13,026)
</TABLE>
(1) Includes the accounts of Wiser Oil Delaware, Inc., Wiser Delaware LLC and
The Wiser Oil Company of Canada.
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
16. Events (Unaudited) Subsequent to Date of Auditor's Report:
On May 10, 1999, the Company entered into a Restated Credit Agreement
("BankOne Revolver") with Bank One, Texas, N.A. The Company repaid in full the
outstanding principal balance under the Credit Agreement with Bank of America
(formerly Nations Bank of Texas N.A.) ("Credit Agreement") and the Credit
Agreement was terminated. The BankOne Revolver provides the Company with up to
a $25 million line of credit through April 30, 2001. The amounts available for
borrowing are based on the Company's oil and gas reserves and the Company's
Borrowing Base at September 30, 1999 was $8 million. Available loan and interest
options are (i) Prime Rate Loans, at the bank's prime interest rate and (ii)
Eurodollar Loans, at LIBOR plus 2.5%, 2.75%, or 3% depending on the percentage
of the Borrowing Base actually borrowed by the Company. The commitment fee on
the unused Borrowing Base is 0.5%. The BankOne Revolver imposes certain
restrictions on sales of assets, payment of dividends and incurrence of
indebtedness and requires the Company to, among other things, maintain certain
financial ratios and make monthly escrow deposits of $990,000 to fund the semi-
annual interest payments on the 9 1/2% Senior Subordinated Notes.
On December 13, 1999, the Company and Wiser Investment Company, LLC ("WIC")
entered into a Stock Purchase Agreement and a Warrant Purchase Agreement
providing for the issuance and sale by the Company to WIC of 1,000,000 shares of
the Company's Series C Cumulative Convertible Preferred Stock for a purchase
price of $25 million in cash, and the issuance of warrants to purchase shares of
the Company's Common Stock representing 5% of the outstanding shares of Common
Stock at any given time.
During 1999, the Company entered into various forward-sale agreements to
hedge a portion of the Company's oil and gas production. For the fourth quarter
of 1999, the Company hedged an average of 4,233 barrels of oil production per
day with a floor price of $16.50 per barrel and a ceiling price of $20.00 per
barrel. For the first quarter of 2000, the Company hedged an average of 1,000
barrels of oil production per day with a floor price of $18.50 per barrel and a
ceiling price of $26.60 per barrel. The Company also hedged 2,700 barrels of oil
production per day for the first quarter of 2000 at a fixed swap price of $24.00
per barrel. For the second, third and fourth quarters of 2000, the Company
hedged 3,500 barrels, 3,400 barrels and 3,300 barrels per day of oil production,
respectively, at a fixed swap price of $22.30, $21.07 and $19.78 per barrel,
respectively. The Company also entered into forward-sale agreements for gas
production for the months of February through September 2000 that hedge an
average of 5,261 MMBTU per day of gas production at an average price of $2.29
per MMBTU. These hedges amount to approximately 90% of the Company's estimated
oil production for the year 2000 and approximately 25% of the Company's
estimated gas production for the eight months of February through September
2000.
F-26
<PAGE>
THE WISER OIL COMPANY
CONSOLIDATED STATEMENTS OF INCOME
For the Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
-------------------
1999 1998
---------- --------
(000's except per share data)
<S> <C> <C>
Revenues:
Oil and gas sales............................... $ 34,668 $ 45,883
Dividends and interest.......................... 434 244
Other........................................... 3,457 1,140
-------- --------
38,559 47,267
Costs and Expenses:
Production and operating........................ 14,927 20,016
Purchased natural gas........................... 336 1,072
Depreciation, depletion and amortization........ 14,081 20,162
Exploration..................................... 5,643 10,533
General and administrative...................... 5,073 7,570
Interest Expense................................ 10,162 9,760
-------- --------
50,222 69,113
Earnings (Loss) Before Income Taxes..................... (11,663) (21,846)
Income Tax Expense (Benefit)............................ (859) (5,462)
-------- --------
NET INCOME (LOSS)....................................... $(10,804) $(16,384)
======== ========
Weighted Average Outstanding Share...................... 8,952 8,952
======== ========
Earnings (Loss) Per Share:
Basic........................................... $ (1.21) $ (1.83)
======== ========
Diluted......................................... $ (1.21) $ (1.83)
======== ========
Cash Dividends Per Share........................ $ -- $ .09
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
THE WISER OIL COMPANY
CONSOLIDATED BALANCE SHEETS
September 30, 1999 and December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ----------
(000's) except share data
<S> <C> <C>
Assets
- ------
Current Assets:
Cash and cash equivalents ($3,973 restricted at Sept. 30, 1999)............... $ 22,950 $ 2,779
Accounts receivable........................................................... 9,728 9,102
Inventories................................................................... 332 669
Income taxes receivable....................................................... 1,442 1,270
Prepaid expenses.............................................................. 1,260 1,035
--------- ---------
Total current assets.................................................. 35,712 14,855
Property, Plant and Equipment, at cost:
Oil and gas properties (successful efforts method)............................ 273,179 367,974
Other properties.............................................................. 3,740 5,523
--------- ---------
276,919 373,497
Accumulated depreciation, depletion and amortization.......................... (115,128) (160,202)
--------- ---------
Net property, plant and equipment............................................. 161,791 213,295
Other Assets.................................................................. 3,474 3,660
--------- ---------
$ 200,977 $ 231,810
========= =========
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities:
Accounts payable.............................................................. $ 8,916 $ 10,473
Current portion of long-term debt............................................. - 21,000
Accrued liabilities........................................................... 5,499 2,730
--------- ---------
Total current liabilities..................................................... 14,415 34,203
--------- ---------
Long Term Debt....................................................................... 125,008 124,452
Deferred Benefit Cost................................................................ 353 378
Deferred Income Taxes................................................................ - 686
Stockholders' Equity:
Common stock - $3 par value; 20,000,000 shares authorized;
shares issued - 9,128,169; shares outstanding - 8,951,965.................... 27,385 27,385
Paid-in capital............................................................... 3,223 3,223
Retained earnings............................................................. 32,286 43,090
Foreign currency translation.................................................. 1,036 1,122
Treasury stock; 176,204 shares, at cost....................................... (2,729) (2,729)
--------- ---------
Total stockholders' equity................................................. 61,201 72,091
--------- ---------
$ 200,977 $ 231,810
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
THE WISER OIL COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Foreign
Common Paid-in Retained Currency Treasury
Total Stock Capital Earnings Translation Stock
--------- -------- ------- --------- ------------ ---------
(000's)
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998.................. $ 72,901 $27,385 $3,223 $ 43,090 $1,122 $(2,729)
Net Income (Loss) (10,804) - - (10,804) - -
Other comprehensive income
(loss), net of tax............ (86) - - - (86) -
--------
Comprehensive income (loss)..... (10,890)
Dividends paid.................. - - - - - -
September 30, 1999 $ 61,201 $27,385 $3,223 $ 32,286 $1,036 $(2,729)
======== ======= ====== ======== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
THE WISER OIL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
-------------------------------
1999 1998
-------------- ------------
(000's)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss)................................................. $ (10,804) $ (16,384)
Adjustments to reconcile net income to operating cash flows:
Depreciation, depletion and amortization...................... 14,081 20,162
Deferred income taxes......................................... (686) (4,095)
Property sale gains........................................... (3,015) (571)
Foreign currency translation.................................. (86) 178
Exploration expense........................................... 5,643 10,533
Amortization of other assets.................................. 438 418
Other Changes:
Accounts receivable...................................... (626) 4,368
Inventories.............................................. 42 79
Income taxes receivable.................................. (172) (1,345)
Prepaid expenses......................................... (225) (1,000)
Other assets............................................. (196) 578
Accounts payable......................................... (1,557) (8,094)
Accrued liabilities...................................... 2,769 (1,226)
Deferred benefits cost................................... (25) (141)
------------- -----------
Operating Cash Flow............................ 5,581 3,460
Cash Flows From Investing Activities:
Capital and exploration expenditures.............................. (5,910) (37,012)
Proceeds from sales of property, plant and equipment.............. 41,000 2,963
------------- -----------
Investing Cash Flows........................... 35,090 (34,049)
Cash Flows From Financing Activities:
Long term debt issued............................................. - 19,486
Payments on long term debt........................................ (20,500) -
Dividends paid.................................................... - (806)
------------- -----------
Investing Cash Flows............................ (20,500) 18,680
------------- -----------
Net Increase (Decrease) In Cash.................................... 20,171 (11,909)
Cash and Cash Equivalents, beginning of period..................... 2,779 13,255
------------- -----------
Cash and Cash Equivalents, end of period........................... $ 22,950 $ 1,346
============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
Notes to Consolidated Financial Statements
For the Nine Months Ended September 30, 1999
(Unaudited)
1. Hedging Activities
During 1999, the Company entered into various forward sale agreements
to hedge a portion of the Company's oil and gas production. The Company's
forward sale agreements at September 30, 1999 were as follows:
<TABLE>
<CAPTION>
Period Daily Volume - Product Price (Floor / Ceiling) (a)
- --------------- ---------------------- ---------------------------
<S> <C> <C>
October 1999 4,200 Bbls - Crude Oil $16.50 / 20.00 per Bbl
November 1999 4,300 Bbls - Crude Oil $16.50 / 20.00 per Bbl
December 1999 4,200 Bbls - Crude Oil $16.50 / 20.00 per Bbl
January 2000 1,000 Bbls - Crude Oil $18.50 / 26.60 per Bbl
February 2000 1,000 Bbls - Crude Oil $18.50 / 26.60 per Bbl
March 2000 1,000 Bbls - Crude Oil $18.50 / 26.60 per Bbl
</TABLE>
(a) These are "collar" hedges whereby the Company will receive the
actual market price if the actual market price is between the floor
price and the ceiling price. If the actual market price is below or
above the floor or ceiling prices, the price received by the Company
will be limited to the floor price or ceiling price, respectively.
Oil and gas sales were reduced by $1.0 million in the third quarter of 1999
and by $1.5 million in the first nine months of 1999 from the Company's hedging
activities. At September 30, 1999, the Company's outstanding forward sale
agreements had a fair value loss of $1.7 million. The aggregate effect of a
hypothetical 10% change in oil price would result in a change of $0.9 million in
the fair value of these instruments at September 30, 1999.
F-31
<PAGE>
Notes to Consolidated Financial Statements
For the Nine Months Ended September 30, 1999 (continued)
2. Long-Term Debt
On May 10, 1999, the Company entered into a Restated Credit Agreement
("BankOne Revolver") with Bank One, Texas, N.A. The Company repaid in full the
outstanding principal balance under the Credit Agreement with Bank of America
(formerly NationsBank of Texas, N.A.) ("Credit Agreement") and the Credit
Agreement was terminated.
The BankOne Revolver provides the Company with up to a $25 million line of
credit through April 30, 2001. The amounts available for borrowing are based on
the Company's oil and gas reserves and the Company's Borrowing Base at
September 30, 1999 was $8 million. Available loan and interest options are (i)
Prime Rate Loans, at the bank's prime interest rate and (ii) Eurodollar Loans,
at LIBOR plus 2.5%, 2.75% or 3% depending on the percentage of the Borrowing
Base actually borrowed by the Company. The commitment fee on the unused
Borrowing Base is 0.5%. The BankOne Revolver imposes certain restrictions on
sales of assets, payment of dividends and incurrence of indebtedness and
requires the Company to, among other things, maintain certain financial ratios
and make monthly escrow deposits of $990,000 to fund the semi-annual interest
payments on the 9 1/2% Senior Subordinated Notes. At September 30, 1999, cash
and cash equivalents included $3,973,000 of escrow deposits which are restricted
to fund the November 15, 1999 interest payment on the 9 1/2% Senior Subordinated
Notes.
3. Summary of Guaranties of 9 1/2% Senior Subordinated Notes
In May 1998, the Company issued $125 million aggregate principal amount of
its 9 1/2% Senior Subordinated Notes due 2007 pursuant to an offering exempt
from registration under the Securities Act of 1933. The notes are unsecured
obligations of the Company, subordinated in right of payment to all existing and
any future senior indebtedness of the Company. The notes rank pari passu with
any future senior subordinated indebtedness and senior to any future junior
subordinated indebtedness of the Company. The notes are fully and
unconditionally guaranteed, jointly and severally, on an unsecured, senior
subordinated basis by certain wholly owned subsidiaries of the Company (the
"Subsidiary Guarantors"). At the time of the initial issuance of the notes,
Wiser Oil Delaware, Inc., The Wiser Marketing Company, Wiser Delaware LLC,
T.W.O.C., Inc. and The Wiser Oil Company of Canada were the Subsidiary
Guarantors (the "Initial Subsidiary Guarantors"). Except for two wholly owned
subsidiaries that are inconsequential to the Company on a consolidated basis,
the Initial Subsidiary Guarantors comprise all of the Company's direct and
indirect subsidiaries.
Sections 13 and 15(d) of the Securities Exchange Act of 1934 require
presentation of the following unaudited summarized financial information of the
Subsidiary Guarantors. The Company has not presented separate financial
statements and other disclosures concerning each Subsidiary Guarantor because
such information is not material to investors. There are no significant
contractual restrictions on distributions from each of the Subsidiary Guarantors
to the Company.
F-32
<PAGE>
Notes to Quarterly Financial Statements
For the Nine Months Ended September 30, 1999 (continued)
<TABLE>
<CAPTION>
THE WISER OIL COMPANY
Subsidiary Guarantors
----------------------
The Wiser
Wiser T.W.O.C. Marketing Combined
Canada (1) Inc. Company Total
--------------------- -------- ---------- --------
(000's)
<S> <C> <C> <C> <C>
Revenues:
For the nine months ended September 30, 1999.... $10,565 $ -- $ 523 $11,088
For the nine months ended September 30, 1998.... 10,573 1 1,593 12,167
Income (Loss) Before Income Taxes
For the nine months ended September 30, 1999.... $ (400) $ -- $ 68 $ (332)
For the nine months ended September 30, 1998.... (3,016) (14) 183 (2,847)
Net Income (Loss)
For the nine months ended September 30, 1999 ... $ (400) $ -- $ 68 $ (332)
For the nine months ended September 30, 1998 ... (2,111) (10) 128 (1,993)
Current Assets
September 30, 1999.............................. $ 4,704 $ 3 $ -- $ 4,707
December 31, 1998............................... 3,782 3 213 3,998
Total Assets
September 30, 1999.............................. $48,283 $ 3 $ -- $48,286
December 31, 1998............................... 50,797 3 526 51,326
Current Liabilities
September 30, 1999.............................. $ 3,805 $ -- $ -- $ 3,805
December 31, 1998............................... 4,806 -- 361 5,167
Noncurrent Liabilities
September 30, 1999.............................. $18,676 $ -- $ -- $18,676
December 31, 1998............................... 17,846 -- -- 17,846
Stockholder's Equity
September 30, 1999.............................. $25,802 $ 3 $ -- $25,805
December 31, 1998............................... 28,145 3 165 28,313
</TABLE>
(1) Includes the accounts of Wiser Oil Delaware, Inc., Wiser Delaware LLC and
The Wiser Oil Company of Canada.
F-33
<PAGE>
ANNEX A
STOCK PURCHASE AGREEMENT
By And Between
THE WISER OIL COMPANY
And
WISER INVESTMENT COMPANY, LLC
December 13, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS............................................................ 1
Section 1.1 Definitions............................................... 1
Section 1.2 References and Titles..................................... 8
ARTICLE II
PURCHASE OF PREFERRED SHARES........................................... 9
Section 2.1 Agreement to Sell and to Purchase Shares.................. 9
Section 2.2 Purchase Price and Payment................................ 9
Section 2.3 Delivery of Shares........................................ 9
Section 2.4 Deposit................................................... 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES......................................... 10
Section 3.1 Representations and Warranties of the Company............. 10
Section 3.2 Representations and Warranties of WIC and Purchaser....... 33
ARTICLE IV
COVENANTS.............................................................. 35
Section 4.1 Stockholder Approval; Proxy Statement..................... 35
Section 4.2 NYSE Listing.............................................. 36
Section 4.3 Affirmative Covenants of the Company...................... 37
Section 4.4 Negative Covenants of the Company......................... 37
Section 4.5 Reasonable Best Efforts; Financing........................ 40
Section 4.6 Other Transaction Documents............................... 40
Section 4.7 HSR Act Notification...................................... 41
Section 4.8 Notification of Certain Matters........................... 41
Section 4.9 No Solicitation by Company................................ 41
Section 4.10 Access; Confidentiality................................... 43
Section 4.11 Transfer Restrictions..................................... 43
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING......................................... 45
Section 5.1 Conditions Precedent to Each Party's Obligation........... 45
Section 5.2 Conditions Precedent to Obligations of WIC and Purchaser.. 45
Section 5.3 Conditions Precedent to Obligation of Company............. 47
ARTICLE VI
CLOSING................................................................ 47
Section 6.1 Closing................................................... 47
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Section 6.2 Actions to Occur at the Closing........................... 48
ARTICLE VII
TERMINATION............................................................ 49
Section 7.1 Termination............................................... 49
Section 7.2 Effect of Termination..................................... 50
ARTICLE VIII
INDEMNIFICATION........................................................ 51
Section 8.1 Indemnification of WIC and Purchaser...................... 51
Section 8.2 Indemnification of Company................................ 51
Section 8.3 Defense of Third-Party Claims............................. 51
Section 8.4 Direct Claims............................................. 52
Section 8.5 No Punitive Damages....................................... 52
Section 8.6 Exclusivity............................................... 52
ARTICLE IX
MISCELLANEOUS.......................................................... 53
Section 9.1 Survival of Provisions.................................... 53
Section 9.2 No Waiver; Modification in Writing........................ 54
Section 9.3 Specific Performance...................................... 54
Section 9.4 Severability.............................................. 54
Section 9.5 Fees and Expenses......................................... 55
Section 9.6 Parties in Interest....................................... 55
Section 9.7 Notices................................................... 55
Section 9.8 Counterparts.............................................. 56
Section 9.9 Entire Agreement.......................................... 56
Section 9.10 Governing Law............................................ 56
Section 9.11 Public Announcements..................................... 57
Section 9.12 Assignment............................................... 57
Section 9.13 Independent Determination................................ 58
</TABLE>
Exhibits:
Exhibit A - Form of Agreement and Irrevocable Proxy
Exhibit B - Form of Certificate of Designation
Exhibit C - Form of Employment Agreement
Exhibit D - Form of Management Agreement
Exhibit E - Form of Restated Certificate
Exhibit F - Form of Stockholder Agreement
Exhibit G - Form of Opinion of Thompson & Knight L.L.P.
Exhibit H - Form of Opinion of Andrews & Kurth L.L.P.
-ii-
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of December 13, 1999, by and between The
Wiser Oil Company, a Delaware corporation (the "Company"), and Wiser Investment
Company, LLC, a Delaware limited liability company ("WIC").
In consideration of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"Affiliate" means, with respect to any Person, any other Person directly,
or indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person. For purposes of this definition and this
Agreement, the term "control" (and correlative terms) means the power, whether
by contract, equity ownership or otherwise, to direct the policies or management
of a Person.
"Agreement" means this Stock Purchase Agreement, as the same may be
amended, supplemented or modified from time to time in accordance with the terms
hereof.
"Agreement and Irrevocable Proxy" means an agreement in the form attached
as Exhibit A hereto.
---------
"Alternative Transaction" has the meaning set forth in Section 4.9(d).
"Alternative Transaction Proposal" has the meaning set forth in Section
4.9(a).
"Approval" means any approval, authorization, grant of authority, consent,
order, qualification, permit, license, variance, exemption, franchise,
concession, certificate, filing or registration, or any waiver of the foregoing,
or any notice, statement or other communication, required to be obtained from,
filed with or delivered to any Governmental Entity or other Person.
"Benefit Arrangement" has the meaning set forth in Section 3.1(s)(i)(B).
"Board" means the Board of Directors of the Company.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in Dallas, Texas
generally are authorized or required by Law to close.
<PAGE>
"Bylaws" means the By-Laws of the Company as amended to the date of this
Agreement.
"Certificate of Cancellation" means a certificate, in form and substance
reasonably satisfactory to WIC and Purchaser, effecting the cancellation of the
Company's Series A Preferred Stock, in accordance with Section 151(g) of the
Delaware General Corporation Law.
"Certificate of Designation" means the Certificate of Designations for the
Series C Preferred Stock, in the form attached as Exhibit B hereto.
---------
"Certificate of Incorporation" means the Restated Certificate of
Incorporation of the Company as amended to the date of this Agreement and as
filed with the Secretary of State of Delaware.
"Closing" has the meaning set forth in Section 6.1.
"Closing Date" has the meaning set forth in Section 6.1.
"Code" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations thereunder as in effect on the date hereof.
"Commitment Letter" has the meaning set forth in Section 4.5(b).
"Common Stock" means the Company's common stock, the par value of which is
$3.00 per share on the date hereof but will be changed to $.01 per share on the
Closing Date pursuant to the Restated Certificate.
"Company" has the meaning set forth in the introductory paragraph hereof.
"Company Agents" has the meaning set forth in Section 4.9(a).
"Company Disclosure Schedule" means the disclosure schedule dated as of the
date of this Agreement, which refers to the Sections of this Agreement that it
qualifies, and which has been delivered by the Company to WIC on the date of
this Agreement.
"Company Indemnified Costs" means any and all damages, losses (including
diminution in value), claims, liabilities, demands, charges, suits, penalties,
costs and expenses (including court costs and reasonable legal fees and expenses
incurred in investigating and preparing for any litigation or proceeding) that
any of the Company Indemnified Parties incurs and that arise out of (i) any
breach by WIC or Purchaser of any of its representations or warranties under
this Agreement or any other Transaction Document or (ii) any breach by WIC or
Purchaser of any of its covenants or agreements under this Agreement or any
other Transaction Document.
-2-
<PAGE>
"Company Indemnified Parties" means the Company, its Subsidiaries and each
officer, director, employee, stockholder and Affiliate of the Company or its
Subsidiaries (other than WIC, Purchaser and Persons who are also officers,
directors, managers, employees, stockholders or Affiliates of WIC or Purchaser).
"Company Options" has the meaning set forth in Section 3.1(c)(iii).
"Company SEC Documents" has the meaning set forth in Section 3.1(i).
"Contracts" means all agreements, contracts or other binding commitments,
arrangements or plans, written or oral (including any amendments and other
modifications thereto), to which the Company or any of its Subsidiaries is a
party or is otherwise bound.
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of the Preferred Shares in accordance with the terms of the
Certificate of Designation.
"Credit Facility" has the meaning set forth in Section 3.1(m).
"Cure Period" has the meaning set forth in Section 7.1(b)(i).
"Debt", without duplication, means (a) all indebtedness (including the
principal amount thereof or, if applicable, the accreted amount thereof and the
amount of accrued and unpaid interest thereon) of the Company and its
Subsidiaries, whether or not represented by bonds, debentures, notes or other
securities, for the repayment of money borrowed, (b) all deferred indebtedness
of the Company and its Subsidiaries for the payment of the purchase price of
property or assets purchased, (c) all obligations of the Company and its
Subsidiaries to pay rent or other payment amounts under a lease of real or
personal property which is required to be classified as a capital lease or a
liability on the face of a balance sheet prepared in accordance with GAAP, (d)
any outstanding reimbursement obligation of the Company or its Subsidiaries with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of the Company or its Subsidiaries, (e) any payment obligation
of the Company or its Subsidiaries under any interest rate swap agreement,
forward rate agreement, interest rate cap or collar agreement or other financial
agreement or arrangement entered into for the purpose of limiting or managing
interest rate risks, (f) all indebtedness for borrowed money secured by any Lien
existing on property owned by the Company or its Subsidiaries, whether or not
indebtedness secured thereby shall have been assumed, (g) all guaranties,
endorsements, assumptions and other contingent obligations of the Company or its
Subsidiaries in respect of, or to purchase or to otherwise acquire, indebtedness
for borrowed money of others, (h) all other short-term and long-term liabilities
of the Company or its Subsidiaries of any nature, other than accounts payable
and accrued liabilities incurred in the ordinary course of business, and (i) all
premiums, penalties and change of control payments required to be paid or
offered in respect of any of the foregoing as a result of the consummation of
the transactions contemplated by the Transaction Documents regardless if any of
such are actually paid.
-3-
<PAGE>
"Deposit" has the meaning set forth in Section 2.4(a).
"Dividend Shares" means the shares of Common Stock issuable in payment of
dividends payable on the Preferred Shares in accordance with the terms of the
Certificate of Designation.
"Employment Agreement" means the Employment Agreement to be entered into by
and between the Company and George K. Hickox, Jr. at the Closing, in the form
attached as Exhibit C hereto.
---------
"Environmental Laws" has the meaning set forth in Section 3.1(w)(A).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agreement" has the meaning set forth in Section 2.4(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Financing" has the meaning set forth in Section 4.5(b).
"Financing Commitment Date" has the meaning set forth in Section 4.5(b).
"GAAP" has the meaning set forth in Section 3.1(i).
"Governmental Entity" means any agency, bureau, commission, court,
authority, department, official, political subdivision, tribunal or other
instrumentality of any government, whether (i) regulatory, administrative or
otherwise, (ii) federal, state or local or (iii) domestic or foreign.
"Hazardous Materials" has the meaning set forth in Section 3.1(w)(B).
"Hedge" and "Hedging" have the respective meanings set forth in Section
3.1(ii).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Indemnified Parties" means the Purchaser Indemnified Parties or the
Company Indemnified Parties, as the case may be.
"Indemnifying Party" has the meaning set forth in Section 8.3.
"Indenture" means the Indenture between the Company and Texas Commerce
Bank, N.A., as trustee, dated as of May 21, 1997, for the Company's 9 1/2%
Senior Subordinated Notes due 2007.
"Intangible Property" has the meaning set forth in Section 3.1(v).
-4-
<PAGE>
"IRS" means the Internal Revenue Service.
"knowledge" (and corresponding derivative expressions) mean the actual
knowledge of the executive officers, directors or senior managers of the
Company, WIC or Purchaser, as the case may be, after reasonable inquiry.
"Law" means any constitutional provision, statute or other law, ordinance,
rule, regulation or interpretation of any thereof and any Order of any
Governmental Entity (including Environmental Laws).
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
encumbrance, charge or security interest of any kind in or on such asset or the
revenues or income thereon or therefrom.
"Litigation" has the meaning set forth in Section 3.1(o).
"Management Agreement" means the Management Agreement to be entered into by
and between the Company and WIC at the Closing, in the form attached as Exhibit
-------
D hereto.
- -
"Material Adverse Effect" means any effect, change, event or occurrence
that is materially adverse to the business, operations, properties, condition
(financial or otherwise), results of operations, assets, liabilities or
prospects of the Company and its Subsidiaries taken as a whole, other than as a
result of (i) changes in oil or gas prices or (ii) general conditions in the
Company's industry (or changes in such conditions) not relating solely to the
Company or a Subsidiary in any specific manner.
"Material Contracts" has the meaning set forth in Section 3.1(p)(i).
"NYSE" means the New York Stock Exchange.
"Oil and Gas Properties" has the meaning set forth in Section 3.1(k).
"Order" means any decree, injunction, judgment, order, ruling, assessment
or writ.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, limited liability company, joint
venture, joint stock company, Governmental Entity or other entity of any kind.
"Plan" has the meaning set forth in Section 3.1(s)(i)(A).
"Preferred Share Issuance" means the issuance of the Preferred Shares to
Purchaser at the Closing.
-5-
<PAGE>
"Preferred Shares" means the shares of Series C Preferred Stock to be
purchased by Purchaser at the Closing pursuant to Section 2.1.
"Proxy Statement" has the meaning set forth in Section 3.1(d)(iii).
"Purchase Price" has the meaning set forth in Section 2.2(a).
"Purchaser" means WIC; provided, however, that if a permitted assignment or
assignments occur pursuant to Section 9.12(b) or 9.12(c), "Purchaser" shall mean
and include each assignee to whom such an assignment has been made (and shall
continue to mean and include WIC unless WIC has assigned all of its rights,
interests and obligations as Purchaser hereunder in accordance with the
provisions of Section 9.12).
"Purchaser Designees" has the meaning given to it in the Stockholder
Agreement.
"Purchaser Indemnified Costs" means any and all damages, losses (including
diminution in value), claims, liabilities, demands, charges, suits, penalties,
costs and expenses (including court costs and reasonable legal fees and expenses
incurred in investigating and preparing for any litigation or proceeding) that
any of the Purchaser Indemnified Parties incurs and that arise out of (i) any
breach by the Company of any of its representations or warranties under this
Agreement or any other Transaction Document or (ii) any breach by the Company of
any of its covenants or agreements under this Agreement or any other Transaction
Document.
"Purchaser Indemnified Parties" means WIC, Purchaser and each officer,
director, manager, employee, stockholder and Affiliate (other than the Company
and its Subsidiaries) of WIC and Purchaser.
"Release" has the meaning set forth in Section 3.1(w)(C).
"Remedial Action" has the meaning set forth in Section 3.1(w)(D).
"Requisite Votes" has the meaning set forth in Section 3.1(g).
"Reserve Reports" means the reserve information prepared by the Company's
independent petroleum engineers estimating the proved reserves attributable to
the Oil and Gas Properties as of December 31, 1998 and described in (i) the
Appraisal Report as of December 31, 1998 on Certain Properties Owned by The
Wiser Oil Company, prepared by DeGolyer and MacNaughton, and (ii) the Reserve
Appraisal and Economic Evaluation for The Wiser Oil Company Canada Ltd. dated as
of January 1, 1999, prepared by Gilbert Laustsen Jung Associates.
"Restated Bylaws" has the meaning set forth in Section 4.6.
-6-
<PAGE>
"Restated Certificate" means the Restated Certificate of Incorporation of
the Company to be submitted to the stockholders of the Company for their
approval at the Stockholders' Meeting, in the form attached as Exhibit E hereto.
---------
"Rights Agreement" means the Rights Agreement dated as of October 25, 1993,
between the Company and ChaseMellon Shareholder Services, L.L.C., as successor
rights agent, as amended.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Series C Preferred Stock" means the Company's Series C Cumulative
Convertible Preferred Stock, par value $10.00 per share, which shall have the
terms set forth in the Certificate of Designation.
"Stockholder Agreement" means the Stockholder Agreement to be entered into
by and between the Company, WIC and Purchaser at the Closing, in the form
attached as Exhibit F hereto.
---------
"Stockholders' Meeting" has the meaning set forth in Section 4.1(a).
"Stock Plans" means the Company's 1991 Stock Incentive Plan, 1991 Non-
Employee Directors' Stock Option Plan, Equity Compensation Plan for Non-Employee
Directors and 1997 Share Appreciation Rights Plan, all as amended.
"Subsidiary" means (i) a corporation, a majority of whose stock with voting
power to elect directors is at the date of determination thereof, directly or
indirectly, owned by the Company, by a Subsidiary or by the Company and another
Subsidiary or (ii) any other Person (other than a corporation) in which the
Company, a Subsidiary or the Company and a Subsidiary, directly or indirectly,
at the date of determination thereof have a majority ownership interest.
"Superior Proposal" has the meaning set forth in Section 4.9(a).
"Tax" has the meaning set forth in Section 3.1(r).
"Tax Return" has the meaning set forth in Section 3.1(r).
"Third Party" has the meaning set forth in Section 4.9(d).
"third-party action" has the meaning set forth in Section 8.3.
"Transaction Documents" means this Agreement, the Certificate of
Designation, the Employment Agreement, the Escrow Agreement, the Management
Agreement, the Stockholder
-7-
<PAGE>
Agreement, the Warrant Agreement, the Warrant Purchase Agreement and, for
purposes of Article III only, the Restated Certificate.
"Transfer" has the meaning set forth in Section 4.11.
"Underlying Common Shares" means the Conversion Shares, the Dividend Shares
and the Warrant Shares.
"Warrant Agreement" means the Warrant Agreement to be entered into by and
between the Company and WIC at the Closing, in the form attached as Exhibit A to
---------
the Warrant Purchase Agreement.
"Warrant Issuance" means the issuance of the Warrants to WIC pursuant to
the Warrant Agreement.
"Warrant Purchase Agreement" means the Warrant Purchase Agreement dated of
even date herewith between the Company and WIC, pursuant to which at the Closing
WIC will purchase the Warrants from the Company and both parties will enter into
the Warrant Agreement.
"Warrants" means the warrants issued pursuant to the terms of the Warrant
Agreement.
"Warrant Shares" means the shares of Common Stock issuable upon exercise of
the Warrants in accordance with the terms of the Warrant Agreement.
"WIC" has the meaning set forth in the introductory paragraph hereof.
SECTION 1.2 References and Titles. All references in this Agreement to
Exhibits, Schedules, Articles, Sections, subsections and other subdivisions
refer to the corresponding Exhibits, Schedules, Articles, Sections, subsections
and other subdivisions of this Agreement unless expressly provided otherwise.
Titles appearing at the beginning of any Articles, Sections, subsections or
other subdivisions of this Agreement are for convenience only, do not constitute
any part of such Articles, Sections, subsections or other subdivisions, and
shall be disregarded in construing the language contained therein. The words
"this Agreement," "herein," "hereby," "hereunder," and "hereof" and words of
similar import, refer to this Agreement as a whole and not to any particular
subdivision unless expressly so limited. The words "this Section," "this
subsection," and words of similar import, refer only to the Sections or
subsections hereof in which such words occur. The word "including" (in its
various forms) means "including without limitation." Pronouns in masculine,
feminine or neuter genders shall be construed to state and include any other
gender, and words, terms and titles (including terms defined herein) in the
singular form shall be construed to include the plural and vice versa, unless
the context otherwise expressly requires. Unless the context otherwise
requires, all defined terms contained herein shall include the singular and
plural and the conjunctive and disjunctive forms of such defined terms.
-8-
<PAGE>
ARTICLE II
PURCHASE OF PREFERRED SHARES
SECTION 2.1 Agreement to Sell and to Purchase Shares. Subject to the
terms and conditions herein set forth, the Company will issue and sell to
Purchaser, and Purchaser will purchase from the Company, at the Closing, a total
of 1,000,000 Preferred Shares.
SECTION 2.2 Purchase Price and Payment.
(a) The purchase price payable for the Preferred Shares shall be $25.00
per Preferred Share, or $25,000,000 in the aggregate (the "Purchase Price").
(b) Payment of the Purchase Price for the Preferred Shares shall be made
by or on behalf of Purchaser by wire transfer of immediately available funds to
an account of the Company (the number for which account shall have been
furnished to Purchaser at least two Business Days prior to the Closing Date),
provided that the Deposit shall be deemed a credit to the Purchase Price as
provided in Section 2.4(b)(i).
SECTION 2.3 Delivery of Shares. Delivery of the Preferred Shares shall be
made at the Closing by delivery to Purchaser, against payment of the Purchase
Price therefor as provided herein, of a share certificate (or share certificates
in such denominations as Purchaser may reasonably request not later than three
Business Days prior to the Closing Date) representing the total number of
Preferred Shares.
SECTION 2.4 Deposit.
(a) WIC has deposited in escrow the amount of $500,000 (the "Deposit")
under an Escrow Agreement dated December 9, 1999 between the Company, WIC and
Bank One, Texas, N.A., as escrow agent (the "Escrow Agreement").
(b) The Deposit shall be held by Bank One, Texas, N.A. in escrow under the
Escrow Agreement and shall be disbursed only in accordance with the following
terms and conditions:
(i) If the purchase of the Preferred Shares contemplated hereby is
consummated in accordance with the terms hereof, then concurrently with the
Closing the Deposit shall be disbursed to the Company and applied to the
Purchase Price to be paid by Purchaser for the Preferred Shares at the
Closing.
(ii) If this Agreement is terminated by the Company pursuant to
Section 7.1(f) or is terminated by any party pursuant to Section 7.1(e)
(and provided that the Company is not then in material breach of any of its
obligations hereunder), the Deposit shall be disbursed to the Company
within three Business Days following such termination, to be retained by
the
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<PAGE>
Company as liquidated damages. The retention by the Company of the Deposit
shall be the sole remedy available to the Company in any such case.
(iii) If this Agreement is terminated pursuant to Article VII and the
Company is not entitled to a disbursement of the Deposit pursuant to
Section 2.4(b)(ii), WIC shall be entitled to a return of the Deposit within
three Business Days following such termination.
ARTICLE III
REPRESENTATIONS AND
WARRANTIES
SECTION 3.1 Representations and Warranties of the Company. The Company
represents and warrants to WIC and Purchaser as follows:
(a) Organization, Standing and Power. Each of the Company and its
Subsidiaries is a corporation or other entity duly organized, validly existing
and in good standing under the laws of the jurisdiction in which it is
incorporated or organized and has the requisite corporate or other such entity
power and authority to carry on its business as now being conducted. Each of
the Company and its Subsidiaries is duly qualified or licensed to do business
and is in good standing in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to be so
qualified or licensed or to be in good standing, individually or in the
aggregate, has not had and could not reasonably be expected to have a Material
Adverse Effect. The Company has delivered to WIC prior to the execution of this
Agreement complete and correct copies of the Company's Certificate of
Incorporation and Bylaws, as in effect on the date of this Agreement, and has
made available to WIC the certificate of incorporation and bylaws (or comparable
organizational documents) of each of its Subsidiaries, in each case as in effect
on the date of this Agreement.
(b) Subsidiaries. Schedule 3.1(b)(i) of the Company Disclosure Schedule
sets forth a true and complete list, as of the date hereof, of each Subsidiary
of the Company, together with the jurisdiction of incorporation or organization
and the percentage of each Subsidiary's outstanding capital stock (or other
voting or equity securities or interests, as applicable) owned by the Company or
another Subsidiary of the Company. Except as set forth in Schedule 3.1(b)(ii)
of the Company Disclosure Schedule, all the outstanding shares of capital stock
(or other voting or equity securities or interests, as applicable) of each
Subsidiary of the Company have been validly issued and (with respect to
corporate Subsidiaries) are fully paid and nonassessable and are owned directly
or indirectly by the Company, free and clear of all Liens. Except for the
capital stock (or other voting or equity securities or interests, as applicable)
of its Subsidiaries and except as set forth in Schedule 3.1(b)(iii) of the
Company Disclosure Schedule, as of the date hereof, the Company does not own,
directly or indirectly, any capital stock (or other voting or equity securities
or interests, as applicable) of any corporation, limited liability company,
partnership, joint venture or other entity.
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(c) Capital Structure.
(i) The authorized capital stock of the Company consists of
20,000,000 shares of Common Stock (which will be increased on the Closing
Date to 30,000,000 shares of Common Stock, par value $.01 per share,
pursuant to the Restated Certificate) and 300,000 shares of preferred
stock, par value $10.00 per share (which will be increased on the Closing
Date to 1,300,000 shares of preferred stock pursuant to the Restated
Certificate), which shares of preferred stock may be divided into and
issued in one or more series upon the creation thereof by the Board. As of
the date hereof, 8,951,965 shares of Common Stock are issued and
outstanding (including the associated preferred stock purchase rights
issued pursuant to the Rights Agreement) and 176,204 shares of Common Stock
are held by the Company in its treasury. No shares of Common Stock are
held by any of the Company's Subsidiaries. An aggregate of (A) 10,000
shares of preferred stock of the Company have been designated as the Series
A Preferred Stock as of the date hereof (which will be cancelled on the
Closing Date pursuant to the Certificate of Cancellation) and (B) 20,000
shares of preferred stock of the Company have been designated as the Series
B Preferred Stock and reserved for issuance pursuant to the Rights
Agreement, but none of such shares of preferred stock has been issued and
there is no commitment, arrangement or understanding to issue any such
shares.
(ii) There are no bonds, debentures, notes or other indebtedness
issued or outstanding having the right to vote on any matters on which
holders of capital stock of the Company may vote, including without
limitation the approval of the Preferred Share Issuance, the Warrant
Issuance and the Restated Certificate, and there is no commitment,
arrangement or understanding to issue any of such bonds, debentures, notes
or other indebtedness.
(iii) Except as contemplated in the Transaction Documents or as set
forth in Schedule 3.1(c)(iii) of the Company Disclosure Schedule and except
for the preferred stock purchase rights issued pursuant to the Rights
Agreement, there are no outstanding warrants, stock options, stock
appreciation rights or other rights to receive any capital stock of the
Company granted by the Company under the Stock Plans or otherwise.
Schedule 3.1(c)(iii) of the Company Disclosure Schedule sets forth a
complete and correct list, as of the date hereof, of the number, class and
series of shares subject to all such outstanding warrants, options, stock
appreciation rights or other rights to receive any capital stock of the
Company (collectively, "Company Options"), and the current exercise,
conversion or base prices thereof. Except for the Stock Plans and the
Company Options and except as set forth above in this Section 3.1(c), as of
the date hereof, there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any
kind to which the Company or any of its Subsidiaries is a party or by which
any of them is bound obligating the Company or any of its Subsidiaries
under any circumstances to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock (or other voting or
equity securities or interests, as applicable) of the Company or of any of
its
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Subsidiaries or obligating the Company or any of its Subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. Except as set
forth in Schedule 3.1(c)(iii) of the Company Disclosure Schedule, there are
no outstanding contractual obligations of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock (or other voting or equity securities or interests, as
applicable) of the Company or any of its Subsidiaries under any
circumstances.
(iv) All outstanding shares of capital stock (or other voting or
equity securities or interests, as applicable) of the Company and its
Subsidiaries are, and all shares which may be issued under the Company
Options will be when issued, duly authorized, validly issued, fully paid
and nonassessable and not subject to preemptive or similar rights.
(v) Except as contemplated in the Transaction Documents or as set
forth in the Stock Plans or in Schedule 3.1(c)(v) of the Company Disclosure
Schedule, there are not as of the date hereof and there will not be at the
time of the Closing any stockholder agreements, voting agreements or
trusts, proxies or other agreements or contractual obligations to which the
Company or any Subsidiary is a party or bound with respect to the voting or
disposition of any shares of the capital stock (or other voting or equity
securities or interests, as applicable) of the Company or any of its
Subsidiaries and, to the Company's knowledge, as of the date hereof, there
are no other stockholder agreements, voting agreements or trusts, proxies
or other agreements or contractual obligations among the stockholders of
the Company with respect to the voting or disposition of any shares of the
capital stock (or other voting or equity securities or interests, as
applicable) of the Company or any of its Subsidiaries.
(d) Authority; No Violations; Approvals.
(i) The Board has approved this Agreement, the other Transaction
Documents and the transactions contemplated hereby and thereby, has
declared this Agreement, the other Transaction Documents and the
transactions contemplated hereby and thereby to be in the best interests of
the stockholders of the Company and has recommended to the Company's
stockholders approval of the Preferred Share Issuance, the Warrant Issuance
and the Restated Certificate, in each case by unanimous vote of the Board
members present at the meeting of the Board at which such actions were
taken. The Company has all requisite corporate power and authority to
enter into this Agreement and the other Transaction Documents and, subject
to receipt of the approval referred to in the next following sentence, to
consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and the other Transaction Documents and the
consummation of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of the
Company, other than the approval of the Preferred Share Issuance, the
Warrant Issuance and the Restated Certificate by the Requisite Votes of the
stockholders of the Company as provided in Section 4.1. This Agreement has
been, and at the Closing the
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other Transaction Documents will be, duly executed and delivered by the
Company and, assuming this Agreement and the other Transaction Documents
constitute the valid, binding and enforceable obligations of the other
parties thereto, constitute valid and binding obligations of the Company
enforceable in accordance with their respective terms, subject, as to
enforceability, to bankruptcy, insolvency, reorganization, moratorium and
other laws of general applicability relating to or affecting creditors'
rights and to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(ii) Except as set forth in Schedule 3.1(d)(ii) of the Company
Disclosure Schedule, the execution and delivery of this Agreement and the
other Transaction Documents does not, and the consummation of the
transactions contemplated hereby and thereby and compliance with the
provisions hereof and thereof will not, conflict with, or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration
of any material obligation or to the loss of a material benefit under, or
give rise to a right of purchase or "put" right under, or result in the
creation of any Lien upon any of the properties or assets of the Company or
any of its Subsidiaries under, any provision of (A) the Certificate of
Incorporation or Bylaws of the Company or any provision of the comparable
charter or organizational documents of any of its Subsidiaries, (B) the
Indenture, (C) any other loan or credit agreement, note, bond, mortgage,
indenture, lease or agreement to which the Company or any of its
Subsidiaries is a party or is otherwise bound or any existing Approval
applicable to the Company or any of its Subsidiaries, or (D) assuming the
Approvals referred to in Section 3.1(d)(iii) are duly and timely obtained
or made, any Law applicable to the Company or any of its Subsidiaries or
any of their respective properties or assets, other than, in the case of
clause (C) or (D), any such conflicts, violations, defaults, rights,
losses, Liens or Laws that, individually or in the aggregate, have not and
could not reasonably be expected to (x) have a Material Adverse Effect, (y)
impair the ability of the Company to perform its obligations under any of
the Transaction Documents in any material respect or (z) delay in any
material respect or prevent the consummation of any of the transactions
contemplated by any of the Transaction Documents.
(iii) No Approval of or from any Governmental Entity is required by
or with respect to the Company or any of its Subsidiaries in connection
with the execution and delivery of this Agreement or any other Transaction
Document by the Company or the consummation by the Company of the
transactions contemplated hereby or thereby, except for: (A) the filing of
a notification report by the Company under the HSR Act and the expiration
or termination of the applicable waiting period with respect thereto; (B)
the filing of the Restated Certificate, the Certificate of Designation and
the Certificate of Cancellation with the Secretary of State of Delaware in
accordance with Section 103 of the Delaware General Corporation Law; (C)
the filing with the SEC of (1) a proxy statement in preliminary and
definitive form relating to the Stockholders' Meeting to be held in
connection with the approval of the Preferred Share Issuance, the Warrant
Issuance and the Restated Certificate
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(the "Proxy Statement") and (2) such reports under Section 13(a) of the
Exchange Act and such other compliance with the Exchange Act as may be
required in connection with this Agreement, the other Transaction Documents
and the transactions contemplated hereby and thereby; (D) such Approvals as
are required under the Securities Act in connection with the registration
rights granted to WIC and Purchaser under the Stockholder Agreement; (E)
such Approvals as may be required by any applicable state securities or
"blue sky" laws; (F) such Approvals as may be required by any foreign
securities, corporate or other Laws; and (G) any such Approvals the failure
of which to be made or obtained has not and could not reasonably be
expected to (1) impair the ability of the Company to perform its
obligations under any of the Transaction Documents in any material respect
or (2) delay in any material respect or prevent the consummation of any of
the transactions contemplated by any of the Transaction Documents.
(iv) The Company has received the executed, irrevocable resignation
of each of Andrew J. Shoup, Jr., Howard Hamilton and John W. Cushing III,
from the Board (and, in the case of Mr. Shoup, from the offices of
President and Chief Executive Officer), in each case effective immediately
following the Closing on the Closing Date.
(e) Status of Preferred Shares, Conversion Shares and Dividend Shares.
(i) Subject to receipt of the approval of the Preferred Share
Issuance and the Restated Certificate by the Company's stockholders as
contemplated by Section 4.1, the issuance and sale of the Preferred Shares
have been duly authorized by all necessary corporate action on the part of
the Company (other than the filing of the Restated Certificate and the
Certificate of Designation with the Secretary of State of Delaware), and
the Preferred Shares, when delivered to Purchaser at the Closing against
payment of the Purchase Price therefor as provided herein, will be validly
issued, fully paid and nonassessable, and the issuance and sale of the
Preferred Shares are not and will not be subject to preemptive rights of
any stockholder of the Company.
(ii) Subject to receipt of the approval of the Preferred Share
Issuance and the Restated Certificate by the Company's stockholders as
contemplated by Section 4.1, the reservation and issuance of the Conversion
Shares and the Dividend Shares have been duly authorized by all necessary
corporate action on the part of the Company (other than the filing of the
Restated Certificate and the Certificate of Designation with the Secretary
of State of Delaware), and the Conversion Shares, when issued upon
conversion of the Preferred Shares in accordance with the terms of the
Certificate of Designation, and the Dividend Shares, when issued in payment
of dividends payable on the Preferred Shares in accordance with the terms
of the Certificate of Designation, will be validly issued, fully paid and
nonassessable, and the issuance of the Conversion Shares and the Dividend
Shares are not and will not be subject to preemptive rights of any
stockholder of the Company.
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(f) Status of Warrants and Warrant Shares.
(i) Subject to receipt of the approval of the Warrant Issuance by
the Company's stockholders as contemplated by Section 4.1, the issuance and
sale of the Warrants have been duly authorized by all necessary corporate
action on the part of the Company, and the Warrants, when issued, sold and
delivered as provided in the Warrant Purchase Agreement and the Warrant
Agreement, will be validly issued and will constitute valid and binding
obligations of the Company enforceable in accordance with the terms of the
Warrant Agreement, subject, as to enforceability, to bankruptcy,
insolvency, reorganization, moratorium and other laws of general
applicability relating to or affecting creditors' rights and to general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(ii) Subject to receipt of the approval of the Warrant Issuance by
the Company's stockholders as contemplated by Section 4.1, the reservation,
issuance and sale of the Warrant Shares have been duly authorized by all
necessary corporate action on the part of the Company, and the Warrant
Shares, when issued and delivered upon exercise of the Warrants in
accordance with the provisions of the Warrant Agreement, will be validly
issued, fully paid and nonassessable, and the issuance and sale of the
Warrant Shares are not and will not be subject to preemptive rights of any
stockholder of the Company.
(g) Requisite Votes. Pursuant to Section 4.1, the Company will seek, at
the Stockholders' Meeting, the approval of (i) each of the Preferred Share
Issuance and the Warrant Issuance by the affirmative vote of (A) a majority of
the total votes cast on the proposal by the holders of Common Stock, in
accordance with Paragraph 312.07 of the NYSE Listed Company Manual, and (B) a
majority of the shares of Common Stock present in person or represented by proxy
at the Stockholders' Meeting and entitled to vote thereon, in accordance with
Section 216 of the Delaware General Corporation Law, and (ii) the Restated
Certificate by the affirmative vote of the holders of a majority of the issued
and outstanding shares of Common Stock entitled to vote thereon (the "Requisite
Votes"). There are no approvals of the Transaction Documents and the
transactions contemplated thereby that are required of the holders of any class
or series of capital stock of the Company under the requirements of the NYSE or
any Law other than the Requisite Votes.
(h) Certain Anti-Takeover Provisions; Amendment to Rights Agreement.
(i) The Board has duly approved each of WIC and Purchaser, and of
WIC and Purchaser as a "group" (as such term is used in Rule 13d-5 of the
rules and regulations promulgated under the Exchange Act), becoming an
"interested stockholder" within the meaning of Section 203 of the Delaware
General Corporation Law by reason of the acquisition by WIC and Purchaser
of the Preferred Shares, the Conversion Shares, the Dividend Shares, the
Warrants and the Warrant Shares, and such approval is sufficient to render
inapplicable to the transactions contemplated by the Transaction Documents
the restrictions contained in such Section 203.
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(ii) The Board has taken all necessary action to amend the Rights
Agreement so that none of the execution and delivery of this Agreement and
the other Transaction Documents and the consummation of the transactions
contemplated hereby and thereby (including, without limitation, the receipt
of Conversion Shares or Dividend Shares in respect of the Preferred Shares
or the receipt of Warrant Shares upon the exercise of the Warrants) will
upon the lapse of any waiting period cause (A) any of WIC, Purchaser or any
"group" consisting of WIC or Purchaser to constitute an "Acquiring Person"
(as defined in the Rights Agreement), (B) the preferred stock purchase
rights issued pursuant to the Rights Agreement to become exercisable under
the Rights Agreement or (C) the distribution of "Rights Certificates" (as
defined in the Rights Agreement).
(iii) The Board has taken, or will take, all necessary action to
approve the appointment of the Purchaser Designees to the Board so that
such appointment will not contribute to or result in a "Change of Control"
as defined in the Indenture.
(i) SEC Documents. The Company has made available to WIC a true and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by the Company with the SEC since December 31, 1997 and
prior to or on the date of this Agreement (the "Company SEC Documents"), which
are all the documents (other than preliminary materials) that the Company was
required to file with the SEC between December 31, 1997 and the date of this
Agreement. As of their respective dates, the Company SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Company SEC Documents, and none of the Company SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the Company
SEC Documents complied as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, were prepared in
accordance with United States generally accepted accounting principles ("GAAP")
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto or, in the case of the unaudited statements, as
permitted by Rule 10-01 of Regulation S-X of the SEC) and fairly present in all
material respects and in accordance with applicable requirements of GAAP
(subject, in the case of the unaudited statements, to normal, recurring
adjustments, none of which is material) the consolidated financial position of
the Company and its consolidated Subsidiaries as of their respective dates and
the consolidated results of operations and the consolidated cash flows of the
Company and its consolidated Subsidiaries for the periods presented therein.
(j) Information Supplied. None of the information included or
incorporated by reference in the Proxy Statement will, at the date mailed to
stockholders of the Company or at the time of the Stockholders' Meeting or as of
the Closing, contain any statement which, at the time and in the light of the
circumstances under which it is made, is false or misleading with respect to any
material fact or omit to state any material fact necessary in order to make the
statements therein not
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false or misleading. The Proxy Statement will comply as to form in all material
respects with the provisions of the Exchange Act. The representations and
warranties contained in this Section 3.1(j) shall not apply to statements or
omissions in the Proxy Statement based upon information furnished in writing to
the Company by WIC or Purchaser expressly for use therein.
(k) Absence of Certain Changes or Events. Except as set forth in Schedule
3.1(k) of the Company Disclosure Schedule or as disclosed in, or reflected in
the financial statements included in, the Company SEC Documents, or except as
contemplated by this Agreement, since December 31, 1998 the Company and its
Subsidiaries have conducted their business only in the ordinary course
consistent with past practice, and there has not occurred: (i) any event that
would have been prohibited by Section 4.4 if the terms of such Section had been
in effect as of and after December 31, 1998; (ii) any material casualties
affecting the Company or any of its Subsidiaries or any material loss, damage or
destruction to any of their respective properties or assets, including the Oil
and Gas Properties; or (iii) any event, circumstance or fact that has or could
reasonably be expected to (x) have a Material Adverse Effect, (y) impair the
ability of the Company to perform its obligations under any of the Transaction
Documents in any material respect or (z) delay in any material respect or
prevent the consummation of any of the transactions contemplated by any of the
Transaction Documents.
(l) No Undisclosed Material Liabilities. Except as disclosed in the
Company SEC Documents, there are no material liabilities or obligations of the
Company or any of its Subsidiaries of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, required by GAAP to
be recognized or disclosed on a consolidated balance sheet of the Company and
its consolidated Subsidiaries or in the notes thereto, other than: (i)
liabilities adequately provided for on the balance sheet of the Company dated as
of September 30, 1999 (including the notes thereto) contained in the Company's
Quarterly Report on Form 10-Q for the three months ended September 30, 1999;
(ii) liabilities incurred in the ordinary course of business consistent with
past practice since September 30, 1999; and (iii) liabilities arising under the
Transaction Documents.
(m) No Default. Neither the Company nor any of its Subsidiaries is in
default or violation (and no event has occurred which, with notice or the lapse
of time or both, would constitute a default or violation) of any term, condition
or provision of (i) the Certificate of Incorporation or Bylaws of the Company or
the comparable charter or organizational documents of any of its Subsidiaries,
(ii) any loan or credit agreement, note, bond, mortgage, indenture, lease,
instrument, permit, concession, franchise, license or any other contract,
agreement, arrangement or understanding to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries or
any of their respective properties or assets is bound, or (iii) any Law
applicable to the Company or any of its Subsidiaries, except in the case of
clauses (ii) and (iii), for violations or defaults that, individually or in the
aggregate, have not and could not reasonably be expected to (x) have a Material
Adverse Effect, (y) impair the ability of the Company to perform its obligations
under any of the Transaction Documents in any material respect or (z) delay in
any material respect or prevent the consummation of any of the transactions
contemplated by any of the Transaction Documents. The
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Company (i) is not in breach of or default under any financial covenant under
the Restated Credit Agreement dated May 10, 1999, among the Company, Bank One,
Texas, N.A., as agent, and the other parties thereto (the "Credit Facility") and
(ii) does not have any reason to believe that it will be in breach of or default
under any financial covenant under the Credit Facility as of the next date on
which the Company is required to be in compliance with any such financial
covenant (other than any breaches or defaults which the Company reasonably
believes will be waived by the lenders under the Credit Facility).
(n) Compliance with Applicable Laws. The Company and each of its
Subsidiaries has in effect all Approvals of all Governmental Entities necessary
for the lawful conduct of their respective businesses, and there has occurred no
default or violation (and no event has occurred which, with notice or the lapse
of time or both, would constitute a default or violation) under any such
Approval, except for failures to obtain, or for defaults or violations under,
Approvals which failures, defaults or violations, individually or in the
aggregate, have not and could not reasonably be expected to (i) have a Material
Adverse Effect, (ii) impair the ability of the Company to perform its
obligations under any of the Transaction Documents in any material respect or
(iii) delay in any material respect or prevent the consummation of any of the
transactions contemplated by any of the Transaction Documents. Except as
disclosed in the Company SEC Documents, the businesses of the Company and its
Subsidiaries are in compliance with all applicable Laws, except for possible
noncompliance which, individually or in the aggregate, has not had and could not
reasonably be expected to have any effect referred to in clause (i), (ii) or
(iii) above. No investigation or review by any Governmental Entity with respect
to the Company, any of its Subsidiaries, the transactions contemplated by this
Agreement and the other Transaction Documents, is pending or, to the knowledge
of the Company, threatened, nor has any Governmental Entity indicated to the
Company or any of its Subsidiaries any intention to conduct the same, other than
those the outcome of which, individually or in the aggregate, has not had and
could not reasonably be expected to have any effect referred to in clause (i),
(ii) or (iii) above.
(o) Litigation. Except as disclosed in the Company SEC Documents or set
forth in Schedule 3.1(o) of the Company Disclosure Schedule, there is no suit,
action, proceeding or claim, at law or in equity, pending before any
Governmental Entity, or, to the knowledge of the Company, threatened, against
the Company or any of its Subsidiaries ("Litigation"), and neither the Company
nor any of its Subsidiaries is a party to any Litigation, and the Company and
its Subsidiaries have no knowledge of any facts that are likely to give rise to
any Litigation, that, individually or in the aggregate, has or could reasonably
be expected to (i) have a Material Adverse Effect, (ii) impair the ability of
the Company to perform its obligations under any of the Transaction Documents in
any material respect or (iii) delay in any material respect or prevent the
consummation of any of the transactions contemplated by any of the Transaction
Documents, nor is there any Order of any Governmental Entity or arbitrator
outstanding against the Company or any of its Subsidiaries which, individually
or in the aggregate, has had or could reasonably be expected to have any effect
referred to in clause (i), (ii) or (iii) above.
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(p) Certain Agreements.
(i) Except as set forth in Schedule 3.1(p)(i) of the Company
Disclosure Schedule or as included as an exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998 or Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1999, June 30, 1999
and September 30, 1999, respectively, there are no (A) employment or
consulting Contracts (unless such employment or consulting Contracts are
terminable without liability or penalty on 30 days or less notice), (B)
Contracts under which the Company or any of its Subsidiaries remains
obligated to provide goods or services having a value, or to make payments
aggregating (for Debt or otherwise), in excess of $500,000 per year with
respect to any one Contract, (C) other Contracts that are material to the
Company and its Subsidiaries, taken as a whole, and (D) Contracts with
Affiliates, in any such case, to which the Company or any Subsidiary is a
party or to which the Company or any Subsidiary or their respective assets
are bound (such Contracts included as exhibits to such Company SEC
Documents or disclosed or required to be disclosed in Schedule 3.1(p)(i),
collectively the "Material Contracts"). Each Material Contract is a valid
and binding obligation of the Company or one of its Subsidiaries and, to
the knowledge of the Company, of each party thereto other than the Company
or its respective Subsidiary and is in full force and effect.
(ii) The Company or the relevant Subsidiary and, to the knowledge of
the Company, each other party to the Material Contracts, has performed in
all material respects the obligations required to be performed by it under
the Material Contracts and is not (with or without lapse of time or the
giving of notice, or both) in breach or default thereunder in any material
respect.
(iii) Schedule 3.1(p)(iii) of the Company Disclosure Schedule
identifies, as to each Material Contract, (A) whether the consent of the
other party thereto is required, (B) whether notice must be provided to any
party thereto (and the length of such notice) and (C) whether any payments
are required (and the amount of such payments), in each case in order for
such Material Contract to continue in full force and effect upon the
consummation of the transactions contemplated by the Transaction Documents,
and (D) whether such Material Contract can be canceled by the other party
without liability to such other party due to the consummation of the
transactions contemplated by the Transaction Documents.
(iv) A complete copy of each written Material Contract has been made
available to WIC prior to the date of this Agreement. Schedule 3.1(p)(iv)
sets forth a written description of each oral Material Contract.
(v) The Company has made available to WIC (A) true and correct
copies of all loan or credit agreements, notes, bonds, mortgages,
indentures and other agreements and instruments pursuant to which any Debt
of the Company or any of its Subsidiaries is
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outstanding or may be incurred and (B) accurate information regarding the
respective principal amounts currently outstanding thereunder.
(q) Title.
(i) Except as disclosed in the Company SEC Documents or set forth
in Schedule 3.1(q)(i) of the Company Disclosure Schedule, the Company and
its Subsidiaries have good and indefeasible title to all leasehold and
other interests in oil, gas and other mineral properties owned by the
Company or its Subsidiaries (the "Oil and Gas Properties"), which are
necessary for the Company or its Subsidiaries to receive from the wells or
units to be located on the Oil and Gas Properties, except as has not had
and could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, a percentage of the oil, gas and
other hydrocarbons produced from such well or unit equal to not less than
the percentage set forth as the "Net Revenue Interest" in those portions of
the Reserve Reports attributable thereto, without reduction, suspension, or
termination throughout the productive life of each such lease, well or
unit, free and clear of any Liens except for (A) Liens for taxes not yet
due or with respect to matters being contested by the Company or a
Subsidiary in good faith and for which adequate reserves are reflected in
the Company SEC Documents, (B) Liens arising under operating agreements
securing payments not yet due and payable and (C) other Liens that,
individually or in the aggregate, could not reasonably be expected to have
a Material Adverse Effect. The Company's or a Subsidiary's expense bearing
interest in any well or unit shall be, except as has not had and could not
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect, no greater than the percentage set forth as the
"Working Interest" for such well or unit in those portions of the Reserve
Reports attributable thereto, without a corresponding and proportional
increase in the Company's or such Subsidiary's Net Revenue Interest
applicable thereto. To the knowledge of the Company, the underlying
historical information used for preparation of the Reserve Reports was, at
the time of delivery, true and correct in all material respects.
(ii) Except as disclosed in the Company SEC Documents or set forth
in Schedule 3.1(q)(ii) of the Company Disclosure Schedule, the Company and
its Subsidiaries have good and indefeasible title to all real property and
good and marketable title to all other material properties and assets owned
by the Company or its Subsidiaries and good and valid leasehold interests
in all properties and assets, real or personal, leased by them (in all
cases excluding the Oil and Gas Properties, which are the subject of the
representations and warranties in Section 3.1(q)(i)), in each case free and
clear of any Liens except for (A) Liens for taxes not yet due or with
respect to matters being contested by the Company or a Subsidiary in good
faith and for which adequate reserves are reflected in the Company SEC
Documents, (B) statutory Liens arising in connection with the ordinary
course of business securing payments not yet due and payable and (C) other
Liens that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
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(r) Taxes. Except as disclosed in the Company's Annual Report on Form 10-
K for the year ended December 31, 1998 or set forth in Schedule 3.1(r) of the
Company Disclosure Schedule and except for matters that, individually or in the
aggregate, have not had and could not reasonably be expected to have a Material
Adverse Effect:
(i) Each of the Company and its Subsidiaries has timely filed, or
has had filed on its behalf in a timely manner (within any applicable
extension periods), with the appropriate taxing authority all Tax Returns
with respect to Taxes of the Company and its Subsidiaries;
(ii) All Taxes due and payable with respect to the Company and its
Subsidiaries have been paid in full or have been adequately provided for in
the Company SEC Documents in accordance with GAAP;
(iii) There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any Tax Returns required to
be filed by or with respect to the Company or any of its Subsidiaries;
(iv) None of the Tax Returns of or with respect to the Company or
any of its Subsidiaries is currently being audited or examined by any
taxing authority and there is no action, suit, proceeding, audit or claim
now pending (or, to the knowledge of the Company, proposed) against or with
respect to the Company or any of its Subsidiaries in respect of any Tax
where there is a reasonable possibility of an adverse determination;
(v) No deficiency for any Taxes has been assessed with respect to
the Company or any of its Subsidiaries that has not been abated or paid in
full;
(vi) There are no Liens for Taxes upon any property or asset of the
Company or any of its Subsidiaries, except for Liens for Taxes not yet due
or with respect to matters being contested by the Company or a Subsidiary
in good faith and for which adequate reserves are reflected in the Company
SEC Documents;
(vii) Neither the Company nor any of its Subsidiaries has been a
member of an affiliated, consolidated, combined or unitary group other than
one of which the Company is the common parent; and
(viii) Neither the Company nor any of its Subsidiaries is a party to
any agreement providing for the allocation or sharing of Taxes with any
entity that is not, directly or indirectly, a wholly-owned subsidiary of
the Company.
For purposes of this Agreement, (i) "Tax" means any net income, alternative
or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem,
value added, transfer, franchise, profits, license, withholding on amounts paid
by the Company or any of its Subsidiaries, payroll,
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employment, excise, production, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest and/or any penalty, addition to tax or additional amount imposed by any
taxing authority, and (ii) "Tax Return" means all returns, declarations,
reports, estimates, information returns and statements required to be filed by
or with respect to the Company or any of its Subsidiaries in respect of any
Taxes.
(s) Employee Benefit Matters.
(i) Schedule 3.1(s) of the Company Disclosure Schedule lists each
of the following which is sponsored, maintained or contributed to by the
Company or a Subsidiary, or with respect to which the Company or any
Subsidiary may have any liability, for the benefit of the employees of the
Company or a Subsidiary, former employees of the Company or a Subsidiary,
directors of the Company or a Subsidiary, former directors of the Company
or a Subsidiary or any agents, consultants or similar representatives
providing services to or for the Company or a Subsidiary, whether or not
terminated prior to the Closing Date:
(A) each "employee benefit plan," as such term is defined in
Section 3(3) of ERISA ("Plan"); and
(B) each personnel policy, stock option plan, stock purchase
plan, stock appreciation rights plan, phantom stock plan, collective
bargaining agreement, bonus plan or arrangement, incentive award plan
or arrangement, vacation policy, severance pay plan, policy or
agreement, deferred compensation agreement or arrangement, executive
compensation or supplemental income arrangement, consulting agreement,
employment agreement, change in control agreement and each other
employee benefit plan, agreement, arrangement, program, practice or
understanding which is not described in Section 3.1(s)(i)(A) ("Benefit
Arrangement").
(ii) The Company has made available and will furnish to WIC true,
correct and complete copies of: (A) each of the Plans, related trusts,
insurance or group annuity contracts and each other funding or financing
arrangement relating to any Plan, including all amendments thereto; (B)
with respect to each Plan required to file such report or furnish such
description, the most recent Form 5500 and summary plan description; (C)
all Benefit Arrangements (or descriptions thereof) (other than any
consulting Contracts that are terminable without liability or penalty on 30
days or less notice); (D) the most recent actuarial valuation report for
each Plan subject to Title IV of ERISA; and (E) the most recent
determination letter from the IRS for each of the Plans intended to be
qualified under Section 401 of the Code, and any outstanding determination
letter application for such Plans.
(iii) Except as set forth in Schedule 3.1(s) of the Company
Disclosure Schedule and except for matters that, individually or in the
aggregate, have not had and could not reasonably be expected to have a
Material Adverse Effect:
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(A) The Company and the Subsidiaries have substantially
performed all obligations, whether arising by operation of Law or by
contract, required to be performed by them in connection with the
Plans and the Benefit Arrangements, and to the knowledge of the
Company and the Subsidiaries there have been no defaults or violations
by any other party to the Plans or Benefit Arrangements;
(B) All reports and disclosures relating to the Plans
required to be filed with or furnished to Governmental Entities, Plan
participants or Plan beneficiaries have been filed or furnished in
accordance with applicable Law in a timely manner, and each Plan and
Benefit Arrangement has been administered in substantial compliance
with its governing documents;
(C) Each of the Plans intended to be qualified under Section
401 of the Code satisfies the requirements of such Section and has
received a favorable determination letter from the IRS regarding such
qualified status and has not, since receipt of the most recent
favorable determination letter, been amended or, to the knowledge of
the Company or any Subsidiary, operated in a way which would adversely
affect such qualified status;
(D) Each Plan and Benefit Arrangement has been administered
in material compliance with its terms, the applicable provisions of
ERISA, the Code and all other applicable Laws and the terms of all
applicable collective bargaining agreements;
(E) There are no actions, suits or claims pending (other than
routine claims for benefits) or, to the knowledge of the Company or
any Subsidiary, threatened against (or any basis therefor), or with
respect to, any of the Plans or Benefit Arrangements or their assets;
(F) All contributions required to be made by the Company or a
Subsidiary to the Plans pursuant to their terms and provisions have
been made timely;
(G) No Plan is subject to Title IV of ERISA or is a
multiemployer plan, as defined in Section 4001(a)(3) of ERISA;
(H) As to any Plan intended to be qualified under Section 401
of the Code, there has been no termination or partial termination of
the Plan within the meaning of Section 411(d)(3) of the Code;
(I) No act, omission or transaction has occurred which would
result (directly or indirectly through any indemnification agreement)
in imposition on the Company or any Subsidiary of (1) breach of
fiduciary duty liability damages under
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Section 409 of ERISA, (2) a civil penalty assessed pursuant to
subsections (c), (i) or (l) of Section 502 of ERISA or (3) a Tax
imposed pursuant to Chapter 43 of Subtitle D of the Code;
(J) To the knowledge of the Company and the Subsidiaries,
there is no matter pending (other than routine qualification
determination filings) with respect to any of the Plans before the
IRS, the Department of Labor or the Pension Benefit Guaranty
Corporation;
(K) Each trust funding a Plan, which trust is intended to be
exempt from federal income taxation pursuant to Section 501(c)(9) of
the Code, satisfies the requirements of such Section and has received
a favorable exemption letter from the IRS regarding such exempt status
and has not, since receipt of the most recent favorable exemption
letter, been amended or operated in a way which would materially
adversely affect such exempt status;
(L) Each Plan that is subject to Section 414(l) of the Code
is a separate plan (within the meaning of Section 414(l) of the Code)
of the Company or a Subsidiary; and
(M) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not (1)
require the Company or a Subsidiary to make a larger contribution to,
or pay greater benefits under, any Plan or Benefit Arrangement than
would otherwise be required or (2) create or give rise to any
additional vested rights or service credits under any Plan or Benefit
Arrangement.
(iv) Except as set forth in Schedule 3.1(s) of the Company
Disclosure Schedule, neither the Company nor any Subsidiary is a party to
any agreement, nor has it established any policy or practice, requiring it
to make a payment or provide any other form of compensation or benefit to
any Person performing services for the Company or any Subsidiary upon
termination of such services which would not be payable or provided in the
absence of the consummation of the transactions contemplated by this
Agreement.
(v) Except as set forth in Schedule 3.1(s) of the Company
Disclosure Schedule, no payments have been or are expected to be made under
the Plans and Benefit Arrangements which, in the aggregate, would result in
all or part of such payments not being deductible by the payor under
Section 280G or 162(m) of the Code.
(vi) Except as set forth in Schedule 3.1(s) of the Company
Disclosure Schedule, neither the Company nor any Subsidiary is a party to
or bound by any severance agreement involving $50,000 or more with respect
to any one Person.
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<PAGE>
(vii) Except as set forth in Schedule 3.1(s) of the Company
Disclosure Schedule, (1) no Plan or Benefit Arrangement provides retiree
medical or retiree life insurance benefits to any Person and neither the
Company nor any Subsidiary is contractually or otherwise obligated (whether
or not in writing) to provide any Person with life insurance or medical
benefits upon retirement or termination of employment, other than as
required by the provisions of Sections 601 through 608 of ERISA and Section
4980B of the Code and (2) each Plan and Benefit Arrangement may be
unilaterally terminated at any time by the Company or a Subsidiary without
material liability, other than liability for benefits already accrued as of
the date of such termination.
(viii) Except as set forth in Schedule 3.1(s) of the Company
Disclosure Schedule, no Plan or Benefit Arrangement provides that payments
pursuant to such Plan or Benefit Arrangement may be made in securities of
the Company or a Subsidiary, nor does any trust maintained pursuant to any
Plan or Benefit Arrangement hold any securities of the Company or a
Subsidiary.
(t) Employees. Schedule 3.1(t) of the Company Disclosure Schedule sets
forth by number and employment classification the approximate numbers of
employees employed by the Company and its Subsidiaries as of the date of this
Agreement. None of said employees is subject to union or collective bargaining
agreements with the Company or a Subsidiary. Except as set forth in Schedule
3.1(t) of the Company Disclosure Schedule, the Company and its Subsidiaries have
not at any time on or after January 1, 1998 had or, to the knowledge of the
Company, been threatened with any work stoppages or other labor disputes or
controversies with respect to its employees.
(u) Labor Matters. Except as set forth in Schedule 3.1(u) of the Company
Disclosure Schedule or disclosed in the Company SEC Documents:
(i) Neither the Company nor any of its Subsidiaries is a party to
any collective bargaining agreement or other current labor agreement with
any labor union or organization, and there is no current union
representation question involving employees of the Company or any of its
Subsidiaries, nor does the Company or any of its Subsidiaries know of any
activity or proceeding of any labor organization (or representative
thereof) or employee group (or representative thereof) to organize any such
employees;
(ii) There is no unfair labor practice charge or grievance arising
out of a collective bargaining agreement or other grievance procedure
against the Company or any of its Subsidiaries pending, or, to the
knowledge of the Company, threatened, that, individually or in the
aggregate, has or could reasonably be expected to (A) have a Material
Adverse Effect, (B) impair the ability of the Company to perform its
obligations under any of the Transaction Documents in any material respect
or (C) delay in any material respect or prevent the consummation of any of
the transactions contemplated by any of the Transaction Documents;
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<PAGE>
(iii) There is no complaint, lawsuit or proceeding in any forum by or
on behalf of any present or former employee, any applicant for employment
or any classes of the foregoing alleging breach of any express or implied
contract of employment, any Law governing employment or the termination
thereof or other discriminatory, wrongful or tortious conduct in connection
with the employment relationship against the Company or any of its
Subsidiaries pending, or, to the knowledge of the Company, threatened,
that, individually or in the aggregate, has or could reasonably be expected
to (A) have a Material Adverse Effect, (B) impair the ability of the
Company to perform its obligations under any of the Transaction Documents
in any material respect or (C) delay in any material respect or prevent the
consummation of any of the transactions contemplated by any of the
Transaction Documents;
(iv) There is no strike, dispute, slowdown, work stoppage or lockout
pending, or, to the knowledge of the Company, threatened, against or
involving the Company or any of its Subsidiaries that, individually or in
the aggregate, has or could reasonably be expected to (A) have a Material
Adverse Effect, (B) impair the ability of the Company to perform its
obligations under any of the Transaction Documents in any material respect
or (C) delay in any material respect or prevent the consummation of any of
the transactions contemplated by any of the Transaction Documents;
(v) The Company and its Subsidiaries are in compliance with all
applicable Laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, except for non-compliance that, individually or in the aggregate,
has not and could not reasonably be expected to (A) have a Material Adverse
Effect, (B) impair the ability of the Company to perform its obligations
under any of the Transaction Documents in any material respect or (C) delay
in any material respect or prevent the consummation of any of the
transactions contemplated by any of the Transaction Documents; and
(vi) There is no proceeding, claim, suit, action or governmental
investigation pending or, to the knowledge of the Company, threatened, in
respect to which any current or former director, officer, employee or agent
of the Company or any of its Subsidiaries is or may be entitled to claim
indemnification from the Company or any of its Subsidiaries pursuant to the
Certificate of Incorporation or Bylaws of the Company or any provision of
the comparable charter or organizational documents of any of its
Subsidiaries, as provided in any indemnification agreement to which the
Company or any Subsidiary is a party or pursuant to applicable Law that,
individually or in the aggregate, has or could reasonably be expected to
(A) have a Material Adverse Effect, (B) impair the ability of the Company
to perform its obligations under any of the Transaction Documents in any
material respect or (C) delay in any material respect or prevent the
consummation of any of the transactions contemplated by any of the
Transaction Documents.
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<PAGE>
(v) Intangible Property. The Company and its Subsidiaries possess or have
adequate rights to use all material trademarks, trade names, patents, trade
secrets, service marks, brand marks, brand names, computer programs, databases,
industrial designs and copyrights necessary for the operation of the businesses
of each of the Company and its Subsidiaries as such businesses have been
conducted during the three-year period prior to the date hereof (collectively,
the "Intangible Property"), except where the failure to possess or have adequate
rights to use such properties, individually or in the aggregate, has not and
could not reasonably be expected to (i) have a Material Adverse Effect, (ii)
impair the ability of the Company to perform its obligations under any of the
Transaction Documents in any material respect or (iii) delay in any material
respect or prevent the consummation of any of the transactions contemplated by
any of the Transaction Documents. All of the Intangible Property is owned or
licensed by the Company or its Subsidiaries free and clear of any and all Liens,
except those that, individually or in the aggregate, have not and could not
reasonably be expected to (i) have a Material Adverse Effect, (ii) impair the
ability of the Company to perform its obligations under any of the Transaction
Documents in any material respect or (iii) delay in any material respect or
prevent the consummation of any of the transactions contemplated by any of the
Transaction Documents, and neither the Company nor any such Subsidiary has
forfeited or otherwise relinquished any Intangible Property which forfeiture,
individually or in the aggregate, has had or could reasonably be expected to
have any effect referred to in clause (i), (ii) or (iii) above. To the
knowledge of the Company, the use of the Intangible Property by the Company or
its Subsidiaries does not, in any material respect, conflict with, infringe
upon, violate or interfere with or constitute an appropriation of any right,
title, interest or goodwill, including any intellectual property right,
trademark, trade name, patent, trade secret, service mark, brand mark, brand
name, computer program, database, industrial design, copyright or any pending
application therefor of any other Person. Neither the Company nor any of its
Subsidiaries has received any notice of any claim or otherwise knows that any of
the Intangible Property is invalid or conflicts with the asserted rights of any
other Person or has been used or enforced or has failed to have been used or
enforced in a manner that would result in the abandonment, cancellation or
unenforceability of any of the Intangible Property, except for any such
conflict, infringement, violation, interference, claim, invalidity, abandonment,
cancellation or unenforceability that, individually or in the aggregate, has not
and could not reasonably be expected to (i) have a Material Adverse Effect, (ii)
impair the ability of the Company to perform its obligations under any of the
Transaction Documents in any material respect or (iii) delay in any material
respect or prevent the consummation of any of the transactions contemplated by
any of the Transaction Documents.
(w) Environmental Matters. For purposes of this Agreement:
(A) "Environmental Laws" means all federal, state and local
laws (including common laws), rules, regulations, ordinances, orders
and decrees of any Governmental Entity, whether now in existence or
hereafter enacted and in effect at the time of Closing, relating to
pollution or the protection of health, safety, ecology or the
environment of any jurisdiction in which the Company or any of its
Subsidiaries owns or operates assets or conducts business or owned or
operated assets or conducted business (whether or not through a
predecessor entity) (including
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ambient air, surface water, groundwater, land surface, subsurface
strata, natural resources or wildlife), including but not limited to
laws and regulations relating to Releases or threatened Releases of
Hazardous Materials or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of solid waste or Hazardous Materials, and any similar
laws, rules, regulations, ordinances, orders and decrees of any
foreign jurisdiction in which the Company or any of its Subsidiaries
owns or operates assets or conducts business;
(B) "Hazardous Materials" means (x) any radioactive
materials, asbestos in any form that is or could become friable, urea
formaldehyde foam insulation, polychlorinated biphenyls or
transformers or other equipment that contain dielectric fluid
containing polychlorinated biphenyls, (y) any chemicals, materials or
substances which are now defined as or included in the definition of
"solid wastes," "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous substances," "restricted hazardous
wastes," "toxic substances" or "toxic pollutants," or words of similar
import, under any Environmental Law and (z) any other chemical,
material, substance or waste, exposure to which is now prohibited,
limited or regulated under any Environmental Law in a jurisdiction in
which the Company or any of its Subsidiaries operates (for purposes of
this Section 3.1(w)).
(C) "Release" means any spill, effluent, emission, leaking,
pumping, pouring, emptying, escaping, dumping, injection, deposit,
disposal, discharge, dispersal, leaching or migration into the indoor
or outdoor environment, or into or out of any property owned, operated
or leased by the Company or its Subsidiaries; and
(D) "Remedial Action" means all actions, including any
capital expenditures, required by a Governmental Entity or required
under any Environmental Law, or voluntarily undertaken to (w) clean
up, restore, remove, treat or in any other way ameliorate or address
the presence or effect of any Hazardous Materials or other substance
in the indoor or outdoor environment; (x) prevent the Release or
threat of Release, or minimize the further Release, of any Hazardous
Material so it does not endanger or threaten to endanger the public or
employee health or welfare of the indoor or outdoor environment; (y)
perform pre-remedial studies and investigations or post-remedial
monitoring and care pertaining or relating to a Release; or (z) bring
the Company or its Subsidiaries into compliance with any Environmental
Law.
Except as disclosed in the Company SEC Documents or set forth in Schedule
3.1(w) of the Company Disclosure Schedule:
(i) The operations of the Company and its Subsidiaries have been
conducted and are in compliance with all Environmental Laws, except where
the failure to so comply, individually or in the aggregate, has not and
could not reasonably be expected to (A) have
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a Material Adverse Effect, (B) impair the ability of the Company to perform
its obligations under any of the Transaction Documents in any material
respect or (C) delay in any material respect or prevent the consummation of
any of the transactions contemplated by any of the Transaction Documents;
(ii) The Company and its Subsidiaries have obtained all permits,
licenses and registrations, or applications relating thereto, and have made
all filings, reports and notices required under applicable Environmental
Laws for the continued operations of their respective businesses, except
such matters the lack or failure of which, individually or in the
aggregate, has not and could not reasonably be expected to (A) have a
Material Adverse Effect, (B) impair the ability of the Company to perform
its obligations under any of the Transaction Documents in any material
respect or (C) delay in any material respect or prevent the consummation of
any of the transactions contemplated by any of the Transaction Documents;
(iii) The Company and its Subsidiaries are not subject to any
outstanding written orders issued by, or contracts with, any Governmental
Entity or other Person respecting (A) Environmental Laws, (B) Remedial
Action, (C) any Release or threatened Release of a Hazardous Material or
petroleum or petroleum products or (D) an assumption of responsibility for
environmental liabilities of another Person, except such orders or
contracts the compliance with which, individually or in the aggregate, has
not and could not reasonably be expected to (x) have a Material Adverse
Effect, (y) impair the ability of the Company to perform its obligations
under any of the Transaction Documents in any material respect or (z) delay
in any material respect or prevent the consummation of any of the
transactions contemplated by any of the Transaction Documents;
(iv) The Company and its Subsidiaries have not received any written
communication alleging, nor are aware of any facts that may reasonably
indicate, a violation of or liability under any Environmental Law, which
violation or liability, individually or in the aggregate, could or could
reasonably be expected to (A) have a Material Adverse Effect, (B) impair
the ability of the Company to perform its obligations under any of the
Transaction Documents in any material respect or (C) delay in any material
respect or prevent the consummation of any of the transactions contemplated
by any of the Transaction Documents;
(v) To the knowledge of the Company, neither the Company nor any of
its Subsidiaries has any contingent liability in connection with any
existing Release of any Hazardous Material or petroleum or petroleum
products into the indoor or outdoor environment (whether on-site or off-
site) or employee or third party exposure to Hazardous Materials that,
individually or in the aggregate, has or could reasonably be expected to
(A) have a Material Adverse Effect, (B) impair the ability of the Company
to perform its obligations under any of the Transaction Documents in any
material respect or (C) delay in any material respect or prevent the
consummation of any of the transactions contemplated by any of the
Transaction Documents;
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(vi) The operations of the Company or its Subsidiaries involving the
generation, transportation, treatment, storage, recycling, reclaiming or
disposal of hazardous or solid waste, as defined and regulated under 40
C.F.R. Parts 260-270 (in effect as of the date of this Agreement) or any
applicable state equivalent, are in compliance with applicable
Environmental Laws, except where the failure to so comply, individually or
in the aggregate, has not and could not reasonably be expected to (A) have
a Material Adverse Effect, (B) impair the ability of the Company to perform
its obligations under any of the Transaction Documents in any material
respect, or (C) delay in any material respect or prevent the consummation
of any of the transactions contemplated by any of the Transaction
Documents; and
(vii) There is not now on or in any property of the Company or any
Subsidiary or, to the knowledge of the Company, any property for which the
Company or any Subsidiary is potentially liable, any of the following: (A)
any underground storage tanks or surface impoundments or (B) any on-site
disposal of Hazardous Material, any of which ((A) or (B) preceding),
individually or in the aggregate, has or could reasonably be expected to
(x) have a Material Adverse Effect, (y) impair the ability of the Company
to perform its obligations under any of the Transaction Documents in any
material respect or (z) delay in any material respect or prevent the
consummation of any of the transactions contemplated by any of the
Transaction Documents.
The effect of all material and immaterial inaccuracies in the underlying
statements contained in the foregoing clauses (i) through (vii), if individually
would not and would not reasonably be expected to (x) have a Material Adverse
Effect, (y) impair the ability of the Company to perform its obligations under
any of the Transaction Documents in any material respect or (z) delay in any
material respect or prevent the consummation of any of the transactions
contemplated by any of the Transaction Documents, would not in the aggregate do
so.
(x) Insurance. The Company and its Subsidiaries maintain insurance in
such amounts and covering such risks as are in accordance with normal industry
practice for companies engaged in businesses similar to those of the Company and
its Subsidiaries (taking into account the cost and availability of such
insurance). Schedule 3.1(x) of the Company Disclosure Schedule sets forth a
schedule of the Company's and each of its Subsidiaries' directors' and officers'
liability insurance.
(y) No Brokers or Finders. Schedule 3.1(y) of the Company Disclosure
Schedule sets forth any engagement letter or similar arrangement with any agent,
broker, finder or investment or commercial banker that is applicable to the
transactions contemplated by this Agreement. Except as set forth in Schedule
3.1(y) of the Company Disclosure Schedule, no agent, broker, finder, investment
or commercial banker or other Person engaged by or acting on behalf of the
Company in connection with the negotiation, execution or performance of this
Agreement is or will be entitled to any brokerage or finder's or similar fee or
other commission as a result of this Agreement.
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(z) Oil and Gas Operations. In those instances in which the Company or a
Subsidiary serves as operator of a well that is currently a producing well or
undergoing drilling operations, it has drilled and completed (if applicable)
such well, and operated and produced such well, in accordance with generally
accepted oil and gas field practices and in compliance in all material respects
with applicable oil and gas leases and all applicable Laws, except where any
failure or violation could not reasonably be expected to have a Material Adverse
Effect. All proceeds from the sale of oil, gas and other hydrocarbons produced
by the Company or a Subsidiary are being received by the Company or such
Subsidiary in a timely manner and are not being held in suspense for any reason
(except for amounts, individually or in the aggregate, not in excess of $500,000
and held in suspense in the ordinary course of business).
(aa) Marketing of Production. Except for Contracts included as an exhibit
to the Company's Annual Report on Form 10-K for the year ended December 31, 1998
or Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999, June
30, 1999 and September 30, 1999, respectively, or in Schedule 3.1(p) of the
Company Disclosure Schedule (with respect to all of which Contracts the Company
represents that, to the knowledge of the Company, it or its Subsidiaries are
receiving a price for all production sold thereunder which is computed in
accordance with the terms of the relevant Contract), there exist no Material
Contracts for the sale of the Company's or any Subsidiary's production from the
leasehold and other interests in the Oil and Gas Properties other than (i)
Contracts pertaining to the sale of production at a price equal to or greater
than a price that is the market price from time to time existing in the areas
where the Oil and Gas Properties subject to such agreement or arrangement are
located and (ii) Contracts that are cancelable on 30 days notice or less without
penalty or detriment.
(bb) Prepayments. Except as set forth in Schedule 3.1(bb) of the Company
Disclosure Schedule, neither the Company nor any Subsidiary is obligated, by
virtue of a prepayment arrangement, make-up right under a production sales
Contract containing a "take or pay" or similar provision, production payment or
any other arrangement, to deliver hydrocarbons, or proceeds from the sale
thereof, attributable to any of the Oil and Gas Properties at some future time
without then or thereafter being entitled to receive payment of the contract
price therefor. The representations and warranties contained in this Section
3.1(bb) are not meant to apply to matters relating to gas imbalances, which are
exclusively covered in Section 3.1(cc).
(cc) Gas Imbalances. Schedule 3.1(cc) of the Company Disclosure Schedule
sets forth, as of December 31, 1998, each gas imbalance and the aggregate, net
gas imbalance position of the Company and its Subsidiaries. Except as disclosed
in the Company SEC Documents or as set forth in Schedule 3.1(cc) of the Company
Disclosure Schedule, neither the Company nor any Subsidiary has (i) any
obligation to deliver gas from the Oil and Gas Properties (or cash in lieu
thereof) to other owners of interests in those properties as a result of past
production by the Company, any Subsidiary or any of their predecessors in excess
of the share to which they were entitled nor (ii) any right to receive
deliveries of gas from the Oil and Gas Properties (or cash in lieu there) from
other owners of interests in those properties as a result of past production by
the Company, any Subsidiary or any of their predecessors of less than the share
to which they were entitled, in either case where the
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amount of any such gas imbalance would exceed $100,000. Any change in the
aggregate, net gas imbalance position of the Company and its Subsidiaries as of
December 31, 1999 from such position as of December 31, 1998 will not have a
Material Adverse Effect.
(dd) Customers and Suppliers. None of the current customers or suppliers
of the Company or its Subsidiaries has refused, or communicated in writing to
the Company or any Subsidiary that it will or may refuse, to purchase or supply
products or services from or to the Company or its Subsidiaries or has
communicated in writing to the Company or any Subsidiary that it will or may
substantially reduce the amount of production, goods or services that it is
willing to purchase from or supply to the Company or its Subsidiaries, where any
such refusal or reduction would have a Material Adverse Effect.
(ee) Reserve Reports. The Company acknowledges and agrees that WIC has
been provided with true and complete copies of the Reserve Reports.
(ff) Nonconsent Operations. Except as set forth in Schedule 3.1(ff) of the
Company Disclosure Schedule, there are no operations on the Oil and Gas
Properties in which the Company or any Subsidiary has elected not to
participate.
(gg) Year 2000 Problem. The Company and its Subsidiaries have reviewed the
areas within their business and operations (including computer software and
hardware) which could be adversely affected by, and have developed or are
developing programs to address on a timely basis, any "Year 2000 Problem" (that
is, the risk that computer hardware or software used by the Company and its
Subsidiaries may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any dates after December 31,
1999). Based on such review and programs, the Company reasonably believes that
any such "Year 2000 Problem" substantially caused by its business or operations
will not, individually or in the aggregate, have, and no such problem or
problems has had, a Material Adverse Effect.
(hh) NYSE. The Company has not received any notification from the NYSE
that it fails to meet the NYSE's minimum listing requirements for continued
listing, nor does the Company have knowledge of any basis for such a
notification.
(ii) Hedging. Except as set forth in Schedule 3.1(ii) of the Company
Disclosure Schedule, as of the date of this Agreement, neither the Company nor
any of its Subsidiaries is bound by futures, hedge, swap, collar, put, call,
floor, cap, option or other similar contracts that are intended to benefit from
or reduce or eliminate the risk of fluctuations in the price of commodities,
including hydrocarbons, or securities (each such contract herein called a
"Hedge" and such activities herein called "Hedging").
(jj) Agreement and Irrevocable Proxy. The Company has obtained from each
of its directors and executive officers and delivered to WIC an Agreement and
Irrevocable Proxy.
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(kk) Supplemental Information Regarding the HSR Act. Except for certain
assets of the Company or its Subsidiaries that neither the aggregate fair market
value nor the aggregate book value of which exceed $15,000,000 in the aggregate,
all assets of the Company and its Subsidiaries consist of "reserves of oil,
natural gas, shale or tar sands, or rights to reserves of oil, natural gas,
shale or tar sands, together with associated exploration or production assets"
within the meaning of 16 C.F.R. (S) 802.3.
Section 3.2 Representations and Warranties of WIC and Purchaser. Each of
WIC and Purchaser represents and warrants to the Company (but only as to itself
and not as to any other party) as follows:
(a) Organization, Standing and Power. WIC is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the requisite limited liability company power and
authority to carry on its business as now being conducted. Purchaser is a
corporation, partnership or limited liability company, as the case may be, duly
organized, validly existing and in good standing under the laws of the state of
its formation, and has the requisite corporate, partnership or limited liability
company power and authority to carry on its business as now being conducted.
(b) Authority; No Violations; Approvals.
(i) Each of WIC and Purchaser has approved the Transaction
Documents to which it is a party and the transactions contemplated thereby.
WIC has all requisite limited liability company power and authority, and
Purchaser has all requisite corporate, partnership or limited liability
company, as the case may be, power and authority, to enter into the
Transaction Documents to which it is a party and to consummate the
transactions contemplated thereby. The execution and delivery of the
Transaction Documents to which it is a party and the consummation of the
transactions contemplated thereby have been duly authorized by all
necessary limited liability company action on the part of WIC and all
necessary corporate, partnership or limited liability company, as the case
may be, action on the part of Purchaser. This Agreement has been, and at
the Closing the other Transaction Documents to which it is a party will be,
duly executed and delivered by WIC and Purchaser and, assuming this
Agreement and the other Transaction Documents constitute the valid, binding
and enforceable obligations of the Company, constitute valid and binding
obligations of WIC and Purchaser enforceable in accordance with their
respective terms, subject, as to enforceability, to bankruptcy, insolvency,
reorganization, moratorium and other laws of general applicability relating
to or affecting creditors' rights and to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
(ii) The execution and delivery of this Agreement and the other
Transaction Documents does not, and the consummation of the transactions
contemplated hereby and thereby and compliance with the provisions hereof
and thereof will not, conflict with, or
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result in any violation of or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation
or acceleration of any material obligation or to the loss of a material
benefit under, or give rise to a right of purchase or "put" right under, or
result in the creation of any Lien upon any of the properties or assets of
WIC or Purchaser under, any provision of (A) the organizational documents
of WIC or Purchaser, (B) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement to which WIC or Purchaser is
a party or is otherwise bound or any existing Approval applicable to WIC or
Purchaser or (C) assuming the Approvals referred to in Section 3.2(b)(iii)
are duly and timely obtained or made, any Law applicable to WIC or
Purchaser or any of their respective properties or assets, other than, in
the case of clause (B) or (C), any such conflicts, violations, defaults,
rights, losses, Liens or Laws that, individually or in the aggregate, have
not and could not reasonably be expected to (x) have a material adverse
effect on WIC or Purchaser, (y) impair the ability of WIC or Purchaser to
perform its obligations under any of the Transaction Documents in any
material respect or (z) delay in any material respect or prevent the
consummation of any of the transactions contemplated by any of the
Transaction Documents.
(iii) No Approval of or from any Governmental Entity is required by
or with respect to WIC or Purchaser in connection with the execution and
delivery of this Agreement or any other Transaction Document by WIC or
Purchaser or the consummation by WIC or Purchaser of the transactions
contemplated hereby or thereby, except for: (A) the filing of a
notification report by WIC and Purchaser under the HSR Act and the
expiration or termination of the applicable waiting period with respect
thereto; and (B) any such Approvals the failure of which to be made or
obtained has not and could not reasonably be expected to (1) impair the
ability of WIC or Purchaser to perform its obligations under any of the
Transaction Documents in any material respect or (2) delay in any material
respect or prevent the consummation of any of the transactions contemplated
by any of the Transaction Documents.
(c) Information Supplied. None of the information furnished by WIC or
Purchaser in writing for inclusion in the Proxy Statement and which is so
included in the Proxy Statement will, at the date mailed to stockholders of the
Company or at the time of the Stockholders' Meeting or as of the Closing,
contain any statement which, at the time and in the light of the circumstances
under which it is made, is false or misleading with respect to any material fact
or omit to state any material fact necessary in order to make the statements
therein not false or misleading.
(d) Litigation. There is no claim, action, suit, inquiry or judicial or
administrative proceeding pending or, to the knowledge of WIC or Purchaser,
threatened against WIC or Purchaser that could reasonably be expected to (i)
impair the ability of WIC or Purchaser to perform its obligations under any of
the Transaction Documents in any material respect or (ii) delay in any material
respect or prevent the consummation of any of the transactions contemplated by
any of the Transaction Documents.
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(e) Investment Intent. The Preferred Shares, the Warrants and the
Underlying Common Shares to be acquired by WIC or Purchaser are being acquired
for its own account for investment and with no intention of distributing or
reselling such Preferred Shares, Warrants or Underlying Common Shares or any
part thereof or interest therein in any transaction which would be in violation
of any applicable Laws.
(f) WIC and Purchaser Status. WIC and Purchaser represent and warrant to
and covenant and agree with the Company that (i) at the time WIC and Purchaser
were offered the Preferred Shares and the Warrants, each of them was, (ii) at
the date of execution of this Agreement, WIC is and (iii) at the Closing Date,
each of them will be, an accredited investor as defined in Rule 501(a) under the
Securities Act.
(g) No Brokers or Finders. No agent, broker, finder, investment or
commercial banker or other Person engaged by or acting on behalf of WIC,
Purchaser or their Affiliates in connection with the negotiation, execution or
performance of this Agreement is or will be entitled to any brokerage or
finder's or similar fee or other commission as a result of this Agreement, other
than any such fees or commissions as to which WIC and Purchaser shall have full
responsibility.
(h) Access to Information. WIC and Purchaser represent and acknowledge
that they (i) have had access to and the opportunity to review the Company's
properties, assets, financial statements, contracts and other books and records
and have made such investigation with respect thereto as they deem necessary to
enter into the transactions contemplated hereby, (ii) have been afforded the
opportunity to ask appropriate representatives of the Company questions
concerning the business, assets, financial condition and prospects of the
Company and (iii) have been solely responsible for their own due diligence
investigation of the Company and its business, for their own analysis of the
merits and risks of an investment in the Preferred Shares, the Warrants and the
Underlying Common Shares, and for their own analysis of the terms of an
investment in the Preferred Shares, the Warrants and the Underlying Common
Shares. Nothing contained in this Section 3.2(h) shall in any way limit the
representations and warranties of the Company set forth in this Agreement or the
rights of WIC and Purchaser with respect to any breach of such representations
and warranties.
(i) No Other Shares. Except for such rights as are conferred on WIC and
Purchaser by the Transaction Documents, neither WIC, Purchaser nor any of their
Affiliates beneficially owns, directly or indirectly, any shares of capital
stock of the Company.
ARTICLE
COVENANTS
Section 4.1 Stockholder Approval; Proxy Statement.
(a) The Company shall take all actions necessary in accordance with the
Certificate of Incorporation, the Bylaws, the rules of the NYSE and other
applicable Law to call a meeting of its
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stockholders (the "Stockholders' Meeting") to be held as promptly as practicable
after the date hereof for the purpose of approving the Preferred Share Issuance,
the Warrant Issuance and the Restated Certificate. The Company, WIC and
Purchaser shall consult and cooperate with each other in connection with the
Stockholders' Meeting. Subject to the provisions of Section 4.1(b), the Company
shall cause the Board (i) not to withdraw, modify or change its recommendation
that the Company's stockholders approve the Preferred Share Issuance, the
Warrant Issuance and the Restated Certificate and (ii) to continue to recommend
to the stockholders of the Company the approval of such matters. As promptly as
practicable after the execution of this Agreement, the Company shall prepare and
file with the SEC the Proxy Statement with respect to the approval by the
Company's stockholders of the Preferred Share Issuance, the Warrant Issuance and
the Restated Certificate, which Proxy Statement shall contain the Board's
recommendation that the Company's stockholders approve the Preferred Share
Issuance, the Warrant Issuance and the Restated Certificate. As promptly as
practicable after the clearance of the Proxy Statement by the SEC (but not
earlier than the Financing Commitment Date, unless WIC and Purchaser have
previously delivered to the Company the Commitment Letter), the Company shall
mail the Proxy Statement to its stockholders of record at least 20 calendar days
prior to the Stockholders' Meeting and shall from and after such mailing, unless
the Board has taken the action permitted to be taken by it pursuant to the
provisions of Section 4.1(b), use its reasonable best efforts to solicit and
obtain the Requisite Votes of the stockholders of the Company with respect to
approval of the Preferred Share Issuance, the Warrant Issuance and the Restated
Certificate. The Company, WIC and Purchaser shall cooperate with each other in
preparing the Proxy Statement, and the Company, WIC and Purchaser shall each use
its reasonable best efforts to obtain and furnish as promptly as reasonably
practicable the information required to be included in the Proxy Statement. The
Company, WIC and Purchaser each agrees promptly to correct any information
provided by it for use in the Proxy Statement if and to the extent that such
information shall have become false or misleading in any material respect, and
the Company further agrees to take all steps necessary to cause the Proxy
Statement as so corrected to be filed with the SEC and to be disseminated
promptly to its stockholders, in each case as and to the extent required by
applicable Law.
(b) Notwithstanding anything contained in this Agreement to the contrary,
the Board may at any time prior to the Closing withdraw, modify or change any
recommendation and declaration regarding the Transaction Documents and the
transactions contemplated thereby, or approve, recommend or declare advisable
any Alternative Transaction Proposal, if and only if, after receipt of a
Superior Proposal, in the good faith opinion of the Board, after consultation
with its outside legal counsel, the failure to so withdraw, modify or change its
recommendation and declaration or the failure to so approve, recommend or
declare advisable any Alternative Transaction Proposal will be inconsistent with
the Board's fiduciary obligations under applicable Law.
Section 4.2 NYSE Listing. The Company shall submit a listing application
to the NYSE with respect to the Underlying Common Shares as promptly as
practicable after the date hereof, and WIC and Purchaser shall be entitled to
review and comment on such listing application and the submission of any other
materials to the NYSE in connection with the listing of the Underlying
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Common Shares. The Company shall use its reasonable best efforts to cause the
Underlying Common Shares to be approved for listing on the NYSE, subject to
official notice of issuance.
Section 4.3 Affirmative Covenants of the Company. The Company hereby
covenants and agrees that, until the earlier of the Closing or the termination
of this Agreement, except as set forth in Schedule 4.3 of the Company Disclosure
Schedule, or unless otherwise expressly contemplated by the Transaction
Documents or consented to in writing by WIC and Purchaser (such consent not to
be unreasonably withheld), the Company will and will cause each of its
Subsidiaries to:
(a) operate its business in the usual and ordinary course consistent with
past practice;
(b) use all reasonable efforts to preserve substantially intact its
business organization, maintain its rights and franchises, retain the services
of its respective officers and key employees and maintain its relationships with
its respective customers and suppliers;
(c) use all reasonable efforts to maintain and keep its properties and
assets in as good a repair and condition as at present, ordinary wear and tear
excepted, and use commercially reasonable efforts to maintain supplies and
inventories in quantities consistent with its customary business practices;
(d) use all reasonable efforts to keep in full force and effect insurance
and bonds comparable in amount and scope of coverage to that currently
maintained;
(e) consult and cooperate with WIC in an effort to develop a mutually
acceptable Hedging strategy for the Company effective upon the Closing; and
(f) consult with WIC with respect to the advisability of amending or
replacing the Credit Facility and cooperate in all reasonable respects with WIC
in connection with any discussions between WIC and existing and potential
lenders with respect thereto.
Section 4.4 Negative Covenants of the Company. Except as expressly
contemplated by the Transaction Documents or otherwise consented to in writing
by WIC and Purchaser (such consent not to be unreasonably withheld) or as set
forth in Schedule 4.4 of the Company Disclosure Schedule, from the date of this
Agreement until the earlier of the Closing or the termination of this Agreement,
the Company shall not do, and shall not permit any of its Subsidiaries to do,
any of the following:
(a) acquire, by merging or consolidating with, by purchasing an equity
interest in or a portion of the assets of, or by any other manner, any business
or any corporation, partnership, association or other business organization or
division thereof, or otherwise acquire any assets of any other Person (other
than the purchase of assets in the ordinary course of business and consistent
with past practice);
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(b) sell, lease, exchange, mortgage, pledge, transfer or otherwise dispose
of any of its assets, except for pledges or dispositions of assets in the
ordinary course of business and consistent with past practice;
(c) adopt or propose to adopt any amendments to the Company's Certificate
of Incorporation or Bylaws; reclassify any shares of the Company's capital
stock; adopt resolutions authorizing a liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of the
Company or any Subsidiary; or make any other material changes in the Company's
capital structure;
(d) (i) change in any material respect any method of accounting or
accounting practice, make or rescind any express or deemed election relating to
Taxes, settle or compromise any Litigation, audit or controversy relating to
Taxes, or change any of its methods of reporting income or deductions for
federal or other income Tax purposes from those employed in the preparation of
the federal or other income Tax Returns or other Tax Returns for the taxable
year ended December 31, 1998, except, in the case of either clause (i) or clause
(ii), as may be required by Law or GAAP or (iii) file any material amended Tax
Return;
(e) incur any Debt, whether or not evidenced by a note, bond, debenture or
similar instrument or under any financing lease, whether pursuant to a sale-and-
leaseback transaction or otherwise, other than (i) Hedging in the ordinary
course and consistent with past practice, (ii) other Debt (which may include
obligations under letters of credit or similar facilities obtained by the
Company to secure its Hedging activities) not to exceed $2,000,000 in the
aggregate at any time outstanding and (iii) other obligations and liabilities
incurred in the ordinary course and consistent with past practice;
(f) make any loans or advances to any Person, other than (i) advances to
employees in the ordinary and usual course of business not to exceed $10,000 in
the aggregate at any time outstanding and (ii) transactions among or between the
Company and its Subsidiaries with respect to cash management conducted in the
ordinary and usual course of the Company's business;
(g) declare or pay any dividend or make any other distribution with
respect to its capital stock, other than dividends paid by any Subsidiary to the
Company or another Subsidiary in the ordinary and usual course of the Company's
or such Subsidiary's business;
(h) issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or otherwise)
any of its capital stock or other securities except (i) pursuant to the Company
Options, (ii) for awards granted automatically under or granted pursuant to
elections made by participants under the Stock Plans after the date hereof or
(iii) pursuant to the awards described in clause (ii); or purchase or otherwise
acquire any of its capital stock, employee or director stock options, warrants
or other equity securities or debt securities;
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(i) enter into, adopt or (except as may be required by Law) amend or
terminate any collective bargaining agreement, Plan or Benefit Arrangement;
approve or implement any employment severance arrangements (provided that this
covenant shall not prohibit payments made in accordance with the Company's or
a Subsidiary's severance policy as in effect on the date hereof and set forth on
Schedule 3.1(s) of the Company Disclosure Schedule), authorize, enter into or
amend any employment, severance, consulting services or other agreement with any
officers or executive management personnel; or change the compensation or
benefits provided to any director, officer or (except in the ordinary and usual
course of business) employee as of the date hereof;
(j) materially amend, terminate or fail to use all commercially reasonable
efforts to renew any Material Contract (provided that the Company or its
Subsidiaries shall not be required to renew any Material Contract on terms that
are less favorable to the Company or its Subsidiaries), or default in any
material respect (or take or omit to take any action that, with or without the
giving of notice or passage of time, would constitute a material default) under
any Material Contract;
(k) waive any material right relating to the Oil and Gas Properties that
would not be waived by a reasonably prudent operator;
(l) release or abandon any of the Oil and Gas Properties, except in the
ordinary course of business;
(m) convey, farmout or otherwise dispose of any interest in the Oil and
Gas Properties or any part thereof, except in the ordinary course of business;
(n) with respect to the period commencing on the date hereof and ending on
December 31, 1999 and with respect to each three-month period thereafter, engage
in any material operations, or series of related operations, on any Oil and Gas
Properties that the Company or a Subsidiary has not previously committed to and
that may be expected to cost the Company or a Subsidiary during such period in
excess of $5,000,000 in the aggregate (except for emergency operations, in which
case the Company will promptly notify WIC of such operations), except in the
ordinary course of business;
(o) enter into any Hedge, except in the ordinary course of business and
consistent with past practice;
(p) except in the ordinary course of business and consistent with past
practice, enter into, assign, terminate or amend, in any material respect, any
Material Contract or any other contract or agreement by which the Oil and Gas
Properties are bound; or
(q) agree in writing or otherwise to do any of the foregoing.
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Section 4.5 Reasonable Best Efforts; Financing.
(a) The Company, WIC and Purchaser each agree to cooperate and use their
reasonable best efforts to obtain (and will promptly prepare all registrations,
filings and applications, requests and notices preliminary to) all Approvals
that may be necessary or reasonably requested by the Company, WIC or Purchaser
to consummate the transactions contemplated by this Agreement and the other
Transaction Documents.
(b) WIC and Purchaser shall use their reasonable best efforts (i) to
obtain for Purchaser debt or equity financing or other funds in an aggregate
amount sufficient to consummate the purchase of the Preferred Shares in
accordance with Article II (the "Financing") and (ii) in connection therewith,
to deliver to the Company by the Financing Commitment Date a commitment letter
(the "Commitment Letter") from WIC and Purchaser pursuant to which WIC and
Purchaser represent and warrant to the Company that they have obtained the
Financing or have received conditional assurances from other parties regarding
the Financing, and that based upon such assurances they believe in good faith
that they will be able to deliver the Financing by the Closing Date. Such
representations and warranties shall be deemed to be representations and
warranties made by WIC and Purchaser (including any Persons that have or
thereafter become permitted assignees under Section 9.12) under Section 3.2.
For purposes of this Agreement, the "Financing Commitment Date" means the later
of (i) the 75th day following the date of this Agreement and (ii) the date the
Proxy Statement has been cleared by the SEC for delivery to the Company's
stockholders (either by written or oral notification to such effect delivered to
the Company or its representative or as a result of the passage of time
following the filing of preliminary proxy materials in accordance with the SEC's
proxy rules) (it being understood and agreed that such clearance shall be deemed
to have been obtained for purposes of this definition if all comments (if any)
of the SEC regarding the Proxy Statement have been resolved and all disclosures
therein finalized other than those relating to the status of the Financing, the
identity of Purchaser and the time of the Stockholders' Meeting); provided,
however, that the provisions of clause (ii) of this sentence shall operate to
extend the Financing Commitment Date beyond the 75th day following the date of
this Agreement only if and for so long as WIC and Purchaser remain in compliance
with their covenants under Sections 4.1(a) and 4.5(a).
Section 4.6 Other Transaction Documents. At (and subject to the
occurrence of) the Closing, (a) the Company, WIC and Purchaser shall enter into
the Stockholder Agreement, (b) the Company and WIC shall enter into the
Management Agreement and the Warrant Agreement and (c) the Company shall file
the Restated Certificate, the Certificate of Designation and the Certificate of
Cancellation with the Secretary of State of Delaware in accordance with Section
103 of the Delaware General Corporation Law. The Company shall cooperate with
WIC to replace the Bylaws of the Company with new bylaws of the Company
effective as of the Closing. Such new bylaws shall be consistent with the
provisions of the Management Agreement and the Stockholder Agreement and
otherwise be mutually satisfactory to the Company and WIC (the "Restated
Bylaws").
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Section 4.7 HSR Act Notification. Each of WIC and the Company
contemplates that, assuming the accuracy of the representation and warranty
contained in Section 3.1(kk), no filing under the HSR Act will be required in
connection with the transactions contemplated hereby. If at any time prior to
the Closing, however, any facts come to the attention of WIC or the Company that
cause it to reasonably believe that such representation and warranty is
inaccurate, WIC and the Company shall immediately cooperate to determine whether
such a filing under the HSR Act will in fact be required. If WIC and the Company
cannot agree that such a filing will not be required, then each of the parties
hereto shall as promptly as practicable (a) file or cause to be filed with the
Federal Trade Commission and the United States Department of Justice, all
reports and other documents required to be filed by such party under the HSR Act
concerning the transactions contemplated hereby and (b) comply with or cause to
be complied with any requests by the Federal Trade Commission or the United
States Department of Justice for additional information concerning such
transactions, in each case so that the waiting period applicable to this
Agreement and the transactions contemplated hereby under the HSR Act shall
expire as soon as practicable after the execution and delivery of this
Agreement. Each party hereto agrees to request, and to cooperate with the other
party or parties in requesting, early termination of any applicable waiting
period under the HSR Act. All filing fees required under the HSR Act shall be
the responsibility of, and shall be paid by, the Company.
Section 4.8 Notification of Certain Matters. The Company shall give
prompt notice to WIC and Purchaser, and WIC and Purchaser shall give prompt
notice to the Company, of (a) the occurrence, or failure to occur, of any event
that causes any representation or warranty of such party contained in this
Agreement to be untrue or inaccurate at any time from the date of this Agreement
to the Closing Date and (b) any failure of such party to comply with or satisfy,
in any material respect, any covenant, condition or agreement to be complied
with or satisfied by such party under this Agreement.
Section 4.9 No Solicitation by Company.
(a) The Company agrees that (i) neither it nor any of its Subsidiaries
shall, and it shall not knowingly permit any of its officers, directors,
employees, agents or representatives (including, without limitation, any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) (collectively, "Company Agents") to, solicit, initiate or
knowingly encourage (including by way of furnishing material non-public
information) any inquiry, proposal or offer (including, without limitation, any
proposal or offer to its stockholders) with respect to an Alternative
Transaction (any such inquiry, proposal or offer herein called an "Alternative
Transaction Proposal") or participate or engage in any discussions or
negotiations concerning an Alternative Transaction Proposal; and (ii) it will
immediately cease and cause to be terminated any existing negotiations with any
third parties conducted heretofore with respect to any of the foregoing and
shall advise its Company Agents to immediately cease all such activities;
provided, however, that nothing contained in this Agreement shall prevent the
Company or the Board from (A) complying with Rules 14d-9 and 14e-2 promulgated
under the Exchange Act with regard to an Alternative Transaction Proposal, or
(B) providing information to, or participating or engaging in
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any discussions or negotiations with, any Person (or group of Persons) who has
made an unsolicited Alternative Transaction Proposal with respect to a potential
Alternative Transaction if and only to the extent that (i) the Board determines
in good faith (after consultation with its legal and financial advisors) that
such Alternative Transaction Proposal is reasonably capable of being completed,
taking into account all legal, financial, regulatory and other aspects of the
Alternative Transaction Proposal and the Person making the Alternative
Transaction Proposal, and would, if consummated, result in a transaction more
favorable to the Company's stockholders than the transactions contemplated by
the Transaction Documents (a "Superior Proposal"), (ii) the Board determines in
good faith (after consultation with its outside legal counsel) that the failure
to do so would be inconsistent with its fiduciary obligations under applicable
Law, (iii) prior to providing any information or data to any Person in
connection with a Superior Proposal by any such Person, the Board receives from
such Person an executed confidentiality agreement that is in reasonably
customary form and consistent with the Company's obligations hereunder, and (iv)
prior to providing any information or data to any Person or entering into
discussions or negotiations with any Person, the Board notifies WIC and
Purchaser promptly of such inquiries, proposals or offers received by, any such
information requested from, or any such discussions or negotiations sought to be
initiated or continued with, the Company, any of its Subsidiaries or any of
their Company Agents indicating, in connection with such notice, the identity of
such Person and the material terms and conditions of any proposals or offers.
(b) The Company shall promptly notify WIC and Purchaser of the receipt of
any Alternative Transaction Proposal, including the identity of the Person
making such inquiry, proposal or offer, and the material terms and conditions of
any such proposal, and shall keep WIC and Purchaser informed on a timely basis
of any material changes with respect thereto.
(c) Nothing in this Section 4.9 shall permit the Company to enter into any
agreement with respect to an Alternative Transaction Proposal during the term of
this Agreement, it being agreed that during the term of this Agreement, the
Company shall not enter into any agreement with any Person that provides for, or
in any way facilitates, an Alternative Transaction Proposal, other than a
confidentiality agreement that is in reasonably customary form and consistent
with the Company's obligations hereunder.
(d) For purposes of this Agreement, "Alternative Transaction" means any of
(i) a transaction pursuant to which any Person or Persons other than WIC,
Purchaser or their Affiliates (a "Third Party") acquires or would acquire more
than 5% of the outstanding shares of any class of equity securities of the
Company, whether from the Company or pursuant to a tender offer or exchange
offer or otherwise, (ii) a merger, consolidation or other business combination
involving the Company pursuant to which any Third Party acquires more than 5% of
the outstanding equity securities of the Company or the entity surviving such
merger, consolidation or business combination, or (iii) any transaction pursuant
to which any Third Party acquires or would acquire control of assets (including
for this purpose the outstanding equity securities of Subsidiaries of the
Company and securities of the entity surviving any merger, consolidation or
business combination including any of the Company's Subsidiaries) of the
Company, or any of its Subsidiaries, having a
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fair market value (as determined by the Board in good faith) equal to more than
5% of the fair market value of all the assets of the Company and its
Subsidiaries, taken as a whole, immediately prior to such transaction.
Section 4.10 Access; Confidentiality.
(a) At all times during normal business hours from and after the date
hereof until the earlier of the Closing or the termination of this Agreement,
the Company shall afford WIC and Purchaser and their authorized representatives
reasonable access to the properties, employees and officers of the Company and
to all books and records of every kind of the Company as WIC or Purchaser may
reasonably request.
(b) WIC, Purchaser and their Affiliates shall, and shall cause their
representatives to, hold confidential all information relating to the Company or
its Subsidiaries that they have received prior to the date hereof or may receive
on or after the date hereof from the Company or any of its representatives;
provided, however, that the foregoing shall not apply to (i) information that is
or becomes generally available to the public other than as a result of a
disclosure by WIC, Purchaser or any of their Affiliates or representatives in
violation of this Section 4.10(b), (ii) information that is or becomes available
to WIC or Purchaser or any of their representatives on a nonconfidential basis
from a source other than the Company or its Affiliates or representatives,
provided that such source is not known by WIC or Purchaser to be bound by a
confidentiality agreement with or other obligation of secrecy to the Company or
any other party, or (iii) information that is required to be disclosed by WIC or
Purchaser or any of their representatives as a result of any applicable Law;
provided further, however, that in the event information is required to be
disclosed pursuant to clause (iii) above, the Person proposing such disclosure
shall provide to the Company to the extent practicable an opportunity,
reasonably in advance of any such disclosure, to review and comment on the form
and content of such proposed disclosure.
Section 4.11 Transfer Restrictions. If WIC or Purchaser should decide to
dispose of any of the Preferred Shares, the Warrants or the Underlying Common
Shares, WIC and Purchaser understand and agree that they may do so only pursuant
to an effective registration statement under the Securities Act or pursuant to
an exemption from registration under the Securities Act. In connection with any
offer, resale, pledge or other transfer (individually and collectively, a
"Transfer") of any of the Preferred Shares, the Warrants or the Underlying
Common Shares other than pursuant to an effective registration statement, the
Company may require that the transferor of such Preferred Shares, Warrants or
Underlying Common Shares provide to the Company an opinion of counsel, which
opinion shall be reasonably satisfactory in form and substance to the Company,
to the effect that such Transfer is being made pursuant to an exemption from, or
in a transaction not subject to, the registration requirements of the Securities
Act and any state or foreign securities Laws. WIC and Purchaser agree to the
imprinting, so long as appropriate, of substantially the following legend on
certificates representing the Preferred Shares, the Warrants and the Underlying
Common Shares:
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THE SECURITIES (THE "SECURITIES") EVIDENCED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER AGREES THAT IT WILL NOT OFFER, RESELL, PLEDGE
OR OTHERWISE TRANSFER (INDIVIDUALLY AND COLLECTIVELY, A
"TRANSFER") THE SECURITIES EVIDENCED HEREBY, EXCEPT (A) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT,
OR (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT SUCH AS THE EXEMPTION SET FORTH IN RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE). IF THE PROPOSED TRANSFER IS TO
BE MADE OTHER THAN PURSUANT TO CLAUSE (A) ABOVE, THE HOLDER MUST,
PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY AND THE TRANSFER
AGENT SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS
THEY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS
BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
OR ANY STATE OR FOREIGN SECURITIES LAW.
The legend set forth above may be removed if and when the Preferred Shares
or the Underlying Common Shares, as the case may be, represented by such
certificate are disposed of pursuant to an effective registration statement
under the Securities Act or pursuant to the exemption from registration set
forth in Rule 144 under the Securities Act. The certificates representing the
Preferred Shares, the Warrants and the Underlying Common Shares shall also bear
any additional legends required by applicable Laws or by the Stockholder
Agreement or the Warrant Agreement. Any such legend may be removed when, in the
opinion of counsel reasonably satisfactory to the Company, such legend is no
longer required under the applicable requirements of such Laws or is no longer
required under the applicable provisions of such agreements, as the case may be.
WIC and Purchaser agree that, in connection with any Transfer of Preferred
Shares or Underlying Common Shares by them pursuant to an effective registration
statement under the Securities Act, WIC and Purchaser will comply with any
applicable prospectus delivery requirements of the Securities Act. The Company
makes no representation, warranty or agreement as to the availability of any
exemption from registration under the Securities Act with respect to any resale
of Preferred Shares, Warrants or Underlying Common Shares.
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ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
Section 5.1 Conditions Precedent to Each Party's Obligation. The
respective obligations of the Company, WIC and Purchaser to effect the
transactions contemplated hereby are subject to the satisfaction on or prior to
the Closing Date of the following conditions:
(a) Stockholder Approval. The stockholders of the Company shall have
approved the Preferred Share Issuance, the Warrant Issuance and the Restated
Certificate by the Requisite Votes at the Stockholders' Meeting.
(b) Other Approvals. All Approvals of, or expirations of waiting periods
imposed by, any Governmental Entity necessary for the consummation of the
transactions contemplated by this Agreement shall have been filed, occurred or
been obtained, including the expiration or termination of any applicable waiting
period under the HSR Act.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction, or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated hereby shall be in effect.
(d) No Governmental Action. No action shall have been taken nor any
statute, rule or regulation shall have been enacted by any Governmental Entity
that makes the consummation of the transactions contemplated hereby illegal.
Section 5.2 Conditions Precedent to Obligations of WIC and Purchaser.
The obligations of WIC and Purchaser to effect the transactions contemplated by
this Agreement to be consummated at the Closing is subject to the satisfaction
of the following conditions unless waived, in whole or in part, by WIC and
Purchaser.
(a) Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement shall be true and correct in all
material respects (provided that any representation or warranty of the Company
contained herein that is qualified by a materiality standard or a Material
Adverse Effect qualification shall not be further qualified hereby) as of the
date of this Agreement and as of the Closing Date as though made on and as of
the Closing Date, except as otherwise expressly contemplated by this Agreement,
and WIC and Purchaser shall have received a certificate to the foregoing effect
signed on behalf of the Company by the chief executive officer or by the chief
financial officer of the Company.
(b) Performance of Obligations. The Company shall have performed in all
material respects (provided that any covenant or agreement that is qualified by
a materiality standard or Material Adverse Effect qualification shall not be
further qualified hereby) all obligations required
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to be performed by it under this Agreement prior to the Closing, and WIC and
Purchaser shall have received a certificate to such effect signed on behalf of
the Company by the chief executive officer or by the chief financial officer of
the Company.
(c) Material Adverse Effect. Since the date of this Agreement, there shall
not have occurred any Material Adverse Effect.
(d) Consents Under Agreements. WIC and Purchaser shall have been
furnished with evidence reasonably satisfactory to them of the consent or
approval of each Person that is a party to a Material Contract and whose consent
or approval is required in order to prevent the consummation of the transactions
contemplated by this Agreement from causing or resulting in (i) a breach of such
Material Contract or (ii) the creation in favor of such Person of a right to
terminate such Material Contract, and such consent or approval shall be in form
and substance reasonably satisfactory to WIC and Purchaser; provided that no
such consent or approval shall be required with respect to any employment or
consulting Contract identified on Schedule 3.1(s) of the Company Disclosure
Schedule to which the provisions of clause (ii) above would otherwise apply.
(e) Legal Opinion. WIC and Purchaser shall have received from Thompson &
Knight L.L.P., corporate counsel to the Company and its Subsidiaries, an opinion
dated the Closing Date, in substantially the form attached as Exhibit G hereto.
---------
(f) Charter and Bylaws; Certificate of Designation; Certificate of
Cancellation. The Restated Certificate, the Certificate of Designation and the
Certificate of Cancellation shall have been filed by the Company with the
Secretary of State of Delaware in accordance with Section 103 of the Delaware
General Corporation Law. The Board shall have approved and adopted the Restated
Bylaws effective as of the Closing.
(g) Board Composition. The Company shall have taken all action required
to be taken by it under Section 2.1(a) and (b) of the Stockholder Agreement with
respect to the composition of the Board and the Executive Committee of the Board
immediately following the Closing.
(h) Financing. The proceeds of the Financing necessary to consummate the
purchase of the Preferred Shares hereunder shall have been received by
Purchaser. The condition set forth in the immediately preceding sentence shall
be deemed irrevocably satisfied upon delivery to the Company of the Commitment
Letter.
(i) NYSE Listing. The Underlying Common Shares shall have been approved
for listing on the NYSE, subject to official notice of issuance.
(j) Closing Deliveries. All documents, instruments, certificates or other
items required to be delivered by the Company pursuant to Section 6.2(b) shall
have been delivered.
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Section 5.3 Conditions Precedent to Obligation of Company. The
obligation of the Company to effect the transactions contemplated by this
Agreement to be consummated at the Closing is subject to the satisfaction of the
following conditions unless waived, in whole or in part, by the Company:
(a) Representations and Warranties. The representations and warranties of
WIC and Purchaser set forth in this Agreement shall be true and correct in all
material respects (provided that any representation or warranty of WIC and
Purchaser contained herein that is qualified by a materiality standard shall not
be further qualified hereby) as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date, except as otherwise
expressly contemplated by this Agreement, and the Company shall have received a
certificate to the foregoing effect signed on behalf of WIC and Purchaser by one
or more managing members or executive officers of WIC and Purchaser.
(b) Performance of Obligations. WIC and Purchaser shall have performed in
all material respects (provided that any covenant or agreement that is qualified
by a materiality standard shall not be further qualified hereby) all obligations
required to be performed by them under this Agreement prior to the Closing, and
the Company shall have received a certificate to such effect signed on behalf of
WIC and Purchaser by one or more managing members or executive officers of WIC
and Purchaser.
(c) Legal Opinion. The Company shall have received from Andrews & Kurth
L.L.P., corporate counsel to WIC and Purchaser, or from such other counsel to
any Purchaser as is reasonably acceptable to the Company, an opinion or opinions
dated the Closing Date, in substantially the form attached as Exhibit H hereto.
---------
(d) Closing Deliveries. All documents, instruments, certificates or other
items required to be delivered by WIC and Purchaser pursuant to Section 6.2(a)
shall have been delivered.
ARTICLE VI
CLOSING
Section 6.1 Closing. Subject to the satisfaction or waiver of the
conditions set forth in Article V, the closing of the purchase and sale of the
Preferred Shares pursuant to Article II (the "Closing") shall occur (a) at the
offices of Thompson & Knight L.L.P., 1700 Pacific Avenue, Suite 3300, Dallas,
Texas 75201, at 10:00 a.m., local time, on the second Business Day following the
later of (i) satisfaction of the condition to the obligations of the parties set
forth in Section 5.1(a) and (ii) expiration or earlier termination of any
waiting period under the HSR Act applicable to the transactions contemplated
hereby, or (b) at such other location and time as may be mutually agreed upon by
the parties hereto. The date on which the Closing is required to take place is
herein referred to as the "Closing Date". All closing transactions at the
Closing shall be deemed to have occurred simultaneously.
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Section 6.2 Actions to Occur at the Closing.
(a) At the Closing, WIC and Purchaser, as applicable, shall deliver to the
Company the following:
(i) the Purchase Price for the Preferred Shares in accordance with
Article II;
(ii) counterparts of the Management Agreement executed by WIC;
(iii) counterparts of the Stockholder Agreement executed by WIC and
Purchaser;
(iv) (A) the purchase price for the Warrants in accordance with the
Warrant Purchase Agreement and (B) counterparts of the Warrant Agreement
executed by WIC;
(v) counterparts of the Employment Agreement executed by George K.
Hickox, Jr.;
(vi) the certificates described in Sections 5.3(a) and 5.3(b); and
(vii) the opinion of counsel referred to in Section 5.3(c).
(b) At the Closing, the Company shall deliver to WIC and Purchaser, as
applicable, the following:
(i) a share certificate or share certificates representing the
Preferred Shares;
(ii) counterparts of the Management Agreement executed by the
Company;
(iii) counterparts of the Stockholder Agreement executed by the
Company;
(iv) counterparts of the Warrant Agreement executed by the Company;
(v) counterparts of the Employment Agreement executed by the
Company;
(vi) the certificates described in Sections 5.2(a) and 5.2(b);
(vii) the original of each consent or approval, if any, pursuant to
Section 5.2(d);
(viii) the opinion of counsel referred to in Section 5.2(e); and
(ix) a certificate or certificates of the secretary of state or
similar authority of each of the jurisdictions referred to in the second
sentence of Section 3.1(a), dated as of a date
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within five Business Days prior to the Closing Date, certifying as to the
good standing of the Company or its Subsidiary (as the case may be) in such
jurisdiction.
ARTICLE VII
TERMINATION
Section 7.1 Termination. This Agreement may be terminated prior to the
Closing:
(a) by mutual consent of WIC, Purchaser and the Company; or
(b) by either WIC and Purchaser, on the one hand, or the Company, on the
other:
(i) in the event of a breach by the other party of any
representation, warranty, covenant or agreement of such other party
contained in this Agreement which (A) would give rise to the failure of a
condition set forth in Section 5.2(a) or 5.2(b) or Section 5.3(a) or 5.3(b)
with respect to the Closing, and (B) cannot be cured or, if it is capable
of being cured, has not been cured within 20 days following receipt by the
breaching party of written notice of such breach (the "Cure Period")
(provided that in no event shall the Cure Period extend beyond the date on
which the Closing is scheduled to take place pursuant to Section 6.1 and
there shall not be a Cure Period for breaches of the covenants set forth in
the third sentence of Section 4.1(a) or in Section 4.9); or
(ii) if a court of competent jurisdiction or other Governmental
Entity shall have issued an order, decree or ruling or taken any other
action (which order, decree or ruling WIC, Purchaser and the Company shall
use their reasonable best efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such order, decree, ruling or other
action shall have become final and nonappealable; or
(iii) if the required approval of the stockholders of the Company
shall not have been obtained by reason of the failure to obtain the
Requisite Votes upon a vote held at a duly held meeting of stockholders, or
at any adjournment thereof; or
(iv) if the Closing shall not have occurred by the later of (A) May
31, 2000, and (B) the date to which the Closing Date is extended pursuant
to Section 6.1; provided, however, that the right to terminate this
Agreement under this clause (iv) shall not be available to any party whose
breach of this Agreement has been the cause of, or resulted in, the failure
of the Closing to occur on or before such date; or
(c) by the Company, if, as a result of a Superior Proposal received by the
Company, the Board determines in good faith that its fiduciary obligations under
applicable Law require that such Superior Proposal be accepted; provided that
the Company may not effect such termination pursuant
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to this Section 7.1(c) unless and until (i) WIC and Purchaser receive at least
one week's prior written notice from the Company of its intention to effect such
termination pursuant to this Section 7.1(c); (ii) during such week, the Company
shall, and shall cause its respective financial and legal advisors to, consider
any adjustment in the terms and conditions of the Transaction Documents that WIC
and Purchaser may propose; and (iii) the Board shall have concluded in good
faith, after considering applicable provisions of Law and after giving effect to
all adjustments which may be offered by WIC and Purchaser pursuant to clause
(ii) above, on the basis of advice of its outside counsel, that such action is
necessary for the Board to act in a manner consistent with its fiduciary duties
under applicable Law; provided further, that it shall be a condition to the
effectiveness of termination by the Company pursuant to this Section 7.1(c) that
the Company shall have made the payment of the fee to WIC required by Section
9.5(a);
(d) by WIC and Purchaser, if the Company or the Board shall withdraw,
modify or change its recommendation of the Transaction Documents and the
transactions contemplated thereby in a manner adverse to WIC and Purchaser or
approve, recommend or declare advisable any Alternative Transaction Proposal; or
(e) by WIC, Purchaser or the Company, if the Commitment Letter shall not
have been received by the Company by the Financing Commitment Date; or
(f) by the Company, (i) in the event of a breach by WIC or Purchaser of
its representations and warranties referred to in clause (ii) of the first
sentence of Section 4.5(b) or its covenants and agreements set forth in Section
4.6 or (ii) if Purchaser shall not have received the proceeds of the Financing
by, or is otherwise unable or refuses to deliver the Purchase Price on, the date
on which the Closing is scheduled to take place pursuant to Section 6.1.
The right of any party hereto to terminate this Agreement pursuant to this
Section 7.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers, directors,
employees, accountants, consultants, legal counsel, agents or other
representatives, whether prior to or after the execution of this Agreement.
Section 7.2 Effect of Termination. In the event of the termination by a
party of this Agreement, written notice thereof shall forthwith be given to the
other party specifying the provision hereof pursuant to which such termination
is made, and this Agreement (except for the provisions of this Section 7.2,
Section 2.4, Section 4.10(b), Article VIII and Article IX, which shall survive
such termination) shall forthwith become null and void. Subject to the
provisions of Sections 2.4 and 9.5, in the event of a termination of this
Agreement by either the Company, WIC or Purchaser as provided above, there shall
be no liability on the part of the Company, WIC or Purchaser except for
liability arising out of a breach of, or misrepresentation under, this
Agreement.
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ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnification of WIC and Purchaser. Subject to the
provisions of this Article VIII, the Company agrees to indemnify and hold
harmless the Purchaser Indemnified Parties from and against any and all
Purchaser Indemnified Costs.
Section 8.2 Indemnification of Company. Subject to the provisions of this
Article VIII, WIC and each Purchaser agree to indemnify and hold harmless the
Company Indemnified Parties from and against any and all Company Indemnified
Costs. The indemnification obligation of each Purchaser hereunder shall be
several and not joint, and shall be further limited to a share of the total
Company Indemnified Costs that is proportionate to such Purchaser's share of the
Purchase Price.
Section 8.3 Defense of Third-Party Claims. An Indemnified Party shall give
prompt written notice to any Person who is obligated to provide indemnification
hereunder (an "Indemnifying Party") of the commencement or assertion of any
action, proceeding, demand or claim by a third party (collectively, a "third-
party action") in respect of which such Indemnified Party shall seek
indemnification hereunder. Any failure so to notify an Indemnifying Party shall
not relieve such Indemnifying Party from any liability that it may have to such
Indemnified Party under this Article VIII unless the failure to give such notice
materially and adversely prejudices such Indemnifying Party. The Indemnifying
Party shall have the right to assume control of the defense of, settle or
otherwise dispose of such third-party action on such terms as it deems
appropriate; provided, however, that:
(a) The Indemnified Party shall be entitled, at its own expense, to
participate in the defense of such third-party action (provided, however, that
the Indemnifying Party shall pay the attorney's fees of one counsel (provided
that if any such third-party action is brought in a jurisdiction other than
Texas, the Indemnifying Party shall also pay the attorney's fees of one local
counsel) to the Indemnified Party if (i) the employment of separate counsel
shall have been authorized in writing by such Indemnifying Party in connection
with the defense of such third-party action, (ii) the Indemnifying Party shall
not have employed counsel reasonably satisfactory to the Indemnified Party to
have charge of such third-party action, (iii) counsel to the Indemnified Party
shall have reasonably concluded that there may be defenses available to the
Indemnified Party that are different from or additional to those available to
the Indemnifying Party, (iv) counsel to the Indemnified Party and the
Indemnifying Party shall have advised their respective clients in writing, with
a copy delivered to the other party, that there is a conflict of interest that
could make it inappropriate under applicable standards of professional conduct
to have common counsel) or (v) the third-party action is a proceeding brought by
a stockholder of the Company (in such stockholder's name or derivatively on
behalf of the Company) in respect of the transactions contemplated by this
Agreement);
(b) The Indemnifying Party shall obtain the prior written approval of the
Indemnified Party before entering into or making any settlement, compromise,
admission or acknowledgment of the validity of such third-party action or any
liability in respect thereof if, pursuant to or as a result
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of such settlement, compromise, admission or acknowledgment, injunctive or other
equitable relief would be imposed against the Indemnified Party or if, in the
opinion of the Indemnified Party, such settlement, compromise, admission or
acknowledgment could have a material adverse effect on its business;
(c) No Indemnifying Party shall consent to the entry of any judgment or
enter into any settlement that does not include as an unconditional term thereof
the giving by each claimant or plaintiff to each Indemnified Party of a release
from all liability in respect of such third-party action; and
(d) The Indemnifying Party shall not be entitled to control (but shall be
entitled to participate at its own expense in the defense of), and the
Indemnified Party shall be entitled to have sole control over, the defense or
settlement, compromise, admission or acknowledgment of any third-party action
(i) as to which the Indemnifying Party fails to assume the defense within a
reasonable length of time; or (ii) to the extent the third-party action seeks an
order, injunction or other equitable relief against the Indemnified Party which,
if successful, would materially adversely affect the business, operations,
assets or financial condition of the Indemnified Party; provided, however, that
the Indemnified Party shall make no settlement, compromise, admission or
acknowledgment that would give rise to liability on the part of any Indemnifying
Party without the prior written consent of such Indemnifying Party.
The parties hereto shall extend reasonable cooperation in connection with
the defense of any third-party action pursuant to this Article VIII and, in
connection therewith, shall furnish such records, information and testimony and
attend such conferences, discovery proceedings, hearings, trials and appeals as
may be reasonably requested.
Section 8.4 Direct Claims. In any case in which an Indemnified Party seeks
indemnification hereunder which is not subject to Section 8.3 because no third-
party action is involved, the Indemnified Party shall notify the Indemnifying
Party in writing of any indemnified costs which such Indemnified Party claims
are subject to indemnification under the terms hereof. The failure of the
Indemnified Party to exercise promptness in such notification shall not amount
to a waiver of such claim unless the resulting delay materially prejudices the
position of the Indemnifying Party with respect to such claim.
Section 8.5 No Punitive Damages. Notwithstanding anything contained in
this Agreement to the contrary, in no event shall any party hereto be entitled
to recover any exemplary or punitive damages from any other party hereto on
account of any breach of or misrepresentation under any Transaction Document.
Section 8.6 Exclusivity. The parties hereto agree that, in relation to any
breach, default or nonperformance by a party of any of its representations,
warranties, covenants or agreements contained in this Agreement or any
certificates delivered pursuant hereto, the only relief and
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remedies available to the other parties hereto in respect of such breach,
default or nonperformance shall be:
(a) termination of this Agreement, but only if such termination is
expressly permitted under the provisions of Article VII;
(b) damages, but only to the extent properly claimable hereunder and
as limited pursuant to this Article VIII or otherwise hereunder;
(c) specific performance, but only if such specific performance is
expressly permitted under the provisions of Section 9.3 and a court of
competent jurisdiction in its discretion grants the same; and
(d) injunctive or declaratory relief if a court of competent
jurisdiction in its discretion grants the same.
The parties hereto also agree that no action for termination or rescission,
or claiming repudiation, of this Agreement may be brought or maintained by any
party against any other party following the Closing no matter how severe, grave
or fundamental any such breach, default or nonperformance may be by such other
party. Accordingly, the parties hereby expressly waive and forego any and all
rights they may possess to bring any such action.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Survival of Provisions.
(a) The representations and warranties of the Company, WIC and Purchaser
made herein or pursuant hereto, and the covenants and agreements of the Company,
WIC and Purchaser made herein that, by their terms, are to be performed or
complied with at or prior to the Closing, shall remain operative and in full
force and effect pursuant to their terms, regardless of (i) any investigation
made by or on behalf of the Company, WIC or Purchaser, as the case may be, or
(ii) acceptance of the Preferred Shares and payment by Purchaser therefor, until
the date that is 12 months following the Closing Date (except as provided in the
following sentence); provided that such representations, warranties, covenants
and agreements shall survive as to any claim or demand made prior to their
termination date until such claim or demand is fully paid or otherwise resolved.
Notwithstanding the general expiration period set forth in the foregoing
sentence, (i) the representations and warranties contained in Sections 3.1(a)
(Organization, Standing and Power), 3.1(b) (Subsidiaries), 3.1(c) (Capital
Structure), 3.1(d) (Authority; No Violations; Approvals), 3.1(e) (Status of
Preferred Shares, Conversion Shares and Dividend Shares), 3.1(f) (Status of
Warrants and Warrant Shares), 3.1(g) (Requisite Votes) and 3.1(h) (Certain Anti-
Takeover Provisions; Amendment to Rights Agreement), and Sections 3.2(a)
(Organization, Standing and Power) and 3.2(b) (Authority; No Violations;
Approvals), shall survive indefinitely, and (ii) the representations
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and warranties contained in Sections 3.1(r) (Taxes) and 3.1(w) (Environmental
Matters) shall survive for the term of the statute of limitations applicable to
the underlying substantive matter.
(b) The covenants and agreements of the Company, WIC and Purchaser
contained in this Agreement that, by their terms, are to be performed or
complied with after the Closing shall survive until the period specified herein
(if any) with respect to such covenant or agreement; provided, however, that
such covenants and agreements shall survive as to any claim or demand in respect
thereof made prior to their termination date until such claim or demand is fully
paid or otherwise resolved.
Section 9.2 No Waiver; Modification in Writing. No failure or delay on the
part of the Company, WIC or Purchaser in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
provisions of this Agreement, including the provisions of this sentence, may not
be amended, modified or supplemented except by an instrument in writing signed
by the Company, WIC and Purchaser, and waivers or consents to departures from
the provisions hereof may not be given without the written consent of the
Company, on the one hand, and WIC and Purchaser, on the other hand, provided
that notice of any such waiver shall be given to each party hereto as set forth
below. Any amendment, supplement or modification of or to any provision of this
Agreement, or any waiver of any provision of this Agreement, shall be effective
only in the specific instance and for the specific purpose for which made or
given.
Section 9.3 Specific Performance. The parties recognize that in the event
the Company should refuse to perform under the provisions of this Agreement or
WIC or Purchaser should refuse to perform under the provisions of Section
2.4(b), 4.10(b), 4.11, 9.5(b), 9.13 or 9.14, monetary damages alone will not be
adequate. The parties shall therefore be entitled, in addition to any other
remedies which may be available hereunder, including money damages, to obtain
specific performance of such provisions. In the event of any action to enforce
such provisions specifically, the parties hereby waive the defense that there is
an adequate remedy at Law.
Section 9.4 Severability. If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of applicable Law, or public
policy, all other provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated herein are not affected in any manner materially adverse to any
party. Upon such determination that any provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated herein are consummated as originally contemplated to
the fullest extent possible.
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Section 9.5 Fees and Expenses.
(a) If this Agreement is terminated by the Company pursuant to Section
7.1(c) or by WIC and Purchaser pursuant to Section 7.1(d) (and provided that
neither WIC nor Purchaser is then in material breach of any of its obligations
hereunder), the Company shall pay to WIC by wire transfer of immediately
available funds, within three Business Days following the date of such
termination (or, with respect to a termination by the Company pursuant to
Section 7.1(c), prior to such termination), a fee in the amount of $500,000.
(b) Except as otherwise expressly provided in this Agreement, all costs
and expenses (including legal fees and expenses) incurred by a party in
connection with this Agreement and the other Transaction Documents and the
transactions contemplated hereby and thereby shall be borne solely and entirely
by such party.
Section 9.6 Parties in Interest. This Agreement shall be binding upon and,
except as provided below, inure solely to the benefit of each party hereto and
their respective successors and permitted assigns, and nothing in this
Agreement, except as set forth in Article VIII (which is intended for the
benefit of all Indemnified Parties), express or implied, is intended to confer
upon any other Person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.
Section 9.7 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, sent by
facsimile transmission, mailed by registered or certified United States mail
(return receipt requested), or sent by nationally recognized overnight courier
service, to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
(a) If to WIC or Purchaser, to:
Wiser Investment Company, LLC
c/o Douglas P. Heller
1629 Locust Street
Philadelphia, Pennsylvania 19103
with a copy to:
Andrews & Kurth L.L.P.
600 Travis Street, Suite 4200
Houston, Texas 77002
Attention: Thomas M. Hart III
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<PAGE>
(b) If to the Company, to:
8115 Preston Road
Suite 400
Dallas, Texas 75225
Attention: President
with a copy to:
Thompson & Knight L.L.P.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201-4693
Attention: Steven K. Cochran
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered, on the date of receipt, if sent by facsimile transmission,
three Business Days after the date of mailing, if mailed by registered or
certified mail, return receipt requested, and one Business Day after the date of
sending, if sent by nationally recognized overnight courier service.
Section 9.8 Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, all of which
shall be considered one and the same agreement and shall become effective when
one or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
Section 9.9 Entire Agreement. This Agreement (which term, for purposes of
this Section 9.9, shall be deemed to include the Exhibits and Schedules hereto
and the other certificates, documents and instruments delivered hereunder)
constitutes the entire agreement of the parties hereto and supersedes all prior
agreements, letters of intent and understandings, both written and oral, between
the parties with respect to the subject matter hereof. There are no
representations, warranties, agreements or covenants other than those expressly
set forth in this Agreement.
Section 10.10 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE
STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF
THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.
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Section 9.11 Public Announcements. The Company, on the one hand, and WIC
and Purchaser, on the other, shall consult with each other before issuing any
press release or otherwise making any public statements with respect to the
Transaction Documents or the transactions contemplated thereby, except for
statements required by Law or by any listing agreements with any national
securities exchange or the National Association of Securities Dealers, Inc., or
made in disclosures filed pursuant to the Securities Act or the Exchange Act.
Section 9.12 Assignment.
(a) Except as otherwise provided in this Section 9.12, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto, whether by operation of Law or otherwise.
Any attempted assignment in violation of this Section 9.12 shall be null and
void.
(b) With the prior written consent of the Company (which consent shall not
be unreasonably withheld), WIC may assign all of its rights, interests and
obligations (which shall include all its representations and warranties) as
Purchaser hereunder to a corporation, partnership or limited liability company
formed by WIC subsequent to the date of this Agreement and in connection with
the Financing and in which WIC has a significant equity interest, provided that
such assignee expressly assumes such rights, interests and obligations, and the
Company agrees that following such assignment and assumption the Company shall
look only to such assignee in satisfaction of the Company's rights against
Purchaser or the enforcement of the obligations of Purchaser hereunder.
(c) With the prior written consent of the Company (which consent shall not
be unreasonably withheld), WIC may assign its rights as Purchaser under Section
2.1 with respect to a portion of the Preferred Shares (which assignment shall
include an assignment of a corresponding part of its rights, interests and
obligations (including its representations and warranties) as Purchaser
hereunder) to not more than eight other accredited investors (as defined in Rule
501(a) under the Securities Act), provided that each such assignee expressly
assumes such rights, interests and obligations, and the Company agrees that
following such assignment and assumption the Company shall look only to such
assignee in satisfaction of the Company's rights against Purchaser or the
enforcement of the obligations of Purchaser hereunder, to the extent of the
obligations assumed by such assignee.
(d) No assignment and assumption referred to in Section 9.12(b) or (c)
shall be permitted unless (i) the documents evidencing such assignment and
assumption are reasonably satisfactory to the Company in form and substance,
(ii) such documents contain an acknowledgment that such assignee(s) have become
parties to this Agreement in the capacity of Purchaser as if such assignee(s)
had been original signatory parties hereto and agree as Purchaser to be bound by
all the terms and provisions hereof and (iii) such documents have been delivered
to the Company and are effective prior to the Closing Date.
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<PAGE>
(e) An assignment by WIC pursuant to Section 9.12(b) or 9.12(c) shall not
have any effect on the rights, interests or obligations hereunder that are
applicable to WIC in its capacity other than as Purchaser.
Section 9.13 Independent Determination. From and after the Closing Date,
all decisions on behalf of the Company as to the payment of indemnification
pursuant hereto and otherwise regarding the Company's rights and obligations
pursuant to the Transaction Documents shall be made by majority vote of a
committee of directors of the Company consisting of all directors of the Company
other than (a) the Purchaser Designees and (b) any directors elected by the
holders of the Series C Preferred Stock pursuant to the provisions of the
Certificate of Designation; provided, however, that nothing contained in this
Section 9.13 shall prevent any Indemnified Party from receiving indemnification
pursuant to some other source (such as, by way of example, the bylaws of the
Company in the event that such Indemnified Party is a director of the Company
and such director seeks indemnification due to circumstances that do not pertain
to an alleged breach of a Transaction Document), and the determination as to
whether indemnification pursuant to such other source is available shall be made
in accordance with the procedures applicable thereto.
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In Witness Whereof, each of the parties hereto has caused this Agreement to
be executed by its duly authorized representative as of the date first written
above.
THE WISER OIL COMPANY
By: /s/ Andrew J. Shoup, Jr.
-------------------------------
Name: Andrew J. Shoup, Jr.
--------------------------
Title: President
-------------------------
WISER INVESTMENT COMPANY, LLC
By: /s/ George K. Hickox, Jr.
-------------------------------
Name: George K. Hickox, Jr.
--------------------------
Title: Authorized Signatory
-------------------------
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EXHIBIT A
AGREEMENT AND IRREVOCABLE PROXY
THIS AGREEMENT AND IRREVOCABLE PROXY (this "Agreement") dated as of
---------
December 13, 1999, is by and between ("Stockholder"), and Wiser
-----------
Investment Company, LLC, a Delaware limited liability company ("WIC").
---
RECITALS
A. Concurrently with the execution of this Agreement, The Wiser Oil
Company, a Delaware corporation ("Wiser"), and WIC are entering into a Stock
-----
Purchase Agreement (the "Stock Purchase Agreement"). Pursuant to the Stock
------------------------
Purchase Agreement and subject to the terms and conditions therein, (i) Wiser
has agreed to sell and WIC has agreed to purchase 1,000,000 shares of Wiser's
Series C Cumulative Convertible Preferred Stock (the "Preferred Share
Issuance"), (ii) Wiser and WIC have agreed to enter into a Stockholder Agreement
(the "Stockholder Agreement") and a Management Agreement (the "Management
--------------------- ----------
Agreement") and (iii) Wiser and WIC have agreed to enter into a Warrant
- ---------
Agreement (the "Warrant Agreement") providing for the issuance (the "Warrant
----------------- -------
Issuance") by Wiser to WIC of warrants to purchase shares of Wiser's common
- --------
stock, par value $0.01 per share (the "Common Stock"). The Stock Purchase
------------
Agreement, the Stockholder Agreement, the Management Agreement and the Warrant
Agreement are collectively referred to in this Agreement as the "Transaction
-----------
Documents," and the transactions contemplated by the Transaction Documents are
- ---------
referred to in this Agreement as the "Transactions."
------------
B. As of the date hereof, Stockholder (i) owns shares of Common
Stock or (ii) has the right to vote or direct the vote of an additional
shares of Common Stock. In addition, the spouse and/or children of Stockholder
own certain other shares of Common Stock, as to which Stockholder disclaims
beneficial ownership. The shares of Common Stock referred to in clauses (i) and
(ii) of the first sentence of this paragraph B (but excluding any shares of
Common Stock hereafter disposed of in accordance with clauses (ii) and (iii) of
Section 6.1(a)) are referred to herein as the "Shares".
------
C. In consideration of WIC's agreement to enter into the Stock Purchase
Agreement, Stockholder has agreed to (i) vote the Shares in favor of the
Transactions (subject to the irrevocable proxy provided for in Section 2 hereof
---------
(the "Proxy")), and (ii) grant to WIC the Proxy covering the Shares to vote in
-----
favor of the Transactions, all in accordance with the terms set forth in this
Agreement.
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements contained in this Agreement, the parties
hereto agree as follows:
1. Agreement.
---------
1.1 Revocation of Previous Proxies. The Proxy granted under this
------------------------------
Agreement shall revoke any other proxy granted by Stockholder at any time with
respect to the Shares and no subsequent proxies will be given by Stockholder
with respect to the Shares while the Proxy is in effect.
1.2 Agreement to Support the Transactions. At the Stockholders'
-------------------------------------
Meeting (as defined in the Stock Purchase Agreement), and any other meeting of
Wiser's stockholders held in connection with the Transactions, Stockholder
agrees to vote the Shares:
(a) in favor of the Preferred Share Issuance, the Warrant Issuance, the
Restated Certificate (as defined in the Stock Purchase Agreement), and any
other matter that could reasonably be expected to facilitate the
Transactions;
(b) against approval of any proposal made in opposition to the
consummation of the Transactions; and
(c) against any merger, consolidation, sale of assets, reorganization, or
recapitalization of Wiser with any party other than WIC; provided, however,
that the covenants and agreements contained in this Section 1.2 and in
Sections 2 and 6.2 hereof are subject to the exercise of any fiduciary duty
imposed upon the Stockholder by applicable law in his capacity as a
director of Wiser.
1.3 Applicability of Voting Agreement. The voting agreement
---------------------------------
contained in Section 1.2 shall apply to the Shares whether or not owned by
-----------
Stockholder.
2. Proxy with Respect to Shares. Stockholder hereby irrevocably appoints
----------------------------
WIC as its attorney-in-fact and proxy, with full power of substitution, to
attend any and all meetings of the stockholders of Wiser and any adjournments
thereof, to execute any and all written consents of stockholders of Wiser, to
vote in such manner as such attorney and proxy or its substitute shall, in its
sole discretion, deem proper, and otherwise act with respect to all of the
Shares that it is entitled to vote at any meeting of stockholders (whether
annual or special and whether or not an adjourned meeting) of Wiser; provided,
--------
however, that Stockholder grants a proxy hereunder only with respect to the
- -------
following matters that may be presented to the stockholders of Wiser (the
"Designated Matters"):
- -------------------
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<PAGE>
(a) votes in favor and approval of the matters Stockholder has agreed to
vote in favor of in Section 1.2 hereof;
-----------
(b) votes with respect to the Transactions;
(c) votes with respect to any action or agreement that would result in a
breach of any covenant, representation or warranty or any other obligation
or agreement of Wiser under the Transaction Documents;
(d) votes with respect to any action or agreement that would impede,
interfere with, delay, postpone or attempt to discourage the Transactions,
including, but not limited to:
(i) any reorganization or liquidation involving Wiser;
(ii) any change in the board of directors of Wiser, except as
otherwise agreed to in writing by WIC; or
(iii) any material change in the present capitalization of Wiser; and
(e) votes relating to any other material change in the corporate structure
or business of Wiser.
The Stockholder agrees that this Proxy is irrevocable, is coupled with an
interest sufficient in law to support an irrevocable proxy and is granted in
consideration of and as an inducement to cause WIC to enter into the Stock
Purchase Agreement. If subsequent to the date hereof Stockholder is entitled to
vote the Shares on any of the Designated Matters, he shall take all actions
necessary to vote the Shares pursuant to instructions received from WIC on any
of the Designated Matters. This Proxy shall apply to the Shares whether or not
owned by Stockholder.
3. Representations and Warranties of Stockholder. Stockholder represents
---------------------------------------------
and warrants to WIC as follows:
3.1 Ownership of Shares. On the date hereof, the Shares described in
-------------------
clauses (i) and (ii) of paragraph B of the recitals to this Agreement are all of
the shares of Wiser's Common Stock currently beneficially owned by Stockholder
(other than any shares of Common Stock the Stockholder has the right to acquire
pursuant to the exercise of stock options granted to him by Wiser). Stockholder
has good, valid and marketable title to the Shares (other than those Shares not
owned by Stockholder but which he has the right to vote or direct the vote of),
free and clear of all liens, encumbrances, restrictions, options, warrants,
rights to purchase and claims of every kind (other than the encumbrances created
by this Agreement, bona fide loan transactions and restrictions on transfer
under applicable Federal and state securities laws).
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<PAGE>
3.2 Power; Binding Agreement. Stockholder has the full legal right,
------------------------
power and authority to enter into and perform all of Stockholder's obligations
under this Agreement. The execution and delivery of this Agreement by
Stockholder has been authorized by Stockholder and will not violate any other
agreement to which Stockholder is a party, including without limitation, any
voting agreement, stockholders agreement, voting trust or proxy. This Agreement
has been duly executed and delivered by Stockholder and constitutes a legal,
valid and binding agreement of Stockholder, enforceable in accordance with its
terms. Neither the execution nor delivery of this Agreement nor the consummation
by Stockholder of the transactions contemplated hereby will (i) require any
consent or approval of or filing with any governmental or other regulatory body,
except for any necessary filings under the Securities Exchange Act of 1934, as
amended, or (ii) constitute a violation of, conflict with or constitute a
default under, any contract, commitment, agreement, understanding, arrangement
or other restriction of any kind to which Stockholder is a party or by which
Stockholder is bound.
3.3 Absence of Certain Agreements. Stockholder is not a party to or
-----------------------------
bound by any agreement, letter of intent or similar agreement (whether written
or oral) with any party other than WIC whereby Stockholder has agreed to
support, directly or indirectly, any proposal or offer (whether or not in
writing and whether or not delivered to the stockholders of Wiser generally) for
a merger or other business combination involving Wiser or to acquire in any
manner, directly or indirectly, a material equity interest in, any voting
securities of, or a substantial portion of the assets of Wiser, other than the
Transactions.
4. Termination. This Agreement (other than Section 5) shall terminate on
----------- ---------
the earliest of:
(a) the date on which WIC and Stockholder mutually consent to terminate
this Agreement in writing;
(b) upon the consummation of the Preferred Share Issuance; or
(c) prior to the consummation of the Preferred Share Issuance, upon the
termination of the Stock Purchase Agreement in accordance with its terms.
5. Expenses. Each party hereto will pay all of its expenses in
--------
connection with the preparation, execution and performance of this Agreement,
except that Wiser will pay any legal fees incurred by Stockholder in connection
with the negotiation, preparation and execution of this Agreement.
6. Certain Covenants of Stockholder.
--------------------------------
6.1 No Sale. Except in accordance with the provisions of this
-------
Agreement, Stockholder agrees, while this Agreement is in effect, not to
directly or indirectly:
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<PAGE>
(a) sell, transfer, pledge, encumber, assign or otherwise dispose of, or
enter into any contract, option or other arrangement or understanding with
respect to the sale, transfer, pledge, encumbrance, assignment or other
disposition of, any of the Shares owned by him, except that nothing herein
shall prevent (i) the pledge of any Shares in connection with a bona fide
loan transaction, (ii) the disposition of any Shares in accordance with the
terms of any pledge or similar agreement entered into by Stockholder in
connection with a bona fide loan transaction, (iii) the sale of any Shares
from time to time in open market transactions in accordance with Rule 144
under the Securities Act of 1933 (which sales are made for personal
financial reasons and not in connection with any transaction described in
Section 3.3) or (iv) the transfer of any Shares to members of Stockholder's
family who agree to be bound by the provisions of this Agreement pursuant
to a written assumption agreement satisfactory to WIC; or
(b) grant any proxies with respect to the Shares, deposit any Shares into
a voting trust or enter into a voting agreement with respect to the Shares.
6.2 No Action Without Written Consent of WIC. Stockholder agrees,
----------------------------------------
while this Agreement is in effect, that he will not vote at a meeting of
stockholders of Wiser or take any action by written consent of stockholders in
lieu of such a meeting on any matter that is subject to the Proxy without the
prior written consent of WIC, except in accordance with this Agreement.
6.3 Notice re Additional Shares. Stockholder agrees, while this
---------------------------
Agreement is in effect, to notify WIC promptly of the number of any shares of
Common Stock acquired by Stockholder after the date hereof.
6.4 Notices. All notices or other communications required or
-------
permitted hereunder shall be in writing (except as otherwise provided herein)
and shall be deemed duly given when received by delivery in person, by telecopy
or by certified mail, postage prepaid, or by an overnight courier service,
addressed as follows:
If to WIC:
Wiser Investment Company, LLC
910 Travis, Suite 2130
Houston, Texas 77002
Attention: George Hickox
Telecopy: (713) 659-1799
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<PAGE>
with copies to:
Andrews & Kurth L.L.P.
600 Travis, Suite 4200
Houston, Texas 77002
Attention: Thomas M. Hart III
Telecopy: (713) 238-7128
If to Stockholder:
c/o The Wiser Oil Company
8115 Preston Road, Suite 400
Dallas, Texas 75225
Attention: President
Telecopy: (214) 373-3610
with copies to:
Thompson & Knight L.L.P.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
Attention: Steven K. Cochran
Telecopy: (214) 969-1751
7. Entire Agreement; Amendment. This Agreement constitutes the entire
---------------------------
agreement between the parties hereto with respect to the subject matter
contained herein and supersedes all prior agreements and understandings between
the parties with respect to such subject matter. This Agreement may not be
modified, amended, altered or supplemented except by an agreement in writing
executed by the party against whom such modification, amendment, alteration or
supplement is sought to be enforced.
8. Assigns. This Agreement shall be binding upon, and inure to the
-------
benefit of, the parties hereto and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by either of the parties hereto without
the prior written consent of the other party.
9. Governing Law. This Agreement, and all matters relating hereto, shall
-------------
be governed by and construed in accordance with the laws of the State of
Delaware without giving effect to the principles of conflicts of laws thereof.
10. Specific Performance; Injunctive Relief. The parties agree that in
---------------------------------------
the event of a breach of any provision of this Agreement, the aggrieved party
may be without an adequate remedy at law. The parties therefore agree that in
the event of a breach of any provision of this Agreement,
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<PAGE>
the aggrieved party may elect to institute and prosecute proceedings in any
court of competent jurisdiction to enforce specific performance or to enjoin the
continuing breach of such provision, as well as to obtain damages for breach of
this Agreement and such aggrieved party may take any such actions without the
necessity of posting a bond. By seeking or obtaining such relief, the aggrieved
party will not be precluded from seeking or obtaining any other relief to which
it may be entitled.
11. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same document.
12. Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable such provision shall be
interpreted to be only so broad as is enforceable.
13. Further Assurances. Each party hereto shall execute and deliver such
------------------
additional documents as may be reasonably necessary or desirable to carry out
the provisions of this Agreement.
14. Third Party Beneficiaries. Nothing in this Agreement, expressed or
-------------------------
implied, shall be construed to give any person other than the parties hereto any
legal or equitable right, remedy or claim under or by reason of this Agreement
or any provision contained herein.
[The remainder of this page is intentionally left blank.]
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<PAGE>
IN WITNESS WHEREOF, WIC and Stockholder have each executed or caused this
Agreement to be executed by its duly authorized officer as of the date and year
first above written.
WISER INVESTMENT COMPANY, LLC
By:__________________________
Name:________________________
Title:_______________________
STOCKHOLDER
_____________________________
Name:
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<PAGE>
EXHIBIT B
CERTIFICATE OF DESIGNATIONS
OF
SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
THE WISER OIL COMPANY
Pursuant to Section 151 of the
Delaware General Corporation Law
The Wiser Oil Company, a Delaware corporation (the "Corporation"), does
hereby certify in accordance with Section 103 of the Delaware General
Corporation Law (the "DGCL") that the following resolution was duly adopted by
action of the Board of Directors of the Corporation (the "Board"):
RESOLVED, that pursuant to the authority expressly granted to and vested in
the Board by the provisions of Article Fourth of the Restated Certificate of
Incorporation of the Corporation (the "Certificate of Incorporation"), and
pursuant to Section 151 of the DGCL, the Board hereby creates a series of
preferred stock of the Corporation and hereby states that the voting powers,
designations, preferences and relative, participating, optional or other special
rights of which, and qualifications, limitations or restrictions thereof (in
addition to the provisions set forth in the Certificate of Incorporation which
are applicable to the preferred stock of all classes and series), shall be as
follows:
Section 1. Number of Shares and Designation.
--------------------------------
This series of preferred stock shall be designated as the Series C
Cumulative Convertible Preferred Stock (the "Series C Preferred"), and the
number of shares that shall constitute such series shall not be more than
1,000,000 shares, par value $10.00 per share (the "Shares"), which number may be
decreased (but not below the number thereof then outstanding) from time to time
by the Board.
Section 2. Dividends.
---------
2A. General Obligation. When, as and if declared by the Board and to the
------------------
extent permitted under the DGCL, the Corporation shall pay preferential
dividends in cash or Common Stock (as defined in Section 11 hereof) to the
holders of the Series C Preferred as provided in this Section 2. Dividends on
each Share of the Series C Preferred shall accrue on a daily basis at the rate
of seven percent (7%) per annum of the Liquidation Value (as defined in Section
11 hereof) of such Share from and including the date of issuance of such Share
to and including the first to occur of (i) the date on which the Liquidation
Value of such Share (plus all accrued and unpaid dividends thereon) is due and
payable to the holder thereof in connection with the Liquidation (as defined in
Section 3 hereof) of the Corporation, (ii) the date on which such Share is
converted into shares of Common Stock hereunder or (iii) the date on which such
Share is otherwise acquired by the Corporation. Such dividends shall accrue
whether or not they have been declared and whether or
<PAGE>
not there are profits, surplus or other funds of the Corporation legally
available for the payment of dividends.
2B. Dividend Payment Dates. All dividends that have accrued on the Series
----------------------
C Preferred shall be payable on March 31, June 30, September 30 and December 31
of each year, beginning March 31, 2000 (the "Dividend Payment Dates"). All
dividends that have accrued on each Share outstanding during the three-month
period (or other period in the case of an initial Dividend Payment Date) ending
upon such Dividend Payment Date shall be accumulated and shall remain
accumulated dividends with respect to such Share until paid to the holder
thereof; provided, however, that accumulations of dividends accrued on the
Series C Preferred shall not bear interest. If a Dividend Payment Date falls on
any date other than a Business Day (as defined in Section 11 hereof), the
dividend payment due on such Dividend Payment Date shall be paid on the Business
Day immediately following such Dividend Payment Date, with the same effect as if
paid on the Dividend Payment Date without any additional accrual of dividends
payable in respect of such delay. Dividends payable on each Dividend Payment
Date shall be paid to record holders of the Shares as they appear on the books
of the Corporation at the close of business on a date fixed by the Board not
more than 60 days immediately preceding the applicable Dividend Payment Date.
Cumulative and unpaid dividends on Series C Preferred for any past quarterly
dividend periods may be paid at any time, without reference to any regular
Dividend Payment Date, to holders of record of such Shares on such date, not
exceeding 60 days immediately preceding the payment date thereof, as may be
fixed by the Board.
2C. Distribution of Partial Dividend Payments. Except as otherwise
-----------------------------------------
provided herein, if at any time the Corporation pays less than the total amount
of dividends then accrued with respect to the Series C Preferred, such payment
shall be distributed pro rata among the holders thereof based upon the aggregate
accrued but unpaid dividends on the Shares held by each such holder.
2D. Payment of Dividends in Common Stock. The Corporation shall have the
-------------------------------------
option of paying dividends accruing on the Series C Preferred either in cash, by
the issuance or delivery of shares of Common Stock ("PIK Dividends") or any
combination thereof. If the Corporation elects to pay any dividends accruing on
the Series C Preferred not in cash but as PIK Dividends, the number of shares of
Common Stock to be issued or delivered in payment of such dividends shall be
determined by dividing the amount of cash that would otherwise be paid by the
average Market Price (as defined in Section 11 hereof) of the Common Stock for
the 10 trading days immediately preceding (but not including) the date of
payment of such PIK Dividend. If the Corporation pays PIK Dividends, such
payment in shares of Common Stock shall be made pro rata among the holders of
the Series C Preferred based upon the aggregate accrued but unpaid dividends on
the Shares held by each such holder, with cash paid in lieu of the issuance of
fractional shares of Common Stock to the extent permitted under the
Corporation's Loan Agreements (as defined in Section 11 hereof); any amounts not
payable in lieu of fractional shares due to restrictions in the Loan Agreements
shall continue to be payable as accrued and unpaid dividends. All shares of
Common Stock when issued or delivered as PIK Dividends under this Section 2D
shall be duly and validly issued, fully paid and nonassessable and shall be free
from all taxes (other than income taxes payable by the holder) with respect to
the issue thereof and all liens, charges and encumbrances created by, through or
under the Corporation. The Corporation shall at all times reserve and keep
available out of its authorized but
-2-
<PAGE>
unissued shares of Common Stock, solely for the purpose of the issuance of PIK
Dividends, a number of shares of Common Stock it reasonably determines will be
required to be issued as PIK Dividends. The Corporation shall take all such
actions as may be reasonably necessary to assure that all shares of Common Stock
to be issued or delivered as PIK Dividends may be issued or delivered without
violation of any applicable law or governmental regulation and shall use
commercially reasonable efforts to satisfy any requirements of any domestic
securities exchange upon which shares of Common Stock may be listed with respect
to the issuance or delivery of PIK Dividends (except for official notice of
issuance, which shall be immediately delivered by the Corporation upon each such
issuance).
Section 3. Liquidation.
-----------
Upon any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary (a "Liquidation"), each holder of Series C Preferred
shall be entitled to receive, out of the assets of the Corporation available for
distribution to stockholders, before any distribution or payment is made upon
any Junior Securities (as defined in Section 11 hereof), an amount in cash equal
to the aggregate Liquidation Value of all Shares held by such holder plus all
accrued and unpaid dividends thereon through the effective date of the
Liquidation. After payment to the holders of the Series C Preferred in full of
the preferential amounts provided for in this Section 3, the holders of Series C
Preferred shall have no right or claim to any of the remaining assets of the
Corporation. If upon any Liquidation the Corporation's assets to be distributed
among the holders of the Series C Preferred are insufficient to permit payment
to such holders of the aggregate amount which they are entitled to be paid under
this Section 3, then the entire assets available to be distributed to the
Corporation's stockholders shall be distributed pro rata among such holders
based upon the aggregate Liquidation Value (plus all accrued and unpaid
dividends thereon through the effective date of the Liquidation) of the Series C
Preferred held by each such holder. Not less than 30 days prior to the payment
date stated therein, the Corporation shall mail written notice of any such
Liquidation to each record holder of Series C Preferred as of a date at least
three Business Days prior to the mailing of such notice, setting forth in
reasonable detail the amount of proceeds to be paid with respect to each Share
of the Series C Preferred and each share of Common Stock in connection with such
Liquidation (assuming no conversion of Shares into Common Stock). At any time
prior to a Liquidation, the holders of the Series C Preferred shall be entitled
to convert their Shares into Common Stock in accordance with the provisions of
Section 6 hereof. Neither the consolidation or merger of the Corporation into
or with any other entity or entities (whether or not the Corporation is the
surviving entity), nor the sale, conveyance, exchange or transfer (for cash,
securities or other consideration) by the Corporation of all or any part of its
assets, nor the reduction of the capital stock of the Corporation nor any other
form of recapitalization or reorganization affecting the Corporation shall be
deemed to be a Liquidation within the meaning of this Section 3.
Section 4. Priority of Series C Preferred on Dividends and Redemptions.
-----------------------------------------------------------
So long as any Series C Preferred remains outstanding, without the prior
written consent of the holders of at least two-thirds of the outstanding Shares,
and except for any repurchases of Common Stock in odd-lot tender offers, the
Corporation shall not, nor shall it permit any Subsidiary (as defined in Section
11 hereof) to, redeem, purchase or otherwise acquire directly or indirectly for
-3-
<PAGE>
value any Junior Securities, nor shall the Corporation declare or pay any
dividend or make any distribution upon any Junior Securities, if at the time of
or immediately after any such redemption, purchase, acquisition, dividend or
distribution the Corporation has failed to pay the full amount of dividends
accrued on the Series C Preferred for all quarterly dividend periods terminating
on or prior to the date on which such redemption, purchase, acquisition,
dividend or distribution is to occur; provided that the foregoing shall not
prohibit the purchase or other acquisition of Junior Securities or rights to
acquire Junior Securities from directors, officers or employees of the
Corporation or its Subsidiaries in connection with the termination of their
directorships or employment.
Section 5. Voting Rights.
-------------
5A. Voting Procedures. The holders of the Series C Preferred shall be
-----------------
entitled to notice of all meetings of the Corporation's stockholders in
accordance with the Corporation's bylaws and applicable law. Each Share of
Series C Preferred shall have one (1) vote per Share, except that when the
holders of the Series C Preferred and the Common Stock shall vote together as a
single class, then each holder of Series C Preferred shall be entitled to the
number of votes with respect to such holder's Shares of Series C Preferred equal
to the number of whole shares of Conversion Stock (as defined in Section 11
hereof) into which such Shares would have been converted under the provisions of
Section 6A hereof (whether or not such holder is then entitled to convert such
Shares under such Section) at the Conversion Price (as defined in Section 11
hereof) in effect on the record date for determining stockholders entitled to
vote on such matters or, if no record date is specified, as of the date of such
vote.
5B. General Voting Rights. The holders of the Series C Preferred shall
---------------------
vote together as a single class with the holders of the Common Stock as provided
in Section 5A hereof on all matters submitted to a vote of the holders of the
Common Stock. Except as otherwise expressly provided herein or by applicable
law, the holders of the Shares of Series C Preferred shall not be entitled to
vote as a separate class on any matters submitted to a vote of the stockholders.
5C. Special Voting Rights. In addition to the voting rights provided in
---------------------
Section 5B hereof and any voting rights provided by applicable law, so long as
any Series C Preferred remains outstanding, (i) the holders of at least two-
thirds of the Series C Preferred outstanding must approve, voting separately as
a class, any amendment to the Certificate of Incorporation that would alter or
change the powers, preferences or special rights of the Shares of Series C
Preferred so as to affect them adversely and (ii) the holders of a majority of
the Series C Preferred outstanding must approve, voting separately as a class,
any proposed issuance of capital stock of the Corporation that ranks pari passu
with or senior to the Series C Preferred as to dividends or assets, or any
proposed issuance of capital stock of the Corporation that is required to be
redeemed by the Corporation at any time that any Shares of Series C Preferred
are outstanding, whether upon the occurrence of certain events or otherwise.
-4-
<PAGE>
Section 6. Conversion.
----------
6A. Conversion at Option of Holder.
------------------------------
(i) At any time and from time to time after the 90th day following
the Closing Date (as defined in Section 11 hereof), any holder of Series C
Preferred may convert all or any portion of the Series C Preferred held by such
holder into a number of shares of Common Stock computed by dividing (x) the
total amount of Liquidation Value (plus the aggregate accrued but unpaid
dividends, if any) represented by the Shares to be converted by (y) the
Conversion Price then in effect.
(ii) Each conversion of Series C Preferred pursuant to this Section 6A
shall be deemed to have been effected as of the close of business on the date on
which the certificate or certificates representing the Series C Preferred to be
converted (duly endorsed or assigned to the Corporation or in blank) have been
surrendered for conversion during normal business hours at the principal office
of the Corporation, accompanied by written notice to the Corporation that the
holder thereof elects to convert all or any portion of such Shares.
Notwithstanding the immediately preceding sentence, if a conversion of Series C
Preferred pursuant to this Section 6A is to be made in connection with or in
anticipation of a material transaction affecting the Corporation, such
conversion may, at the election of the holder thereof, be conditioned upon the
consummation of such transaction, in which case such conversion (a) shall not be
deemed to be effective until immediately prior to the consummation of such
transaction and (b) shall be made based upon the Conversion Price in effect
immediately prior to the consummation of such transaction.
6B. Mandatory Conversions.
---------------------
(i) If, at any time from and after the Closing Date, the Market Price
of the Common Stock exceeds $10.00 per share (which amount shall be
proportionately adjusted for any recapitalization, stock split, reverse stock
split, stock dividend or similar event resulting in a change in the shares of
Common Stock) on each of 60 consecutive trading days, then all Shares of the
Series C Preferred then outstanding shall automatically be deemed to have been
surrendered by the holders thereof for conversion (and shall be automatically
converted) into shares of Common Stock as provided in the next following
sentence effective as of the close of business on the last day of such 60-day
period. Each holder's Shares of Series C Preferred shall be converted into a
number of shares of Common Stock computed by dividing (x) the total amount of
Liquidation Value (plus the aggregate accrued but unpaid dividends, if any)
represented by such holder's Shares by (y) the Conversion Price in effect as of
the close of business on the last day of such 60-day period.
(ii) The Corporation shall have the right, at its sole option, to
convert all, but not less than all, of the then outstanding Shares of Series C
Preferred into shares of Common Stock as provided in the next following sentence
effective as of the close of business on the Business Day immediately preceding
the date of consummation of any Corporate Change (as defined in Section 6G
hereof); provided, however, that such conversion shall be subject to and
conditioned upon the consummation of such Corporate Change. If the Corporation
elects to exercise this special conversion right and the Corporate Change is
consummated, each holder's Shares of Series C
-5-
<PAGE>
Preferred shall automatically be deemed to have been surrendered by such holder
for conversion (and shall be automatically converted) into a number of shares of
Common Stock computed by dividing (x) the total amount of Liquidation Value
(plus the aggregate accrued but unpaid dividends, if any) represented by such
holder's Shares by (y) the Conversion Price in effect as of the close of
business on the Business Day immediately preceding the date of consummation of
such Corporate Change. The Corporation may exercise this special conversion
right by mailing to the holders of record of the Series C Preferred at least 20
days in advance of the expected effective date of the Corporate Change a written
notice of its election to do so, which notice shall include (a) a summary
description of the Corporate Change, (b) a statement that the Corporation elects
to exercise its special conversion right under this Section 6B(ii) in connection
with such Corporate Change and (c) the expected effective date of such Corporate
Change. The exercise by the Corporation of this special conversion right shall
be irrevocable.
(iii) All Shares of the Series C Preferred that remain outstanding at
the close of business on the Mandatory Conversion Date (as defined in Section 11
hereof) shall automatically be deemed to have been surrendered by the holders
thereof for conversion (and shall be automatically converted) into shares of
Common Stock as provided in the next following sentence effective as of the
close of business on the Mandatory Conversion Date. Each holder's Shares of
Series C Preferred shall be converted into a number of shares of Common Stock
computed by dividing (x) the total amount of Liquidation Value (plus the
aggregate accrued but unpaid dividends, if any) represented by such holder's
Shares by (y) the Conversion Price in effect as of the close of business on the
Mandatory Conversion Date.
6C. Conversion Procedures.
---------------------
(i) At the time any conversion of Series C Preferred pursuant to
this Section 6 has been effected, the rights of the holder of the Shares
converted as a holder of Series C Preferred shall cease, and the person or
persons in whose name or names any certificate or certificates for shares of
Conversion Stock are to be issued upon such conversion shall be deemed to have
become the holder or holders of record of the shares of Conversion Stock
represented thereby.
(ii) As soon as practicable after a conversion of Series C Preferred
pursuant to this Section 6 has been effected (but in any event within five
Business Days thereafter), the Corporation shall deliver or cause to be
delivered to the record holder of the Shares converted:
(a) unless in book-entry form, a certificate or certificates
representing the number of shares of Conversion Stock issuable by reason of
such conversion in such name or names and such denomination or
denominations as such holder has specified;
(b) payment in cash of the amount, if any, payable under
subparagraph (vi) below with respect to fractional shares upon such
conversion; and
(c) a certificate representing any Shares of Series C
Preferred that were represented by the certificate or certificates
delivered to the Corporation in connection with such conversion but which
were not converted;
-6-
<PAGE>
provided, however, that in the event of a conversion of the Series C Preferred
pursuant to Section 6B hereof, the items referred to in clauses (a) and (b)
above shall be delivered as soon as practicable (but in any event within five
Business Days) after the certificates representing the Shares are actually
surrendered for conversion during normal business hours at the principal office
of the Corporation.
(iii) The issuance or delivery of certificates for shares of
Conversion Stock upon conversion of Series C Preferred shall be made without
charge to the holders of such Series C Preferred for any issuance tax in respect
thereof or other cost incurred by the Corporation in connection with such
conversion and the related issuance of shares of Conversion Stock; provided,
however, that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificate in a name other than that of the record holder of Shares
converted.
(iv) The Corporation shall not close its books against the transfer
of Series C Preferred or of Conversion Stock issued or issuable upon conversion
of Series C Preferred in any manner that interferes in any material respect with
the timely conversion of Series C Preferred. The Corporation shall assist and
cooperate with any holder of Shares required to make any governmental filings or
obtain any governmental approvals prior to or in connection with any conversion
of Shares hereunder (including, without limitation, making any filings required
to be made by the Corporation).
(v) The Corporation shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock, solely for the
purpose of issuance upon the conversion of the Series C Preferred, such number
of shares of Common Stock issuable upon the conversion of all outstanding Series
C Preferred. All shares of Common Stock which are so issuable shall be free of
preemptive rights and shall, when issued, be duly and validly issued, fully paid
and nonassessable and free from all taxes (other than income taxes payable by
the holder) with respect to the issue thereof and all liens, charges and
encumbrances created by, through or under the Corporation. The Corporation shall
not take any action which would cause the number of authorized but unissued
shares of Common Stock to be less than the number of such shares required to be
reserved hereunder for issuance upon conversion of the Series C Preferred.
(vi) If any fractional interest in a share of Conversion Stock
would, except for the provisions of this subparagraph (vi), be delivered upon
any conversion of the Series C Preferred, the Corporation, in lieu of delivering
the fractional share therefor, shall pay an amount to the holder thereof equal
to the Market Price of such fractional interest as of the third Business Day
preceding the date of conversion to the extent permitted under the Corporation's
Loan Agreements.
6D. Conversion Price.
----------------
(i) The initial Conversion Price shall be $4.25. In order to
prevent dilution of the conversion rights granted under this Section 6, the
Conversion Price shall be subject to adjustment from time to time pursuant to
this Section 6D.
-7-
<PAGE>
(ii) If and whenever after the Closing Date, the Corporation issues
or sells for cash, marketable securities or cash equivalents, or in accordance
with Section 6E hereof is deemed to have issued or sold for cash, marketable
securities or cash equivalents, any Common Stock for a consideration per share
less than the average Market Price of the Common Stock for the 30 trading days
immediately preceding (but not including) the date of such issue or sale, then
immediately upon such issue or sale the Conversion Price shall be reduced to the
Conversion Price determined by multiplying the Conversion Price in effect
immediately prior to such issue or sale by a fraction, the numerator of which
shall be the sum of (1) the number of shares of Common Stock Deemed Outstanding
(as defined in Section 11 hereof) immediately prior to such issue or sale plus
(2) the number of shares of Common Stock which the aggregate consideration
received (and deemed to be received hereunder) by the Corporation upon such
issue or sale would purchase at such average Market Price, and the denominator
of which shall be the number of shares of Common Stock Deemed Outstanding
immediately after such issue or sale.
(iii) Notwithstanding anything contained herein to the contrary, no
adjustment of the Conversion Price pursuant to this Section 6D or Section 6E
hereof shall be made (a) upon the conversion of Series C Preferred or the
payment of any PIK Dividend, (b) upon the issuance or sale of Common Stock,
Options (as defined in Section 11 hereof) or Convertible Securities (as defined
in Section 11 hereof) to directors, officers and employees of the Corporation
and its Subsidiaries pursuant to the terms of any employee benefit or similar
plans of the Corporation or any of its Subsidiaries, including the issuance or
sale of Common Stock pursuant to any such Options or Convertible Securities as
are outstanding as of the Closing Date, (c) upon the issuance or sale of Common
Stock or Options pursuant to the terms of the Warrant Agreement (as defined in
Section 11 hereof), (d) on account of any change in the terms of or any
expiration or termination of any of the Options or Convertible Securities
referred to in clauses (b) and (c) above or (e) in connection with any of the
events or upon the issuance or sale of any Common Stock, Options or Convertible
Securities referred to in Sections 7 and 8 hereof.
6E. Effect on Conversion Price of Certain Events. For purposes of
--------------------------------------------
determining the adjusted Conversion Price under Section 6D hereof, the following
shall be applicable:
(i) Issuance of Options. If the Corporation in any manner grants,
-------------------
issues or sells any Options and the price per share for which Common Stock is
issuable upon the exercise of such Options, or upon conversion or exchange of
any Convertible Securities issuable upon the exercise of such Options, is less
than the average Market Price of the Common Stock for the 30 trading days
immediately preceding (but not including) the date of such grant, issue or sale
of Options, then the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon the exercise of such
Options shall be deemed to be outstanding and to have been issued and sold by
the Corporation at the time of the granting, issue or sale of such Options for
such price per share. For purposes of this Section 6E(i), the "price per share
for which Common Stock is issuable" shall be determined by dividing (a) the
total amount, if any, received or receivable by the Corporation as consideration
for the granting, issue or sale of such Options, plus the minimum aggregate
amount of additional consideration payable to the Corporation upon exercise of
all such Options, plus in the case of such Options which relate to Convertible
Securities, the minimum
-8-
<PAGE>
aggregate amount of additional consideration, if any, payable to the Corporation
upon the issuance or sale of such Convertible Securities and the conversion or
exchange thereof, by (b) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon the conversion or exchange of
all such Convertible Securities issuable upon the exercise of such Options. No
further adjustment of the Conversion Price shall be made when Convertible
Securities are actually issued upon the exercise of such Options or when Common
Stock is actually issued upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Corporation in any
----------------------------------
manner issues or sells any Convertible Securities and the price per share for
which Common Stock is issuable upon conversion or exchange thereof is less than
the average Market Price of the Common Stock for the 30 trading days immediately
preceding (but not including) the date of such issue or sale of Convertible
Securities, then the total maximum number of shares of Common Stock issuable
upon conversion or exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Corporation at the time of
the issuance or sale of such Convertible Securities for such price per share.
For purposes of this Section 6E(ii), the "price per share for which Common Stock
is issuable" shall be determined by dividing (a) the total amount received or
receivable by the Corporation as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof, by (b) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment of the Conversion Price shall be made when Common Stock is
actually issued upon the conversion or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustments of the Conversion Price had been
or are to be made pursuant to other provisions of this Section 6, no further
adjustment of the Conversion Price shall be made by reason of such issue or
sale.
(iii) Change in Option Price or Conversion Rate. If the purchase
-----------------------------------------
price provided for in any Options, the additional consideration, if any, payable
upon the conversion or exchange of any Convertible Securities or the rate at
which any Convertible Securities are convertible into or exchangeable for Common
Stock changes at any time, the Conversion Price in effect at the time of such
change shall be immediately adjusted to the Conversion Price which would have
been in effect at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional consideration
or conversion rate, as the case may be, at the time initially granted, issued or
sold. For purposes of Section 6E, if the terms of any Option or Convertible
Security are changed in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such change; provided that no such change shall at
any time cause the Conversion Price hereunder to be increased.
(iv) Treatment of Expired Options and Unexercised Convertible
--------------------------------------------------------
Securities. Upon the expiration of any Option or the termination of any right
- ----------
to convert or exchange any Convertible Security without the exercise of any such
Option or right, the Conversion Price then in effect hereunder shall be adjusted
immediately to the Conversion Price which would have been in effect at the time
of such expiration or termination had such Option or Convertible Security, to
the extent
-9-
<PAGE>
outstanding immediately prior to such expiration or termination, never been
issued; provided that if the Corporation shall accelerate the expiration of any
Option or the termination of any right to convert or exchange any Convertible
Security, such adjustment shall not be effective until 15 days after written
notice thereof has been given to all holders of the Series C Preferred. For
purposes of Section 6E, the expiration or termination of any Option or
Convertible Security which was outstanding as of the Closing Date shall not
cause the Conversion Price hereunder to be adjusted unless, and only to the
extent that, a change in the terms of such Option or Convertible Security caused
it to be deemed to have been issued after the Closing Date.
(v) Calculation of Consideration Received. If any Common Stock,
-------------------------------------
Option or Convertible Security is issued or sold or deemed to have been issued
or sold for cash, marketable securities or cash equivalents, the consideration
received therefor shall be deemed to be the amount received by the Corporation
therefor (before deducting any expenses, discounts or commissions paid or
incurred in connection with such issue or sale).
(vi) Integrated Transactions. In case any Option is issued in
-----------------------
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the Option
shall be deemed to have been issued for a consideration of $.01.
(vii) Treasury Shares. The number of shares of Common Stock
---------------
outstanding at any given time shall not include shares owned or held by or for
the account of the Corporation or any Subsidiary, and the disposition of any
shares so owned or held to any person other than the Corporation or any
Subsidiary shall be considered an issue or sale of Common Stock.
(viii) Record Date. If the Corporation takes a record of the holders
-----------
of Common Stock for the purpose of entitling them (a) to receive a dividend or
other distribution payable in Common Stock, Options or Convertible Securities or
(b) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or upon the making of such other distribution or
the date of the granting of such right of subscription or purchase, as the case
may be, unless subsequently abandoned.
6F. Subdivision or Combination of Common Stock. If the Corporation at any
------------------------------------------
time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect immediately prior to
such subdivision shall be proportionately reduced, and if the Corporation at any
time combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
6G. Corporate Change. Any recapitalization, reorganization,
----------------
reclassification, consolidation, merger or sale of all or substantially all of
the Corporation's assets, in each case which is effected in such a manner that
the holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets in exchange for Common
Stock, is referred
-10-
<PAGE>
to herein as a "Corporate Change". Prior to the consummation of any Corporate
Change, the Corporation shall make appropriate provisions to insure that each of
the holders of Series C Preferred shall thereafter have the right to acquire and
receive, in lieu of or in addition to (as the case may be) the shares of Common
Stock immediately theretofore acquirable and receivable upon the conversion of
such holder's Series C Preferred, such shares of stock, securities or assets as
such holder would have received in connection with such Corporate Change if such
holder had converted its Series C Preferred immediately prior to such Corporate
Change. In each such case, the Corporation shall also make appropriate
provisions to insure that the provisions of this Section 6 and Sections 7 and 8
hereof shall thereafter be applicable to the Series C Preferred (including, in
the case of any such consolidation, merger or sale in which the successor entity
or purchasing entity is other than the Corporation, an immediate adjustment of
the Conversion Price to the value for the Common Stock reflected by the terms of
such consolidation, merger or sale, and a corresponding immediate adjustment in
the number of shares of Conversion Stock acquirable and receivable upon
conversion of Series C Preferred, if the value so reflected is less than the
Conversion Price in effect immediately prior to such consolidation, merger or
sale). The Corporation shall not effect any such consolidation, merger or sale
unless, prior to the consummation thereof, the successor entity (if other than
the Corporation) resulting from consolidation or merger or the entity purchasing
such assets assumes by written instrument the obligation to deliver to each such
holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire. The provisions of
this Section 6G shall not apply in the event of a conversion of the Series C
Preferred pursuant to Section 6B hereof prior to the consummation of the
Corporate Change.
6H. Certain Events. If any event occurs of the type contemplated by the
--------------
provisions of this Section 6 but not expressly provided for by such provisions,
then the Board shall make an appropriate adjustment in the Conversion Price so
as to protect the rights of the holders of Series C Preferred; provided that no
such adjustment shall increase the Conversion Price as otherwise determined
pursuant to this Section 6 or decrease the number of shares of Conversion Stock
issuable upon conversion of each share of Series C Preferred.
6I. Notices.
-------
(i) As promptly as practicable after any adjustment of the Conversion
Price hereunder, the Corporation shall give written notice thereof to all
holders of Series C Preferred, setting forth in reasonable detail and certifying
the calculation and the effective date of such adjustment. In addition, the
Corporation shall give written notice to all holders of Series C Preferred of
any conversion of the Series C Preferred pursuant to Section 6B hereof within
five Business Days after the effective date of such conversion.
(ii) The Corporation shall give written notice to all holders of
Series C Preferred at least 15 days prior to the date on which the Corporation
closes its books or takes a record (a) with respect to any dividend or
distribution upon Common Stock or (b) with respect to any pro rata subscription
offer to holders of Common Stock.
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<PAGE>
(iii) The Corporation shall also give written notice to all holders
of Series C Preferred of any proposed Corporate Change at least 20 days prior to
the date on which any Corporate Change is expected to take place.
6J. Calculations. If the amount of any adjustment of the Conversion Price
------------
required pursuant to this Section 6 would be less than 1% of the Conversion
Price in effect at the time such adjustment is otherwise so required to be made,
such amount shall be carried forward and an adjustment with respect thereto made
at the time of and together with any subsequent adjustment which, together with
such amount and any other amount or amounts so carried forward, shall aggregate
at least 1% of such Conversion Price. All calculations under this Section 6
shall be made to the nearest one-tenth of a cent ($.001).
Section 7. Liquidating Dividends.
---------------------
If the Corporation pays a dividend upon the Common Stock payable otherwise
than in cash or other property out of earnings or earned surplus (determined in
accordance with generally accepted accounting principles, consistently applied)
except for a stock dividend payable in shares of Common Stock (a "Liquidating
Dividend"), then the Corporation shall pay to the holders of Series C Preferred
at the time of payment thereof the Liquidating Dividends which would have been
paid on the shares of Conversion Stock had such Series C Preferred been
converted immediately prior to the date on which a record is taken for such
Liquidating Dividend, or, if no record is taken, the date as of which the record
holders of Common Stock entitled to such Liquidating Dividend are to be
determined.
Section 8. Purchase Rights.
---------------
If at any time the Corporation grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of the Common Stock (the "Purchase
Rights"), then each holder of Series C Preferred shall be entitled to acquire,
upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which such holder could have acquired if such holder had held the number of
shares of Conversion Stock acquirable upon conversion of such holder's Series C
Preferred immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
Section 9. Event of Noncompliance.
----------------------
9A. Definition. An Event of Noncompliance shall have occurred (i)
----------
whenever dividends on the Series C Preferred shall be in arrears in an amount
equal to at least four full quarterly dividends, whether or not consecutive and
whether or not the payment of such dividends is legally permissible or is
prohibited by any agreement to which the Corporation is subject; or (ii) if the
Corporation or any Significant Subsidiary (as defined in Section 11 hereof)
makes an assignment for the benefit of creditors or admits in writing its
inability to pay its debts generally as they become due; or an order, judgment
or decree is entered adjudicating the Corporation or any Significant Subsidiary
-12-
<PAGE>
bankrupt or insolvent; or any order for relief with respect to the Corporation
or any Significant Subsidiary is entered under the Federal Bankruptcy Code; or
the Corporation or any Significant Subsidiary petitions or applies to any
tribunal for the appointment of a custodian, trustee, receiver or liquidator of
the Corporation or any Significant Subsidiary or of any substantial part of the
assets of the Corporation or any Significant Subsidiary, or commences any
proceeding (other than a proceeding for the voluntary liquidation and
dissolution of a Subsidiary) relating to the Corporation or any Significant
Subsidiary under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction; or any
such petition or application is filed, or any such proceeding is commenced,
against the Corporation or any Significant Subsidiary and either (a) the
Corporation or any such Significant Subsidiary by any act indicates its approval
thereof, consent thereto or acquiescence therein or (b) such petition,
application or proceeding is not dismissed within 90 days.
The Corporation shall promptly deliver notice of the occurrence of an
Event of Noncompliance to the holders of Series C Preferred upon discovery
thereof.
9B. Consequences of Event of Noncompliance. If an Event of Noncompliance
--------------------------------------
has occurred and is continuing, the number of directors constituting the Board
shall, at the request of the holders of a majority of the Series C Preferred
then outstanding, be increased by two members, and the holders of the Series C
Preferred shall have the special right, voting separately as a single class
(with each Share being entitled to one vote) and to the exclusion of all other
classes of the Corporation's stock, to elect two individuals to fill such newly
created directorships, to fill any vacancies in such directorships and to remove
any individuals elected to such directorships. The newly created directorships
shall be entitled to the same rights and powers as the other directorships of
the Corporation. The special right of the holders of Series C Preferred to
elect individuals to fill such directorships, to fill any vacancies in such
directorships and to remove any individuals elected to such directorships may be
exercised at the special meeting called pursuant to this Section 9B, at any
annual or other special meeting of stockholders and, to the extent and in the
manner permitted by applicable law, pursuant to a written consent in lieu of a
stockholders meeting. Such special right shall continue until such time as
there is no longer any Event of Noncompliance in existence, at which time such
special right shall terminate subject to revesting upon the occurrence and
continuation of any subsequent Event of Noncompliance which gives rise to such
special right hereunder.
At any time when such special right has vested in the holders of the
Series C Preferred, a proper officer of the Corporation shall, upon the written
request of the holders of at least 10% of the Series C Preferred then
outstanding addressed to the secretary of the Corporation, call a special
meeting of the holders of Series C Preferred for the purpose of electing or
removing directors pursuant to and in accordance with this Section 9B. Such
meeting shall be held at the earliest legally permissible date at the principal
office of the Corporation, or at such other place designated by the holders of
at least 10% of the Series C Preferred then outstanding. If such meeting has
not been called by a proper officer of the Corporation within 10 days after
personal service of such written request upon the secretary of the Corporation
or within 20 days after mailing the same to the secretary of the Corporation at
its principal office, then the holders of at least 10% of the Series C Preferred
then outstanding may designate in writing one of their number to call such
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<PAGE>
meeting at the expense of the Corporation, and such meeting may be called by
such person so designated upon the notice required for annual meetings of
stockholders and shall be held at the Corporation's principal office, or at such
other place designated by the holders of at least 10% of the Series C Preferred
then outstanding. Any holder of Series C Preferred so designated shall be given
access to the stock record books of the Corporation for the purpose of causing a
meeting of stockholders to be called pursuant to this Section 9B.
At any meeting or at any adjournment thereof at which the holders of
Series C Preferred have the special right to elect or remove directors, the
presence, in person or by proxy, of the holders of a majority of the Series C
Preferred then outstanding shall be required to constitute a quorum for the
election or removal of any director by the holders of the Series C Preferred
exercising such special right. The vote of a majority of such quorum shall be
required to elect or remove any such director.
Any directors so elected by the holders of Series C Preferred shall
continue to serve as directors of the Corporation until the date on which there
is no longer any Event of Noncompliance in existence. On such date, the number
of directors constituting the Board shall decrease to such number as constituted
the whole Board immediately prior to the occurrence of the Event of
Noncompliance giving rise to the special right to elect directors.
If any Event of Noncompliance exists, each holder of Series C
Preferred shall also have any other rights which such holder is entitled to
under any contract or agreement and any other rights which such holder may have
pursuant to applicable law.
Section 10. Record Holders.
--------------
The Corporation shall deem and treat the record holder of any Series C
Preferred as the true and lawful owner thereof for all purposes, and the
Corporation shall not be affected by any notice to the contrary.
Section 11. Definitions.
-----------
"Business Day" means any day other than a Saturday, Sunday or a day on
------------
which state or federally chartered banking institutions in Dallas, Texas are not
required to be opened.
"Closing Date" has the meaning given such term in the Stock Purchase
------------
Agreement.
"Common Stock" means, collectively, the Corporation's Common Stock,
------------
par value $.01 per share (including any and all Conversion Stock), and any
capital stock of any class of the Corporation hereafter authorized which is not
limited to a fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in the distribution
of assets upon any Liquidation of the Corporation.
-14-
<PAGE>
"Common Stock Deemed Outstanding" means, at any given time, the number
-------------------------------
of shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Sections 6E(i) and
6E(ii) hereof whether or not the Options or Convertible Securities are actually
exercisable at such time.
"Conversion Price" means the conversion price per share of Common
----------------
Stock into which the Series C Preferred is convertible, as such conversion price
may be adjusted pursuant to Section 6D hereof.
"Conversion Stock" means shares of the Corporation's Common Stock,
----------------
provided that if there is a change such that the securities issuable upon
conversion of the Series C Preferred are issued by an entity other than the
Corporation or there is a change in the type or class of securities so issuable,
then the term "Conversion Stock" shall mean one share of the security issuable
upon conversion of the Series C Preferred if such security is issuable in
shares, or shall mean the smallest unit in which such security is issuable if
such security is not issuable in shares.
"Convertible Securities" means any stock or securities directly or
----------------------
indirectly convertible into or exchangeable for Common Stock.
"Junior Securities" means any capital stock or other equity securities
-----------------
of the Corporation, except for the Series C Preferred.
"Liquidation Value" of any Share as of any particular date shall be
-----------------
equal to $25.00.
"Loan Agreements" means all loan or credit agreements or indentures to
---------------
which the Corporation is a party at any time.
"Mandatory Conversion Date" means the third anniversary of the Closing
-------------------------
Date.
"Market Price" of any security on any day means the closing price of
------------
such security's sales on such day on the principal securities exchange on which
such security may at the time be listed, or, if there were no sales on such
exchange on such day, the average of the highest bid and lowest asked prices on
such exchange at the end of such day, or, if on such day such security is not so
listed, the average of the representative bid and asked prices quoted in the
NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on such day
such security is not quoted in the NASDAQ System, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization. If at any time such security is not listed on any
securities exchange or quoted in the NASDAQ System or the over-the-counter
market, the "Market Price" shall be the fair value thereof determined jointly by
the Corporation and the holders of a majority of the outstanding Shares of the
Series C Preferred. If such parties are unable to reach agreement within a
reasonable period of time, such fair value shall be determined by an independent
appraiser experienced in valuing securities jointly selected by the Corporation
and the holders of a majority of the outstanding Shares of the Series C
Preferred. The determination of such appraiser shall be final and binding upon
the parties, and the Corporation shall pay the fees and expenses of such
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<PAGE>
appraiser. For purposes of this definition, "Market Price" shall include, in
the case of an underwritten public offering or a private offering of securities
that are currently publicly traded, an allowance for a customary discount to the
current market trading price which is determined by the managing underwriter (if
any) and the Corporation to be reasonably required to effect such offering.
"Options" means any rights, warrants or options to subscribe for or
-------
purchase Common Stock or Convertible Securities.
"Significant Subsidiary" means, with respect to any person, a
----------------------
Subsidiary constituting a "significant subsidiary" of such person for purposes
of Rule 1-02(w) of Regulation S-X under the Securities Act of 1933, or any
successor provision thereof.
"Stock Purchase Agreement" means the Stock Purchase Agreement dated as
------------------------
of December 13, 1999, by and between the Corporation and Wiser Investment
Company, LLC, as such agreement may from time to time be amended in accordance
with its terms.
"Subsidiary" means, with respect to any person, any corporation,
----------
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that person or one or more of the other
Subsidiaries of that person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interests thereof is at the time
owned or controlled, directly or indirectly, by that person or one or more of
the other Subsidiaries of that person or a combination thereof. For purposes
hereof, a person or persons shall be deemed to have a majority ownership
interest in a limited liability company, partnership, association or other
business entity if such person or persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses.
"Warrant Agreement" means the Warrant Agreement dated as of the
-----------------
Closing Date by and between the Corporation and Wiser Investment Company, LLC,
as such agreement may from time to time be amended in accordance with its terms.
Section 12. Amendment and Waiver.
--------------------
No amendment, modification or waiver of any provision of Sections 1 to 15
of this Certificate of Designations shall be binding or effective without the
prior written consent of the holders of at least two-thirds of the Series C
Preferred outstanding at the time such action is taken; provided that no such
action shall (a) change the rate at which or the manner in which dividends on
the Series C Preferred accrue or the times at which such dividends become
payable, without the prior written consent of the holders of at least 90% of the
Series C Preferred then outstanding, (b) increase the Conversion Price of the
Series C Preferred or decrease the number of shares or class of stock into which
the Series C Preferred is convertible other than as provided under Section 6
hereof, without the prior written consent of the holders of at least 90% of the
Series C Preferred then outstanding or (c) change the percentage required to
approve any change described in clauses (a) and (b) above,
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<PAGE>
without the prior written consent of the holders of at least 90% of the Series C
Preferred then outstanding.
Section 13. Notices.
-------
Except as otherwise expressly provided hereunder, all notices referred to
herein shall be in writing and shall be delivered by first class registered or
certified United States mail or by reputable overnight courier service, charges
prepaid, and shall be deemed to have been given when so mailed or sent (i) to
the Corporation (attention: Secretary) at its principal executive offices and
(ii) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation, or to such other address as the Corporation or
holder, as the case may be, shall have designated by notice similarly given.
Section 14. Acquired Shares.
---------------
Any Shares of Series C Preferred purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and canceled promptly
after the acquisition thereof. All such Shares shall upon their cancellation
become authorized but unissued shares of preferred stock of the Corporation and
may be reissued as part of a new series of preferred stock to be created by
resolution or resolutions of the Board, subject to the conditions and
restrictions on issuance set forth herein.
Section 15. Successors and Transferees.
--------------------------
The provisions applicable to Shares of Series C Preferred shall bind and
inure to the benefit of and be enforceable by the Corporation, the respective
successors to the Corporation, and by any record holder of Shares of Series C
Preferred.
* * * *
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations to be signed this ________ day of ________________________, 2000.
THE WISER OIL COMPANY
By:_______________________________
Name:__________________________
Title:_________________________
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<PAGE>
EXHIBIT C
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of_____________, 2000
(the "Effective Date"), between The Wiser Oil Company, a Delaware corporation
(the "Company"), and George K. Hickox, Jr. (the "Employee").
WHEREAS, the Company desires to employ the Employee, and the Employee
desires to be employed by the Company, on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
Company and the Employee hereby agree as follows:
1. Employment. The Company agrees to employ the Employee, and the
----------
Employee agrees to undertake employment with the Company, for the period set
forth in Paragraph 2, in the positions and with the duties and responsibilities
set forth in Paragraph 3, and upon the other terms and conditions herein
provided.
2. Term. The employment of the Employee by the Company as provided
----
in Paragraph 1 shall be for a period commencing on the Effective Date and ending
upon the second anniversary thereof unless further extended or sooner terminated
as herein provided (the "Employment Term"). The Employment Term may be extended
for such additional period as may from time to time be mutually agreed upon in
writing between the parties hereto.
3. Position and Duties.
-------------------
(a) During the Employment Term, the Employee shall serve as Chief
Executive Officer and (to the extent elected or appointed as a director of the
Company) Chairman of the Board of the Company, accountable only to the Board of
Directors of the Company (the "Board"). In such capacities, the Employee shall
perform the duties of Chief Executive Officer and Chairman of the Board, as set
forth in the Company's Bylaws, as they may be amended from time to time, and
shall have such other duties, functions, responsibilities, and authority
commensurate with such offices as are from time to time delegated to the
Employee by the Board, provided that such duties, functions, responsibilities,
and authority are reasonable and customary for a person serving as Chief
Executive Officer and Chairman of the Board of an enterprise comparable to the
Company.
(b) During the Employment Term, the Employee shall devote a
substantial majority of his time, skill, and attention and his best efforts
during normal business hours to the business and affairs of the Company
necessary to discharge faithfully and efficiently the duties and
responsibilities delegated and assigned to the Employee herein or pursuant
hereto, except for usual, ordinary, and customary periods of vacation and
absence due to illness or other disability. The Company acknowledges that the
Employee has outside business interests and agrees that the Employee may devote
a portion of his time and attention to such business interests provided such
business interests do not materially interfere with the Employee's performance
of his duties hereunder; provided, however, in no event shall such other
activities by the Employee be deemed to materially interfere
<PAGE>
with the Employee's duties hereunder until the Employee has been notified in
writing thereof by the Board and been given a reasonable period in which to cure
such interference.
(c) During the Employment Term, the Employee shall serve, if elected
or appointed, as a director of the Company, as a director and officer of any
subsidiary of the Company, and as a member of any committee of the Board or of
the board of directors of any subsidiary of the Company.
(d) All services that the Employee may render to the Company or any of
its subsidiaries in any capacity during the Employment Term shall be deemed to
be services required by this Agreement and consideration for the compensation
provided for herein.
4. Compensation and Related Matters.
--------------------------------
(a) Base Salary. During the Employment Term, the Company shall pay
-----------
to the Employee for his services hereunder a base salary at the rate of one
dollar ($1.00) per year, subject to adjustment as set forth herein, payable
prior to the end of each year during the Employment Term. If during the
Employment Term the Employee's base salary exceeds one dollar per year, such
salary shall be paid in equal installments in accordance with the Company's
standard payroll practices. In addition to base salary, the Employee may be paid
bonuses in such amounts as may be determined by the Board, in its discretion.
(b) Base Salary Adjustments. The base salary payable to the Employee
-----------------------
hereunder may be adjusted from time to time by the Board, in its discretion.
(c) Employee Benefits. During the Employment Term, the Employee
-----------------
shall be entitled to participate in any and all employee benefit plans,
programs, and arrangements provided by the Company to its executive officers
generally, subject to and on a basis consistent with the terms, conditions, and
overall administration (including eligibility and vesting requirements) of such
plans, programs, and arrangements; provided, however, that, unless otherwise
determined by the Board, the Employee shall not be entitled to receive any stock
options, restricted stock or other similar stock-based awards under the
Company's stock incentive plans.
(d) Expenses.
--------
(i) During the Employment Term, the Employee shall be entitled
to receive prompt reimbursement for all reasonable expenses incurred by
the Employee in performing his duties and responsibilities hereunder, in
accordance with the policies, practices, and procedures of the Company
from time to time in effect for its executive officers.
(ii) During the Employment Term, the Company shall, at its sole
expense, provide the Employee with a leased automobile, of a make, model,
color and year reasonably acceptable to him, for the Employee's business
and private use while in Dallas, Texas on
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<PAGE>
Company business. In addition, during the Employment Term, the Company
shall, upon receipt of itemized vouchers for expenses, submitted to the
Company on a monthly basis, reimburse the Employee for his reasonable and
necessary expenses, including maintenance, repairs, gasoline and
insurance, incurred in the operation of such leased automobile.
(iii) During the Employment Term, the Company shall reimburse
the Employee for all actual and reasonable expenses associated with the
Employee's travel to and from Philadelphia, Pennsylvania for purposes of
Company business.
(iv) During the Employment Term, the Company shall, at its sole
expense, provide the Employee with suitable alternative housing in
Dallas, Texas, and shall pay or reimburse the Employee for all utility
and hook-up costs associated with such alternative housing.
5. Termination of Employment by Company.
------------------------------------
(a) Death. The Employee's employment hereunder shall terminate
-----
automatically upon his death.
(b) Disability. If the Disability (as defined below) of the Employee
----------
occurs during the Employment Term, the Company may notify the Employee of the
Company's intention to terminate the Employee's employment hereunder for
Disability. In such event, the Employee's employment hereunder shall terminate
effective on the 30th day following the date such notice of termination is
received by the Employee, provided that the Employee shall not have returned to
the full-time performance of his duties hereunder and performed the same free of
any Disability through such 30-day period. For purposes of this Agreement, the
"Disability" of the Employee shall be deemed to have occurred if the Employee
shall have been unable to perform substantially his duties hereunder for 90
consecutive days (excluding any leaves of absence approved by the Company) as a
result of his physical or mental incapacity. If so terminated, the Employee
shall be entitled to receive the amount of any insurance benefits and proceeds
payable to the Employee under disability insurance programs and policies, if
any, then maintained by the Company for the Employee's benefit.
(c) Cause. The Board may terminate the Employee's employment
-----
hereunder for Cause (as defined below). For purposes of this Agreement, "Cause"
shall mean any of the following:
(i) conduct by the Employee that constitutes willful
misconduct, fraud, dishonesty, or a criminal act with respect to the
Company or its subsidiaries;
(ii) conviction of the Employee of a felony involving fraud,
dishonesty, or moral turpitude;
(iii) the willful and continued failure by the Employee to
substantially perform his duties hereunder; or
-3-
<PAGE>
(iv) the willful and material breach by the Employee of any of
the provisions of this Agreement.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
terminated for Cause without (i) first, notice to the Employee setting forth the
reasons for the Board's intention to terminate his employment for Cause, (ii)
next, an opportunity for the Employee, together with his counsel, to be heard
before the Board, and (iii) thereafter, delivery to the Employee of a Notice of
Termination (as defined below) from the Company, which notice shall be
accompanied by a resolution duly adopted by the Board finding that, in the good
faith opinion of the Board, Cause has occurred as defined hereunder.
(d) Notice of Termination. Any termination of the Employee's
---------------------
employment hereunder by the Company shall be communicated by a Notice of
Termination to the Employee. For purposes of this Agreement, a "Notice of
Termination" shall mean a written notice that (i) indicates the specific
termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Employee's employment under the provision so indicated, and
(iii) specifies the effective date of termination.
(e) Obligations. If the Employee's employment hereunder is
-----------
terminated by reason of his death or Disability or for Cause, the Company shall
thereafter have no further obligations to the Employee under this Agreement,
except as provided in Paragraphs 12 and 13.
6. Termination of Employment by Employee. The Employee shall have
-------------------------------------
the right to terminate his employment hereunder at any time by providing at
least 30 days prior written notice of termination to the Company. Following such
notice, the Employee shall continue to receive his base salary at the then
current annual rate fixed herein or pursuant hereto for the period through the
date of termination, provided his employment is not terminated earlier pursuant
to Paragraph 5 hereof, but the Company shall not be obligated to pay any base
salary or compensation (including severance pay) for any period of time after
such termination. The foregoing shall not prevent the Company or the Board from
terminating the Employee's employment pursuant to Paragraph 5 hereof earlier
than the date of termination fixed pursuant to this Paragraph 6.
7. Compliance With Other Agreements.
--------------------------------
(a) The Company represents and warrants to the Employee that the
execution, delivery, and performance by the Company of this Agreement have been
duly authorized by all necessary corporate action of the Company and do not and
will not conflict with or result in a violation of any provision of, or
constitute a default under, any contract, agreement, instrument, or obligation
to which the Company is a party or by which it is bound.
(b) The Employee represents and warrants to the Company that the
execution, delivery, and performance by the Employee of this Agreement do not
and will not conflict with or
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<PAGE>
result in a violation of any provision of, or constitute a default under, any
contract, agreement, instrument, or obligation to which the Employee is a party
or by which he is bound.
8. Certain Additional Payments by the Company. Notwithstanding anything
------------------------------------------
to the contrary in this Agreement, in the event that any payment or distribution
by the Company to or for the benefit of the Employee, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code or any interest or penalties with respect to
such excise tax (such excise tax, together with any such interest or penalties,
are hereinafter collectively referred to as the "Excise Tax"), the Company shall
pay to the Employee an additional payment (a "Gross-up Payment") in an amount
such that after payment by the Employee of all taxes (including any interest or
penalties imposed with respect to such taxes), including any Excise Tax imposed
on any Gross-up Payment, the Employee retains an amount of the Gross-up Payment
equal to the Excise Tax imposed upon the Payments. The Company and the Employee
shall make an initial determination as to whether a Gross-up Payment is required
and the amount of any such Gross-up Payment. The Employee shall notify the
Company immediately in writing of any claim by the Internal Revenue Service
which, if successful, would require the Company to make a Gross-up Payment (or a
Gross-up Payment in excess of that, if any, initially determined by the Company
and the Employee) within five days of the receipt of such claim. The Company
shall notify the Employee in writing at least five days prior to the due date of
any response required with respect to such claim if it plans to contest the
claim. If the Company decides to contest such claim, the Employee shall
cooperate fully with the Company in such action; provided, however, the Company
shall bear and pay directly or indirectly all costs and expenses (including
additional interest and penalties) incurred in connection with such action and
shall indemnify and hold the Employee harmless, on an after-tax basis, for any
Excise Tax or income tax, including interest and penalties with respect thereto,
imposed as a result of the Company's action. If, as a result of the Company's
action with respect to a claim, the Employee receives a refund of any amount
paid by the Company with respect to such claim, the Employee shall promptly pay
such refund to the Company. If the Company fails to timely notify the Employee
whether it will contest such claim or the Company determines not to contest such
claim, then the Company shall immediately pay to the Employee the portion of
such claim, if any, which it has not previously paid to the Employee.
9. Confidentiality. During the Employment Term and thereafter without
---------------
limitation of time, the Employee shall hold in strict confidence and shall not,
directly or indirectly, disclose or reveal to any person, or use for his own
personal benefit or for the benefit of anyone else, any trade secrets,
confidential dealings, or other confidential or proprietary information of any
kind, nature, or description (whether or not acquired, learned, obtained, or
developed by the Employee alone or in conjunction with others) belonging to or
concerning the Company or any of its subsidiaries (collectively, the
"Information"), except (a) with the prior written consent of the Company duly
authorized by the Board, (b) in the course of the proper performance of the
Employee's duties hereunder, or (c) as required by applicable law or legal
process. The provisions of this Paragraph 9 shall be inoperative as to such
portions of the Information that (a) are or become generally available to the
public other than as a result of a disclosure by the Employee in violation of
this Agreement
-5-
<PAGE>
or (b) become available to the Employee on a non-confidential basis from a
source that is not bound by an obligation of confidentiality to the Company. The
provisions of this Paragraph 9 shall continue in effect notwithstanding
termination of the Employee's employment hereunder for any reason.
10. Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement or the breach thereof, excepting any controversy or claim arising
out of or relating to Paragraph 9 of this Agreement or any breach thereof, shall
be settled by arbitration before an arbitrator in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, and judgment on the
award rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitration shall be conducted in Houston, Texas. In any such
arbitration, the arbitrator shall not have the power to reform or modify this
Agreement in any way and to that extent his powers are so limited. Neither party
shall resort to litigation except to enforce or appeal from such arbitration or
to enforce Paragraph 9 of this Agreement.
If arbitration is necessary to enforce or interpret any of the Employee's
rights or obligations under this Agreement, and the Employee is the prevailing
party in such arbitration, the Employee shall be entitled to reimbursement by
the Company for any reasonable attorneys' fees, costs, and necessary
disbursements in addition to any other relief to which the Employee may be
entitled.
11. Withholding Taxes. The Company shall withhold from any payments
-----------------
to be made to the Employee hereunder such amounts (including social security
contributions and federal income taxes) as shall be required by federal, state,
and local withholding tax laws.
12. No Effect on Other Contractual Rights. The provisions of this
-------------------------------------
Agreement, and any payment provided for hereunder, shall not reduce any amounts
otherwise payable to the Employee, or in any way diminish the Employee's rights
as an employee of the Company, whether existing now or hereafter, under any
employee benefit plan, program, or arrangement or other contract or agreement of
the Company providing benefits to the Employee.
13. Survival. Neither the expiration or the termination of the term
--------
of the Employee's employment hereunder shall impair the rights or obligations of
either party hereto which shall have accrued hereunder prior to such expiration
or termination.
14. Notices. All notices and other communications required or
-------
permitted to be given hereunder by either party hereto shall be in writing and
shall be given by hand delivery or by first class registered or certified United
States mail, postage prepaid, return receipt requested, to the party for which
intended at the following addresses (or at such other addresses as shall be
specified by the parties by like notice):
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<PAGE>
If to the Company, at:
The Wiser Oil Company
8115 Preston Road, Suite 400
Dallas, Texas 75225-6311
Attention: President
If to the Employee, at:
George K. Hickox, Jr.
1629 Locust Street
Philadelphia, Pennsylvania 19103
All such notices and other communications shall be effective only upon receipt
by the addressee.
15. Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto concerning the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to such subject matter.
16. Binding Effect; Assignment. This Agreement shall be binding upon
--------------------------
and inure to the benefit of the parties hereto and their respective heirs, legal
representatives, successors, and permitted assigns; provided, however, that the
neither the Company nor the Employee shall assign or otherwise transfer this
Agreement or any of the respective rights or obligations hereunder without the
prior written consent of the other party hereto (except that any rights that the
Employee may have hereunder at the time of his death may be transferred by will
or pursuant to the laws of descent and distribution and the Company may assign
this Agreement to any successor to all or substantially all its business and
assets without the consent of the Employee).
17. Amendment. This Agreement may not be modified or amended in any
---------
respect except by an instrument in writing signed by the party against whom such
modification or amendment is sought to be enforced.
18. Waiver. Any term or condition of this Agreement may be waived at
------
any time by the party hereto which is entitled to have the benefit thereof, but
such waiver shall only be effective if evidenced by a writing signed by such
party, and a waiver on one occasion shall not be deemed to be a waiver of the
same or any other type of breach on a future occasion. No failure or delay by a
party hereto in exercising any right or power hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right or power.
19. Authority. No person, other than pursuant to a resolution of the
---------
Board, shall have authority on behalf of the Company to agree to modify, amend,
or waive any provision of this Agreement or anything in reference thereto.
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<PAGE>
20. Severability. If any provision of this Agreement is held to be
------------
unenforceable, (a) this Agreement shall be considered divisible, (b) such
provision shall be deemed inoperative to the extent it is deemed unenforceable,
and (c) in all other respects this Agreement shall remain in full force and
effect; provided, however, that if any such provision may be made enforceable by
limitation thereof, then such provision shall be deemed to be so limited and
shall be enforceable to the maximum extent permitted by applicable law.
21. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the laws of the State of Delaware, without
regard to the principles of conflicts of laws thereof.
22. Injunctive Relief. In recognition of the fact that a breach
-----------------
by the Employee of any of the provisions of Paragraph 9 will cause irreparable
damage to the Company for which monetary damages alone will not constitute an
adequate remedy, the Company shall be entitled as a matter of right to obtain a
restraining order, an injunction, an order of specific performance, or other
equitable or extraordinary relief from any court of competent jurisdiction
restraining any further violation of such provisions by the Employee or
requiring him to perform his obligations hereunder. Such right to equitable or
extraordinary relief shall not be exclusive but shall be in addition to all
other rights and remedies to which the Company may be entitled at law or in
equity, including without limitation the right to recover monetary damages for
the breach by the Employee of any of the provisions of this Agreement.
23. Counterparts. This Agreement may be executed by the parties
------------
hereto in any number of counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same agreement.
-8-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf by its duly authorized officer, and the Employee has
executed this Agreement, as of the date first set forth above.
"COMPANY"
THE WISER OIL COMPANY
By:____________________________________
Name:_______________________________
Title:______________________________
"EMPLOYEE"
_______________________________________
George K. Hickox, Jr.
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<PAGE>
EXHIBIT D
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (this "Agreement") is made and entered into
effective as of ___________, 2000, between The Wiser Oil Company, a Delaware
corporation (the "Company"), and Wiser Investment Company, LLC, a Delaware
limited liability company ("WIC").
1. Engagement. The Company engages WIC, and WIC hereby agrees, to provide
management and transaction advisory services to the Company as set forth herein
during the term of this Agreement.
2. Term. The initial term of this Agreement shall continue until the
second anniversary of the date hereof. Upon the expiration of the initial term,
this Agreement shall automatically renew for successive one year terms unless
terminated by either party by written notice delivered to the other party at
least 30 days prior to the expiration of the then-current term.
3. Management Services. WIC shall provide the following management
services to the Company:
(a) WIC shall from time to time select and furnish three individuals to
serve as the Purchaser Designees (as such term is defined in the Stockholder
Agreement of even date herewith between the Company, WIC and _______________
(the "Stockholder Agreement")). Pursuant to the terms of the Stockholder
Agreement, such individuals shall be members of the Board of Directors of the
Company (the "Board") and of the Executive Committee of the Board, and one of
such individuals shall be the Chairman of the Board. In their capacity as such
Board and Committee members, such individuals shall be entitled to the same
compensation and reimbursement of expenses, and to participation in the same
benefit and incentive plans, as the Company provides to non-employee members of
its Board of Directors generally. George K. Hickox, Jr., ____________ and
____________ shall be the initial Purchaser Designees, and George K. Hickox, Jr.
shall be the Chairman of the Board.
(b) WIC shall cause one of its members, who shall be a Purchaser Designee,
to serve as the Chief Executive Officer of the Company. Such individual shall be
an employee of the Company and shall enter into an employment agreement with the
Company in substantially the form set forth as Exhibit A hereto, as amended from
time to time by mutual agreement of such individual, WIC and the Company. The
duties of such individual as Chief Executive Officer of the Company will be as
set forth in such employment agreement, the Company's Bylaws or as established
from time to time by the Company's Board of Directors to the extent consistent
with such employment agreement and Bylaws. George K. Hickox, Jr. shall be the
initial Chief Executive Officer of the Company.
(c) WIC may from time to time select and furnish an individual to serve as
the Chief Financial Officer of the Company. Such individual shall be an employee
of the Company pursuant to an employment agreement mutually acceptable to such
individual, WIC and the Company.
<PAGE>
4. Transaction Advisory Services.
(a) WIC shall diligently seek to identify opportunities for the Company to
acquire (by purchase, lease or otherwise) properties, businesses, companies or
other assets located in the United States or Canada that generate or receive
more than 33% of their gross revenue from the exploration, development,
production or marketing of oil or natural gas (any such opportunity being
referred to herein as a "Business Opportunity"), provided, however, that the
term "Business Opportunity" shall not include any opportunity if (i) WIC
determines in its sole discretion that neither WIC (or any of its Affiliates)
nor Wiser should pursue such opportunity, (ii) the expenditures required to be
incurred with respect to such opportunity, net to WIC and its Affiliates, in the
aggregate, are less than $1,000,000 over any 90-day period, or (iii) on or prior
to the date hereof WIC and the Company have agreed in writing that such
opportunity is to be excluded from the meaning of such term and from the
referral obligation contained in this Section 4(a). WIC shall cause George K.
Hickox, Jr. and Scott W. Smith (or such other individual or individuals as may
be reasonably acceptable to the Company) to devote a substantial amount of their
working time and effort toward the identification of Business Opportunities on
behalf of WIC. WIC will refer to the Company any and all Business Opportunities
that may present themselves or become known to WIC or any Affiliate thereof
(excluding any Affiliate that is a Purchaser under the Stock Purchase
Agreement). Neither WIC nor any of its Affiliates shall pursue a Business
Opportunity for its own account unless and until the provisions set forth in
Section 4(c) have been satisfied.
(b) Promptly after becoming aware of a Business Opportunity, WIC shall
determine whether the Company should or should not pursue such Business
Opportunity and shall in writing notify the Company's Chief Executive Officer
and its President of such Business Opportunity and of WIC's recommendation (a
"Referral Notice").
(c) If WIC or an Affiliate desires to pursue a particular Business
Opportunity for its own account, then WIC shall include in the Referral Notice a
request that the Company approve the pursuit of such Business Opportunity by WIC
or such Affiliate, and WIC shall also address such Referral Notice to the non-
Purchaser Designee members of the Board (the "Review Committee"). Within 15
days after the receipt of such Referral Notice, the Review Committee shall
consider the Business Opportunity and determine by majority vote whether to
release WIC or such Affiliate to pursue the Business Opportunity.
(d) For purposes of this Section 4, the term "Affiliate" shall have the
meaning given to it by Rule 12b-2 promulgated under the Securities Exchange Act
of 1934, as amended.
5. Compensation. As compensation for WIC's continuing services under this
Agreement, the Company shall pay to WIC an annual fee of $300,000 (the
"Management Fee"). The Management Fee shall be payable in monthly installments
on the fifteenth (15th) day of each month during the term of this Agreement
(each a "Payment Date"), beginning with the first Payment Date following the
date hereof. The amount of each such monthly installment shall be $25,000 (the
-2-
<PAGE>
"Monthly Fee Amount") prorated on a daily basis for any partial calendar month
during the term of this Agreement.
6. Reimbursement of Expenses. In addition to the compensation to be paid
pursuant to Section 5 hereof, the Company agrees to pay or reimburse WIC for all
Reimbursable Expenses. The term "Reimbursable Expenses" means all reasonable
disbursements and out-of-pocket expenses (including without limitation costs of
travel, postage, deliveries, communications, etc.) incurred by WIC or its
affiliates for the account of the Company or in connection with the performance
by WIC or its affiliates of the services contemplated by Sections 3 and 4
hereof. Promptly (but not more than 10 days) after request by or notice from
WIC, the Company shall pay WIC, by wire transfer of immediately available funds
to such account as WIC may designate in writing, the Reimbursable Expenses for
which WIC has provided the Company invoices or reasonably detailed descriptions.
7. Indemnification; Insurance. The Company shall indemnify and hold
harmless each of WIC, its affiliates, and their respective directors, officers,
partners, members, controlling persons (within the meaning of Section 15 of the
Securities Act of 1933 or Section 20(a) of the Securities Exchange Act of 1934),
if any, agents and employees (collectively referred to as "Indemnified Persons"
and individually as an "Indemnified Person") from and against any and all
claims, liabilities, losses, damages and expenses incurred by any Indemnified
Person (excluding those resulting from the gross negligence or willful
misconduct of the Indemnified Person) and fees and disbursements of the
respective Indemnified Person's counsel) which (i) are related to or arise out
of (A) actions taken or omitted to be taken (including any untrue statements
made or any statements omitted to be made) by the Company or any of its
subsidiaries or (B) actions taken or omitted to be taken by an Indemnified
Person with the Company's or any of its subsidiaries' consent or in conformity
with the Company's or any such subsidiaries' instructions or the Company's or
any such subsidiaries' actions or omissions or (ii) are otherwise related to or
arise out of WIC's engagement hereunder, and will reimburse each Indemnified
Person for all costs and expenses, including fees of any Indemnified Person's
counsel, as they are incurred, in connection with investigating, preparing for,
defending, or appealing any action, formal or informal claim, investigation,
inquiry or other proceeding, whether or not in connection with pending or
threatened litigation, caused by or arising out of or in connection with WIC's
acting pursuant to the engagement hereunder, whether or not any Indemnified
Person is named as a party thereto and whether or not any liability results
therefrom. The Company will not however, be responsible for any claims,
liabilities, losses, damages, or expenses pursuant to clause (ii) of the
preceding sentence that have resulted primarily from WIC's gross negligence or
willful misconduct. The Company also agrees that neither WIC nor any other
Indemnified Person shall have any liability to the Company or any of its
subsidiaries for or in connection with such engagement except for any claims,
liabilities, losses, damages, or expenses incurred by the Company or any such
subsidiary to the extent the same have resulted from WIC's gross negligence or
willful misconduct. The Company further agrees that it will not, and the Company
will cause its subsidiaries to not, without the prior written consent of WIC,
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which indemnification
may be sought hereunder (whether or not any Indemnified Person is an actual or
potential party to such claim, action, suit or
-3-
<PAGE>
proceeding) unless such settlement, compromise or consent includes an
unconditional release of WIC and each other Indemnified Person hereunder from
all liability arising out of such claim, action, suit or proceeding.
The foregoing right to indemnity shall be in addition to any rights that
WIC and/or any other Indemnified Person may have at common law or otherwise and
shall remain in full force and effect following the completion or any
termination of the engagement. The Company hereby consents, and shall cause its
subsidiaries to consent, to personal jurisdiction and to service and venue in
any court in which any claim which is subject to this agreement is brought
against WIC or any other Indemnified Person.
It is understood that, in connection with WIC's engagement, WIC may also be
engaged to act for the Company or any of its subsidiaries in one or more
additional capacities, and that the terms of this engagement or any such
additional engagement may be embodied in one or more separate written
agreements. Unless such additional engagement is undertaken with respect to a
matter that is the subject of another written agreement that contains a specific
provision(s) dealing with indemnification of WIC, this indemnification shall
apply to the engagement specified in Section 1 hereof as well as to any such
additional engagement(s) and any modification of said engagement or such
additional engagement(s) and shall remain in full force and effect following the
completion or termination of said engagement or such additional engagements.
(b) At the inception of any individual's service as a member of the Board
of Directors of the Company (or its Executive Committee) or as the Chief
Executive Officer or Chief Financial Officer of the Company pursuant to Section
3(a), 3(b) or 3(c) hereof, the Company shall enter into an Indemnification
Agreement with such individual in substantially the form and substance the same
as agreements then providing indemnification for other members of the Company's
Board of Directors.
(c) The Company shall purchase and maintain insurance on behalf of any
individual serving as a member of the Board of Directors of the Company (or its
Executive Committee) or as the Chief Executive Officer or Chief Financial
Officer of the Company pursuant to Sections 3(a), (b) or (c) hereof against any
liability that may be asserted against or expense that may be incurred by such
individual in connection with the Company's activities. Such insurance shall be
of a nature and amount that is consistent with other, similar publicly traded
companies, and shall be at least as extensive as that purchased on behalf of the
Company's other officers and directors, if applicable.
8. Confidential Information. In connection with the performance of the
services hereunder, WIC agrees not to divulge any confidential information,
secret processes or trade secrets disclosed by the Company to WIC solely in its
capacity as a financial advisor, unless the Company consents to the divulging
thereof or such information, secret processes, or trade secrets are publicly
available or otherwise available to WIC without restriction or breach of any
confidentiality agreement or unless required by any governmental authority or in
response to any valid legal process.
-4-
<PAGE>
9. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, sent by facsimile
transmission, mailed by registered or certified United States mail (return
receipt requested), or sent by nationally recognized overnight courier service,
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) If to WIC, to:
Wiser Investment Company, LLC
c/o Douglas P. Heller
1629 Locust Street
Philadelphia, PA 19103
(b) If to the Company or the Review Committee, to:
The Wiser Oil Company
8115 Preston Road
Suite 400
Dallas, Texas 75225
Attention: President
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered, on the date of receipt, if sent by facsimile transmission,
three business days after the date of mailing, if mailed by registered or
certified mail, return receipt requested, and one business day after the date of
sending, if sent by nationally recognized overnight courier service.
10. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY
CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF
DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAW
OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.
11. Assignment. This Agreement and all provisions contained herein shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, neither this Agreement nor
any of the rights, interests, or obligations hereunder shall be assigned by any
of the parties without the prior written consent of the other parties.
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
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<PAGE>
instrument, and the signature of any party to any counterpart shall be deemed a
signature to, and may be appended to, any other counterpart.
13. Other Understandings. All discussions, understandings, and agreements
heretofore made between any of the parties hereto with respect to the subject
matter hereof are merged in this Agreement, which alone fully and completely
expresses the agreement of the parties hereto. All calculations of the
Reimbursable Expenses shall be made by WIC and, in the absence of mathematical
error, shall be final and conclusive.
* * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
THE WISER OIL COMPANY
By:________________________________
Name:______________________________
Title:_____________________________
WISER INVESTMENT COMPANY, LLC
By:________________________________
Name:______________________________
Title:_____________________________
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<PAGE>
EXHIBIT A
(to EXHIBIT D)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of_____________, 2000
(the "Effective Date"), between The Wiser Oil Company, a Delaware corporation
(the "Company"), and George K. Hickox, Jr. (the "Employee").
WHEREAS, the Company desires to employ the Employee, and the Employee
desires to be employed by the Company, on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
Company and the Employee hereby agree as follows:
1. Employment. The Company agrees to employ the Employee, and the
----------
Employee agrees to undertake employment with the Company, for the period set
forth in Paragraph 2, in the positions and with the duties and responsibilities
set forth in Paragraph 3, and upon the other terms and conditions herein
provided.
2. Term. The employment of the Employee by the Company as provided
----
in Paragraph 1 shall be for a period commencing on the Effective Date and ending
upon the second anniversary thereof unless further extended or sooner terminated
as herein provided (the "Employment Term"). The Employment Term may be extended
for such additional period as may from time to time be mutually agreed upon in
writing between the parties hereto.
3. Position and Duties.
-------------------
(a) During the Employment Term, the Employee shall serve as Chief
Executive Officer and (to the extent elected or appointed as a director of the
Company) Chairman of the Board of the Company, accountable only to the Board of
Directors of the Company (the "Board"). In such capacities, the Employee shall
perform the duties of Chief Executive Officer and Chairman of the Board, as set
forth in the Company's Bylaws, as they may be amended from time to time, and
shall have such other duties, functions, responsibilities, and authority
commensurate with such offices as are from time to time delegated to the
Employee by the Board, provided that such duties, functions, responsibilities,
and authority are reasonable and customary for a person serving as Chief
Executive Officer and Chairman of the Board of an enterprise comparable to the
Company.
(b) During the Employment Term, the Employee shall devote a
substantial majority of his time, skill, and attention and his best efforts
during normal business hours to the business and affairs of the Company
necessary to discharge faithfully and efficiently the duties and
responsibilities delegated and assigned to the Employee herein or pursuant
hereto, except for usual, ordinary, and customary periods of vacation and
absence due to illness or other disability. The Company acknowledges that the
Employee has outside business interests and agrees that the Employee may devote
a portion of his time and attention to such business interests provided such
business interests do not materially interfere with the Employee's performance
of his duties hereunder; provided, however, in no event shall such other
activities by the Employee be deemed to materially interfere
<PAGE>
with the Employee's duties hereunder until the Employee has been notified in
writing thereof by the Board and been given a reasonable period in which to cure
such interference.
(c) During the Employment Term, the Employee shall serve, if elected
or appointed, as a director of the Company, as a director and officer of any
subsidiary of the Company, and as a member of any committee of the Board or of
the board of directors of any subsidiary of the Company.
(d) All services that the Employee may render to the Company or any of
its subsidiaries in any capacity during the Employment Term shall be deemed to
be services required by this Agreement and consideration for the compensation
provided for herein.
4. Compensation and Related Matters.
--------------------------------
(a) Base Salary. During the Employment Term, the Company shall pay
-----------
to the Employee for his services hereunder a base salary at the rate of one
dollar ($1.00) per year, subject to adjustment as set forth herein, payable
prior to the end of each year during the Employment Term. If during the
Employment Term the Employee's base salary exceeds one dollar per year, such
salary shall be paid in equal installments in accordance with the Company's
standard payroll practices. In addition to base salary, the Employee may be paid
bonuses in such amounts as may be determined by the Board, in its discretion.
(b) Base Salary Adjustments. The base salary payable to the Employee
-----------------------
hereunder may be adjusted from time to time by the Board, in its discretion.
(c) Employee Benefits. During the Employment Term, the Employee
-----------------
shall be entitled to participate in any and all employee benefit plans,
programs, and arrangements provided by the Company to its executive officers
generally, subject to and on a basis consistent with the terms, conditions, and
overall administration (including eligibility and vesting requirements) of such
plans, programs, and arrangements; provided, however, that, unless otherwise
determined by the Board, the Employee shall not be entitled to receive any stock
options, restricted stock or other similar stock-based awards under the
Company's stock incentive plans.
(d) Expenses.
--------
(i) During the Employment Term, the Employee shall be entitled
to receive prompt reimbursement for all reasonable expenses incurred by
the Employee in performing his duties and responsibilities hereunder, in
accordance with the policies, practices, and procedures of the Company
from time to time in effect for its executive officers.
(ii) During the Employment Term, the Company shall, at its sole
expense, provide the Employee with a leased automobile, of a make, model,
color and year reasonably acceptable to him, for the Employee's business
and private use while in Dallas, Texas on
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<PAGE>
Company business. In addition, during the Employment Term, the Company
shall, upon receipt of itemized vouchers for expenses, submitted to the
Company on a monthly basis, reimburse the Employee for his reasonable and
necessary expenses, including maintenance, repairs, gasoline and
insurance, incurred in the operation of such leased automobile.
(iii) During the Employment Term, the Company shall reimburse
the Employee for all actual and reasonable expenses associated with the
Employee's travel to and from Philadelphia, Pennsylvania for purposes of
Company business.
(iv) During the Employment Term, the Company shall, at its sole
expense, provide the Employee with suitable alternative housing in
Dallas, Texas, and shall pay or reimburse the Employee for all utility
and hook-up costs associated with such alternative housing.
5. Termination of Employment by Company.
------------------------------------
(a) Death. The Employee's employment hereunder shall terminate
-----
automatically upon his death.
(b) Disability. If the Disability (as defined below) of the Employee
----------
occurs during the Employment Term, the Company may notify the Employee of the
Company's intention to terminate the Employee's employment hereunder for
Disability. In such event, the Employee's employment hereunder shall terminate
effective on the 30th day following the date such notice of termination is
received by the Employee, provided that the Employee shall not have returned to
the full-time performance of his duties hereunder and performed the same free of
any Disability through such 30-day period. For purposes of this Agreement, the
"Disability" of the Employee shall be deemed to have occurred if the Employee
shall have been unable to perform substantially his duties hereunder for 90
consecutive days (excluding any leaves of absence approved by the Company) as a
result of his physical or mental incapacity. If so terminated, the Employee
shall be entitled to receive the amount of any insurance benefits and proceeds
payable to the Employee under disability insurance programs and policies, if
any, then maintained by the Company for the Employee's benefit.
(c) Cause. The Board may terminate the Employee's employment
-----
hereunder for Cause (as defined below). For purposes of this Agreement, "Cause"
shall mean any of the following:
(i) conduct by the Employee that constitutes willful
misconduct, fraud, dishonesty, or a criminal act with respect to the
Company or its subsidiaries;
(ii) conviction of the Employee of a felony involving fraud,
dishonesty, or moral turpitude;
(iii) the willful and continued failure by the Employee to
substantially perform his duties hereunder; or
-3-
<PAGE>
(iv) the willful and material breach by the Employee of any of
the provisions of this Agreement.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
terminated for Cause without (i) first, notice to the Employee setting forth the
reasons for the Board's intention to terminate his employment for Cause, (ii)
next, an opportunity for the Employee, together with his counsel, to be heard
before the Board, and (iii) thereafter, delivery to the Employee of a Notice of
Termination (as defined below) from the Company, which notice shall be
accompanied by a resolution duly adopted by the Board finding that, in the good
faith opinion of the Board, Cause has occurred as defined hereunder.
(d) Notice of Termination. Any termination of the Employee's
---------------------
employment hereunder by the Company shall be communicated by a Notice of
Termination to the Employee. For purposes of this Agreement, a "Notice of
Termination" shall mean a written notice that (i) indicates the specific
termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Employee's employment under the provision so indicated, and
(iii) specifies the effective date of termination.
(e) Obligations. If the Employee's employment hereunder is
-----------
terminated by reason of his death or Disability or for Cause, the Company shall
thereafter have no further obligations to the Employee under this Agreement,
except as provided in Paragraphs 12 and 13.
6. Termination of Employment by Employee. The Employee shall have
-------------------------------------
the right to terminate his employment hereunder at any time by providing at
least 30 days prior written notice of termination to the Company. Following such
notice, the Employee shall continue to receive his base salary at the then
current annual rate fixed herein or pursuant hereto for the period through the
date of termination, provided his employment is not terminated earlier pursuant
to Paragraph 5 hereof, but the Company shall not be obligated to pay any base
salary or compensation (including severance pay) for any period of time after
such termination. The foregoing shall not prevent the Company or the Board from
terminating the Employee's employment pursuant to Paragraph 5 hereof earlier
than the date of termination fixed pursuant to this Paragraph 6.
7. Compliance With Other Agreements.
--------------------------------
(a) The Company represents and warrants to the Employee that the
execution, delivery, and performance by the Company of this Agreement have been
duly authorized by all necessary corporate action of the Company and do not and
will not conflict with or result in a violation of any provision of, or
constitute a default under, any contract, agreement, instrument, or obligation
to which the Company is a party or by which it is bound.
(b) The Employee represents and warrants to the Company that the
execution, delivery, and performance by the Employee of this Agreement do not
and will not conflict with or
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<PAGE>
result in a violation of any provision of, or constitute a default under, any
contract, agreement, instrument, or obligation to which the Employee is a party
or by which he is bound.
8. Certain Additional Payments by the Company. Notwithstanding anything
------------------------------------------
to the contrary in this Agreement, in the event that any payment or distribution
by the Company to or for the benefit of the Employee, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code or any interest or penalties with respect to
such excise tax (such excise tax, together with any such interest or penalties,
are hereinafter collectively referred to as the "Excise Tax"), the Company shall
pay to the Employee an additional payment (a "Gross-up Payment") in an amount
such that after payment by the Employee of all taxes (including any interest or
penalties imposed with respect to such taxes), including any Excise Tax imposed
on any Gross-up Payment, the Employee retains an amount of the Gross-up Payment
equal to the Excise Tax imposed upon the Payments. The Company and the Employee
shall make an initial determination as to whether a Gross-up Payment is required
and the amount of any such Gross-up Payment. The Employee shall notify the
Company immediately in writing of any claim by the Internal Revenue Service
which, if successful, would require the Company to make a Gross-up Payment (or a
Gross-up Payment in excess of that, if any, initially determined by the Company
and the Employee) within five days of the receipt of such claim. The Company
shall notify the Employee in writing at least five days prior to the due date of
any response required with respect to such claim if it plans to contest the
claim. If the Company decides to contest such claim, the Employee shall
cooperate fully with the Company in such action; provided, however, the Company
shall bear and pay directly or indirectly all costs and expenses (including
additional interest and penalties) incurred in connection with such action and
shall indemnify and hold the Employee harmless, on an after-tax basis, for any
Excise Tax or income tax, including interest and penalties with respect thereto,
imposed as a result of the Company's action. If, as a result of the Company's
action with respect to a claim, the Employee receives a refund of any amount
paid by the Company with respect to such claim, the Employee shall promptly pay
such refund to the Company. If the Company fails to timely notify the Employee
whether it will contest such claim or the Company determines not to contest such
claim, then the Company shall immediately pay to the Employee the portion of
such claim, if any, which it has not previously paid to the Employee.
9. Confidentiality. During the Employment Term and thereafter without
---------------
limitation of time, the Employee shall hold in strict confidence and shall not,
directly or indirectly, disclose or reveal to any person, or use for his own
personal benefit or for the benefit of anyone else, any trade secrets,
confidential dealings, or other confidential or proprietary information of any
kind, nature, or description (whether or not acquired, learned, obtained, or
developed by the Employee alone or in conjunction with others) belonging to or
concerning the Company or any of its subsidiaries (collectively, the
"Information"), except (a) with the prior written consent of the Company duly
authorized by the Board, (b) in the course of the proper performance of the
Employee's duties hereunder, or (c) as required by applicable law or legal
process. The provisions of this Paragraph 9 shall be inoperative as to such
portions of the Information that (a) are or become generally available to the
public other than as a result of a disclosure by the Employee in violation of
this Agreement
-5-
<PAGE>
or (b) become available to the Employee on a non-confidential basis from a
source that is not bound by an obligation of confidentiality to the Company. The
provisions of this Paragraph 9 shall continue in effect notwithstanding
termination of the Employee's employment hereunder for any reason.
10. Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement or the breach thereof, excepting any controversy or claim arising
out of or relating to Paragraph 9 of this Agreement or any breach thereof, shall
be settled by arbitration before an arbitrator in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, and judgment on the
award rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitration shall be conducted in Houston, Texas. In any such
arbitration, the arbitrator shall not have the power to reform or modify this
Agreement in any way and to that extent his powers are so limited. Neither party
shall resort to litigation except to enforce or appeal from such arbitration or
to enforce Paragraph 9 of this Agreement.
If arbitration is necessary to enforce or interpret any of the Employee's
rights or obligations under this Agreement, and the Employee is the prevailing
party in such arbitration, the Employee shall be entitled to reimbursement by
the Company for any reasonable attorneys' fees, costs, and necessary
disbursements in addition to any other relief to which the Employee may be
entitled.
11. Withholding Taxes. The Company shall withhold from any payments
-----------------
to be made to the Employee hereunder such amounts (including social security
contributions and federal income taxes) as shall be required by federal, state,
and local withholding tax laws.
12. No Effect on Other Contractual Rights. The provisions of this
-------------------------------------
Agreement, and any payment provided for hereunder, shall not reduce any amounts
otherwise payable to the Employee, or in any way diminish the Employee's rights
as an employee of the Company, whether existing now or hereafter, under any
employee benefit plan, program, or arrangement or other contract or agreement of
the Company providing benefits to the Employee.
13. Survival. Neither the expiration or the termination of the term
--------
of the Employee's employment hereunder shall impair the rights or obligations of
either party hereto which shall have accrued hereunder prior to such expiration
or termination.
14. Notices. All notices and other communications required or
-------
permitted to be given hereunder by either party hereto shall be in writing and
shall be given by hand delivery or by first class registered or certified United
States mail, postage prepaid, return receipt requested, to the party for which
intended at the following addresses (or at such other addresses as shall be
specified by the parties by like notice):
-6-
<PAGE>
If to the Company, at:
The Wiser Oil Company
8115 Preston Road, Suite 400
Dallas, Texas 75225-6311
Attention: President
If to the Employee, at:
George K. Hickox, Jr.
1629 Locust Street
Philadelphia, Pennsylvania 19103
All such notices and other communications shall be effective only upon receipt
by the addressee.
15. Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto concerning the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to such subject matter.
16. Binding Effect; Assignment. This Agreement shall be binding upon
--------------------------
and inure to the benefit of the parties hereto and their respective heirs, legal
representatives, successors, and permitted assigns; provided, however, that the
neither the Company nor the Employee shall assign or otherwise transfer this
Agreement or any of the respective rights or obligations hereunder without the
prior written consent of the other party hereto (except that any rights that the
Employee may have hereunder at the time of his death may be transferred by will
or pursuant to the laws of descent and distribution and the Company may assign
this Agreement to any successor to all or substantially all its business and
assets without the consent of the Employee).
17. Amendment. This Agreement may not be modified or amended in any
---------
respect except by an instrument in writing signed by the party against whom such
modification or amendment is sought to be enforced.
18. Waiver. Any term or condition of this Agreement may be waived at
------
any time by the party hereto which is entitled to have the benefit thereof, but
such waiver shall only be effective if evidenced by a writing signed by such
party, and a waiver on one occasion shall not be deemed to be a waiver of the
same or any other type of breach on a future occasion. No failure or delay by a
party hereto in exercising any right or power hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right or power.
19. Authority. No person, other than pursuant to a resolution of the
---------
Board, shall have authority on behalf of the Company to agree to modify, amend,
or waive any provision of this Agreement or anything in reference thereto.
-7-
<PAGE>
20. Severability. If any provision of this Agreement is held to be
------------
unenforceable, (a) this Agreement shall be considered divisible, (b) such
provision shall be deemed inoperative to the extent it is deemed unenforceable,
and (c) in all other respects this Agreement shall remain in full force and
effect; provided, however, that if any such provision may be made enforceable by
limitation thereof, then such provision shall be deemed to be so limited and
shall be enforceable to the maximum extent permitted by applicable law.
21. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the laws of the State of Delaware, without
regard to the principles of conflicts of laws thereof.
22. Injunctive Relief. In recognition of the fact that a breach
-----------------
by the Employee of any of the provisions of Paragraph 9 will cause irreparable
damage to the Company for which monetary damages alone will not constitute an
adequate remedy, the Company shall be entitled as a matter of right to obtain a
restraining order, an injunction, an order of specific performance, or other
equitable or extraordinary relief from any court of competent jurisdiction
restraining any further violation of such provisions by the Employee or
requiring him to perform his obligations hereunder. Such right to equitable or
extraordinary relief shall not be exclusive but shall be in addition to all
other rights and remedies to which the Company may be entitled at law or in
equity, including without limitation the right to recover monetary damages for
the breach by the Employee of any of the provisions of this Agreement.
23. Counterparts. This Agreement may be executed by the parties
------------
hereto in any number of counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same agreement.
-8-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf by its duly authorized officer, and the Employee has
executed this Agreement, as of the date first set forth above.
"COMPANY"
THE WISER OIL COMPANY
By:____________________________________
Name:_______________________________
Title:______________________________
"EMPLOYEE"
_______________________________________
George K. Hickox, Jr.
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<PAGE>
EXHIBIT E
RESTATED CERTIFICATE OF INCORPORATION
OF
THE WISER OIL COMPANY
The Wiser Oil Company, a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The present name of the Corporation is The Wiser Oil Company. The
Corporation was originally incorporated under the name Petex-Wiser Corporation,
the original Certificate of Incorporation having been filed with the Secretary
of State of Delaware on September 16, 1970.
2. The within Restated Certificate of Incorporation restates and
integrates and also further amends the provisions of the Corporation's
Certificate of Incorporation as heretofore amended or supplemented. The within
Restated Certificate of Incorporation was duly adopted in accordance with the
provisions of Section 245 of the General Corporation Law of the State of
Delaware.
3. The text of the Corporation's Certificate of Incorporation as
heretofore amended or supplemented is hereby restated and further amended to
read in its entirety as follows:
First: The name of the Corporation is The Wiser Oil Company.
Second: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle. The
name of its registered agent at such address is The Corporation Trust Company.
Third: The nature of the business and purposes to be conducted and promoted
by the Corporation is to conduct any lawful business, to promote any lawful
purpose and to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
Fourth: The aggregate number of shares of all classes of capital stock
which the Corporation shall have authority to issue is 31,300,000 shares, of
which 30,000,000 shares shall be Common Stock of the par value of $.01 per share
and 1,300,000 shares shall be Preferred Stock of the par value of $10 per share.
Upon the filing of this Restated Certificate of Incorporation with the Secretary
of State of Delaware, each outstanding and treasury share of Common Stock, par
value $3 per share, of the Corporation is hereby immediately and automatically
reclassified as and converted into one outstanding or treasury share of new
Common Stock of the par value of $.01 per share. Each person who, at the time of
such filing, is
<PAGE>
the holder of a certificate or certificates evidencing shares of the then
outstanding Common Stock of the Corporation will thereafter be entitled, upon
surrendering such person's certificates to the Corporation at its principal
place of business, to receive in exchange therefor one or more certificates
representing the number of shares of the new Common Stock of the Corporation
into which such person's aggregate number of shares of Common Stock will have
been so reclassified and converted.
The Preferred Stock may be issued from time to time in one or more series.
Each series of Preferred Stock shall be distinctively designated by letter or
descriptive words. All series of Preferred Stock shall rank equally and be
identical in all respects except as set forth in the resolutions of the Board of
Directors of the Corporation providing for the issue of such stock.
Authority is hereby expressly vested in the Board of Directors from time to
time to issue the Preferred Stock as Preferred Stock of any series, and in
connection with the creation of each such series to fix by resolution or
resolutions providing for the issue of shares thereof the voting powers, if any,
the designation, the preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions, of such
series to the full extent now or hereafter permitted by the laws of the State of
Delaware.
Fifth: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation and for the
purpose of creating, defining, limiting and regulating the powers of the
Corporation and its directors and stockholders:
(a) Elections of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
(b) The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of
Incorporation, and to merge, sell its assets and take other corporate
action, to the extent and in the manner now or hereafter permitted or
prescribed by statute, and all rights conferred upon stockholders herein
are granted subject to this reservation.
Sixth: 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 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
2
<PAGE>
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as 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.
Seventh:
Section 7.1. Management of Business and Affairs. The business and
affairs of the Corporation shall be managed by or under the direction of a Board
of Directors.
Section 7.2. Composition of Board. The Board of Directors shall be
comprised as follows:
(a) Number. The whole Board of Directors shall consist of such
number of persons, not less than 3 nor more than 14, as may from time to
time be determined by the Board pursuant to a resolution adopted by a two-
thirds vote of all the directors in office.
(b) Classification; Term of Office. Beginning with the Board of
Directors to be elected at the annual meeting of stockholders to be held in
1985, the directors shall be classified, in respect to the time for which
they shall severally hold office, by dividing them into three classes, each
such class to be as nearly equal in number as possible. At the annual
meeting of stockholders to be held in 1985, separate elections shall be
held for the directors of each class, the term of office of directors of
the first class to expire at the first annual meeting after their election;
the term of office of the directors of the second class to expire at the
second annual meeting after their election; and the term of office of the
directors of the third class to expire at the third annual meeting after
their election. At each succeeding annual meeting, the stockholders shall
elect directors of the class whose term then expires, to hold office until
the third succeeding annual meeting. Each director shall hold office for
the term for which elected and until his or her successor is elected and
qualified or until his or her earlier resignation or removal.
(c) Removal of Directors. Stockholders may remove a director or
the entire Board of Directors from office at any time only for cause and
only by vote of two-thirds of the Voting Power of the outstanding shares of
Voting Stock of the Corporation, voting together as a single class. The
term "Voting Stock" at any time shall mean the outstanding shares of
capital stock of the Corporation entitled to vote at its next annual
election of directors (without consideration of the rights of any class of
stock other than the Common Stock to elect directors by a separate class
vote); and a specified percentage of "Voting Power", with reference to any
matter being voted upon by the stockholders, shall mean such number of
shares of stock as shall enable the holders thereof to cast such percentage
of the total number of votes entitled to be cast by holders of shares
entitled to vote thereon.
(d) Vacancies. Vacancies in the Board of Directors, including
newly created
3
<PAGE>
directorships resulting from an increase in the number of directors, shall
be filled only by a two-thirds vote of all the directors in office. All
directors elected to fill vacancies shall hold office for a term expiring
at the annual meeting of stockholders at which the term of the class to
which they have been elected expires. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of an
incumbent director.
(e) Preferred Stock Directors. If at any time the holders of any
class or series of Preferred Stock shall have the right, voting separately
as a class, to elect one or more directors of the Corporation, none of the
foregoing provisions of this Section 7.2 shall apply with respect to the
director or directors elected by such holders of Preferred Stock.
Eighth:
Section 8.1. Bylaws. The Board of Directors shall have the power to
adopt, amend or repeal Bylaws of the Corporation, except to the extent that
Bylaws adopted by the stockholders may otherwise provide. No Bylaws may be
adopted, amended or repealed by the stockholders unless such action is approved
by the vote of two-thirds of the Voting Power of the outstanding shares of
Voting Stock of the Corporation, voting together as a single class.
Section 8.2. Amendments to Restated Certificate of Incorporation. Subject
to the voting rights given to any particular class or series of Preferred Stock
by the Board of Directors pursuant to Article Fourth of this Restated
Certificate of Incorporation, and except as may be specifically provided to the
contrary in any other provision in this Restated Certificate of Incorporation
with respect to amendment or repeal of such provision, the vote of two-thirds of
the Voting Power of the outstanding shares of Voting Stock of the Corporation,
voting together as a single class, shall be required to amend the provisions of
Articles Seventh and Eighth of this Restated Certificate of Incorporation or
delete any provision of such Articles.
Section 8.3. Stockholder Meetings. Subject to the rights of the holders
of any class or series of Preferred Stock to take action separately as a class,
any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of such
stockholders and may not be effected without a meeting by any consent in writing
by such stockholders. Except as otherwise required by law and subject to the
rights of the holders of any class or series of Preferred Stock, special
meetings of stockholders of the Corporation may be called only by the Chairman
of the Board, the President or the Board of Directors.
Ninth: To the fullest extent permitted by the General Corporation Law of
the State of Delaware as the same now exists or may hereafter be amended, 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.
Tenth:
Section 10.1. Indemnification of Directors and Officers. Except as
prohibited by law, every director and officer of the Corporation shall be
entitled as a matter of right to be
4
<PAGE>
indemnified by the Corporation against all expenses and liability (as those
terms are defined below in this Section 10.1) incurred by such person in
connection with any actual or threatened claim, action, suit or proceeding,
civil, criminal, administrative, investigative or other, whether brought by or
in the right of the Corporation or otherwise, in which such person may be
involved, as a party or otherwise, by reason of such person being or having been
a director or officer of the Corporation or of a subsidiary of the Corporation
or by reason of the fact that such person is or was serving at the request of
the Corporation as a director, officer, employee, fiduciary or other
representative of another corporation, partnership, joint venture, trust,
employee benefit plan or other entity (such claim, action, suit or proceeding
hereinafter being referred to as "Action"); provided, however, that no such
right to indemnification shall exist with respect to an Action brought by an
indemnitee (as defined below) against the Corporation (an "Indemnitee Action")
except as provided in the last sentence of this Section 10.1. Persons who are
not directors or officers of the Corporation may be similarly indemnified in
respect of service to the Corporation or to another such entity at the request
of the Corporation to the extent the Board of Directors of the Corporation at
any time designates any of such persons as entitled to the benefits of this
Article Tenth. As used in this Article Tenth, "indemnitee" shall include each
director and officer of the Corporation and each other person designated by the
Board of Directors of the Corporation as entitled to the benefits of this
Section 10.1; "expenses" means all expenses actually and reasonably incurred,
including fees and expenses of counsel selected by an indemnitee, and
"liability" means all liability incurred, including the amounts of any
judgments, excise taxes, fines or penalties and any amounts paid in settlement.
An indemnitee shall be entitled to be indemnified pursuant to this Section 10.1
against expenses incurred in connection with an Indemnitee Action only if (i)
the Indemnitee Action is instituted under Section 10.3 of this Article Tenth and
the indemnitee is successful in whole or in part in such Indemnitee Action, (ii)
the indemnitee is successful in whole or in part in another Indemnitee Action
for which expenses are claimed or (iii) the indemnification for expenses is
included in the settlement of, or is awarded by a court in, such other
Indemnitee Action.
Section 10.2. Right to Advancement of Expenses. Every indemnitee shall be
entitled as a matter of right to have the expenses of the indemnitee in
defending any Action or in bringing and pursuing any Indemnitee Action under
Section 10.3 of this Article Tenth paid in advance by the Corporation prior to
final disposition of the Action or Indemnitee Action provided that the
Corporation receives a written undertaking by or on behalf of the indemnitee to
repay the amount advanced if it should ultimately be determined that the
indemnitee is not entitled to be indemnified for the expenses.
Section 10.3. Right of Indemnitee to Bring Action. If a written claim for
indemnification under Section 10.1 of this Article Tenth or for advancement of
expenses under Section 10.2 of this Article Tenth is not paid in full by the
Corporation within 30 days after the claim has been received by the Corporation,
the indemnitee may at any time thereafter bring an Indemnitee Action to recover
the unpaid amount of the claim and, if successful in whole or in part, the
indemnitee shall also be entitled to be paid the expense of bringing and
pursuing such Indemnitee Action. The only defense to an Indemnitee Action to
recover on a claim for indemnification under Section 10.1 of this Article Tenth
shall be that the conduct of the indemnitee was such that under Delaware law the
Corporation is prohibited from indemnifying the indemnitee for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the
5
<PAGE>
failure of the Corporation (including its Board of Directors, independent legal
counsel and stockholders) to have made a determination prior to the commencement
of such Indemnitee Action that indemnification of the indemnitee is proper in
the circumstances, nor an actual determination by the Corporation (including its
Board of Directors, independent legal counsel or stockholders) that the conduct
of the indemnitee was such that indemnification is prohibited by Delaware law,
shall be a defense to such Indemnitee Action or create a presumption that the
conduct of the indemnitee was such that indemnification is prohibited by
Delaware law. The only defense to an Indemnitee Action to recover on a claim for
advancement of expenses under Section 10.2 of this Article Tenth shall be
failure by the indemnitee to provide the undertaking required by Section 10.2 of
this Article Tenth.
Section 10.4. Funding and Insurance. The Corporation may create a trust
fund, grant a security interest, cause a letter of credit to be issued or use
other means (whether or not similar to the foregoing) to ensure the payment of
all sums required to be paid by the Corporation to effect indemnification as
provided in this Article Tenth. The Corporation may purchase and maintain
insurance to protect itself and any indemnitee against any expenses or liability
incurred by the indemnitee in connection with any Action, whether or not the
Corporation would have the power to indemnify the indemnitee against the
expenses or liability by law or under the provisions of this Article Tenth.
Section 10.5. Non-Exclusivity; Nature and Extent of Rights. The rights to
indemnification and advancement of expenses provided for in this Article Tenth
shall (i) not be deemed exclusive of any other rights, whether now existing or
hereafter created, to which any indemnitee may be entitled under any agreement,
provision in the Restated Certificate of Incorporation or Bylaws of the
Corporation, vote of stockholders or disinterested directors or otherwise, (ii)
be deemed to create contractual rights in favor of each indemnitee who serves
the Corporation at any time while this Section 10.5 is in effect (and each such
indemnitee shall be deemed to be so serving in reliance on the provisions of
this Section 10.5), (iii) continue as to each indemnitee who has ceased to have
the status pursuant to which the indemnitee was entitled or was denominated as
entitled to indemnification under this Article Tenth and shall inure to the
benefit of the heirs and legal representatives of each indemnitee and (iv) be
applicable to Actions commenced after this Article Tenth becomes effective,
whether arising from acts or omissions occurring before or after this Article
Tenth becomes effective. Any amendment or repeal of this Article Tenth or
adoption of any Bylaw of the Corporation or other provision of the Restated
Certificate of Incorporation of the Corporation which has the effect of limiting
in any way the rights to indemnification or advancement of expenses provided for
in this Article Tenth shall operate prospectively only and shall not affect any
action taken, or any failure to act, by an indemnitee prior to such amendment,
repeal, Bylaw or other provision becoming effective.
Section 10.6. Partial Indemnity. If an indemnitee is entitled under any
provision of this Article Tenth to indemnification by the Corporation for some
or a portion of the expenses or liabilities incurred by the indemnitee in the
preparation, investigation, defense, appeal or settlement of any Action or
Indemnitee Action but not, however, for the total amount thereof, the
Corporation shall indemnify the indemnitee for the portion of such expenses or
liabilities to which the indemnitee is entitled.
6
<PAGE>
Eleventh: This Restated Certificate of Incorporation integrates without
further amendment hereby and shall be deemed to include the Certificate of
Designation, Preferences and Rights of Series A Preferred Stock and Series B
Preferred Stock of The Wiser Oil Company filed with the Secretary of State of
Delaware on November 12, 1993.
IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate of
Incorporation to be signed this _____ day of _________________, 2000.
THE WISER OIL COMPANY
By:__________________________________
Name:_____________________________
Title:____________________________
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EXHIBIT F
STOCKHOLDER AGREEMENT
THIS STOCKHOLDER AGREEMENT, dated as of ___________, 2000, is entered into
by and between The Wiser Oil Company, a Delaware corporation (the "Company"),
Wiser Investment Company, LLC, a Delaware limited liability company ("WIC"), and
______________________, a _____________________ ("__________" and, together
with WIC, "Purchaser").
RECITALS:
WHEREAS, the parties hereto have entered into the Stock Purchase Agreement
(such term and certain other capitalized terms used in this Agreement are
defined in Section 1.1 hereof) pursuant to which Purchaser has agreed to acquire
shares of Series C Preferred Stock, subject to the satisfaction of the
conditions set forth therein; and
WHEREAS, the execution and delivery of this Agreement is a condition to
Purchaser's obligation to purchase the shares of Series C Preferred Stock
pursuant to the Stock Purchase Agreement;
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements hereinafter contained and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
"Advice" shall have the meaning provided in Section 3.7 hereof.
"Affiliate" means, with respect to any Person, any other Person directly,
or indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person. For purposes of this definition and this
Agreement, the term "control" (and correlative terms) means the power, whether
by contract, equity ownership or otherwise, to direct the policies or management
of a Person.
"Affiliated Group", with respect to any Person, means such Person and each
Affiliate and Associate of such Person and each other Person with whom such
Person is acting "as a partnership, limited partnership, syndicate, or other
group for the purpose of acquiring, holding, or disposing of" Shares (within the
meaning of Section 13(d)(3) of the Exchange Act, regardless of whether the
Company shall at any time be subject to the requirements of the Exchange Act).
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"Agreement" means this Stockholder Agreement, as the same may be amended,
supplemented or modified from time to time in accordance with the terms hereof.
"Annual Budget" shall have the meaning provided in Section 2.6 hereof.
"Associate" means (i) any corporation or entity (other than the Company or
a Subsidiary of the Company) of which such Person is an officer or partner or
is, directly or indirectly, the Beneficial Owner of 10 percent or more of any
class of equity securities, (ii) any trust or other estate in which such Person
has a substantial beneficial interest or as to which such Person serves as
trustee or in a similar fiduciary capacity, and (iii) any relative or spouse of
such Person, or any relative of such Person, or any relative of such spouse, who
has the same home as such Person or who is a director or officer of the Company
or any of its Subsidiaries.
"Beneficial Owner" and "Beneficially Own" mean, with respect to any Person,
any securities:
(i) which such Person or any of such Person's Affiliates or Associates
beneficially owns, directly or indirectly; or
(ii) which such Person or any of such Person's Affiliates or Associates,
directly or indirectly, has
(A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding (whether or not in
writing), or upon the exercise of conversion rights, exchange
rights, rights (other than Wiser Rights), warrants or options,
or otherwise; provided, however, that a Person shall not be
deemed the Beneficial Owner of, or to Beneficially Own,
securities tendered pursuant to a tender or exchange offer made
by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are
accepted for purchase or exchange; or
(B) the right to vote pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however,
that a Person shall not be deemed the Beneficial Owner of, or
to Beneficially Own, any security if the agreement, arrangement
or understanding to vote such security (1) arises solely from
an immediately revocable proxy or consent given to such Person
in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules and
regulations of the Exchange Act and (2) is not also then
reportable on Schedule 13D under the Exchange Act (or an
equivalent form); or
(iii) which are beneficially owned, directly or indirectly, by any other
Person (or any Affiliate or Associate thereof) with which such
Person (or any of such Person's Affiliates or Associates) has any
agreement, arrangement or understanding (whether or not in writing)
for the purpose of acquiring, holding, voting (except to the extent
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permitted by subparagraph (ii)(B) of this definition) or disposing
of any voting securities of the same issuer.
"Board" means the Board of Directors of the Company.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in New York, New
York or Dallas, Texas generally are authorized or required by law to close.
"Certificate of Designation" means the Certificate of Designation for the
Series C Preferred Stock.
"Closing" means the closing of the transactions contemplated by the Stock
Purchase Agreement.
"Closing Date" means the date on which the Closing takes place.
"Common Stock" means the Company's Common Stock, $0.01 par value per share,
and, except where the context otherwise requires, the accompanying Wiser Rights.
"Common Stock Equivalents" means (without duplication with any other Common
Stock or Common Stock Equivalents) any rights (other than Wiser Rights),
warrants, options, convertible securities or indebtedness, exchangeable
securities or indebtedness, or other rights, exercisable for or convertible or
exchangeable into, directly or indirectly, Common Stock of the Company and
securities convertible or exchangeable into Common Stock (at the time of
issuance or upon the passage of time or the occurrence of some future event);
including the Underlying Common Shares.
"Company" has the meaning set forth in the introductory paragraph hereof.
"Conversion Shares" means all shares of the Common Stock issuable upon
conversion of the Preferred Shares in accordance with the terms of the
Certificate of Designation.
"Deferral Event" shall have the meaning set forth in Section 3.1(d) hereof.
"Demand Registration" shall have the meaning set forth in Section 3.1(a)
hereof.
"Demand Request" shall have the meaning set forth in Section 3.1(a) hereof.
"Dividend Shares" means the shares of Common Stock issuable in payment of
dividends payable on the Preferred Shares in accordance with the terms of the
Certificate of Designation.
"Equity Securities" means any capital stock of the Company, any securities
directly or indirectly convertible into, or exercisable or exchangeable for, any
capital stock of the Company, or any right (other than Wiser Rights), option,
warrant or other security which, with the payment of additional consideration,
the expiration of time or the occurrence of any event shall give the
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holder thereof the right to acquire any capital stock of the Company or any
security convertible into or exercisable or exchangeable for, any capital stock
of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"Excluded Registration" means a registration under the Securities Act of
(i) securities issuable under employee compensation or benefit programs or
otherwise on Form S-8 or an equivalent form, or (ii) securities issuable under
an exchange offer or an offering of securities solely to the existing
stockholders or employees of the Company or to the existing stockholders of
another company in connection with a merger or acquisition or otherwise on Form
S-4 or an equivalent form.
"Executive Committee" shall have the meaning set forth in Section 2.1(b)
hereof.
"Fully-Diluted Shares" means, at any time, the then outstanding shares of
Common Stock plus (without duplication) all shares of Common Stock issuable (at
the time of issuance or upon passage of time or the occurrence of some future
event), upon the exercise, conversion or exchange of all then-outstanding Common
Stock Equivalents. The percentage of the Fully-Diluted Shares held by a Person
at any time shall be determined so that a Person is deemed the Beneficial Owner
of the then outstanding shares of Common Stock attributable to such Person plus
(without duplication) all shares of Common Stock issuable (whether at the time
of issuance or upon passage of time or the occurrence of some future event),
upon the exercise, conversion or exchange of all then-outstanding Common Stock
Equivalents attributable to such Person, which shares of Common Stock (but not
Common Stock issuable under any other outstanding Common Stock Equivalents)
shall be deemed to be outstanding for purposes of this determination.
"Inspectors" shall have the meaning set forth in Section 3.6(j) hereof.
"Management Agreement" means the Management Agreement to be entered into by
and between the Company and WIC at the Closing.
"Material Adverse Effect" shall have the meaning set forth in the Stock
Purchase Agreement.
"NASD" shall have the meaning provided in Section 3.6(m) hereof.
"Nasdaq" shall have the meaning set forth in Section 3.6(l) hereof.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, limited liability company, joint
venture, joint-stock company, government or other agency or political
subdivision thereof or other entity of any kind.
"Piggyback Registration" shall have the meaning set forth in Section 3.2(a)
hereof.
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"Preferred Shares" means the shares of Series C Preferred Stock to be
purchased by Purchaser at the Closing pursuant to the Stock Purchase Agreement.
"Purchaser" shall have the meaning set forth in the introductory paragraph
hereof.
"Purchaser Designee" shall have the meaning set forth in Section 2.1(a)
hereof.
"Purchaser Group" means each Purchaser together with its respective
Affiliates.
"Purchaser Representative" shall have the meaning set forth in Section
3.1(a) hereof.
"Records" shall have the meaning set forth in Section 3.6(j) hereof.
"Registrable Shares" means at any time the Underlying Common Shares and any
other Equity Securities issued or issuable with respect thereto by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise;
provided, however, that Registrable Shares shall not include any shares (i) the
sale of which has been registered pursuant to the Securities Act and which
shares have been sold pursuant to such registration, or (ii) which have been
sold to the public pursuant to Rule 144 of the SEC under the Securities Act.
"Registration Expenses" shall have the meaning set forth in Section 3.8
hereof.
"Required Filing Date" shall have the meaning set forth in Section 3.1(a)
hereof.
"Restated Bylaws" means the Restated Bylaws of the Company, as amended from
time to time following the Closing Date.
"Restated Certificate" means the Restated Certificate of Incorporation of
the Company approved by the stockholders of the Company at the Stockholders'
Meeting (as defined in the Stock Purchase Agreement), as amended from time to
time following the Closing Date.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated by the SEC thereunder.
"Series C Preferred Stock" means the Company's Series C Cumulative
Convertible Preferred Stock, par value $10.00 per share, which shall have the
terms set forth in the Certificate of Designation.
"Shares" means the Preferred Shares, Warrant Shares, Conversion Shares
and/or Dividend Shares.
"Shelf Registration" shall have the meaning set forth in Section 3.4(a)
hereof.
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"Stock Purchase Agreement" means that certain Stock Purchase Agreement
dated as of December 13, 1999 between WIC and the Company.
"Subsidiary" of any Person means (i) a corporation, a majority of whose
stock with voting power, under ordinary circumstances, to elect directors is at
the date of determination thereof, directly or indirectly, owned by such Person,
by one or more subsidiaries of such Person or by such Person and one or more
subsidiaries of such Person, and (ii) any other Person (other than a
corporation) in which such Person, a subsidiary of such Person or such Person
and one or more subsidiaries of such Person, directly or indirectly, at the date
of determination thereof, has (x) at least a majority ownership interest or (y)
the power to elect or direct the election of the directors or other governing
body of such Person.
"Suspension Notice" shall have the meaning provided in Section 3.7 hereof.
"Underlying Common Shares" means the Warrant Shares, the Conversion Shares
and the Dividend Shares.
"Warrant Agreement" means the Warrant Agreement to be entered into by and
between the Company and WIC at the Closing.
"Warrants" means the Common Stock purchase warrants issued under the
Warrant Agreement.
"Warrant Shares" means all shares of Common Stock issuable upon exercise of
the Warrants in accordance with the terms of the Warrant Agreement.
"WIC" shall have the meaning set forth in the introductory paragraph
hereof.
"Wiser Rights" means rights to purchase Series B Preferred Stock of the
Company pursuant to the Wiser Rights Agreement.
"Wiser Rights Agreement" means the Rights Agreement dated as of October 25,
1993 by and between the Company and ChaseMellon Shareholder Services, L.L.C., as
successor rights agent, as amended.
Section 1.2 References and Titles. Titles appearing at the beginning of
any Articles, Sections, subsection, or other subdivisions of this Agreement are
for convenience only, do not constitute any part of such Articles, Sections,
subsections or other subdivisions, and shall be disregarded in construing the
language contained therein. The words "this Agreement," "herein," "hereby,"
"hereunder," and "hereof" and words of similar import, refer to this Agreement
as a whole and not to any particular subdivision unless expressly so limited.
The words "this Section," "this subsection," and words of similar import, refer
only to the Sections or subsections hereof in which such words occur. The word
"including" (in its various forms) means "including without limitation."
Pronouns in masculine, feminine or neuter genders shall be construed to state
and include any other gender, and words, terms and titles (including terms
defined herein) in the singular form shall be construed to include the plural
and vice versa, unless the context
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otherwise expressly requires. Unless the context otherwise requires, all
defined terms contained herein shall include the singular and plural and the
conjunctive and disjunctive forms of such defined terms.
ARTICLE II
MANAGEMENT OF THE COMPANY AND CERTAIN ACTIVITIES
Section 2.1 Board of Directors; Executive Committee.
(a) Board Representation. At the Closing, the Company shall fill the
vacancies on the Board created by the resignation of Andrew J. Shoup, Jr.,
Howard Hamilton and John W. Cushing III (executed originals of which have been
delivered to the Company on the date hereof) with three nominees designated by
Purchaser (each, a "Purchaser Designee"), one of which shall also be designated
to serve as the Chairman of the Board. Subject to Section 2.1(e) hereof, from
and after the Closing Purchaser shall have the continuing right to designate the
Purchaser Designees and the Chairman of the Board. Each Purchaser Designee
shall serve until the annual meeting of the Company's stockholders at which the
term of the class to which such Purchaser Designee has been appointed expires,
and until his or her respective successor is elected and qualified or until his
or her earlier death, resignation or removal from office. Unless Purchaser
advises the Board in writing of one or more replacement Purchaser Designees for
the Company's next annual or special meeting of stockholders at which directors
are elected and the term of one or more Purchaser Designee expires, then the
Purchaser Designee(s) for any such meeting shall be deemed to be the incumbent
Purchaser Designee(s). During the term of the Management Agreement,
designations under this Section 2.1(a) shall be made by WIC on behalf of
Purchaser.
(b) Executive Committee. At the Closing, an executive committee for the
Company (the "Executive Committee") shall be created and the Company shall take
all actions so that the three Purchaser Designees and C. Frayer Kimball, III,
are appointed to serve on the Executive Committee. The President of the Company
shall serve as an advisory member of the Executive Committee. The Executive
Committee shall have and may exercise all the powers and authority of the Board
in the management of the business and affairs of the Company on matters which by
law do not need whole Board approval. The affirmative vote of a majority of the
members of the Executive Committee must approve a particular matter for it to be
the act of the Executive Committee. If the affirmative vote of a majority of the
members of the Executive Committee on a particular matter submitted to the
Executive Committee for approval cannot be obtained, such matter shall be
submitted to the whole Board for approval. Executive Committee approval shall be
required to approve operating or capital expenditures exceeding $1,000,000 per
transaction, unless such expenditures were specifically approved by the Board as
part of the Annual Budget. Whole Board approval shall be required to approve (i)
any operating or capital expenditure or series of related expenditures exceeding
$2,500,000, unless such expenditure or expenditures were specifically approved
by the Board as a part of the Annual Budget, (ii) the nomination of members for
election to the Board, (iii) the filling of vacancies in the Board, the
Executive Committee or other Board committee, and (iv) transactions between the
Company, on the one hand, and any Purchaser or any Affiliate of any Purchaser,
on the other hand. Written or printed notice stating the place, day and hour of
any meeting of the Executive Committee and the purpose or purposes for which the
meeting is called shall be delivered to each member of the
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Executive Committee so that it is received by such member not less than three
days before the date of the meeting. Any action required or permitted to be
taken at a meeting of the Executive Committee may be taken without a meeting if
a consent in writing, setting forth the action so taken, is signed by all the
members of the Executive Committee.
(c) Other Committees. At the Closing, the Company shall take all
necessary action so that one Purchaser Designee who is not an executive officer
of the Company is appointed to serve as a member of each committee of the Board,
other than the Executive Committee.
(d) Certain Officers. Subject to Section 2.1(e), at and after the Closing
Purchaser shall have the right to make all nominations of individuals for
election to the offices of Chief Executive Officer and Chief Financial Officer
of the Company. During the term of the Management Agreement, nominations under
this Section 2.1(d) shall be made by WIC on behalf of Purchaser.
(e) Continuation of Rights. (i) As long as the Purchaser Group
Beneficially Owns 4,600,000 or more Fully-Diluted Shares (excluding shares owned
by the Purchaser Group prior to the Closing Date), Purchaser shall be entitled
to designate in accordance with the provisions hereof three Purchaser Designees
to serve on the Board and the Executive Committee and one Purchaser Designee who
is not an executive officer of the Company to each other committee of the Board.
Otherwise, Purchaser shall be entitled to designate that number of Purchaser
Designees to the Board and the Executive Committee corresponding to the
Purchaser Group's Beneficial Ownership (excluding shares owned by the Purchaser
Group prior to the Closing Date) of Common Stock as set forth below:
Number of Fully-Diluted Shares Number of Purchaser Designees
------------------------------ -----------------------------
From 2,800,000 to 4,600,000 Two
From 800,000 to 2,800,000 One
Less than 800,000 Zero
(ii) At such time as the Purchaser Group Beneficially Owns fewer than
2,800,000 of the Fully-Diluted Shares, Purchaser shall no longer be entitled to
(A) designate the Chairman of the Board, (B) designate a Purchaser Designee to
serve on other committees of the Board in accordance with subsection (c) above
or (C) nominate the Chief Executive Officer and the Chief Financial Officer in
accordance with subsection (d) above.
(iii) As long as Purchaser is entitled to designate Purchaser Designees in
accordance with this Section 2.1, the Company agrees to continue to cause such
Purchaser Designee(s) (or their respective successor(s) designated by Purchaser)
to be nominated for election to the Board at each annual or special meeting of
stockholders at which directors are elected after the Closing when the term of
office of any Purchaser Designee expires. To the extent the Company's proxy
statement for any meeting of stockholders includes a recommendation regarding
the election of any other nominees to the Board, the Company agrees to include a
recommendation that the stockholders also vote in favor of the Purchaser
Designee(s) that are nominated for election to the Board in accordance with this
Section 2.1.
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(iv) (A) Unless clause (B) of this Section 2.1(e)(iv) is applicable, at
any time that the number of Purchaser Designees that Purchaser may
designate decreases by operation of Section 2.1(e)(i) hereof (a
"Designee Reduction"), a Purchaser Designee (or Purchaser Designees,
as the case may be) selected by Purchaser shall cease to be a
Purchaser Designee, though such individual shall continue to serve on
the Board until his successor is duly elected and qualified.
(B) If at the time of a Designee Reduction the Restated
Certificate provides for a classified Board, (1) a Purchaser Designee
(or Purchaser Designees, as the case may be) whose term of office
expires at the next annual meeting of stockholders at which directors
are elected (each an "Expiring Designee") shall cease to be a
Purchaser Designee, though any such individual shall continue to serve
on the Board until his successor is duly elected and qualified,
provided that if the number of Expiring Designees exceeds the amount
of the Designee Reduction, Purchaser shall select the Expiring
Designee(s) that shall cease to be a Purchaser Designee(s) and (2) if
the number of Expiring Designees is less than the amount of the
Designee Reduction, Purchaser shall select an additional Purchaser
Designee (or Purchaser Designees, as the case may be) who shall
promptly resign from the Board, the Executive Committee and any other
Board committee of which he is a member, provided that upon the
affirmative vote of a majority of the remaining members of the Board,
any such individual shall continue to serve on the Board until his
successor is duly elected and qualified. The provisions of this clause
(B) shall automatically terminate at such time as the Restated
Certificate no longer provides for a classified Board.
(v) For purposes of this Section 2.1(e), the number of Fully-Diluted
Shares that must be Beneficially Owned by the Purchaser Group in order for it to
maintain a specified designation or related right shall be appropriately
adjusted from time to time in case the Company shall (A) pay a dividend on
Common Stock in Common Stock, (B) subdivide its outstanding shares of Common
Stock into a greater number of such shares or (C) combine its outstanding shares
of Common Stock into a smaller number of such shares.
(f) Vacancies. If, following an election or appointment to the Board
or committee thereof pursuant to this Section 2.1, any Purchaser Designee shall
resign or be removed or be unable to serve for any reason (other than as a
result of a Designee Reduction) prior to the expiration of his term as a
director of the Company or member of the Executive Committee and any other
applicable committee, then WIC on behalf of Purchaser shall, within 30 days of
such event, notify the Board in writing of a replacement Purchaser Designee, and
the Company shall cause such replacement Purchaser Designee to be appointed to
the Board and the Executive Committee and any other applicable committee to fill
the unexpired term of the Purchaser Designee who such new Purchaser Designee is
replacing.
Section 2.2 Costs and Expenses. The Purchaser Designees shall be
entitled to receive the same compensation and reimbursement of expenses, and to
participate in the same benefit and incentive plans, as the Company provides to
non-employee members of its Board of Directors generally. In addition, the
Company will pay all reasonable out-of-pocket expenses
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incurred by Purchaser Designees in connection with their participation in
meetings of the Board of Directors (and committees thereof) of the Company and
the Boards of Directors (and committees thereof) of the Subsidiaries of the
Company.
Section 2.3 Series C Preferred Directors. Notwithstanding anything herein
to the contrary, the Company and the Board shall approve of and shall take all
actions as may be necessary to elect the directors that the holders of the
Series C Preferred Stock are entitled to elect upon an Event of Noncompliance
(each as defined in the Certificate of Designations) pursuant to Section 10B of
the Certificate of Designations.
Section 2.4 Restated Certificate; Bylaws. The Company shall ensure that
the Restated Certificate and Restated Bylaws as in effect immediately following
the date hereof do not, at any time thereafter, conflict in any respect with the
provisions of this Agreement. In addition, the Company agrees that it will not
amend the Restated Bylaws or adopt a resolution in accordance with the Restated
Bylaws to increase the size of the Board from seven members without the approval
of a majority of the Purchaser Designees, or if only one Purchaser Designee
remains, approval by such remaining Purchaser Designee.
Section 2.5 Other Activities of Purchaser Affiliates; Fiduciary Duties. It
is understood and accepted by the parties to this Agreement that each Purchaser
and its Affiliates have interests in other business ventures which may be in
conflict with the activities of the Company and its Subsidiaries and that,
subject to applicable law, nothing in this Agreement shall limit the current or
future business activities of Affiliates of each Purchaser, whether or not such
activities are competitive with those of the Company and its Subsidiaries;
provided, however, that nothing in this Agreement, express or implied, shall (i)
relieve any officer or director of the Company (including any Purchaser
Designee) or any of its Subsidiaries of any fiduciary or other duties or
obligations they may have to the Company's stockholders or (ii) affect the
obligations of WIC and its Affiliates under the Management Agreement.
Section 2.6 Annual Budget. The senior management of the Company shall
submit to the Board for its approval a strategic plan and budget, including
operating and capital budgets, as may be amended from time to time (the "Annual
Budget"), within 45 days following the date hereof (with respect to calendar
year 2000) and at least 60 days prior to the beginning of each succeeding
calendar year period.
ARTICLE III
REGISTRATION RIGHTS
Section 3.1 Demand Registration.
(a) Request for Registration. At any time WIC on behalf of Purchaser may
request the Company, in writing (a "Demand Request"), to effect the registration
under the Securities Act of all or part of its Registrable Shares (a "Demand
Registration"). Each Demand Request shall specify the number of Registrable
Shares proposed to be sold. Subject to subsection (d) of this Section 3.1, the
Company shall file the Demand Registration within 30 days after receiving a
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Demand Request (the "Required Filing Date"), and shall use all commercially
reasonable efforts to cause such Demand Registration to be declared effective by
the SEC as promptly as practicable after such filing; provided, that the Company
need effect only two Demand Registrations (any of which may be a Shelf
Registration pursuant to Section 3.4 below). It is specifically agreed that the
Demand Registration rights set forth in this Section 3.1 shall be assignable to
any transferee of the Registrable Shares who is a member of the Purchaser Group,
but not otherwise; provided, however, that only WIC or such other Person duly
designated by WIC by written notice to the Company as agent to Purchaser (the
"Purchaser Representative") for the purposes of the giving and receipt of
demands, requests and other communications pursuant to this Section 3.1, shall
be entitled to request the Company to effect the Demand Registration.
(b) Effective Registration and Expenses. A registration will not
count as a Demand Registration until it has become effective; provided, that if,
after it has become effective, an offering of Registrable Shares pursuant to a
registration is interfered with by any stop order, injunction, or other order or
requirement of the SEC or other governmental agency or court, such registration
will be deemed not to have been effected and will not count as a Demand
Registration. Subject to the following sentence, in the event that a Demand
Request is made by WIC or the Purchaser Representative that is subsequently
withdrawn by such persons, all Registration Expenses incurred in connection
therewith shall be borne by Purchaser and such withdrawn Demand Request shall
not be counted as a Demand Registration in determining the number of Demand
Registrations to which Purchaser is entitled pursuant to subsection (a) of this
Section 3.1. In the event that a Demand Request is made by WIC or the Purchaser
Representative that is subsequently withdrawn by such persons, all Registration
Expenses shall be borne by the Company if (i) the Company has not performed its
obligations hereunder in all material respects or (ii) there has been any event,
change or effect which, individually or in the aggregate, has had or would be
reasonably likely to have a Material Adverse Effect; and in such case a
withdrawn Demand Request shall not be counted as a Demand Registration in
determining the number of Demand Registrations to which Purchaser is entitled
pursuant to subsection (a) of this Section 3.1.
(c) Selection of Underwriters. If Purchaser intends to distribute the
Registrable Shares pursuant to a Demand Registration by means of an
underwriting, WIC on behalf of Purchaser shall so advise the Company as part of
the Demand Request and provide the name of the investment banking firm or firms
to manage the underwritten offering; provided that such selection shall be
subject to the consent of the Company, which consent shall not be unreasonably
withheld. If the managing underwriter of such underwritten offering shall
inform the Company and WIC by letter of its belief that the amount of
Registrable Shares requested to be included in such registration exceeds the
amount which can be sold in (or during the time of) such offering within a price
range acceptable to WIC on behalf of Purchaser, then the Company shall only be
required to include in such registration such amount of Registrable Shares which
the Company is so advised can be sold in (or during the time of) such offering.
(d) Deferral of Filing. The Company may defer the filing (but not the
preparation) of a registration statement required by Section 3.1 until a date
not later than 120 days after the Required Filing Date (or, if longer, 120 days
after the effective date of the registration statement contemplated by clause
(ii) below) if at the time the Company receives the Demand Request,
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(i) the Company or any of its Subsidiaries are engaged in or propose to engage
in confidential negotiations or other confidential business activities,
disclosure of which would be required in such registration statement (but would
not be required if such registration statement were not filed), and the Board
determines in good faith that such disclosure would be materially detrimental to
the Company and its stockholders or would have a material adverse effect on any
such confidential negotiations or other confidential business activities, or
(ii) the Company is engaged in or the Board has determined to effect a
registered underwritten public offering of the Company's securities for the
Company's account and the Company had taken substantial steps (including, but
not limited to, selecting a managing underwriter for such offering) and is
proceeding with reasonable diligence to effect such offering (in either case, a
"Deferral Event"). A deferral of the filing of a registration statement
pursuant to this subsection (d) shall be lifted, and the requested registration
statement shall be filed forthwith, if, in the case of a deferral pursuant to
clause (i) of the preceding sentence, the negotiations or other activities are
disclosed or terminated, or, in the case of a deferral pursuant to clause (ii)
of the preceding sentence, the registration for the Company's account is either
consummated or abandoned. In order to defer the filing of a registration
statement pursuant to this subsection (d), the Company shall promptly (but in
any event within five Business Days), upon determining to seek such deferral,
deliver to WIC a certificate signed by an executive officer of the Company
stating that the Company is deferring such filing pursuant to this subsection
(d) and a general statement of the reason for such deferral and an approximation
of the anticipated delay. Within 20 days after receiving such certificate, WIC
on behalf of Purchaser may withdraw such Demand Request by giving notice to the
Company; if withdrawn, the Demand Request shall be deemed not to have been made
for all purposes of this Agreement.
Section 3.2 Piggyback Registrations.
(a) Right to Piggyback. Until such time as the Purchaser Group ceases
to Beneficially Own at least 5% of the Fully-Diluted Shares, each time the
Company proposes to register any of its Common Stock (other than pursuant to an
Excluded Registration) under the Securities Act for sale to the public (whether
for the account of the Company or the account of any securityholder of the
Company) or proposes to make such an offering of Common Stock pursuant to a
previously filed registration statement pursuant to Rule 415 under the
Securities Act and the form of registration statement to be used permits the
registration of Registrable Shares, the Company shall give prompt written notice
to WIC (which notice shall be given not less than 30 days prior to the effective
date of the Company's registration statement), which notice shall offer each
Purchaser the opportunity to include any or all of its Registrable Shares in
such registration statement, subject to the limitations contained in subsection
(b) of this Section 3.2 (a "Piggyback Registration"). If Purchaser desires to
have its Registrable Shares included in such registration statement, WIC on
behalf of Purchaser shall so advise the Company in writing (stating the number
of shares desired to be registered) within 20 days after the date of such notice
from the Company. WIC shall have the right to withdraw its request for
inclusion of Registrable Shares in any registration statement pursuant to this
subsection (a) by giving written notice to the Company of such withdrawal.
Subject to subsection (b) of this Section 3.2, the Company shall include in such
registration statement all such Registrable Shares so requested to be included
therein; provided, however, that the Company may at any time withdraw or cease
proceeding with any such registration if it shall at the same time withdraw or
cease proceeding with the registration of
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Common Stock originally proposed to be registered. It is specifically agreed
that the Piggyback Registration rights set forth in this Section 3.2 shall not
be assignable to any transferee of the Registrable Shares other than members of
the Purchaser Group who own more than 10% of the Registrable Shares; provided,
however, that no member of the Purchaser Group (other than WIC or the Purchaser
Representative) shall be entitled to receive or make notices under this Section
3.2 and; provided, further, that, for purposes of this Section 3.2 only, all
notices delivered to WIC or the Purchaser Representative shall be deemed to have
been given to all members of the Purchaser Group and all notices delivered to
the Company by WIC or the Purchaser Representative shall be deemed to have been
given by the members of the Purchaser Group, except to the extent explicitly
specified in such notice.
(b) Priority on Registrations. If (i) a registration pursuant to
subsection (a) of this Section 3.2 involves an underwritten offering of the
securities being registered to be distributed (on a firm commitment basis) by or
through one or more underwriters of recognized standing under underwriting terms
customary and appropriate for such a transaction and (ii) the lead managing
underwriter of such underwritten offering shall inform the Company and WIC by
letter of its belief that the amount of Registrable Shares requested to be
included in such registration exceeds the amount which can be sold in (or during
the time of) such offering within a price range acceptable to Purchaser, then
the Company will include in such registration such amount of securities which
the Company is so advised can be sold in (or during the time of) such offering
pro rata on the basis of the amount of such Registrable Shares so proposed to be
- --- ----
sold and so requested to be included by the members of the Purchaser Group;
provided, however, that (A) if the underwritten Piggyback Registration is a
primary offering on behalf of the Company, any shares requested to be included
in the registration statement (or registration statements) for any Person other
than members of the Purchaser Group shall be eliminated first prior to any such
pro rata reduction, (B) if the underwritten Piggyback Registration is a
secondary offering on behalf of any holder(s) of Common Stock, the shares
requested to be included therein by the holders requesting such registration and
the Registrable Shares requested to be included by the members of the Purchaser
Group shall be included pro rata on the basis of the number of shares held by
each such holder, and (C) no such reduction shall reduce the securities being
offered by the Company for its own account.
Section 3.3 Obligations of Purchaser. Purchaser shall not
participate in any registration statement hereunder unless each Purchaser agrees
to (i) sell its Registrable Shares on the basis provided in any customary
underwriting arrangements approved by the Company and (ii) complete and execute
all questionnaires, powers of attorney, indemnities, underwriting agreements,
and other documents reasonably required under the terms of such underwriting
arrangements; provided, however, that Purchaser shall not be required to make
any representations or warranties in connection with any such registration other
than representations and warranties as to (A) Purchaser's ownership of
Registrable Shares to be sold or transferred free and clear of all liens,
claims, and encumbrances, (B) Purchaser's power and authority to effect such
transfer, and (C) such matters pertaining to compliance with securities laws as
may be reasonably requested.
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Section 3.4 Shelf Registration.
(a) Upon the written request of WIC on behalf of Purchaser, the
Company shall promptly prepare and file with the SEC (in any case within 30 days
of such written request) a shelf registration statement pursuant to Rule 415
under the Securities Act and shall include therein such Registrable Shares as
WIC shall request (the "Shelf Registration"). The Company shall use
commercially reasonable efforts to cause such Shelf Registration statement to be
declared effective by the SEC. The Company shall keep such Shelf Registration
statement effective until the earlier of such time as (i) all Registrable Shares
have been sold or (ii) one year has elapsed from the effective date of such
Shelf Registration statement (plus a number of days equal to the aggregate
number of days that the Company suspends the disposition of Registrable Shares
under any Shelf Registration pursuant to subsection (b) below). A Shelf
Registration effected pursuant to this Section 3.4 shall count as a Demand
Registration.
(b) The Company may suspend the disposition of Registrable Shares
under any Shelf Registration on any number of occasions for an aggregate period
of up to 120 days in any one-year period with respect to a Deferral Event;
provided, however, that the 120 day period referred to in the immediately
preceding clause shall be reduced for each day the filing of such registration
statement is delayed pursuant to Section 3.1(d) hereunder and; provided further
that a suspension pursuant to this Section 3.4 shall be lifted if such
negotiations or other activities relating to such Deferral Event are disclosed
by the Company or terminated or, in the case of a registered underwritten public
offering for the Company's account, the registration is either consummated or
abandoned. In order to suspend the disposition of Registrable Shares under this
subsection (b), the Company shall promptly but in any event within five Business
Days, upon determining to seek such suspension, deliver to each Holder a
certificate signed by an executive officer of the Company stating that the
Company is suspending the disposition of Registrable Shares hereunder and,
subject to applicable confidentiality agreements, a general statement of the
reason for such suspension and an approximation of the anticipated delay.
Section 3.5 Holdback Agreement. In connection with any underwritten
registration, the Company and each Purchaser agrees, and the Company and each
Purchaser agrees to use their reasonable efforts to cause their respective
Affiliates to agree, not to effect any public sale or private offer or
distribution of any Common Stock or Common Stock Equivalents during the ten
business days prior to the effectiveness under the Securities Act of any
underwritten registration and during such time period after the effectiveness
under the Securities Act of any underwritten registration (not to exceed 90
days) (except, if applicable, as part of such underwritten registration or in
connection with an Excluded Registration) as the Company and the managing
underwriter may agree.
Section 3.6 Registration Procedures. Whenever WIC on behalf of
Purchaser has requested that any Registrable Shares be registered pursuant to
this Agreement, the Company will use its commercially reasonable efforts to
effect the registration and the sale of such Registrable Shares in accordance
with the intended method of disposition thereof, and pursuant thereto the
Company will as expeditiously as possible:
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(a) prepare and file with the SEC a registration statement on any
appropriate form under the Securities Act with respect to such Registrable
Shares and use its commercially reasonable efforts to cause such registration
statement to become effective (provided that at least five days before filing a
registration statement or prospectus or at least two days before filing any
amendments or supplements thereto, the Company shall furnish to the counsel
selected by WIC or the Purchaser Representative copies of all such documents
proposed to be filed, which documents shall be subject to the review and comment
of such counsel);
(b) prepare and file with the SEC such amendments, post-effective
amendments, and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 180 days (or such lesser
period as is necessary for the underwriters in an underwritten offering to sell
unsold allotments or, in the case of a Shelf Registration, such period of time
set forth in Section 3.4(a)) and comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
(c) furnish to each seller of Registrable Shares and the underwriters
of the securities being registered such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus included in
such registration statement (including each preliminary prospectus), any
documents incorporated by reference therein and such other documents as such
seller or underwriters may reasonably request in order to facilitate the
disposition of the Registrable Shares owned by such seller or the sale of such
securities by such underwriters (it being understood that, subject to Section
3.7 and the requirements of the Securities Act and applicable state securities
laws, the Company consents to the use of the prospectus and any amendment or
supplement thereto by each seller and the underwriters in connection with the
offering and sale of the Registrable Shares covered by the registration
statement of which such prospectus, amendment or supplement is a part);
(d) use its commercially reasonable efforts to register or qualify
such Registrable Shares under such other securities or blue sky laws of such
jurisdictions as the managing underwriter reasonably requests; use its
commercially reasonable efforts to keep each such registration or qualification
(or exemption therefrom) effective during the period in which such registration
statement is required to be kept effective; and do any and all other acts and
things which may be reasonably necessary or advisable to enable each seller to
consummate the disposition of the Registrable Shares owned by such seller in
such jurisdictions (provided, however, that the Company will not be required to
(i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph or (ii) consent to
general service of process in any such jurisdiction);
(e) promptly notify each seller and each underwriter and (if requested
by any such Person) confirm such notice in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed and, with
respect to a registration statement or any post-effective amendment, when the
same has become effective, (ii) of the issuance by any state securities or other
regulatory authority of any order suspending the qualification or exemption from
qualification of any of the Registrable Shares under state securities or "blue
sky" laws or
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the initiation of any proceedings for that purpose, and (iii) of the happening
of any event which makes any statement made in a registration statement or
related prospectus untrue or which requires the making of any changes in such
registration statement, prospectus or documents so that they will not 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 not
misleading, and, as promptly as practicable thereafter, prepare and file with
the SEC and furnish a supplement or amendment to such prospectus so that, as
thereafter deliverable to the purchasers of such Registrable Shares, such
prospectus will not contain any untrue statement of a material fact or omit a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(f) make generally available to the Company's security holders an
earnings statement satisfying the provisions of Section 11(a) of the Securities
Act as soon as practicable but no later than 90 days after the end of the 12-
month period beginning with the first day of the Company's first fiscal quarter
commencing after the effective date of a registration statement, which earnings
statement shall cover said 12-month period, and which requirement will be deemed
to be satisfied if the Company timely files complete and accurate information on
Forms 10-Q, 10-K and 8-K under the Exchange Act and otherwise complies with Rule
158 under the Securities Act;
(g) if requested by the managing underwriter or any seller promptly
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriter or any seller reasonably requests to be
included therein, including, without limitation, with respect to the Registrable
Shares being sold by such seller, the purchase price being paid therefor by the
underwriters and with respect to any other terms of the underwritten offering of
the Registrable Shares to be sold in such offering, and promptly make all
required filings of such prospectus supplement or post-effective amendment;
(h) as promptly as practicable after filing with the SEC of any
document which is incorporated by reference into a registration statement (in
the form in which it was incorporated), deliver a copy of each such document to
each seller;
(i) cooperate with the sellers and the managing underwriter to
facilitate the timely preparation and delivery of certificates (which shall not
bear any restrictive legends unless required under applicable law) representing
securities sold under any registration statement, and enable such securities to
be in such denominations and registered in such names as the managing
underwriter or such sellers may request and keep available and make available to
the Company's transfer agent prior to the effectiveness of such registration
statement a supply of such certificates;
(j) promptly make available for inspection by any seller, any
underwriter participating in any disposition pursuant to any registration
statement, and any attorney, accountant or other agent or representative
retained by any such seller or underwriter (collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and properties of the
Company (collectively, the "Records"), as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information requested
by any such Inspector in connection with such registration
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statement; provided, that, unless the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in the registration statement or the
release of such Records is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction, the Company shall not be required to provide
any information under this subparagraph (j) if (1) the Company believes, after
consultation with counsel for the Company, that to do so would cause the Company
to forfeit an attorney-client privilege that was applicable to such information
or (2) if either (A) the Company has requested and been granted from the SEC
confidential treatment of such information contained in any filing with the SEC
or documents provided supplementally or otherwise or (B) the Company reasonably
determines in good faith that such Records are confidential and so notifies the
Inspectors in writing unless prior to furnishing any such information with
respect to clause (1) or (2) each Purchaser agrees to enter into a
confidentiality agreement in customary form and subject to customary exceptions;
and provided, further that each Purchaser agrees that it will, upon learning
that disclosure of such Records is sought in a court of competent jurisdiction,
give notice to the Company and allow the Company at its expense, to undertake
appropriate action and to prevent disclosure of the Records deemed confidential;
(k) furnish to each seller underwriter a signed counterpart of (i) an
opinion or opinions of counsel to the Company, and (ii) a comfort letter or
comfort letters from the Company's independent public accountants, each in
customary form and covering such matters of the type customarily covered by
opinions or comfort letters, as the case may be, as the sellers or managing
underwriter reasonably requests;
(l) cause the Registrable Shares included in any registration
statement to be (i) listed on each securities exchange, if any, on which similar
securities issued by the Company are then listed, or (ii) authorized to be
quoted and/or listed (to the extent applicable) on the National Association of
Securities Dealers, Inc. Automated Quotation System ("Nasdaq") or the Nasdaq
National Market if the Registrable Shares so qualify;
(m) cooperate with each seller and each underwriter participating in
the disposition of such Registrable Shares and their respective counsel in
connection with any filings required to be made with the National Association of
Securities Dealers, Inc. ("NASD");
(n) during the period when the prospectus is required to be delivered
under the Securities Act, promptly file all documents required to be filed with
the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act;
(o) notify each seller of Registrable Shares promptly of any request
by the SEC for the amending or supplementing of such registration statement or
prospectus or for additional information;
(p) prepare and file with the SEC promptly any amendments or
supplements to such registration statement or prospectus which, in the opinion
of counsel for the Company or the managing underwriter, is required in
connection with the distribution of the Registrable Shares;
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(q) enter into such agreements (including underwriting agreements in
the managing underwriter's customary form) as are customary in connection with
an underwritten registration; and
(r) advise each seller of such Registrable Shares, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance of any stop
order by the SEC suspending the effectiveness of such registration statement or
the initiation or threatening of any proceeding for such purpose and promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued.
Section 3.7 Suspension of Dispositions. Each Purchaser agrees that,
upon receipt of any notice (a "Suspension Notice") from the Company of the
happening of any event of the kind described in Section 3.6(e)(iii), each
Purchaser will forthwith discontinue disposition of Registrable Shares until
Purchaser's receipt of the copies of the supplemented or amended prospectus, or
until it is advised in writing (the "Advice") by the Company that the use of the
prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the prospectus, and,
if so directed by the Company, each Purchaser will deliver to the Company all
copies, other than permanent file copies then in Purchaser's possession, of the
prospectus covering such Registrable Shares current at the time of receipt of
such notice. In the event the Company shall give any such notice, the time
period regarding the effectiveness of registration statements set forth in
Sections 3.4 and 3.6(b) hereof shall be extended by the number of days during
the period from and including the date of the giving of the Suspension Notice to
and including the date when each seller of Registrable Shares covered by such
registration statement shall have received the copies of the supplemented or
amended prospectus or the Advice. The Company shall use its commercially
reasonable efforts and take such actions as are reasonably necessary to render
the Advice as promptly as practicable.
Section 3.8 Registration Expenses. All expenses incident to the
Company's performance of or compliance with this Article III, including, without
limitation, (i) all registration and filing fees, (ii) all fees and expenses
associated with filings required to be made with the NASD (including, if
applicable, the fees and expenses of any "qualified independent underwriter" as
such term is defined in Schedule E of the By-Laws of the NASD, and of its
counsel), as may be required by the rules and regulations of the NASD, (iii)
fees and expenses of compliance with securities or "blue sky" laws (including
reasonable fees and disbursements of counsel in connection with "blue sky"
qualifications of the Registrable Shares), (iv) rating agency fees, (v) printing
expenses (including expenses of printing certificates for the Registrable Shares
in a form eligible for deposit with Depository Trust Company and of printing
prospectuses, (vi) messenger and delivery expenses, (vii) the Company's internal
expenses (including without limitation all salaries and expenses of its officers
and employees performing legal or accounting duties), (viii) the fees and
expenses incurred in connection with any listing of the Registrable Shares, (ix)
fees and expenses of counsel for the Company and fees and expenses of the
Company's independent certified public accountants (including the expenses of
any special audit or "cold comfort" letters required by or incident to such
performance), (x) securities acts liability insurance (if the Company elects to
obtain such insurance), (xi) the fees and expenses of any special experts
retained by the Company in connection with such registration, (xii) the fees
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and expenses of other Persons retained by the Company and (xiii) the reasonable
fees and expenses of one counsel selected by WIC and the Purchaser
Representative (all such expenses being herein called "Registration Expenses"),
subject to Section 3.1(b), will be borne by the Company whether or not any
registration statement becomes effective; provided that, Purchaser shall bear
50% of all of the Registration Expenses incurred in connection with the second
Demand Registration that becomes effective hereunder up to a maximum of $100,000
and; provided, further, that, except as expressed otherwise provided above, in
no event shall Registration Expenses include (i) any expenses incurred by each
Purchaser to retain any counsel, accountant or other advisor, (ii) underwriting
discounts, (iii) selling commissions and (iv) transfer taxes.
Section 3.9 Indemnification.
(a) The Company agrees to indemnify and reimburse, to the fullest
extent permitted by law, any member of the Purchaser Group who is not deemed to
control the Company (within the meaning of the Securities Act or the Exchange
Act) and each of such member's employees, advisors, agents, representatives,
partners, members, officers and directors (A) against any and all losses,
claims, damages, liabilities, and expenses, joint or several (including, without
limitation, attorneys' fees and disbursements except as limited by subsection
(c) of this Section 3.9) based upon, arising out of, related to or resulting
from any untrue or alleged untrue statement of a material fact contained in any
registration statement, prospectus, or preliminary prospectus relating to the
offer and sale of Registrable Shares, or any amendment thereof or supplement
thereto, or any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading, (B)
against any and all loss, liability, claim, damage, and expense whatsoever, as
incurred, to the extent of the aggregate amount paid in settlement (effected
with the Company's consent) of any litigation or investigation or proceeding by
any governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon, arising out of or resulting from any such untrue
statement or omission or alleged untrue statement or omission, and (C) against
any and all costs and expenses (including reasonable fees and disbursements of
counsel) as may be reasonably incurred in investigating, preparing, or defending
against any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based upon,
arising out of or resulting from any such untrue statement or omission or
alleged untrue statement or omission, to the extent that any such expense or
cost is not paid under subparagraph (A) or (B) above; except insofar as the same
are made in reliance upon and in strict conformity with information furnished in
writing to the Company by any Purchaser or any member of the Purchaser Group for
use therein or arise from any Purchaser's or any such members' failure to
deliver a copy of the registration statement or prospectus or any amendments or
supplements thereto that would have corrected the actual or alleged untrue
statement or omission after the Company has furnished any Purchaser or any such
member of the Purchaser Group with a sufficient number of copies of the same.
The reimbursements required by this subsection (a) of this Section 3.9 will be
made by periodic payments during the course of the investigation or defense, as
and when bills are received or expenses incurred.
(b) In connection with any registration statement that includes
Registrable Shares, any Purchaser and any member of the Purchaser Group selling
Registrable Shares will furnish to the
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Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and such Purchaser and such member of the Purchaser Group agrees to
indemnify and reimburse the Company and the Company's employees, advisors,
agents, representatives, officers and directors (A) against any and all losses,
claims, damages, liabilities, and expenses, joint or several (including, without
limitation, reasonable attorneys' fees and disbursements except as limited by
subsection (c) of this Section 3.9) based upon, arising out of, related to or
resulting from any untrue statement or alleged untrue statement of a material
fact contained in the registration statement, prospectus, or any preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, (B) against any and all loss,
liability, claim, damage, and expense whatsoever, as incurred, to the extent of
the aggregate amount paid in settlement (effected with Purchaser's consent) of
any litigation or investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim whatsoever based upon, arising
out of or resulting from any such untrue statement or omission or alleged untrue
statement or omission, and (C) against any and all costs and expenses (including
reasonable fees and disbursements of counsel) as may be reasonably incurred in
investigating, preparing, or defending against any litigation, or investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever based upon, arising out of or resulting from any such
untrue statement or omission or alleged untrue statement or omission, to the
extent that any such expense or cost is not paid under subparagraph (A) or (B)
above; but only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with any information or affidavit so furnished in writing by such
Purchaser or member of the Purchaser Group specifically for inclusion in the
registration statement provided that the obligation to indemnify will be
several, not joint and several, among the members of the Purchaser Group selling
Registrable Shares, and the liability of each such seller of Registrable Shares
will be in proportion to, and provided further that such liability will be
limited to, the net amount received by such seller from the sale of Registrable
Shares pursuant to such registration statement; provided, however, that such
seller of Registrable Shares shall not be liable in any such case to the extent
that prior to the filing of any such registration statement or prospectus or
amendment thereof or supplement thereto, such seller has furnished in writing to
the Company information expressly for use in such registration statement or
prospectus or any amendment thereof or supplement thereto which corrected or
made not misleading information previously furnished to the Company. The
reimbursement required by this subsection (b) of this Section 3.9 will be made
by periodic payments during the course of the investigation or defense, as and
when bills are received or expenses incurred.
(c) Any Person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification (provided that the failure to give such notice
shall not limit the rights of such Person except to the extent that the
indemnifying party is prejudiced thereby) and (ii) unless such indemnified party
has been advised by counsel that a conflict of interest between such indemnified
and indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided, however, that any Person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be
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at the expense of such Person unless (A) the indemnifying party has agreed to
pay such fees or expenses, (B) the indemnifying party shall have failed to
assume the defense of such claim and employ counsel reasonably satisfactory to
such Person, (C) the named parties to any such action or proceeding (including
any impleaded parties) include both such indemnified party and the indemnifying
party, and such indemnified party shall have been advised by counsel in writing
that there is a conflict of interest on the part of counsel employed by the
indemnifying party to represent such indemnified party, or (D) the indemnified
party's counsel shall have advised the indemnified party that there are defenses
available to the indemnified party that are different from or in addition to
those available to the indemnifying party and that the indemnifying party is not
able to assert on behalf of or in the name of the indemnified party (in which
case of either (C) or (D), if such indemnified party notifies the indemnifying
party in writing that it elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such action or proceeding on behalf of such indemnified party but
shall have the right to participate through its own counsel. If such defense is
not assumed by the indemnifying party as permitted hereunder, the indemnifying
party will not be subject to any liability for any settlement made by the
indemnified party without its consent (but such consent will not be unreasonably
withheld). If such defense is assumed by the indemnifying party pursuant to the
provisions hereof, such indemnifying party shall not settle or otherwise
compromise the applicable claim unless (1) such settlement or compromise
contains a full and unconditional release of the indemnified party or (2) the
indemnified party otherwise consents in writing. An indemnifying party who is
not entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim unless any
indemnified party shall have been advised by counsel in writing that a conflict
of interest exists between such indemnified party and any other of such
indemnified parties with respect to such claim, in which event the indemnifying
party shall be obligated to pay the reasonable fees and disbursements of such
additional counsel or counsels.
(d) Each party hereto agrees that, if for any reason the
indemnification provisions contemplated by subsection (a) or (b) of this Section
3.9 are unavailable to or insufficient to hold harmless an indemnified party in
respect of any losses, claims, damages, liabilities, or expenses (or actions in
respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, liabilities, or expenses (or actions in respect thereof)
(i) in such proportion as is appropriate to reflect the relative fault of the
indemnifying party and the indemnified party in connection with the actions
which resulted in the losses, claims, damages, liabilities or expenses or (ii)
if the allocation provided by clause (i) is not permitted by applicable law, in
such proportion as is appropriate to reflect the relative benefits of the
indemnified party and the indemnifying party from the offering of the securities
covered by such registration statement as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and indemnified
party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by such
indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The parties hereto agree that it would not be just and
equitable if contribution pursuant to this subsection (d) were determined by pro
rata allocation (even if the sellers or any
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underwriters or all of them were treated as one entity for such purpose) or by
any other method of allocation which does not take account of the equitable
considerations referred to in this subsection (d). The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities,
or expenses (or actions in respect thereof) referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such
indemnified party in connection with investigating or, except as provided in
subsection (c) of this Section 3.9, defending any such action or claim.
Notwithstanding the provisions of this Section 3.9(d), no member of the
Purchaser Group shall be required to contribute an amount greater than the
dollar amount by which the proceeds received by such Person with respect to the
sale of any Registrable Shares exceeds the amount of damages which such Person
has otherwise been required to pay by reason of such statement or omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation. The obligations of the
members of the Purchaser Group in this Section 3.9(d) to contribute shall be
several in proportion to the amount of Registrable Shares registered by them and
not joint.
If indemnification is available under this Section 3.9, the
indemnifying parties shall indemnify each indemnified party to the full extent
provided in subsection (a) and (b) of this Section 3.9 without regard to the
relative fault of said indemnifying party or indemnified party or any other
equitable consideration provided for in this Section 3.9.
Section 3.10 Third Party Registration Rights. The Company is not
party, or otherwise subject, to any agreement granting registration rights to
any other Person with respect to the Equity Securities of the Company. The
Company will not, on or after the date of this Agreement, enter into any
agreement granting (i) demand registration rights to any other Person with
respect to the Equity Securities of the Company, or (ii) piggy-back registration
rights to any other Person that are not junior or subordinate to the rights
granted to the holders of Registrable Shares under Sections 3.1 and 3.2 hereof,
in either case without the prior written consent of WIC or the Purchaser
Representative; and any agreement, amendment, modification or supplement entered
into pursuant to such consent shall not be amended, modified or supplemented
without a further prior written consent.
ARTICLE IV
LIMITATIONS ON CERTAIN TRANSACTIONS
Section 4.1 Limitations on Certain Transactions.
(a) Subject to the provisions of subsection (b) of this Section 4.1,
each Purchaser agrees with the Company that it will not, directly or indirectly,
except as specifically permitted by this Article IV or unless specifically
requested or permitted in writing by the whole Board:
(i) deposit any Shares in a voting trust or grant any proxy with
respect to any Shares to any Person not designated by the Company
(other than a member of the Purchaser Group) or subject any Shares to
any arrangement or agreement with respect to the voting of such
Shares;
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(ii) act with one or more Persons (other than a member of the
Purchaser Group) as a partnership, limited partnership, syndicate or
"group" (as such term is used in Section 13(d)(3) of the Exchange Act)
for the purpose of acquiring, holding, voting or disposing of Shares;
(iii) sell or transfer any of the Preferred Shares or the Warrants
at any time;
(iv) prior to the second anniversary of the Closing Date, sell or
transfer any of the Registrable Shares to any other Person who is not
a member of the Purchaser Group; and
(v) following the second anniversary of the Closing Date, sell
or transfer Registrable Shares to any Person who is not a member of
the Purchaser Group other than pursuant to a public offering conducted
in accordance with Article III hereof or an exemption from the
registration requirements of the Securities Act (including Rule 144
promulgated thereunder); provided, that (x) no more than 10% of the
Fully-Diluted Shares shall be sold to any single Person (other than an
underwriter in a firm commitment underwriting) or Affiliated Group and
(y) during any calendar year no more than 1% of the Fully-Diluted
Shares shall be sold to any single Person (other than an underwriter
in a firm commitment underwriting) or Affiliated Group that to
Purchaser's knowledge (which knowledge shall be presumed if such
Person filed with the SEC a Schedule 13D, Schedule 13G or successor
form prior to the date of such sale) Beneficially Owns at the time of
such proposed sale or transfer more than 5% of the Fully-Diluted
Shares.
(b) Notwithstanding subsection (a) of this Section 4.1, Purchaser may
sell or transfer (i) any of the Preferred Shares, the Warrants or any of the
Registrable Shares pursuant to, as a result of, in connection with (A) a tender
or exchange offer approved, or acceptance of which is recommended, by the Board
or (B) a merger or other business combination with a previously unaffiliated
entity in which the Company is not the surviving or acquiring entity, and (ii)
any of the Registrable Shares to a member of the Purchaser Group; provided that
no such sale or transfer to or among members of the Purchaser Group shall be
effective unless and until any transferee who is not already a party to this
Agreement (and such transferee's spouse, if applicable) shall execute and
deliver to the Company and each Purchaser an agreement in which such transferee
(and such transferee's spouse, if applicable) agrees to be bound by this
Agreement and to observe and comply with this Agreement and with all of the
obligations and restrictions imposed on Purchaser hereby.
Section 4.2 Restrictive Legends.
(a) In addition to any additional legends required by applicable laws
or by the Stock Purchase Agreement or the Warrant Agreement, each certificate
representing the Preferred Shares, the Warrants and the Underlying Common Shares
shall be stamped with the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF AN AGREEMENT BETWEEN CERTAIN STOCKHOLDERS AND
THE CORPORATION WHICH
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INCLUDES RESTRICTIONS ON CERTAIN SALES OF THE SECURITIES. COPIES OF
THE AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF
THE CORPORATION.
(b) Purchaser consents to the Company's making a notation on its
records and giving instructions to any transfer agent of the shares of Common
Stock to implement the restrictions on transfers established in this Agreement.
(c) In the event that any shares referred to in subsection (a) of this
Section 4.2 shall cease to be subject to the restrictions on transfer set forth
in this Agreement, the Company shall, upon the written request of the holder
thereof, issue to such holder a new certificate evidencing such shares without
the legend required by subsection (a) of this Section 4.2.
Section 4.3 Rule 144. The Company shall take all commercially
reasonable actions necessary to enable Purchaser to sell such securities without
registration under the Securities Act pursuant to the provisions of Rule 144.
Upon the request of Purchaser, the Company will deliver to Purchaser a written
statement as to whether it has complied with such requirements.
ARTICLE V
MISCELLANEOUS
Section 5.1 Notices. Any notices or other communications required or
permitted hereunder shall be in writing, and shall be sufficiently given if made
by hand delivery, by telex, by telecopier or registered or certified mail,
postage prepaid, return receipt requested, addressed as follows (or at such
other address as may be substituted by notice given as herein provided):
If to the Company, to:
The Wiser Oil Company
8115 Preston Road, Suite 400
Dallas, Texas 75225
Attention: President
Fax: (214) 373-3610
With a copy to:
Thompson & Knight L.L.P.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
Attention: Steven K. Cochran
Fax: (214) 969-1751
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If to any Purchaser, to:
Wiser Investment Company, LLC
c/o Douglas P. Heller
1629 Locust Street
Philadelphia, PA 19103
Fax: (215) 546-1041
With a copy to:
Andrews & Kurth L.L.P.
600 Travis Street, Suite 4200
Houston, Texas 77002
Attention: Thomas M. Hart III
Fax: (713) 238-7128
Any notice or communication hereunder shall be deemed to have been
given or made as of the date so delivered if personally delivered; when answered
back, if telexed; when receipt is acknowledged, if telecopied; one Business Day
after the date of sending if sent by Federal Express or other major overnight
courier, and five calendar days after mailing if sent by registered or certified
mail (except that a notice of change of address shall not be deemed to have been
given until actually received by the addressee). If a notice or communication
is sent by registered or certified mail, it is duly given, whether or not the
addressee receives it.
Section 5.2 Governing Law; Jurisdiction. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE,
WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE
(WHETHER OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE
THE APPLICATION OF THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.
Section 5.3 Binding Effect; Assignment; No Third Party Benefit. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Except as otherwise
expressly provided in this Agreement, neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other party. Nothing in
this Agreement, except as set forth in Section 3.9 (which is intended for the
benefit of the parties identified therein), express or implied, is intended to
or shall confer upon any other person other than the parties hereto, and their
respective successors and permitted assigns, any rights, benefits, or remedies
of any nature whatsoever under or by reason of this Agreement.
Section 5.4 Independent Determination. From and after the Closing
Date, all decisions on behalf of the Company as to the payment of
indemnification pursuant hereto and otherwise regarding the Company's rights and
obligations pursuant to this Agreement shall be made by majority vote of a
committee of directors of the Company consisting of all directors of the Company
other than (a) the Purchaser Designees and (b) any directors elected by the
holders
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of the Series C Preferred Stock pursuant to the provisions of the Certificate of
Designation; provided, however, that nothing contained in this Section 5.4 shall
prevent any indemnified party from receiving indemnification pursuant to some
other source (such as, by way of example, the Restated Bylaws of the Company in
the event such indemnified party is a director of the Company and such director
seeks indemnification due to circumstances that do not pertain to an alleged
breach of this Agreement), and the determination as to whether indemnification
pursuant to such other source is available shall be made in accordance with the
procedures applicable thereto.
Section 5.5 Counterparts. This Agreement may be executed and
delivered (including by facsimile transmission) in one or more counterparts, all
of which shall be considered one and the same Agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties, it being understood that all parties need
not sign the same counterpart.
Section 5.6 Severability. In case any provision in this Agreement
shall be held invalid, illegal or unenforceable in any respect for any reason,
the validity, legality and enforceability of any such provision in every other
respect and the remaining provisions shall not in any way be affected or
impaired thereby.
Section 5.7 Specific Performance. The parties recognize that in the
event any party should refuse to perform under the provisions of this Agreement,
monetary damages alone would not be adequate. Each of the parties shall
therefore be entitled, in addition to any other remedies which may be available,
including monetary damages, to obtain specific performance of the terms of this
Agreement. In the event of any action to enforce this Agreement specifically,
the parties hereby waive the defense that there is an adequate remedy at law.
Section 5.8 No Waivers; Amendments.
(a) No failure or delay on the part of the Company or any Purchaser in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
any Purchaser at law or in equity or otherwise.
(b) Any provision of this Agreement may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed by the Company and
each Purchaser.
Section 5.9 No Affiliate Liability. The partners, members, officers,
directors, shareholders and Affiliates of each Purchaser, the Company or their
respective Affiliates shall not have any personal liability or obligation to any
Person arising under this Agreement in such capacities.
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Section 5.10 Further Assurances. Each party hereto shall cooperate
and shall take such further action and shall execute and deliver such further
documents as may be reasonably requested by any other party in order to carry
out the provisions and purposes of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, all as of the date first written above.
THE WISER OIL COMPANY
By: _________________________________
Name:____________________________
Title:___________________________
WISER INVESTMENT COMPANY, LLC
By: _________________________________
Name:____________________________
Title:___________________________
[PURCHASER]
By: _________________________________
Name:____________________________
Title:___________________________
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EXHIBIT G
Form of Opinion of Thompson & Knight L.L.P.
All terms used herein but not defined shall have the meanings assigned to
such terms in the Stock Purchase Agreement.
1. The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of Delaware.
2. Each of the Subsidiaries named in Schedule 3.1(b)(i) of the Company
Disclosure Schedule (other than the Cayman Islands Subsidiaries, as to which no
opinion need be expressed) is duly incorporated or formed, as applicable, and is
validly existing as a corporation or limited liability company, as applicable,
and in good standing under the laws of the jurisdiction of its incorporation or
formation, as applicable.
3. All of the issued and outstanding shares of capital stock or
membership interests, as applicable, of each such Subsidiary have been duly and
validly authorized and issued and (in the case of capital stock) are fully paid
and nonassessable, and are owned of record by the Company or another such
Subsidiary, free and clear, to our knowledge, of any adverse claim, except as
disclosed in the Company Disclosure Schedule.
4. The Company has the requisite corporate power and corporate authority
necessary to own its properties and to conduct its business as described in the
Company SEC Documents, and the corporate power and corporate authority to
execute and deliver the Transaction Documents and to perform its obligations
thereunder.
5. The execution and delivery by the Company of the Transaction Documents
and the consummation of the transactions contemplated thereby have been duly
authorized by all requisite corporate action of the Company.
6. The Restated Bylaws have been duly authorized and approved by all
requisite corporate action of the Company.
7. Each of the Stock Purchase Agreement, the Certificate of Designation,
the Stockholder Agreement, the Warrant Purchase Agreement, the Warrant
Agreement, the Management Agreement and the Escrow Agreement constitutes the
valid and legally binding obligation of the Company, enforceable against it in
accordance with its terms, except as the enforceability thereof may be limited
by (a) bankruptcy, insolvency, reorganization, moratorium, liquidation,
rearrangement, fraudulent transfer, fraudulent conveyance and other similar laws
relating to and affecting the rights and remedies of creditors generally, (b)
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity) and (c) public policy considerations with
respect to the enforceability of rights of indemnification.
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8. Each of the Certificate of Designation and the Restated Certificate
has been duly executed and adopted by the Company, has been duly filed with the
Secretary of State of the State of Delaware and has become effective under the
General Corporation Law of the State of Delaware.
9. The execution and delivery by the Company of the Transaction
Documents, the offering, sale and issuance of the Preferred Shares and the
Warrants on the date hereof, the issuance of Common Stock upon conversion of the
Preferred Shares or exercise of the Warrants, the filing of the Certificate of
Designation with the Secretary of State of the State of Delaware and the
performance by the Company of its obligations under the Transaction Documents
will not violate or contravene the Restated Certificate or the Restated Bylaws
of the Company and, except as set forth in the Company Disclosure Schedule, will
not violate, or result in a breach of any of the terms or provisions of,
constitute a default under, result in the imposition of a Lien upon any
properties of the Company, or the imposition or acceleration of any material
obligation, pursuant to (i) any applicable provision of any law, statute or
regulation, (ii) the Credit Facility or the Indenture or (iii) to our knowledge,
any other loan or credit agreement, note, bond, mortgage, indenture, lease or
agreement to which the Company or any of its Subsidiaries is a party or is
otherwise bound.
10. (a) To our knowledge, the Company is not required to obtain any
consent, approval, exemption, authorization or order of any governmental body,
court or agency for the execution or delivery of, or the performance by the
Company of its obligations under, any of the Transaction Documents in connection
with the Closing, except for any such consent, approval, exemption,
authorization or order which has been obtained and such as may be required by
the securities or blue sky laws of the various states.
(b) The Preferred Shares and the Warrants issued on the date hereof
may be offered, sold and issued pursuant to the Transaction Documents without
registration under the Securities Act. The issuance of Common Stock upon
conversion of Preferred Shares or upon exercise of Warrants issued on the date
hereof will not require registration under the Securities Act.
11. (a) The authorized capital stock of the Company consists of
30,000,000 shares of Common Stock, par value $0.01 per share, and 1,300,000
shares of preferred stock, par value $10.00 per share (the "Authorized Preferred
Stock"), which shares of Authorized Preferred Stock may be divided into and
issued in one or more series upon the creation thereof by the Board. As of the
date hereof, (i) shares of Common Stock are issued and outstanding, (ii) no
shares of Authorized Preferred Stock are issued and outstanding, (iii) 20,000
shares of Authorized Preferred Stock have been designated as Series B Preferred
Stock, (iv) 1,000,000 shares of Authorized Preferred Stock have been designated
as Series C Preferred Stock, (v) 20,000 shares of Series B Preferred Stock are
reserved pursuant to the Rights Agreement and (vi) an aggregate of shares of
Common Stock are reserved for issuance pursuant to the Stock Plans. All of the
outstanding shares of capital stock of the Company have been duly authorized and
are validly issued, fully paid and nonassessable.
12. (b) Except as set forth in the Company Disclosure Schedule, to our
knowledge neither the Company nor any of its Subsidiaries has outstanding any
rights or options to subscribe for or to purchase its capital stock or any stock
or securities convertible into or exchangeable for its
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capital stock or any stock appreciation rights or phantom stock plan, other than
pursuant to the Transaction Documents and the Stock Plans. Except as set forth
in the Transaction Documents and the Company Disclosure Schedule, to our
knowledge the Company is not subject to any obligation (contingent or otherwise)
to repurchase, redeem or otherwise acquire or retire for value any shares of its
capital stock or any warrants, options or other rights to acquire its capital
stock.
(c) The issuance of the Preferred Shares on the date hereof pursuant
to the Stock Purchase Agreement has been duly authorized and upon issuance
thereof and payment therefor by Purchaser pursuant to the Stock Purchase
Agreement, such shares will be validly issued, fully paid and nonassessable.
(d) The shares of Common Stock issuable upon the exercise of the
Warrants have been duly authorized and reserved for issuance by the Company and,
when issued and delivered in accordance with the terms of the Warrant Agreement,
will be validly issued, fully paid and nonassessable.
(e) The shares of Common Stock issuable upon the exercise of the
Warrants have been duly authorized and reserved for issuance by the Company
and, when issued, fully paid and nonassessable.
(f) Neither the issuance of the Preferred Shares on the date hereof
nor the issuance of Common Stock upon conversion of the Preferred Shares,
payment of PIK Dividends or exercise of the Warrants is subject to any
preemptive rights or rights of first refusal under (i) the Delaware General
Corporation Law, (ii) the Company's Restated Certificate, or (iii) to our
knowledge, the terms of any agreement to which the Company or any of its
Subsidiaries is a party or is otherwise bound.
12. The Board has taken the actions described in Section 3.1(h) of the
Stock Purchase Agreement.
The opinions in paragraphs 9 and 10 above, to the extent they relate to the
offering, sale and issuance of the Preferred Shares, the Warrants and the
Underlying Common Shares, assume (i) that WIC and each Purchaser are accredited
investors (within the meaning of Rule 501 under the Securities Act) and (ii) the
accuracy of WIC's and each Purchaser's representations, warranties and
agreements set forth in Sections 3.2 and 4.11 of the Stock Purchase Agreement.
The opinions in paragraphs 9(i) and 10(a) above assume the accuracy of the
representation and warranty set forth in Section 3.1(kk) of the Stock Purchase
Agreement.
As used herein, the term "to our knowledge" means (i) no information has
come to the attention of any attorney of this firm who has devoted substantive
attention to matters on behalf of the Company and its Subsidiaries that has
given any such person actual knowledge of the existence
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of such facts, (ii) this firm has not undertaken any independent investigation
to determine the existence or absence of such facts and (iii) no inference as to
this firm's knowledge of the existence of such facts should be drawn from the
fact of this firm's representation of the Company and its Subsidiaries or this
firm's expression of such opinion.
The opinions set forth above are limited in all respects to the General
Corporation Law and the Limited Liability Company Act of the State of Delaware,
the laws of the State of Texas and applicable United States federal law;
provided that, in rendering the opinions expressed in paragraphs 2 and 3 above,
this firm may rely as to matters involving the application of laws of any
jurisdiction other than the State of Texas, the State of Delaware or the United
States, to the extent such firm deems proper and specified in such opinion, upon
the opinion of other counsel of good standing whom such firm believes to be
reliable and who are reasonably satisfactory to counsel for WIC. Insofar as the
matters covered by paragraph 7 above are governed by the laws of the State of
Delaware other than the Delaware General Corporation Law and the Delaware
Limited Liability Company Act, this firm has assumed, without knowing and
without making any investigation to determine, that such laws are the same as
the laws of the State of Texas.
This firm expresses no opinion with respect to the enforceability of any of
the following provisions which may be contained in the Transaction Documents:
(i) provisions that seek to indemnify or release liability to the extent that
such provisions purport to indemnify or release a party from consequences of its
own negligence, recklessness or willful misconduct; (ii) provisions restricting
access to courts or to legal or equitable remedies or purporting to affect the
jurisdiction or venue of courts; (iii) provisions purporting to waive rights to
notice, legal defenses, statutes of limitations or other benefits that cannot be
waived under applicable law; (iv) provisions providing that remedies are
cumulative; (v) provisions that decisions by a party are conclusive; and (vi)
provisions purporting to limit rights of third parties.
In rendering the opinions expressed above, this firm may rely (i) as to
matters involving the number of outstanding shares and the due authorization and
valid issuance of the Company's Common Stock issued on or prior to the date of
consummation of the merger of Petroleum Exploration, a Maine corporation, The
Wiser Oil Company, an Oklahoma corporation, Southern Petroleum Exploration,
Inc., a Delaware corporation, and Petex-Wiser Corporation, a Delaware
corporation, which merger was effected in 1970, and whether such Common Stock
was fully paid and nonassessable when issued, upon the opinion of Reed Smith
Shaw & McClay, which opinion is dated December 29, 1970, a copy of which is
attached hereto, and (ii) as to matters of fact, to the extent such firm deems
proper, on certificates of responsible officers of the Company or its
Subsidiaries or of public officials.
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EXHIBIT H
Form of Opinion of Andrews & Kurth L.L.P.
All terms used herein but not defined shall have the meanings assigned to
such terms in the Stock Purchase Agreement.
1. WIC has been duly formed and is a validly existing limited liability
company in good standing under the laws of the State of Delaware. Each
Purchaser has been duly incorporated or formed and is a validly existing
corporation, partnership or limited liability company, as the case may be, in
good standing under the laws of the state of its incorporation or formation.
2. WIC has the requisite limited liability company power and authority to
execute and deliver the Transaction Documents to which it is a party and to
perform its obligations thereunder. Each Purchaser has the requisite corporate,
partnership or limited liability company, as the case may be, power and
authority to execute and deliver the Transaction Documents to which it is a
party and to perform its obligations thereunder.
3. The execution and delivery by WIC of the Transaction Documents to
which it is a party and the consummation of the transactions contemplated
thereby have been duly authorized by all requisite limited liability company
action of WIC. The execution and delivery by each Purchaser of the Transaction
Documents to which it is a party and the consummation of the transactions
contemplated thereby have been duly authorized by all requisite corporate,
partnership or limited liability company, as the case may be, action of such
Purchaser.
4. Each Transaction Document to which WIC or a Purchaser is a party
constitutes the valid and legally binding obligation of WIC or such Purchaser,
enforceable against it in accordance with its terms, except as the
enforceability thereof may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium, liquidation, rearrangement, fraudulent transfer,
fraudulent conveyance and other similar laws relating to and affecting the
rights and remedies of creditors generally, (b) general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity) and (c) public policy considerations with respect to the enforceability
of rights of indemnification.
5. The execution and delivery by WIC and each Purchaser of the
Transaction Documents to which it is a party and the performance by WIC and each
Purchaser of its obligations under such Transaction Documents will not violate
or contravene the certificate of incorporation, certificate of formation,
bylaws, operating agreement or other organizational documents (as the case may
be) of such person and will not violate, or result in a breach of any of the
terms or provisions of, constitute a default under, result in the imposition of
a Lien upon any properties of such person, or the imposition or acceleration of
any material obligation, pursuant to (i) any applicable provision of any law,
statute or regulation or (ii) to our knowledge, any loan or credit agreement,
note, bond, mortgage, indenture, lease or agreement to which such person is a
party or is otherwise bound.
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6. To our knowledge, WIC and each Purchaser are not required to obtain
any consent, approval, exemption, authorization or order of any governmental
body, court or agency for the execution or delivery of, or the performance by
such person of its obligations under, any of the Transaction Documents to which
it is a party in connection with the Closing, except for any such consent,
approval, exemption, authorization or order which has been obtained.
As used herein, the term "to our knowledge" means (i) no information has
come to the attention of any attorney of this firm who has devoted substantive
attention to matters on behalf of WIC and each Purchaser that has given any such
person actual knowledge of the existence of such facts, (ii) this firm has not
undertaken any independent investigation to determine the existence or absence
of such facts and (iii) no inference as to this firm's knowledge of the
existence of such facts should be drawn from the fact of this firm's
representation of WIC or any Purchaser or this firm's expression of such
opinion.
The opinions in paragraphs 5(i) and 6 above assume the accuracy of the
representation and warranty set forth in Section 3.1(kk) of the Stock Purchase
Agreement.
The opinions set forth above are limited in all respects to the General
Corporation Law and the Limited Liability Company Act of the State of Delaware,
the laws of the State of Texas and applicable United States federal law;
provided that, in rendering the opinions expressed above, this firm may rely as
to matters involving the application of laws of any jurisdiction other than the
State of Texas, the State of Delaware or the United States, to the extent such
firm deems proper and specified in such opinion, upon the opinion of other
counsel of good standing whom such firm believes to be reliable and who are
reasonably satisfactory to counsel for the Company. Insofar as the matters
covered by paragraph 4 above are governed by the laws of the State of Delaware
other than the Delaware General Corporation Law and the Delaware Limited
Liability Company Act, this firm has assumed, without knowing and without making
any investigation to determine, that such laws are the same as the laws of the
State of Texas.
This firm expresses no opinion with respect to the enforceability of any of
the following provisions which may be contained in the Transaction Documents:
(i) provisions that seek to indemnify or release liability to the extent that
such provisions purport to indemnify or release a party from consequences of its
own negligence, recklessness or willful misconduct; (ii) provisions restricting
access to courts or to legal or equitable remedies or purporting to affect the
jurisdiction or venue of courts; (iii) provisions purporting to waive rights to
notice, legal defenses, statutes of limitations or other benefits that cannot be
waived under applicable law; (iv) provisions providing that remedies are
cumulative; (v) provisions that decisions by a party are conclusive; and (vi)
provisions purporting to limit rights of third parties.
In rendering the opinions expressed above, this firm may rely as to matters
of fact, to the extent such firm deems proper, on certificates of responsible
officers of WIC and each Purchaser or of public officials.
-2-
<PAGE>
ANNEX B
WARRANT PURCHASE AGREEMENT
--------------------------
This Warrant Purchase Agreement, dated as of December 13, 1999 (this
"Agreement"), is by and between The Wiser Oil Company, a Delaware corporation
(the "Company"), and Wiser Investment Company, LLC, a Delaware limited liability
company ("WIC").
RECITALS:
WHEREAS, simultaneously with the execution of this Agreement, the Company
and WIC are entering into a Stock Purchase Agreement, dated as of the date
hereof (the "Stock Purchase Agreement"); and
WHEREAS, in connection with the Stock Purchase Agreement and the
transactions contemplated thereby, the Company has agreed to sell and WIC has
agreed to purchase the Warrants (as hereinafter defined) for the consideration
and subject to the terms and conditions set forth herein.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the premises and covenants contained
herein, the Company and WIC agree as follows:
1. Purchase and Sale of Warrants.
-----------------------------
1.1 Purchase and Sale. Upon the terms and subject to the conditions
-----------------
contained in this Agreement, at the Closing, the Company shall issue, sell and
deliver to WIC warrants to purchase 741,716 shares of Common Stock (the
"Warrants") pursuant to a Warrant Agreement by and between the Company and WIC
in the form attached as Exhibit A hereto (the "Warrant Agreement").
---------
1.2 Purchase Price. The aggregate consideration to be delivered by
--------------
WIC to the Company as payment for the Warrants shall be $14,834.32 (the "Warrant
Purchase Price").
1.3 Actions by the Company. At the Closing, the Company agrees to
----------------------
execute the Warrant Agreement.
1.4 Actions by WIC. At the Closing, WIC shall execute the Warrant
--------------
Agreement and pay the Warrant Purchase Price for the Warrants to the Company by
wire transfer of immediately available funds to an account designated by the
Company.
2. Conditions.
----------
2.1 Conditions to Each Party's Obligations. The respective
--------------------------------------
obligations of the Company and WIC hereunder shall be subject to the
satisfaction on or prior to the Closing Date of the conditions set forth in
Section 5.1 of the Stock Purchase Agreement.
<PAGE>
2.2 Conditions to Obligations of WIC. The obligations of WIC to
--------------------------------
purchase the Warrants at the Closing shall be subject to the satisfaction on or
prior to the Closing Date of the conditions set forth in Section 5.2 of the
Stock Purchase Agreement.
2.3 Conditions to Obligations of the Company. The obligations of the
----------------------------------------
Company to issue, sell and deliver the Warrants at the Closing shall be subject
to the satisfaction on or prior to the Closing Date of the conditions set forth
in Section 5.3 of the Stock Purchase Agreement.
3. Miscellaneous.
-------------
3.1 Definitions. Capitalized terms used but not defined herein shall
-----------
have the meanings assigned to them in the Stock Purchase Agreement.
3.2 Notices. All notices or other communications given or made
-------
hereunder shall be governed by Section 9.7 of the Stock Purchase Agreement.
3.3 Entire Agreement. This Agreement, including the Exhibit hereto,
----------------
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof and supersedes all prior and contemporaneous agreements
and understandings, oral or written, between the parties hereto with respect to
such transactions.
3.4 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO
ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF
DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAW
OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.
3.5 Headings. The section, paragraph and other headings contained in
--------
this Agreement are for reference purposes only and shall not be deemed to be a
part of this Agreement or to affect the meaning or interpretation of this
Agreement.
3.6 Assignment. Neither this Agreement nor any interest herein or
----------
right or obligation hereunder may be assigned by the Company or WIC in any
manner, by operation of Law or otherwise, without the prior written consent of
the other party hereto. Notwithstanding the foregoing sentence, prior to the
date of the Stockholders' Meeting, WIC may assign all of its rights, interests
and obligations hereunder to a corporation, partnership or limited liability
company or other entity, provided that (i) the equity ownership of such entity
is limited to WIC, the members of WIC as of the date hereof, or any other
entity whose equity owners are limited to the foregoing and (ii) any such
assignee expressly assumes all of WIC's rights, interests and obligations
hereunder, makes the same representations, warranties, covenants and agreements
made by WIC under Sections 3.2 and 4.11 and Article VIII of the Stock Purchase
Agreement and agrees to become a party to the Stockholder Agreement at Closing,
all pursuant to an instrument of assignment and assumption in form and substance
reasonably satisfactory to the Company, and the Company agrees that following
2
<PAGE>
any such assignment and assumption the Company shall look only to such assignee
in satisfaction of the Company's rights against WIC or the enforcement of the
obligations of WIC hereunder.
3.7 Successors Bound. This Agreement shall be binding upon and inure
----------------
to the benefit of the parties hereto and their respective successors and
assigns.
3.8 Amendment. This Agreement may be amended only by an instrument
---------
in writing executed by all the parties hereto.
3.9 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which shall constitute the
same instrument.
3.10 Termination. This Agreement shall automatically terminate upon
-----------
the termination of the Stock Purchase Agreement pursuant to Article VII thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed as of the date first above written.
COMPANY
The Wiser Oil Company
By: /s/ Andrew J. Shoup Jr.
-------------------------------
Name: Andrew J. Shoup Jr.
Title: President
WIC
Wiser Investment Company, LLC
By: /s/ George K. Hickox, Jr.
-------------------------------
Name: George K. Hickox, Jr.
Title: Authorized Signatory
3
<PAGE>
EXHIBIT A
WARRANT AGREEMENT
THIS WARRANT AGREEMENT ("Warrant Agreement"), dated as of ,
2000, between THE WISER OIL COMPANY, a Delaware corporation (the "Company"), and
WISER INVESTMENT COMPANY, LLC, a Delaware limited liability company ("WIC").
WHEREAS, the Company and WIC have previously entered into that certain
Warrant Purchase Agreement, dated as of December 13, 1999 (as the same may be
amended, supplemented or otherwise modified from time to time, the "Warrant
Purchase Agreement") pursuant to which the Company has agreed to sell, and WIC
has agreed to purchase, the Warrants (as hereinafter defined), subject to the
terms and conditions set forth therein; and
WHEREAS, on the date hereof the Company and WIC are entering into that
certain Stockholder Agreement dated as of the date hereof, pursuant to which WIC
has agreed, among other things, to certain transfer restrictions with respect to
the Warrants and the Warrant Shares (as hereinafter defined).
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
Section 1. Warrants. The Company hereby issues to WIC warrants (the
--------- --------
"Initial Warrants") to purchase 741,716 fully paid and nonassessable shares,
subject to adjustment as provided in Section 3 hereof (the "Initial Warrant
Shares"), of the Company's Common Stock, par value $0.01 per share (the "Common
Stock"), at the Purchase Price (as hereinafter defined).
Section 2. Duration and Exercise of Warrants.
--------- ---------------------------------
(a) The initial purchase price for the Initial Warrant Shares, commencing
as of the date hereof, shall be $4.25 per share of Common Stock, which purchase
price shall hereafter be subject to adjustment as provided in Section 3 hereof.
Except as the context otherwise requires, the term "Purchase Price" as used in
this Warrant Agreement shall mean the Purchase Price per share of Common Stock
then in effect as of the relevant date and shall reflect all adjustments made in
accordance with the provisions of Section 3 hereof. "Aggregate Purchase Price"
means the aggregate purchase price payable for the shares of Common Stock
purchasable under this Warrant Agreement.
(b) WIC may exercise the Warrants in whole at any time or in part from
time to time (i) on or after the second anniversary of the date of this Warrant
Agreement and (ii) at or prior to the close of business on the seventh
anniversary of the date of this Warrant Agreement.
(c) WIC may exercise all or any portion of the Warrants by either of the
following methods:
<PAGE>
(i) If electing to pay the Purchase Price in cash, WIC shall deliver
the Form of Exercise attached hereto as Exhibit A to the Company at the
address set forth in Section 12 hereof, together with payment of the
Aggregate Purchase Price, or the proportionate part thereof if only a
portion of the Warrants are exercised. Payment may be made in the form of
cash, or by certified check, bank draft or money order payable in lawful
money of the United States of America to the order of the Company; or
(ii) If electing to pay the Purchase Price by surrendering a portion
of the Warrants (a "Cashless Exercise"), WIC shall deliver the Form of
Exercise attached hereto as Exhibit A to the Company at the address set
forth in Section 12 hereof, indicating its election on such form. In the
event of a Cashless Exercise, WIC shall exchange the Warrants being
exercised for that number of shares of Common Stock equal to (x) the number
of shares of Common Stock subject to such Warrants, multiplied by (y) a
fraction, the numerator of which shall be the then current market price per
share of Common Stock minus the Purchase Price, and the denominator of
which shall be the then current market price per share of Common Stock.
Notwithstanding the foregoing, (A) a Cashless Exercise may only be effected
as of a date on which the then current market price per share of Common
Stock exceeds the Purchase Price, and (B) the Company shall have no
obligation to issue shares of Common Stock for a consideration less than
the aggregate par value of the shares of Common Stock then issued. For the
purpose of any computation under this subsection only, the current market
price per share of Common Stock at any date shall be deemed to be the
closing sale price (or if no sale price is available, the average of the
last reported bid and asked prices) in the principal market in which the
Common Stock is traded on the trading day immediately preceding the day
upon which such Warrants are exercised.
(d) Within five business days after receipt of such notice and payment,
the Company shall issue to WIC the number of whole shares of Common Stock to be
purchased, together with cash made available by the Company pursuant to Section
4 hereof in respect of any fraction of a share of Common Stock otherwise
issuable upon such exercise.
Section 3. Adjustments to Number of Shares and Purchase Price. The number
--------- --------------------------------------------------
of shares of Common Stock issuable upon exercise of Warrants under this Warrant
Agreement and the Purchase Price shall be subject to adjustment from time to
time after the date hereof and prior to the earlier of the exercise in full of
all Warrants then outstanding and the close of business on the seventh
anniversary of the date of this Warrant Agreement, as follows:
(a) If the Company shall issue any shares of Common Stock (including
shares held in treasury) after the date hereof (other than shares of Common
Stock issued (i) pursuant to this Warrant Agreement, (ii) as described in
Subsections (b)(i) and (ii) below or pursuant to any interests, evidences of
indebtedness, rights or warrants distributed as described in Subsection (d)
below, (iii) pursuant to the terms of the Company's Series C Cumulative
Convertible Preferred Stock issued by the Company pursuant to that certain Stock
Purchase Agreement, dated December 13, 1999, between the Company and WIC, or
(iv) pursuant to awards granted after the date hereof under the Company's stock
option plans or other director, officer or employee equity compensation plans,
contracts or
-2-
<PAGE>
arrangements) ("Additional Stock"), then the Company shall issue to WIC
additional warrants ("Additional Warrants" and, together with the Initial
Warrants, the "Warrants") to purchase an additional number of shares of Common
Stock under this Warrant Agreement ("Additional Warrant Shares" and, together
with the Initial Warrant Shares, the "Warrant Shares") determined by (x)
multiplying the number of shares purchasable under this Warrant Agreement
immediately prior to such issuance of Additional Stock times a fraction, of
which the numerator shall be the number of shares of Common Stock outstanding
immediately after the issuance of such Additional Stock and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such Additional Stock and (y) subtracting
therefrom the number of shares purchasable under this Warrant Agreement
immediately prior to such issuance of Additional Stock. With respect to each
issuance of Additional Stock, the Purchase Price of the Additional Warrant
Shares purchasable pursuant to this Section 3(a) as a result of such issuance
shall be determined based upon the date on which such Additional Stock is
issued, as set forth in Exhibit B. The Purchase Price and number of Additional
---------
Warrant Shares purchasable pursuant to this subsection (a) as determined for
each Additional Stock issuance shall be fixed at the time of such issuance of
Additional Stock, subject to further adjustment pursuant to the provisions of
this Section 3.
(b) In case the Company shall (i) pay a dividend on Common Stock in Common
Stock, (ii) subdivide its outstanding shares of Common Stock into a greater
number of such shares, or (iii) combine its outstanding shares of Common Stock
into a smaller number of such shares, the total number of shares of Common Stock
issuable upon the exercise of Warrants under this Warrant Agreement outstanding
immediately prior thereto shall be adjusted so that WIC thereafter shall be
entitled to receive upon exercise of the unexercised Warrants, at the same
Aggregate Purchase Price (as in effect at the time of such event and from time
to thereafter), the number of shares of Common Stock that WIC would have owned
or have been entitled to receive immediately following any of the events
described above had such Warrants been exercised in full immediately prior to
any such event. An adjustment made pursuant to this subsection shall, in the
case of a dividend on Common Stock in Common Stock, become effective as of the
record date therefor and, in the case of a subdivision or combination, be made
as of the effective date thereof.
(c) In the event of any adjustment of the total number of shares of Common
Stock issuable upon the exercise of the unexercised Warrants pursuant to Section
3(b) above, the Purchase Price applicable to the Initial Warrant Shares and any
Additional Warrant Shares (in effect immediately prior to such adjustment) shall
be proportionately adjusted.
(d) In case the Company shall distribute to all holders of its Common
Stock (the "Company Shareholders") interests in the Company (other than Common
Stock), evidences of its indebtedness or assets (excluding cash dividends or
distributions), or rights or warrants to subscribe for or purchase such
interests, evidences of indebtedness or assets, then in each such case the
Purchase Price applicable to each Initial Warrant Share and each Additional
Warrant Share in effect thereafter shall be determined by multiplying the
Purchase Price applicable to each Initial Warrant Share and each Additional
Warrant Share (as in effect immediately prior thereto) by a fraction, of which
the numerator shall be the total number of outstanding shares of Common Stock
multiplied by the current market price per share of Common Stock (as defined in
Section 3(f) below) on the
-3-
<PAGE>
record date mentioned below, less the then fair market value, as reasonably
determined by the Company, of the interests, evidences of indebtedness, assets
or rights or warrants so distributed to all such holders, and of which the
denominator shall be the total number of outstanding shares of Common Stock,
multiplied by such current market price per share of Common Stock. Such
adjustments shall be made whenever any such distribution is made, and shall
become effective as of the record date for the determination of the Company
Shareholders entitled to receive such distribution.
(e) In the event of any capital reorganization of the Company or any
reclassification of the Common Stock (except as provided in Section 3(b) or (d)
above or Section 3(h) below), WIC, upon exercise of its Warrants, shall be
entitled to receive, in lieu of the shares of Common Stock to which WIC would
have become entitled upon exercise immediately prior to the reorganization or
reclassification, the shares of Common Stock, or other interests in the Company
or property of the Company that it would have been entitled to receive at the
same Aggregate Purchase Price upon such reorganization or reclassification if
its Warrants had been exercised immediately prior thereto; and in any such case,
appropriate provision (as reasonably determined by the Board of Directors of the
Company) shall be made for the application of this Section 3 with respect to the
rights and interests thereafter of the unexercised Warrants (including but not
limited to the allocation of the adjusted Purchase Price between or among shares
of Common Stock and any other interests in the Company), to the end that this
Section 3 (including the adjustments of the number of shares of Common Stock or
other interests in the Company purchasable and the Purchase Price thereof) shall
thereafter be reflected, as nearly as reasonably practicable, in all subsequent
exercises of the Warrants for any shares of Common Stock or other interests in
the Company, or other property, thereafter deliverable upon the exercise of the
Warrants.
(f) For the purpose of any computation under Section 3(d) above, the
current market price per share of Common Stock at any date shall be deemed to be
the average of the daily closing sale prices (or, if no sale price is reported
on a particular day, the average of the last reported bid and asked prices for
such day) for the 20 consecutive trading days before the day in question in the
principal market in which the Common Stock is traded.
(g) No adjustments shall be made for any cash distributions, whether paid
or declared. No adjustment under this Section 3 to the Purchase Price or the
number of Warrant Shares purchasable hereunder shall be made unless such
adjustment would require an increase or decrease of at least one percent in the
Aggregate Purchase Price or number of Warrant Shares; provided, however, that
any adjustments which by reason of this subsection are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 3 shall be made to the nearest cent or to
the nearest one-hundredth of one share of Common Stock as the case may be.
(h) (i) In case of any consolidation of the Company with, or merger of
the Company with or into, another corporation or any other entity (other
than a consolidation or merger that does not result in any reclassification
or change of the outstanding Common Stock), or in case of any sale or
conveyance to another entity of the property of the Company as an entirety
-4-
<PAGE>
or substantially as an entirety (a "Corporate Change"), then as a condition
to such Corporate Change, the corporation or any other entity formed by
such consolidation or merger or the entity that shall have acquired such
assets, as the case may be, shall execute and deliver to WIC a supplemental
warrant agreement providing that WIC shall have the right thereafter to
receive, upon exercise of the then unexercised Warrants, the kind and
amount of corporate interests and other securities and property receivable
upon such Corporate Change by a holder of the number of shares of Common
Stock for which such Warrants might have been exercised immediately prior
to such Corporate Change. Such supplemental warrant agreement shall
provide for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided in this Section 3. The above
provision of this subsection shall similarly apply to any subsequent
Corporate Change.
(ii) Notwithstanding the provisions of Section 2(b)(i) of this Warrant
Agreement, in the event that the Company notifies WIC of a Corporate Change
pursuant to Section 5(b) of this Warrant Agreement, WIC shall have the
right, for a period of 30 days immediately prior to the consummation of
such Corporate Change, to exercise the Warrants in whole or in part,
provided that such exercise shall be contingent upon the consummation of
such Corporate Change if such consummation occurs prior to the second
anniversary of the date hereof.
Section 4. Fractional Interests. The Company shall not be required to
--------- --------------------
issue any fractions of shares of Common Stock upon the exercise of the Warrants.
If any fraction (calculated to the nearest one-hundredth) of a share of Common
Stock would, except for the provisions of this Section 4, be issuable upon the
exercise of any Warrant, the Company shall purchase such fraction for an amount
in cash equal to the current value of such fraction computed on the basis of the
closing sale price (or if no sale price is available, the average of the last
reported bid and asked prices) on the trading day immediately preceding the day
upon which such Warrant was exercised in accordance with Section 2 hereof.
Section 5. Certain Notices.
--------- ---------------
(a) Whenever the number of Warrant Shares into which a Warrant is
exercisable is to be adjusted, or the Purchase Price is to be adjusted, in
either case as herein provided, the Company shall compute the adjustment in
accordance with Section 3, and shall, promptly after such adjustment becomes
effective, cause a notice of such adjustment or adjustments to be given to WIC
in accordance with Section 12 and shall deliver to WIC a certificate of the
Chief Financial Officer of the Company setting forth the number of Warrant
Shares into which each Warrant is exercisable after such adjustment, or the
adjusted Purchase Price, as the case may be, and setting forth in brief a
statement of the facts requiring such adjustment and the computation by which
such adjustment was made.
(b) If prior to the second anniversary of the date hereof, (i) the Company
executes a definitive agreement with respect to a Corporate Change or (ii) the
occurrence of a Corporate Change otherwise becomes probable, the Company shall
promptly notify WIC of such Corporate Change in
-5-
<PAGE>
accordance with Section 12, which notice shall describe in reasonable detail the
nature of the Corporate Change and the last day upon which WIC may exercise
Warrants pursuant to Section 3(h)(ii).
Section 6. Reservation and Authorization of Warrant Shares.
--------- -----------------------------------------------
(a) The Company shall at all times reserve and keep available, free from
preemptive rights, solely for issue upon the exercise of Warrants as herein
provided, such number of its authorized but unissued Warrant Shares deliverable
upon the exercise of Warrants as will be sufficient to permit the exercise in
full of all outstanding Warrants.
(b) The Company will use its best efforts so that all Initial Warrant
Shares are and all Additional Warrant Shares will be, at all times that Warrants
are exercisable, duly approved for listing subject to official notice of
issuance on each securities exchange, if any, or the Nasdaq National Market, if
applicable, on which the shares of Common Stock are then listed or traded.
(c) The Company covenants that all Warrant Shares that may be issued upon
due exercise of Warrants shall upon issuance be duly and validly authorized and
issued, fully paid and nonassessable and free of preemptive or similar rights.
Section 7. Payment of Taxes. The Company covenants and agrees that it
--------- ----------------
will pay all stamp, transfer and similar taxes in connection with the issuance,
sale and delivery of the Warrants hereunder, as well as all such taxes
attributable to the initial issuance of Warrant Shares upon the exercise of the
Warrants and payment of the appropriate Purchase Price. The Company will not,
however, be required to pay any such taxes imposed in connection with any
transfer of any Warrants or Warrant Shares or any federal or state income taxes
payable in respect of WIC's purchase, ownership, sale, transfer, exercise or
other disposition of Warrants or Warrant Shares.
Section 8. No Rights as a Company Shareholder. This Warrant Agreement and
--------- ----------------------------------
the Warrants shall not be deemed to provide WIC with any rights as a shareholder
of the Company or to confer to WIC any right to vote upon any matter submitted
to the Company Shareholders, or to give or withhold consent to any corporate
action (whether upon any recapitalization, issuance of Common Stock,
reclassification of Common Stock, consolidation, merger, conveyance or
otherwise), or to receive notice of meetings or other actions affecting the
Company Shareholders or to receive distributions or subscription rights, or
allocations of any corporate items of income, gain, loss, deduction or credit,
or notice of Internal Revenue Service proceedings or adjustments, or otherwise.
Section 9. Regulatory Approvals and Listings.
--------- ---------------------------------
Notwithstanding anything contained in this Warrant Agreement to the
contrary, the Company shall have no obligation to issue or deliver certificates
of Common Stock upon the exercise of any Warrant prior to (i) the obtaining of
any approval of any governmental agency that the Company shall, in its
reasonable discretion, determine to be necessary or advisable, (ii) the
admission of such
-6-
<PAGE>
shares to listing on any securities exchange on which the Common Stock is then
listed and (iii) the completion of any registration or other qualification of
such shares under any state or federal law or ruling of any governmental body
that the Company shall, in its reasonable discretion, determine to be necessary
or advisable. The Company agrees to take such action as may be required to
satisfy such conditions as to permit the exercise of the Warrants.
Section 10. Assignment and Transfer. The rights and interest of WIC under
---------- -----------------------
this Warrant Agreement, the Warrants granted hereunder and the Warrant Shares
issuable upon exercise of the Warrants, may not be assigned, encumbered or
transferred, except in accordance with the Stockholder Agreement.
Section 11. Amendments and Waivers. This Warrant Agreement may be
---------- ----------------------
amended, supplemented, waived, discharged or terminated by a written instrument
signed by WIC and the Company.
Section 12. Notices. All notices, requests, communications or demands
---------- -------
pursuant to this Warrant Agreement to be given to or made on the Company, or to
be given to or made on WIC, shall be in writing, and may be given or made if
sent by registered or certified United States mail, postage prepaid, at the
addresses specified below. Notice deposited in the mail as herein provided
shall be effective from and after the expiration of three days after it is so
deposited. The mailing addresses of the parties are as follows:
Company: The Wiser Oil Company
8115 Preston Road, Suite 400
Dallas, Texas 75225
Attention: President
WIC: Wiser Investment Company, LLC
c/o Douglas P. Heller
1629 Locust Street
Philadelphia, Pennsylvania 19103
The address of either party may be changed by notice given to the other
party in the manner provided in this Section 12.
Section 13. Successors. All of the covenants and provisions of this
---------- ----------
Warrant Agreement by or for the benefit of the Company or WIC shall bind and
inure to the benefit of their respective successors and assigns hereunder.
-7-
<PAGE>
Section 14. Choice of Law. THIS WARRANT AGREEMENT SHALL BE GOVERNED BY
---------- -------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER
OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE
APPLICATION OF THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.
Section 15. Counterparts. This Warrant Agreement may be executed in any
---------- ------------
number of counterparts, each of which shall be an original; but such
counterparts shall together constitute one and the same instrument.
-8-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Agreement to be
duly executed as of the day and year first above written, by its proper
corporate officers, thereunto duly authorized.
THE WISER OIL COMPANY
By:___________________________________
Name:_________________________________
Title:________________________________
Agreed to and Accepted this
____ day of _______________, 2000
WISER INVESTMENT COMPANY, LLC
By:_________________________________
Name:_______________________________
Title:______________________________
-9-
<PAGE>
EXHIBIT A
Form of Exercise
----------------
In accordance with and subject to the terms and conditions hereof and of
the Warrant Agreement dated as of _____________, 2000 (the "Warrant Agreement"),
between The Wiser Oil Company (the "Company") and Wiser Investment Company, LLC
("WIC"), the undersigned hereby irrevocably elects to exercise
____________________ Warrants (as defined in the Warrant Agreement) and
represents that WIC has tendered the Aggregate Purchase Price (as defined in the
Warrant Agreement), or the proportionate part thereof, for the Warrants being
exercised hereby in the aggregate amount of $_________ in the indicated
combination of:
(i) cash ($____________);
(ii) certified bank check in funds payable to the order of the
Company ($______);
(iii) official bank check in funds payable to the order of the
Company ($______);
(iv) money order in funds payable to the order of the Company
($_____); or
(v) "cashless" exercise with respect to ________ Warrants pursuant
to Section 2(c)(ii) of the Warrant Agreement.
The undersigned requests that the shares of Common Stock issuable upon
exercise be in such denominations and registered in such names and delivered,
together with any other property receivable upon exercise, in such manner as is
specified in the instructions set forth below.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
The Company hereby acknowledges that upon exercise of these Warrants, the
following Warrants have not been exercised or surrendered and are still
outstanding:
______ Initial Warrant Shares with a Purchase Price per Warrant Share of $______
______ Additional Warrant Shares with a Purchase Price per Warrant Share of
$______
______ Additional Warrant Shares with a Purchase Price per Warrant Share of
$______
Exhibit A-1
<PAGE>
IN WITNESS WHEREOF, WIC has caused this Form of Exercise to be duly
executed on this ______ day of __________________, 20_____.
WISER INVESTMENT COMPANY, LLC
By:___________________________________
Name:_________________________________
Title:________________________________
Address:______________________________
______________________________________
______________________________________
The above Form of Exercise is confirmed and accepted
this ______ day of ____________, 20__.
THE WISER OIL COMPANY
By: ________________________________
________________________________
________________________________
Exhibit A-2
<PAGE>
EXHIBIT B
Purchase Price Schedule
-----------------------
Year of Issuance Purchase Price
of Additional Stock(1) for Additional Warrant Shares(2)(3)
------------------- -----------------------------
Year 1 $4.250 +(.425x(n/365))
Year 2 $4.675 +(.468x(n/365))
Year 3 $5.143 +(.514x(n/365))
Year 4 $5.657 +(.565x(n/365))
Year 5 $6.222 +(.623x(n/365))
Year 6 $6.845 +(.684x(n/365))
Year 7 $7.529 +(.753x(n/365))
(1) Year 1 shall commence on the date of this Warrant Agreement and shall
continue through the first anniversary thereof. Each of Years 2 through 7
shall commence the day following the previous anniversary and shall
continue through the following anniversary.
(2) n = the number of days elapsed in such Year, up to and including the date
that the Additional Stock is issued.
(3) All calculations shall be rounded to the nearest thousandth.
Exhibit B-1
<PAGE>
Annex C
RESTATED CERTIFICATE OF INCORPORATION
OF
THE WISER OIL COMPANY
The Wiser Oil Company, a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The present name of the Corporation is The Wiser Oil Company. The
Corporation was originally incorporated under the name Petex-Wiser Corporation,
the original Certificate of Incorporation having been filed with the Secretary
of State of Delaware on September 16, 1970.
2. The within Restated Certificate of Incorporation restates and
integrates and also further amends the provisions of the Corporation's
Certificate of Incorporation as heretofore amended or supplemented. The within
Restated Certificate of Incorporation was duly adopted in accordance with the
provisions of Section 245 of the General Corporation Law of the State of
Delaware.
3. The text of the Corporation's Certificate of Incorporation as
heretofore amended or supplemented is hereby restated and further amended to
read in its entirety as follows:
First: The name of the Corporation is The Wiser Oil Company.
Second: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle. The
name of its registered agent at such address is The Corporation Trust Company.
Third: The nature of the business and purposes to be conducted and promoted
by the Corporation is to conduct any lawful business, to promote any lawful
purpose and to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
Fourth: The aggregate number of shares of all classes of capital stock
which the Corporation shall have authority to issue is 31,300,000 shares, of
which 30,000,000 shares shall be Common Stock of the par value of $.01 per share
and 1,300,000 shares shall be Preferred Stock of the par value of $10 per share.
Upon the filing of this Restated Certificate of Incorporation with the Secretary
of State of Delaware, each outstanding and treasury share of Common Stock, par
value $3 per share, of the Corporation is hereby immediately and automatically
reclassified as and converted into one outstanding or treasury share of new
Common Stock of the par value of $.01 per share. Each person who, at the time
of such filing, is
<PAGE>
the holder of a certificate or certificates evidencing shares of the then
outstanding Common Stock of the Corporation will thereafter be entitled, upon
surrendering such person's certificates to the Corporation at its principal
place of business, to receive in exchange therefor one or more certificates
representing the number of shares of the new Common Stock of the Corporation
into which such person's aggregate number of shares of Common Stock will have
been so reclassified and converted.
The Preferred Stock may be issued from time to time in one or more series.
Each series of Preferred Stock shall be distinctively designated by letter or
descriptive words. All series of Preferred Stock shall rank equally and be
identical in all respects except as set forth in the resolutions of the Board of
Directors of the Corporation providing for the issue of such stock.
Authority is hereby expressly vested in the Board of Directors from time to
time to issue the Preferred Stock as Preferred Stock of any series, and in
connection with the creation of each such series to fix by resolution or
resolutions providing for the issue of shares thereof the voting powers, if any,
the designation, the preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions, of such
series to the full extent now or hereafter permitted by the laws of the State of
Delaware.
Fifth: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation and for the
purpose of creating, defining, limiting and regulating the powers of the
Corporation and its directors and stockholders:
(a) Elections of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
(b) The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of
Incorporation, and to merge, sell its assets and take other
corporate action, to the extent and in the manner now or
hereafter permitted or prescribed by statute, and all rights
conferred upon stockholders herein are granted subject to this
reservation.
Sixth: 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 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
2
<PAGE>
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorgani zation of this Corporation as 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.
Seventh:
Section 7.1. Management of Business and Affairs. The business and affairs
of the Corporation shall be managed by or under the direction of a Board of
Directors.
Section 7.2. Composition of Board. The Board of Directors shall be
comprised as follows:
(a) Number. The whole Board of Directors shall consist of such number
of persons, not less than 3 nor more than 14, as may from time to time be
determined by the Board pursuant to a resolution adopted by a two-thirds
vote of all the directors in office.
(b) Classification; Term of Office. Beginning with the Board of
Directors to be elected at the annual meeting of stockholders to be held in
1985, the directors shall be classified, in respect to the time for which
they shall severally hold office, by dividing them into three classes, each
such class to be as nearly equal in number as possible. At the annual
meeting of stockholders to be held in 1985, separate elections shall be
held for the directors of each class, the term of office of directors of
the first class to expire at the first annual meeting after their election;
the term of office of the directors of the second class to expire at the
second annual meeting after their election; and the term of office of the
directors of the third class to expire at the third annual meeting after
their election. At each succeeding annual meeting, the stockholders shall
elect directors of the class whose term then expires, to hold office until
the third succeeding annual meeting. Each director shall hold office for
the term for which elected and until his or her successor is elected and
qualified or until his or her earlier resignation or removal.
(c) Removal of Directors. Stockholders may remove a director or the
entire Board of Directors from office at any time only for cause and only
by vote of two-thirds of the Voting Power of the outstanding shares of
Voting Stock of the Corporation, voting together as a single class. The
term "Voting Stock" at any time shall mean the outstanding shares of
capital stock of the Corporation entitled to vote at its next annual
election of directors (without consideration of the rights of any class of
stock other than the Common Stock to elect directors by a separate class
vote); and a specified percentage of "Voting Power", with reference to any
matter being voted upon by the stockholders, shall mean such number of
shares of stock as shall enable the holders thereof to cast such percentage
of the total number of votes entitled to be cast by holders of shares
entitled to vote thereon.
(d) Vacancies. Vacancies in the Board of Directors, including newly
created
3
<PAGE>
directorships resulting from an increase in the number of directors, shall
be filled only by a two-thirds vote of all the directors in office. All
directors elected to fill vacancies shall hold office for a term expiring
at the annual meeting of stockholders at which the term of the class to
which they have been elected expires. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of an
incumbent director.
(e) Preferred Stock Directors. If at any time the holders of any
class or series of Preferred Stock shall have the right, voting separately
as a class, to elect one or more directors of the Corporation, none of the
foregoing provisions of this Section 7.2 shall apply with respect to the
director or directors elected by such holders of Preferred Stock.
Eighth:
Section 8.1. Bylaws. The Board of Directors shall have the power to
adopt, amend or repeal Bylaws of the Corporation, except to the extent that
Bylaws adopted by the stockholders may otherwise provide. No Bylaws may be
adopted, amended or repealed by the stockholders unless such action is approved
by the vote of two-thirds of the Voting Power of the outstanding shares of
Voting Stock of the Corporation, voting together as a single class.
Section 8.2. Amendments to Restated Certificate of Incorporation. Subject
to the voting rights given to any particular class or series of Preferred Stock
by the Board of Directors pursuant to Article Fourth of this Restated
Certificate of Incorporation, and except as may be specifically provided to the
contrary in any other provision in this Restated Certificate of Incorporation
with respect to amendment or repeal of such provision, the vote of two-thirds of
the Voting Power of the outstanding shares of Voting Stock of the Corporation,
voting together as a single class, shall be required to amend the provisions of
Articles Seventh and Eighth of this Restated Certificate of Incorporation or
delete any provision of such Articles.
Section 8.3. Stockholder Meetings. Subject to the rights of the holders
of any class or series of Preferred Stock to take action separately as a class,
any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of such
stockholders and may not be effected without a meeting by any consent in writing
by such stockholders. Except as otherwise required by law and subject to the
rights of the holders of any class or series of Preferred Stock, special
meetings of stockholders of the Corporation may be called only by the Chairman
of the Board, the President or the Board of Directors.
Ninth: To the fullest extent permitted by the General Corporation Law of
the State of Delaware as the same now exists or may hereafter be amended, 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.
Tenth:
4
<PAGE>
Section 10.1. Indemnification of Directors and Officers. Except as
prohibited by law, every director and officer of the Corporation shall be
entitled as a matter of right to be indemnified by the Corporation against all
expenses and liability (as those terms are defined below in this Section 10.1)
incurred by such person in connection with any actual or threatened claim,
action, suit or proceeding, civil, criminal, administrative, investigative or
other, whether brought by or in the right of the Corporation or otherwise, in
which such person may be involved, as a party or otherwise, by reason of such
person being or having been a director or officer of the Corporation or of a
subsidiary of the Corporation or by reason of the fact that such person is or
was serving at the request of the Corporation as a director, officer, employee,
fiduciary or other representative of another corporation, partnership, joint
venture, trust, employee benefit plan or other entity (such claim, action, suit
or proceeding hereinafter being referred to as "Action"); provided, however,
that no such right to indemnification shall exist with respect to an Action
brought by an indemnitee (as defined below) against the Corporation (an
"Indemnitee Action") except as provided in the last sentence of this Section
10.1. Persons who are not directors or officers of the Corporation may be
similarly indemnified in respect of service to the Corporation or to another
such entity at the request of the Corporation to the extent the Board of
Directors of the Corporation at any time designates any of such persons as
entitled to the benefits of this Article Tenth. As used in this Article Tenth,
"indemnitee" shall include each director and officer of the Corporation and each
other person designated by the Board of Directors of the Corporation as entitled
to the benefits of this Section 10.1; "expenses" means all expenses actually and
reasonably incurred, including fees and expenses of counsel selected by an
indemnitee, and "liability" means all liability incurred, including the amounts
of any judgments, excise taxes, fines or penalties and any amounts paid in
settlement. An indemnitee shall be entitled to be indemnified pursuant to this
Section 10.1 against expenses incurred in connection with an Indemnitee Action
only if (i) the Indemnitee Action is instituted under Section 10.3 of this
Article Tenth and the indemnitee is successful in whole or in part in such
Indemnitee Action, (ii) the indemnitee is successful in whole or in part in
another Indemnitee Action for which expenses are claimed or (iii) the
indemnification for expenses is included in the settlement of, or is awarded by
a court in, such other Indemnitee Action.
Section 10.2. Right to Advancement of Expenses. Every indemnitee shall be
entitled as a matter of right to have the expenses of the indemnitee in
defending any Action or in bringing and pursuing any Indemnitee Action under
Section 10.3 of this Article Tenth paid in advance by the Corporation prior to
final disposition of the Action or Indemnitee Action provided that the
Corporation receives a written undertaking by or on behalf of the indemnitee to
repay the amount advanced if it should ultimately be determined that the
indemnitee is not entitled to be indemnified for the expenses.
Section 10.3. Right of Indemnitee to Bring Action. If a written claim for
indemnification under Section 10.1 of this Article Tenth or for advancement of
expenses under Section 10.2 of this Article Tenth is not paid in full by the
Corporation within 30 days after the claim has been received by the Corporation,
the indemnitee may at any time thereafter bring an Indemnitee Action to recover
the unpaid amount of the claim and, if successful in whole or in part, the
indemnitee shall also be entitled to be paid the expense of bringing and
pursuing such Indemnitee Action. The only defense to an Indemnitee Action to
recover on a claim for indemnification
5
<PAGE>
under Section 10.1 of this Article Tenth shall be that the conduct of the
indemnitee was such that under Delaware law the Corporation is prohibited from
indemnifying the indemnitee for the amount claimed, but the burden of proving
such defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel and stockholders)
to have made a determination prior to the commencement of such Indemnitee Action
that indemnification of the indemnitee is proper in the circumstances, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel or stockholders) that the conduct of the indemnitee
was such that indemnification is prohibited by Delaware law, shall be a defense
to such Indemnitee Action or create a presumption that the conduct of the
indemnitee was such that indemnification is prohibited by Delaware law. The only
defense to an Indemnitee Action to recover on a claim for advancement of
expenses under Section 10.2 of this Article Tenth shall be failure by the
indemnitee to provide the undertaking required by Section 10.2 of this Article
Tenth.
Section 10.4. Funding and Insurance. The Corporation may create a trust
fund, grant a security interest, cause a letter of credit to be issued or use
other means (whether or not similar to the foregoing) to ensure the payment of
all sums required to be paid by the Corporation to effect indemnification as
provided in this Article Tenth. The Corporation may purchase and maintain
insurance to protect itself and any indemnitee against any expenses or liability
incurred by the indemnitee in connection with any Action, whether or not the
Corporation would have the power to indemnify the indemnitee against the
expenses or liability by law or under the provisions of this Article Tenth.
Section 10.5. Non-Exclusivity; Nature and Extent of Rights. The rights to
indemnification and advancement of expenses provided for in this Article Tenth
shall (i) not be deemed exclusive of any other rights, whether now existing or
hereafter created, to which any indemnitee may be entitled under any agreement,
provision in the Restated Certificate of Incorporation or Bylaws of the
Corporation, vote of stockholders or disinterested directors or otherwise, (ii)
be deemed to create contractual rights in favor of each indemnitee who serves
the Corporation at any time while this Section 10.5 is in effect (and each such
indemnitee shall be deemed to be so serving in reliance on the provisions of
this Section 10.5), (iii) continue as to each indemnitee who has ceased to have
the status pursuant to which the indemnitee was entitled or was denominated as
entitled to indemnification under this Article Tenth and shall inure to the
benefit of the heirs and legal representatives of each indemnitee and (iv) be
applicable to Actions commenced after this Article Tenth becomes effective,
whether arising from acts or omissions occurring before or after this Article
Tenth becomes effective. Any amendment or repeal of this Article Tenth or
adoption of any Bylaw of the Corporation or other provision of the Restated
Certificate of Incorporation of the Corporation which has the effect of limiting
in any way the rights to indemnification or advancement of expenses provided for
in this Article Tenth shall operate prospectively only and shall not affect any
action taken, or any failure to act, by an indemnitee prior to such amendment,
repeal, Bylaw or other provision becoming effective.
Section 10.6. Partial Indemnity. If an indemnitee is entitled under any
provision of this Article Tenth to indemnification by the Corporation for some
or a portion of the expenses or liabilities incurred by the indemnitee in the
preparation, investigation, defense, appeal or
6
<PAGE>
settlement of any Action or Indemnitee Action but not, however, for the total
amount thereof, the Corporation shall indemnify the indemnitee for the portion
of such expenses or liabilities to which the indemnitee is entitled.
Eleventh: This Restated Certificate of Incorporation integrates without
further amendment hereby and shall be deemed to include the Certificate of
Designation, Preferences and Rights of Series A Preferred Stock and Series B
Preferred Stock of The Wiser Oil Company filed with the Secretary of State of
Delaware on November 12, 1993.
IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate of
Incorporation to be signed this _____ day of _________________, 2000.
THE WISER OIL COMPANY
By:
-----------------------------------
Name:
-----------------------------
Title:
-----------------------------
7
<PAGE>
Annex D
[LETTERHEAD OF PETRIE PARKMAN & CO., INC.]
December 9, 1999
The Board of Directors
The Wiser Oil Company
8115 Preston Road, Suite 400
Dallas, Texas 75225
Members of the Board:
The Wiser Oil Company, a Delaware corporation (the "Company"), and Wiser
Investment Company, L.L.C., a Delaware limited liability company ("WIC"),
propose to enter into a stock purchase agreement (the "Stock Purchase
Agreement"), which provides for, among other things, the sale by the Company of
1,000,000 shares of Series C Cumulative Convertible Preferred Stock of the
Company (the "Preferred Stock") to WIC (the "Stock Purchase Transaction") for a
purchase price in cash in the aggregate amount of $25 million (the "Stock
Purchase Consideration") and a warrant purchase agreement (the "Warrant Purchase
Agreement"), which provides for, among other things, the sale by the Company to
WIC of warrants (the "Warrants") to purchase 741,716 shares of common stock of
the Company (the "Warrant Purchase Transaction" and, together with the Stock
Purchase Transaction, the "Transaction") for a purchase price in cash in the
aggregate amount of $14,834.32 (the "Warrant Purchase Consideration" and,
together with the Stock Purchase Consideration, the "Consideration"). Upon
consummation of the Transaction, the Company and WIC also propose to enter into
a stockholder agreement (the "Stockholder Agreement") and a management agreement
(the "Management Agreement").
You have requested our opinion as to whether the Consideration is fair from
a financial point of view to the Company.
In arriving at our opinion, we have, among other things:
1. reviewed certain publicly available business and financial information
relating to the Company, including (a) the Annual Report on Form 10-K
and related audited financial statements for the fiscal year ended
December 31, 1998, and (b) the Quarterly Reports on Form 10-Q and
related unaudited financial statements for the fiscal quarters ended
March 31, 1999, June 30, 1999, and September 30, 1999;
2. reviewed certain estimates of the Company's reserves, including (a)
estimates of proved and probable oil and gas reserves prepared by
DeGolyer & MacNaughton ("D&M") and Gilbert Laustsen Jung Associates
Ltd. ("Gilbert") as of December 31, 1998, (b) estimates of proved and
probable oil and gas reserves prepared by the management and staff of
the Company as of August 31, 1999 that were based on the D&M and
Gilbert estimates that
<PAGE>
gave effect to the sale of certain properties and hydrocarbon
production between December 31, 1998 and August 31, 1999, and (c)
estimates of oil and gas reserves associated with exploration projects
prepared by the management and staff of the Company as of June 30,
1999;
3. analyzed certain historical financial and operating data of Company
prepared and furnished to us by the management of Company;
4. discussed the current and projected operations and prospects of the
Company with the management and operating staff of the Company;
5. reviewed the historical trading history of the common stock of the
Company;
6. compared recent stock market capitalization indicators for the Company
with the recent stock market capitalization indicators for certain
other publicly-traded independent energy companies;
7. compared the financial terms of the Transaction with the financial
terms of certain other transactions that we deemed to be relevant;
8. participated in certain discussions and negotiations among the
representatives of the Company and WIC and their legal advisors;
9. reviewed a draft dated December 1, 1999 of the Stock Purchase
Agreement and a draft dated December 2, 1999 of the Warrant Purchase
Agreement;
10. reviewed a draft dated December 4, 1999 of the Stockholder Agreement,
a draft dated December 2, 1999 of the warrant agreement between the
Company and WIC (the "Warrant Agreement"), a draft dated December 4,
1999 of the Management Agreement, a draft dated December 1, 1999 of
the certificate of designations of the Preferred Stock (the
"Certificate of Designations" and, together with the Stock Purchase
Agreement, the Warrant Purchase Agreement and the Warrant Agreement,
the "Agreements") and a draft dated December 1, 1999 of the restated
certificate of incorporation of the Company; and
11. reviewed such other financial studies and analyses and preformed such
other investigations and took into account such other matters as we
have deemed necessary or appropriate.
In preparing our opinion, we have assumed and relied upon, without assuming
any responsibility for, or independently verifying, the accuracy and
completeness of any information supplied or otherwise made available to,
discussed with, or reviewed by or for us. We have further relied upon the
assurances of the management of the Company that they are unaware of any facts
that would make the information provided to us incomplete or misleading in any
material respect. With respect to the estimates of oil and gas reserves, we have
assumed that they have been reasonably prepared on bases reflecting the best
available estimates and judgments of the Company or its engineering consultants
relating to the oil and gas properties of the Company. We have not made an
independent evaluation or appraisal of the assets or liabilities of the Company
nor, except for the estimates of oil and gas reserves referred to above, have we
been furnished with such an evaluation or appraisal. In addition, we did not
assume any obligation to
<PAGE>
conduct, nor did we conduct, any physical inspection of the properties or
facilities of the Company.
We have relied upon the Company as to certain legal, tax, and accounting
aspects of the Transaction. We have assumed that the final forms of the
Agreements will be substantially similar to the last drafts reviewed by us. We
have further assumed that the Transaction will be consummated on the terms and
conditions contemplated by the Agreements.
Our opinion relates solely to the fairness, from a financial point of view,
of the Consideration. This opinion is for the use and benefit of the Board of
Directors of the Company and does not constitute a recommendation to any
stockholder as to how such stockholder should vote on the Transaction. We have
not been asked to consider, and this opinion does not address, the price at
which the common stock of the Company will actually trade following the
announcement or consummation of the Transaction. This opinion also does not
address the merits of the underlying decision by the Company to engage in the
Transaction or any strategic alternatives that may be available to the Company.
As you are aware, we have acted as financial advisor to the Company and we will
receive a fee from the Company that is contingent upon the consummation of the
Transaction. In addition, the Company has agreed to indemnify us against certain
liabilities arising out of our engagement. We have also, in the past, provided
financial advisory services to the Company and an affiliate of WIC and have
received customary fees for such services. In the ordinary course of our
business, we or our affiliates may trade in the debt or equity securities of the
Company for our own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
Our opinion is rendered on the basis of conditions in the securities
markets and the oil and gas markets prevailing as of the date hereof and the
condition and prospects, financial and otherwise, of the Company as they have
been represented to us as of the date hereof or as they were reflected in the
materials and discussions described above.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration is fair from a financial point of view to the
Company.
Very truly yours,
PETRIE PARKMAN & CO., INC.
<PAGE>
The Wiser Oil Company
This Proxy is Solicited by the Board of Directors
for the Special Meeting of Stockholders to be held ___________, 2000
The undersigned stockholder of The Wiser Oil Company, a Delaware
corporation (the "Company"), hereby appoints A. Wayne Ritter, Lawrence J. Finn
and Mark A. Kirk, and each of them acting individually, the proxy or proxies of
the undersigned, each with full power of substitution, to vote all shares of
Common Stock of the Company which the undersigned would be entitled to vote at
the Special Meeting of Stockholders to be held on _____________, 2000 at __
_.m., Central Standard Time at the [__________________________________, Dallas,
Texas _________], or any adjournment thereof, according to the number of votes
that the undersigned would be entitled to if personally present upon the matters
referred to in this proxy.
The Board of Directors Recommends a Vote "For" Proposal One and Proposal Two.
PROPOSAL ONE--Approve (i) the issuance and sale of 1,000,000 shares of Series C
Cumulative Convertible Preferred Stock to Wiser Investment Company, LLC ("WIC")
or its assignees for an aggregate purchase price of $25 million in cash pursuant
to a Stock Purchase Agreement by and between the Company and WIC dated December
13, 1999; (ii) the issuance of warrants to purchase that number of shares of the
Company's Common Stock representing approximately 5% of the shares of Common
Stock outstanding at any given time during the term of the Warrants pursuant to
a Warrant Purchase Agreement by and between the Company and WIC dated December
13, 1999 and a related Warrant Agreement to be entered into by and between the
Company and WIC at the closing of the transactions contemplated by the Stock
Purchase Agreement and the Warrant Purchase Agreement; and (iii) the other
transactions contemplated by the Stock Purchase Agreement.
[_] FOR [_] AGAINST [_] ABSTAIN
PROPOSAL TWO--Approve and adopt a new Restated Certificate of Incorporation of
the Company which amends, restates and replaces the Company's Restated
Certificate of Incorporation as of January 22, 1971, as amended (the "Current
Charter"), and effects the following three principal changes to the Current
Charter: (i) increases the number of authorized shares of Common Stock from
20,000,000 to 30,000,000, and the number of authorized shares of Preferred Stock
from 300,000 to 1,300,000, (ii) decreases the par value per share of Common
Stock from $3.00 to $.01, and (iii) deletes Article Seventh, Article Ninth and
Article Tenth of the Current Charter, which Articles contain certain anti-
takeover provisions, including restrictions on business combinations, fair price
provisions, repurchase rights and prevention of greenmail.
[_] FOR [_] AGAINST [_] ABSTAIN
Proposal One will not be implemented unless Proposal Two is approved. However,
the implementation of Proposal Two is not conditioned upon the approval of
Proposal One.
Please complete, date and sign this Proxy Card on the reverse side and
return it promptly in the enclosed business reply envelope.
The shares represented by this proxy will be voted as directed herein, or,
if no direction is given, FOR the proposals set forth herein. The proxies will
vote in their sole discretion upon such other business as may properly come
before the meeting.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
The undersigned hereby revokes all previous proxies for the Special
Meeting of Stockholders, hereby acknowledges receipt of the Notice of such
Special Meeting and the Proxy Statement furnished therewith, and hereby ratifies
all that the said attorneys and proxies may do by virtue hereof
Date: , 1999.
________________________________________
Signature
________________________________________
Name(s) (typed or printed)
________________________________________
________________________________________
Address(es)
Please sign exactly as name(s) appear(s) hereon. When signing as attorney,
executor, administrator, trustee, guardian, or other fiduciary, please give your
full title as such. For joint accounts, each joint owner should sign. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized
person.
