<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: DECEMBER 23, 1996
-----------------------------------------------------------------
COMMISSION FILE NUMBER 0-3880
---------
TOM BROWN, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-1949781
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
P. O. BOX 2608
500 EMPIRE PLAZA BUILDING
MIDLAND, TEXAS 79701
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(915) 682-9715
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
1
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 23, 1996, Tom Brown, Inc. ("Tom Brown") completed the acquisition of
Presidio Oil Company and its subsidiaries (collectively, "Presidio"), following
the issuance by the U.S. Bankruptcy Court, District of Delaware, on December 10,
1996, of an Order Confirming Presidio's reorganization under Chapter 11 of the
U.S. Bankruptcy Code. The purchase price was approximately $193.1 million
consisting of approximately $105 million in cash and 5.35 million shares of Tom
Brown Common Stock valued at $16.50 per share. Such amount includes 2.64 million
shares of Tom Brown Common Stock which were not issued due to Tom Brown's
ownership of $56.15 million of Presidio's Senior Gas Indexed Notes. The
acquisition has been accounted for using the purchase method. The cash portion
of the acquisition was funded by borrowings under Tom Brown's loan agreement
with its bank lender. The assets acquired consist of primarily proved oil and
gas properties and undeveloped acreage located in Wyoming, North Dakota,
Oklahoma and Louisiana. The Wyoming properties are concentrated in the Green
River and Powder River Basins. Tom Brown intends to continue ownership and
operation of such oil and gas properties.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Presidio Oil Company and Subsidiaries.
(1) Audited Consolidated Balance Sheets as of December 31,
1995 and 1994.
(2) Audited Consolidated Statements of Operations for the Years
Ended December 31, 1995, 1994 and 1993.
(3) Audited Consolidated Statements of Stockholders' Equity
(Deficit) for the Years Ended December 31, 1995, 1994 and
1993.
(4) Audited Consolidated Statement of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993.
(5) Notes to Audited Consolidated Financial Statements for the
Years Ended December 31, 1995, 1994 and 1993.
(6) Unaudited Consolidated Balance Sheet as of September 30,
1996 and Audited Consolidated Balance Sheet as of December
31, 1995.
(7) Unaudited Consolidated Statement of Operations for the Nine
Months Ended September 30, 1996 and 1995.
(8) Unaudited Consolidated Statement of Cash Flows for the Nine
Months Ended September 30, 1996 and 1995.
(9) Notes to Unaudited Consolidated Financial Statements for
the Nine Months Ended September 30, 1996 and 1995.
2
<PAGE> 3
(b) Pro Forma Financial Statements of Tom Brown, Inc..
(1) Unaudited Pro Forma Consolidated Balance Sheet as of
September 30, 1996.
(2) Unaudited Pro Forma Consolidated Statements of Operations
for the Year Ended December 31, 1995 and Nine Months Ended
September 30, 1996.
(3) Notes to Unaudited Pro Forma Consolidated Financial
Statements.
(c) Exhibits
2.1 Exchange Agreement dated August 5, 1996 by and among
Presidio Oil Company, Presidio Exploration, Inc.,
Presidio West Virginia, Inc., Palisade Oil, Inc. and
Tom Brown, Inc. (Incorporated herein by reference
to Exhibit 2.1 to the Company's Quarterly Report on
Form 10-Q for the Six Months Ended June 30, 1996.)
2.2 * First Amendment to Exchange Agreement dated August
20, 1996 by and among Presidio Oil Company, Presidio
Exploration, Inc., Presidio West Virginia, Inc.,
Palisade Oil, Inc. and Tom Brown, Inc.
2.3 * Second Amendment to Exchange Agreement dated
September 5, 1996 by and among Presidio Oil Company,
Presidio Exploration, Inc., Presidio West Virginia,
Inc., Palisade Oil, Inc. and Tom Brown, Inc.
2.4 * Third Amendment to Exchange Agreement dated November
20, 1996 by and among Presidio Oil Company, Presidio
Exploration, Inc., Presidio West Virginia, Inc.,
Palisade Oil, Inc. and Tom Brown, Inc.
* Filed herewith.
3
<PAGE> 4
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Audited Financial Statements
For the Years Ended
December 31, 1995, 1994 and 1993
<PAGE> 5
PRESIDIO OIL COMPANY AND SUBSIDIARIES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
INDEPENDENT AUDITORS' REPORT
Presidio Oil Company
We have audited the accompanying consolidated balance sheets of Presidio Oil
Company and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express (or disclaim) 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 report.
In our opinion, the 1994 and 1993 consolidated financial statements present
fairly, in all material respects, the financial position of Presidio Oil
Company and subsidiaries at December 31, 1994 and the results of its operations
and its cash flows for the years ended December 31, 1994 and 1993 in conformity
with generally accepted accounting principles.
The accompanying 1995 and 1994 consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As
described in Note 1 to the financial statements, the Company's recurring losses
from operations, negative working capital, and stockholders' capital deficiency
raise substantial doubt about its ability to continue as a going concern.
Management's plans concerning these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Because of the possible material effects of the uncertainty referred to in the
preceding paragraph, we are unable to express, and we do not express, an
opinion on the financial statements for 1995.
DELOITTE & TOUCHE LLP
Denver, Colorado
April 5, 1996
1
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PRESIDIO OIL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
December 31
-------------------------
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,060 $ 6,423
Accounts receivable:
Oil and gas sales 4,572 6,759
Joint interest owners and other 2,255 6,828
Other 1,280 1,203
-------- --------
Total current assets 15,167 21,213
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties using full cost accounting:
Subject to amortization 490,795 488,054
Not subject to amortization 24,432 23,816
Other 4,371 4,268
-------- --------
Total 519,598 516,138
Less accumulated depletion,
depreciation and amortization 302,733 287,463
-------- --------
Net property, plant and equipment 216,865 228,675
-------- --------
OTHER ASSETS:
Deferred charges 8,761 8,055
Other 1,153 1,629
-------- --------
Total other assets 9,914 9,684
-------- --------
$241,946 $259,572
======== ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 7
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
December 31
------------------------
1995 1994
--------- ---------
(in thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable:
Oil and gas sales $ 2,139 $ 3,368
Trade and other 5,137 12,724
Accrued interest 23,214 3,576
Accrued ad valorem and severance taxes 2,933 3,492
Other accrued liabilities 980 1,921
Current debt 246,413 -
--------- ---------
Total current liabilities 280,816 25,081
--------- ---------
LONG-TERM DEBT - 246,000
--------- ---------
OTHER NONCURRENT LIABILITIES 11,125 9,039
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Class A Common Stock, $.10 par value; 25,318,000
and 25,317,000 outstanding at December 31, 1995
and 1994, respectively 2,532 2,532
Class B Common Stock, $.10 par value; 3,217,000
and 3,218,000 outstanding at December 31, 1995
and 1994, respectively 322 322
Additional paid-in capital 126,776 129,029
Deferred compensation - (2,394)
Retained deficit (179,625) (150,037)
--------- ---------
Total stockholders' deficit (49,995) (20,548)
--------- ---------
$ 241,946 $ 259,572
========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 8
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1995 1994 1993
-------- -------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Oil and gas revenues $ 31,298 $ 40,643 $ 47,476
Less - direct costs:
Lease operating 11,342 12,483 13,431
Production taxes 1,775 2,373 2,931
Depletion, depreciation and amortization 14,405 17,655 18,357
-------- -------- --------
3,776 8,132 12,757
-------- -------- --------
General and administrative expense 5,529 6,089 5,326
-------- -------- --------
Other income (expense):
Interest expense (29,566) (28,130) (25,034)
Debt repayment expense - - (1,971)
Other 1,731 1,525 791
-------- -------- --------
(27,835) (26,605) (26,214)
-------- -------- --------
Loss from continuing operations (29,588) (24,562) (18,783)
Discontinued operations:
Gain on sale - - 11,550
-------- -------- --------
Net loss $(29,588) $(24,562) $ (7,233)
======== ======== ========
Loss per share of Class A and
Class B Common Stock:
Loss from continuing operations $ (1.08) $ (.91) $ (.70)
Discontinued operations - - .43
-------- -------- --------
Loss per share $ (1.08) $ (.91) $ (.27)
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 9
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock Additional Deferred
------------------- ------------------- Paid-in Compen- Retained
Shares Amount Shares Amount Capital sation Deficit
------ ------ ------ ------ ---------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992 25,216 $2,522 3,319 $ 332 $133,896 $(7,657) $(118,242)
Net loss - - - - - - (7,233)
Difference between historical
cost and fair market value
of allocated ESOP shares - - - - (428) - -
ESOP contribution in excess
of ESOP stock purchases - - - - - 340 -
Exchange of Class A Common
Stock for Class B Common
Stock 96 10 (96) (10) - - -
Other - - - - 35 - -
------ ------ ------ ------ -------- ------- ---------
BALANCE, December 31, 1993 25,312 2,532 3,223 322 133,503 (7,317) (125,475)
Net loss - - - - - - (24,562)
Reduction of the ESOP
outstanding notes payable - - - - (4,481) 4,481 -
Difference between historical
cost and fair market value
of allocated ESOP shares - - - - (65) - -
ESOP contribution in excess
of ESOP stock purchases - - - - - 442 -
Exchange of Class A Common
Stock for Class B Common
Stock 5 - (5) - - - -
Other - - - - 72 - -
------ ------ ------ ------ -------- ------- ---------
BALANCE, December 31, 1994 25,317 2,532 3,218 322 129,029 (2,394) (150,037)
Net loss - - - - - - (29,588)
Reduction of the ESOP
outstanding notes payable - - - - (2,272) 2,272 -
ESOP contribution - - - - - 122 -
Exchange of Class A Common
Stock for Class B Common
Stock 1 - (1) - - - -
Other - - - - 19 - -
------ ------ ------ ------ -------- ------- ---------
BALANCE, December 31, 1995 25,318 $2,532 3,217 $ 322 $126,776 $ - $(179,625)
====== ====== ====== ====== ======== ======= =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 10
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1995 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(29,588) $(24,562) $ (7,233)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depletion, depreciation and amortization 15,270 18,122 18,856
Gain on sale of discontinued operations - - (11,550)
Amortization of debt issuance costs included
in interest and debt repayment expense 1,251 1,241 3,683
Other 1,258 1,694 1,897
Changes in other assets and liabilities:
Decrease in accounts receivable 6,760 983 1,458
Decrease (increase) in other current assets (817) 428 (2,347)
Decrease (increase) in other
noncurrent assets (1,416) 661 (73)
Decrease in accounts payable (8,816) (1,784) (897)
Increase (decrease) in accrued
interest and liabilities 18,138 (838) (5,714)
Increase (decrease) in other
noncurrent liabilities 1,779 (532) 358
-------- -------- --------
Net cash provided by (used in)
operating activities 3,819 (4,587) (1,562)
-------- -------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (18,145) (35,208) (21,096)
Proceeds from asset sales 14,648 27,161 12,684
-------- -------- --------
Net cash used in investing activities (3,497) (8,047) (8,412)
-------- -------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings of bank debt 8,700 54,277 61,900
Payments of bank debt (8,287) (48,277) (119,900)
Payment of loan fees (65) (463) (4,375)
Other noncurrent financing (33) (39) (549)
Issuance of Senior Secured Notes - - 75,000
-------- -------- --------
Net cash provided by
financing activities 315 5,498 12,076
-------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 637 (7,136) 2,102
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 6,423 13,559 11,457
-------- -------- --------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 7,060 $ 6,423 $ 13,559
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 11
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1995, 1994 and 1993
1. FINANCIAL POSITION
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. During 1994 and 1995, the financial
condition and operating cash flows of the Company were materially and adversely
affected by a significant decline in the price that the Company received for
its natural gas production. The Company's revenues and operating cash flows
thus declined significantly during such periods, making it unlikely that the
Company will be able to continue as a going concern in its current financial
structure. Because of the Company's deteriorating financial condition the
Company has failed to satisfy certain payment and other obligations under, and
Events of Default have occurred in respect of, the Company's public debt and
bank debt obligations. (See Note 3 for a further discussion of the Company's
Events of Default).
Because of the Company's deteriorating financial condition, during the first
six months of 1995 the Company engaged in discussions with various third
parties and certain of its creditors in an effort to arrange a restructuring of
the Company's various debt obligations under which the Company would retain all
or most of its oil, gas and related assets. In June 1995, Tom Brown, Inc.
("Tom Brown") acquired approximately $56 million in principal amount of the
Company's Senior Gas Indexed Notes Due 2002 (the "Senior Gas Indexed Notes")
and reiterated a previously expressed interest in acquiring the Company or all
of its assets. In response to Tom Brown's expression of interest and after
consulting with certain of its significant creditors, the Company decided to
explore the possibility of selling the Company or all of its assets. In August
1995, the Company began soliciting bids from persons interested in acquiring
the Company or all of its assets. A data room was established which provided
potential buyers with information about the Company and its assets. Bids were
received from a number of companies that participated in the data room process.
The Company and its financial advisors evaluated those bids and on November 15,
1995, selected Tom Brown as the bidder with which the Company would pursue
negotiations for a potential sale of the Company or all of its assets. Tom
Brown's November 15, 1995 bid contemplated the acquisition of all of the
Company's assets in consideration of approximately $180 million consisting of a
combination of cash and Tom Brown common stock.
Since late November of 1995, the Company and Tom Brown have been negotiating
with each other and with certain of the Company's creditors regarding a proposed
transaction pursuant to which Tom Brown would acquire the Company or all of its
assets (the "Tom Brown Transaction"). As of March 29, 1996, the negotiations
with Tom Brown and certain of the Company's creditors are continuing in an
attempt to reach an informal consensual agreement regarding the terms of the Tom
Brown Transaction, including the allocation of the proceeds thereof. Failure to
reach such an informal consensual agreement could have an adverse effect on the
amount of recovery, if any, that will be received by the holders of the
Company's public debt (in particular its Senior Gas Indexed Notes and 9%
Convertible Subordinated Debentures Due 2015 (the "Subordinated Debentures")),
as well as by the holders of the Company's common stock.
Since the consideration Tom Brown has offered for the Company or all of its
assets would be insufficient to liquidate the Company's bank debt and public
debt obligations at par, the Tom Brown Transaction contemplates that it would
be implemented by means of the Company and its subsidiaries filing a plan of
reorganization under chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code"). Such a plan would implement the Tom Brown Transaction and
provide for the allocation and distribution of the proceeds realized therefrom
among the Company's debt and equity holders. Additionally, any of the Events
of Default discussed in Note 3 could provide the opportunity for creditors of
the Company to initiate involuntary bankruptcy proceedings against the Company
under the Bankruptcy Code.
7
<PAGE> 12
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The Company expects to enter into an acquisition agreement with Tom Brown
during the second quarter of 1996. There can be no assurance, however, that an
agreement with Tom Brown will be reached or, if such an agreement is entered
into, that an informal consensual agreement with the Company's bank lenders and
certain of the significant holders of its public debt will be arranged. Should
the Company and Tom Brown fail to reach an agreement concerning the proposed
Tom Brown Transaction, then it is likely that the Company would seek protection
from its creditors under chapter 11 of the Bankruptcy Code and seek other
purchasers or effect a restructuring thereunder.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Consolidated Financial Statements present the financial
position of Presidio Oil Company and its wholly-owned subsidiaries (the
"Company" or "Presidio"). The Company is an independent oil and gas company
whose business is onshore oil and gas exploration, development and production
in selected regions in the continental United States. The accompanying
financial statements have been prepared assuming that the Company will continue
as a going concern. As described in Note 1, certain factors raise substantial
doubt about the Company's ability to continue as a going concern in its current
financial structure; however, the financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
The Company's Senior Subordinated Gas Indexed Notes, Senior Gas Indexed Notes
and Senior Secured Notes (collectively the "Notes") are guaranteed by all
significant subsidiaries of the Company (the "Guarantors"). Separate financial
statements of the Guarantors are not included herein because the Guarantors
have fully, unconditionally, jointly and severally guaranteed the Company's
obligations with respect to the Notes and the Company (which is primarily a
holding company and whose operating income is generated by its subsidiaries)
has no separate operations of its own. The operations, assets, liabilities and
equity of the subsidiaries of the Company that are not Guarantors are
inconsequential.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities as of the date of the financial
statements. Such estimates and assumptions also affect the reported amounts of
revenues and expenses during the reporting period, including estimates and
assumptions as to the future production from proved reserves and the costs to
develop proved undeveloped reserves. Actual results could differ from those
estimates.
Property, Plant and Equipment and Depletion, Depreciation and Amortization
The Company follows the full cost method of accounting for oil and gas
producing activities whereby all costs incurred in the acquisition, exploration
and development of oil and gas properties are capitalized. Sales of oil and
gas properties are recorded as an adjustment of capitalized costs, with no gain
or loss recognized. Capitalized costs, including unevaluated acreage, are
subject to a ceiling limitation test based on the estimated fair market value
of the unevaluated acreage and a computed value of the Company's present value
of estimated future net revenues from proved reserves using current prices
(with consideration of price changes only to the extent provided by contractual
arrangements), discounted at 10%, after adjusting for tax effects at the end of
each period.
8
<PAGE> 13
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
The provision for depletion, depreciation and amortization of oil and gas
properties is calculated by multiplying current period oil and gas production
by a rate which is determined by dividing capitalized oil and gas costs (except
for costs of certain unevaluated acreage discussed below) plus estimated future
costs to develop the Company's proved oil and gas reserves, by the quantities
of estimated proved oil and gas reserves. The Company excludes investments in
unevaluated acreage from costs to be amortized pending determination as to the
existence of proved reserves on such acreage. The Company's unevaluated
acreage is subject to a periodic review for impairment and, if necessary, the
amount of impairment is included in the costs to be amortized. The Company
capitalizes interest on unevaluated properties not subject to amortization.
The Company capitalized interest of $1,177,000, $1,141,000 and $1,278,000 (out
of total interest costs of $30,743,000, $29,271,000 and $26,312,000) for the
years ended December 31, 1995, 1994 and 1993, respectively.
Income Taxes
The Company files a consolidated income tax return and provides deferred tax
liabilities and assets for the future tax consequences of events that have been
recognized in the Company's consolidated financial statements or tax returns
(see Note 4).
Deferred Charges
The Company records the fees and expenses associated with its bank and public
debt as deferred charges and amortizes such costs to interest expense over the
life of the debt using the effective interest method. Debt repayment expense
reflects the accelerated amortization of certain of such costs during the year
ended December 31, 1993.
Consolidated Statements of Cash Flows
The Company considers investments purchased with an original maturity of three
months or less to be cash equivalents. Included in the Consolidated Statements
of Cash Flows is $8,677,000, $26,896,000 and $23,945,000 of interest paid, net
of amounts capitalized, during the years ended December 31, 1995, 1994 and
1993, respectively. During the year ended December 31, 1993, $99,770,000 of
Senior Subordinated Gas Indexed Notes were exchanged for an equivalent amount
of Senior Gas Indexed Notes (see Note 3); and, insofar as such exchange was a
non-cash transaction, it is not reflected in the Consolidated Statements of
Cash Flows.
Gas Balancing Arrangements
The Company uses the entitlement method of recording gas revenues. Under such
method, sales are recorded based upon the Company's proportionate share of gas
sold. The Company then records a receivable (payable) to the extent it
receives less (more) than its proportionate share of the gas revenues. At
December 31, 1995 and 1994, the Company had net gas balancing liabilities of
$3,703,000 associated with approximately 2.0 billion cubic feet ("BCF") of gas
and $4,074,000 associated with 2.6 BCF of gas, respectively.
9
<PAGE> 14
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Loss Per Common Share
Loss per common share is computed as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1995 1994 1993
--------- --------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Weighted average number of common shares
outstanding 28,535 28,535 28,535
Less: Weighted average number of unallocated
shares held by the Company's Employee Stock
Ownership Plan (see Note 7) (1,240) (1,497) (1,479)
--------- --------- --------
27,295 27,038 27,056
========= ========= ========
Net loss from continuing operations $ (29,588) $ (24,562) $(18,783)
Discontinued operations - - 11,550
--------- --------- --------
Net loss $ (29,588) $ (24,562) $ (7,233)
========= ========= ========
Loss from continuing operations per share
of Class A and Class B Common Stock $ (1.08) $ (.91) $ (.70)
========= ========= ========
Discontinued operations per share of
Class A and Class B Common Stock $ - $ - $ .43
========= ========= ========
Loss per share of Class A and Class B
Common Stock $ (1.08) $ (.91) $ (.27)
========= ========= ========
</TABLE>
Impact of Recently Issued Accounting Standards
In 1995, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," and Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Both
of these statements are effective beginning in 1996. With regard to oil and
gas companies, Statement No. 121 will have a more significant impact on those
companies using the successful efforts method of accounting, as Statement No.
121 revises the "ceiling test" for such companies. Statement No. 121 does not
affect the ceiling test for companies who follow the full cost method of
accounting. Therefore, such statement is not expected to have a material
impact on the Company's future operations.
With regard to the Company's present accounting for stock options, no
accounting is made until such time as the options are exercised. At that time,
the proceeds are added to stockholders' equity, and no expense is recognized.
Statement No. 123 provides companies with the option of expensing the "fair
value" of stock options granted. The Company will not change its current
accounting method regarding stock options, and therefore Statement No. 123 will
not impact the Company's future operating results.
10
<PAGE> 15
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
3. DEBT
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------------------------------- ---------------------------------------
Accrued Accrued
Principal Interest Principal Interest
------------------------------ -------- ---------------------------- --------
Current Long-Term Total Current Long-Term Total
-------- --------- -------- ------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bank Debt $ 21,413 $ - $ 21,413 $ 326 $ - $ 21,000 $ 21,000 $ 121
Senior Secured Notes 75,000 - 75,000 7,090 - 75,000 75,000 383
Gas Indexed Notes 100,000 - 100,000 12,156 - 100,000 100,000 1,747
9% Debentures 50,000 - 50,000 3,642 - 50,000 50,000 1,325
-------- ----- -------- -------- ----- -------- -------- --------
Total $246,413 $ - $246,413 $ 23,214 $ - $246,000 $246,000 $ 3,576
======== ===== ======== ======== ===== ======== ======== ========
</TABLE>
Events of Default/Ability to Service Debt
Because of the Company's deteriorating financial condition the Company has
failed to satisfy certain interest payment and other obligations under, and
Events of Default have occurred in respect of, the Company's Senior Gas Indexed
Notes Due 2002 (the "Senior Gas Indexed Notes"), 11.5% Senior Secured Notes Due
2000 (the "Senior Secured Notes"), and 9% Convertible Subordinated Debentures
Due 2015 (the "Subordinated Debentures") (collectively the "Public Debt").
Moreover, to cure a collateral deficiency, the indenture governing the Senior
Secured Notes (the "Senior Secured Note Indenture") required the Company to
offer to purchase at par approximately $7.3 million of Senior Secured Notes
prior to June 22, 1995. The Company did not make such offer during the 30-day
grace period subsequent to June 22, 1995 as required by the Senior Secured Note
Indenture, resulting in an Event of Default. As a result of the Events of
Default with respect to the Senior Secured Notes, the outstanding $75 million
of Senior Secured Notes could be declared to be immediately due and payable and
the trustee under the Senior Secured Note Indenture would be entitled to
exercise various remedies, including foreclosure of a mortgage on a significant
portion of the Company's oil and gas properties. Although the Company
currently is paying interest on its bank debt, the Company did not make
principal payments thereon of $1.2 million due on October 1, 1995 and $1.4
million due on January 1, 1996 and $1.4 million due on April 1, 1996, resulting
in Events of Default under the Company's bank credit agreement, as amended
("Credit Agreement"). In addition, the Events of Default described above on
the Public Debt have caused an Event of Default under the Credit Agreement.
Also, on March 15, 1996, the Company caused Presidio West Virginia, Inc., a
Delaware corporation and wholly-owned subsidiary of the Company ("Presidio West
Virginia"), to commence a bankruptcy case in Delaware resulting in all
obligations of the Company and its subsidiaries under the Credit Agreement
being accelerated and becoming immediately due and payable. This acceleration
also could lead to a foreclosure on the Company's oil and gas properties
pledged to secure the bank debt outstanding under the Credit Agreement, which
properties consist of substantially all of the Company's oil and gas properties
not subject to the mortgage securing the Senior Secured Notes.
The Company has not paid interest on its (i) Senior Gas Indexed Notes since
February 14, 1995, (ii) Senior Secured Notes since March 14, 1995, and (iii)
Subordinated Debentures since March 14, 1995 and because of its current
financial condition, the Company believes that, except in connection with the
Tom Brown Transaction, it will not make further payments on the Public Debt.
11
<PAGE> 16
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Bank Debt
At December 31, 1995, the Company had bank debt of $21.4 million outstanding
under the Credit Agreement. The Company had $21 million outstanding under such
Credit Agreement at December 31, 1994.
The Credit Agreement (i) is secured by mortgages on certain of the Company's
oil and gas properties (the "Mortgaged Properties"); (ii) provides for a
non-default interest rate of either prime plus 1% or LIBOR plus 2.5% and a
default interest rate of either prime plus 3% or LIBOR plus 4.5%; (iii)
requires that the commitment be reduced by 100% of the proceeds realized from
the sale of Mortgaged Properties; (iv) requires that 75% of the proceeds (in
excess of $5 million sold subsequent to September 30, 1994) from the sale of
assets other than Mortgaged Properties be used to develop the Company's
hydrocarbon reserves; (v) requires regular quarterly commitment reductions of
approximately $1.4 million beginning on October 1, 1995 through July 1, 1999;
(vi) requires capital expenditures of not less than $5 million per annum during
the three-year period ending October 1, 1996 in respect of the development of
the Mortgaged Properties; and (vii) provides that, on a quarterly basis, the
Company's ratio of bank debt to total capitalization (excluding the effect of
any reduction in the carrying amount of oil and gas properties) to be greater
than .15 on the last day of each quarter, and the Company maintain at least a
1:1 ratio of its operating cash flows plus the proceeds of asset sales during
the preceding four quarters (the "Period") to interest paid by the Company
during the Period plus the amount of any required commitment reductions during
the four quarters following the Period.
As described above, the Company is currently in default under the Credit
Agreement and, as a result of the Presidio West Virginia bankruptcy filing, all
obligations of the Company under the Credit Agreement have been accelerated and
are immediately due and payable.
Gas Indexed Notes; Senior Secured Notes
On August 6, 1993, the Company completed various transactions (the "Private
Exchange") with certain holders (and their affiliates) (the "Holders") of the
Company's Senior Subordinated Gas Indexed Notes Due 1999 (the "Old Gas Indexed
Notes"), pursuant to which a total of $75 million aggregate principal amount of
the Old Gas Indexed Notes was exchanged for an equivalent principal amount of
Senior Gas Indexed Notes and the Holders purchased $56.25 million aggregate
principal amount of Senior Secured Notes. The net proceeds of the sale of the
Senior Secured Notes were used to prepay $55 million of bank debt.
On November 30, 1993, the Company completed a public exchange offer (the
"Exchange Offer") pursuant to which (i) $24.77 million of the $25 million of
the Old Gas Indexed Notes remaining after the Private Exchange were exchanged
for an equivalent principal amount of the Senior Gas Indexed Notes and (ii)
$18.75 million of Senior Secured Notes were sold with the proceeds of such sale
being used to prepay bank debt.
The terms of the Senior Gas Indexed Notes are generally the same as those of
the Old Gas Indexed Notes, except that the Senior Gas Indexed Notes: (i) rank
pari passu with other senior debt of the Company (including bank debt and the
Senior Secured Notes, as discussed below, which are also secured by mortgages
on certain of the Company's oil and gas properties which provide preferential
claims to such properties) and rank senior to the Old Gas Indexed Notes; (ii)
mature in 2002 and have no sinking fund requirements; (iii) have a 15% maximum
interest rate above which the 13.25% base interest rate may not be increased as
a result of the gas indexing feature as discussed below (which is the same as
that in the Old Gas Indexed Notes), instead of the 18% maximum contained in the
Old Gas Indexed Notes; and (iv) are redeemable, at the option of the Company,
at the prices (expressed as a percentage of principal amount) and during the
indicated years
12
<PAGE> 17
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
beginning August 15: 1996 - 106%; 1997 - 103%; and 1998 - 100%. Both the Old
Gas Indexed Notes and Senior Gas Indexed Notes are unsecured and bear interest
at a base rate of 13.25% per annum. Concurrently with each quarterly interest
payment the Company is required to pay to the holders additional interest, if
any, based upon the amount by which the average gas spot price ("Average Spot
Price") based upon spot gas prices published by Natural Gas Clearinghouse, Inc.
exceeds $1.75 per million British Thermal Units (MMBTU) during a twelve-month
period preceding such quarterly interest payment period up to a maximum overall
interest rate of 15% per annum for the Senior Gas Indexed Notes and 18% per
annum for the Old Notes. At December 31, 1995, the twelve-month Average Spot
Price was $1.50 per MMBTU resulting in an interest rate of 13.25% per annum for
the period February 15, 1996 to May 14, 1996.
The Senior Secured Notes (i) rank pari passu with other senior debt of the
Company (including bank debt and the Senior Gas Indexed Notes) and rank senior
to the Old Gas Indexed Notes and the Company's Subordinated Debentures, (ii)
mature in 2000 and have no sinking fund requirements, (iii) bear interest at
the rate of 11.5%, (iv) are secured by a lien on certain of the Company's oil
and gas properties (the "Pledged Assets"), with the amount and type of such
properties being subject to adjustment, based upon the value of the properties
and certain other factors, and (v) are redeemable, at the option of the
Company, at the prices (expressed as a percentage of principal amount) and
during the indicated years beginning September 15: 1996 - 103%; 1997 - 102%;
1998 - 101%; and 1999 - 100%. In accordance with the provisions of (iv) above,
the Security Value of the Pledged Assets was required to be $93.8 million or
more as of December 31, 1994 (with $78.8 million thereof being attributable to
proved developed producing properties). As discussed above, the Security Value
as of December 31, 1994 was below the required level which has resulted in an
Event of Default under the Senior Secured Note Indenture. As of December 31,
1995, the Security Values were less than the required percentages (125% in
respect of the Pledged Assets and 110% in respect of the Pledged Producing
Assets), resulting in Deficiencies of $9.4 million in respect of the Pledged
Assets and $18.1 million in respect of the Pledged Producing Assets.
9% Convertible Subordinated Debentures
In February 1990 the Company issued $50,000,000 in aggregate principal amount of
the Subordinated Debentures which are unsecured and bear interest at 9% per
annum. The Subordinated Debentures are currently convertible at any time prior
to redemption or maturity into Class A Common Stock, at a conversion price per
share of $9.38, subject to adjustment. The terms of the Subordinated Debentures
provide for redemption through the operation of a mandatory sinking fund
pursuant to which on March 15 in each of the years 2000 to 2014 (the "Redemption
Period") 5% of the outstanding principal amount of the Subordinated Debentures
are redeemable at 100% of the principal amount thereof plus accrued interest.
At its option, the Company may make additional sinking fund payments in amounts
sufficient to redeem annually up to an additional 10% of the outstanding
principal amount of the Subordinated Debentures. The Subordinated Debentures
are redeemable, otherwise than through the mandatory sinking fund, at the
Company's option, at 105% of their principal amount plus accrued interest
through March 15, 1996, and thereafter reducing by 1% each year to 100% of their
principal amount plus accrued interest at March 15, 2000 and thereafter.
As described herein, the Company is currently in default in respect of all of
its Public Debt.
13
<PAGE> 18
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
4. INCOME TAXES
Actual tax expense (benefit) differs from the statutory rate as shown below:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------
1995 1994 1993
------------------- -------------------- -------------------
Amount % Amount % Amount %
--------- ---- --------- ---- --------- ----
(in thousands, except percent amounts)
<S> <C> <C> <C> <C> <C> <C>
Income tax based on Federal statutory rate $ (10,060) (34.0) $ (8,351) (34.0) $ (2,459) (34.0)
Expired net operating losses and
investment tax credits 417 1.0 217 1.0 - -
Valuation allowance against deferred tax asset 9,643 33.0 8,134 33.0 2,459 34.0
--------- ---- --------- ---- --------- ----
Total actual tax expense (benefit) $ - - $ - - $ - -
========= ==== ========= ==== ========= ====
</TABLE>
The components of the Company's tax assets and liabilities are shown below.
The Company did not record a tax benefit associated with the losses incurred
during 1995, 1994 and 1993, because management believed that the benefits would
not be realized and, therefore, a valuation allowance was provided for the
deferred assets otherwise recorded.
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1995 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Assets
------
Net operating loss carryforwards $ 90,619 $ 79,371 $ 73,327
Statutory depletion carryforwards 3,309 3,309 3,269
Excess of financial statement depletion,
depreciation and amortization over
income tax amounts 66,715 60,659 55,342
Investment tax credit carryforwards 435 537 583
Valuation allowance (59,387) (49,744) (41,610)
-------- -------- --------
Total assets 101,691 94,132 90,911
-------- -------- --------
Liabilities
-----------
Intangible drilling costs and other costs
capitalized for financial statement purposes
and deducted for income tax purposes 99,652 92,362 88,984
Other 2,039 1,770 1,927
-------- -------- --------
Total liabilities 101,691 94,132 90,911
-------- -------- --------
Net deferred tax asset (liability) $ - $ - $ -
======== ======== ========
</TABLE>
14
<PAGE> 19
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
At December 31, 1995 the Company had net operating loss carryforwards for
income tax purposes of approximately $243,638,000 expiring 1996 through 2010 if
not previously utilized. The net operating loss carryforwards of $243,638,000
excludes $22,888,000 of 1995 accrued unpaid interest on the Company's Public
Debt. The Company's net operating losses are subject to various restrictions
that could limit their utilization. The Company has investment tax credit
carryforwards of approximately $435,000 expiring 1996 through 2000 if not
previously utilized. The Company also has statutory depletion carryforwards of
approximately $9,732,000 which may be carried forward until utilized.
5. COMMON STOCK
The Company has two classes of common stock, Class A Common Stock and Class B
Common Stock. Each share of Class B Common Stock is convertible into one share
of Class A Common Stock. Both classes of common stock are $.10 par value per
share. There are 80,000,000 authorized shares of Class A Common Stock and
20,000,000 authorized shares of Class B Common Stock.
From July 1987 through December 1992, the Company paid a quarterly cash
dividend of $.025 on its Class A Common Stock. In January 1993 the Company
announced the elimination of Class A Common Stock dividends. If cash dividends
are paid on Class B Common Stock, a cash dividend must also be paid on Class A
Common Stock in an amount equal to 110% of the per share amount of the cash
dividend paid on Class B Common Stock. The Company's ability to pay dividends
is subject to the provisions of certain covenants contained in the Credit
Agreement and the indentures relating to the Senior Gas Indexed Notes and the
Old Gas Indexed Notes. Holders of Class A Common Stock are entitled to
one-twentieth of one vote per share and holders of Class B Common Stock are
entitled to one vote per share.
The Class B Common Stock is subject to certain restrictions on transfer
designed to prevent the sale of "control blocks" of Class B Common Stock at a
premium price not available to all holders of Class A Common Stock and Class B
Common Stock. No transfer of Class B Common Stock may be made (i) if the
transferee thereof would, as a result of such transfer, have acquired from such
transferor, within the last twelve months, in excess of 15% of the total voting
power of all outstanding shares of the Class A Common Stock and the Class B
Common Stock, (a "Control Block"), and (ii) if any of the shares held by the
transferee comprising the Control Block were acquired by such transferee within
twelve months of the proposed transfer at a price in excess of the market price
when acquired; unless such transferee, concurrently with the proposed transfer,
offers to purchase all of the outstanding shares of both the Class A Common
Stock and the Class B Common Stock at a price not less than the highest price
per share paid, within twelve months of the proposed transfers by such
transferee, to the transferor with respect to any of the shares comprising the
Control Block. Presidio can refuse to recognize any transfer of shares made in
violation of this limitation, including for purposes of voting and dividend
rights, and to require the sale of any such shares. Except for this
limitation, shares of both the Class A Common Stock and the Class B Common
Stock are freely transferable.
15
<PAGE> 20
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
During the six month period ended December 31, 1987, George P. Giard, Jr., and
Robert L. Smith, President and Chief Operating Officer of the Company,
purchased warrants from the Company for $75,000 and $40,000, respectively.
These warrants, which expire in 1997, were to acquire 75,000 shares and 40,000
shares of the Company's Class B Common Stock at an exercise price of $4.625 per
share, which equalled or exceeded the market value of such stock on the date of
purchase. During 1993 Mr. Giard's and Mr. Smith's warrants were amended and
restated and now provide for Mr. Giard to acquire 46,912 shares of Class B
Common Stock at $2.50 per share and Mr. Smith to acquire 20,000 shares of Class
B Common Stock at $4.625 per share and 10,811 shares of Class B Common Stock at
$2.50 per share.
The Company also has issued warrants to acquire: (i) 150,000 shares of Class A
Common Stock at $7.125 per share which expire in 1999; (ii) 50,000 shares of
Class B Common Stock at $4.625 per share which expire in 1997; and (iii) 15,000
shares of Class A Common Stock at $1.0625 which expire in 2003.
6. RELATED PARTY TRANSACTIONS
In connection with the sale of Mountain Gas Resources ("MGRI") (see Note 11),
George P. Giard, Jr. and Robert L. Smith entered into consulting agreements
with MGRI which provided for Mr. Giard and Mr. Smith to provide consulting
services to MGRI for a minimum period of two years; and, in respect of such
consulting services, they each received options to purchase 6,000 shares of
Class A Common Stock of MGRI at an exercise price of $60.00 per share. In July
1993 Mr. Giard and Mr. Smith each received proceeds of $281,000 as a result of
the sale of such options in connection with the MGRI Equity Sale.
See Note 5 for information as to the purchase of warrants from the Company by
certain of the Company's officers.
7. BENEFIT PLANS
On May 17, 1990 the Company's stockholders amended the 1985 Incentive and
Non-Qualified Stock Option and Stock Appreciation Rights Plan. Under such
amended plan, options to purchase up to 6,000,000 shares of the Company's Class
A Common Stock or Class B Common Stock may be granted to key employees at an
exercise price not less than the market price of the stock at the date of
grant. Such stock options expire after ten years. The amended plan also
allows for the issuance of stock appreciation rights in conjunction with the
issuance of options to key employees and provides for granting of non-qualified
stock options or incentive stock options. The Compensation Committee of the
Board of Directors determines the number of options and exercise prices under
which stock options or stock appreciation rights are issued. At December 31,
1995, no stock appreciation rights had been granted. The stock options vest
incrementally over four years.
The Company's stockholders approved Non-Employee Director Stock Option Plans
which granted options to purchase up to 200,000 shares of the Company's Class A
Common Stock and 267,100 shares of the Company's Class B Common Stock to non-
employee directors. The stock options vest incrementally over four years.
These options were granted at an exercise price of not less than the market
price of the stock on the date of grant and expire after ten years.
16
<PAGE> 21
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
At December 31, 1995 and 1994 options to purchase shares of common stock were
as follows:
<TABLE>
<CAPTION>
Class A Common Stock Class B Common Stock
------------------------------ -----------------------------
December 31, December 31,
------------------------------ -----------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Incentive Stock Option Plan (1)
- ---------------------------
At year end -
Options outstanding 1,106,000 1,438,500 733,200 855,800
Options exercisable 457,800 241,000 733,200 578,400
Option price $ .75-$4.09 $ .75-$4.09 $2.50-$6.00 $2.50-$6.00
Non-Employee Director Stock Option Plans (1)
- ----------------------------------------
At year end -
Options outstanding 125,000 200,000 160,400 267,100
Options exercisable 62,500 50,000 160,400 192,200
Option price $1.81 $1.81 $2.50-$4.75 $2.50-$4.75
</TABLE>
(1) No options have been exercised under either the Incentive Stock Option
Plan or the Non-Employee Director Stock Option Plans during the years
ended December 31, 1995, 1994 and 1993.
The Company has an Employee Stock Ownership Plan ("ESOP") which allows the
Company to make contributions as determined each year by the Compensation
Committee of the Company's Board of Directors. The ESOP is leveraged with
loans provided by the Company. During 1994 the Company repriced all of the
unallocated shares of the Company's Common Stock held by the ESOP at $1.75 per
share and, thus, reduced the ESOP loans by $4,481,000. During 1995 the Company
repriced all the unallocated shares held by the ESOP at $.09 per share which
reduced the ESOP loans by $2,272,000. Shares are allocated to participants
based on the principal payments made each year in respect of such loans by the
ESOP. All full-time employees are eligible to participate in the ESOP. The
amounts charged to expense in connection with the annual ESOP contribution are
based on the market price of the Company's Common Stock. The total amounts
charged to general and administrative expense in connection with the ESOP for
the years ended December 31, 1995, 1994 and 1993, were $122,000, $300,000 and
$256,000, respectively.
At December 31, 1995 and 1994 the ESOP held the following shares of the
Company's Common Stock:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Shares of Common Stock allocated to
participants' accounts 860,000 869,000
Shares of Common Stock committed to be
released to participants' accounts in
connection with such years contribution 1,362,000 280,000
Unallocated shares of Common Stock held
for future years contributions - 1,362,000
--------- ---------
2,222,000 2,511,000
========= =========
</TABLE>
The fair market value of the unallocated shares of Common Stock held for future
contributions totaled $0 and $800,000 at December 31, 1995 and 1994,
respectively.
17
<PAGE> 22
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
On January 1, 1994 the Company adopted a 401(k) Plan for all full-time
employees. The 401(k) Plan allows for voluntary employee contributions and for
discretionary Company contributions as determined each year by the Compensation
Committee of the Company's Board of Directors. The total amount charged to
general and administrative expense for the years ended December 31, 1995 and
1994 in connection with the 401(k) Plan was $265,000 and $416,000,
respectively.
In 1993 the Company adopted a non-qualified supplemental employee retirement
plan ("SERP") that, as amended, provides certain executive officers with
defined retirement benefits in excess of qualified plan limits imposed by
federal tax law. Payments under the SERP commence upon the executive reaching
age 65 or, after a change of control of the Company and at the option of the
executive, at a discounted amount upon the executive's termination which at
December 31, 1995 totaled $620,000. At December 31, 1995 and 1994 the
estimated executive benefits and the Company's associated obligations for the
SERP (which is unfunded) were as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Vested Benefits $ 620,000 $ 480,000
Non-vested Benefits 175,000 165,000
---------- ----------
Total $ 795,000 $ 645,000
========== ==========
Projected benefit obligations $1,522,000 $1,259,000
Less: Unrecognized prior service cost 615,000 659,000
---------- ----------
Accrued liability $ 907,000 $ 600,000
========== ==========
</TABLE>
SERP expense for the years ended December 31, 1995, 1994 and 1993 was as
follows which assumes a 6% discount rate and a 6% rate of compensation
increase:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Service Cost $192,000 $317,000 $135,000
Interest Cost 115,000 101,000 47,000
-------- -------- --------
Total $307,000 $418,000 $182,000
======== ======== ========
</TABLE>
During 1995 the Company adopted severance agreements (the "Severance
Agreements") for certain key employees and a severance plan (the "Severance
Plan") for all other employees. The Severance Plan generally provides for a
payment equal to one-twelfth of the employee's annual base salary multiplied by
the number of years of continuous service with the Company plus two months'
salary, and the Severance Agreements generally provide for a payment equal to an
employee's annual base salary (including the Company's historical retirement
plan contribution to such employee), as adjusted in the case of certain key
employees by an additional seven to eight months' salary and for certain other
factors. Health and medical payments are also provided under both plans for
severed employees for a period of at least six months. During the year ended
December 31, 1995, the Company incurred $900,000 of expense associated with the
Severance Plan.
18
<PAGE> 23
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
8. COMMITMENTS AND CONTINGENCIES
The Company has lease commitments for various office facilities and computer
equipment. Future minimum annual rental payments required under such leases
for the years ending December 31, 1996 through 2000 are $1,051,000, $741,000,
$553,000, $134,000 and $0, respectively. Rental expense for the years ended
December 31, 1995, 1994 and 1993 totaled $1,014,000, $1,011,000 and $1,025,000,
respectively.
In December 1992 the Company completed the sale of the common stock of its
wholly-owned subsidiaries, Peake Energy, Inc. and Peake Operating Company, to a
purchaser (the "Purchaser"). Subsequent to the sale, the Company retained
proved undeveloped gas reserves and undeveloped acres in West Virginia (see
Note 12), and such reserves and acreage will be developed by the Company and the
Purchaser in accordance with a joint drilling participation agreement. This
agreement gives the Purchaser the option to participate, to the extent of 50% of
the Company's interest (or more by mutual consent), in the development of such
reserves and acreage. The consideration for the Purchaser's participation in
each well drilled pursuant to the joint drilling participation agreement is (i)
payment of its share of drilling and completion costs, (ii) payment to the
Company of an additional $90 per net acre for its share of the drillsite acreage
allocated to each such well and (iii) payment to the Company of an overriding
royalty of 3.125% (proportionately reduced) in accordance with its net interest
in the revenues attributable to each such well. The Company believes that,
subject to the availability of funds, virtually all of its proved undeveloped
gas reserves and unproved undeveloped acreage will be fully developed prior to
the termination of the joint drilling participation agreement in 2008; however,
the agreement provides that 50% of any such reserves and/or acreage that might
be retained by the Company as of such termination date would be conveyed to the
Purchaser for no additional consideration.
A portion of the gas reserves sold to the Purchaser is subject to a long-term
gas contract providing for prices above the current spot market price for West
Virginia gas. In connection with the sale, the Company guaranteed certain
minimum levels of performance, on an annual basis, by the gas purchaser under
this contract such that should performance under this contract be less than the
levels guaranteed by the Company, the Purchaser can draw on a letter of credit
entered into by the Company. During the years ending April 1, 1997 through
1999, respectively, the following amounts can be drawn by the Purchaser on such
letter of credit: $1,735,000, $1,692,000 and $1,656,000. The expense
associated with such guarantee for the years ended December 31, 1995, 1994 and
1993 totaled $323,000, $166,000 and $0, respectively.
19
<PAGE> 24
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 requires disclosure in
respect of the fair value of various financial instruments owned or issued by
the Company. The estimated fair values of such financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
------------------------- ------------------------
Carrying Fair Carrying Fair
Amount Value (1) Amount Value (1)
-------- ------ -------- ------
(in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents (2) $ 7,060 $ 7,060 $ 6,423 $ 6,423
Long-term bank debt (3) 21,413 21,413 21,000 21,000
Senior Secured Notes (4) 75,000 75,750 75,000 56,250
Senior Gas Indexed Notes (4) 99,770 66,347 99,770 44,897
Senior Subordinated Gas Indexed Notes (4) 230 153 230 104
9% Convertible Subordinated Debentures (4) 50,000 9,375 50,000 16,500
Letters of Credit (5) - 330 - 524
</TABLE>
The following methods and assumptions were used to estimate the fair value
for each class of financial instruments:
(1) The fair value is an estimate and does not necessarily represent the
amount that would be paid in an actual sale.
(2) The carrying amount approximates fair value because of the short
maturity of those instruments.
(3) The carrying amount approximates fair value because such debt is
secured by a portion of the Company's oil and gas assets and the
interest thereon was at the prime rate plus 1%.
(4) The fair value was estimated based on quoted market prices.
(5) The fair value was estimated based on the fees to be incurred in
connection with the letters of credit since, under present
circumstances, no amounts will be required to be drawn against such
letters of credit.
10. MAJOR PURCHASERS
The Company had sales to two purchasers which accounted for in excess of 10% of
the Company's oil and gas revenues during 1995, 1994 and 1993. Sales to one of
such purchasers totaled $8,841,000 (28%), $13,688,000 (34%) and $11,541,000
(24%) for 1995, 1994 and 1993, respectively, and sales to the other purchaser
totaled $4,776,000 (15%), $5,728,000 (14%) and $9,078,000 (19%) for 1995, 1994
and 1993, respectively. A discontinuance of oil and gas sales to these two
purchasers would not have a material impact on the Company's operations because
the Company believes that a number of other companies are available to purchase
its oil and gas production.
20
<PAGE> 25
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
11. DISCONTINUED OPERATIONS
In July 1992 the Company completed a transaction with MS Gas Resources, Inc., a
newly-formed subsidiary of The Morgan Stanley Leveraged Equity Fund II, L.P.
(the "Morgan Stanley Fund"), pursuant to which the Company's wholly-owned
subsidiary, Mountain Gas Resources, Inc., was merged into MS Gas Resources (the
"MGRI Divestiture") whose name was then changed to Mountain Gas Resources, Inc.
("MGRI"). Prior to the MGRI Divestiture, Mountain Gas Resources owned and
operated all of the Company's natural gas gathering and processing facilities
in the Green River Basin in southwestern Wyoming and marketed natural gas and
natural gas liquids. In connection with the MGRI Divestiture, the Company
received an equity interest in MGRI. Such interest provided the Company with
the right to share in any profits realized upon a subsequent sale of MGRI prior
to December 31, 1996. In July 1993 the Company received $11.6 million from the
sale (the "MGRI Equity Sale") of such equity interest in MGRI. The proceeds of
the MGRI Equity Sale were used to prepay an equivalent amount of the Company's
bank debt.
12. OIL AND GAS COST AND RESERVE INFORMATION
Capitalized Costs Related to Oil and Gas Producing Activities
The Company's oil and gas operations are conducted entirely in the United
States. Aggregate capitalized costs relating to such operations and related
accumulated depletion, depreciation and amortization are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
--------- ---------
(in thousands)
<S> <C> <C>
Oil and gas properties:
Proved $ 487,770 $ 484,903
Unproved:
Subject to amortization 3,025 3,151
Not subject to amortization (1) 24,432 23,816
Accumulated depletion,
depreciation and amortization (299,314) (284,909)
--------- ---------
Net oil and gas properties $ 215,913 $ 226,961
========= =========
</TABLE>
(1) The total as of December 31, 1995 is comprised of costs incurred during
1995, 1994, 1993 and prior to 1993 of $6.6 million, $6.1 million, $1.7
million, and $10.0 million, respectively.
21
<PAGE> 26
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Costs Incurred in Oil and Gas Producing Activities
Costs incurred in oil and gas operations and related depletion, depreciation
and amortization per equivalent barrel are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1995 1994 1993
------- ------- -------
(in thousands, except per barrel amounts)
<S> <C> <C> <C>
Property acquisition costs:
Proved $ 187 $ 1,831 $ 1,003
Unproved 3,945 4,768 1,571
------- ------- -------
$ 4,132 $ 6,599 $ 2,574
======= ======= =======
Exploration costs $ 4,629 $ 3,500 $ 2,965
======= ======= =======
Development costs $ 9,244 $24,420 $15,478
======= ======= =======
Depletion, depreciation and amortization $14,405 $17,655 $18,357
======= ======= =======
Depletion, depreciation and amortization
per equivalent barrel $ 4.32 $ 4.41 $ 4.60
======= ======= =======
</TABLE>
Estimated Quantities of Proved Oil and Gas Reserves (Unaudited)
The reserve information presented below is based upon reports prepared by the
Company and reviewed by its independent petroleum engineering firm. Reserve
estimates are inherently imprecise and estimates of new discoveries are more
imprecise than those of producing oil and gas properties. Accordingly, these
estimates are expected to change as future information becomes available.
Proved oil and gas reserves are the estimated quantities of oil, gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved developed oil and gas
reserves are those expected to be recovered through existing wells with
existing equipment and operating methods.
22
<PAGE> 27
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Net quantities of proved reserves and proved developed reserves of oil
(including condensate and natural gas liquids) and gas for the Company as of
the beginning and the end of the years ended December 31, 1995, 1994 and 1993,
as well as the changes in proved reserves during such periods, are set forth in
the tables below.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Oil reserves (thousands of barrels):
-----------------------------------
Proved oil reserves, beginning of period 13,273 13,036 13,863
Revisions of previous estimates (628) 1,076 304
Extensions, discoveries and other additions 293 2,816 397
Purchases of reserves in place 29 255 113
Sales of reserves in place (294) (2,773) (205)
Production (866) (1,137) (1,436)
------- ------- -------
Proved oil reserves, end of period 11,807 13,273 13,036
======= ======= =======
Proved developed oil reserves, end of period 9,506 9,494 9,942
======= ======= =======
Gas reserves (MMCF):
------------------
Proved gas reserves, beginning of period 323,978 302,954 268,871
Revisions of previous estimates (35,606) (4,618) 15,450
Extensions, discoveries and other additions 33,298 64,666 31,113
Purchases of reserves in place 681 6,242 5,618
Sales of reserves in place (19,561) (28,047) (2,758)
Production (14,790) (17,219) (15,340)
------- ------- -------
Proved gas reserves, end of period (1) 288,000 323,978 302,954
======= ======= =======
Proved developed gas reserves, end of period 146,943 176,207 164,530
======= ======= =======
</TABLE>
(1) Includes proved undeveloped gas reserves at December 31, 1995, 1994 and
1993 of 16.3 BCF, 26.1 BCF and 27.5 BCF, respectively, which are subject
to a joint drilling participation agreement as discussed in Note 8.
23
<PAGE> 28
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves
(Unaudited)
Future net cash flows presented below are computed using period-end prices and
costs with consideration of price changes only to the extent provided by
contractual arrangements. Future income tax expenses are estimated after
consideration of statutory tax rates, permanent differences and tax credits.
Future general and administrative expenses and interest expense have not been
considered.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1995(1) 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Future oil and gas sales $688,448 $741,640 $848,193
Future production costs 227,361 226,459 241,204
Future development costs 68,387 79,959 68,172
-------- -------- --------
Future net cash flows before income tax 392,700 435,222 538,817
Future income taxes 7,905 20,491 60,365
-------- -------- --------
Future net cash flows after income taxes 384,795 414,731 478,452
Discount at 10% per annum 180,121 189,233 216,813
-------- -------- --------
Standardized measure of discounted
future net cash flows, after tax $204,674 $225,498 $261,639
======== ======== ========
Discounted future net cash flows
before income taxes (2) $208,879 $236,639 $294,650
======== ======== ========
</TABLE>
(1) The ability of the Company to maintain and/or increase current levels
of oil and gas production and to find and develop new proved reserves
of oil and gas to replace the reserves being produced in 1996 depends
on the availability of funds for capital expenditures. Due to the
Company's current financial condition, the Company has limited
funds available for development and other drilling operations.
Therefore, the Company's production and volumes of proved oil and gas
reserves could decline significantly during 1996 and would result in
a reduction in discounted future net cash flows (See Note 1).
(2) Includes proved undeveloped reserves at December 31, 1995, 1994 and
1993 with a present value of future net revenues discounted at 10% of
$2,354,000, $2,294,000 and $3,260,000, respectively, which are
subject to a joint drilling participation agreement as discussed in
Note 8.
24
<PAGE> 29
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
Standardized Measure of Discounted Future Net Cash Flows, After Tax (Unaudited)
The following are the principal sources of change in the standardized measure
of discounted future net cash flows, after tax.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Beginning of period $225,498 $261,639 $252,224
Sales of oil and gas produced,
net of production costs (18,181) (25,787) (31,114)
Sales of reserves in place (19,212) (41,253) (2,737)
Purchases of reserves in place 531 4,476 5,783
Net changes in price and
production costs 1,789 (65,284) (18,931)
Extensions, discoveries and improved
recovery, less related costs 13,959 49,656 25,356
Previously estimated development
costs incurred during the year 4,978 10,234 7,216
Revisions of previous quantity estimates (26,912) 1,276 15,036
Accretion of discount 23,664 29,465 28,491
Net change in income taxes 6,937 21,870 (324)
Changes in production rates and other (8,377) (20,794) (19,361)
-------- -------- --------
End of period $204,674 $225,498 $261,639
======== ======== ========
</TABLE>
25
<PAGE> 30
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
13. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- ------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Oil and gas revenues $ 8,844 $ 8,093 $ 6,771 $ 7,590 $ 31,298
Gross profit 1,141 973 335 1,327 3,776
Loss from continuing operations (7,617) (8,076) (8,476) (5,419) (29,588)
Net loss (7,617) (8,076) (8,476) (5,419) (29,588)
Loss from continuing operations per share
of Class A Common Stock (.28) (.30) (.31) (.20) (1.08)
Loss from continuing operations per share
of Class B Common Stock (.28) (.30) (.31) (.20) (1.08)
Loss per share of Class A Common Stock (.28) (.30) (.31) (.20) (1.08)
Loss per share of Class B Common Stock (.28) (.30) (.31) (.20) (1.08)
Year ended December 31, 1994:
Oil and gas revenues $ 10,542 $ 10,145 $ 9,742 $ 10,214 $ 40,643
Gross profit 2,496 1,854 1,811 1,971 8,132
Loss from continuing operations (5,727) (6,205) (6,803) (5,827) (24,562)
Net loss (5,727) (6,205) (6,803) (5,827) (24,562)
Loss from continuing operations per share
of Class A Common Stock (.21) (.23) (.25) (.21) (.91)
Loss from continuing operations per share
of Class B Common Stock (.21) (.23) (.25) (.21) (.91)
Loss per share of Class A Common Stock (.21) (.23) (.25) (.21) (.91)
Loss per share of Class B Common Stock (.21) (.23) (.25) (.21) (.91)
Year ended December 31, 1993:
Oil and gas revenues $ 12,329 $ 12,352 $ 10,963 $ 11,832 $ 47,476
Gross profit 3,465 3,816 2,233 3,243 12,757
Loss from continuing operations (3,775) (3,564) (7,055) (4,389) (18,783)
Net earnings (loss) (3,775) (3,564) 4,495 (1) (4,389) (7,233)
Loss from continuing operations per share
of Class A Common Stock (.14) (.13) (.26) (.16) (.70)
Loss from continuing operations per share
of Class B Common Stock (.14) (.13) (.26) (.16) (.70)
Earnings (loss) per share of Class A Common Stock (.14) (.13) .17 (.16) (.27)
Earnings (loss) per share of Class B Common Stock (.14) (.13) .17 (.16) (.27)
</TABLE>
(1) Includes a $11.6 million gain on the sale of the Company's remaining
equity interest in its discontinued gas gathering, processing and
marketing operations (see Note 11).
26
<PAGE> 31
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(Continued)
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Unaudited Financial Statements
For the Nine Months Ended
September 30, 1996 and 1995
<PAGE> 32
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------- -----------
(Unaudited)
(in thousands)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 9,599 $ 7,060
Accounts receivable:
Oil and gas sales 4,749 4,572
Joint interest owners and other 1,566 2,255
Other 2,971 1,280
-------- --------
Total current assets 18,885 15,167
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties using full cost accounting 521,935 515,227
Other 4,389 4,371
-------- --------
Total 526,324 519,598
Less accumulated depletion, depreciation and amortization 312,358 302,733
-------- --------
Net property, plant and equipment 213,966 216,865
-------- --------
OTHER ASSETS:
Deferred charges 9,649 8,761
Other 1,202 1,153
-------- --------
Total other assets 10,851 9,914
-------- --------
$243,702 $241,946
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable:
Oil and gas sales $ 1,818 $ 2,139
Trade and other 2,775 5,137
Accrued interest 46,195 23,214
Other accrued liabilities 3,210 3,913
Current debt 246,413 246,413
-------- ---------
Total current liabilities 300,411 280,816
-------- --------
OTHER NONCURRENT LIABILITIES 11,077 11,125
-------- --------
STOCKHOLDERS' DEFICIT:
Class A Common stock, $.10 par value per share; 25,318,000 shares
outstanding at September 30, 1996 and December 31, 1995 2,532 2,532
Class B Common stock, $.10 par value per share; 3,217,000 shares
outstanding at September 30, 1996 and December 31, 1995 322 322
Additional paid-in capital 126,776 126,776
Retained deficit (197,416) (179,625)
-------- --------
Total stockholders' deficit (67,786) (49,995)
-------- --------
$243,702 $241,946
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
1
<PAGE> 33
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
1996 1995
-------- --------
(in thousands, except
per share amounts)
<S> <C> <C>
Oil and gas revenues $ 26,761 $ 23,708
Less - direct costs:
Lease operating 7,012 8,775
Production taxes 1,491 1,346
Depletion, depreciation and amortization 9,390 11,138
-------- --------
8,868 2,449
General and administrative expense (3,074) (4,844)
Interest expense (24,768) (21,839)
Other 1,183 65
-------- --------
Net loss $(17,791) $(24,169)
======== ========
Loss per share of Class A and Class B Common Stock $ (.62) $ (.89)
======== ========
Weighted average number of common shares outstanding 28,535 27,258
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
2
<PAGE> 34
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
1996 1995
------- -------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(17,791) $(24,169)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depletion, depreciation and amortization 9,625 11,486
Amortization of debt issuance costs
included in interest expense 920 939
Other 929 1,118
Changes in other assets and liabilities:
Decrease in accounts receivable 512 7,063
Increase in other current assets (2,389) (523)
Increase in other noncurrent assets (1,857) (894)
Decrease in accounts payable (2,683) (8,318)
Increase in accrued interest and other
accrued liabilities 22,278 12,588
Increase (decrease) in other noncurrent liabilities (279) 1,618
-------- --------
Net cash provided by operating activities 9,265 908
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (6,726) (14,001)
Proceeds from sale of oil and gas properties - 14,800
-------- --------
Net cash provided by (used in)
investing activities (6,726) 799
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of bank debt - 8,700
Payments of bank debt - (8,287)
-------- --------
Net cash provided by financing activities - 413
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,539 2,120
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 7,060 6,423
-------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 9,599 $ 8,543
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE> 35
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 1996 and 1995
1. The accompanying financial statements are unaudited; however,
management believes all material adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation have been made.
These financial statements and notes should be read in conjunction with the
financial statements and related notes included in Presidio Oil Company's
(the "Company" or "Presidio") annual report on Form 10-K for the year ended
December 31, 1995.
The Company's Senior Subordinated Gas Indexed Notes, Senior Gas Indexed
Notes and Senior Secured Notes (collectively the "Notes") are guaranteed by
all significant subsidiaries of the Company (the "Guarantors"). Separate
financial statements of the Guarantors are not included herein because the
Guarantors have fully, unconditionally, jointly and severally guaranteed
the Company's obligations with respect to the Notes and the Company (which
is primarily a holding company and whose operating income is generated by
its subsidiaries) has no separate operations of its own. The operations,
assets, liabilities and equity of the subsidiaries of the Company that are
not Guarantors are inconsequential.
2. The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. During 1994 and 1995,
the financial condition and operating cash flows of the Company were
materially and adversely affected by a significant decline in the price
that the Company received for its natural gas production. The Company's
revenues and operating cash flows thus declined significantly during such
periods, making it unlikely that the Company would be able to continue as a
going concern. Because of the Company's deteriorating financial condition,
the Company has failed to satisfy certain payment and other obligations
under, and events of default ("Events of Default") have occurred in respect
of, the Company's public debt and bank debt obligations.
On August 5, 1996, the Company entered into an acquisition agreement
with Tom Brown, Inc. ("Tom Brown") whereby Tom Brown would acquire the
Company for approximately $183 million (consisting of approximately $101
million in cash and 5 million shares of Tom Brown common stock valued at
$16.50 per share) (the "Exchange Consideration"). In connection with such
agreement, inasmuch as such consideration is not sufficient to pay the full
amount of all of the Company's indebtedness, the Company filed for
bankruptcy protection under chapter 11 of title 11 of the United States
Code; and, in connection therewith, filed a joint plan of reorganization
(the "Plan") which provided for specific allocations of the Exchange
Consideration among the Company's debt and equity holders. The Plan was
amended as of October 8, 1996, and it and a disclosure statement with
respect thereto were distributed to the Company's debt and equity holders
for a vote thereafter. The Plan, if approved by a sufficient number of the
Company's debt and equity holders, would result in the acquisition of the
Company by Tom Brown. However, there can be no assurance that the Plan
will be approved. Even if the Plan is not approved by all classes of the
Company's debt holders and its stockholders, the Plan may still be
implemented. In such event, the Company's stockholders and/or the holders
of its 9% Convertible Subordinated Debentures Due 2015 could receive none
of the Exchange Consideration under the Plan. A hearing on the
confirmation of the Plan is scheduled for November 13, 1996.
4
<PAGE> 36
Notes to Unaudited Consolidated Financial Statements
(Continued)
3. The computation of loss per share excludes the weighted average
number of unallocated shares held by the Company's Employee Stock
Ownership Plan which totaled 1,217,000 shares and 1,277,000 shares for the
quarter and nine months ended September 30, 1995, respectively.
4. Included in the Consolidated Statements of Cash Flows is $867,000 and
$8,201,000 of interest paid, net of amounts capitalized, during the nine
months ended September 30, 1996 and 1995, respectively.
5
<PAGE> 37
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(Continued)
TOM BROWN, INC.
Unaudited Pro Forma Financial Statements
For the Year Ended December 31, 1995
and the Nine Months Ended September 30, 1996
<PAGE> 38
TOM BROWN, INC.
Pro Forma Financial Information
Set forth below are an Unaudited Pro Forma Condensed Consolidated Balance Sheet
at September 30, 1996 and Unaudited Pro Forma Consolidated Statements of
Operations for the year ended December 31, 1995 and the nine months ended
September 30, 1996. The pro forma balance sheet at September 30, 1996 has been
prepared assuming the transaction whereby Tom Brown, except to the extent
already owned by Tom Brown, purchased all of Presidio's bank obligations,
public debt obligations and common stock (the "Exchange") was consummated on
September 30, 1996. The pro forma statements of operations have been prepared
assuming that on January 1, 1995, (a) Tom Brown consummated the KN Acquisition,
(b) Tom Brown completed the sale of 4.6 million shares of its common stock (the
"Stock Offering") resulting in net proceeds of $47.7 million, and (c) the
Exchange was consummated. The following Unaudited Pro Forma Condensed
Consolidated Balance Sheet and Unaudited Pro Forma Consolidated Statements of
Operations do not purport to be indicative of the pro forma financial position
of Tom Brown or results of operations that would actually have been reported
had such transactions been effective on the date or at the beginning of the
period indicated.
1
<PAGE> 39
TOM BROWN, INC.
Pro Forma Balance Sheet
September 30, 1996
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Adjustments
Historical ----------------
-------------------------- Tom Brown Tom Brown
Tom Brown Presidio for the Exchange Pro Forma
--------- -------- ---------------- ---------
(SEE NOTE 3)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . $ 10,929 $ 9,599 $ (251) $ 20,277
Accounts Receivable . . . . . . . . . . . . 9,561 6,315 0 15,876
Other . . . . . . . . . . . . . . . . . . . 694 2,971 0 3,665
-------- -------- -------- --------
TOTAL CURRENT ASSETS . . . . . . . . . . . 21,184 18,885 (251) 39,818
-------- -------- -------- --------
PROPERTY, PLANT AND EQUIPMENT:
Oil and Gas Assets . . . . . . . . . . . . 226,436 521,935 (321,854) 426,517
Other . . . . . . . . . . . . . . . . . . . 23,685 4,389 0 28,074
-------- -------- -------- --------
250,121 526,324 (321,854) 454,591
Less: ACCUMULATED DEPLETION, DEPRECIATION
AND AMORTIZATION . . . . . . . . . . . . . 123,872 312,358 (312,358) 123,872
-------- -------- -------- --------
Net Property Plant and Equipment . . . . . 126,249 213,966 (9,496) 330,719
-------- -------- -------- --------
OTHER ASSETS:
Investment in Securities . . . . . . . . . 51,093 0 (51,093) 0
Deferred Income Taxes . . . . . . . . . . . 8,903 0 0 8,903
Deferred Charges 0 9,649 (9,649) 0
Other . . . . . . . . . . . . . . . . . . . 1,464 1,202 (1,100) 1,566
-------- -------- -------- --------
TOTAL OTHER ASSETS . . . . . . . . . . . . 61,460 10,851 (61,842) 10,469
-------- -------- -------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . $208,893 $243,702 $(71,589) $381,006
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable . . . . . . . . . . . . . $ 11,950 $ 4,593 $ 0 $ 16,543
Accrued Interest . . . . . . . . . . . . . 0 46,195 (46,195) 0
Other Accrued Liabilities . . . . . . . . . 1,688 3,210 5,700 10,598
Current Debt . . . . . . . . . . . . . . . 0 246,413 (246,413) 0
-------- -------- -------- --------
TOTAL CURRENT LIABILITIES . . . . . . . . . 13,638 300,411 (286,908) 27,141
-------- -------- -------- --------
BANK DEBT . . . . . . . . . . . . . . . . . 0 0 105,075 105,075
-------- -------- -------- --------
OTHER NON CURRENT LIABILITIES . . . . . . . 0 11,077 (2,276) 8,801
-------- -------- -------- --------
STOCKHOLDERS' EQUITY:
Preferred Stock . . . . . . . . . . . . . . 100 0 0 100
Common Stock . . . . . . . . . . . . . . . 2,116 2,854 (2,583) 2,387
Additional Paid-In Capital . . . . . . . . 261,283 126,776 (82,313) 305,746
Accumulated Equity (Deficit) . . . . . . . (68,244) (197,416) 197,416 (68,244)
-------- -------- -------- --------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) . . . 195,255 (67,786) 112,520 239,989
-------- -------- -------- --------
$208,893 $243,702 $(71,589) $381,006
======== ======== ======== ========
</TABLE>
See notes to Pro Forma Financial Statements
2
<PAGE> 40
TOM BROWN, INC.
Pro Forma Statement of Operations
for the Year Ended December 31, 1995
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Historical Adjustments
------------------------ --------------------------------------
Tom Brown Tom Brown
Stock for the for the Tom Brown
Tom Brown Presidio Offering KN Acquisition Exchange ProForma
---------- ---------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES: (See Note 1) (See Note 2) (See Note 3)
Oil and Gas Sales ........................... $ 20,385 $ 31,298 $ 0 $ 7,502 $ 0 $ 59,185
Gain (Loss) on Sales of Oil and
Gas Properties............................ 4,402 0 0 923 0 5,325
Marketing, Gathering, Processing
and Storage .............................. 15,572 0 0 893 0 16,465
Interest and Other .......................... 694 1,731 0 1,421 0 3,846
---------- ---------- ---------- ---------- ---------- ----------
TOTAL REVENUES ............................ 41,053 33,029 0 10,739 0 84,821
---------- ---------- ---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Lease Operating ............................. 4,834 11,342 0 1,993 0 18,169
Production Taxes ............................ 2,043 1,775 0 766 0 4,584
Cost of Gas Marketed ........................ 13,146 0 0 0 0 13,146
Exploration Costs ........................... 3,644 0 0 775 2,190 6,609
Impairment of Leasehold Costs ............... 582 0 0 240 0 822
General and Administrative .................. 4,184 5,529 0 700 (4,029) 6,384
Depletion, Depreciation and
Amortization ............................. 9,994 14,405 0 4,876 (349) 28,926
Write-Down of Oil and Gas
Properties ............................... 8,368 0 0 0 0 8,368
Interest Expense ............................ 1,369 29,566 (1,369) 0 (23,015) 6,551
---------- ---------- ---------- ---------- ---------- ----------
TOTAL COSTS AND EXPENSES .................... 48,164 62,617 (1,369) 9,350 (25,203) 93,559
---------- ---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES ............................. (7,111) (29,588) 1,369 1,389 25,203 (8,738)
INCOME TAX BENEFIT (PROVISION):
Recognition of Deferred Tax Asset ........... 13,170 0 0 0 0 13,170
Income Tax Benefit (Expense) ................ (274) 0 (465) (157) 1,490 594
---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss) ........................... 5,785 (29,588) 904 1,232 26,693 5,026
Preferred Stock Dividends ................... 0 0 0 1,750 0 1,750
---------- ---------- ---------- ---------- ---------- ----------
Earnings (Loss) Attributable to
Common Shares ............................ $ 5,785 $ (29,588) $ 904 $ (518) $ 26,693 $ 3,276
========== ========== ========== ========== ========== ==========
Earnings (Loss) Per Share ................... $ 0.34 $ .13
========== ==========
Weighted Average Shares Outstanding ......... 16,852 24,315
========== ==========
</TABLE>
See notes to Pro Forma Financial Statements
3
<PAGE> 41
TOM BROWN, INC.
Pro Forma Statement of Operations
for the Nine Months Ended
September 30, 1996
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Historical Adjustments
------------------------ --------------------------
Tom Brown Tom Brown
for the for the Tom Brown
Tom Brown Presidio KN Acquisition Exchange ProForma
---------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES: (See Note 2) (See Note 3)
Oil and Gas Sales ........................ $ 24,797 $ 26,761 $ 0 $ 0 $ 51,558
Marketing, Gathering, Processing
and Storage ............................ 16,629 0 0 0 16,629
Interest and Other ....................... 623 1,183 0 0 1,806
---------- ---------- ---------- ---------- ----------
TOTAL REVENUES ......................... 42,049 27,944 0 0 69,993
---------- ---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Lease Operating .......................... 4,697 7,012 0 0 11,709
Production Taxes ......................... 1,844 1,491 0 0 3,335
Cost of Gas Marketed ..................... 13,179 0 0 0 13,179
Exploration Costs ........................ 1,753 0 0 1,102 2,855
Impairment of Leasehold Costs ............ 116 0 0 0 116
General and Administrative ............... 4,166 3,074 0 (2,025) 5,215
Depletion, Depreciation and
Amortization ........................... 11,369 9,390 0 (660) 20,099
Interest Expense ......................... 18 24,768 0 (19,862) 4,924
---------- ---------- ---------- ---------- ----------
TOTAL COSTS AND
EXPENSES ............................. 37,142 45,735 0 (21,445) 61,432
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES ........................... 4,907 (17,791) 0 21,445 8,561
Income Tax Benefit (Expense) ............. (1,668) 0 0 (1,242) (2,910)
---------- ---------- ---------- ---------- ----------
Net Income (Loss) ........................ 3,239 (17,791) 0 20,203 5,651
Preferred Stock Dividends ................ 1,235 0 77 0 1,312
---------- ---------- ---------- ---------- ----------
Earnings (Loss) Attributable to
Common Shares .......................... $ 2,004 $ (17,791) $ (77) $ 20,203 $ 4,339
========== ========== ========== ========== ==========
Earnings (Loss) Per Share ................ $ 0.09 $ .18
========== ==========
Weighted Average Shares
Outstanding ............................ 21,123 23,947
========== ==========
</TABLE>
See notes to Pro Forma Financial Statements
4
<PAGE> 42
TOM BROWN, INC.
Notes to Pro Forma Financial Statements
1. TOM BROWN COMMON STOCK OFFERING
In June 1995, Tom Brown purchased $56.15 million principal amount of
Presidio's Senior Gas Indexed Notes. The purchase of the Gas Indexed
Notes was originally financed through borrowings under the Tom Brown
Credit Facility. Such borrowings were repaid in November 1995 from
proceeds realized from the Stock Offering. The pro forma statement of
operations assumes the purchase of the Senior Gas Indexed Notes and
the Stock Offering occurred on January 1, 1995 thereby (a) eliminating
the interest expense associated with the borrowings under the Tom
Brown Credit Facility and (b) increasing the weighted average number
of shares of Tom Brown Common Stock outstanding during the year ended
December 31, 1995.
2. TOM BROWN PURCHASE OF KN PRODUCTION COMPANY
Tom Brown completed the KN Acquisition in January 1996. The
consideration paid by Tom Brown consisted of (a) $25 million in the
form of 1,000,000 shares of Tom Brown Series A Preferred Stock, with a
par value of $.10, (b) $11.25 million in the form of 918,367 shares of
Tom Brown Common Stock, valued at $12.25 per share, and (c) the
assumption of certain liabilities.
The acquisition of KN Production has been accounted for using the
purchase method of accounting. The pro forma statements of operations
assumes the KN Acquisition occurred on January 1, 1995. Therefore,
since the KN Acquisition closed in January 1996, the adjustments shown
for the year ended December 31, 1995 includes 12 months of operations
from such properties. The historical amounts included in the pro
forma statements of operations for the KN Production properties
include only the actual revenues, costs of maintaining the producing
properties and associated production taxes. The amounts shown for
general and administrative expense, depletion, depreciation and
amortization, income taxes, and preferred stock dividends have been
estimated based upon the actual costs expected to be incurred by Tom
Brown.
3. THE EXCHANGE
The proposed purchase of Presidio by Tom Brown in connection with the
Exchange assumes Tom Brown consideration of (i) $105,075,000 in cash
financed by borrowings under the Tom Brown Credit Facility, (ii)
$44,733,760 in the form of 2,711,137 shares of Tom Brown Common Stock
(such amount excludes the shares which would otherwise be allocated to
the $56.15 million of Senior Gas Indexed Notes owned by Tom Brown)
valued for purposes of the pro forma presentation at $16.50 per share,
and (iii) the assumption of certain liabilities of Presidio. In the
Exchange, Tom Brown has acquired the outstanding Presidio Common
Stock, the Debt Obligations and the Bank Obligations. The Tom Brown
purchase of Presidio reflects the purchase method of accounting.
5
<PAGE> 43
Notes to Pro Forma Financial Statements
(Continued)
Adjustments to Balance Sheet
The pro forma balance sheet assumes that the Exchange is consummated
on September 30, 1996. The pro forma balance sheet adjustments
reflect (a) the adjustments to oil and gas assets for the allocation
of the purchase price, (b) the elimination of Presidio's accumulated
depletion, depreciation and amortization, (c) the elimination of Tom
Brown's investment in Presidio's Senior Gas Indexed Notes, (d) the
elimination of Presidio's deferred charges associated with its Debt
Obligations and the Exchange, (e) the elimination of all principal and
accrued interest on Presidio's Debt Obligations and Bank Obligations,
(f) the accrual of estimated costs subsequent to September 30, 1996
associated with the Exchange, rental payments on unneeded office
space, severance payments and other future liabilities, (g) the
elimination of Presidio's stockholders' equity, and (h) the incurrence
of the bank debt and the issuance of the Tom Brown Common Stock
necessary to fund the Exchange.
Adjustments to Statements of Operations
The pro forma statements of operations assume that the Exchange was
consummated on January 1, 1995. The adjustments reflect (a) changes to
exploration costs and to impairment of leasehold costs which are needed
to convert from Presidio's full cost method of accounting to Tom
Brown's successful efforts method of accounting, (b) reduction of
general and administrative expenses to reflect the estimated costs to
be incurred by Tom Brown, (c) adjustment of depletion, depreciation,
and amortization based upon Tom Brown's purchase price, (d) adjustment
of interest expense to reflect incurrence of $105,075,000 of Tom Brown
bank debt, (e) adjustment of income taxes based upon Tom Brown's
estimated tax rate, and (f) adjustment of the weighted average shares
outstanding to reflect the shares of Tom Brown Common Stock issued in
connection with the Exchange.
6
<PAGE> 44
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
TOM BROWN, INC.
------------------------------------------
Registrant
DATE: January 6, 1997 /s/ Kim Harris
------------------- ------------------------------------------
Kim Harris
Controller
(Mr. Harris is the Chief Financial Officer
and is duly authorized to sign on behalf
of the registrant)
<PAGE> 45
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
2.2 First Amendment to Exchange Agreement dated August 20, 1996 by
and among Presidio Oil Company, Presidio Exploration, Inc.,
Presidio West Virginia, Inc., Palisade Oil, Inc. and Tom Brown,
Inc.
2.3 Second Amendment to Exchange Agreement dated September 5, 1996 by
and among Presidio Oil Company, Presidio Exploration, Inc.,
Presidio West Virginia, Inc., Palisade Oil, Inc. and Tom Brown,
Inc.
2.4 Third Amendment to Exchange Agreement dated November 20, 1996 by
and among Presidio Oil Company, Presidio Exploration, Inc.,
Presidio West Virginia, Inc., Palisade Oil, Inc. and Tom Brown,
Inc.
</TABLE>
<PAGE> 1
EXHIBIT 2.2
FIRST AMENDMENT
TO
EXCHANGE AGREEMENT
This First Amendment to Exchange Agreement dated as of August 20,
1996, (the "First Amendment") is entered into by and among Presidio Oil
Company, a Delaware corporation, Presidio Exploration, Inc., a Colorado
corporation, Presidio West Virginia, a Delaware corporation, Palisade Oil,
Inc., a Colorado corporation, and Tom Brown, Inc., a Delaware corporation.
RECITALS:
A. The parties hereto have previously entered into that certain
Exchange Agreement dated August 5, 1996 (the "Exchange Agreement").
B. The parties hereto desire to amend and correct certain
provisions of the Exchange Agreement as provided in this First Amendment.
Now, therefore, for and in consideration of the mutual covenants and
agreements set forth in this First Amendment and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:
1. Correction to Section 4.5(a). In order to correct a clerical
mistake, the phrase "August 1, 1996" is hereby deleted from Section 4.5(a) of
the Exchange Agreement and is hereby replaced with the phrase "August 6, 1996".
2. Amendment to Section 9.1(c). Clause (vi) of Section 9.1(c) of
the Exchange Agreement is hereby deleted in its entirety and is hereby replaced
with the following:
(vi) The Initial Order (A) shall not have been entered on
or before August 30, 1996 and (B) shall not have
become a Final Order on or before September 17, 1996;
3. Definitions. Defined terms used herein but which are not
expressly defined herein, shall have the meaning given such terms in the
Exchange Agreement.
4. Amendment. This First Amendment constitutes an amendment to
the Exchange Agreement pursuant to Section 10.7 of the Exchange Agreement.
Except as expressly amended by this First Amendment, each and every provision
of the Exchange Agreement remains in full force and effect in accordance with
the terms thereof and, by reference, the terms and provisions of the Exchange
Agreement are incorporated herein and made a part hereof.
1
<PAGE> 2
5. Effective Date. The terms and provisions of this First
Amendment shall be effective as of August 5, 1996.
IN WITNESS WHEREOF, this First Amendment has been signed by each of
the parties hereto, all as of August 20, 1996.
PRESIDIO OIL COMPANY
By: /s/ Robert L. Smith
----------------------------------------------
Name: Robert L. Smith
--------------------------------------------
Title: President and Chief Operating Officer
-------------------------------------------
PRESIDIO EXPLORATION, INC.
By: /s/ Robert L. Smith
----------------------------------------------
Name: Robert L. Smith
--------------------------------------------
Title: President and Chief Operating Officer
-------------------------------------------
PRESIDIO WEST VIRGINIA, INC.
By: /s/ Robert L. Smith
----------------------------------------------
Name: Robert L. Smith
--------------------------------------------
Title: President and Chief Operating Officer
-------------------------------------------
PALISADE OIL, INC.
By: /s/ Robert L. Smith
----------------------------------------------
Name: Robert L. Smith
--------------------------------------------
Title: President and Chief Operating Officer
-------------------------------------------
TOM BROWN, INC.
By: /s/ W. R. Granberry
----------------------------------------------
Name: W. R. Granberry
--------------------------------------------
Title: President
-------------------------------------------
2
<PAGE> 1
EXHIBIT 2.3
SECOND AMENDMENT
TO
EXCHANGE AGREEMENT
This Second Amendment to Exchange Agreement dated as of September 5,
1996, (the "Second Amendment") is entered into by and among Presidio Oil
Company, a Delaware corporation, Presidio Exploration, Inc., a Colorado
corporation, Presidio West Virginia, a Delaware corporation, Palisade Oil,
Inc., a Colorado corporation, and Tom Brown, Inc., a Delaware corporation.
RECITALS:
A. The parties hereto have previously entered into that certain
Exchange Agreement dated August 5, 1996, which was subsequently amended by a
First Amendment to Exchange Agreement dated as of August 20, 1996 (as so
amended, the "Exchange Agreement").
B. The parties hereto desire to amend certain provisions of the
Exchange Agreement as provided in this Second Amendment.
Now, therefore, for and in consideration of the mutual covenants and
agreements set forth in this Second Amendment and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:
1. Amendment to Section 9.1(c). Clause (vi) of Section 9.1(c) of
the Exchange Agreement is hereby deleted in its entirety and is hereby replaced
with the following:
(vi) the Initial Order (A) shall not have been entered on
or before November 15, 1996 and (B) shall not have
become a Final Order on or before November 26, 1996;
2. Effect of Order. The Bankruptcy Court has entered the order
attached hereto as Exhibit A (the "Order"). The Order shall constitute an
amendment to the provisions of the Exchange Agreement providing for a
Termination Fee, if and only if a Higher and Better Transaction (as defined in
the Order) is approved or confirmed by the Bankruptcy Court.
3. Definitions. Defined terms used herein but which are not
expressly defined herein, shall have the meaning given such terms in the
Exchange Agreement.
4. Amendment. This Second Amendment constitutes an amendment to
the Exchange Agreement pursuant to Section 10.7 of the Exchange Agreement.
Except as expressly amended by this Second Amendment, each and every provision
of the Exchange Agreement remains in full force
1
<PAGE> 2
and effect in accordance with the terms thereof and, by reference, the terms
and provisions of the Exchange Agreement are incorporated herein and made a
part hereof.
5. Effective Date. The terms and provisions of this Second
Amendment shall be effective as of August 29, 1996.
IN WITNESS WHEREOF, this Second Amendment has been signed by each of
the parties hereto, all as of September 5, 1996.
PRESIDIO OIL COMPANY
By: /s/ Robert L. Smith
--------------------------------------------
Name: Robert L. Smith
------------------------------------------
Title: President and Chief Operating Officer
-----------------------------------------
PRESIDIO EXPLORATION, INC.
By: /s/ Robert L. Smith
--------------------------------------------
Name: Robert L. Smith
------------------------------------------
Title: President and Chief Operating Officer
-----------------------------------------
PRESIDIO WEST VIRGINIA, INC.
By: /s/ Robert L. Smith
--------------------------------------------
Name: Robert L. Smith
------------------------------------------
Title: President and Chief Operating Officer
-----------------------------------------
PALISADE OIL, INC.
By: /s/ Robert L. Smith
--------------------------------------------
Name: Robert L. Smith
------------------------------------------
Title: President and Chief Operating Officer
-----------------------------------------
TOM BROWN, INC.
By: /s/ W. R. Granberry
--------------------------------------------
Name: W. R. Granberry
------------------------------------------
Title: President
-----------------------------------------
2
<PAGE> 1
EXHIBIT 2.4
THIRD AMENDMENT
TO
EXCHANGE AGREEMENT
This Third Amendment to Exchange Agreement dated as of November 20,
1996, (the "Third Amendment") is entered into by and among Presidio Oil
Company, a Delaware corporation, Presidio Exploration, Inc., a Colorado
corporation, Presidio West Virginia, a Delaware corporation, Palisade Oil,
Inc., a Colorado corporation, and Tom Brown, Inc., a Delaware corporation.
RECITALS:
A. The parties hereto have previously entered into that certain
Exchange Agreement dated August 5, 1996, which was subsequently amended by a
First Amendment to Exchange Agreement dated as of August 20, 1996 and by a
Second Amendment to Exchange Agreement dated as of September 5, 1996 (as so
amended, the "Exchange Agreement").
B. The parties hereto desire to amend certain provisions of the
Exchange Agreement as provided in this Third Amendment.
Now, therefore, for and in consideration of the mutual covenants and
agreements set forth in this Third Amendment and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:
1. Amendments to Article I.
(a) The definition of the term "Aggregate Consideration"
as it appears in Article I of the Exchange Agreement is hereby
deleted in its entirety and is hereby replaced with the
following:
"Aggregate Consideration" means $193,100,000."
(b) The definition of the term "Cash Consideration" as it
appears in Article I of the Exchange Agreement is hereby
deleted in its entirety and is hereby replaced with the
following:
"Cash Consideration" means a cash payment in an
amount equal to the sum of (a) the Presidio Common Stock Cash
Consideration, plus (b) the excess of (I) the sum of (x)
$104,413,000, plus (y) the amount of accrued and unpaid
interest on the Bank Obligations allowed by an order of the
Bankruptcy Court, over (ii) all amounts, if any, paid by a
Presidio Party in respect of the Bank Obligations (other than
interest
1
<PAGE> 2
paid in respect thereof) or the Senior Secured Notes from the
date of this Agreement through and including the Closing."
(c) The definition of the term "Exchange Common Stock" as
it appears in Article I of the Exchange Agreement is hereby
deleted in its entirety and is hereby replaced with the
following:
"Exchange Common Stock" means 5,348,485 shares of Tom
Brown Common Stock (or other securities as may be required
under Section 3.2), less the number of shares of Tom Brown
Common Stock distributable to Tom Brown under the Plan of
Reorganization in respect of its ownership of Senior Gas
Indexed Notes or any other Presidio Securities it may acquire
hereafter."
2. Amendment to Section 4.4. Section 4.4 of the Exchange
Agreement is hereby deleted in its entirety and is hereby replaced with the
following:
"4.4 Tom Brown to Vote for Plan of Reorganization.
Tom Brown shall vote, or shall cause to be voted, all Presidio
Securities beneficially owned by Tom Brown or any Affiliate
thereof in favor of the Plan of Reorganization and in such
manner as may be necessary to grant the release contemplated
by Section 10.07 of the Plan of Reorganization."
3. Amendments to Section 9.1(c). Clause (vii) of Section 9.1(C)
of the Exchange Agreement is hereby deleted in its entirety and is hereby
replaced with the following:
"(vii) the Confirmation Order, in form and substance
reasonably acceptable to Tom Brown and confirming the Plan of
Reorganization, shall not have been entered by the Bankruptcy
Court on or before December 12, 1996 or the Confirmation Order
shall not have become a Final Order on or before January 9,
1997; provided, that Tom Brown shall not be entitled to
terminate this Agreement pursuant to this clause (vii) unless
Tom Brown has given Presidio prior written notice of its
intention to terminate this Agreement pursuant to this clause
(vii) within thirty (30) days after the above applicable
described date; or"
4. Plan and Disclosure Statement. The parties hereby consent to
the amendment and supplement to the Plan of Reorganization and the Disclosure
Statement as respectively set forth in Exhibits A and B hereto.
5. Definitions. Defined terms used herein but which are not
expressly defined herein, shall have the meaning given such terms in the
Exchange Agreement as amended hereby.
6. Amendment. This Third Amendment constitutes an amendment to
the Exchange Agreement pursuant to Section 10.7 of the Exchange Agreement.
Except as expressly amended by this Third Amendment, each and every provision
of the Exchange Agreement remains in full force and effect in accordance with
the terms thereof and, by reference, the terms and provisions of the Exchange
Agreement are incorporated herein and made a part hereof.
2
<PAGE> 3
7. Effective Date. The terms and provisions of this Third
Amendment shall be effective as of the date stated in the initial paragraph
hereof.
-3-
<PAGE> 4
IN WITNESS WHEREOF, this Third Amendment has been signed by each of
the parties hereto, all as of the date stated in the initial paragraph hereof.
PRESIDIO OIL COMPANY
By: /s/ Robert L. Smith
---------------------------------------------
Name: Robert L. Smith
-------------------------------------------
Title: President and Chief Operating Officer
------------------------------------------
PRESIDIO EXPLORATION, INC.
By: /s/ Robert L. Smith
---------------------------------------------
Name: Robert L. Smith
-------------------------------------------
Title: President and Chief Operating Officer
------------------------------------------
PRESIDIO WEST VIRGINIA, INC.
By: /s/ Robert L. Smith
---------------------------------------------
Name: Robert L. Smith
-------------------------------------------
Title: President and Chief Operating Officer
------------------------------------------
PALISADE OIL, INC.
By: /s/ Robert L. Smith
---------------------------------------------
Name: Robert L. Smith
-------------------------------------------
Title: President and Chief Operating Officer
------------------------------------------
TOM BROWN, INC.
By: /s/ W. R. Granberry
---------------------------------------------
Name: W. R. Granberry
-------------------------------------------
Title: President
------------------------------------------
-4-
