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As filed with the Securities and Exchange Commission on November 15, 1995
Registration No. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-3
REGISTRATION STATEMENT
Under The Securities Act Of 1933
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LOMAK PETROLEUM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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Delaware 500 Throckmorton Street 34-1312571
(STATE OR OTHER JURISDICTION OF Ft. Worth Texas 76102 (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) (817) 870-2601 IDENTIFICATION NO.)
(ADDRESS, INCLUDING ZIP CODE, TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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John H. Pinkerton, President
Lomak Petroleum, Inc.
500 Throckmorton Street Fort Worth, Texas 76102
(817) 870-2601
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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With a copy to:
Walter M. Epstein, Esq.
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, NY 10112
(212) 698-7700
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Approximate date of commencement of proposed sale to the public: FROM
TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act of 1933, please check
the following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
Pursuant to Rule 416, there are also being registered such additional
shares of Common Stock as may become issuable pursuant to antidilution
provisions of the Preferred Stock and the $2.03 Notes.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
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$2.03 Convertible Exchangeable Preferred Stock, Series C
$1 par value(2) . . . . . . . . . . . . . . . . . . . . 1,350,000 $ 25.00 $33,750,000 $ 6,750
7 1/2% Cumulative Convertible Exchangeable Preferred Stock,
Series A . . . . . . . . . . . . . . . . . . . . . . . . 87,400 $ 25.00 $ 2,185,000 $ 437
7 1/2% Cumulative Convertible Exchangeable Preferred Stock,
Series B . . . . . . . . . . . . . . . . . . . . . . . . 112,600 $ 25.00 $ 2,815,000 $ 563
8.125% Convertible Subordinated Notes(3) . . . . . . . . . $33,750,000 $ - $33,750,000 $ 6,750
Common Stock, $.01 par value(4) . . . . . . . . . . . . . . 6,715,617 $ 7.75 $52,046,032 $10,410
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . ----------- ------- ----------- ------------
- - - $24,910
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(1) Estimated solely for the purpose of computing the registration fee. This
amount was calculated pursuant to Rule 457 under the Securities Act of
1933, as amended, based on a price of $7.75 (average of the high and low
price of the Common Stock of Lomak Petroleum, Inc, on the Nasdaq National
Market on November 10, 1995).
(2) Includes 1,000,000 shares of $2.03 Convertible Exchangeable Preferred
Stock, Series C (the "$2.03 Preferred") previously issued, 150,000 shares
of the $2.03 Preferred which will be issued upon exercise of an
over-allotment option and 200,000 shares of the $2.03 Preferred being
registered for issuance, from time to time, by the Company.
(3) Issuable upon exchange of the $2.03 Preferred.
(4) Includes 3,026,316 shares of the Common Stock issuable upon conversion of
the $2.03 Preferred or the $2.03 Notes, as the case may be, 86,040 shares
of the Common Stock owned by Transfuel, Inc., 526,316 shares of the Common
Stock issuable upon conversion of the 200,000 shares of the $2.03
Preferred which may be issued by the Company from time to time, 576,945
Shares of the Common Stock issuable upon conversion of the 7 1/2%
Convertible Exchangeable Preferred Stock Series A and Series B and
2,500,000 shares of the Common Stock which are being registered for
issuance, from time to time, by the Company.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED NOVEMBER __, 1995
PROSPECTUS
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LOMAK PETROLEUM, INC.
1,350,000 SHARES OF $2.03 CONVERTIBLE EXCHANGEABLE PREFERRED STOCK, SERIES C
87,400 SHARES OF 7 1/2 CUMULATIVE CONVERTIBLE EXCHANGEABLE PREFERRED STOCK,
SERIES A
112,600 SHARES OF 7 1/2 CUMULATIVE CONVERTIBLE EXCHANGEABLE PREFERRED STOCK,
SERIES B
$33,750,000 OF 8.125% CONVERTIBLE SUBORDINATED NOTES DUE 2005
AND
6,715,617 SHARES OF COMMON STOCK
This Prospectus relates to the following securities of Lomak Petroleum,
Inc., a Delaware corporation (the "Company"): (i) 1,350,000 shares of $2.03
Convertible Exchangeable Preferred Stock, Series C, $1 par value (the "$2.03
Preferred"); (ii) 87,400 shares of 7 1/2% Cumulative Convertible Exchangeable
Preferred Stock, Series A, $1 par value (the "Series A Preferred"); (iii)
112,600 shares of 7 1/2% Cumulative Convertible Exchangeable Preferred Stock,
$1 par value (the "Series B Preferred") (collectively, the Series A Preferred
and the Series B Preferred are referred to herein as the "7 1/2% Preferred");
(iv) $33,750,000 of 8.125% Convertible Subordinated Notes due 2005 (the "$2.03
Notes"); and (v) 6,715,617 shares of Common Stock, $.01 par value per share
(the "Common Stock"). The $2.03 Preferred and the 7 1/2% Preferred are
collectively referred to herein as the "Preferred Stock."
Of the foregoing securities, 200,000 shares of the $2.03 Preferred (the
"Preferred Shares") and 3,026,316 shares of the Common Stock (the "Common
Shares") (collectively the Preferred Shares and the Common Shares are referred
to herein as the "Securities") and $5,000,000 of the $2.03 Notes may be issued
by the Company from time to time. The Common Shares include the 526,315 shares
of the Common Stock issuable upon conversion of the 200,000 shares of the $2.03
Preferred which may be issued by the Company from time to time. The balance
consists of (i) 1,150,000 shares of the $2.03 Preferred, (ii) the $28,750,000
of the $2.03 Notes into which such 1,150,000 shares of the $2.03 Preferred are
exchangeable, (iii) the 3,026,316 shares of the Common Stock into which such
1,150,000 shares of the $2.03 Preferred or $28,750,000 of the $2.03 Notes, as
the case may be, are convertible, (iv) 86,040 shares of the Common Stock (v)
87,400 Shares of the Series A Preferred, (vi) 112,600 Shares of the Series B
Preferred and (vii) 576,945 shares of the Common Stock issuable upon conversion
of the 7 1/2 Preferred (collectively, the "Selling Securityholder Securities")
which may be offered for sale from time to time for the accounts of certain
stockholders and noteholders of the Company (the "Selling Securityholders").
See "Selling Securityholders." See "Risk Factors" for information which
should be considered by prospective investors.
To the extent required, the number of the Securities being sold by the
Company, the purchase price, the public offering price, the proceeds to the
Company and the other terms of the offering of the Securities by the Company
will be set forth in a Prospectus Supplement to be delivered at the time of any
such offering.
The Securities may be sold directly by the Company or through agents,
underwriters or dealers designated from time to time. If any agents of the
Company or any underwriters are involved in the sale of the Securities by the
Company in respect of which this Prospectus is being delivered, the names of
such agents or underwriters and any applicable discounts or commissions with
respect to such Securities will also be set forth in a Prospectus Supplement,
to the extent required. See "Plan of Distribution."
The Common Stock is traded in the over-the-counter market and quoted on
the Nasdaq National Market ("Nasdaq") under the symbol "LOMK". The closing
price of the Common Stock on November 13, 1995, was $8.125. The conversion and
exchange price, as the case may be, and other terms of the $2.03 Preferred, the
$2.03 Notes and the $7 1/2% Preferred were determined by negotiation between
the Company and the Company's underwriters and placement agents, as the case
may be, and do not necessarily bear any relationship to the Company's assets,
book value, results of operations, net worth or any other recognized criteria
of value.
The Selling Securityholder' Securities offered by this Prospectus may be
sold from time to time by the Selling Securityholders, or by their transferees.
The distribution of these securities may be effected in one or more
transactions that may take place on the over-the-counter market, including
ordinary brokers' transactions, privately negotiated transactions or through
sales to one or more dealers for resale of such securities as principals, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the
Selling Securityholders.
The Selling Securityholders and intermediaries through whom such
securities are sold may be deemed "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation. The Company has agreed to indemnify certain
of the Selling Securityholders against certain liabilities, including
liabilities under the Securities Act.
The Company will not receive any of the proceeds from the sale of shares
of the Selling Securityholder Securities by the Selling Securityholders.
However, the Company will receive the proceeds from the sale of the Securities.
See "Use of Proceeds."
All expenses of the registration of securities covered by this Prospectus,
estimated to be $110,000, are to be borne by the Company, provided, however,
that the Selling Securityholders will pay any applicable underwriters'
commissions and expenses, brokerage fees or transfer taxes, as well as the
fees and disbursements of their counsel, except that the Company shall pay
Transfuel Inc.'s counsel fees in connection with the registration of the Common
Stock owned by Transfuel Inc. being hereby registered.
SEE "RISK FACTORS" FOR A DESCRIPTION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES HEREBY OFFERED.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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The date of this Prospectus is November __, 1995
G:\HLF\LOMAK\S-3\S-3.REG
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AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files annual and quarterly reports, proxy statements and other
information with the Securities Exchange Commission (the "Commission"). Such
reports, proxy statements and other information may be inspected, and copies of
such material may be obtained at prescribed rates, at the Commission's Public
Reference Section, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
as well as at the Commission's Regional Offices at 7 World Trade Center, 13th
Floor, New York, New York 10048, and Northwestern Atrium Center, 500 West
Madison Street, Room 1400, Chicago, Illinois 60661-2511. Copies of such
material may be obtained at prescribed rates from the office of the Commission
at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The Common
Stock of the Company is traded on the NASDAQ National Market System. Reports,
proxy statements and other information concerning the Company may be inspected
at the National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington D.C. 20006.
This Prospectus constitutes a part of a Registration Statement filed by
the Company with the Commission under the Securities Act. This Prospectus omits
certain of the information contained in the Registration Statement, and
reference is hereby made to the Registration Statement and related exhibits for
further information with respect to the Company and the securities offered
hereby. Any statements contained herein concerning the provisions of any
document are not necessarily complete, and, in each instance, reference is made
to the copy of such document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed with the Commission by the Company (File No.
0-9592) are hereby incorporated by reference into this Prospectus:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
(2) The Company's Quarterly Reports on Form 10-Q for the first fiscal
quarters ended March 31, 1995, June 30 1995 and September 30, 1995.
(3) The Company's Current Report on Form 8-K dated July 13, 1995, as
amended on a Form 8-K/A dated September 8, 1995.
(4) The Company's Current Report on Form 8-K dated September 27, 1995,
as amended on Form 8-K/A dated November 8, 1995.
(5) Red Eagle Resources Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.
All documents filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offerings registered hereby
shall be deemed to be incorporated by reference into this Prospectus and to be
a part hereof from the date of the filing of such document.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in any subsequently filed document that also is or is deemed to be
incorporated by reference herein) modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus. All
information appearing in this Prospectus is qualified in its entirety by
information and financial statements (including notes thereto) appearing in the
documents incorporated by reference herein, except to the extent set forth in
the two immediately preceding sentences.
The Company will provide, without charge, to each person to whom a copy
of this Prospectus is delivered, including any beneficial owner, upon written
or oral request or such person, a copy of any or all of the documents
incorporated by reference herein (other than exhibits to such documents,unless
such exhibits are specifically incorporated by reference into the information
that the Prospectus incorporates). Requests should be directed to John H.
Pinkerton, President, Lomak Petroleum, Inc., 500 Throckmorton Street, Suite
2104, Fort Worth, Texas 76102, telephone (817) 870-2601.
G:\HLF\LOMAK\S-3\S-3.REG
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information, Consolidated Financial Statements, Pro Forma Combined Financial
Statements and notes thereto, appearing elsewhere, or incorporated by
reference, in this Prospectus. Unless the context otherwise requires all
references herein to the "Company" include Lomak Petroleum, Inc. and its
consolidated subsidiaries. Certain terms relating to the oil and gas business
are defined in "Glossary."
Unless specifically indicated, all financial and quantitative information
provided in this Prospectus gives pro forma effect to the Company's significant
1994 and 1995 acquisitions and the application of the net proceeds from the
sale of 1,000,000 shares of the $2.03 Preferred as described in the notes to
the Pro Forma Combined Financial Statements.
THE COMPANY
Lomak is an independent oil and gas company with core areas of operation
in Texas, Oklahoma and Appalachia. The Company has grown through a combination
of acquisition, development and enhancement activities. Since January 1, 1990,
57 acquisitions have been consummated at a total cost of approximately $181
million and approximately $21 million has been expended on development
activities. As a result, proved reserves and production have each grown during
this period at a rate in excess of 60% per annum. At June 30, 1995, proved
reserves totaled 47.3 million BOE, having a pre-tax present value at constant
prices on that date of $213 million and a reserve life in excess of 13 years.
The Company as of September 30, 1995, operated properties which accounted for
more than 95% of its reserves and owned 1,900 miles of gas gathering systems in
proximity to its principal gas properties. In 1996, the Company expects to
allocate a limited portion of its budget to selected exploratory activities in
its core operating areas.
BUSINESS STRATEGY
The Company's objective is to increase its asset base, cash flow and
earnings through a balanced strategy of acquisition, development and
enhancement activities in each of its current core operating areas of Texas,
Oklahoma and Appalachia. In each core area, the Company establishes separate
acquisition, engineering, geological, operating and other technical expertise.
By implementing its strategy and focusing on each core area in this manner, the
Company does not depend solely on any one activity type or region to expand its
asset base, cash flow and earnings. To the extent purchases continue to be made
in core areas, operating, administrative, drilling and gas marketing
efficiencies should continue to be realized.
The Company focuses primarily on smaller properties, where consolidation
is likely, and those areas that it believes to be less competitive and to have
a lower risk profile and longer reserve life than many alternate opportunities.
Management believes smaller producing properties can be acquired at a lower
relative cost than larger properties and that its focus on these properties, in
part, has accounted for its ability to acquire 47 million BOE of proved
reserves since 1990 at an average cost of $3.69 per BOE, well below the
independent producer industry average of $4.13, as reported in Arthur Andersen
LLP's Oil and Gas Reserve Disclosure Survey.
ACCOMPLISHMENTS
Despite periods of low energy prices prevalent since 1990, the Company's
strategy and emphasis on cost control has resulted in significant growth in
assets and reserves, and increased per share cash flow and earnings.
Specifically, from January 1, 1990 through September 30, 1995, the Company has
grown its asset base from $7 million to $203 million, while annualized cash
flow per share has risen from $.41 to $1.91 and annualized earnings per share
increased from break-even to $.25. The Company has increased its financial and
organizational strength and has begun to benefit from cost reductions and
operating efficiencies. From 1990 through September 30, 1995, administrative
costs per BOE were reduced from $8.63 to $0.77 and operating costs per BOE were
lowered from $6.89 to $4.54.
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RECENT DEVELOPMENTS
During the third quarter of 1995, the Company completed two significant
acquisitions in Appalachia for total consideration of $41.2 million (the
"Recent Appalachian Acquisitions"). A majority of the Recent Appalachian
Acquisition properties are adjacent to the Company's existing properties and,
as a result, significant operating and overhead efficiencies are expected to be
realized. The acquired properties are estimated to contain proved reserves of
65.6 Bcf of gas and 470,000 barrels of oil and include 110 proved drilling
locations, 190,000 acres of undeveloped leases and 1,400 miles of gas gathering
lines.
On November 3, 1995, the Company sold 1,000,000 shares of the $2.03
Preferred in a private placement and received $24,156,250 in net proceeds. In
connection with such sale, the Company granted Forum Capital Markets L.P. and
Hanifen, Imhoff Inc. (the "Initial Purchasers") an option to acquire an
additional 150,000 shares of the $2.03 Preferred to cover over-allotments. If
such option is exercised, the total net proceeds received by the Company from
such sale would be $27,779,688.
G:\HLF\LOMAK\S-3\S-3.REG 4
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SUMMARY OF THE TERMS OF THE PREFERRED STOCK
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$2.03 PREFERRED
Security . . . . . . . . . . . . . . . . . $2.03 Convertible Exchangeable Preferred Stock, Series C, $1 par value.
Ranking . . . . . . . . . . . . . . . . . . The $2.03 Preferred ranks senior in right of payment of dividends and upon
liquidation to the Common Stock. Subject to certain limitations, the $2.03
Preferred ranks pari passu in right of payment of dividends upon liquidation to
the 7 1/2% Preferred and any convertible preferred stock hereafter issued by the
Company and subordinate to any non-convertible preferred stock hereafter issued
by the Company. See "Description of the Preferred Stock--$2.03
Preferred--Ranking."
Dividends . . . . . . . . . . . . . . . . . Cumulative from the date of issuance, and payable quarterly in arrears at an
annual rate of $2.03 per share, in cash.
Liquidation Preference . . . . . . . . . . Upon liquidation, dissolution or winding up of the Company, holders of the $2.03
Preferred are entitled to receive liquidation distributions equal to $25 per
share, plus cumulative unpaid dividends.
Conversion . . . . . . . . . . . . . . . . Each share of $2.03 Preferred is convertible into Common Stock, at the holder's
option, at any time, unless previously redeemed, at a conversion rate equal to
the aggregate liquidation preference of such share of $2.03 Preferred divided by
the conversion price of $9.50 (the "Conversion Price"), subject to adjustment
under certain circumstances.
Special Conversion Rights . . . . . . . . . The Conversion Price will be reduced for a limited period in the event a Change
of Control (as defined) or a Fundamental Change (as defined) occurs at a time
that the market price of the Common Stock is less than the Conversion Price. Upon
such occurrence, the Conversion Price then in effect will be reduced for a period
of 45 days to the market price of the Common Stock immediately prior to such
occurrence (but to not less than $5.21). The special conversion right is subject
to important limitations and qualifications as described at "Description of the
Preferred Stock--$2.03 Preferred--Special Conversion Rights."
Optional Redemption . . . . . . . . . . . . The $2.03 Preferred is not redeemable prior to November 1, 1998. At any time on
or after November 1, 1998, the $2.03 Preferred will be redeemable by the Company,
in whole or in part, at prices declining from $26.25 to $25.00 per share, plus
cumulative unpaid dividends through the date of repurchase.
Voting Rights . . . . . . . . . . . . . . . The holders of the $2.03 Preferred, as a class, may vote on all matters adversely
affecting the $2.03 Preferred, including, without limitation, the creation and/or
issuance of any capital stock senior to the $2.03 Preferred; provided, however,
the authorization and/or issuance of non-convertible preferred stock shall be
permitted to the extent permitted by law without such vote. In all other matters,
except as otherwise required by law, the holders of the $2.03 Preferred will have
one vote per share and will vote together with the holders of the Common Stock.
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Non-payment of Dividends . . . . . . . . . . . In the event that the Company misses payments on six quarterly dividends payable
on the $2.03 Preferred, which dividend payments remain unpaid, or if any future
class of preferred stockholders is entitled to elect Directors based on actual
missed and unpaid dividends, the number of Directors of the Company shall be
increased to such number necessary to enable the holders of the $2.03 Preferred
and all such other future preferred stockholders (the "Preferred Class"), voting
as a single class, to elect one third of the Directors of the Company (but not
less than three); provided, however, that there shall be counted as Directors
elected by the Preferred Class up to two Directors elected by the holders of the
7 1/2% Preferred, subject to the terms of the 7 1/2% Preferred, so long as it
remains outstanding. Such rights will be subject to certain limitations. See
"Description of the Preferred Stock--$2.03 Preferred--Voting Rights."
Exchangeability . . . . . . . . . . . . . . . . The $2.03 Preferred is exchangeable in whole but not in part at the Company's
option on any dividend payment date on or after December 31, 1996 and on or
before December 31, 2004 for the $2.03 Notes at the rate of $25 principal amount
of the $2.03 Notes for each share of the $2.03 Preferred. Such right is subject
to certain limitations. See "Description of the Preferred Stock--$2.03
Preferred--Exchange."
Registration Rights . . . . . . . . . . . . . . Pursuant to a Registration Rights Agreement, the Company has agreed to file this
shelf registration statement (the "Shelf Registration Statement") relating to the
Selling Securityholder Securities. The Company will use its reasonable best
efforts to maintain the effectiveness of the Shelf Registration Statement until
the third anniversary of the issuance of the $2.03 Preferred, except that it
shall be permitted to suspend the use of the Shelf Registration Statement during
certain periods under certain circumstances. If the Company fails to meet certain
of its obligations under the Registration Rights Agreement, a supplemental
payment will be made to holders of the $2.03 Preferred, the $2.03 Notes and the
Common Stock affected thereby.
SUMMARY OF THE TERMS OF THE 7 1/2% PREFERRED
Security . . . . . . . . . . . . . . . . . . . 7 1/2% Cumulative Convertible Exchangeable Preferred Stock, Series A and Series
B par value $1.00 per share.
Ranking . . . . . . . . . . . . . . . . . . . . Prior to the payment of any dividends on the Common Stock, all cumulative
dividends on the 7 1/2% Preferred must be paid. The 7 1/2% Preferred will rank
senior to the Common Stock in liquidation. See "Description of the Preferred
Stock--7 1/2% Preferred--Ranking."
Liquidation Preference . . . . . . . . . . . . Upon liquidation, dissolution or winding up of the Company, holders of the 7
1/2% Preferred are entitled to receive liquidation distributions equal to $25
per share, plus cumulative unpaid dividends. See "Description of the Preferred
Stock--7 1/2% Preferred--Liquidation Rights."
Dividends . . . . . . . . . . . . . . . . . . . Cumulative from the date of issuance, payable quarterly in arrears at an annual
rate of 7 1/2% per share, in cash. See "Description of the Preferred Stock--7
1/2% Preferred--Dividends."
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Conversion Rights . . . . . . . . . . . . . Each share of the 7 1/2% Preferred is convertible at any time at the option of
the holder into Common Stock at a conversion rate of 2.9412 shares of the Common
Stock for the Series A Preferred and 2.8409 shares of the Common Stock for the
Series B Preferred, per share of the 7 1/2% Preferred (equal to a conversion
price of $8.50 and $8.80 per share, respectively, representing a 22% premium
over the average of the closing prices for the Common Stock as quoted on Nasdaq
for the three trading days immediately preceding the closing. The Conversion
Price will be subject to adjustment for reverse stock splits, stock dividends
and other capital adjustments. See "Description of the Preferred Stock--7 1/2%
Preferred--Conversion."
Beginning July 1, 1995, the Company had the right to cause the 7 1/2% Preferred
to be converted into the Common Stock based on the conversion price if, and only
if, the average of the closing prices for the Common Stock as quoted on Nasdaq
for twenty of the thirty trading days preceding such conversion exceeds the
Conversion Price by 35%. See "Description of the Preferred Stock--7 1/2%
Preferred--Conversion."
Optional Redemption . . . . . . . . . . . . The shares of the 7 1/2% Preferred may be redeemed, at the option of the
Company, at any time beginning July 1, 1996, in whole or in part, at prices
declining from $26.875 to $25.00 per share plus accrued and unpaid dividends. If
the Company calls for early redemption, the holders will have a minimum of ten
business days in which to elect to convert the 7 1/2% Preferred to the Common
Stock. See "Description of the Preferred Stock--7 1/2% Preferred--Company's
Right of Redemption."
The shares of the 7 1/2% Preferred are exchangeable, at the option of the
Company, in whole (but not in part), on any dividend payment date for the
Company's 7 1/2% Convertible Subordinated Notes due 2003 (the "7 1/2% Notes")
(the 7 1/2% Notes and the $2.03 Notes are collectively referred to herein as the
"Notes") in a principal amount equal to $25.00 per share. The 7 1/2% Notes will
be convertible into Common Stock at the conversion price for the shares of the 7
1/2 Preferred at the time of the exchange. The 7 1/2% Notes will bear interest
from the date of issuance, payable semi-annually in arrears on June 30 and
December 31 of each year, commencing on the first such interest payment date
following the date of exchange. At the Company's option, the 7 1/2% Notes will
be redeemable, in whole or in part, at the redemption prices set forth above
under "Optional Redemption" plus accrued and unpaid interest. The 7 1/2% Notes
are not subject to mandatory sinking fund payments. The 7 1/2% Notes will be
subordinate to all senior indebtedness of the Company. See "Description of the
Preferred Stock--7 1/2% Preferred--Exchange."
</TABLE>
G:\HLF\LOMAK\S-3\S-3.REG 7
<PAGE> 9
<TABLE>
<S> <C>
Voting Rights . . . . . . . . . . . . . . . . The holders of the shares of the 7 1/2% Preferred vote as a class with the
Common Stock. Each share of the 7 1/2% Preferred has 2 votes, adjusted for any
stock split, stock dividend or other like capital adjustment. The shares of the
7 1/2% Preferred vote separately as a class on all matters affecting the shares
of the 7 1/2% Preferred. If dividends on the 7 1/2% Preferred are in arrears for
eight quarters, the holders of the shares of the 7 1/2% Preferred, voting
separately, will be entitled to elect two directors to the Company's Board of
Directors. See "Description of the Preferred Stock-7 1/2% Preferred--Voting
Rights."
</TABLE>
G:\HLF\LOMAK\S-3\S-3.REG 8
<PAGE> 10
<TABLE>
SUMMARY FINANCIAL, OPERATING AND RESERVE INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING AND RESERVE DATA)
The following tables set forth certain historical and pro forma financial, operating and reserve information. The pro forma
financial, operating and reserve information includes the Recent Appalachian Acquisitions, certain other acquisitions and the $2.03
Preferred offering. See "Selected Historical and Pro Forma Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The historical data should be read in conjunction with the historical Consolidated Financial
Statements included herein. The pro forma information should be read in conjunction with the Pro Forma Combined Financial Statements
included herein. Neither the historical nor the pro forma results are necessarily indicative of future results.
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------ ----------------------------------
PRO FORMA PRO FORMA
1992 1993 1994 1994(1) 1994 1995 1995(1)
------- ------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Oil and gas revenues . . . . . $ 7,703 $11,132 $24,461 $45,810 $17,810 $24,135 $34,439
Total revenues . . . . . . . . 13,895 19,075 34,794 64,465 26,041 34,628 44,931
Net income . . . . . . . . . . 686 1,391 2,619 7,848 1,888 2,718 4,140
Net income applicable to
common shares . . . . . . . . 392 1,062 2,244 5,598 1,607 2,437 2,339
Net income per share . . . . . 0.08 0.18 0.25 0.46 0.18 0.21 0.19
Weighted average common
shares outstanding . . . . . 4,682 5,853 9,051 12,083 9,039 11,588 12,410
CASH FLOW DATA:
Net income . . . . . . . . . . $ 686 $ 1,391 $ 2,619 $ 7,848 $ 1,888 $ 2,718 $ 4,140
Depletion, depreciation and
amortization . . . . . . . . 3,124 4,347 10,105 18,121 7,647 9,808 13,567
Deferred income taxes . . . . . - (150) 118 2,636 110 832 1,841
------- ------- ------- -------- ------- ------- -------
Subtotal . . . . . . . . . . 3,810 5,588 12,842 28,605 9,645 13,358 19,548
Other non-cash items ) . . . . (278) (321) (471) N/A (445) (740) N/A
Changes in working capital . . 1,636 (962) (1,130) N/A (395) (2,863) N/A
------- ------- ------- ------- -------
Net cash provided from
operating activities . . . . $ 5,168 $ 4,305 $11,241 N/A $ 8,805 $ 9,755 $ N/A
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------------------- ------------------------------------
PROFORMA
1992 1993 1994 1994 1995 1995(1)
------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital . . . . . . . . . . . . . . $ 167 $ 1,350 $ 1,002 $ 4,421 $ 1,740 $ 1,740
Oil and gas properties . . . . . . . . . . 18,271 55,310 112,964 83,302 169,900 169,900
Total assets . . . . . . . . . . . . . . . 28,328 76,333 141,768 104,027 203,305 203,305
Long-term debt . . . . . . . . . . . . . . 12,679 30,689 61,885 52,670 112,839 88,828
Stockholders' equity . . . . . . . . . . . 9,504 32,263 43,248 39,077 60,554 84,565
</TABLE>
G:\HLF\LOMAK\S-3\S-3.REG 9
<PAGE> 11
<TABLE>
SUMMARY FINANCIAL, OPERATING AND RESERVE INFORMATION (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING AND RESERVE DATA)
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ ----------------------
PRO FORMA PRO FORMA
1992 1993 1994 1994 1995 1995(1)
------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Production
Oil (MBbls) . . . . . . . . . . . 199 318 640 789 649 709
Gas (MMcf) . . . . . . . . . . . . 1,796 2,590 6,996 15,982 7,825 12,659
MBOE . . . . . . . . . . . . . . 498 750 1,806 3,453 1,953 2,819
Average sales price
Oil (per Bbl) . . . . . . . . . . $ 18.40 $ 16.07 $ 15.23 $ 15.23 $ 16.58 $ 16.51
Gas (per Mcf) . . . . . . . . . . 2.25 2.32 2.10 2.11 1.71 1.80
BOE . . . . . . . . . . . . . . . 15.46 14.82 13.55 13.27 12.36 12.22
Average operating cost per BOE . . . $ 5.95 $ 5.87 $ 5.55 5.21 $ 5.09 $ 4.54
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
---------------------------------------- JUNE 30,
1992 1993 1994 1995
------ ------- ------- --------
<S> <C> <C> <C> <C>
RESERVE DATA(2):
Proved reserves
Oil (MBbls) . . . . . . . . . . . . . . . . . . . .. 1,980 4,539 8,449 10,328
Gas (MMcf) . . . . . . . . . . . . . . . . . . . . .. 17,615 74,563 149,370 222,054
MBOE . . . . . . . . . . . . . . . . . . . . . . . .. 4,916 16,966 33,344 47,337
Percent gas reserves . . . . . . . . . . . . . . . . .. 60% 73% 75% 78%
Reserve life index (years)(3) . . . . . . . . . . . . .. 9.9 12.6 13.3 13.1
Estimated future net cash flow (thousands)(4) . . . . .. $48,016 $140,892 $270,974 $371,895
Pre-tax present value (thousands)(4) . . . . . . . . .. $26,035 $ 65,114 $150,536 $213,159
Producing wells
Gross . . . . . . . . . . . . . . . . . . . . . . .. 1,113 2,057 3,134 6,430
Net . . . . . . . . . . . . . . . . . . . . . . . .. 355 981 1,621 4,583
Average working interest . . . . . . . . . . . . . .. 32% 48% 52% 71%
Gross operated wells . . . . . . . . . . . . . . . . .. 1,011 1,872 2,565 5,865
<FN>
- -------------
(1) See the Pro Forma Combined Financial Statements included herein for a discussion of the preparation of this data.
(2) For limitations on the accuracy and reliability of reserves and future net cash flow estimates, see "Risk Factors--
Uncertainty of Estimates of Reserves and Future Net Revenues."
(3) The reserve life index is calculated by dividing the proved reserves (on a BOE basis) by projected production volumes
for the next twelve months.
(4) See Glossary included herein for the definition of "Present Value of Proved Reserves."
</TABLE>
G:\HLF\LOMAK\S-3\S-3.REG 10
<PAGE> 12
RISK FACTORS
Prior to making an investment decision, prospective investors should
carefully consider, together with the other information contained in this
Prospectus, the following investment considerations:
VOLATILITY OF OIL AND GAS PRICES
The Company's revenues and profitability are substantially dependent upon
prevailing prices of, and demand for, oil and gas and the costs of acquiring,
finding, developing and producing reserves. Historically, the markets for oil
and gas have been volatile and are likely to continue to be volatile in the
future. Prices for oil and gas are subject to wide fluctuations in response to:
(i) relatively minor changes in supply of, and demand for, oil and gas; (ii)
market uncertainty; and (iii) a variety of additional factors, all of which are
beyond the Company's control. These factors include political conditions in the
Middle East, the foreign supply of oil and gas, the price of imported oil, the
level of consumer and industrial demand, weather, domestic and foreign
government relations, the price and availability of alternative fuels and
overall economic conditions.
UNCERTAINTY OF ESTIMATES OF RESERVES AND FUTURE NET REVENUES
This Prospectus contains estimates of the Company's oil and gas reserves
and the future net revenues from those reserves which have been prepared by the
Company and certain independent petroleum consultants. There are numerous
uncertainties inherent in estimating quantities of proved oil and gas reserves,
including many factors beyond the Company's control. The estimates in this
Prospectus are based on various assumptions, including, for example, constant
oil and gas prices, operating expenses and capital expenditures, and,
therefore, are inherently imprecise indications of future net revenues. Actual
future production, revenues, taxes, operating expenses, development
expenditures and quantities of recoverable oil and gas reserves may vary
substantially from those assumed in the estimates. Any significant variance in
these assumptions could materially affect the estimated quantity and value of
reserves set forth in this Prospectus. In addition, the Company's reserves may
be subject to downward or upward revision based upon production history,
results of future development, prevailing oil and gas prices and other factors.
See "Business -- Reserves."
FINDING AND ACQUIRING ADDITIONAL RESERVES
The Company's future success depends upon its ability to find or acquire
additional oil and gas reserves that are economically recoverable. Except to
the extent the Company conducts successful exploration or development
activities or acquires properties containing proved reserves, the proved
reserves of the Company will generally decline as they are produced. There can
be no assurance that the Company's planned development projects and acquisition
activities will result in significant additional reserves or that the Company
will have success drilling productive wells at economic returns. If prevailing
oil and gas prices were to increase significantly, the Company's finding costs
to add new reserves could increase. The drilling of oil and gas wells involves
a high degrees of risk, especially the risk of dry holes or of wells that are
not sufficiently productive to provide an economic return on the capital
expended to drill the wells. The cost of drilling, completing and operating
wells is uncertain, and drilling or production may be curtailed or delayed as a
result of many factors.
ACQUISITION RISKS
The Company intends to continue acquiring oil and gas properties. It
generally is not feasible to review in detail every individual property
involved in an acquisition. Ordinarily, review efforts are focused on the
higher-valued properties. However, even a detailed review of all properties and
records may not reveal existing or potential problems nor will it permit the
Company to become sufficiently familiar with the properties to assess fully
their deficiencies and capabilities. Inspections are not always performed on
every well, and environmental problems, such as ground water contamination, are
not necessarily observable even when an inspection is undertaken. See
"Business--Acquisitions."
G:\HLF\LOMAK\S-3\S-3.REG 11
<PAGE> 13
MARKETING RISKS
For the year ended December 31, 1994 and for the nine month period ended
September 30, 1995, gas revenues comprised over 55% of total oil and gas
revenue on a historical basis and over 65% on a pro forma basis. For the year
ended December 31, 1994, no purchaser accounted for more than 10% of total oil
and gas revenues For the nine months ended September 30, 1995, one purchaser
accounted for 11% of total oil and gas revenues, however, the loss of such
purchaser would not have a material adverse effect on the Company. The types of
gas contracts under which production is sold vary, but generally can be grouped
into three categories: (i) life-of-well, (ii) long-term (one year or longer),
and (iii) short-term contracts. Short-term contracts are defined as contracts
which may have a primary term of less than one year, but which are cancelable
at either party's discretion in 30 to 120 days. Approximately 58% of the
Company's gas production is currently sold under market sensitive contracts
which do not contain floor price provisions. Nearly 70% of the Company's gas is
produced in Appalachia, which gas has historically sold at higher prices. No
assurance can be given that such price discrepancy will continue. See
"Business--Gas Transportation and Marketing."
The Company has currently hedged less than 5% of its production through
September 1996. These hedges involve fixed price arrangements and other price
arrangements at a variety of prices, floors and caps. Although these hedging
activities provide the Company some protection against falling prices, these
activities also reduce the benefits to the Company from price increases above
the levels of the hedges. In the future, the Company may increase the
percentage of its production covered by hedging arrangements, however it
currently anticipates that such percentage would not exceed 50%.
OPERATING HAZARDS AND UNINSURED RISKS; PRODUCTION CURTAILMENTS
The oil and gas business involves a variety of operating risks, including,
but not limited to, unexpected formations or pressures, uncontrollable flows of
oil, gas, brine or well fluids into the environment (including groundwater
contamination), blowouts, fires, explosions, pollution and other risks, any of
which could result in personal injuries, loss of life, damage to properties and
substantial losses. Although the Company carries insurance which it believes is
reasonable, it is not fully insured against all risks. Losses and liabilities
arising from uninsured or under-insured events could have a material adverse
effect on the financial condition and operations of the Company.
From time-to-time, due primarily to contract terms, pipeline interruptions
or weather conditions, the producing wells in which the Company owns an
interest have been subject to production curtailments. The curtailments range
from production being partially restricted to wells being completely shut-in.
The duration of curtailments vary from a few days to several months. In most
cases the Company is provided only limited notice as to when production will be
curtailed and the duration of such curtailments. Currently, a number of wells
located in Appalachia are curtailed under terms of certain gas contracts due in
part to seasonal demand. The Company has been informed that such wells should
be returned to production during the remainder of 1995.
LAWS AND REGULATIONS
The Company's operations are affected by extensive regulation pursuant to
various federal, state and local laws and regulations relating to the
exploration for and development, production, gathering and marketing of oil and
gas. These regulations, among other things, control the rate of oil and gas
production, establish the maximum price at which gas is sold and control the
amount of oil that may be imported. Operations of the Company are also subject
to numerous laws and regulations governing the discharge of materials into the
environment or otherwise relating to environmental protection. The discharge of
oil, gas or other pollutants into the air, soil or water may give rise to
liabilities to the government and third parties and may require the Company to
incur costs to remedy the discharge. Although the Company believes that its
properties and operations substantially comply with all such laws and
regulations, there can be no assurance that new laws or regulations or new
interpretations of existing laws and regulations will not increase
substantially the cost of compliance or otherwise adversely affect the
Company's oil and gas operations and financial condition. See "Business --
Regulation."
COMPETITION
The Company encounters substantial competition in acquiring properties,
marketing oil and gas, securing trained personnel and operating its properties.
Many competitors have financial and other resources which substantially exceed
those of the Company. The competitors in acquisitions, development, exploration
and production include major oil companies, numerous independents, individual
proprietors and others. Therefore, competitors may be able to pay more for
desirable
G:\HLF\LOMAK\S-3\S-3.REG 12
<PAGE> 14
leases and to evaluate, bid for and purchase a greater number of properties or
prospects than the financial or personnel resources of the Company will permit.
DEPENDENCE ON KEY PERSONNEL
The Company depends, and will continue to depend in the foreseeable
future, on the services of its officers and key employees with extensive
experience and expertise in evaluating and analyzing producing oil and gas
properties and drilling prospects, maximizing production from oil and gas
properties and marketing oil and gas production. The ability of the Company to
retain its officers and key employees is important to the continued success and
growth of the Company. The loss of key personnel could have a material adverse
effect on the Company. The Company does not maintain key man life insurance on
any of its officers or key employees. See "Management."
CERTAIN BUSINESS INTERESTS OF CHAIRMAN
Thomas J. Edelman, Chairman of the Company, is also the President of
Snyder Oil Corporation ("SOCO"), a significantly larger independent oil and gas
company. The Company has existing business relationships with SOCO, and as a
result of Mr. Edelman's position in both companies, conflicts of interests may
arise between the Company and SOCO. The Company's acquisitions are typically
smaller than SOCO's and in different geographic regions. The Company has, and
it has been advised that SOCO also has, board policies that require Mr. Edelman
to give notification of any potential conflicts that may arise between the
Company and SOCO. There can be no assurance, however, that the Company and SOCO
will not compete for the same acquisition or encounter other conflicts of
interest. See "Management" and "Certain Transactions."
LACK OF PUBLIC MARKET FOR THE PREFERRED STOCK
There is no existing trading market for the Preferred Stock, and there can
be no assurance regarding the future development of a market for the Preferred
Stock or the ability of holders of the Preferred Stock to sell their Preferred
Stock or the price at which such holders may be able to sell their Preferred
Stock. If such a market were to develop, the Preferred Stock could trade at
prices that may be higher or lower than the initial offering price depending on
many factors, including prevailing interest rates, the Company's operating
results and the market for similar securities. The Initial Purchasers have
advised the Company that each of them currently intends to make a market in the
Preferred Stock. The Initial Purchasers are not obligated to do so, however,
and any market-making with respect to the Preferred Stock may be discontinued
at any time without notice. Therefore, there can be no assurance as to the
liquidity of any trading market for the Preferred Stock or that an active
public market for the Preferred Stock will develop. Similarly, if the Company
elects to exchange the Preferred Stock for the $2.03 Notes, there can be no
assurance regarding the development of a market for the $2.03 Notes. It is
expected that the Preferred Stock will be eligible for trading in the PORTAL
Market of the National Association of Securities Dealers, Inc.
CAPITAL AVAILABILITY
The Company's strategy of acquiring and developing oil and gas properties
is dependent upon its ability to obtain financing for such acquisitions and
development projects. The Company expects to utilize its revolving bank credit
agreement, as amended (the "Credit Agreement") among the Company and several
banks (the "Banks") to borrow a portion of the funds required for any given
transaction or project. Any future acquisition or development project by the
Company requiring bank financing in excess of the amount then available under
the Credit Agreement will depend upon the Banks' evaluation of the properties
proposed to be acquired or developed. If funds under the Credit Agreement are
not available to fund acquisition and development projects, the Company would
seek to obtain such financing from the sale of equity securities or other debt
financing. There can be no assurance that any such other financing would be
available on terms acceptable to the Company. Should sufficient capital not be
available, the Company may not be able to continue to implement its strategy.
The Credit Agreement limits the amounts the Company may borrow to amounts,
determined by the Banks, in their sole discretion, based upon a variety of
factors including the discounted present value of the Company's estimated
future net cash flow from oil and gas production (the "Borrowing Base"). At
November 3, 1995 the Borrowing Base was $105 million of which the Company had
borrowings of $87 million outstanding. The weighted average interest rate on
November 3, 1995 was 7.13% after giving effect to interest swap arrangements
covering $40 million of the indebtedness outstanding under the
G:\HLF\LOMAK\S-3\S-3.REG 13
<PAGE> 15
Credit Agreement. The Credit Agreement expires on July 1, 2001. The Company
does not currently have any substantial unpledged properties, and does not
anticipate acquiring properties in the foreseeable future which will not be
pledged under the Credit Agreement. If oil or gas prices decline below their
current levels, the availability of funds and the ability to pay outstanding
amounts under the Credit Agreement could be materially adversely affected.
DEPENDENCE UPON REVENUES OF SUBSIDIARIES
The Preferred Stock is a direct obligation of the Company which derives
all of its revenues from the operations of its subsidiaries. The ability of the
Company to redeem the Preferred Stock and to pay dividends, if any, will be
primarily dependent upon the receipt of dividends or other distributions from
such subsidiaries. The payment of dividends from the subsidiaries to the
Company and the payment of any interest on or the repayment of any principal of
any loans or advances made by the Company to any of its subsidiaries may be
subject to statutory or contractual restrictions and are contingent upon the
earnings of such subsidiaries. Although the Company believes that distributions
and dividends from its subsidiaries will be sufficient to pay dividends on the
Preferred Stock as well as to meet the Company's other obligations, there can
be no assurance they will be sufficient.
Claims of the creditors of the Company's subsidiaries may have priority
with respect to the assets and earnings of such subsidiaries over the claims of
the creditors of the Company.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------------- -------------------
PRO FORMA PRO FORMA
1990 1991 1992 1993 1994 1994 1995 1995
---- ---- ---- ---- ---- --------- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges 1.77 1.82 1.92 2.17 1.98 3.43 1.95 2.33
Ratio of earnings to fixed
charges and preferred
dividends 1.07 1.17 1.47 1.68 1.75 2.29 1.81 1.69
<FN>
For purposes of determining the ratio of earnings to fixed charges, earnings are defined as income before income taxes plus
fixed charges. Fixed charges consist of interest expense on all indebtedness.
</TABLE>
USE OF PROCEEDS
The Company anticipates that proceeds received upon the issuance of the
Securities will be utilized by the Company to pay down its debt under the
Credit Agreement, for acquisitions and/or for working capital. There are no
agreements or understandings regarding any such acquisitions and there can be
no assurance that any such acquisitions will occur.
The Company will not receive any proceeds upon the sale by the Selling
Securityholders of the Selling Securityholder Securities.
G:\HLF\LOMAK\S-3\S-3.REG 14
<PAGE> 16
<TABLE>
CAPITALIZATION
The following table sets forth at September 30, 1995 the actual capitalization of the Company and gives pro forma effect
to the Company's significant 1994 and 1995 acquisitions and the sale of 1,000,000 shares of the Preferred Stock and the
application of the net proceeds therefrom. This table should be read in conjunction with the Consolidated Financial Statements
and Pro Forma Combined Financial Statements included herein.
<CAPTION>
SEPTEMBER 30, 1995
--------------------------------
ACTUAL PRO FORMA
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . $ 399 $ 399
======== ========
Long-term debt:
Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . $112,839 $ 88,828
Stockholders' equity:
Preferred Stock, $1 par value, 2,000,000 shares authorized:
7 1/2% Convertible Exchangeable Preferred Stock, 200,000 shares
outstanding ($5 million liquidation preference) . . . . . . . . . . . . 200 200
$2.03 Convertible Exchangeable Preferred Stock; 1,000,000 shares
outstanding ($25 million liquidation preference) . . . . . . . . . . . -- 1,000
Common Stock, $.01 par value, 20,000,000 shares authorized: 12,039,968
outstanding(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 120
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . 65,342 88,353
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,108) (5,108)
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . 60,554 84,565
-------- --------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . $173,393 $173,393
======== ========
<FN>
(1) The number of shares of Common Stock outstanding excludes 1,299,439 shares which are reserved for issuance upon the
exercise of outstanding options and warrants, of which 707,315 are exercisable. In addition, 576,945 shares are
issuable upon conversion of the 7 1/2% Preferred. See "Description of Capital Stock."
</TABLE>
G:\HLF\LOMAK\S-3\S-3.REG 15
<PAGE> 17
BUSINESS
GENERAL
The Company is an independent oil and gas company with core areas of
operation in Texas, Oklahoma and Appalachia. The Company has grown through a
combination of acquisition, development and enhancement activities. Since
January 1, 1990, 57 acquisitions have been consummated at a total cost of
approximately $181 million and approximately $21 million has been expended on
development activities. As a result, proved reserves and production have each
grown during this period at a rate in excess of 60% per annum. At June 30,
1995, proved reserves totaled 47.3 million BOE, having a pre-tax present value
at constant prices on that date of $213 million and a reserve life in excess of
13 years. The Company as of June 30, 1995, operated properties which accounted
for 95% of its reserves and owned 1,900 miles of gas gathering systems in
proximity to its principal gas properties. In 1996, the Company expects to
allocate a limited portion of its budget to selected exploratory activities in
its core operating areas.
STRATEGY
The Company's objective is to implement a balanced strategy of increasing
its asset base, cash flow and earnings through acquisition, development and
enhancement activities in core operating areas. In each core area, the Company
establishes separate acquisition, engineering, operating, geological and other
technical expertise. The Company is presently engaged in acquisition,
development and enhancement activities in each of its current core operating
areas of Texas, Oklahoma and Appalachia. Through its strategy, the Company does
not depend solely on any one region or activity to grow its asset base. As a
result, despite low energy prices prevalent since 1990, the Company has
consistently reported favorable operating results. By operating in three core
areas, the Company has expanded its acquisition and development opportunities.
Acquisitions. Since January 1, 1990, 57 acquisitions have been completed
for a total consideration of $181 million. Over 46.9 million BOE of proved
reserves have been acquired at an average cost of $3.70 per BOE. The Company's
acquisition strategy is based on: (i) Size: targeting smaller, less competitive
transactions having a cost below $30 million; (ii) Locale: focusing in areas
containing many small oil and gas operators and where larger companies are no
longer active; (iii) Efficiency: targeting acquisitions in which operating and
cost efficiencies can be obtained; (iv) Reserve Potential: pursuing properties
with the potential for reserve increases through recompletions and development
drilling; (v) Incremental Purchases: seeking acquisitions where opportunities
for purchasing additional interests in the same or adjoining properties exist;
and (vi) Complexity: pursuing more complex but less competitive corporate or
partnership acquisitions.
Development. The Company's development activities include recompletions of
existing wells, infield and step-out drilling and installation of secondary
recovery projects. Development projects are generated within core operating
areas where the Company has significant operational and technical experience.
At September 30, 1995, over 600 proven development projects were in inventory.
These projects are located in eight different fields, vary between oil and gas,
and are balanced between low and medium risk. Approximately 80 of these
projects are expected to be initiated in 1995 at a total cost of approximately
$11 million. Based on the number of projects currently in inventory,
development expenditures are projected to be approximately $40 million for the
three year period 1995 through 1997.
Enhancements. The Company's enhancement activities include all activities
other than acquisitions or drilling which maximize the value of its asset base.
Enhancements include: reducing overhead, operating and development costs;
concentrating operations to increase efficiency; the rapid disposal of
non-strategic properties; expanding marketing options; and applying new
technology to exploit additional reserves. Enhancements create higher margins
and help maintain profitability during the downward phase of energy price
cycles. Despite low oil and gas prices in 1994 and the first half of 1995, the
Company posted increased cash flow and profits, partly due to enhancements.
G:\HLF\LOMAK\S-3\S-3.REG 16
<PAGE> 18
ACQUISITIONS
ACQUISITION STRATEGY
Since 1990, the Company has completed 57 acquisitions for $181 million of
consideration. During the first nine months of 1995, $52.8 million of purchases
were completed. The Company's acquisition strategy is to concentrate on smaller
transactions that offer higher expected returns. The Company believes that it
can continue to implement its acquisition strategy based on the following:
SIZE: The Company believes that smaller transactions (less than $30 million in
cost) provide the opportunity for higher returns due to the limited number of
buyers that have the interest, financial capabilities and the operational
efficiencies necessary to consummate such transactions. Smaller companies
generally do not have sufficient capital or the requisite expertise to engage
in such transactions while the larger companies are focusing on other areas,
such as overseas operations, or larger transactions. Additionally, because of
the continuing restructuring of the domestic oil and gas industry, many small
oil and gas entities are for sale and many larger companies are selling their
smaller or non-strategic properties.
LOCALE: Focusing on areas containing many small, less capitalized operators.
These typically are areas in which many of the major and larger independent
companies are no longer active and where, in some cases, they are divesting
their remaining assets. The potential for reserve increases in these areas
exists through the application of new operating and technical advances.
EFFICIENCY: Targeting acquisitions in which operating and cost efficiencies can
be obtained. The Company concentrates on acquiring oil and gas assets in areas
in which it already operates and seeks to subsequently merge into its existing
infrastructure the overhead functions of companies, partnerships and direct
property interests it acquires. Not only does the increased efficiency result
in increased profitability, but it also enables the Company to be an aggressive
buyer while still generating an attractive return.
RESERVE POTENTIAL: Pursuing properties with the potential for reserve increases
through workovers, recompletions, drilling and secondary recovery operations.
INCREMENTAL PURCHASES: Seeking acquisitions where opportunities for purchasing
incremental interests in the same or adjoining properties exist. Properties in
which the Company currently owns an interest contain over $100 million of
estimated value attributable to interests held by third parties. The purchase
of incremental interests results in only minor increases in overhead cost.
COMPLEXITY: A number of companies and partnerships which own oil and gas assets
have been acquired at attractive prices. Due to the added complexity involved
in acquiring and integrating these entities and their assets, many buyers do
not have the expertise or desire to compete for such acquisitions.
ACQUISITION SUMMARY
<TABLE>
The following table, which includes the Recent Appalachian Acquisitions, sets forth information pertaining to acquisitions
completed during the period January 1, 1990 through September 30, 1995.
<CAPTION>
NUMBER OF PURCHASE MBOE COST PER
PERIOD TRANSACTIONS PRICE (1) ACQUIRED BOE(2)
------------------------------------------------- ------------ --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1990 . . . . . . . . . . . . . . . . . . . . . . 6 $ 6,520 1,062 $5.60
1991 . . . . . . . . . . . . . . . . . . . . . . 9 11,189 2,433 4.51
1992 . . . . . . . . . . . . . . . . . . . . . . 7 6,884 2,085 2.47
1993 . . . . . . . . . . . . . . . . . . . . . . 12 40,527 10,759 3.54
1994 . . . . . . . . . . . . . . . . . . . . . . 17 63,354 15,476 3.99
1995 (through September 30) . . . . . . . . . . . 6 52,848 15,420 3.38
-- -------- ------ -----
Total . . . . . . . . . . . . . . . . . . . . . . 57 $181,322 47,235 $3.69
== ======== ====== =====
</TABLE>
(footnotes on following page)
G:\HLF\LOMAK\S-3\S-3.REG 17
<PAGE> 19
[FN]
- ------------
(1) Includes purchase price for proved reserves as well as other acquired
assets, including gas gathering lines, undeveloped leasehold and field
service assets.
(2) Includes purchase price for proved reserves only.
ACQUISITION HISTORY
1995 ACQUISITIONS
APPALACHIA
Transfuel, Inc. In September, the Company acquired proved oil and gas
reserves, 1,100 miles of gas gathering lines and 175,000 undeveloped acres in
Ohio, Pennsylvania and New York from Transfuel, Inc. for approximately $20.2
million in cash and $755,000 in the Company's Common Stock.
Parker & Parsley Petroleum Company. In August, the Company purchased
proved oil and gas reserves, 300 miles of gas gathering lines and 16,400
undeveloped acres in Pennsylvania and West Virginia from Parker & Parsley
Petroleum Company for $20.2 million.
OKLAHOMA
The Company purchased interests in 52 wells in the Caddo and Canadian
counties for $4.8 million. The Company assumed operation of half of these
wells.
Interest in Company operated properties were acquired for $3.4 million.
TEXAS
The Company purchased interests in 140 wells located primarily in the Big
Lake Area of west Texas and the Laura LaVelle Field of east Texas for $2.8
million.
1994 ACQUISITIONS
OKLAHOMA
Red Eagle Resources Corporation. In December 1994, the Company acquired
effective control of Red Eagle Resources Corporation ("Red Eagle") principally
through the purchase of two common stockholders' holdings. In February 1995,
the remaining stockholders of Red Eagle common stock voted to approve the
merger of Red Eagle with a wholly owned subsidiary of the Company in exchange
for approximately 2.2 million shares of the Company's Common Stock. The total
purchase price was approximately $31 million. Red Eagle's assets are reflected
in the Company's financial statements as of December 31, 1994. The additional
equity of Red Eagle acquired in February 1995 is reflected as a minority
interest on the Company's balance sheet at December 31, 1994. The Company's
statement of income does not reflect any of Red Eagle's operations during 1994.
Red Eagle's assets included interests in approximately 370 producing wells
located primarily in and around the Okeene Field of Oklahoma's Anadarko Basin.
Subsequently, the Company acquired additional interests in 70 Red Eagle wells
for $1.7 million. At December 31, 1994, Red Eagle operated 328 wells and
managed thirty-seven limited partnerships. See "Business--Legal Proceedings."
TEXAS
Grand Banks Energy Company. The Company acquired Grand Banks Energy
Company ("Grand Bank") for approximately $3.7 million. Grand Banks' assets
include interests in 182 producing wells located in west Texas, essentially all
of which are now operated by the Company. Grand Banks owned an average working
interest of 70% in the producing reserves, of which 60% was oil. Approximately
40% of Grand Banks' proved reserves are attributed to the Mills-Strain Unit
located in the Sharon Ridge Field of Mitchell County, Texas. The Mills-Strain
Unit is a waterflood unit producing from the Clearfork Formation at a depth of
approximately 2,000 feet. The Mills-Strain Unit has a remaining reserve life of
over 20 years.
Gillring Oil Company. The Company acquired Gillring Oil Company
("Gillring") for approximately $11.5 million. Gillring's assets include $5.2
million of working capital and interests in 106 producing oil and gas wells
located in south
G:\HLF\LOMAK\S-3\S-3.REG 18
<PAGE> 20
Texas. Gillring owned an average working interest of 80% in the producing
reserves, of which 80% were gas. The Gillring properties are located
principally in two fields producing from the Wilcox and Vicksburg formations
ranging in depths from 4,000 to 11,000 feet. Subsequent to the acquisition of
Gillring, the Company purchased, for approximately $2.1 million, the limited
partnership interests in a partnership for which Gillring acted as the general
partner.
The Company acquired from four parties interests in 118 producing wells in
the Big Lake Area of west Texas and the Laura LaVelle Field of east Texas for
$6.5 million.
APPALACHIA
The Company acquired, for $5.0 million, interests in 98 new wells and
additional interests in 436 wells which the Company already operated.
1993 ACQUISITIONS
APPALACHIA
Mark Resources Corporation. In December 1993, the Company acquired Mark
Resources Corporation ("Mark") for approximately $28.4 million. Mark's assets
are located primarily in northwestern Pennsylvania in the Appalachian Basin,
and to a lesser extent in West Virginia. Mark owned interests in 655 producing
wells, 230 miles of gas gathering lines and over 180 proved development
drilling locations. Mark operated nearly all of its properties and owned an
average working interest of 27% in the producing reserves and 88% in the
undeveloped reserves.
The Company acquired interests in 393 wells, 70 miles of gas gathering
systems and undeveloped leasehold for $5.4 million.
TEXAS
The Company acquired interests in 128 producing wells in the Big Lake Area
of west Texas and the Laura LaVelle Field of east Texas for $6.7 million.
DEVELOPMENT ACTIVITIES
Development activities include recompletions of existing wells, the
drilling of infield and step-out wells and secondary recovery projects. In
1993, approximately $3.7 million was expended on these activities, while $9.5
million was incurred during 1994. The Company estimates that it will spend
approximately $11 million on development activities in 1995. Based on over 600
proven development projects currently in inventory, capital expenditures are
estimated to be approximately $40 million for the three year period 1995
through 1997.
The Company's development strategy is to own as large an interest as
possible in more established, lower risk development projects. Conversely, in
development activities that are less established and therefore deemed to be of
higher risk, the Company generally seeks to participate for no more than a 50%
interest. As more confidence is gained in regard to the higher risk development
activities, the Company may increase its ownership percentage.
Texas. At June 30, 1995, Texas accounted for 130 proved development
projects. The majority of these projects include recompletions and infield
drilling locations in the Big Lake Area of west Texas and the Laura LaVelle
Field of east Texas. The Company has performed 21 recompletions and drilled 31
wells in these two fields. As a result of development and additional
acquisitions, gross production from the two fields has increased from 500 BOE
per day to over 1,900 BOE per day. In 1995, the Company expects to recomplete
12 wells and drill 18 new wells in the two fields for approximately $3 million.
Oklahoma. Essentially all of the 160 Oklahoma proven development projects
are in the Okeene Field located in the northwestern portion of the Anadarko
Basin. These projects include 122 recompletions and 34 drilling locations. The
Company's primary producing area is situated in a four township area that
straddles the Blaine-Major County line, with over 130 Company operated wells.
The majority of the reserves are gas and are produced from six geologic
horizons at depths ranging from 7,000 to 9,000 feet. The Company acquired its
interests in the field during the fourth quarter of 1994. Since then the
Company's engineers have applied state-of-the-art fracture technology to ten
recompletions doubling gross production to 7 MMcf per day. In 1995, the Company
estimates it will undertake 21 recompletions and drill two new wells for
G:\HLF\LOMAK\S-3\S-3.REG 19
<PAGE> 21
approximately $2 million. An extensive geologic study of the area has been
initiated to further identify potential additional development opportunities.
Appalachia. In Ohio, Pennsylvania and West Virginia 390 proved development
projects have been identified in the shallow Clinton and Medina Sandstone
formations. These projects are located on 38,700 gross (35,400 net) acres under
lease and range in depth from 4,000 to 6,000 feet. The reserves are
characterized by initial flush production, followed by extremely gradual
decline rates resulting in a projected life of over twenty years. During 1995
the Company estimates that it will drill 23 new wells at a cost of
approximately $4 million. The Company currently has a sufficient inventory of
proved infield drilling locations to drill up to 60 wells per year for the next
five years.
In addition to the shallow formations discussed above, the Appalachian
Basin has less developed formations including the Rose Run-Beekmantown and
Trempealeau which range in depths from 4,000 to 8,000 feet. The geological
boundaries of these formations lie approximately 2,500 feet below the shallower
Clinton and Medina Sandstone formations. While the industry has drilled over
100,000 Clinton and Medina Sandstone wells, fewer than 1,700 wells have been
drilled to the Rose Run-Beekmantown and 5,000 to the Trempealeau. The results
were poor because the wells were based on only regional geology and no seismic
data was utilized. Since 1993, the Company has participated in eighteen deeper
wells with an average working interest of 13%, of which, seven were productive
and eleven were dry. Currently, the Company owns leases covering 211,000 gross
(181,000 net) acres in the deeper "Rose Run Trend." The Company's 1995 budget
allocates approximately $1 million to acquire acreage and seismic and to drill
wells.
ENHANCEMENT ACTIVITIES
The Company defines enhancements as those activities, other than
acquisitions or drilling, which maximize the value of its asset base.
Enhancements include: reducing overhead, operating and development costs on a
per BOE basis; concentrating operations to increase efficiency; disposing
non-strategic properties rapidly; expanding marketing options; and applying new
technology to exploit additional reserves. Enhancements create higher margins
and help maintain profitability during the downward phase of commodity price
cycles. Despite low oil and gas prices in 1994 and the first nine months of
1995, the Company posted increased cash flow and profits, partly due to
enhancements. Primarily as a result of its enhancement activities during the
past five years the Company has: (i) decreased overhead costs per BOE by 91%;
(ii) cut operating costs per BOE by 34%; (iii) reduced development costs per
BOE by 27%; (iv) now operates properties representing more than 95% of its
reserves; (v) sold over 1,000 non-strategic properties; (vi) expanded gas
marketing to 70 MMcf per day through 1,900 miles of Company-owned gas gathering
systems; and (vii) improved seismic and completion techniques by applying new
technology.
OIL AND GAS RESERVES
The following table sets forth estimated proved reserves for each year in
the five year period ended December 31, 1994 and pro forma as of June 30, 1995.
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
----------------------------------------------------------- JUNE 30,
1990 1991 1992 1993 1994 1995(1)
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Crude oil (MBbl)
Developed . . . . . . . . . . . . . . . . 416 1,609 1,643 3,344 6,431 8,003
Undeveloped . . . . . . . . . . . . . . . 4 245 337 1,195 2,018 2,325
------- ------- ------- ------- ------- -------
Total . . . . . . . . . . . . . 420 1,854 1,980 4,539 8,449 10,328
======= ======= ======= ======= ======= =======
Natural gas (MMcf)
Developed . . . . . . . . . . . . . . . . 5,626 8,318 13,171 38,373 97,251 164,522
Undeveloped . . . . . . . . . . . . . . . -- 221 4,444 36,190 52,119 57,532
------- ------- ------- ------- ------- -------
Total . . . . . . . . . . . . . 5,626 8,539 17,615 74,563 149,370 222,054
======= ======= ======= ======= ======= =======
Total equivalent barrels (MBOE) . . . . . . . 1,357 3,277 4,916 16,967 33,344 47,337
======= ======= ======= ======= ======= =======
<FN>
(1) See "Business--Pro Forma Reserve Information."
</TABLE>
G:\HLF\LOMAK\S-3\S-3.REG 20
<PAGE> 22
Proved developed reserves are expected to be recovered from existing wells
with existing equipment and operating methods. Proved undeveloped reserves are
expected to be recovered from new wells drilled to known reservoirs on
undrilled acreage for which the existence and recoverability of such reserves
can be estimated with reasonable certainty. On a BOE basis, approximately 75%
of the Company's proved reserves were developed at June 30, 1995. At December
31, 1994, approximately 95% of the proved reserves set forth above were
evaluated by independent petroleum consultants, while the remainder was
evaluated by the Company's engineering staff. See "Pro Forma Reserve
Information" below regarding the evaluation of proved reserves at June 30,
1995.
The following table sets forth as of June 30, 1995 the estimated future
net cash flow from and the present value of the proved reserves. See "Pro
Forma Reserve Information." Future net cash flow represents future gross cash
flow from the production and sale of proved reserves, net of production costs
(including production taxes, ad valorem taxes and operating expenses) and
future development costs. Such calculations, which are prepared in accordance
with the Statement of Financial Accounting Standards No. 69 "Disclosures about
Oil and Gas Producing Activities" are based on constant cost and price factors.
Average product prices at December 31, 1994 were $16.14 per barrel of oil and
$2.07 per Mcf of gas and at June 30, 1995 were $16.35 per barrel of oil and
$2.15 per Mcf of gas. There can be no assurance that the proved reserves will
be developed within the periods indicated and it is likely that actual prices
received in the future will vary from those used in deriving this information.
There are numerous uncertainties inherent in estimating reserves and related
information and different reservoir engineers often arrive at different
estimates for the same properties.
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED TOTAL
--------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Estimated future net cash flow . . . . . . . . . .. . . $ 283,947 $ 87,948 $ 371,895
========= ========= =========
Present value of proved reserves
Pre-tax . . . . . . . . . . . . . . . . . . $ 173,806 40,353 $ 213,159
========= ========= =========
After-tax . . . . . . . . . . . . . .. . . $ 130,036 30,365 $ 160,401
========= ========= =========
</TABLE>
PRO FORMA RESERVE INFORMATION
The following table sets forth summary pro forma information with respect
to the Company's estimated proved oil and gas reserves as of June 30, 1995,
giving effect to acquisitions completed from January 1, 1995 through June 30,
1995. The reserve information below is based on reserve evaluations for each
property group and in most cases each reserve evaluation had an effective date
varying from December 31, 1994 through July 1, 1995. These reserve evaluations
were adjusted by the Company's engineering staff to June 30, 1995 by adjusting
production to June 30, 1995 depending on the effective date of each respective
evaluation. Therefore, the reserve information below does not reflect
production revisions or changes in oil and gas prices, changes in expectations
or changes in estimates of recoverable reserves resulting from price changes.
Approximately 95% of December 31, 1994 reserve information was prepared by
independent petroleum consultants and 100% of the Recent Appalachian
Acquisitions reserve information was prepared by independent petroleum
consultants. The "Other 1995 Acquisitions" reserve information, as well as the
"Adjustments" information, were prepared by the Company's engineering staff.
All estimates of oil and gas reserves are subject to significant uncertainty.
See "Risk Factors--Uncertainty of Estimates of Reserves and Future
Net Revenues."
<TABLE>
<CAPTION>
PRO FORMA RESERVE INFORMATION
----------------------------------------------------------------------------
HISTORICAL RECENT
DECEMBER 31, APPALACHIAN OTHER 1995 PRO FORMA
1994 ACQUISITIONS ACQUISITIONS ADJUSTMENTS JUNE 30, 1995
------------ -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Proved reserves . . . . . . . . . . . . . . .
Oil (MBbls) . . . . . . . . . . . . . . . 8,449 468 1,845 (434) 10,328
Gas (MMcf) . . . . . . . . . . . . . . . . 149,370 65,592 9,760 (2,66) 222,054
MBOE . . . . . . . . . . . . . . . . . . . 33,344 11,400 3,472 (879) 47,337
Estimated future net cash flow (thousands) . $270,974 $ 80,925 $ 25,191 (5,195) $371,895
Pre-tax present value (thousands) . . . . . . $150,536 $ 46,638 $ 16,459 (474) $213,159
Average product prices . . . . . . . . . . .
Oil (per Bbl) . . . . . . . . . . . . . . $ 16.13 $ 16.01 $ 17.45 N/A $ 16.35
Gas (per Mcf) . . . . . . . . . . . . . . $ 2.13 $ 2.27 $ 1.68 N/A $ 2.15
</TABLE>
G:\HLF\LOMAK\S-3\S-3.REG 21
<PAGE> 23
SIGNIFICANT PROPERTIES
Until 1990, virtually all of the Company's properties were located in
Ohio. Since that time, properties have been acquired in Texas and Oklahoma and
other areas of Appalachia. At June 30, 1995, on a pre-tax present value basis,
49.8% of the reserves were located in Appalachia, 25.7% were in Oklahoma and
21.2% were in Texas. At September 30, 1995, the Company's properties included
working interests in 6,430 gross (4,583 net) productive oil and gas wells and
royalty interests in 450 additional wells. The properties contained, net to the
Company's interest, estimated proved reserves of 10.3 million barrels of oil
and 222 Bcf of gas or a total of 47.3 million BOE. The Company also held
interests in 311,250 gross (225,132 net) undeveloped acres at June 30, 1995.
The following table sets forth summary pro forma information with respect to
the Company's estimated proved oil and gas reserves as of June 30, 1995.
<TABLE>
<CAPTION>
PRE-TAX PRESENT VALUE
------------------------ CRUDE NATURAL EQUIV.
AMOUNT OIL GAS BARRELS
(THOUSANDS) % (MBBL) (MMCF) (MBOE)
----------- ----- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Appalachia . . . . . . . . . . . . . . . 106,108 49.8% 1,025 154,255 26,734
Oklahoma . . . . . . . . . . . . . . . . 54,703 25.7 1,933 50,256 10,309
Texas . . . . . . . . . . . . . . . . . . 45,264 21.2 6,144 17,053 8,986
Other . . . . . . . . . . . . . . . . . . 7,084 3.3 1,226 490 1,308
-------- ----- ------ ------- ------
Total . . . . . . . . . . . . . . . . . . $213,159 100.0% 10,328 222,054 47,337
======== ===== ====== ======= ======
</TABLE>
The largest concentration of reserves is in Appalachia with 49.8% of total
present value. On a BOE basis, gas accounts for approximately 96% of these
reserves. These reserves are ascribed to over 4,800 wells located in
Pennsylvania, Ohio, West Virginia and New York. The Company operates nearly all
of these wells. The reserves produce principally from the Medina, Clinton and
Rose Run formations at depths of 3,000 to 7,000 feet. After initial flush
production, these properties are characterized by extremely gradual decline
rates and have a projected life of more than twenty years. Gas production is
transported through Company-owned gas gathering systems and is sold primarily
to utilities and industrial end-users.
The second largest concentration of reserves is in Oklahoma, totalling
25.7% of present value. On a BOE basis, gas makes up 81% of these reserves. The
largest portion of these reserves is ascribed to over 190 operated wells in and
around the Okeene Field of the Anadarko Basin. These wells produce from
numerous formations ranging in depth from approximately 6,000 to 9,000 feet.
The properties have a projected remaining life of over fifteen years. Gas
production is sold primarily to Phillips Petroleum and Natural Gas
Clearinghouse on an index or percent of plant proceeds basis.
The third largest concentration of reserves is in Texas, totalling 21.2%
of present value. On a BOE basis, oil makes up 68% of the reserves. The largest
portion of these reserves is ascribed to 338 operated wells in the Big Lake
Area of west Texas. These wells produce from the San Andres/Grayburg formation
at a depth of approximately 2,500 feet. The properties have a projected
remaining life of over 25 years. Over 83% of these reserves are oil. Oil
production is sold to Scurlock Permian and gas to J.L. Davis Company. The
second largest portion of these reserves are ascribed to 64 operated wells in
the Laura LaVelle Field in east Texas. These wells produce from the shallow
Carrizo section of the Wilcox formation at a depth of approximately 1,600 feet.
These properties have a projected remaining life of twenty years. All of the
reserves are oil and production is sold to Texaco. The third largest portion is
in Hagist Ranch Field in south Texas. The Company operates 58 wells in this
field which produces primarily from the Wilcox at approximately 8,000 feet.
Arco purchases the gas production from the Hagist Ranch Field.
PRODUCTION
Production revenue is generated through the sale of oil and gas from
properties held directly and through partnerships and joint ventures.
Additional revenue is received from royalties. Oil and gas production is sold
to a limited number of purchasers. Through September 30, 1995, one purchaser
accounted for 11% of total oil and gas revenues, however the loss of such
purchaser would not have a material adverse effect on the Company's business.
Proximity to local markets, availability of competitive fuels and overall
supply and demand are factors affecting the ability to market production. There
has been a worldwide surplus of oil and gas for more than a decade which has
weakened oil prices and particularly recently, depressed the price of natural
gas. While the Company anticipates an upward trend in energy prices, factors
outside its control such as political developments in the Middle East, overall
energy supply, weather conditions and economic growth rates have had, and may
continue to have, an unpredictable or adverse effect on energy prices.
G:\HLF\LOMAK\S-3\S-3.REG 22
<PAGE> 24
The following table sets forth historical revenue and expense information
for the periods indicated (in thousands, except sales price and operating cost
data). See the Pro Forma Combined Financial Statements included herein for a
discussion of the preparation of the pro forma data.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------------------------------- ------------------------------
PRO FORMA PRO FORMA
1992 1993 1994 1994 1995 1995
------------- ------------ ---------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Production
Oil (Bbl) . . . . . . . . . . . . . 199 318 640 789 649 709
Gas(Mcf) . . . . . . . . . . . . . . 1,796 2,590 6,996 15,982 7,825 12,659
BOE . . . . . . . . . . . . . . . . 498 750 1,806 3,453 1,953 2,819
Revenue
Oil . . . . . . . . . . . . . . . . $ 3,660 $ 5,118 $ 9,743 $ 12,019 $ 10,768 $ 11,711
Gas . . . . . . . . . . . . . . . . 4,043 6,014 14,718 33,791 13,367 22,728
------- -------- -------- -------- -------- --------
Total . . . . . . . . . . $ 7,703 $ 11,132 $ 24,461 $ 45,810 $ 24,135 $ 34,439
Average Sales Price
Oil (per Bbl) . . . . . . . . . . . $ 18.40 $ 16.07 $ 15.23 $ 15.23 $ 16.58 $ 16.52
Gas (per Mcf) . . . . . . . . . . . 2.25 2.32 $ 2.10 2.11 1.71 1.80
BOE . . . . . . . . . . . . . . . . 15.46 14.82 $ 13.55 13.27 12.36 12.22
Average Operating Cost
Per BOE . . . . . . . . . . . . . . $ 5.95 $ 5.87 $ 5.55 $ 5.21 $ 5.09 $ 4.54
</TABLE>
For 1994 and the nine months ended September 30, 1995, natural gas
accounted for over 74% of total production on a BOE basis. Gas production was
sold primarily to utilities and directly to industrial users. Gas sales are
made pursuant to various arrangements ranging from month-to-month contracts,
one year contracts at fixed or variable prices and contracts at fixed prices
for the life of the well. All contracts other than the fixed price contracts
contain provisions for price adjustment, termination and other terms customary
in the industry. A number of the Appalachian gas contracts hold favorable sales
prices when compared to market spot prices. Oil is sold on a basis such that
the purchaser can be changed on 30 days notice. The price received is generally
equal to a posted price set by the major purchasers in the area. Oil
purchasers are selected on the basis of price and service.
PRODUCING WELLS
The following table sets forth certain information relating to productive
wells at September 30, 1995. The Company owns royalty interests in an
additional 450 wells. Wells are classified as oil or gas according to their
predominant production stream.
<TABLE>
<CAPTION>
PRINCIPAL GROSS NET AVERAGE
PRODUCT STREAM WELLS WELLS WORKING INTEREST
------------------------------------------------- ------------ -------- -------------------
<S> <C> <C> <C>
Crude oil . . . . . . . . . . . . . . . . . . . . 1,026 542 53%
Natural gas . . . . . . . . . . . . . . . . . . . 5,404 4,041 75%
----- -----
Total . . . . . . . . . . . . . . . . . . . . 6,430 4,583 71%
===== =====
</TABLE>
ACREAGE
The following table sets forth the developed and undeveloped gross and net
acreage held at September 30, 1995.
G:\HLF\LOMAK\S-3\S-3.REG 23
<PAGE> 25
<TABLE>
<CAPTION>
AVERAGE
GROSS NET WORKING INTEREST
----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Developed . . . . . . . . . . . . . . . . . . . . . . 454,200 319,500 70%
Undeveloped . . . . . . . . . . . . . . . . . . . . . 311,200 225,100 72%
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . 765,400 544,600 71%
========= =========
</TABLE>
DRILLING RESULTS
The following table summarizes actual drilling activities for the three
years ended December 31, 1994 and the nine months ended September 30, 1995. The
drilling results below do not reflect acquisitions, on a pro forma basis, as
the drilling results on the acquired properties are not reflective of the
Company's drilling results.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------------------------ SEPTEMBER 30,
1992 1993 1994 1995
------------------- ------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Drilling:
Development wells:
Gross . . . . . . . . . . . . . . . . . 8.0 24.0 62.0 21.0
Net . . . . . . . . . . . . . . . . . . 2.2 17.4 56.6 14.6
Exploratory wells:
Gross . . . . . . . . . . . . . . . . . 2.0 6.0 9.0 5.0
Net . . . . . . . . . . . . . . . . . . 0.2 1.0 1.6 0.5
Total:
Gross . . . . . . . . . . . . . . . . . 10.0 30.0 71.0 26.0
Net . . . . . . . . . . . . . . . . . . 2.4 18.4 58.2 15.1
Drilling Results:
Productive wells:
Gross . . . . . . . . . . . . . . . . . 8.0 25.0 64.0 24.0
Net . . . . . . . . . . . . . . . . . . 2.2 16.5 56.3 14.9
Dry holes:
Gross . . . . . . . . . . . . . . . . . 2.0 5.0 7.0 2.0
Net . . . . . . . . . . . . . . . . . . 0.2 1.9 1.8 0.2
</TABLE>
FIELD SERVICES
The field services area is comprised of three components: well operations,
brine hauling and disposal and well servicing. As of September 30, 1995, the
Company acted as operator of, or provided pumping services for, over 5,600
wells. For its well operations, the Company receives a monthly fee plus
reimbursement of third party charges. In September 1994, the Company sold
substantially all of its brine disposal and well servicing assets located in
Ohio. Currently, the majority of the Company's brine disposal and well
servicing activities are carried out in Oklahoma.
GAS TRANSPORTATION AND MARKETING
The Company has built or acquired a number of gas gathering systems as a
means of marketing gas production in proximity to its principal natural gas
properties. This has resulted in the ownership of over 1,900 miles of gas
transportation and gathering lines. Having concentrated gas reserves tied to
Company-owned gathering systems affords considerable control and flexibility in
marketing a substantial portion of its gas production. To further exploit this
opportunity, the Company began to market its own gas production in 1993. Today,
the Company is marketing over 70 MMcf per day for its own account, as well as
for the account of others. In a number of situations, the Company has entered
into fixed price contracts which act as a hedge against volatile prices. See
"Risk Factors--Marketing Risks."
G:\HLF\LOMAK\S-3\S-3.REG
24
<PAGE> 26
After giving effect to the Recent Appalachian Acquisitions, approximately
70% of the Company's gas production is attributable to Appalachia. Gas
production in Appalachia has historically received a higher price, due to its
proximity to the northeastern gas markets. During six months ended June 30,
1995, the Company received, on average, $2.08 per Mcf for its Appalachia gas
production. During this same time period, the average settlement price for gas
on NYMEX was $1.58 per Mcf. Currently, on a Company-wide basis, approximately
11% of its gas production is sold under life-of well contracts averaging $2.49
per Mcf, 31% is sold under contracts with an initial term of no less than one
year that provide for a fixed price or a fixed floor price and 58% is sold
under variable price arrangements whereby the price received fluctuates
monthly.
Within the last year, the Company has begun to hedge its oil and gas
production by entering into price arrangements at a variety of prices, floors
and caps. At September 30, 1995, less than 5% of the Company's production was
hedged under such arrangements. As production increases, the Company expects
that it may hedge a larger percentage of its production, however it currently
anticipates that such percentage would not exceed 50%.
FACILITIES
The Company owns a 24,000 square foot facility located on approximately
seven acres near Hartville, Ohio. The facility houses certain operating and
administrative personnel. The Company leases approximately 16,000 square feet
in Fort Worth, Oklahoma City, and Pittsburgh under standard office lease
arrangements that expire at various times through May 1996. All facilities are
adequate to meet the Company's existing needs and can be expanded with minimal
expense.
The Company owns various rolling stock and other equipment which is used
in its field operations. Such equipment is believed to be in good repair and,
while such equipment is important to its operations, it can be readily replaced
as necessary.
COMPETITION
The Company encounters substantial competition in acquiring properties,
marketing oil and gas, securing personnel and operating its well services
business. Many competitors have financial and other resources which
substantially exceed those of the Company. The competitors in acquisitions,
exploration, development and production include the major oil companies in
addition to numerous independents, individual proprietors and others.
Therefore, competitors may be able to pay more for desirable leases and to
evaluate, bid for and purchase a greater number of properties or prospects than
the financial or personnel resources of the Company permit. The ability of the
Company to replace and expand its reserve base in the future will be dependent
upon its ability to select and acquire suitable producing properties and
prospects for future drilling.
The Company's acquisitions have been partially financed through issuances
of equity and debt securities. The competition for capital to finance oil and
gas acquisitions and development is intense. The ability of the Company to
obtain such financing is uncertain and can be affected by numerous factors
beyond its control. The inability of the Company to raise capital in the future
could have an adverse effect on certain areas of its business.
EMPLOYEES
As of November 8, 1995, the Company had 280 full-time employees, 189 of
whom were field personnel. None are covered by a collective bargaining
agreement and management believes that its relationship with its employees is
good.
REGULATION
The Company's oil and gas production and transportation operations are
subject to various types of regulation, including regulation by state and
federal agencies. Although such regulations have an impact on the Company and
others in the oil, gas and pipeline industry, the Company does not believe that
it is affected in a significantly different manner by these regulations than
others in the oil and gas industry.
Legislation affecting the oil and gas industry is under constant review
for amendment or expansion. Numerous departments and agencies, both federal and
state, are authorized by statute to issue, and have issued, rules and
regulations binding on the oil and gas industry and its individual members. The
failure to comply with such rules and regulations can result in substantial
penalties. Many states require permits for drilling operations, drilling bonds
and reports concerning operations. Many states also have statutes or
regulations addressing conservation matters, including provisions for the
G:\HLF\LOMAK\S-3\S-3.REG
25
<PAGE> 27
unitization or pooling of oil and gas properties, the establishment of maximum
rates of production from oil and gas wells and the regulation of spacing,
plugging and abandonment of such wells. Some state statutes and regulations
limit the rate at which oil and gas can be produced from the Company's
properties. See "Risk Factors--Laws and Regulations."
In 1992, the Federal Energy Regulatory Commission ("FERC") issued Order
No. 636 pertaining to pipeline restructuring. This rule requires interstate
pipelines to unbundle transportation and sales services by separately stating
the price of each service and by providing customers only the particular
service desired, without regard to the source for purchase of the gas. The rule
also requires pipelines to (i) provide nondiscriminatory notice service
allowing firm commitment shippers to receive delivery of gas on demand up to
certain limits without penalties; (ii) establish a basis for release and
reallocation of capacity; and (iii) provide nondiscriminatory access to
capacity by firm transportation shippers on a downstream pipeline.
The Company's operations are subject to extensive federal, state and local
laws and regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. Permits are
required for the operation of various of the Company's facilities, and these
permits are subject to revocation, modification and renewal by issuing
authorities. Governmental authorities have the power to enforce compliance with
their regulations, and violations are subject to fines, injunctions or both. It
is possible that increasingly strict requirements will be imposed by
environmental laws and enforcement policies thereunder. It is not anticipated
that the Company will be required in the near future to expend amounts that are
material in relation to its total capital expenditures program by reason of
environmental laws and regulations, but inasmuch as such laws and regulations
are frequently changed, the Company is unable to predict the ultimate cost of
such compliance. See "Risk Factors--Laws and Regulations."
LEGAL PROCEEDINGS
In January 1995, prior to the consummation of the Red Eagle acquisition, a
lawsuit (the "Lawsuit") was filed in the Delaware Court of Chancery, against
Red Eagle, each of the members of the Board of Directors of Red Eagle and the
Company. The Plaintiff seeks to represent all holders (the "Class") of Red
Eagle common stock, excluding the Red Eagle Directors and the Company. The
lawsuit seeks other remedies, some of which are in the alternative,
certification of the lawsuit as a class action, designation of the Plaintiff as
representative of the Class and Plaintiff's counsel as counsel to the Class;
declaration that the Red Eagle Directors breached their fiduciary duties owed
to the Class; recision of the Red Eagle merger agreement; and award of
unspecified compensatory damages, prejudgment interest and costs and
disbursement of the Lawsuit including counsel fees.
A stipulation of settlement among all defendants and the putative
representative of the Class was executed on September 22, 1995, and was filed
in the Delaware Court of Chancery without the Company and the defendants
admitting any liability. Under the terms of the settlement, the Class would
receive, at the Company's option, either (i) $900,000 in cash or (ii) $250,000
in cash plus 74,286 shares of the Company's Common Stock. A hearing on the
proposed settlement is scheduled to be held by the Delaware Court of Chancery
in November, 1995. If the Court approves the settlement, the settlement
consideration will be paid to members of the Class. While there can be no
assurance of approval by the Delaware Court of Chancery. In any event, in the
opinion of management, such litigation and claims will be resolved without
material adverse effect on the Company's financial position.
The Company is involved in various other legal actions and claims arising
in the ordinary course of business. In the opinion of management, such
litigation and claims will be resolved without material adverse effect on the
Company's financial position.
G:\HLF\LOMAK\S-3\S-3.REG
26
<PAGE> 28
MANAGEMENT
The current executive officers and Directors of the Company are listed
below, together with a description of their experience and certain other
information. Each of the Directors was re-elected for a one-year term at the
Company's 1995 annual meeting of stockholders. Executive officers are appointed
by the Board of Directors.
<TABLE>
<CAPTION>
HELD OFFICE
NAME AGE SINCE POSITION WITH COMPANY
----------------------------- --------------------------- --------------------- ---------------------------------------------
<S> <C> <C> <C>
Thomas J. Edelman 44 1988 Chairman and Chairman of the Board
John H. Pinkerton 41 1988 President, Chief Executive Officer
and Director
C. Rand Michaels 58 1976 Vice Chairman and Director
Robert E. Aikman 63 1990 Director
Allen Finkelson 49 1994 Director
Anthony V. Dub 45 1995 Director
Ben A. Guill 44 1995 Director
Jeffery A. Bynum 40 1985 Vice President-Land
Steven L. Grose 47 1980 Vice President-Operations
Chad L. Stephens 40 1990 Vice President
Thomas W. Stoelk 40 1994 Vice President-Finance
John R. Frank 40 1990 Controller
</TABLE>
THOMAS J. EDELMAN holds the office of Chairman and is Chairman of the
Board of Directors. Mr. Edelman joined the Company in 1988 and served as its
Chief Executive Officer until 1992. Since 1981, Mr. Edelman has been a Director
and President of SOCO. Prior to 1981, Mr. Edelman was a Vice President of The
First Boston Corporation. From 1975 through 1980, Mr. Edelman was with Lehman
Brothers Kuhn Loeb Incorporated. Mr. Edelman received his Bachelor of Arts
Degree from Princeton University and his Masters Degree in Finance from Harvard
University's Graduate School of Business Administration. Mr. Edelman is also a
Director of Petroleum Heat & Power Co., Inc., a Connecticut based fuel oil
distributor, Star Gas Corporation, a private company which distributes propane
gas, Amerac Energy Corporation, a public domestic exploration and production
company, and Command Petroleum Limited, an international exploration and
production company affiliated with SOCO.
JOHN H. PINKERTON, President, Chief Executive Officer and a Director,
joined the Company in 1988. He was appointed President in 1990 and Chief
Executive Officer in 1992. Previously, Mr. Pinkerton was Senior Vice
President-Acquisitions of SOCO. Prior to joining SOCO in 1980, Mr. Pinkerton
was with Arthur Andersen & Co. Mr. Pinkerton received his Bachelor of Arts
Degree in Business Administration from Texas Christian University and his
Master of Arts Degree in Business Administration from the University of Texas.
C. RAND MICHAELS, who holds the office of Vice Chairman and is a Director,
served as President and Chief Executive Officer of the Company from 1976
through 1988 and Chairman of the Board from 1984 through 1988, when he became
Vice Chairman. Mr. Michaels received his Bachelor of Science Degree from Auburn
University and his Master of Business Administration Degree from the University
of Denver. Mr. Michaels is also a Director of American Business Computers
Corporation of Akron, Ohio, a public company serving the beverage dispensing
and fast food industries.
ROBERT E. AIKMAN, a Director, joined the Company in 1990. Mr. Aikman has
more than 40 years experience in petroleum and natural gas exploration and
production throughout the United States and Canada. From 1984 to 1994 he was
Chairman of the Board of Energy Resources Corporation. From 1979 through 1984,
he was the President and principal shareholder of Aikman Petroleum, Inc. From
1971 to 1977, he was President of Dorchester Exploration Inc., and from 1971 to
1980, he was a Director and a Member of the Executive Committee of Dorchester
Gas Corporation. Mr. Aikman is also Chairman of Provident Trade Company,
President of EROG, Inc., and President of The Hawthorne Company, an entity
which organizes joint ventures and provides advisory services for the
acquisition of oil and gas properties, including the financial restructuring,
reorganization and sale of companies. He was President of Enertec Corporation
which was
G:\HLF\LOMAK\S-3\S-3.REG
27
<PAGE> 29
reorganized under Chapter 11 of the Bankruptcy Code in December 1994. In
addition, Mr. Aikman is a Director of the Panhandle Producers and Royalty
Owners Association and a member of the Independent Petroleum Association of
America, Texas Independent Producers and Royalty Owners Association and
American Association of Petroleum Landmen. Mr. Aikman graduated from the
University of Oklahoma in 1952.
ALLEN FINKELSON was appointed a Director in 1994. Mr. Finkelson has been a
partner at Cravath, Swaine & Moore since 1977, with the exception of the period
from September 1983 through August 1985, when he was a managing Director of
Lehman Brothers Kuhn Loeb Incorporated. Mr. Finkelson was first employed by
Cravath, Swaine & Moore as an associate in 1971. Mr. Finkelson received his
Bachelor of Arts Degree from St. Lawrence University and his Doctor of Laws
Degree from Columbia University School of Law.
ANTHONY V. DUB was elected to serve as a Director of the Company in 1995.
Mr. Dub is a Managing Director of CS First Boston, an international investment
banking firm with headquarters in New York City. Mr. Dub joined CS First Boston
in 1971 and was named a Managing Director in 1981. Mr. Dub is Chairman of the
Latin America Executive Committee which coordinates CS First Boston's
activities throughout that region. Mr. Dub received his Bachelor of Arts Degree
from Princeton University in 1971.
BEN A. GUILL was elected to serve as a Director of the Company in 1995.
Mr. Guill is a Partner and Managing Director of Simmons & Company
International, an investment banking firm located in Houston, Texas focused
exclusively on the oil service and equipment industry. Mr. Guill has been with
Simmons & Company since 1980 and currently is one of two Managing Directors in
the corporate finance group. Prior to joining Simmons & Company, Mr. Guill was
with Blyth Eastman Dillon & Company from 1978 to 1980. Mr. Guill received his
Bachelor of Arts Degree from Princeton University and his Masters Degree in
Finance from the Wharton Graduate School of Business at the University of
Pennsylvania.
JEFFERY A. BYNUM, Vice President-Land and Secretary, joined the Company in
1985. Previously, Mr. Bynum was employed by Crystal Oil Company and Kinnebrew
Energy Group of Shreveport, Louisiana. Mr. Bynum holds a Professional
Certification with American Association of Petroleum Landmen and attended
Louisiana State University in Baton Rouge, Louisiana and Centenary College in
Shreveport, Louisiana.
STEVEN L. GROSE, Vice President-Operations, joined the Company in 1980.
Previously, Mr. Grose was employed by Halliburton Services, Inc. as a Field
Engineer from 1971 until 1974. In 1974, he was promoted to District Engineer
and in 1978, was named Assistant District Superintendent based in Pennsylvania.
Mr. Grose is a member of the Society of Petroleum Engineers and a trustee of
The Ohio Oil and Gas Association. Mr. Grose received his Bachelor of Science
Degree in Petroleum Engineering from Marietta College.
CHAD L. STEPHENS, Vice President, joined the Company in 1990. Previously,
Mr. Stephens was a landman with Duer Wagner & Co., an independent oil and gas
producer, since 1988. Prior thereto, Mr. Stephens was an independent oil
operator in Midland, Texas for four years. From 1979 to 1984, Mr. Stephens was
a landman for Cities Service Company and HNG Oil Company. Mr. Stephens received
his Bachelor of Arts Degree in Finance and Land Management from the University
of Texas.
THOMAS W. STOELK, Vice President-Finance and Chief Financial Officer,
joined the Company in 1994. Mr. Stoelk is a Certified Public Accountant and was
a Senior Manager with Ernst & Young LLP. Prior to rejoining Ernst & Young LLP
in 1986 he was with Partners Petroleum, Inc. Mr. Stoelk received his Bachelor
of Science Degree in Industrial Administration from Iowa State University.
JOHN R. FRANK, Controller and Chief Accounting Officer, joined the Company
in 1990. From 1989 until he joined the Company in 1990, Mr. Frank was Vice
President Finance of Appalachian Exploration, Inc. Prior thereto, he held the
positions of Internal Auditor and Treasurer with Appalachian Exploration, Inc.
beginning in 1977. Mr. Frank received his Bachelor of Arts Degree in Accounting
and Management from Walsh College and attended graduate studies at the
University of Akron.
G:\HLF\LOMAK\S-3\S-3.REG
28
<PAGE> 30
<TABLE>
PRINCIPAL STOCKHOLDERS
AND SHARE OWNERSHIP OF MANAGEMENT
SECURITY OWNERSHIP
The following table sets forth certain information as of November 6, 1995, regarding (i) the share ownership of the Company by
each person known to the Company to be the beneficial owner of more than 5% of the outstanding shares of the Common Stock and
the Preferred Stock of the Company, (ii) the share ownership of the Company by each Director and (iii) the share ownership by
all Directors and executive officers of the Company, as a group.
<CAPTION>
COMMON STOCK 7 1/2% PREFERRED $2.03 PREFERRED
---------------------------------- -------------------------- ---------------------------
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES
BENEFICIALLY PERCENT BENEFICIALLY PERCENT BENEFICIALLY PERCENT
NAME AND ADDRESS OWNED OF CLASS OWNED OF CLASS OWNED OF CLASS
------------------------------- -------------------- -------- ---------------- -------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. Edelman
595 Madison Avenue
New York, NY 10022 . . . . . . 852,160(1) 7.0% 4,000 2.0% 0 0.0%
John H. Pinkerton
500 Throckmorton Street
Fort Worth, TX 76102 . . . . . 457,701(2) 3.8% 0 0.0% 0 0.0%
C. Rand Michaels
125 State Route 43
Hartville, OH 44632 . . . . . . 196,491(3) 1.6% 0 0.0% 0 0.0%
Robert E. Aikman
3200 Hawthorne Drive
Amarillo, TX 79109 . . . . . . 62,766(4) 0.5% 0 0.0% 0 0.0%
David H. Smith, M.D.
599 Lexington Avenue
New York, NY 10022 . . . . . . 248,974(5) 2.1% 20,000 10.0% 0 0.0%
Orefund
1300 SW Fifth Avenue
Portland, OR 97201 . . . . . . 117,647(6) 1.0% 40,000 20.0% 0 0.0%
Pirvest, Inc.
5608 Malvey Avenue
Fort Worth, TX 76107 . . . . . 85,274(7) 0.7% 20,000 10.0% 0 0.0%
Spear Benzak Saloman & Ferrell
46 Rockefeller Plaza
New York, NY 10111 . . . . . . 58,823(8) 0.5% 20,000 10.0% 0 0.0%
Anthony V. Dub
55 East 52nd Street
New York, NY 10055 . . . . . . 36,764(9) 0.3% 4,000 2.0% 0 0.0%
H.E.C. Support Fund
One Prince Center
Holland, MI 49423 . . . . . . 35,294(10) 0.3% 12,000 6.0% 0 0.0%
</TABLE>
G:\HLF\LOMAK\S-3\S-3.REG 29
<PAGE> 31
<TABLE>
<CAPTION>
COMMON STOCK 7 1/2% PREFERRED $2.03 PREFERRED
---------------------------------- -------------------------- ---------------------------
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES
BENEFICIALLY PERCENT BENEFICIALLY PERCENT BENEFICIALLY PERCENT
NAME AND ADDRESS OWNED OF CLASS OWNED OF CLASS OWNED OF CLASS
------------------------------- -------------------- -------- ---------------- -------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C>
Allen Finkelson
825 Eighth Avenue
New York, NY 10019 . . . . . . 26,847(11) 0.2% 0 0.0% 0 0.0%
Ben A. Guill
700 Louisiana Street
Houston, TX 77002 . . . . . . 25,000 0.2% 0 0.0% 0 0.0%
Guardian Life
201 Park Avenue South
New York, NY 10003 . . . . . . 503,423(13) 4.0% 0 0.0% 191,304 19.1%
Fidelity Management
82 Devonshire
Boston, MA 02110 . . . . . . . 366,132(14) 3.0% 0 0.0% 139,130 13.9%
Palisade Capital
One Bridge Plaza
Suite 695
Fort Lee, NJ 07024 . . . . . . 320,366(15) 2.6% 0 0.0% 121,739 12.2%
Merrill Lynch Asset Mgmt.
800 Scuddersmill Road
Plainsboro, NJ 08536 . . . . . 240,274(16) 2.0% 0 0.0% 91,304 9.1%
Pecks Management
1 Rockefeller Place
Suite 320
New York, NY 10020 . . . . . . 228,834(17) 1.9% 0 0.0% 86,957 8.7%
Putnam Investments
One Post Office Square
Boston, MA 02109 . . . . . . . 137,300(18) 1.1% 0 0.0% 52,174 5.2%
All Directors and executive
officers as a group (12 1,856,841(1)
persons) . . . . . . . . . . . (2)(3)(4)(9)(11)(12) 15.3% 8,000 4.0% 0 0.0%
<FN>
- -------------
(1) Includes 11,764 shares issuable upon conversion of Mr. Edelman's 4,000 shares of 7 1/2% Preferred; 45,000 shares
which may be purchased under currently exercisable options; 253,071 shares held under IRA, KEOGH and pension plan accounts;
24,916 shares owned by Mr. Edelman's spouse and 71,200 shares owned by Mr. Edelman's minor children, to which Mr. Edelman
disclaims beneficial ownership.
(2) Includes 152,333 shares which may be purchased under currently exercisable stock options; 946 shares owned by Mr. Pinkerton's
minor children, to which Mr. Pinkerton disclaims beneficial ownership; and 1,369 shares owned by Mr. Pinkerton's spouse, to
which Mr. Pinkerton disclaims beneficial ownership.
(3) Includes 5,785 shares held under the IRA account; 29,508 shares owned by the spouse and children of Mr. Michaels, to which
Mr. Michaels disclaims beneficial ownership, 24,065 shares which may be purchased under currently exercisable stock options.
(4) Includes 10,800 shares which may be purchased under currently exercisable stock options.
(5) Includes 58,823 shares issuable upon conversion of 20,000 shares of 7 1/2% Preferred.
(6) Includes 117,647 shares issuable upon conversion of 40,000 shares of 7 1/2% Preferred.
(7) Includes 58,823 shares issuable upon conversion of 20,000 shares of 7 1/2% Preferred.
(8) Includes 58,823 shares issuable upon conversion of 20,000 shares of 7 1/2% Preferred.
(9) Includes 11,764 shares issuable upon conversion of 4,000 shares of 7 1/2% Preferred.
(10) Includes 35,294 shares issuable upon conversion of 12,000 shares of 7 1/2% Preferred.
</TABLE>
G:\HLF\LOMAK\S-3\S-3.REG 30
<PAGE> 32
(11) Includes 1,800 shares which may be purchased under currently exercisable
options.
(12) Includes 89,430 shares which may be purchased under currently exercisable
stock options.
(13) Includes 503,432 shares issuable upon conversion of 191,304 shares of
$2.03 Preferred.
(14) Includes 366,132 shares issuable upon conversion of 139,130 shares of
$2.03 Preferred.
(15) Includes 320,366 shares issuable upon conversion of 121,739 shares of
$2.03 Preferred.
(16) Includes 240,274 shares issuable upon conversion of 91,304 shares of $2.03
Preferred.
(17) Includes 228,834 shares issuable upon conversion of 86,957 shares of $2.03
Preferred.
(18) Includes 137,300 shares issuable upon conversion of 52,174 shares of $2.03
Preferred.
CERTAIN TRANSACTIONS
In 1990 the Company loaned Mr. Pinkerton $100,000 in connection with his
acquisition of 66,667 shares of Common Stock. The loan was secured, with
interest at 10% per annum and was repaid in early 1994.
In 1993, the Company purchased from SOCO interests in 43 gas wells located
principally in Pennsylvania. The consideration was approximately $180,000. The
price was determined based on arms-length negotiations and was minimally higher
than an independent third-party offer received by SOCO. The Company reimburses
SOCO $2,000 per month for Mr. Edelman's New York office. Mr. Edelman is
Chairman of the Company and also an officer and shareholder of SOCO. Therefore,
Mr. Edelman has an indirect interest in the foregoing relationships and
transactions between the Company and SOCO.
During 1994, the Company incurred costs of $369,000 and during in the
first nine months of 1995 the Company incurred costs of $145,000 with the
Hawthorne Company for advisory services paid in connection with the purchase of
oil and gas properties. Mr. Aikman, a Director of the Company, is an executive
officer and a principal owner of the Hawthorne Company. The amount incurred was
on a basis similar to that paid by the Company to third parties for similar
services.
In September 1995, the Company reached a verbal understanding with SOCO
whereby the Company would acquire SOCO's interest in 468 wells located in
Appalachia for $4 million. The Company currently operates 136 of the wells and
upon completion of the transaction will operate, in aggregate, 325 of the
wells. The price was determined based on arms-length negotiations through a
third-party broker retained by SOCO. Closing of the transaction is anticipated
to occur in November 1995. Assuming this transaction is consummated, the
Company and SOCO will no longer hold interests in any of the same properties.
SELLING SECURITYHOLDERS
The Selling Securityholders have advised the Company that sales of the
Selling Securityholder Securities may be effected from time to time in
transactions (which may include block transactions) in the over-the-counter
market, in negotiated transactions, through the writing of options on the
Selling Securityholder Securities or a combination of such methods of sale, at
fixed prices that may be changed, at market prices prevailing at the time of
sale, or at negotiated prices. The Selling Securityholders may effect such
transactions by selling the Selling Securityholder Securities directly to
purchasers or through broker-dealers that may act as agents or principals. Such
broker-dealers may receive compensation in the form of discounts, concessions
or commissions from the Selling Securityholders and/or the purchasers of
Selling Securityholder Securities for whom such broker-dealers may act as
agents or to whom they sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions). The
Selling Securityholders have not entered into any agreement with respect to the
sale of the Selling Securityholder Securities.
The Selling Securityholders and any broker-dealers that act in connection
with the sale of the Selling Securityholder Securities as principals may be
deemed to be "underwriters" within the meaning of Section 2(11) of the Act and
any commission received by them and any profit on the resale of the Selling
Securityholder Securities and/or principals might be deemed to be underwriting
discounts and commissions under the Act. The Selling Securityholders may agree
to indemnify any agent, dealer or broker-dealer that participates in
transactions involving sales of the Selling Securityholder Securities against
certain liabilities, including liabilities arising under the Act. Sales of the
Selling Securityholder Securities by the Selling Securityholders, or even the
potential of such sales, could have an adverse effect on the market price of
the Common Stock.
G:\HLF\LOMAK\S-3\S-3.REG
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<PAGE> 33
No arrangements have been made for the distribution or sale of the Selling
Securityholder Securities. There can be no assurance that Selling
Securityholders will be able to sell some or all of the Selling Securityholder
Securities listed for sale herein. There is no established public trading
market for the Preferred Stock as of the date of this Prospectus.
The following table sets forth certain information with respect to the
Selling Securityholders for whom the Company is registering the Selling
Securityholder Securities for resale to the public. The Company will not
receive any of the proceeds from the sale of the Selling Securityholder
Securities. There are no material relationships between any of the Selling
Securityholders and the Company except as otherwise indicated. Beneficial
ownership of the Selling Securityholder Securities by each Selling
Securityholder after the sale will depend on the number of Selling
Securityholder Securities sold by each Selling Securityholder. The shares
offered by the Selling Securityholder are not being underwritten. The Common
Stock issuable upon conversion of the Preferred Stock is being offered directly
by the Company pursuant to the terms of the Preferred Stock and is being hereby
registered.
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
BENEFICIALLY BENEFICIALLY PERCENT OF CLASS PERCENT OF CLASS
OWNED PRIOR TO OWNED PRIOR TO OF COMMON OF PREFERRED
NAME OF SELLING SECURITY HOLDER OFFERING OFFERING STOCK STOCK
- -------------------------------------------------- ----------------- -------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
SERIES A PREFERRED:
ARAS ASSOCIATES, INC. 11,765(1) 4,000 0.1% 2.0%
ROGER WILLIAM BRITTAIN 1,176(1) 400 0.0% 0.2%
PETER D. BRUNDAGE 5,882(1) 2,000 0.0% 1.0%
MARY L. DAVIS 1,176(1) 400 0.0% 0.2%
ANTHONY V. DUB(2) 11,765(1) 4,000 0.1% 2.0%
ALBERT I. EDELMAN 5,882(1) 2,000 0.0% 1.0%
ELEANOR W. EDELMAN 2,353(1) 800 0.0% 0.4%
THOMAS J. EDELMAN(2) 11,765(1) 4,000 0.1% 2.0%
DEAN R. FELLOWS 4,706(1) 1,600 0.0% 0.8%
JOHN F. FLOYD 5,882(1) 2,000 0.0% 1.0%
JOHN A. HILL 1,176(1) 400 0.0% 0.2%
MICHAEL LUTSCH 5,882(1) 2,000 0.0% 1.0%
MARWOOD PARTNERS 1,176(1) 400 0.0% 0.2%
ROBERT E. MILLER REVOCABLE TRUST UA DTD
11/3/89 2,941(1) 1,000 0.0% 0.5%
WILLIAM P. NICOLETTI 11,765(1) 4,000 0.1% 2.0%
PIRVEST, INC. 58,824(1) 20,000 0.4% 10.0%
PAINEWEBBER CDN FBO JAMES D. PURSLEY IRA #2
UA DTD 10/92 3,529(1) 1,200 0.0% 0.6%
PETER S. SEAMAN 5,882(1) 2,000 0.0% 1.0%
AUDREY L. SEVIN 2,941(1) 1,000 0.0% 0.5%
IRIK P. SEVIN 2,941(1) 1,000 0.0% 0.5%
HEATHER L. SHEPPARD TRUST UA DTD 6/19/79 5,882(1) 2,000 0.0% 1.0%
KATHRYN E. SHEPPARD TRUST UA DTD 6/19/79 5,882(1) 2,000 0.0% 1.0%
THOMAS H. SHEPPARD TRUST UA DTD 6/19/79 5,882(1) 2,000 0.0% 1.0%
DAVID H. SMITH 58,824(1) 20,000 0.4% 10.0%
ANN. P. STEPHENS 11,765(1) 4,000 0.1% 2.0%
ANN VINSON 2941(1) 1,000 0.0% 0.5%
JOAN B. VINSON 1,176(1) 400 0.0% 0.2%
ROBERT E. VINSON 2,941(1) 1,000 0.0% 0.5%
RODNEY L. WALLER 2,353(1) 800 0.0% 0.4%
SERIES B PREFERRED:
CURTIS F. AMUNDSON TRUST UA DTD 7/1/91 7,386(1) 2,600 0.0% 1.3%
JACK N. AYDIN & GAIL AYDIN JT TEN 2,841(1) 1,000 0.0% 0.5%
RDV CAPITOLA MANAGEMENT L.P. 22,727(1) 8,000 0.1% 4.0%
JACK DEWITT 11,364(1) 4,000 0.1% 2.0%
THE ARLYLE FAHNENSTIEL TRUST UA DTD 11/12/88 2,841(1) 1,000 0.0% 0.5%
H.E.C. SUPPORT FUND 34,091(1) 12,000 0.2% 6.0%
MARCIA HORROCKS 2,841(1) 1,000 0.0% 0.5%
JIM HOVINGA 5,682(1) 2,000 0.0% 1.0%
J.C. HUIZENGA 11,364(1) 4,000 0.1% 2.0%
LEE R. KUNDTZ TRUST UA DTD 4/4/90 1,420(1) 500 0.0% 0.3%
JOHN C. LABARGE TRUST UA DTD 1/28/92 5,682(1) 2,000 0.0% 1.0%
</TABLE>
G:\HLF\LOMAK\S-3\S-3.REG
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<PAGE> 34
<TABLE>
<S> <C> <C> <C> <C>
WILLIAM H. MARTINDILL TRUST UA DTD 1/7/87 1,420(1) 500 0.0% 0.3%
MCDONALD & COMPANY SECURITIES, INC. AGENT 24,148(1) 8,500 0.2% 4.3%
DANIEL A. MCDONALD REVOC. TRUST UA DTD
10/22/84 2,841(1) 1,000 0.0% 0.5%
OREFUND 113,636(1) 40,000 0.7% 20.0%
THOMAS W. RITCHEY & KATHERINE RITCHEY IRR.
LIVING TRUST DTD 10/2/94 5,682(1) 2,000 0.0% 1.0%
SBSF CONVERTIBLE SECURITIES FUND ATTN: MR.
JOHN HANASSAK 56,818(1) 20,000 0.4% 10.0%
GEORGE L. UNIS MD PC EMPLOYEE RETIREMENT
FUND 5,682(1) 2,000 0.0% 1.0%
GERALD WILLIAMS 1,420(1) 500 0.0% 0.3%
$2.03 PREFERRED:
PAUL BERKMAN 68,650(1) 26,087 0.4% 2.6%
CINCINNATI FINANCIAL 228,834(1) 86,957 1.5% 8.7%
CNA INSURANCE 91,534(1) 34,783 0.6% 3.5%
DEAN WITTER 91,534(1) 34,783 0.6% 3.5%
EAGLE ASSET MANAGEMENT 34,324(1) 13,043 0.2% 1.3%
EVERGREEN FUND 45,766(1) 17,391 0.3% 1.7%
FIDELITY MANAGEMENT 366,132(1) 139,130 2.3% 13.9%
FRANKLIN FUNDS 45,766(1) 17,391 0.3% 1.7%
GUARDIAN LIFE 503,432(1) 191,304 3.2% 19.1%
MERRILL LYNCH ASSET MANAGEMENT 240,274(1) 91,304 1.5% 9.1%
ORION CAPITAL 125,858(1) 47,826 0.8% 4.8%
PALISADE CAPITAL 320,366(1) 121,739 2.0% 12.2%
PALLADIN CAPITAL 34,324(1) 13,043 0.2% 1.3%
PECKS MGMT. 228,834(1) 86,957 1.5% 8.7%
PUTNUM INVESTMENTS 137,300(1) 52,174 0.9% 5.2%
TIEDMANN 22,884(1) 8,696 0.1% 0.9%
VALUE LINE 45,766(1) 17,391 0.3% 1.7%
TRANSFUEL, INC. 86,040 0 0.5% 0.0%
- ----------------------------
<FN>
* Denotes less than 1%.
(1) Issuable upon conversion of the Preferred Stock.
(2) Director of the Company. See "Principal Stockholders and Share Ownership of Management" and "Management."
</TABLE>
PLAN OF DISTRIBUTION
The distribution of the Selling Securityholder Securities by the Selling
Securityholder may be effected from time to time in one or more transactions on
Nasdaq, in the case of the Common Stock, in privately-negotiated transactions
or otherwise, at fixed prices that may be changed, at market prices prevailing
at the time of sale, at prices related to such prevailing market prices, or at
negotiated prices.
The Selling Securityholder and any underwriters, broker-dealers or agents
that act in connection with the sale of the Selling Securityholder Securities
may be deemed to be "underwriters" as that term is defined in the Act, and any
commissions received by them and profit on any resale of the shares as
principal might be deemed to be underwriting discounts and commissions under
the Act.
It is anticipated that broker-dealers participating in sales of the
Selling Securityholder Securities will receive ordinary and customary brokerage
commissions.
The Company may offer the Securities in any of three ways: (i) through
underwriters or dealers; (ii) directly to a limited number of purchasers or to
a single purchaser; or (iii) through agents. To the extent required, any
Prospectus Supplement with respect to the Securities will set forth the terms
of the offering and the proceeds to the Company from the sale thereof, any
underwriting discounts and other items of price, and any discounts or
concessions allowed or reallowed or paid to dealers. Any public offering price
and any discounts or concessions allowed or reallowed or paid to dealers may be
changed from time to time.
G:\HLF\LOMAK\S-3\S-3.REG
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<PAGE> 35
If underwriters are utilized, the Securities being sold to them will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of
sale. The Securities may be offered to the public either through underwriting
syndicates represented by one or more managing underwriters or directly by one
or more firms acting as underwriters. To the extent required, the underwriter
or underwriters with respect to the Securities being offered by the Company
will be named in the Prospectus Supplement relating to such offering and, if an
underwriting syndicate is used, the managing underwriter or underwriters will
be set forth on the cover page of such Prospectus Supplement. Any underwriting
agreement will provide that the obligations of the underwriters are subject to
certain conditions precedent, and that the underwriters will be obligated to
purchase all of the Securities to which such underwriting agreement relates if
any if purchased. The Company will agree to indemnify any underwriters against
certain civil liabilities, including liabilities under the Securities Act.
The Securities may be sold directly by the Company or through agents
designated by the Company from time to time. To the extent required any agent
involved in the offer or sale of the Securities in respect of which this
Prospectus is delivered will be set forth in the Prospectus Statement. Unless
otherwise indicated in the Prospectus Statement, any such agent will be acting
on a best efforts basis for the period of its appointment.
The Company will pay all of the expenses of this offering.
The shares of Common Stock are listed on Nasdaq. The Common Stock offered
hereby by the Company and the Selling Securityholders when issued, will be
listed, subject to notice of issuance, on Nasdaq.
DESCRIPTION OF THE PREFERRED STOCK
The following is a summary of the terms of the $2.03 Preferred and the
7 1/2% Preferred. This summary is not intended to be complete and is subject to,
and qualified in its entirety by reference to, the Certificate of Incorporation
of the Company and the related Certificate of Designations for each of the
$2.03 Preferred and the Series A Preferred and Series B Preferred, each filed
with the Secretary of State of the State of Delaware setting forth the rights,
preferences and limitations of the $2.03 Preferred, the Series A Preferred and
the Series B Preferred (each a "Certificate of Designations"), forms of which
are available upon request from the Company.
Under its Certificate of Incorporation, the Company has authority to issue
2,000,000 shares of preferred stock, par value of $1 per share, and the Board
of Directors is authorized to establish and designate the classes, series,
voting powers, designations, preferences and relative, participating, optional
or other rights, and such qualifications, limitations and restrictions of the
preferred stock as the Board, in its sole discretion, may determine without
further vote or action by the stockholders. The rights, preferences, privileges
and restrictions or qualifications of different series of preferred stock may
differ with respect to dividend rates, amounts payable on liquidation, voting
rights, conversion rights, redemption provisions, sinking fund provisions and
other matters. As of November 6, 1995, 1,000,000 shares of the $2.03 Preferred
were outstanding and 200,000 shares of the Company's 7 1/2% Preferred were
outstanding in two series. The outstanding shares of $2.03 Preferred and the
7 1/2% Preferred are fully paid and non-assessable.
$2.03 PREFERRED
RANKING
The $2.03 Preferred ranks senior to the Common Stock in right of payment
of dividends and upon liquidation, dissolution or winding up of the Company,
ranks pari passu to the 7 1/2% Preferred and any convertible preferred stock
hereafter issued by the Company (except to the extent any such convertible
preferred stock may be designated as junior to the $2.03 Preferred with respect
to the payment of dividends or upon liquidation, dissolution or winding up of
the Company) and ranks junior to any non-convertible preferred stock hereafter
issued by the Company (except to the extent any such non-convertible preferred
stock may be designated as ranking junior or pari passu to the $2.03 Preferred
with respect to the payment of dividends or upon liquidation, dissolution or
winding up of the Company). The Company may not, without the consent of the
holders of at least a majority of the $2.03 Preferred, create, authorize or
issue, or reclassify any authorized stock of the Company into, or create,
authorize or issue any obligation or security convertible or exchangeable into
or evidencing a right to purchase, any shares of any class of capital stock of
the Company ranking senior to the $2.03 Preferred, except that to the extent
permitted by law the foregoing shall not apply to non-convertible preferred
stock, which may be
G:\HLF\LOMAK\S-3\S-3.REG
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<PAGE> 36
authorized and issued without such consent. The Company may issue additional
series of preferred stock ranking on parity with the $2.03 Preferred with
respect to the payment of dividends or upon liquidation, dissolution and
winding up without the consent of the holders of the $2.03 Preferred.
DIVIDENDS
Holders of the $2.03 Preferred are entitled to receive if, when and as
declared by the Board of Directors out of funds legally available therefor,
cash dividends at the annual rate of $2.03 per share, payable quarterly in
arrears on March 31, June 30, September 30 and December 31 of each year,
commencing December 31, 1995. Dividends on the $2.03 Preferred will be
cumulative from the date of initial issuance, and will be payable to holders of
record as of such record dates as shall be fixed by the Board of Directors,
which record dates shall not be more than 60 nor less than 10 days preceding
the dividend payment date. Accrued but unpaid dividends will not bear interest.
No dividends or other cash distributions may be set aside or paid with
respect to any shares of capital stock ranking junior to the $2.03 Preferred
(including the Common Stock) nor may any such capital stock be redeemed,
repurchased or otherwise acquired for cash consideration by the Company unless
and until all accumulated and unpaid dividends on the $2.03 Preferred have been
paid.
Whenever all accrued dividends are not paid in full on the $2.03 Preferred
or any such parity dividend stock, all dividends declared on the $2.03
Preferred and such parity dividend stock will be declared and made pro rata so
that the amount of dividends declared per share on the $2.03 Preferred and such
parity dividend stock will bear the same ratio that accrued and unpaid
dividends per share on the $2.03 Preferred and such parity dividend stock bear
to each other.
CONVERSION RIGHTS
The $2.03 Preferred will be convertible into shares of the Common Stock at
the option of the holder, at any time, at a conversion rate equal to the
aggregate liquidation preference of the shares of $2.03 Preferred surrendered
for conversion, divided by the Conversion Price. Notwithstanding the
foregoing, if shares of the $2.03 Preferred are called for redemption, the
conversion right will terminate at the close of business on the date fixed for
redemption or exchanges.
The initial Conversion Price set forth on the cover page of this
Prospectus is subject to adjustment (under formulas set forth in the
Certificate of Designations) in certain events, including (i) the issuance of
Common Stock as a dividend or distribution on any class of capital stock of the
Company or any subsidiary which is not wholly-owned by the Company; (ii)
subdivisions, splits and combinations of the Common Stock; (iii) the issuance
or distribution of capital stock of the Company or any of any subsidiary which
is not wholly owned by the Company or of rights or warrants to acquire capital
stock of the Company or any such subsidiary at less than the current market
price (as defined in the Certificate of Designations) on the date of issuance
or distribution (the issuance of capital stock upon the exercise of warrants or
options will not cause an adjustment in the conversion price if no such
adjustment would have been required at the time such warrant or option was
issued); and (iv) the distribution to holders of any class of capital stock of
the Company generally and to holders of capital stock of any subsidiary which
is not wholly owned by the Company of evidences of indebtedness or assets
(including cash and securities, but excluding warrants and options for which
adjustment is made as described above).
Notwithstanding the foregoing, no adjustment in the Conversion Price shall
be made upon (i) the issuance of Common Stock of the Company pursuant to any
compensation or incentive plan for officers, Directors, employees or
consultants of the Company, which plan has been approved by the Compensation
Committee of the Board of Directors (or if there is no such committee then
serving, by the majority vote of the independent Directors) and, if required by
law, the requisite vote of the stockholders of the Company (unless the exercise
or conversion price is subsequently changed other than solely by operation of
the anti-dilution provisions thereof or by the Compensation Committee, if
applicable, the Board of Directors and, if required by law, the stockholders of
the Company as provided in this clause (i)), (ii) the issuance of Common Stock
upon the conversion or exercise of $2.03 Preferred or warrants of the Company
outstanding on the date hereof, unless the conversion or exercise price thereof
is changed after the date of the Indenture (other than solely by operation of
the anti-dilution provisions thereof), (iii) the declaration, setting aside or
payment of dividends on the $2.03 Preferred, the 7 1/2% Preferred or any other
preferred stock hereafter issued by the Company or (iv) after giving effect to
any dividend pursuant to the preceding clause (iii), the declaration, setting
aside or payment of dividends out of the Company's cumulative retained
earnings. Also, notwithstanding the provisions of the preceding paragraph, (a)
if the rights or warrants described in clause (iii) of the preceding paragraph
are exercisable only upon the occurrence of certain triggering events, then the
conversion
G:\HLF\LOMAK\S-3\S-3.REG
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<PAGE> 37
price will not be adjusted until such triggering events occur and (b) if rights
or warrants expire unexercised, the conversion price shall be readjusted to
take into account only the actual number of such rights or warrants which were
exercised.
In case of any reclassification or change of outstanding shares of the
Common Stock (with certain exceptions) or the Company's consolidation with, or
merger with or into, any other entity that results in a reclassification,
change, conversion, exchange or cancellation of outstanding shares of the
Common Stock (with certain exceptions) or any sale or transfer of all or
substantially all the assets of the Company, the entity resulting from such
reclassification, change or merger, or formed by such consolidation, or which
acquires such assets, as the case may be, will be required to make a provision
in its articles or certificate of incorporation such that all holders of the
$2.03 Preferred after the reclassification, change, consolidation, merger, sale
or transfer will have the right to convert their shares of the $2.03 Preferred
into the kind and amount of securities, cash and other property which the
holders would have been entitled to receive upon the reclassification, change,
consolidation, merger, sale or transfer if the holders had held the Common
Stock issuable upon conversion of their shares of the $2.03 Preferred
immediately prior to the reclassification, change, consolidation, merger, sale
or transfer.
No adjustment in the Conversion Price will be required unless the
adjustment would require a change of at least one percent in the Conversion
Price then in effect; provided, however, that any adjustment that would
otherwise be required to be made will be carried forward and taken into account
in any subsequent adjustment. The Company reserves the right to make such
reduction in the Conversion Price, in addition to those required under the
provisions described above, as the Company in its discretion may determine to
be advisable in order that certain stock-related distributions which may be
made by the Company to its stockholders will not be taxable. Except as stated
above, the Conversion Price will not be adjusted for the issuance of the Common
Stock or any securities convertible into or exchangeable for the Common Stock,
or carrying the right to purchase any such securities.
No fractional share or securities representing fractional shares of Common
Stock will be issued upon conversion; instead, any fractional shares resulting
from conversion will be paid in cash based on the last sales price of the
Common Stock at the close of business on the last day on which the Common Stock
traded preceding the date of conversion.
The holder of record of a share of the $2.03 Preferred on a record date
with respect to the payment of a dividend on the $2.03 Preferred will be
entitled to receive the dividend on that share of the $2.03 Preferred on the
corresponding dividend payment date notwithstanding the conversion of the share
after the record date or any default by the Company in the payment of the
dividend payable on that dividend payment date. Except as described above, no
payment or adjustment is to be made on conversion for accrued and unpaid
dividends on the shares of the $2.03 Preferred or for dividends on the Common
Stock issued on conversion.
Adjustments to the conversion price of the $2.03 Preferred may be taxable
to the holders of the $2.03 Preferred as a dividend for federal income tax
purposes.
SPECIAL CONVERSION RIGHTS
The $2.03 Preferred has a special conversion right that becomes effective
upon the occurrence of certain types of significant transactions affecting
ownership or control of the Company or the market for the Common Stock or the
$2.03 Preferred. The purpose of the special conversion right is to provide
(subject to certain exceptions) partial loss protection upon the occurrence of
a Change of Control (as defined below) or a Fundamental Change (as defined
below) at a time when the market value of the Common Stock is less than the
then prevailing Conversion Price. In such situations, the special conversion
right would, for a 45-day period, reduce the then prevailing Conversion Price
to the market value (as defined below) of the Common Stock, except that the
Conversion Price will not be reduced below $5.21 per share of Common Stock
(which is 66 2/3% of the last reported sale price of the Common Stock on the
day preceding the date of this Prospectus), subject to certain adjustments
described below (the "Special Conversion Price"). Consequently, to the extent
that the market value of the Common Stock is less than the minimum Special
Conversion Price, a holder of the $2.03 Preferred will not be fully protected
from loss upon exercise of a special conversion right.
The special conversion right is intended to provide limited loss
protection to investors in certain circumstances while not giving holders a
veto power over significant transactions affecting ownership or control of the
Company. Although the special conversion right may render more costly or
otherwise inhibit certain proposed transactions, its primary purpose is not to
inhibit or discourage takeovers or other business combinations.
G:\HLF\LOMAK\S-3\S-3.REG
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<PAGE> 38
Each holder of the $2.03 Preferred will be entitled to a special
conversion right if a Change of Control or Fundamental Change occurs. A Change
of Control will occur if a person or group acquires the right to cast more than
50% of the votes for the election of Directors generally or to elect a majority
of the Board of Directors of the Company, subject to certain important
qualifications. A Fundamental Change is, generally, a sale of all or
substantially all the Company's assets or a transaction in which at least a
majority of the Common Stock or the $2.03 Preferred is transferred for, or is
converted into, any other asset, subject to certain important qualifications.
The full definitions of the terms "Change of Control" and "Fundamental Change"
are set forth below.
Upon a Change of Control or Fundamental Change, the special conversion
right will permit each holder of the $2.03 Preferred, at the holder's option
during the 45-day period described below, to convert all, but not less than
all, of the holder's $2.03 Preferred at the Special Conversion Price. Upon such
conversion with respect to a Change of Control, the holder will receive Common
Stock, and upon such conversion with respect to a Fundamental Change, the
holder will receive the kind and amount of cash, securities or other assets
receivable upon such Fundamental Change by a holder of the number of shares of
Common Stock into which the $2.03 Preferred of the holder exercising the
special conversion right would have been convertible immediately prior to the
Fundamental Change at the Special Conversion Price. In either case, however,
the Company or its successor may, at its option, elect to provide the holder
with cash equal to the market value of the number of shares of Common Stock
into which the holder's $2.03 Preferred would have been convertible immediately
prior to such Change of Control or Fundamental Change at the Special Conversion
Price, but only if the Company, in its notice to holders that a Change of
Control or Fundamental Change has occurred, has notified such holder of the
election to provide cash in lieu of other consideration.
The Company will mail to each registered holder of the $2.03 Preferred a
notice setting forth details of any special conversion right occasioned by a
Change of Control or Fundamental Change, together with all information required
by applicable securities laws related thereto, within 30 days after the event
occurs. A special conversion right may be exercised only within the 45-day
period after the notice is mailed and will expire at the end of that period.
Exercise of a special conversion right is revocable by the holder at any time
prior to the conversion date by notice of withdrawal to the conversion agent,
and all the $2.03 Preferred tendered for conversion will be converted at the
end of the 45-day period mentioned in the preceding sentence. In the event that
a Change of Control or Fundamental Change occurs, the Company will comply with
all applicable provisions of the Exchange Act and the rules and regulations
issued thereunder including, without limitation, Sections 13(e) and 14(e) under
the Exchange Act and the rules thereunder including Rule 13e-4. The $2.03
Preferred that is not converted pursuant to a special conversion right will
continue to be convertible pursuant to the general conversion rights described
above at "Conversion Rights."
The special conversion right is not intended to, and does not, protect
holders of the $2.03 Preferred in all circumstances that might affect ownership
or control of the Company or the market for the Common Stock or the $2.03
Preferred, or otherwise adversely affect the value of an investment in the
$2.03 Preferred. The ability to control the Company may be obtained by a person
even if that person does not acquire the right to vote a majority of the
Company's voting stock or to elect a majority of the Board of Directors. In
addition, the Company and the market for the Common Stock or $2.03 Preferred
may be affected by various transactions that do not constitute a Fundamental
Change. In particular, transactions involving transfer or conversion of less
than a majority of the Common Stock or the $2.03 Preferred may have a
significant effect on the Company and the market for the Common Stock or the
$2.03 Preferred, as could other transactions which are exempted from the
definition of Fundamental Change, as described below. If the special conversion
right does arise as the result of a Fundamental Change, the special conversion
right will allow a holder exercising such right to receive the same type of
consideration received by holders of the Common Stock and, accordingly, the
degree of protection afforded by the special conversion right may be affected
by the type of consideration received.
As used herein, a "Change of Control" shall be deemed to occur if any
person (as the term "person" is used in Section 13(d) or Section 14(d) of the
Exchange Act) is or becomes the direct or indirect beneficial owner of shares
of the Company's capital stock representing greater than 50% of the total
voting power of all shares of capital stock of the Company entitled to vote in
the election of Directors under ordinary circumstances or to elect a majority
of the Board of Directors of the Company. Notwithstanding the foregoing, a
Change of Control will not include any transaction or series of related
transactions in which (a) 85% or more of the consideration received by the
holders of the $2.03 Preferred after giving effect to the conversion
immediately after such transaction consists of common stock that is listed on a
national securities exchange or approved for quotation on Nasdaq or (b)
immediately after the consummation of such transaction the value of (i) the
$2.03 Preferred or (ii) the sum of the value of any common stock that is listed
on a national securities exchange or approved for quotation on Nasdaq which is
receivable upon conversion of the $2.03 Preferred immediately after the
consummation of such
G:\HLF\LOMAK\S-3\S-3.REG
37
<PAGE> 39
transaction plus any cash receivable upon such conversion is equal to or in
excess of 105% of the liquidation preference thereof on each of the five
trading days immediately after the consummation of such transaction.
Notwithstanding the foregoing, a Change of Control will not be deemed to have
occurred with respect to any transaction that constitutes a Fundamental Change.
As used herein, a "Fundamental Change" means (i) the occurrence of any
transaction or series of related transactions in connection with which a
majority of the Common Stock or the $2.03 Preferred is exchanged for, converted
into or acquired for or converted solely into the right to receive cash,
securities, property or other assets (whether by means of an exchange offer,
liquidation, tender offer, consolidation, merger, combination,
reclassification, recapitalization or otherwise) or (ii) the conveyance, sale,
lease, assignment, transfer or other disposal of a majority of the Company's
business, property or assets; provided, however, a Fundamental Change will not
include any transaction or series of related transactions in which (a) 85% or
more of the consideration received by the holders of the $2.03 Preferred either
(i) directly for their shares or (ii) receivable upon conversion of their
shares immediately after such transaction or upon the conversion or exchange
immediately after such transaction of any convertible or exchangeable
securities received directly for their shares, consists of common stock that is
listed on a national securities exchange or approved for quotation on Nasdaq or
(b) immediately after the consummation of such transaction of (i) the value of
$2.03 Preferred, or (ii) the sum of the value immediately after the
consummation of the transaction of any securities into which such shares are
exchanged plus any cash received in connection with such exchange, or (iii) the
sum of the value immediately after the consummation of the transaction of any
securities into which such shares or securities identified in the preceding
clauses (i) and (ii) may be converted into or exchanged for plus any cash
received in connection with such conversion or exchange is equal to or in
excess of 105% of the liquidation preference of such shares of $2.03 Preferred
on each of the five consecutive trading days preceding such transaction.
The Special Conversion Price will be adjusted each time the Conversion
Price is adjusted, so that the ratio of such amount to the Conversion Price,
after giving effect to any such adjustment, shall always be the same as the
ratio of $5.21 to the initial Conversion Price, without giving effect to any
such adjustment.
As used herein, "market value" of the Common Stock or any other security
is the average of the last reported sale prices of the Common Stock or such
other security, as the case may be, for the five trading days ending on the
last business day preceding the date of the Fundamental Change or Change of
Control.
VOTING RIGHTS
Except as provided by law, holders of the $2.03 Preferred will vote as a
single class with the holders of the Common Stock at annual or special
meetings, and are entitled to one vote for each share of the $2.03 Preferred
owned by such holder. In addition to such general voting rights, without the
affirmative vote or consent of the holders of at least a majority of the number
of shares of the $2.03 Preferred then outstanding, the Company may not (i)
create or issue or increase the authorized number of shares of any class or
classes or series of stock ranking senior to the $2.03 Preferred either as to
dividends or upon liquidation, except for the authorization and/or issuance of
non- convertible $2.03 Preferred which shall be permitted without such vote, or
(ii) amend or alter or repeal any of the provisions of the Certificate of
Incorporation of the Company so as to affect adversely the preferences or
rights of the $2.03 Preferred. In addition, the $2.03 Preferred will be
entitled to vote on Fundamental Changes (as described below) under certain
circumstances.
In the event that the Company misses payments on six quarterly dividends
payable on the $2.03 Preferred, which dividend payments remain unpaid, or if
any future class of preferred stockholders is entitled to elect Directors based
on actual missed and unpaid dividends, the number of Directors of the Company
shall be increased to such number as may be necessary to enable holders of the
$2.03 Preferred, and all such other future preferred stockholders (the
"Preferred Class"), voting as a single class, to elect one third of the
Directors of the Company (but not less than three) provided, however, that
there shall be counted as Directors elected by the Preferred Class, up to two
Directors elected by the 7 1/2% Preferred, subject to the terms of the 7 1/2%
Preferred, so long as it remains outstanding. If, subsequent to an election of
Directors by the Preferred Class, there is an election of Directors by the 7
1/2% Preferred, one or more Directors elected by the Preferred Class shall
forthwith resign so that all Directors elected by the Preferred Class and the 7
1/2% Preferred, in the aggregate constitute no more than one third of the
Board. Upon any termination of such rights to vote for Directors, the term of
office of all Directors so elected shall terminate.
G:\HLF\LOMAK\S-3\S-3.REG
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<PAGE> 40
COMPANY'S RIGHT OF REDEMPTION
The $2.03 Preferred is not subject to any mandatory redemption or sinking
fund provision. The $2.03 Preferred will not be redeemable by the Company prior
to November 1, 1998. On and after November 1, 1998, the $2.03 Preferred will be
redeemable at the option of the Company, in whole or in part, at any time at
the redemption prices set forth below, plus accumulated and unpaid dividends:
<TABLE>
<CAPTION>
During the 12 month period
commencing November 1, Redemption Price
--------------------------- ----------------------
<S> <C>
1998 $ 26.25
1999 $ 26.00
2000 $ 25.75
2001 $ 25.50
2002 $ 25.25
2003 and thereafter $ 25.00
</TABLE>
If fewer than all of the shares of $2.03 Preferred are to be redeemed, the
shares to be redeemed shall be selected by lot or pro rata or in some other
equitable manner determined by the Company in its sole discretion. In the event
that the Company has failed to pay accrued and unpaid dividends on the $2.03
Preferred, it may not redeem any of the then outstanding shares of the $2.03
Preferred until all such accrued and unpaid dividends and the then current
quarterly dividends have been paid in full.
Notice of redemption must be mailed to each holder of the $2.03 Preferred
to be redeemed at his last address as it appears upon the Company's registry
books at least 30 days prior to the record date of such redemption. On and
after the redemption date, dividends will cease to accumulate on shares of the
$2.03 Preferred called for redemption.
On or after the redemption date, holders of shares of the $2.03 Preferred
which have been redeemed shall surrender their certificates representing such
shares to the Company at its principal place of business or as otherwise
specified and thereupon the redemption price of such shares shall be payable to
the order of the person whose name appears on such certificate or certificates
as the owner thereof; provided, however, that a holder of the $2.03 Preferred
may elect to convert such shares into Common Stock at any time prior to the
close of business on the date fixed for redemption.
From and after the redemption date, all rights of the holders of the $2.03
Preferred so redeemed shall cease with respect to such shares and such shares
shall not thereafter be transferred on the books of the Company or be deemed to
be outstanding for any purpose whatsoever.
EXCHANGE
The $2.03 Preferred is exchangeable in whole, but not in part, at the sole
option of the Company into the $2.03 Notes at an exchange rate of $25 principal
amount of the $2.03 Notes for each share of the $2.03 Preferred on any dividend
date beginning on December 31, 1996 and up to and including December 31, 2004.
See "Description of the $2.03 Notes." The Company may not exchange any share of
the $2.03 Preferred unless all accrued dividends through the date of exchange
have been paid and certain other conditions have been met. The Company shall
send to each holder of the $2.03 Preferred notice of such exchange not less
than 30 nor more than 90 days prior to the exchange date. The exchange shall
not relieve the Company from any obligation with respect to the payment of
accrued but unpaid dividends through the date of the exchange. Such exchange
will be a taxable transaction. See "Certain Federal Income Tax
Considerations--Redemption or Exchange for the $2.03 Notes."
From and after the date of the exchange of the $2.03 Preferred for the
$2.03 Notes, the $2.03 Preferred shall cease to accrue dividends, shall no
longer be deemed outstanding and shall represent only the right to receive the
$2.03 Notes.
G:\HLF\LOMAK\S-3\S-3.REG
39
<PAGE> 41
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of the Company, the holders of the $2.03 Preferred will be entitled
to receive, out of the assets of the Company available for distribution to
stockholders, a liquidating distribution of $25 per share, plus any accumulated
and unpaid dividends (whether or not earned or declared) before any payment or
distribution of the assets of the Company (whether capital or surplus), or the
proceeds thereof, may be made or set apart for the holders of the Common Stock
or any other stock ranking junior to the $2.03 Preferred. If upon any voluntary
or involuntary liquidation, dissolution or winding up of the Company, the
assets of the Company are insufficient to pay in full the amount payable with
respect to the $2.03 Preferred and any other class of capital stock ranking on
a parity with the $2.03 Preferred upon liquidation, the holders of the $2.03
Preferred and such other shares of parity stock will share ratably in any such
distribution of the Company's assets in proportion to the full respective
distributable amounts to which they are entitled. After payment of the full
amount of the liquidation preference to which they are entitled, the holders of
shares of the $2.03 Preferred will not be entitled to any further participation
in any distribution of assets of the Company.
MISCELLANEOUS
The Company is not subject to any mandatory redemption or sinking fund
provisions with respect to the $2.03 Preferred. The holders of the $2.03
Preferred are not entitled to preemptive rights to subscribe for or to purchase
any shares or securities of any class which may at any time be issued, sold or
offered for sale by the Company. Shares of $2.03 Preferred redeemed or
otherwise reacquired by the Company shall be retired by the Company and shall
be unavailable for subsequent issuance. Keycorp Shareholder Services, Inc., or
such other transfer agent then employed by the Company, the transfer agent for
the $2.03 Preferred (the "Transfer Agent").
BOOK-ENTRY; DELIVERY AND FORM
Global Certificate. Except as set forth below, the $2.03 Preferred
initially issued in the form of one or more registered stock certificates in
global form (each a "Global Certificate"). Each Global Certificate was
deposited on the date of the closing of the sale of the $2.03 Preferred (the
"Closing Date") with, or on behalf of, the Depository Trust Company (the
"Depository") and registered in the name of Cede & Co., as nominee of the
Depository, and will remain in the custody of the Transfer Agent pursuant to
the FAST Balance Certificate Agreement between DTC and the Transfer Agent.
Interests in the Global Certificate will be available for purchase only by
"qualified institutional buyers," as defined in Rule 144A under the Securities
Act ("QIBs").
Certificates for $2.03 Preferred that were originally issued to or
transferred to institutional "accredited investors," as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act (an "Institutional
Accredited Investor"), who are not QIBs or to any other persons who are not
QIBs will be issued in registered form (the "Certificated $2.03 Preferred").
Upon the transfer to a QIB of Certificated $2.03 Preferred, such Certificated
$2.03 Preferred will, unless the Global Certificate has previously been
exchanged for Certificated $2.03 Preferred, be exchanged for an interest in the
Global Certificate representing the principal amount of $2.03 Preferred being
transferred. For a description of the restrictions on the transfer of
Certificated $2.03 Preferred, see "Transfer Restrictions."
The Depository has advised the Company that it is (i) a limited purpose
trust company organized under the laws of the State of New York, (ii) a member
of the Federal Reserve System, (iii) a "clearing corporation" within the
meaning of the Uniform Commercial Code, as amended, and (iv) a "Clearing
Agency" registered pursuant to Section 17A of the Exchange Act. The Depository
was created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to the
accounts of its Participants, thereby eliminating the need for physical
transfer and delivery of certificates. The Depository's Participants include
securities brokers and dealers (including the Initial Purchasers), banks and
trust companies, clearing corporations and certain other organizations. Access
to the Depository's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. QIBs may elect to hold $2.03
Preferred purchased by them through the Depository. QIBs who are not
Participants may beneficially own securities held by or on behalf of the
Depository only through Participants or Indirect Participants. Persons that
are not QIBs may not hold $2.03 Preferred through the Depository.
G:\HLF\LOMAK\S-3\S-3.REG
40
<PAGE> 42
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Certificates, the Depository will
credit the accounts of Participants designated by the Initial Purchasers with
an interest in the Global Certificate and (ii) ownership of the $2.03 Preferred
represented thereby will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by the Depository (with
respect to the interest of Participants), the Participants and the Indirect
Participants. The laws of some states require that certain persons take
physical delivery in definitive form of securities that they own and that
security interests in negotiable instruments can only be perfected by delivery
of certificates representing the instruments. Consequently, the ability to
transfer $2.03 Preferred or to pledge $2.03 Preferred as collateral will be
limited to such extent.
So long as the Depository or its nominee is the registered owner of the
Global Certificate, the Depository or such nominee, as the case may be, will be
considered the sole owner of the $2.03 Preferred represented by the Global
Certificate for all purposes. Except as provided below, owners of beneficial
interests in a Global Certificate will not be entitled to have $2.03 Preferred
represented by such Global Certificate registered in their names, will not
receive or be entitled to receive physical delivery of certificates for such
shares, and will not be considered the owners or holders thereof for any
purpose, including with respect to the voting thereof. As a result, the ability
of a person having a beneficial interest in $2.03 Preferred represented by a
Global Certificate to pledge such interest to persons or entities that do not
participate in the Depository's system or to otherwise take action with respect
to such interest, may be affected by the lack of a physical certificate
evidencing such interest.
Accordingly, each QIB owning a beneficial interest in a Global Certificate
must rely on the procedures of the Depository and, if such QIB is not a
Participant or an Indirect Participant, on the procedures of the Participant
through which such QIB owns its interest, to exercise any rights of an owner of
$2.03 Preferred. The Company understands that under existing industry practice,
in the event the Company requests any action of holders or a QIB that is an
owner of a beneficial interest in a Global Certificate desires to take any
action that the Depository, as the holder of such Global Certificate, is
entitled to take, the Depository would authorize the Participants to take such
action and the Participant would authorize QIBs owning through such
Participants to take such action or would otherwise act upon the instruction of
such QIBs. The Company will not have any responsibility or liability for any
aspect of the records relating to or payments made on account of $2.03
Preferred by the Depository, or for maintaining, supervising or reviewing any
records of the Depository relating to such $2.03 Preferred.
Payments with respect to dividends, liquidation or other amounts with
respect to $2.03 Preferred represented by a Global Certificate registered in
the name of the Depository or its nominee on the applicable record date will be
payable by the Company to or at the direction of the Depository or its nominee
in its capacity as the registered holder of the Global Certificate representing
such $2.03 Preferred. The Company may treat the persons in whose names the
$2.03 Preferred, including the Global Certificate, are registered as the owners
thereof for the purpose of receiving such payment and for any and all other
purposes whatsoever. Consequently, the Company will not have any responsibility
or liability for the payment of such amounts to beneficial owners of $2.03
Preferred, or to immediately credit the accounts of the relevant Participants
with such payment, in amounts proportionate to their respective holdings in
principal amount of beneficial interest in the Global Certificate as shown on
the records of the Depository. Payments by the Participants and the Indirect
Participants to the beneficial owners of $2.03 Preferred will be governed by
standing instructions and customary practice and will be the responsibility of
the Participants or the Indirect Participants.
Delivery of Certificates. If (i) the Depository notified the Company that
it is no longer willing or able to act as a depository and the Company is
unable to locate a qualified successor within 90 days or (ii) the Company, at
its option, elects to cause the issuance of $2.03 Preferred in definitive form,
then, upon surrender by the Depository of its Global Certificate, certificates
for $2.03 Preferred will be issued to each person that the Depository
identifies as the beneficial owner of the $2.03 Preferred represented by the
Global Certificate. In addition, subject to certain conditions, any person
having a beneficial interest in a Global Certificate may, upon request to the
Company and the transfer agent for the $2.03 Preferred, exchange such
beneficial interest for certificated shares. Upon any such issuance, the
Company and the transfer agent are required to register such certificates in
the name of such person or persons (or the nominee of any thereof), and cause
the same to be delivered thereto.
Neither the Company nor the transfer agent shall be liable for any delay
by the Depository or any Participant or Indirect Participant in identifying the
beneficial owners of the related $2.03 Preferred and each such person may
conclusively rely on, and shall be protected in relying on, instructions from
the Depository for all purposes (including with respect to the registration and
delivery, and the respective principal amounts, of the $2.03 Preferred to be
issued).
G:\HLF\LOMAK\S-3\S-3.REG
41
<PAGE> 43
7 1/2% PREFERRED
RANKING
The 7 1/2 Preferred ranks senior to the Common Stock in right of payment
of dividends and upon liquidation, dissolution or winding up of the Company and
ranks pari passu to the $2.03 Preferred. The Company may not issue any shares
of preferred stock which are convertible into shares of the Common Stock which
rank senior to shares of the 7 1/2% Preferred as to liquidation preference
without the consent of the holders of a majority of the shares of the 7 1/2%
Preferred.
DIVIDENDS
Holders of the 7 1/2 Preferred are entitled to receive if, when and as
declared by the Board of Directors out of funds legally available therefor,
cash dividends of $1.875 per share, payable quarterly, in arrears, on the last
day of each September, December, March, and June, respectively in each year. If
and so long as any dividends have not been paid in full on the 7 1/2%
Preferred, the Company agrees that it will not (i) redeem any shares of
preferred stock convertible into the Common Stock or any other shares of
capital stock of the Company which rank junior to shares of the 7 1/2%
Preferred as to dividends and liquidation preference or (ii) pay dividends on
shares of preferred stock convertible into the Common Stock or any other shares
of capital stock of the Company which rank junior to shares of the 7 1/2%
Preferred as to dividends and liquidation preference.
CONVERSION
Each share of the 7 1/2% Preferred may be converted at any time, at the
option of the holder thereof, into shares of the Common Stock on the terms and
conditions set forth below The Company may cause the 7 1/2% Preferred to be
converted at any time on or after July 1, 1995 on the terms and conditions set
forth below, subject to adjustment, if, but only if: (i) the Common Stock is
then listed on a national securities exchange or authorized for quotation on
Nasdaq; and (ii) the closing price of a share of the Common Stock on a national
securities exchange (including Nasdaq) has exceeded $8.80, subject to
adjustment, by 35% or more for at least twenty of the thirty preceding trading
days.
Subject to the provisions for adjustment hereinafter set forth, each share
of the 7 1/2% Preferred shall be convertible into 2.9412 fully paid and
nonassessable shares of the Common Stock and each share of Series B Preferred
shall be convertible in to 2.8409 fully paid and nonasseable shares of the
Common Stock, equal to a conversion price of $8.80 and $8.50 per share,
respectively. In lieu of issuing a partial share, the shares of the Common
Stock issuable shall be rounded up or down, as the case may be, to the nearest
whole share;
The number of shares of the Common Stock into which each share of the 7
1/2% Preferred is convertible shall be adjusted from time to time as follows:
(i) in case the Company shall at any time or from time to time declare or pay
any dividend on the Common Stock payable in the Common Stock or effect a
subdivision of the outstanding shares of the Common Stock (by reclassification,
split or otherwise than by payment of a dividend in the Common Stock), then,
and in each such case, the number of shares of the Common Stock into which each
share of the 7 1/2% Preferred is convertible shall be adjusted so that the
holder of each share thereof shall be entitled to receive, upon the conversion
thereof, the number of shares of the Common Stock determined by multiplying (a)
the number of shares of the Common Stock into which such share was convertible
immediately prior to the occurrence of such event by (b) a fraction, the
numerator of which is the sum of (I) the number of shares of the Common Stock
into which such share was convertible immediately prior to the occurrence of
such event plus (II) the number of shares of the Common Stock which such holder
would have been entitled to receive in connection with the occurrence of such
event had such share been converted immediately prior thereto, and the
denominator of which is the number of shares of the Common Stock determined in
accordance with clause (I) above (adjustments shall become effective (a) in the
case of any such dividend, immediately after the close of business on the
record date for the determination of holders of the Common Stock entitled to
receive such dividend, or (b) in the case of any such subdivision, at the close
of business on the day immediately prior to the day upon which such corporate
action became effective); (ii) in case the Company at any time or from time to
time shall combine or consolidate the outstanding shares of the Common Stock
into a lesser number of shares of the Common Stock, by reverse split,
reclassification or otherwise, then, and in each such case, the number of
shares of the Common Stock into which each share of the 7 1/2% Preferred is
convertible shall be adjusted so that the holder of each share thereof shall be
entitled to receive, upon the conversion thereof, the number of shares of the
Common Stock determined by multiplying (a) the number of shares of the Common
Stock into
G:\HLF\LOMAK\S-3\S-3.REG
42
<PAGE> 44
which such share was convertible immediately prior to the occurrence of such
event by (b) a fraction, the numerator of which is the number of shares which
the holder would have owned after giving effect to such event had such share
been converted immediately prior to the occurrence of such event and the
denominator of which is the number of shares of the Common Stock into which
such share was convertible immediately prior to the occurrence of such event
(adjustments shall become effective at the close of business on the day
immediately prior to the day upon which such corporate action becomes
effective); (iii) in case of any capital reorganization or reclassification of
the capital stock of the Company in case of the consolidation or merger of the
Company with another corporation or in the case of any sale or conveyance of
all or substantially all of the property of the Company, each share of the
7 1/2% Preferred shall thereafter be convertible into the number of shares of
stock or other securities or cash or other property receivable upon such
capital reorganization, reclassification of capital stock, consolidation,
merger, sale or conveyance, as the case may be, by a holder of the number of
shares of the Common Stock into which such share of 7 1/2% Preferred was
convertible immediately prior to such capital reorganization, reclassification
of capital stock, consolidation, merger, sale or conveyance.
VOTING RIGHTS
The holders of shares of the 7 1/2% Preferred shall be entitled to 2 votes
for each such share on all matters presented to the Company's stockholders'
and, except as otherwise provided herein or required by law, the holders of
shares of the 7 1/2% Preferred and the holders of shares of the Common Stock
and any other shares having voting rights shall vote together as one class on
all matters. On any matter requiring the holders of the 7 1/2% Preferred as a
class, said holders shall be treated as a single class.
If at any time or times dividends payable on the 7 1/2% Preferred shall be
in arrears and unpaid in an amount equal to eight (8) full quarterly dividends,
then the number of directors constituting the Board of Directors of the Company
shall be increased by two (2) and the holders of 7 1/2% Preferred shall have
the exclusive right, voting separately as a class, to elect the directors of
the Company to fill such newly created directorships, the remaining directors
to be elected by the other class or classes of stock entitled to vote
therefore, at each meeting of stockholders held for the purpose of electing
directors.
COMPANY'S RIGHT OF REDEMPTION
To the extent the Company shall have funds legally available for such
payment, the Company may redeem at its option the 7 1/2% Preferred, at any time
in whole or from time to time in part after July 1, 1996 at the redemption
prices set forth below plus an amount per share equal to all unpaid dividend
thereon, including accrued dividends to the redemption date.
<TABLE>
<CAPTION>
Period Redemption Price
------------------------------------- ---------------------
<S> <C>
July 1, 1996 - December 31,1996 $ 26.875
1997 $ 26.25
1998 $ 26.625
1999 and Thereafter $ 25.00
</TABLE>
The Company will provide the holders of the 7 1/2% Preferred with a minimum
advance notice of 10 days prior to any redemption, within which period
conversion of the 7 1/2% Preferred can be effected.
If any proposed redemption of shares of the 7 1/2% Preferred shall be of
less than all the then outstanding shares of the 7 1/2% Preferred, the shares
of the 7 1/2% Preferred to be redeemed will be selected by lot or pro rata or
by any other method as may be determined by the Board of Directors of the
Company in its sole discretion to be equitable.
EXCHANGE
The 7 1/2% Preferred are exchangeable, at the option of the Company, in
whole (but not in part), on any dividend payment date for the 7 1/2% Notes in a
principal amount equal to $25.00 per share. The 7 1/2% Notes will be
convertible into the Common Stock on the same basis as if the exchange had not
occurred. The 7 1/2% Notes will bear interest from the date of issuance,
payable semi-annually in arrears on June 30, and December 31 of each year,
commencing on the first such interest payment date following the date of
exchange. At the Company's option, the 7 1/2% Notes will be redeemable, in
G:\HLF\LOMAK\S-3\S-3.REG 43
<PAGE> 45
whole or in part, at the redemption prices set forth above under "Company's
Right of Redemption" plus accrued and unpaid interest. The 7 1/2% Notes are not
subject to mandatory sinking fund payments. The 7 1/2% Notes will be
subordinated to all senior indebtedness of the Company.
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Company, the holders of the 7 1/2% Preferred
will be entitled to receive $25.00 per share plus accrued and unpaid dividends
to the date of payment of the amount due pursuant to such liquidation,
dissolution or winding up of the affairs of the Company. Shares of the 7 1/2%
Preferred shall have preference over all shares of the Common Stock as to
distribution of assets in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company.
RIGHTS DISTRIBUTIONS
If the Company distributes to all holders of the Common Stock rights to
subscribe or purchase shares of the Common Stock and in the event that prior to
the record date for such distribution of such rights the holders of shares of
the 7 1/2% Preferred have not converted such shares into shares of Common
Stock, the Company agrees that it will also distribute such rights to holders
of shares of the 7 1/2% Preferred as if such holder had converted shares of the
7 1/2% Preferred for shares of the Common Stock.
DESCRIPTION OF THE $2.03 NOTES
If the Company elects to exchange the $2.03 Preferred for the $2.03 Notes,
the Company will issue the $2.03 Notes under an indenture (the "Indenture"),
between the Company and Keycorp Shareholder Services, Inc., or an equivalent
trustee selected by the Company, as trustee (the "Trustee"). The Indenture will
be in substantially the form agreed between the Initial Purchasers and the
Company, a copy of which is available upon request from the Company, with such
changes as may be required by law or usage. The statements under this caption
address the material terms of the $2.03 Notes but are summaries and do not
purport to be complete. The summaries make use of terms defined in the
Indenture and are qualified in their entirety by reference to the Indenture,
including the definitions therein of certain terms. Whenever reference is made
to defined terms of the Indenture and not otherwise defined herein, such
defined terms are incorporated herein by reference.
GENERAL
The $2.03 Notes will be unsecured, subordinated obligations of the
Company, will be limited to $33,750,000 aggregate principal amount and will
mature on December 31, 2005. The $2.03 Notes will bear interest at the dividend
rate of the $2.03 Preferred from the date of original issue, or from the most
recent Interest Payment Date (as defined below) to which interest has been paid
or duly provided for, and accrued but unpaid interest will be payable quarterly
on March 31, June 30, September 30 and December 31 of each year (each, an
"Interest Payment Date"). Interest will be paid to holders of the $2.03 Notes
of record ("Holders") at the close of business on March 15, June 15, September
15 and December 15, respectively, immediately preceding the relevant Interest
Payment Date (each, a "Regular Record Date"). Interest will be computed on the
basis of a 360-day year of twelve 30-day months. Principal (plus premium, if
any) and interest will be payable, and the $2.03 Notes may be presented for
conversion, exchange or registration of transfer, at the office or agency of
the Company maintained by the Company for those purposes, except that payment
of interest may at the option of the Company be made by check mailed to the
address of the person entitled thereto as it appears on the security register.
At any time from and after the execution and delivery of the Indenture,
the Company may deliver the $2.03 Notes to the Trustee for authentication and
the Trustee shall, in accordance with the instructions of the Company,
authenticate and deliver the $2.03 Notes as provided in the Indenture.
No service charge will be made for any transfer or exchange of the $2.03
Notes, but the Company may require payment of a sum sufficient to cover any tax
or other governmental charge payable in connection therewith.
All monies paid by the Company to the Trustee or any Paying Agent for the
payment of principal of and premium, if any, and interest on any $2.03 Note
which remains unclaimed for two years after such principal, premium or interest
became due and payable may be repaid to the Company. Thereafter the Holder of
such Note may, as an unsecured general creditor, look only to the Company for
payment thereof.
G:\HLF\LOMAK\S-3\S-3.REG 44
<PAGE> 46
CONVERSION RIGHTS
Holders will be entitled, at any time and from time to time prior to
maturity (subject to earlier redemption or repurchase, as described below), to
convert their Notes (or any portion thereof that is an integral multiple of
$1,000), at 100% of the principal amount thereof, into the Common Stock of the
Company at the conversion price set forth on the cover page hereof, subject to
adjustment under certain circumstances as described below. After a call for
redemption of the $2.03 Notes, through optional redemption or otherwise, the
$2.03 Notes or portion thereof called for redemption will be convertible if
duly surrendered on or before, but not after, the close of business on the date
fixed for redemption in respect thereof.
The provisions in the Indenture for adjustment of the conversion price
will be substantially the same as those applicable to the $2.03 Preferred
described at "Description of the Preferred Stock--$2.03 Preferred--Conversion
Rights."
Subject to any applicable right of the Holders to cause the Company to
purchase the $2.03 Notes upon a Change of Control (as described below), in case
of any consolidation or merger to which the Company is a party, other than a
transaction in which the Company is the continuing corporation, or in case of
any sale or conveyance to another corporation of the property of the Company as
an entirety or substantially as an entirety, or in the case of any statutory
exchange of securities with another corporation or other entity, there will be
no adjustment of the conversion price, but each Holder will have the right
thereafter to convert such Holder's $2.03 Notes into the kind and amount of
securities, cash or other property which the Holder would have owned or have
been entitled to receive immediately after such consolidation, merger,
statutory exchange, sale or conveyance had such Note been converted immediately
prior to the effective date of such consolidation, merger, statutory exchange,
sale or conveyance. In the case of a cash merger of the Company with another
corporation or other entity or any other cash transaction of the type mentioned
above, the effect of these provisions would be that the conversion features of
the $2.03 Notes would thereafter be limited to converting the $2.03 Notes at
the conversion price then in effect into the same amount of cash that such
Holder would have received had such Holder converted the $2.03 Notes into
Common Stock immediately prior to the effective date of such cash merger or
transaction. Depending upon the terms of such cash merger or transaction, the
aggregate amount of cash so received on conversion could be more or less than
the principal amount of the $2.03 Notes.
Fractional shares of Common Stock will not be issued upon conversion. A
person otherwise entitled to a fractional share of Common Stock upon conversion
shall be paid cash based on the last sales price of the Common Stock at the
close of business on the last day on which the Common Stock traded preceding
the date of conversion. The Company from time to time, to the extent permitted
by law, may reduce the conversion price by any amount for any period of at
least 15 days which it determines to be advisable. If at any time the Company
makes a distribution of property to its stockholders which would be taxable to
such stockholders as a dividend for federal income tax purposes (e.g.,
distribution of evidence of indebtedness or assets of the Company, but
generally not stock dividends or rights to subscribe for the Common Stock) and,
pursuant to the anti-dilution provisions of the Indenture, the conversion price
of the $2.03 Notes is reduced or the conversion price of the $2.03 Notes is
reduced other than in connection with certain anti-dilution adjustments, such a
reduction may be considered as resulting in the distribution of a dividend to
Holders for federal income tax purposes.
A Holder who surrenders a $2.03 Note (or portion thereof) for conversion
between the close of business on a Regular Record Date and the next Interest
Payment Date will receive interest on such Interest Payment Date with respect
to such $2.03 Note (or portion thereof) so converted for the period from the
last Interest Payment Date through the date of such conversion. Subject to such
payments in the event of conversion after the close of business on a Regular
Record Date, no payment or adjustment shall be made upon any conversion on
account of any interest accrued but unpaid on the $2.03 Notes surrendered for
conversion.
REDEMPTION
Optional Redemption by the Company. The $2.03 Notes are not redeemable
prior to November 1, 1998. On and after November 1, 1998, the $2.03 Notes will
be redeemable at the option of the Company, in whole or in part, at any time
prior to maturity, upon not less than 30 days' nor more than 60 days' prior
notice of the redemption date, mailed by first class mail to each Holder's last
address as it appears in the security register, at the Redemption Prices
established for the $2.03 Notes, together with accrued but unpaid interest, if
any, to the date fixed for redemption. The Redemption Prices for the $2.03
Notes (expressed as a percentage of the principal amount) shall be as follows:
G:\HLF\LOMAK\S-3\S-3.REG 45
<PAGE> 47
<TABLE>
<CAPTION>
During the 12 month period
commencing November 1, Percentage
---------------------------------- -----------------------------
<S> <C>
1998 105%
1999 104
2000 103
2001 102
2002 101
2003 and thereafter 100
</TABLE>
Selection of Notes Redeemed. If less than all the $2.03 Notes are to be
redeemed, selection of the $2.03 Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the $2.03 Notes are listed, or, if the
$2.03 Notes are not listed, on a pro rata basis by lot or by such method that
complies with applicable legal requirements and that the Trustee considers fair
and appropriate. The Trustee may select for redemption portions of the
principal of $2.03 Notes that have a denomination larger than $1,000, in
integral amounts of $1,000. The Trustee will make the selection from the $2.03
Notes outstanding and not previously called for redemption.
CHANGE OF CONTROL
If a Change of Control occurs, the Company shall offer to repurchase each
Holder's Notes pursuant to an offer as described below (the "Change of Control
Offer") at a purchase price equal to 100% of the principal amount of such
Holder's Notes, plus accrued but unpaid interest, if any, to the date of
purchase. The Change of Control purchase feature of the $2.03 Notes may in
certain circumstances make more difficult or discourage a takeover of the
Company.
Under the Indenture, a "Change of Control" means the occurrence of any of
the following events; (i) any person (as the term "person" is used in Section
13(d) or Section 14(d) of the Exchange Act) is or becomes the direct or
indirect beneficial owner of shares of the Company's capital stock representing
greater than 50% of the total voting power of all shares of capital stock of
the Company entitled to vote in the election of Directors under ordinary
circumstances or to elect a majority of the Board of Directors of the Company,
or (ii) the Company sells, transfers or otherwise disposes of all or
substantially all of the assets of the Company. Notwithstanding the foregoing,
a Change of Control will not include any transaction or series of related
transactions in which 85% or more of the consideration received by the Holders
upon conversion of their Notes immediately after the occurrence of such Change
of Control consists of common stock that is listed on a national securities
exchange or approved for quotation on Nasdaq or (ii) immediately after the
occurrence of such Change of Control (a) the value immediately after the
consummation of the $2.03 Notes or (b) the sum of the value immediately after
the consummation of any such common stock receivable upon conversion of the
$2.03 Notes immediately after such occurrence plus the cash receivable upon
such conversion has a value on each of the five trading days immediately after
the occurrence of such Change of Control equal to or in excess of 105% the
principal amount of such Notes.
Within 30 days after any Change of Control, unless the Company has
previously mailed a notice of optional redemption by the Company of all of the
$2.03 Notes, the Company shall mail a notice of the Change of Control Offer to
each Holder by first class mail at such Holder's last address as it appears on
the Note Register stating: (i) that a Change of Control has occurred and that
the Company is offering to repurchase all of such Holder's $2.03 Notes; (ii)
the circumstances and relevant facts regarding such Change of Control
(including, but not limited to, information with respect to pro forma income,
cash flow and capitalization of the Company after giving effect to such Change
of Control); (iii) the repurchase price; (iv) the expiration date of the Change
of Control Offer, which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed; (v) the date such purchase shall be
effected, which shall be no later than 30 days after expiration date of the
Change of Control Offer; (vi) any other information required by applicable law
to be included therein; and (vii) the procedures determined by the Company,
consistent with the Indenture, that a Holder must follow in order to have such
Notes repurchased.
In the event that the Company is required to make a Change of Control
Offer, the Company will comply with any applicable securities laws and
regulations, including, to the extent applicable, Section 14(e), Rule 14e-1 and
any other tender offer rules under the Exchange Act which may then be
applicable in connection with any offer by the Company to purchase the $2.03
Notes at the option of the Holders thereof.
G:\HLF\LOMAK\S-3\S-3.REG 46
<PAGE> 48
The Company, could, in the future, enter into certain transactions,
including certain recapitalizations of the Company, that would not constitute a
Change in Control under the $2.03 Notes, but that would increase the amount of
Senior Indebtedness (or any other indebtedness) outstanding at such time. The
Company's ability to create any additional Senior Indebtedness or additional
Subordinated Indebtedness is limited as described in the $2.03 Notes and the
Indenture although, under certain circumstances, the incurrence of significant
amounts of additional indebtedness could have an adverse effect on the
Company's ability to service its indebtedness, including the $2.03 Notes. If a
Change in Control were to occur, there can be no assurance that the Company
would have sufficient funds at the time of such event to pay the Change in
Control purchase price for all $2.03 Notes tendered by the Holders. A default
by the Company on its obligation to pay the Change in Control purchase price
could, pursuant to cross-default provisions, result in acceleration of the
payment of other indebtedness of the Company outstanding at that time.
Certain of the Company's existing and future agreements relating to its
indebtedness could prohibit the purchase by the Company of the $2.03 Notes
pursuant to the exercise by a Holder of the foregoing option, depending on the
financial circumstances of the Company at the time any such purchase may occur,
because such purchase could cause a breach of certain covenants contained in
such agreements. Such a breach may constitute an event of default under such
indebtedness and thereby restrict the Company's ability to purchase the $2.03
Notes. See "Subordination."
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company, without the consent of the Holders of any of the $2.03 Notes,
may consolidate with or merge into any other entity or convey, transfer, sell
or lease its assets substantially as an entirety to any person or entity,
provided that: (i) either (a) the Company is the continuing corporation or (b)
the corporation or other entity formed by such consolidation or into which the
Company is merged or the person or entity to which such assets are conveyed,
transferred, sold or leased is organized under the laws of the United States or
any state thereof or the District of Columbia and expressly assumes all
obligations of the Company under the $2.03 Notes and the Indenture, (ii)
immediately after and giving effect to such merger, consolidation, conveyance,
transfer, sale or lease no Event of Default, and no event which, after notice
or lapse of time, would become an Event of Default, under the Indenture shall
have occurred and be continuing, (iii) immediately after and giving effect to
such merger, consolidation, conveyance, transfer, sale or lease the
consolidated stockholders' equity of the Company or such successor entity is
not less than the consolidated stockholders' equity of the Company immediately
prior to such transaction, (vi) upon consummation of such consolidation,
merger, conveyance, transfer, sale or lease, the $2.03 Notes and the Indenture
will be a valid and enforceable obligation of the Company or such successor and
(v) the Company has delivered to the Trustee an officer's certificate and an
opinion of counsel, each stating that such consolidation, merger, conveyance,
transfer, sale or lease complies with the provisions of the Indenture.
SUBORDINATION
The payment of principal of and premium, if any, and interest on the $2.03
Notes will be, to the extent set forth in the Indenture, subordinated in right
of payment to the prior payment in full of all Senior Indebtedness (as defined
below). By reason of such subordination, upon any payment or distribution of
assets to creditors upon any liquidation, dissolution, winding up,
reorganization, assignment for the benefit of creditors or marshalling of
assets, whether voluntary, involuntary or in receivership, bankruptcy,
insolvency or similar proceedings, the holders of all Senior Indebtedness will
be first entitled to receive payment in full of all amounts due or to become
due thereon before any payment is made on account of principal of and premium,
if any, and interest on the $2.03 Notes or on account of any other monetary
claims under or in respect of the $2.03 Notes, and before any distribution is
made to acquire any of the $2.03 Notes for any cash, property or securities. No
payments on account of principal of and premium, if any, and interest on the
$2.03 Notes shall be made if at the time thereof: (i) there is a default in the
payment of all or any portion of the obligations under any Senior Indebtedness
or (ii) there shall exist a default in any covenant with respect to the Senior
Indebtedness (other than as specified in clause (i) of this sentence), and, in
such event, such default shall not have been cured or waived or shall not have
ceased to exist, and such default would permit the maturity of such Senior
Indebtedness to be accelerated, provided that no such default will prevent any
payment on, or in respect of, the $2.03 Notes for more than 120 days unless the
maturity of such Senior Indebtedness has been accelerated.
The Holders will be subrogated to the rights of the holders of the Senior
Indebtedness to the extent of payments made on Senior Indebtedness upon any
distribution of assets in any such proceedings out of the distributive share of
the $2.03 Notes.
G:\HLF\LOMAK\S-3\S-3.REG 47
<PAGE> 49
"Senior Indebtedness" is defined to mean the principal of and premium, if
any, and interest on (i) indebtedness or other obligations under the Credit
Agreement, (ii) indebtedness for money borrowed (including purchase money
obligations) evidenced by notes or other written obligations, including letters
of credit and bankers acceptances, (iii) indebtedness evidenced by notes,
debentures, bonds or other securities issued under the provisions of an
indenture or similar instrument, (iv) obligations as lessee under capitalized
leases and under leases of property made as part of any sale and leaseback
transactions, (v) indebtedness of others of any of the kinds described in the
preceding clauses (i) through (iv) assumed or guaranteed and (vi) amendments,
renewals, extensions, modifications and refundings of any obligations or
indebtedness described in the foregoing clauses (i) through (v); provided,
however, that the following will not constitute Senior Indebtedness: (a) any
indebtedness or obligation as to which, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is
expressly provided that such indebtedness or obligation is subordinate in right
of payment to all other indebtedness, (b) any indebtedness or obligation which
refers explicitly to the $2.03 Notes and states that the indebtedness or
obligation shall not be senior in right of payment thereto, (c) any
indebtedness or obligation in respect of the $2.03 Notes, (d) any indebtedness
or obligation of the Company to any affiliates, and (e) obligations of the
Company for compensation to employees or for items purchased or services
rendered in the ordinary course of business.
There will be no restrictions on the creation of Senior Indebtedness in
the Indenture.
The $2.03 Notes are unsecured obligations of the Company, and,
accordingly, will rank pari passu with all trade debt and obligations of the
Company and its subsidiaries that arise by operation of law or are imposed by
any judicial or governmental authority, except that any such trade debt or
other obligation may be senior in right of payment to the $2.03 Notes to the
extent the same is entitled to any security interest arising by operation of
law.
CERTAIN COVENANTS OF THE COMPANY
The Indenture contains, among others, the covenants summarized below,
which will be applicable (unless waived or amended) so long as any of the $2.03
Notes are outstanding.
Limitation on Additional Debt After Default. The Company shall not, and
shall not permit any of its subsidiaries to, incur any additional indebtedness
(other than liabilities for accounts payable and accrued expenses incurred in
the ordinary course of business and intra-company payables or receivables
incurred in the ordinary course of business) or Senior Indebtedness following
the occurrence of an Event of Default (as defined below) unless such Event of
Default (and all other Events of Default then pending) is cured or waived
except that the Company shall be permitted to incur up to $5.0 million of
Senior Indebtedness after the occurrence of an Event of Default notwithstanding
that such Event of Default (or any other Default) is then outstanding.
Limitation on Dividend Restrictions Affecting Subsidiaries. The Company
may not, and may not permit any of its subsidiaries to, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction of
any kind on the ability of any subsidiary of the Company to (a) pay to the
Company dividends or make to the Company any other distribution on its capital
stock, (b) pay any debt owed to the Company or any of its subsidiaries, (c)
make loans or advances to the Company or any of it's subsidiaries or (d)
transfer any of its property or assets to the Company or any of its
subsidiaries, other than such encumbrances or restrictions existing or created
under or by reason of (i) applicable law, (ii) the Indenture, (iii) covenants
or restrictions contained in any instrument governing debt of the Company or
any of its subsidiaries existing on the date of the Indenture, (iv) customary
provisions restricting subletting, assignment and transfer of any lease
governing a leasehold interest of the Company or any of its subsidiaries or in
any license or other agreement entered into in the ordinary course of business,
(v) any agreement governing debt of a person acquired by the Company or any of
its subsidiaries in existence at the time of such acquisition (but not created
in contemplation thereof), which encumbrances or restrictions are not
applicable to any person, or the property or assets of any person, other than
the person, or the property or assets of the person so acquired or (vi) any
restriction with respect to a subsidiary imposed pursuant to an agreement
entered into in accordance with the terms of the Indenture for the sale or
disposition of capital stock or property or assets of such subsidiary, pending
the closing of such sale or disposition.
Limitation on Restricted Payments. The Company will not, and will not
permit any of its subsidiaries to, directly or indirectly, declare or pay any
distribution or dividend on or in respect of any class of its capital stock
(except dividends or distributions payable by wholly owned subsidiaries of the
Company or dividends or distributions payable in capital stock of the Company
which is not redeemable and is subordinated in right of payment to the $2.03
Notes ("Qualified Stock") or in options, warrants or other rights to purchase
Qualified Stock of the Company) (any such declaration, payment, distribution,
G:\HLF\LOMAK\S-3\S-3.REG 48
<PAGE> 50
purchase, repurchase, prepayment, redemption, defeasance or other acquisition
or retirement referred to above being hereinafter referred to as a "Restricted
Payment"); unless (a) at the time of and after giving effect to a proposed
Restricted Payment no Event of Default (and no event that, after notice or
lapse of time, or both, would become an Event of Default) shall have occurred
and be continuing and (b) such Restricted Payment is made in cash and in an
amount, that together with the sum of the aggregate of all other Restricted
Payments made by the Company and its subsidiaries after the date of the
Indenture plus the aggregate amount of all dividends paid with respect to the
Company's preferred stock outstanding after the date of the Indenture, does not
exceed the cumulative retained earnings of the Company arising after the date
of the Indenture. Notwithstanding the foregoing, the Company will be permitted
to pay dividends on preferred stock outstanding on the date of the Indenture in
an amount not greater than that specifically provided for in the Certificate of
Incorporation of the Company or the related Certificate of Designations.
Limitation on Stock Splits, Consolidations and Reclassifications. The
Company will not effect a stock split, consolidation or reclassification of any
class of its capital stock unless (a) an equivalent stock split, consolidation
or reclassification is simultaneously made with respect to each other class of
capital stock of the Company and all securities exchangeable or exercisable for
or convertible into any capital stock of the Company, and (b) after such stock
split, consolidation or reclassification all of the relative voting, dividend
and other rights and preferences of each class of capital stock of the Company
are identical to those in effect immediately preceding such stock split,
consolidation or reclassification.
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture: (a) failure
to pay principal of or premium, if any, on any Note when due and payable at
maturity, upon redemption, upon a Change of Control Offer or otherwise, whether
or not such payment is prohibited by the subordination provisions of the
Indenture; (b) failure to pay any interest on any Note when due, which failure
continues for 30 days, whether or not such payment is prohibited by the
subordination provisions of the Indenture; (c) failure to perform the other
covenants of the Company to the holders of Senior Indebtedness, which failure
continues for 60 days after written notice; (d) failure to perform any
covenants of the Company to the holder of Senior Indebtedness as required by
the terms of such Senior Indebtedness unless waived by said holders; (e)
failure to pay when due principal of and/or acceleration of, any indebtedness
for money borrowed by the Company or any subsidiary in excess of $5 million,
individually or in the aggregate, if such indebtedness is not discharged, or
such acceleration is not annulled, within 10 days after written notice as
provided in the Indenture; and (f) certain events of bankruptcy, insolvency or
reorganization of the Company or any subsidiary. Subject to the provisions of
the Indenture relating to the duties of the Trustee in case an Event of Default
shall occur and be continuing, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request or
direction of any of the Holders, unless such Holders shall have offered to the
Trustee reasonable indemnity. Subject to such provisions for the
indemnification of the Trustee, the Holders of a majority in aggregate
principal amount of the outstanding Notes will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred on the Trustee.
If an Event of Default shall occur and be continuing, either the Trustee
or the Holders of at least 25% in aggregate principal amount of the then
outstanding Notes may accelerate the maturity of all $2.03 Notes; provided,
however, that after such acceleration, but before a judgment or decree based on
acceleration, the Holders of a majority in aggregate principal amount of the
then outstanding $2.03 Notes may, under certain circumstances, rescind and
annul such acceleration if all Events of Default, other than the non-payment of
accelerated principal, have been cured or waived as provided in the Indenture.
For information as to waiver of defaults, see "Modification and Waivers."
No Holder of any $2.03 Note will have any right to institute any
proceeding with respect to the Indenture or for the appointment of a receiver
or trustee or for any other remedy thereunder unless (i) such Holder shall have
previously given to the Trustee written notice of a continuing Event of
Default, (ii) the Holders of at least 25% in aggregate principal amount of the
then outstanding $2.03 Notes shall have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as trustee,
(iii) the Trustee shall have failed to institute such proceeding within 60 days
after the receipt of such notice and (iv) no direction inconsistent with such
request shall have been given to the Trustee during such 60-day period by the
Holders of a majority in aggregate principal amount of the then outstanding
$2.03 Notes.
G:\HLF\LOMAK\S-3\S-3.REG 49
<PAGE> 51
MODIFICATIONS AND WAIVERS
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the then outstanding $2.03 Notes held by persons
other than affiliates of the Company; provided, however, that no such
modification or amendment may, without the consent of the Holder of each
outstanding Note affected thereby, (i) change the stated maturity of, or any
installment of interest on, any Note, (ii) reduce the principal amount of any
Note or reduce the rate or extend the time of payment of interest on any Note,
(iii) increase the conversion price (other than in connection with a reverse
stock split as provided in the Indenture), (iv) change the place or currency of
payment of principal of, or premium or repurchase price, if any, or interest
on, any $2.03 Note, (v) impair the right to institute suit for the enforcement
of any payment on or with respect to any Note, (vi) adversely affect the right
to exchange or convert the $2.03 Notes, (vii) reduce the percentage of the
aggregate principal amount of outstanding Notes, the consent of the Holders of
which is necessary to modify or amend the Indenture, (viii) reduce the
percentage of the aggregate principal amount of outstanding Notes, the consent
of the Holders of which is necessary for waiver of compliance with certain
provisions of the Indenture or for waiver of certain defaults, (ix) modify the
provisions of the Indenture with respect to the subordination of the $2.03
Notes in a manner adverse to the Holders, (x) modify the provisions of the
Indenture with respect to the right to require the Company to repurchase Notes
in a manner adverse to the Holders or (xi) modify the provisions of the
Indenture with respect to the vote necessary to amend this provision.
The Holders of a majority in aggregate principal amount of the outstanding
Notes held by persons other than affiliates of the Company may, on behalf of
all Holders, waive any past default under the Indenture or Event of Default,
except a default in the payment of principal, premium, if any, or interest on
any of the $2.03 Notes or in respect of a provision which under the Indenture
cannot be modified without the consent of the Holder of each outstanding $2.03
Note.
REPORTS TO HOLDERS
So long as the Company is subject to the periodic reporting requirements
of the Exchange Act it will continue to furnish the information required
thereby to the Commission. The Indenture provides that even if the Company is
entitled under the Exchange Act not to furnish such information to the
Commission or to the Holders, it will nonetheless continue to furnish
information under Section 13 of the Exchange Act to the Commission and the
Trustee as if it were subject to such periodic reporting requirements.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of (i) 2,000,000
shares of serial preferred stock, $1.00 par value, and (ii) 20,000,000 shares
of Common Stock, $.01 par value. As of November 6, 1995, the Company had
outstanding 12,063,238 shares of Common Stock, 1,000,000 shares of the $2.03
Preferred, and 200,000 shares of the 7 1/2% Preferred. For a description of the
$2.03 Preferred and the 7 1/2% Preferred see "Description of the Preferred
Stock.
COMMON STOCK
Subject to any prior rights of the preferred stock, the holders of Common
Stock: (1) are entitled to such dividends as may be declared by the Board of
Directors from time to time out of funds legally available for such payments
(however the Credit Agreement limits the payment of dividends to $1 million in
any year); (2) are entitled to one vote per share; (3) have no preemptive or
conversion rights and are not subject to redemption; and (4) are entitled upon
liquidation to receive ratably the assets remaining after the payment of
corporate debts and the satisfaction of the liquidation preference of any
preferred stock. If there is any arrearage in the payment of dividends on any
preferred stock, the Company may not pay dividends upon, repurchase or redeem
shares of its Common Stock. Voting is noncumulative. The outstanding shares of
Common Stock are fully paid and nonassessable.
OPTIONS
The Company's stock option plan, which is administered by the Compensation
Committee, provides for the granting of options to purchase shares of Common
Stock to key employees and certain other persons who are not employees for
advice or other assistance or services to the Company. The plan permits the
granting of options to acquire up to 1,500,000
G:\HLF\LOMAK\S-3\S-3.REG 50
<PAGE> 52
shares of Common Stock subject to a limitation of 10% of the outstanding Common
Stock on a fully diluted basis. At September 30, 1995 a total of 933,149
options had been granted under the plan of which 370,994 shares were
exercisable at that date. The options outstanding at September 30, 1995 were
granted at an exercise price of $3.38 to $9.38 per share. The exercise price of
all such options was equal to the fair market value of the Common Stock on the
date of grant. All were options granted for a term of five years, with 30% of
the options becoming exercisable after one year, an additional 30% becoming
exercisable after two years and the remaining options becoming exercisable
after three years.
WARRANTS
Warrants to acquire 40,000 shares of Common Stock at a price of $7.50 per
share were outstanding at November 8, 1995. These warrants expire in December
1996.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is Keycorp
Shareholder Services, Inc., or such other transfer agent then employed by the
Company.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain of the United States
federal income tax consequences of the purchase, ownership and disposition of
the Preferred Stock, the Notes and the Common Stock by investors who hold the
Preferred Stock, the Notes and the Common Stock as capital assets. This
discussion does not purport to be a complete analysis of the purchase,
ownership and disposition of the Preferred Stock, the Notes and the Common
Stock and does not address all of the tax considerations that may be relevant
to particular investors in light of their individual circumstances or to
holders subject to special treatment under United States federal income tax
laws, such as dealers in securities, insurance companies, foreign persons,
tax-exempt organizations and financial institutions. In addition, this
discussion does not address the application or effect of any state, local,
foreign or other tax laws. This discussion is based on the Internal Revenue
Code of 1986, as amended (the "Code"), Treasury regulations promulgated
thereunder, and Internal Revenue Service rulings and judicial decisions, all of
which are subject to change, possibly with retroactive effect. PROSPECTIVE
INVESTORS SHOULD CONSULT THEIR TAX ADVISORS CONCERNING THE UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF
THE PREFERRED STOCK.
DIVIDENDS ON THE PREFERRED STOCK OR THE COMMON STOCK
Dividends paid on the Preferred Stock or the Common Stock will be taxable
as ordinary income to the extent of current and accumulated "earnings and
profits" (as defined in the Code). Dividends paid to corporate holders of the
Preferred Stock or the Common Stock out of such earnings and profits generally
will qualify, subject to the limitations under Sections 246(c) and 246A of the
Code, for the 70% dividends received deduction allowable to corporations
(although the benefits of such deduction may be reduced or eliminated by the
corporate alternative minimum tax). Under Section 246(c) of the Code, to be
eligible for the dividends received deduction, a corporate holder must hold its
shares of the Preferred Stock or the Common Stock for at least 46 days (91 days
in the case of a dividend attributable to a period or periods aggregating more
than 366 days). A taxpayer's holding period for these purposes is suspended
during any period in which the taxpayer has an option to sell, is under a
contractual obligation to sell, has made (and not closed) a short sale of, or
has granted an option to buy, substantially identical stock or securities or
holds one or more other positions with respect to substantially similar or
related property that diminish the risk of loss from holding such stock. Under
Section 246A of the Code, the dividends received deduction may be reduced or
eliminated if a holder's shares of the Preferred Stock or the Common Stock are
debt financed.
Section 1059 of the Code requires a corporate stockholder to reduce its
basis (but not below zero) in the Preferred Stock or Common Stock by the
nontaxed portion (generally the portion eligible for the dividends received
deduction described above) of any "extraordinary dividend" if the Preferred
Stock or the Common Stock has not been held for more than two years before the
date of announcement or agreement with respect to such dividend. In addition, a
holder disposing of the Preferred Stock or the Common Stock would have to
recognize additional gain, if any, in an amount equal to nontaxed portions of
any extraordinary dividends that would have reduced such holder's basis but for
the limitation on reducing basis below zero. An "extraordinary dividend"
generally is a dividend that (a) equals or exceeds 5 percent in the case of
preferred
G:\HLF\LOMAK\S-3\S-3.REG 51
<PAGE> 53
stock, or 10 percent in the case of common stock, of the holder's basis in such
stock, treating all dividends having ex-dividend dates within an 85-day period
as one dividend or (b) exceeds 20 percent of the holder's basis in such stock,
treating all dividends having ex-dividend dates within a 365-day period as one
dividend, provided that in either case fair market value, if it can be
established by the holder, may be substituted for stock basis. In addition, an
amount treated as a dividend in the case of a redemption of the Preferred Stock
that is either non-pro rata as to all stockholders or in partial liquidation
would also constitute an "extraordinary dividend" without regard to the length
of time the Preferred Stock has been held. Application of the extraordinary
dividend rule is limited somewhat if the redemption proceeds that are treated
as dividends constitute "qualified preferred dividends." See "Redemption or
Exchange for the Notes." The length of time that a taxpayer is deemed to have
held stock for purposes of Section 1059 is determined under principles
comparable to those described in the preceding paragraph with respect to the
dividends received deduction.
To the extent, if any, that a distribution on the Preferred Stock or the
Common Stock which would otherwise constitute a dividend for federal income tax
purposes exceeds the current and accumulated earnings and profits of the
Company, such distribution will be treated as a tax-free return of capital,
reducing a holder's basis in the Preferred Stock or the Common Stock. The
reduction in basis will increase any gain, or reduce any loss, realized by the
holder on any subsequent sale, redemption or other disposition of the Preferred
Stock or the Common Stock. Any such distribution in excess of a holder's
adjusted basis in the Preferred Stock or the Common Stock will be treated as
short-term or long-term capital gain, depending on the period for which the
shares of the Preferred Stock or the Common Stock have been held. For a
corporate holder, treatment of a distribution as a capital gain rather than as
a dividend will result in an increase in the maximum effective federal income
tax rate on any amount so treated.
REDEMPTION OR EXCHANGE FOR THE NOTES
A redemption of the Preferred Stock for cash or in exchange for the Notes
will be a taxable event.
A redemption of the Preferred Stock for cash will be treated, under
Section 302 of the Code, as a distribution that is treated as a taxable
dividend, nontaxable recovery of basis or an amount received in exchange for
the Preferred Stock pursuant to the rules described under "Dividends on the
Preferred Stock or the Common Stock" above, unless the redemption (a) results
in a "complete termination" of the stockholder's stock interest in the Company
under Section 302(b)(3) of the Code; (b) is "substantially disproportionate"
with respect to the stockholder under Section 302(b)(2) of the Code; or (c) is
"not essentially equivalent to a dividend" under Section 302(b)(1) of the Code.
In determining whether any of these tests has been met, shares considered to be
owned by the stockholder by reason of certain constructive ownership rules in
Section 302(c) and 318 of the Code, as well as shares actually owned, must be
taken into account. If any of these tests were met, the redemption of the
Preferred Stock for cash would be treated as a sale or exchange for tax
purposes.
A redemption of the Preferred Stock by exchange for the Notes will be
subject to the same rules as a redemption for cash, but because under the
constructive ownership rules of Section 302(c) and 318 of the Code a holder of
the Notes would be treated as owning the Common Stock into which the Notes are
convertible, such a redemption could not satisfy the "complete termination" or
"substantially disproportionate" tests unless, as a result of other
transactions (such as contemporaneous sales of the Notes), the interest in the
Company of the holder of the Preferred Stock is sufficiently reduced. The
redemption would, therefore, be taxable as a dividend to the extent of the
current and accumulated earnings and profits of the Company unless it satisfied
the "not essentially equivalent to a dividend" test. A distribution will be
"not essentially equivalent to a dividend" as to a particular stockholder if it
results in a "meaningful reduction" in that stockholder's interest in the
Company. If, as a result of the redemption of the Preferred Stock, a
stockholder of the Company, whose relative stock interest in the Company is
minimal and who exercises no control over corporate affairs, suffers a
reduction in his proportionate interest in the Company (taking into account
shares owned by the stockholder under Sections 302(c) and 318 of the Code and,
in certain events, dispositions of the stock which occur contemporaneously with
the redemption) then, based upon published IRS rulings, that stockholder may be
regarded as having suffered a meaningful reduction in his interest in the
Company. Because the provisions of Section 302 of the Code are separately
applied to each stockholder based upon the particular facts and circumstances
at the time of the redemption (and the applicable law at such time which may be
different from that currently in effect), no assurance can be given that the
exchange of the Preferred Stock for the Notes pursuant to the terms of the
Preferred Stock will be treated as a sale or exchange rather than as a
distribution treated as a dividend. Each holder of the Preferred Stock is
advised to consult his tax advisors at the time of the exchange of the
Preferred Stock for the Notes to determine the consequences of such exchange.
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<PAGE> 54
Recently introduced legislation would modify current law to provide that a
corporate stockholder would recognize gain immediately in any redemption
treated as a dividend to the extent that the non-taxed portion of the dividend
(the portion qualifying for the dividends received deduction) exceeds the basis
of the shares surrendered, if the redemption is treated as a dividend in whole
or in part due to options being counted as stock ownership as a result of
applying the rules of Sections 302 and 318 of the Code. Moreover, the proposal
would require immediate gain recognition whenever the basis of stock with
respect to which any extraordinary dividend was received is reduced below zero.
See "Dividends on the Preferred Stock or the Common Stock" above.
If, under the foregoing rules, a redemption of the Preferred Stock is
treated as a sale or exchange, rather than as a distribution, the holder would
have taxable gain or loss equal to the difference between the amount realized
and the holder's tax basis in the Preferred Stock. For these purposes, the
amount realized will be measured by the amount of cash and (i) the fair market
value of the Notes received in the exchange (in the case of a cash basis
taxpayer) or the face amount of the Notes received in the exchange (in the case
of an accrual basis taxpayer) or (ii) if the Notes are issued with original
issue discount, the "issue price" of the Notes, as defined below.
If a redemption of the Preferred Stock is treated as a distribution
taxable as a dividend, the amount of the distribution will be measured by the
amount of cash and (i) the fair market value of the Notes received in the
exchange (in the case of a cash basis taxpayer) or the face amount of the Notes
(in the case of an accrual basis taxpayer) or (ii) if the Notes are issued with
original issue discount, the "issue price" of the Notes, as defined below. In
any event, the amount of the distribution will not be reduced by the
stockholder's adjusted tax basis in the Preferred Stock. The stockholder's tax
basis in the redeemed Preferred Stock will be transferred to any remaining
stockholdings in the Company. If the stockholder does not retain any stock
ownership in the Company, such basis may be entirely lost.
A distribution to a corporate stockholder in redemption of the Preferred
Stock that is treated as a dividend may also be considered an "extraordinary
dividend" under Section 1059 of the Code. See "Dividends on the Preferred Stock
or Common Stock" above. Application of this rule is limited somewhat by a
special rule that provides that dividends on a share of stock which is not in
arrears as to dividends at the time the holder acquires such stock, that do not
exceed an actual rate of return of 15 percent of the lower of the holder's
adjusted basis or the liquidation preference (excluding dividend arrearages, if
any) of the Preferred Stock will be treated as extraordinary only if the holder
disposes of the Preferred Stock before it has held the stock for more than five
years and only to the extent that the actual rate of return to the holder
exceeds the stated rate of return on the Preferred Stock, as determined under
Section 1059(e)(3) of the Code.
If the Preferred Stock is redeemed by exchange for the Notes at a time
when the principal amount of such Notes exceeds the issue price of such Notes
by an amount equal to or greater than 1/4% of such principal amount times the
number of complete years to maturity, such excess will generally be includible
in gross income as "original issue discount" over the period during which such
Notes are held, even though the cash to which such income is attributable would
not be received until maturity or redemption of the Notes. If the Notes are
traded on an established securities market within 30 days of their issuance,
the issue price of the Notes for purposes of determining the amount, if any, or
original issue discount on the Notes will be the fair market value of the
Notes, determined as of the date of discount on the Notes will be the fair
market value of the Notes, determined as of the date of issuance. If the Notes
are not traded on an established securities market within 30 days of their
issuance, but the Preferred Stock is traded on such a market within 30 days
before or after the date of issuance, the issue price of the Notes will be the
fair market value of the Preferred Stock as of the exchange date. The amount of
any original issue discount included in income for each year would be
calculated under a constant yield to maturity basis that would result in the
allocation of less original issue discount to the early years of the term of
the Notes and more original issue discount to later years.
If the tax basis of a Note exceeds the amount payable at maturity, Section
171 of the Code provides for an election whereby such excess or premium, to the
extent not attributable to the conversion pledge of the Note, can be offset
against (and operate to reduce) interest received on the Note. The premium is
amortized, as an offset to interest received, over the remaining term of the
Note.
A holder's tax basis in a Note received in exchange for the Preferred
Stock will equal (i) the fair market value of the Note (in the case of a cash
basis taxpayer) or the face amount of the Note (in the case of an accrual basis
taxpayer) or (ii) if the Notes are issued with original issue discount, the
issue price of the Note, determined as described above, increased by the amount
of original issue discount (and market discount) previously included in the
income of the holder with respect to the Note, or reduced by any previously
amortized premium.
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<PAGE> 55
DISPOSITION OF THE NOTES
Generally any sale or redemption of Notes will result in taxable gain or
loss equal to the difference between the amount of cash received (except to the
extent of cash attributable to accrued interest, which will be taxable as
interest income) and the holder's tax basis in the Notes. Subject to the market
discount provisions of Sections 1276-1278 of the Code discussed in the
following paragraph, such gain or loss would be long-term gain or loss if the
holding period were to exceed one year.
The value of a Note may be adversely affected by the market discount
provisions of Section 1276-178 of the Code which require a person who purchases
a Note at a market discount to either (i) elect to accrue market discount into
income currently over the period during which the holder owns the Note or
(ii)(a) treat a portion of the gain recognized upon any disposition of the Note
as ordinary income (and not as capital gain) to the extent such market discount
accrued during the period such person owned the Note and (b) defer the
deduction of all or a portion of interest paid or accrued on indebtedness
incurred or continue to purchase or carry such Note until such Note is disposed
of in a taxable transaction.
If the Notes are issued in exchange for the Preferred Stock, the Company
believes that it will not be considered to have any intention to call the Notes
prior to maturity. Accordingly, Section 1271(a)(2) of the Code, which otherwise
might attach certain ordinary income consequences to gain from the disposition
of Notes, if the Notes were issued with original issue discount, is not
expected to apply.
REDEMPTION PREMIUM ON THE PREFERRED STOCK
Under Section 305 of the Code and applicable Treasury regulations, if the
redemption price of redeemable preferred stock exceeds its issue price and part
(or all) of such excess is considered an unreasonable redemption premium, the
entire amount of such excess may be treated as distributed over the period
during which the Preferred Stock cannot be redeemed. The amount treated as
distributed each year would be determined on a constant yield to maturity basis
that would result in the allocation of a lesser amount of distributions to the
early years and a greater amount to the later years of such period. Any such
constructive distribution would be classified as a dividend, non-taxable
recovery of basis or an amount received in exchange for the Preferred Stock
pursuant to the rules summarized under "Dividends on the Preferred Stock or the
Common Stock" above. A premium is considered to be reasonable if it is in the
nature of a penalty for a premature redemption and if such premium does not
exceed the amount which the issuer would be required to pay for such redemption
under market conditions existing at the time of issuance of the Preferred
Stock. The Company believes that the redemption premium on the Preferred Stock
is a reasonable redemption premium, although no assurance can be given that it
will be so considered by the IRS or a court.
CONVERSION OF THE PREFERRED STOCK OR THE NOTES INTO COMMON STOCK
In general, no gain or loss will be recognized for federal income tax
purposes on conversion of the Preferred Stock or the Notes solely into shares
of the Common Stock. (If dividends on the Preferred Stock were in arrears at
the time of conversion, however, a portion of the Common Stock received in
exchange for the Preferred Stock could be viewed under Section 305(c) of the
Code as a distribution with respect to the Preferred Stock, taxable as a
dividend). Gain realized (i.e.,the excess of the cash received over the portion
of basis allocable to the fractional shares) upon receipt of cash paid in lieu
of fractional shares of the Common Stock will be taxed immediately. In general,
the tax basis for the Common Stock received on conversion will be equal to the
tax basis of the Preferred Stock or the Notes converted, reduced by the portion
of basis allocable to any fractional share exchanged for cash. The holding
period of the shares of Common Stock will include the holding period of such
Preferred Stock or the Notes. Under the aforementioned market discount
provisions of the Code, any accrued market discount not previously included in
income as of the date of conversion of the Notes will carry over to the Common
Stock received on conversion and will be treated as ordinary income upon
subsequent disposition of such Common Stock.
ADJUSTMENT OF CONVERSION PRICE
Section 305 of the Code and the Treasury regulations thereunder treat
holders of convertible preferred stock and convertible debentures as having
received a constructive distribution, taxable as described in "Dividends on the
Preferred Stock or the Common Stock" above, due to certain adjustments in
conversion ratios. The conversion rates of the Preferred Stock and the Notes
are subject to adjustment under certain circumstances. Any adjustment
increasing the number of shares of Common Stock into which the Preferred Stock
or the Notes can be converted could cause the holders thereof to be viewed
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<PAGE> 56
under Section 305 of the Code as receiving a deemed distribution taxable as a
dividend, as described in "Dividends on the Preferred Stock or the Common
Stock," above, whether or not such holders exercise their conversion rights.
BACK-UP WITHHOLDING
Under Section 3406 of the Code and applicable Treasury regulations, a
holder of the Preferred Stock, the Notes or the Common Stock may be subject to
back-up withholding at the rate of 31 percent with respect to dividends or
interest paid, original issue discount accrued with respect to, or proceeds
received from a sale, exchange or redemption of, the Preferred Stock, the Notes
or the Common Stock, as the case may be. The payor will be required to deduct
and withhold a tax if (i) the payee fails to furnish a taxpayer identification
number ("TIN") to the payor or establish an exemption from backup withholding,
(ii) the IRS notifies the payor that the TIN furnished by the payee is
incorrect, (iii) there has been a notified payee underreporting with respect to
interest, dividends or original issue discount described in Section 3406(c) of
the Code or (iv) there has been a failure of the payee to certify under the
penalty of perjury that the payee is not subject to withholding under the Code.
As a result, if any one of the events discussed above occurs, the Company will
be required to withhold a tax equal to 31 percent from any dividend, interest
or redemption payment made with respect to the Preferred Stock, the Notes or
the Common Stock.
STATE AND LOCAL INCOME TAXES
Holders of the Preferred Stock, the Notes or the Common Stock may be
liable for state and local income taxes with respect to dividends or interest
paid, original issue discount accrued with respect to, or gain from the sale,
exchange or redemption of Depositary Shares, the Preferred Stock, the Notes or
the Common Stock, as the case may be. Many states and localities do not allow
corporations a deduction analogous to the federal dividends received deduction.
Prospective investors are advised to consult their own tax advisors as to the
state, local and other tax consequences of acquiring, holding and disposing of
the Preferred Stock, the Notes or the Common Stock.
LEGAL MATTERS
Certain legal matters related to the Securities and the Selling
Securityholder Securities, are being passed upon for the Company by Rubin Baum
Levin Constant & Friedman, New York, New York. Walter M. Epstein, Of Counsel to
Rubin Baum Levin Constant & Friedman, currently owns 7,681 shares of Common
Stock.
EXPERTS
The Consolidated Financial Statements of the Company, as of December 31,
1994 and for the year then ended, incorporated by reference in this Prospectus,
have been audited by Arthur Andersen LLP, independent public accountants, as
stated in their reports incorporated by reference. The Consolidated Financial
Statements of the Company as of December 31, 1993 and for each of the two years
in the period then ended, incorporated by reference in this Prospectus, have
been audited by Ernst & Young LLP, independent accountants, to the extent
indicated in their report thereon incorporated by reference herein. The
statement of assets (other than productive oil and gas properties) and
liabilities and the statements of revenues and direct operating expenses of the
Parker & Parsley Interests, as of December 31, 1994 and for the year then
ended, have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their reports incorporated by reference. The
statements of assets (other than productive oil and gas properties) and
liabilities as of December 31, 1993 and 1994, and the statements of revenues
and direct operating expenses for each of the two years in the period ended
December 31, 1994 of the Transfuel Interests have been audited by Deloitte &
Touche LLP, independent public auditors, as stated in their report which is
incorporated herein by reference. The Consolidated Financial Statements of Red
Eagle Resources Corporation as of September 30, 1994 and for the nine months
then ended, included elsewhere in this Prospectus, have been audited by Coopers
& Lybrand LLP, independent public accountants, as stated in their reports
appearing elsewhere herein. The Consolidated Financial Statements of Red Eagle
Resources Corporation as of December 31, 1992 and 1993 and for the three years
in the period then ended, have been audited by Deloitte & Touche LLP,
independent public auditors, as stated in their report incorporated herein by
reference. Such financial statements have been included herein or incorporated
by reference in reliance upon such reports given upon the authority of such
firms as experts in accounting and auditing.
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<PAGE> 57
GLOSSARY
The terms defined in this glossary are used throughout this Offering
Memorandum.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein in
reference to crude oil or other liquid hydrocarbons.
Bcf. One billion cubic feet.
BOE. Barrels of oil equivalent (converting six Mcf of natural gas to one Bbl of
oil).
Development well. A well drilled within the proved area of an oil or natural
gas reservoir to the depth of a stratigraphic horizon known to be productive.
Dry hole. A well found to be incapable of producing either oil or natural gas
in sufficient quantities to justify completion as an oil or gas well.
Exploratory well. A well drilled to find and produce oil or gas in an unproved
area, to find a new reservoir in a field previously found to be productive of
oil or gas in another reservoir, or to extend a known reservoir.
Gross acres or gross wells. The total acres or wells, as the case may be, in
which a working interest is owned.
Infill well. A well drilled between known producing wells to better exploit the
reservoir.
Mbbl. One thousand barrels of crude oil or other liquid hydrocarbons.
MBOE. One thousand barrels of oil equivalent.
Mcf. One thousand cubic feet.
MMBbl. One million barrels of crude oil or other liquid hydrocarbons.
MMBOE. One million barrels of oil equivalent.
MMcf. One million cubic feet.
Net acres or net wells. The sum of the fractional working interests owned in
gross acres or gross wells.
Net oil and gas sales. Oil and natural gas sales less oil and natural gas
production expenses.
Present Value of Proved Reserves. The present value of proved reserves is an
estimate of the discounted future net cash flows from each of the properties at
December 31, 1994, or as otherwise indicated. Net cash flow is defined as net
revenues less, after deducting production and ad valorem taxes, future capital
costs and operating expenses, but before deducting federal income taxes. The
future net cash flows have been discounted at an annual rate of 10% to
determine their "present value." The present value is shown to indicate the
effect of time on the value of the revenue stream and should not be construed
as being the fair market value of the properties. Estimates have been made
using constant oil and gas prices and operating costs, at December 31, 1994, or
as otherwise indicated.
Productive well. A well that is producing oil or gas or that is capable of
production.
Proved developed non-producing reserves. Reserves that consist of (i) proved
reserves from wells which have been completed and tested but are not producing
due to lack of market or minor completion problems which are expected to be
corrected and (ii) proved reserves currently behind the pipe in existing wells
and which are expected to be productive due to both the well log
characteristics and analogous production in the immediate vicinity of the
wells.
Proved developed producing reserves. Proved reserves that can be expected to be
recovered from currently producing zones under the continuation of present
operating methods.
Proved developed reserves. Proved reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.
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<PAGE> 58
Proved reserves. The estimated quantities of crude oil, natural 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 undeveloped reserves. Proved reserves that are expected to be recovered
from new wells on undrilled acreage, or from existing wells where a relatively
major expenditure is required for recompletion.
Recompletion. The completion for production of an existing wellbore in another
formation from that in which the well has previously been completed.
Royalty interest. An interest in an oil and gas property entitling the owner to
a share of oil and natural gas production free of costs of production.
Working interest. The operating interest that gives the owner the right to
drill, produce and conduct operating activities on the property and a share of
production, subject to all royalties, overriding royalties and other burdens
and to all costs of exploration, development and operations and all risks in
connection therewith.
G:\HLF\LOMAK\S-3\S-3.REG 57
<PAGE> 59
LOMAK PETROLEUM, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED):
Pro forma combined statement of income for the year ended December 31, 1994 . . . . . . . . . . . . . . . . . . . . F-3
Pro forma combined statement of income for the nine months ended September 30, 1995 . . . . . . . . . . . . . . . . F-4
Pro forma combined balance sheet at September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Notes to pro forma combined financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
RED EAGLE RESOURCES CORPORATION:
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
Consolidated balance sheet at September 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9
Consolidated statement of operations for the nine months ended September 30, 1994 . . . . . . . . . . . . . . . . . F-11
Consolidated statement of stockholders' equity for the nine months ended September 30, 1994 . . . . . . . . . . . . F-12
Consolidated statement of cash flows for the nine months ended September 30, 1994 . . . . . . . . . . . . . . . . . F-13
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-15
</TABLE>
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PRO FORMA COMBINED FINANCIAL STATEMENTS
WITH RESPECT TO THE TRANSACTIONS
The accompanying unaudited pro forma combined statement of income gives effect
to (i) the purchase by the Company of 100% of the equity of Gillring Oil
Company ("Gillring"), accounted for as a purchase, (ii) the purchase by the
Company of 100% of the equity of Red Eagle Resources Corporation ("Red Eagle"),
accounted for as a purchase, (iii) the purchase by the Company of certain oil
and gas properties from a subsidiary of Parker & Parsley Petroleum Co. and (iv)
the purchase by the Company of certain oil and gas properties from Transfuel,
Inc. ("Transfuel"). The unaudited pro forma combined financial statements also
give effect to the private placement of Convertible Exchangeable Preferred
Stock ("the Offering") and the application of the estimated net proceeds
therefrom. The unaudited pro forma combined statement of income for the year
ended December 31, 1994 was prepared as if all transactions had occurred on
January 1, 1994. The unaudited pro forma combined statement of income for the
nine months ended September 30, 1995 was prepared as if all transactions had
occurred on January 1, 1995. The accompanying unaudited pro forma combined
balance sheet of the Company as of September 30, 1995 has been prepared as if
the Offering and the application of the net proceeds therefrom had occurred as
of that date. The historical information provided in the statements of income
for the year ended December 31, 1994 and for the nine months ended September
30, 1995, represents the following periods for the various acquisitions: (i)
Gillring represents the period from January 1, 1994 through January 31, 1994,
(ii) Red Eagle represents the period from January 1, 1994 through December 31,
1994, (iii) Parker & Parsley represents the periods from January 1, 1994
through December 31, 1994 and from January 1, 1995 through July 30, 1995 and
(iv) Transfuel represents the periods from January 1, 1994 through December 31,
1994 and from January 1, 1995 through September 30, 1995.
This information is not necessarily indicative of future combined operations
and it should be read in conjunction with the separate historical statements
and related notes of the respective entities appearing elsewhere in this filing
or incorporated by reference herein.
F-2
<PAGE> 61
LOMAK PETROLEUM, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
Parker &
Lomak Gillring Red Eagle Parsley Transfuel
------------- ----------- --------- ----------- --------- Pro Forma
Adjustments for the
Gillring acquisition,
Red Eagle merger,
Historical Historical Historical Historical Historical Parker & Parsley and
Year Ended Month Ended Year Ended Year Ended Year Ended Transfuel
December 31, January 31, December 31, December 31, December 31, acquisitions and Pro Forma
1994 1994 1994 1994 1994 Offering (Note 1) Combined
----------- ----------- ----------- ----------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Oil and gas production $24,460,945 $540,019 $4,236,396 $5,975,137 $10,597,532 $ - $45,810,029
Field services 7,667,135 - 6,634,668 - - - 14,301,803
Gas marketing and
transportation 2,194,892 - 993,902 - - - 3,188,794
Interest and other 470,562 28,484 693,624 - - (28,484) (e) 1,164,186
----------- ----------- ----------- ----------- ----------- ---------------- -----------
34,793,534 568,503 12,558,590 5,975,137 10,597,532 (28,484) 64,464,812
----------- ----------- ----------- ----------- ----------- ---------------- -----------
Expenses
Oil and gas production 10,018,941 222,198 2,481,906 2,928,350 3,821,024 (1,474,500) (c) 17,997,919
Field services 5,777,690 - 2,503,305 - - - 8,280,995
Gas marketing and
transportation 490,097 - - - - - 490,097
Exploration 359,315 8,975 473,916 - - - 842,206
General and administrative 2,477,680 67,780 3,786,925 - - (3,064,400) (c) 3,267,985
Interest 2,807,216 21,488 144,900 - - 1,529,976 (a) 4,503,580
Depletion, depreciation and
amortization 10,104,987 - 2,106,549 - - 5,909,294 (b)18,120,830
Lease impairments - - 1,097,000 - - (1,097,000) (g) -
Commodity trading losses - - 2,136,122 - - (2,136,122) (f) -
----------- ----------- ----------- ----------- ----------- ---------------- -----------
32,035,926 320,441 14,730,623 2,928,350 3,821,024 (332,752) 53,503,612
----------- ----------- ----------- ----------- ----------- ---------------- -----------
Income (loss) before income
taxes 2,757,608 248,062 (2,172,033) 3,046,787 6,776,508 304,268 10,961,200
Income taxes
Current (20,531) - (86,976) - - (369,493) (d) (477,000)
Deferred (118,523) - 475,180 - - (2,992,657) (d)(2,636,000)
----------- ----------- ----------- ----------- ----------- ---------------- -----------
Income (loss) from continuing
operations $2,618,554 $248,062 ($1,783,829) $3,046,787 $6,776,508 ($3,057,882) $7,848,200
=========== =========== =========== =========== =========== ================ ===========
Income from continuing
operations applicable to
common shares $2,243,554 $5,598,200
=========== ===========
Net income per common share $0.25 $0.46
=========== ===========
Weighted average shares
outstanding 9,050,558 3,032,920 12,083,478
=========== ===========
</TABLE>
See notes to pro forma combined financial statements.
F-3
<PAGE> 62
LOMAK PETROLEUM, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Parker &
Lomak Parsley Transfuel
-------------- -------------- ---------- Pro Forma
Adjustments for
the Parker &
Parsley
Historical Nine Historical Nine Historical Nine and Transfuel
Months Ended Months Ended Months Ended acquisitions and the
September 30, September 30, September 30, Offering Pro Forma
1995 1995 1995 (Note 2) Combined
-------------- ------------ ------------ ------------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues
Oil and gas production $24,135,203 $3,377,129 $6,926,172 - $34,438,504
Field services 7,109,076 - - - 7,109,076
Gas marketing and
transportation 2,331,869 - - - 2,331,869
Interest and other 1,051,982 - - - 1,051,982
-------------- ------------ ------------ ------------------ -----------
34,628,130 3,377,129 6,926,172 - 44,931,431
-------------- ------------ ------------ ------------------ -----------
Expenses
Oil and gas production 9,934,497 1,481,325 2,696,825 (1,300,000)(k) 12,812,646
Field services 4,191,809 - - - 4,191,809
Gas marketing and
transportation 595,376 - - - 595,376
Exploration 472,931 - - - 472,931
General and administrative 2,187,395 - - (12,181)(j) 2,175,214
Interest 3,821,906 - - 947,146(h) 4,769,052
Depletion, depreciation and
amortization 9,808,364 - - 3,758,451(i) 13,566,815
-------------- ------------ ------------ ------------------ -----------
31,012,278 1,481,325 2,696,825 3,393,416 38,583,843
-------------- ------------ ------------ ------------------ -----------
Income (loss) before income taxes 3,615,852 1,895,804 4,229,348 (3,393,416) 6,347,588
Income taxes
Current (66,213) - - (300,787)(l) (367,000)
Deferred (831,828) - - (1,008,972)(l) (1,840,800)
-------------- ------------ ------------ ------------------ -----------
Income (loss) from continuing
operations $2,717,811 $1,895,804 $4,229,348 ($4,703,175) $4,139,788
============== ============ ============= ================== ===========
Income from continuing operations
applicable to common shares $2,436,561 $2,339,274
============== ===========
Net income per common share $0.21 $0.19
============== ===========
Weighted average shares
outstanding 11,588,111 821,575 12,409,686
============== ===========
</TABLE>
See notes to pro forma combined financial statements.
F-4
<PAGE> 63
LOMAK PETROLEUM, INC.
PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Lomak
------------- Pro Forma
Historical as of Adjustments for
September 30, the Offering Pro Forma
1995 (Note 2) Combined
------------ ------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents $2,400,646 $ - $2,400,646
Accounts receivable 10,559,082 - 10,559,082
Inventory and other 1,470,623 - 1,470,623
------------ ------------- ------------
Total current assets 14,430,351 - 14,430,351
------------ ------------- ------------
Oil and gas properties 199,024,164 - 199,024,164
Accumulated depletion and amortization (29,124,248) - (29,124,248)
------------ ------------- ------------
169,899,916 - 169,899,916
------------ ------------- ------------
Gas transportation and field service 22,652,604 - 22,652,604
assets Accumulated depreciation (3,677,673) - (3,677,673)
------------ ------------- ------------
18,974,931 - 18,974,931
------------ ------------- ------------
$203,305,198 $ - $203,305,198
============ ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $7,197,593 $ - $7,197,593
Accrued liabilities 5,092,583 - 5,092,583
Current portion of debt 399,689 - 399,689
------------ ------------- ------------
Total current liabilities 12,689,865 - 12,689,865
------------ ------------- ------------
Long-term debt 112,839,335 (24,011,000) (m) 88,.828,335
Deferred income taxes 17,222,220 - 17,222,220
Stockholders' equity
Convertible preferred stock - 1,000,000 (m) 1,000,000
Preferred stock 200,000 - (m) 200,000
Common stock 120,400 - 120,400
Capital in excess of par value 65,341,465 23,011,000 (m) 88,352,465
Retained earnings (deficit) (5,108,087) - (5,108,087)
------------ ------------- ------------
Total stockholders' equity 60,553,778 24,011,000 84,564,778
------------ ------------- ------------
$203,305,198 $ - $203,305,198
============ ============= ============
</TABLE>
See notes to pro forma combined financial statements.
F-5
<PAGE> 64
LOMAK PETROLEUM, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE (1) PRO FORMA ADJUSTMENTS FOR THE ACQUISITION OF GILLRING, THE
ACQUISITIONS OF PARKER & PARSLEY'S AND TRANSFUEL'S APPALACHIAN ASSETS, THE
MERGER WITH RED EAGLE AND THE OFFERING -- THE TWELVE MONTHS ENDED DECEMBER 31,
1994
In March 1994, the Company completed the acquisition of Gillring Oil
Company ("Gillring") for approximately $11.5 million. Gillring's assets
included approximately $5.4 million of working capital. As a result of the
acquisition, the Company acquired 100% of Gillring's assets including its oil
and natural gas producing properties and its 67% interest in a Texas limited
partnership, Gillring Oil L.P. The transaction was accounted for using the
purchase method of accounting.
In December 1994, Lomak acquired effective control of Red Eagle Resources
Corporation ("Red Eagle") principally through the purchase of two common
stockholders' holdings. On February 15, 1995, the remaining stockholders of
Red Eagle common stock voted to approve the merger of Red Eagle with a wholly
owned subsidiary of the Company. The consideration paid for the acquisition
totaled $11 million in cash and 2,862,000 shares of Lomak common stock.
In June 1995, the Company purchased properties in Pennsylvania and West
Virginia from a subsidiary of Parker & Parsley Petroleum Company for
approximately $20.2 million in cash.
In October 1995, the Company purchased properties in Pennsylvania, New York
and Ohio from Transfuel, Inc. for approximately $20.2 million in cash and
$755,000 of the Company's common stock.
The accompanying unaudited pro forma combined statement of income for the year
ended December 31, 1994 has been prepared as if the acquisitions had occurred
on January 1, 1994 and also gives effect as of January 1, 1994 to the Offering
and the application of the net proceeds therefrom. These transactions are
reflected as follows:
(a) To increase interest expense for the estimated amounts that would have
been incurred on the incremental borrowings to acquire Gillring, Red Eagle and
Parker & Parsley's and Transfuel's Appalachian assets and reduce interest
expense for the net proceeds from the sale of the convertible preferred stock.
(b) To record depletion expense for the Gillring, Parker & Parsley's and
Transfuel acquisitions at $4.37 and to adjust the historical depletion rate for
Lomak and Red Eagle from $4.41 and $3.08, respectively to $4.37.
(c) To adjust oil and gas production expense and general and administrative
expenses for the reduction in costs after the acquisitions of Gillring, Red
Eagle, Parker & Parsley's and Transfuel's assets.
(d) To adjust the provision for income taxes for the change in taxable income
resulting from the Gillring, Red Eagle, Parker & Parsley and Transfuel
acquisitions and the effect on deferred taxes recorded at January 1, 1994 had
the acquisitions taken place at that time.
(e) To reduce interest income on Gillring for cash balances used to reduce
incremental borrowings.
(f) To eliminate 1994 losses realized by Red Eagle on speculative commodity
trade. Lomak has never and does not anticipate in the future participating in
speculative commodity trading.
(g) To eliminate impairment losses on Red Eagle oil & gas properties.
F-6
<PAGE> 65
NOTE (2) PRO FORMA ADJUSTMENTS FOR THE ACQUISITIONS OF PARKER & PARSLEY'S AND
TRANSFUEL'S APPALACHIAN ASSETS AND THE OFFERING -- AS OF AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1995
The accompanying unaudited pro forma combined balance sheet has been
prepared as if the Offering had occurred on September 30, 1995. The
accompanying unaudited pro forma combined statement of income for the nine
months ended September 30, 1995 has been prepared as if the acquisitions and
the Offering had occurred on January 1, 1995 and reflects the following
adjustments:
(h) To adjust interest expense for the estimated amounts that would have been
incurred on the incremental borrowings to acquire the Parker & Parsley and
Transfuel Appalachian assets.
(i) To record depletion expense for the Parker & Parsley and Transfuel asset
acquisitions at $4.37 and to adjust the historical depletion rate for Lomak
from $4.39 to $4.37.
(j) To remove minority interest from January 1995 Red Eagle income statement.
(k) To reduce oil and gas production and general and administrative expenses
for cost reductions.
(l) To adjust the provision for income taxes for the change in taxable income
resulting from the Gillring, Red Eagle and Parker & Parsley acquisitions and
the effect on deferred taxes recorded at January 1, 1994 had the acquisitions
taken place at that time.
(m) To record the private placement of $25 million of convertible preferred
stock, net of placement fees and offering costs.
F-7
<PAGE> 66
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Stockholders
Red Eagle Resources Corporation
We have audited the accompanying consolidated balance sheet of Red Eagle
Resources Corporation (the "Company") and its subsidiaries as of September 30,
1994, and the related statements of operations, stockholders' equity and cash
flows for the nine months ended September 30, 1994. These financial statements
are is the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company and its
subsidiaries as of September 30, 1994, and the results of their operations and
their cash flows for the nine months then ended in conformity with generally
accepted accounting principles.
Oklahoma City, Oklahoma /s/ Coopers & Lybrand LLP
May 15, 1995
F-8
<PAGE> 67
RED EAGLE RESOURCES CORPORATION
CONSOLIDATED BALANCE SREET
(In thousands of dollars)
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Current assets:
Cash and cash equivalents $2,702
Short-term investments 191
Accounts receivable:
Trade, net of allowance of $211 1,444
Affiliates 898
Current portion of notes receivable 238
Oil and gas properties held for resale 46
Inventory 375
Prepaid expenses 182
-------
Total current assets 6,076
-------
Property and equipment, at cost
(successful efforts method for oil and gas properties) 32,039
Less accumulated depreciation, depletion and
amortization (18,004)
-------
Net property and equipment 14,035
-------
Notes receivable 49
-------
Other assets 738
-------
Total assets $20,898
=======
Continued
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE> 68
RED EAGLE RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEET, Continued
(In thousands of dollars)
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
Current liabilities:
Accounts payable:
Trade $4,423
Affiliates 2,003
Accrued liabilities 351
Current portion of long-term debt 298
------
Total current liabilities 7,075
------
Long-term debt 2,413
------
Deferred income taxes 904
------
Commitments and contingencies (Note 6) -
Stockholders' equity:
Common stock, par value $.10;
10,000,000 shares authorized;
outstanding 4,926,200 493
Additional paid-in capital 6,728
Retained earnings 3,831
------
11,052
Less: Treasury stock, 107,775 shares, at cost (546)
------
Total stockholders' equity 10,506
------
Total liabilities and stockholders' equity $20,898
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE> 69
RED EAGLE RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands of dollars, except per share amounts)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<S> <C>
Revenues:
Oil and gas sales $ 3,293
Program management fees, net and well
operator reimbursements 2,192
Gas gathering 752
Drilling and oilfield services 2,925
Sale of oil and gas properties 54
Other 79
-------
Total revenues 9,295
-------
Costs and expenses:
Oil and gas:
Production 1,872
Dry hole and abandonment 1,247
Drilling and oilfield services 1,804
Cost of oil and gas properties sold 30
Depreciation, depletion and amortization 1,608
General and administrative 2,730
-------
Total costs and expenses 9,291
-------
Income from operations 4
-------
Other income (expense):
Interest income 130
Interest expense (114)
Other, net (Note 6) (1,991)
-------
Other expense, net (1,975)
-------
Loss before income tax benefit (1,971)
Income tax benefit 358
-------
Net loss $(1,613)
=======
Net loss per share $ (0.33)
=======
Weighted average number of common and
common equivalent shares outstanding
(thousands) 4,819
=======
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-11
<PAGE> 70
RED EAGLE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands of dollars)
<TABLE>
<CAPTION>
Common Stock
---------------- Paid-In Retained Treasury
Shares Amount Capital Earnings Stock Total
------ ------ ------ -------- ----- -----
<S> <C> <C <C> <C> <C> <C>
December 31, 1993 4,926,825 $493 $6,731 $ 5,444 $(546) $12,122
Retirement of
fractional
shares (625) - (3) - - (3)
Net loss - - - (1,613) - (1,613)
--------- ---- ------ ------- ----- -------
September 30, 1994 4,926,200 $493 $6,728 $ 3,831 $(546) $10,506
========= ==== ====== ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 71
RED EAGLE RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands of dollars)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<S> <C>
Operating activity:
Net loss $(1,613)
Adjustments to reconcile net loss
to net cash provided by operations:
Depreciation, depletion and amortization 1,608
Deferred income taxes (484)
Gain on sale of assets (134)
Short-term investment loss 2,136
Other 1,247
Change in assets and liabilities:
Accounts receivable 92
Inventory and prepaid expenses (19)
Accounts payable, accrued liabilities
and other (1,979)
-------
Net cash provided by operating
activity 854
-------
Investing activity:
Proceeds from sales of properties 1,085
Capital expenditures (2,078)
Reduction of notes receivable 621
Advances on notes receivable (168)
Cash paid for short-term investments (2,327)
Partnership offering costs:
Costs incurred (383)
-------
Net cash used by investing activity (3,250)
-------
Continued
</TABLE>
The accompany notes are an integral part of these financial statements.
F-13
<PAGE> 72
RED EAGLE RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED
(In thousands of dollars)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<S> <C>
Financing activity:
Repayment of long-term debt and
notes payable $(1,130)
Purchase of stock (3)
-------
Net cash used by financing activity (1,133)
-------
Net decrease in cash and cash equivalents (3,529)
Cash and cash equivalents at
beginning of period 6,231
-------
Cash and cash equivalents at
end of period $ 2,702
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE> 73
RED EAGLE RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying consolidated financial statements are the
representations of the management of Red Eagle Resources Corporation
and its subsidiaries (the "Company"). The Company's accounting policies
reflect industry practices and conform to generally accepted accounting
principles. The more significant of such policies are briefly described
below.
Nature of Business - The Company engages in oil and gas development and
production and oilfield services. The Company also develops domestic
oil and gas reserves through the formation and management of public
limited partnerships. The majority of the Company's activities are in
Oklahoma.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its subsidiaries and its
proportionate share of the assets, liabilities, revenues and expenses of
the partnerships in which it serves as general partner. All material
intercompany accounts and transactions have been eliminated.
Property and Equipment - The Company follows the successful
efforts method of accounting for oil and gas producing activities
whereby costs relating to development wells and successful exploratory
wells are capitalized. These costs are amortized to operations on a
unit-of-production basis using estimated recoverable reserves.
Geological and geophysical costs, lease rentals and costs associated
with unsuccessful exploratory wells are expensed as incurred. Unproved
properties include the carrying value of undeveloped oil and gas leases.
When properties are abandoned or their value becomes impaired, the
carrying value is written off or adjusted downward accordingly. Oil and
gas property costs are evaluated annually for net realizable value and
carried at the lower of cost less accumulated depreciation, depletion
and amortization or estimated future pre-tax net revenue discounted at
10 percent, based on unescalated year-end prices. Other property and
equipment is stated at cost and is depreciated using the straight-line
method over estimated useful lives of 3 to 15 years.
Oil and Gas Limited Partnerships - The Company is the general partner in
a number of limited partnerships (the "Partnerships"). These
Partnerships engage in activities associated with (a) exploring for,
developing and producing oil and gas reserves ("Drilling Partnerships"),
(b) acquiring producing property interests ("Production Income
Partnerships") and (c) acquiring producing property mineral rights
("Mineral Acquisition Partnerships").
F-15
<PAGE> 74
RED EAGLE RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Costs incurred by the Company during the formation and offering of the
Partnerships are deferred until the offering is completed. Direct costs
of successful offerings are amortized on a unit-of-production basis as
oil and gas reserves of the Partnerships are produced. Costs associated
with unsuccessful offerings are expensed. One-time fees received from
Partnerships upon formation are recorded as reductions in the Company's
basis in the Partnerships.
Oil and Gas properties Held for Resale - The Company acquires
non-producing leasehold interests which are sold to Partnerships or
nonaffiliates. These interests are contributed to the Partnerships or
sold to nonaffiliates.
Revenue Recognition - Net revenue from management of Partnership
drilling activities is recognized on the percentage of completions
method as costs are incurred. Oil and gas revenue is recognized at the
time hydrocarbons are produced. Oilfield service revenue is recognized
as the services are performed.
Sales of natural gas applicable to the Company's interest in producing
oil and gas leases are recorded as income when the gas is metered
and title transferred pursuant to the gas sales contracts covering the
Company's interest in natural gas reserves. During such times as the
Company's sales of gas exceed its pro rata ownership in a well, such
sales are recorded as income unless total sales from the well have
exceeded the Company's share of estimated total gas reserves underlying
the property at which time such excess is recorded as a liability.
The Company's policy is to expense its pro rata share of lease operating
costs from all wells as incurred. Such expenses relating to the
Company's balancing positions on wells are not material.
Inventory - Inventory consists primarily of tubular goods and oilfield
equipment which are stated at the lower of average cost or market.
Income Taxes - The Company uses the liability method in accounting for
income taxes. Under this method, deferred tax assets and liabilities
are determined based on differences between the financial reporting and
tax bases of assets and liabilities and are measured using the enacted
tax rates and laws that will be in effect when the differences are
expected to be realized or settled.
Earnings Per Share - Per share amounts have been computed based upon the
weighted average number of common and when dilutive, common equivalent
shares outstanding.
F-16
<PAGE> 75
RED EAGLE RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
There was no difference between primary and fully diluted earnings per
share for the period presented.
Cash Flows - The Company considers all highly liquid debt instruments
with a maturity of three months or less when purchased to be cash
equivalents.
Presentation - Dollar amounts in the tabulations in the Notes to
Consolidated Financial Statements are in thousands.
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of:
<TABLE>
<CAPTION>
September 30,
1994
-------------
<S> <C>
Capitalized costs:
Unproved properties $ 1,345
Proved oil and gas properties 18,328
Oilfield service equipment 7,114
Other 5,252
-------
32,039
-------
Accumulated depreciation, depletion
and amortization:
Proved oil and gas properties 10,740
Oilfield service equipment 5,233
Other 2,031
-------
18,004
-------
Net property and equipment $14,035
=======
The following is a summary of costs incurred (whether capitalized or
expensed) in connection with developed oil and gas producing activities
for the nine months ended September 30, 1994.
Property acquisitions $ 212
Exploration and development 1,139
</TABLE>
F-17
<PAGE> 76
RED EAGLE RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. CONSOLIDATED STATEMENTS OF CASH FLOWS:
The following items are supplemental disclosures of cash flow
information and significant noncash investment and financing activities
of the Company which are not reflected in the Consolidated Statements of
Cash Flows.
Interest paid during the nine months ended September 30, 1994, was
$114,000. During the nine months ended September 30, 1994, the Company
incurred $2,411,000 in debt for the purchase of property and $246,000 in
the settlement of a lawsuit. Income taxes paid for the nine months ended
September 30, 1994 were $191,000.
<TABLE>
<CAPTION>
4. LONG-TERM DEBT:
September 30,
1994
-------------
<S> <C>
Note payable to affiliate partnership
bearing interest at 8%, maturing
March 1995, collateralized by equipment $ 103
Note payable, bearing interest at 15%,
maturing June 1997, collateralized by
real estate 67
Note payable, bearing interest at prime
minus 2.4%, maturing February 1999,
collateralized by aircraft (Note 10) 2,368
Note payable, bearing interest at 6%
maturing July 1996 173
------
2,711
298
------
Less current portion $2,413
======
At September 30, 1994, the estimated aggregate maturities of long-term
debt for the next five years are:
1995 $ 298
1996 155
1997 92
1998 84
1999 2,031
</TABLE>
The amount due in 1998 and 1999 is related to debt associated with
aircraft, and subsequent to September 30, 1994, the majority stockholder
purchased the aircraft and assumed the related debt.
F-18
<PAGE> 77
RED EAGLE RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. INCOME TAXES:
<TABLE>
<CAPTION>
The components of income tax benefit are as follows at September 30,1994:
<S> <C>
Federal:
Current $ 95
Deferred (341)
State:
Current 31
Deferred (143)
-----
$(358)
=====
</TABLE>
At September 30, 1994, the Company would normally have a larger income
tax benefit as a result of the net loss. However, because of a required
deferred tax asset valuation allowance adjustment, the ending net
deferred tax liability is larger than would be expected. The deferred
asset valuation is the result of expected expirations of losses
incurred, but not deducted for income tax purposes.
The tax basis of certain assets and liabilities are different from the
values reflected in the accompanying balance sheet. The related deferred
tax assets and liabilities created by these temporary differences are as
follows (in thousands) at September 30, 1994.
<TABLE>
<S> <C>
Deferred Tax Assets (Liabilities)
Allowance for doubtful accounts $ 49
Oil and gas properties (1,764)
Accrued workers compensation liability (66)
Deferred installment gain (22)
Other 84
Net operating loss carryforward 24
Capital loss carryforward 882
Partial write-down of undeveloped leases 377
Minimum tax credit carryforward 79
-------
(357)
Non-utilization of capital losses (547)
-------
Net deferred tax liability $ (904)
=======
</TABLE>
The effective tax rate differs from the computed "expected" federal
income tax rate of 34% for the nine months ended September 30, 1994 on
income before income taxes for the following reasons:
F-19
<PAGE> 78
RED EAGLE RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
<TABLE>
5. INCOME TAXES, CONTINUED:
<S> <C>
Tax benefit computed at statutory rate $ (670)
State income tax (75)
Statutory depletion (67)
Amortization of syndication costs 51
Non-utilization of capital losses, net of carryback 411
Other 50
Minimum tax credit (58)
------
$ (358)
======
</TABLE>
At September 30, 1994 the Company has an alternative minimum tax credit
of approximately $79,000 which is available to reduce future regular
taxes indefinitely. The Company has a net operating loss carryforward
and capital loss carryforward of approximately $60,000 and $2.2 million,
respectively, to reduce future taxable income.
The net operating loss and capital loss carryforwards will expire in
1995 and 1999, respectively. The deferred asset valuation is the result
of expected expiration of capital losses incurred, but not deducted for
income tax purposes.
6. COMMITMENTS AND CONTINGENCIES:
The Company leases office space and equipment under operating leases
having initial or remaining noncancelable terms in excess of one year.
Lease expense for all operating leases was $289,000 for the nine months
ended September 30, 1994. The following is a schedule of future minimum
lease commitments as of September 30, 1994:
1995 $326
1996 149
The Company offers limited partnership interests in Drilling
Partnerships to be formed and as general partner is required to
contribute 1% of total capital to such partnerships plus all leasehold
and tangible equipment. As general partner the Company is also
contingently liable for a Partnership's liabilities. At September 30,
1994, the Partnerships had not incurred any debt to finance their
activities. Most of the Partnership agreements restrict such
borrowings. The Company is not obligated to repurchase limited
partnership interests under the terms of the Partnership agreements.
F-20
<PAGE> 79
RED EAGLE RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. COMMITMENTS AND CONTINGENCIES, CONTINUED:
No drilling partnerships were closed for the nine months ended September
30, 1994. During October 1994, the company closed one Drilling
Partnership with total participant capital contributions of $2,270,000.
By December 31, 1995, the company is required to have paid cash and
capital expenditures to or on behalf of the Drilling Partnership in an
amount at least equal to 15% ($340,000) of the aggregate participant
capital contributions.
Through January 1993, the Company was self-insured for losses resulting
from workers' compensation claims of less than $500,000 per accident.
As of January 1993, the Company was no longer self-insured for losses
resulting from workers' compensation claims. Claims are handled by the
Oklahoma State Insurance Fund. The Company is self-insured for losses
resulting from employee health benefit claims of less than $35,000 per
participant.
The Company entered into futures contracts to hedge fluctuations in the
price of crude oil and natural gas. These contracts were treated as
speculative transactions and as such, all realized and unrealized gains
or losses on the contracts were included in current results of
operations. The Company recorded a loss for the nine months ended
September 30, 1994 of $2.1 million before income taxes related to these
contracts. The Company recorded a gain of $42,000 for the month of
October 1994. The Company did not have any similar activity subsequent
to October 1994 which significantly impacted the financial statements.
In January 1995, a lawsuit (the "Lawsuit") was filed in the Delaware
Court of Chancery, New Castle County, against the Company, each of the
members of the Company's Board of Directors and Lomak Petroleum, Inc
The Plaintiff seeks to represent all holders (the "Class") of the
Company's common stock, excluding the Company's Directors and Lomak. The
Lawsuit seeks, among other remedies, some of which are in the
alternative, certification of the Lawsuit as a class action, designation
of the Plaintiff as representative of the Class and Plaintiff's counsel
as counsel to the Class; declaration that the Company's Directors
breached their fiduciary duties owed to the Class; and award of
unspecified compensatory damages, prejudgment interest and costs and
disbursement of the Lawsuit including counsel fees. Management of the
Company does not believe that the Lawsuit will have a material effect on
their financial position or results of operations.
The Company is involved in various legal proceedings in the normal
course of its business. In the opinion of management, these matters
will not have a material adverse effect on the financial position or
results of operations of the Company.
F-21
<PAGE> 80
RED EAGLE RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. RELATED PARTY TRANSACTIONS:
Approximately 37% of drilling and oilfield services revenues during the
nine months ended September 30, 1994, were derived from performing
services for affiliated Drilling Partnerships. In accordance with
industry practice, the Company charges working interest participants a
monthly fixed fee for each well that it operates to reimburse it for
administrative costs incurred. Amounts charged to the Partnerships
totaled approximately $617,000 for the period ended September 30, 1994.
In February 1991, the Company purchased certain oilfield equipment from
a related partnership for $458,000. As of September 30, 1994, $103,000
is outstanding and included in notes payable.
Accounts Receivable - Affiliates is comprised of the following at
September 30, 1994:
Partnerships $806
Other affiliates 92
-----
$ 898
=====
During the year ended December 31, 1992, the Company advanced the
majority stockholder $280,000 of which $20,000 was repaid in 1993 with
interest at 8%. During the year ended December 31, 1993, the Company
advanced the majority stockholder $145,000. In 1994, the Company
advanced the majority stockholder $75,000. All current and prior year
advances were repaid subsequent to September 30, 1994. The advances are
reflected in notes receivable on the accompanying consolidated balance
sheets.
8. BUSINESS SEGMENTS:
The Company's primary endeavor consists of oil and gas exploration and
production activities conducted in part through the formation and
management of limited partnerships and performing oilfield services.
All operations as of September 30, 1994 are in the United States.
Intersegment sales are made at prices prevailing in the industry at the
time of sale.
General corporate assets primarily consist of cash, furniture and
fixtures and leasehold improvements.
9. STOCKHOLDERS' EQUITY:
The Company reserved 200,000 shares of the Company's common stock for
issuance to key employees pursuant to a stock option plan adopted by the
Company. The plan provides for the granting of both incentive and
non-qualified stock options. The exercise price of the options is the
estimated fair market value ofthe stock on the date of grant.
F-22
<PAGE> 81
RED EAGLE RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. STOCKHOLDERS' EQUITY, CONTINUED:
Options granted become exercisable over a four year period commencing
with the date of grant and expire in ten years. The following is a
summary of stock option transactions at September 30, 1994.
<TABLE>
<S> <C>
Shares available for grant at end of period 152,500
Shares under option at end of period -
Option price per share -
Shares exercisable at end of period -
Shares exercised during the period -
Shares canceled -
</TABLE>
The Company has 5,000,000 authorized shares of preferred stock, $1.00
par value. The Company has no plans to issue this stock.
10. SUBSEQUENT EVENTS:
In December 1994, Lomak Petroleum, Inc. ("Lomak") acquired approximately
32% of the Company's outstanding common stock. On February 15, 1995, a
majority of the stockholders of the Company voted to approve the merger
of the Company with a wholly owned subsidiary of Lomak in exchange for
approximately 2.2 million shares of Lomak's common stock. In connection
therewith, one of the principal stockholders agreed to purchase the
Company's aircraft and to assume the associated indebtedness of
approximately $2.4 million. No gain or loss occurred on this sale.
11. CONCENTRATION OF CREDIT RISK:
Cash consists of balances held in various Oklahoma financial
institutions. Short-term investments represent deposits made on hedging
contracts. Accounts receivable are primarily due from other companies
within the oil and gas industry. The Company does not generally require
collateral related to these receivables; however, cash prepayments and
letters of credit are required for accounts with indicated credit risk.
F-23
<PAGE> 82
==============================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any underwriter.
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, any securities offered hereby by anyone in any jurisdiction in
which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to anyone to
whom it is unlawful to make such offer or solicitation.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information . . . . . . . . . . . . . 2
Documents Incorporated by Reference . . . . . . 2
Summary . . . . . . . . . . . . . . . . . . . . 3
The Company . . . . . . . . . . . . . . . . . . 3
Business Strategy . . . . . . . . . . . . . . . 3
Accomplishments . . . . . . . . . . . . . . . . 3
Recent Developments . . . . . . . . . . . . . . 4
Summary of the Terms of the Preferred Stock . . 5
Summary Financial, Operating and
Reserve Information . . . . . . . . . . . . 9
Risk Factors. . . . . . . . . . . . . . . . . . 11
Ratio of Earnings to Fixed Charges . . . . . . 14
Use of Proceeds . . . . . . . . . . . . . . . . 14
Capitalization . . . . . . . . . . . . . . . . 15
Business . . . . . . . . . . . . . . . . . . . 16
Management . . . . . . . . . . . . . . . . . . 27
Principal Stockholder and Share Ownership of
Management . . . . . . . . . . . . . . . . . 29
Certain Transactions . . . . . . . . . . . . . 31
Selling Securityholders . . . . . . . . . . . . 31
Plan of Distribution . . . . . . . . . . . . . 33
Description of the Preferred Stock . . . . . . 34
Description of the $2.03 Notes . . . . . . . . 44
Description of Capital Stock . . . . . . . . . 50
Certain Federal Income Tax Considerations . . . 51
Legal Matters . . . . . . . . . . . . . . . . . 55
Experts . . . . . . . . . . . . . . . . . . . . 55
Glossary . . . . . . . . . . . . . . . . . . . 56
</TABLE>
==============================================================================
==============================================================================
LOMAK PETROLEUM, INC.
----------------
PROSPECTUS
----------------
November __, 1995
==============================================================================
G:\HLF\LOMAK\S-3\S-3.REG
<PAGE> 83
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC Registration Fee . . . . . . . . . . . . . . . . . . . . $ 24,910
NASDAQ Fee . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Legal Fees and Expenses* . . . . . . . . . . . . . . . . . . 25,000
Accounting Fees* . . . . . . . . . . . . . . . . . . . . . . 35,000
Printing and Engraving* . . . . . . . . . . . . . . . . . . . 13,000
Miscellaneous* . . . . . . . . . . . . . . . . . . . . . . . 10,090
-------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $110,000
=======
<FN>
* Estimated
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Delaware corporation. Section 145 of the Delaware General
Corporation Law generally provides that a corporation is empowered to indemnify
any person who is made a party to a proceeding or threatened proceeding by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or was, at the request of the corporation, serving in any of
such capacities in another corporation or other enterprise. This statute
describes in detail the right of the corporation to indemnify any such person.
Article SEVENTH, section (5) the Company Certificate of Incorporation provides:
Any former, present or future director, officer or employee of the Company
or the legal representative of any such director, officer, or employee shall be
indemnified by The Company
(a) against reasonable costs, disbursements and counsel fees paid or
incurred where such person has been successful on the merits or otherwise in
any pending, threatened or completed civil, criminal, administrative or
arbitrative action, suit or proceeding, and any appeal therein and any inquiry
or investigation which could lead to such action, suit or proceeding, or in
defense of any claim, issue or matter therein, by reason of such person being
or having been such director, officer or employee, and
(b) with respect to any such action, suit, proceeding, inquiry or
investigation for which indemnification is not made under (a) above, against
reasonable costs, disbursements (which shall include amounts paid in
satisfaction of settlements, judgments, fines and penalties, exclusive,
however, of any amount paid or payable to the Company) and counsel fees if such
person also had no reasonable cause to believe the conduct was unlawful, with
the determination as to whether the applicable standard of conduct was met to
be made by a majority of the members of the Board of Directors (sitting as a
committee of the Board) who were not parties to such inquiry, investigation,
action, suit or proceeding or by any one or more disinterested counsel to whom
the question may be referred to the Board of Directors; provided, however, in
connection with any proceeding by or in the right of the Company, no
indemnification shall be provided as to any person adjudged by any court to be
liable for negligence or misconduct except as and to the extent determined by
such court.
The termination of any such inquiry, investigation, action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent shall not of itself create a presumption that such
person did not meet the standards of conduct set forth in subsection (b) above.
Reasonable costs, disbursements and counsel fees incurred by such person
in connection with any inquiry, investigation action, suit or proceeding may be
paid by the Company in advance of the final disposition of such matter if
authorized by a majority of the Board of Directors (sitting as a committee of
the Board) not parties to such matter upon receipt by The Company of an
undertaking by or on behalf of such person to repay such amount unless it is
ultimately determined that such person is entitled to be indemnified as set
forth herein.
The Board of Directors may, at any regular or special meeting of the
Board, by resolution, accord similar indemnification (prospective or
retroactive) to any director, trustee, officer or employee of any other company
who is serving as such at the request of the Company because of the Company's
interest in such other company and any officer, director
G:\HLF\LOMAK\S-3\S-3.REG II-1
<PAGE> 84
or employee of any constituent corporation absorbed by the Company in a
consolidation or merger, or the legal representative of any such director,
trustee, officer or employee.
The indemnification herein provided shall not exclude any other rights to
which such person may be entitled as a matter of law or which may be lawfully
granted.
Article XII of the Company's Bylaws, incorporating the above provisions,
provides for an indemnification agreement to be entered into by directors' and
designated officers of the Company. All directors of the Company have executed
an indemnification agreement the form of which was approved by stockholders at
the Company's 1994 annual stockholders meeting.
Article XII of the Company's Bylaws also allows the Company to purchase
liability insurance for Officers and Directors. As of the date hereof there is
no such insurance in place.
Article XIII of the Company's Bylaws, with certain specified exceptions,
limits the personal liability of the Directors to Lomak or its stockholders for
monetary damages for breach of fiduciary duty to the fullest extent permitted
by Delaware law, including any changes in Delaware law adopted in the future.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
Registrant, pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. See
Item 17, "Undertakings."
G:\HLF\LOMAK\S-3\S-3.REG II-2
<PAGE> 85
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
1.1* Purchase Agreement dated October 31, 1995 among Lomak Petroleum, Inc., Forum Capital Markets L.P. and Hanifen, Imhoff
Inc.
4.1(a) Certificate of Designation of Serial Preferred Shares - $9.00 (Series A) dated September 18, 1982.(1)
4.1(b) Certificate of Decrease of Serial Preferred Shares - $9.00 (Series A) dated June 24, 1983.(1)
4.1(c) Certificate of Designation, Voting Powers, Preferences and Rights of Serial Preferred Shares - $9.00 (Series B) dated
June 24, 1983.(1)
4.1(d) Certificate of Decrease of Serial Preferred Shares - $9.00 (Series B) dated August 21, 1984.(1)
4.1(e) Certificate of Designation, Voting Powers, Preferences and Rights of Serial Preferred Shares - $9.00 (Series C) dated
August 21, 1984.(1)
4.1(f) Certificate of Decrease of Serial Preferred Shares - $9.00 (Series C) dated April 30, 1985.(1)
4.1(g) Certificate of Designation, Voting Powers, Preferences and Rights of Serial Preferred Shares - $11.00 (Series D)
dated April 30, 1985.(1)
4.1(h) Certificate of Decrease of Serial Preferred Shares - $9.00 (Series A) dated December 28, 1988.(1)
4.1(i) Certificate of Decrease of Serial Preferred Shares - $9.00 (Series B) dated December 28, 1988.(1)
4.1(j) Certificate of Decrease of Serial Preferred Shares - $9.00 (Series C) dated December 28, 1988.(1)
4.1(k) Certificate of Decrease of Serial Preferred Shares - $11.00 (Series D) dated December 28, 1988.(1)
4.1(l) Certificate of Designation, Voting Powers, Preferences and Rights of Serial Preferred Shares - $100 (Series E) dated
December 28, 1988.(1)
4.1(m) Certificate of Designation, Voting Powers, Preferences and Rights of Serial Preferred Shares - $100 (Series F) dated
December 28, 1988.(1)
4.1(n) Certificate of Increase and Amendment of Serial Preferred Shares - $100 (Series F).(1)
4.1(o) Certificate of Designation, Voting Powers, Preferences and Rights of Serial Preferred Shares - 8% Cumulative
Convertible $2.03 Preferred (Par Value $1.00 per share).(1)
4.1(p) Certificate of Amendment to Certificate of Incorporation dated May 17, 1991.(1)
4.1(q)* Certificate of Designation, Voting Powers, Preferences and Rights of Serial Preferred Shares - 7-1/2% Cumulative
Convertible Exchangeable Preferred Stock, Series A.
4.1(r)* Certificate of Designation, Voting Powers, Preferences and Rights of Serial Preferred Shares - 7-1/2% Cumulative
Convertible Exchangeable Preferred Stock, Series B.
4.1(s)* Certificate of Designation, Voting Powers, Preference and Rights of Serial Preferred Shares - $2.03 Convertible
Exchangeable Preferred Stock.
4.1(t)* Form of Indenture between Lomak Petroleum, Inc. and Keycorp. Shareholder Services, Inc. relating to the 8.125%
Subordinated Convertible Notes due 2005.
4.1(u)* Registration Rights Agreement dated October 31, 1995 among Lomak Petroleum, Inc., Forum Capital Markets L.P. and
Hanifen, Imhoff Inc.
5.* Opinion of Rubin Baum Levin Constant & Friedman.
12.* Computation of Ratio of Earnings to Fixed Charges.
24.1(a)* Consent of Rubin Baum Levin Constant & Friedman (included in Exhibit 5).
24.1(b)* Consent of Ernst & Young LLP.
24.1(c)* Consent of Arthur Andersen LLP.
24.1(d)* Consent of Coopers & Lybrand LLP.
24.1(e)* Consent of Deloitte & Touche LLP.
24.1(f)* Consent of Deloitte & Touche LLP.
<FN>
(1) Previously filed as Exhibit to the Company's Registration Statement,
Registration Statement No. 33-31558.
* Filed herewith.
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
G:\HLF\LOMAK\S-3\S-3.REG II-3
<PAGE> 86
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8, or Form F-3 and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Securities and Exchange Commission by the registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference
in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
"The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent for given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information."
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
G:\HLF\LOMAK\S-3\S-3.REG II-4
<PAGE> 87
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Forth Worth, State of Texas on November 15, 1995.
LOMAK PETROLEUM, INC.
BY:/s/John H. Pinkerton
-----------------------------------
John H. Pinkerton
President and
Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Thomas J. Edelman and John H. Pinkerton, or any
of them, each with power to act without the other, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign
any or all subsequent pre-and post-effective amendments and supplements to this
Registration Statement, and to file the same, or cause to be filed the same,
with all exhibits thereto, and other documents in connection therewith with the
Securities and Exchange Commission, granting unto each said attorney-in- fact
and agent full power to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that any said attorney-in-fact and agent or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------------------------------------- --------------------------------------------- ----------------------------
<S> <C> <C>
/s/Thomas Edleman Chairman and Director November 15, 1995
---------------------------------------
Thomas J. Edelman
/s/John Pinkerton President, Chief Executive Officer and November 15, 1995
--------------------------------------- Director (Principal Executive Officer)
John H. Pinkerton
C. Rand Michaels Vice Chairman and Director November 15, 1995
---------------------------------------
C. Rand Michaels
/s/Robert Aikman Director November 15, 1995
---------------------------------------
Robert E. Aikman
/s/Allen Finkelson Director November 15, 1995
---------------------------------------
Allen Finkelson
/s/Anthony Dub Director November 15, 1995
---------------------------------------
Anthony V. Dub
/s/Ben Guill Director November 15, 1995
---------------------------------------
Ben A. Guill
/s/Thomas Stoelk Vice President - Finance and Chief Financial November 15, 1995
--------------------------------------- Officer (Principal Financial Officer)
Thomas W. Stoelk
/s/John Frank Controller and Chief Accounting Officer November 15, 1995
--------------------------------------- (Principal Accounting Officer)
John R. Frank
</TABLE>
II-5
<PAGE> 88
EXHIBIT INDEX (UPDATE)
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
1.1 Purchase Agreement dated October 31, 1995 among Lomak Petroleum, Inc., Forum Capital Markets L.P. and Hanifen, Imhoff
Inc.
4.1(q) Certificate of Designation, Voting Powers, Preferences and Rights of Serial Preferred Shares - 7-1/2% Cumulative
Convertible Exchangeable Preferred Stock, Series A.
4.1(r) Certificate of Designation, Voting Powers, Preferences and Rights of Serial Preferred Shares - 7-1/2% Cumulative
Convertible Exchangeable Preferred Stock, Series B.
4.1(s) Certificate of Designation, Voting Powers, Preference and Rights of Serial Preferred Shares - $2.03 Convertible
Exchangeable Preferred Stock.
4.1(t) Form of Indenture between Lomak Petroleum, Inc. and Keycorp. Shareholder Services, Inc. relating to the 8.125%
Subordinated Convertible Notes due 2005.
4.1(u) Registration Rights Agreement dated October 31, 1995 among Lomak Petroleum, Inc., Forum Capital Markets L.P. and
Hanifen, Imhoff Inc.
5. Opinion of Rubin Baum Levin Constant & Friedman.
12. Computation of Earning's to Fixed Charges.
24.1(a) Consent of Rubin Baum Levin Constant & Friedman (included in Exhibit 5).
24.1(b) Consent of Ernst & Young LLP.
24.1(c) Consent of Arthur Andersen LLP.
24.1(d) Consent of Coopers & Lybrand LLP.
24.1(e) Consent of Deloitte & Touche LLP.
24.1(f) Consent of Deloitte & Touche LLP.
</TABLE>
G:\HLF\LOMAK\S-3\S-3.REG II-6
<PAGE> 1
EXHIBIT 1.1
1,150,000 SHARES
$2.03 CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
LOMAK PETROLEUM, INC.
PURCHASE AGREEMENT
------------------
New York, New York
October 31, 1995
FORUM CAPITAL MARKETS L.P.
53 Forest Avenue
Old Greenwich, Connecticut 06870
HANIFEN, IMHOFF INC.
1125 17th Street
Suite 1600
Denver, Colorado 80202
Ladies and Gentlemen:
Lomak Petroleum, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to Forum Capital Markets L.P. and Hanifen, Imhoff
Inc. (the "Initial Purchasers") 1,000,000 shares of its $2.03 Convertible
Exchangeable Preferred Stock, par value $1.00 per share (the "Preferred
Stock"). Such 1,000,000 shares of Preferred Stock are hereafter referred to as
the "Firm Shares." Upon the request of the Initial Purchasers, as provided in
Section 2(b) of this Agreement, the Company shall also issue and sell to the
Initial Purchasers up to an additional 150,000 shares of Preferred Stock for
the purpose of covering over-allotments, if any. Such 150,000 shares of
Preferred Stock are hereinafter referred to as the "Option Shares," and the
Firm Shares and the Option Shares are hereinafter collectively referred to as
the "Shares." The Shares will be convertible into shares of the Company's
common stock, par value $.01 per share (the "Common Stock"), and are
exchangeable at the option of the Company for the Company's 8.125% Convertible
Subordinated Notes due 2005 (the "Notes"). The Notes will be issued pursuant
to an indenture to be entered into between the Company and Keycorp Shareholder
Services, Inc. or an equivalent trustee selected by the Company, as trustee
(the "Trustee"), substantially in the form of, and having the terms and
conditions contained in, the form of indenture (the "Indenture") attached to
the Certificate of Designations referred to below. The Shares, the Notes and
the shares of Common Stock issuable upon conversion of the Shares or Notes (the
"Conversion Shares") are hereinafter referred to sometimes collectively as the
"Securities." The Company hereby confirms its agreement with the Initial
Purchasers with respect to the sale by the Company and the purchase by the
Initial Purchasers of the Shares, as set forth herein.
The Shares will be offered and sold to the Initial Purchasers
without being registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance on an exemption therefrom. The Company has
prepared a preliminary offering memorandum dated October 17, 1995 as
supplemented by Supplement No. 1 thereto dated October 26, 1995 (such
preliminary offering memorandum, as so supplemented, being hereinafter referred
to as the "Preliminary Offering Memorandum"), and a final offering memorandum
dated October 31, 1995 (such offering memorandum being hereinafter referred to
as the "Offering Memorandum"), setting forth information regarding the Company
and the Securities. The Company hereby confirms that it has authorized the use
of the Preliminary Offering Memorandum and the Offering Memorandum in
connection with the offering and sale of the Shares (the "Offering").
Holders (including subsequent transferees) of the Securities
will have the registration rights set forth in the Registration Rights
Agreement (the "Registration Rights Agreement") between the Initial Purchasers
and the Company, dated concurrently herewith. Pursuant to the Registration
Rights Agreement, the Company has
<PAGE> 2
agreed to file with the Securities and Exchange Commission (the "Commission") a
shelf registration statement pursuant to Rule 415 under the Securities Act (the
"Shelf Registration Statement") to cover public resales of the Securities by
the holders thereof.
Capitalized terms used herein without definition have the
respective meanings specified therefor in the Offering Memorandum. For
purposes hereof, "Rules and Regulations" means the rules and regulations
adopted by the Commission under the Securities Act, the Securities Exchange Act
of 1934, as amended (the "Exchange Act") or the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), as applicable.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to, and agrees with, the Initial Purchasers of
the date hereof, and as of the Closing Date and each Option Closing Date (as
defined in Section 2(b) hereof), if any, as follows:
(a) The Offering Memorandum, as of its date,
together with each amendment or supplement thereto, as of its date, contains
all the information that, if requested by a prospective purchaser, would be
required to be provided pursuant to Rule 144A(d)(4) under the Securities Act.
The Offering Memorandum does not, and at the Closing Date and any Option
Closing Date will not, and any amendment or supplement thereto, if any, as of
its date, will not, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The preceding sentence does not apply to
information contained in or omitted from the Preliminary Offering Memorandum or
the Offering Memorandum (or any supplement or amendment thereto) in reliance
upon and in conformity with written information furnished to the Company by or
on behalf of either Initial Purchaser specifically for use therein (the
"Initial Purchasers' Information"). The parties acknowledge and agree that the
Initial Purchasers' Information consists solely of the last paragraph at the
bottom of the front cover page concerning the terms of the offering by the
Initial Purchasers, the legends concerning over-allotment and trading
activities of the Initial Purchasers and their affiliates on the inside front
cover page and the paragraphs under the caption "Plan of Distribution" in the
Offering Memorandum. No order suspending or preventing the sale of the
Securities in any jurisdiction has been issued or threatened or, to the
knowledge of the Company, is contemplated.
(b) The Company is subject to Section 13 or 15(d) of
the Exchange Act. The documents incorporated by reference into the Offering
Memorandum (the "Incorporated Documents"), when they were filed with the
Securities and Exchange Commission (the "Commission") (or, if any amendment
with respect to any such document was filed, when such amendment was filed),
complied in all material respects with the requirements of the Exchange Act and
did not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading; and any Incorporated Documents filed
subsequent to the date of the Offering Memorandum shall, when filed with the
Commission, conform in all respects to the requirements of the Securities Act,
the Rules and Regulations and the Exchange Act, as applicable. All reports and
statements required to be filed by the Company under the Securities Act and the
Exchange Act have been filed, together with all exhibits required to be filed
therewith. The documents and agreements so filed which are described in the
Offering Memorandum are in full force and effect on the date hereof and neither
the Company nor any of the Subsidiaries nor, to the knowledge of the Company,
any other party thereto is in breach of or default under a material provision
of any such document or agreement.
(c) The Company and each of its direct and indirect
subsidiaries identified on Annex I hereto (collectively, the "Subsidiaries"),
has been duly organized and is validly existing as a corporation in good
standing under the laws of the state of its incorporation. Each of the Company
and the Subsidiaries is duly qualified and licensed and in good standing as a
foreign corporation in each jurisdiction in which its ownership or leasing of
any properties or the character of its operations require such qualification or
licensing (each of which jurisdictions is designated on Annex I hereto), except
where the failure to be so qualified or licensed would not have a material
adverse effect on the condition, financial or otherwise, results of operations,
business or prospects of the Company and the Subsidiaries, taken as a whole (a
"Material Adverse Effect"). Each Subsidiary which accounted for more than 5%
of the Company's consolidated assets at June 30, 1995 or more than 10% of the
Company's consolidated revenues during the 12 months then ended or which is
reasonably expected to exceed such percentages with respect
## CT01/SCHIJ/68169.34
2
<PAGE> 3
to the Company's next four fiscal quarters ending after the date hereof are
indicated on Annex I hereto, and all such Subsidiaries are hereinafter referred
to collectively as the "Significant Subsidiaries." The Company does not own or
control, directly or indirectly, any corporation, association or other entity
other than the Subsidiaries. None of the Subsidiaries owns or controls
directly or indirectly, any corporation, association or other entity. Except
as set forth on Annex I, the Company owns, either directly or through other
Subsidiaries, all of the outstanding capital stock of each Subsidiary, in each
case free and clear of all liens, charges, claims, encumbrances, pledges,
security interests defects or other restrictions or equities of any kind
whatsoever other than those created pursuant to that certain Amended and
Restated Revolving Credit and Term Loan Agreement, dated as of July 6, 1994,
among the Company and certain of its subsidiaries as borrowers, Bank One,
Texas, N.A. as agent and Bank One, Texas N.A. and Texas Commerce Bank National
Association as lenders (the "Bank One Loan Agreement"), and the instruments,
documents and agreements executed in connection therewith; and all outstanding
capital stock of the Subsidiaries has been duly authorized and validly issued
and is fully paid and non-assessable and not issued in violation of any
preemptive rights or applicable securities laws. Each of the Company and the
Subsidiaries has all requisite power and authority (corporate, partnership and
other), and has obtained any and all necessary authorizations, approvals,
orders, licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies, to own or lease its properties
and conduct its business as described in the Offering Memorandum; each of the
Company and the Subsidiaries is and has been doing business in compliance with
all such authorizations, approvals, orders, licenses, certificates, franchises
and permits and all federal, foreign, state and local laws, rules and
regulations; and neither the Company nor any of the Subsidiaries has received
any notice of proceedings relating to the revocation or modification of any
such authorization, approval, order, license, certificate, franchise or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a Material Adverse Effect.
(d) The Company has an authorized capitalization as
set forth in the Offering Memorandum and will have the adjusted capitalization
as of the period indicated therein, based upon the assumptions set forth
therein. Neither the Company nor any of the Subsidiaries is a party to or
bound by any instrument, agreement or other arrangement, including, but not
limited to, any voting trust agreement, stockholders' agreement or other
agreement or instrument, affecting the securities or rights or obligations of
securityholders of the Company or any of the Subsidiaries or providing for any
of them to issue, sell, transfer or acquire any capital stock, rights,
warrants, options or other securities of the Company or any of the
Subsidiaries, except for this Agreement, the certificate of designations
relating to the Company's 7 1/2% Convertible Exchangeable Preferred Stock
outstanding on the date hereof (the "Existing Preferred") and the indenture
related thereto, the certificate of designations relating to the Preferred
Stock (the "Certificate of Designations"), the Indenture and as set forth in
the Offering Memorandum (including the notes to the financial statements set
forth therein). The Company's capital stock and the Notes conform in all
material respects to all statements with respect thereto contained in the
Offering Memorandum. All issued and outstanding securities of each of the
Company or any of the Subsidiaries have been duly authorized and validly issued
and are fully paid and non-assessable, as applicable; the holders thereof have
no rights of rescission with respect thereto and are not subject to personal
liability by reason of being such holders; and none of such securities were
issued in violation of the preemptive rights of any securityholder of the
Company or any of the Subsidiaries or similar contractual rights granted by the
Company or any of the Subsidiaries.
(e) The Preferred Stock has been duly authorized
and, when validly issued, delivered and paid for in the manner contemplated by
this Agreement, will be duly authorized, validly issued, fully paid and
non-assessable. The shares of Common Stock issuable upon conversion of the
Preferred Stock or the Notes will, upon such issuance, be duly authorized,
validly issued, fully paid and non-assessable, and the Company has duly
authorized and reserved for issuance upon conversion of the Preferred Stock or
the Notes the shares of Common Stock issuable upon such conversion. The
Preferred Stock and the Conversion Shares are not and will not be subject to
any preemptive or other similar rights of any securityholder of the Company or
any of the Subsidiaries; all corporate action required to be taken for the
authorization, issue and sale of the Preferred Stock and the Conversion Shares
has been duly and validly taken; and the certificates representing the
Preferred Stock and the Conversion Shares will be in due and proper form. Upon
the issuance and delivery pursuant to the terms of this Agreement of the
Preferred Stock to be sold by the Company hereunder, the Initial Purchasers
will acquire good and marketable title thereto free and clear of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever.
## CT01/SCHIJ/68169.34
3
<PAGE> 4
(f) The Notes, if issued, will be issued pursuant to
the terms and conditions of the Indenture, and the Indenture and the
Registration Rights Agreement each conform to the description thereof contained
in the Offering Memorandum. At the Closing Date, the Indenture will conform in
all material respects to the requirements of the Trust Indenture Act and the
Rules and Regulations applicable to an indenture which is qualified thereunder.
The Notes have been duly authorized and, when validly authenticated, issued,
delivered and paid for in the manner contemplated by the Indenture, will be
duly authorized, validly issued and outstanding obligations of the Company
entitled to the benefits of the Indenture. The Notes are not and will not be
subject to any preemptive or other similar rights of any securityholder of the
Company or any of the Subsidiaries; all corporate action required to be taken
for the authorization and issue of the Notes has been duly and validly taken;
and the certificates representing the Notes will be in due and proper form.
(g) The consolidated historical financial statements
of the Company and the Subsidiaries together with the related notes thereto
included in the Preliminary Offering Memorandum and the Offering Memorandum
fairly present the financial position, income, changes in stockholders' equity,
cash flow and results of operations of the Company and the Subsidiaries at the
respective dates and for the respective periods to which they apply and such
historical financial statements have been prepared in conformity with generally
accepted accounting principles and the Rules and Regulations, consistently
applied throughout the periods involved; the pro forma financial information
included in each Preliminary Offering Memorandum and the Offering Memorandum
presents fairly the information shown therein in accordance with Article 11 of
Regulation S-X. Except as described in the Offering Memorandum, there has been
no material adverse change or development involving a material prospective
change in the condition, financial or otherwise, or in the earnings, business
prospects, or results of operations of the Company or any of the Subsidiaries,
whether or not arising in the ordinary course of business, since the date of
the financial statements included in the Offering Memorandum and the
outstanding debt, the property, both tangible and intangible, and the
businesses of each of the Company and the Subsidiaries conform in all material
respects to the descriptions thereof contained in the Offering Memorandum.
Financial information set forth in the Offering Memorandum under the headings
"Summary Financial, Operating and Reserve Information," "Selected Historical
and Pro Forma Financial Data," "Capitalization" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" fairly present,
on the basis stated in the Offering Memorandum, the information set forth
therein and have been derived from or compiled on a basis consistent with that
of the audited financial statements included in the Offering Memorandum.
(h) Each of the Company and the Subsidiaries has
filed all income and franchise tax returns required to be filed by it in any
jurisdiction, and has paid all taxes shown to be due on such returns or claimed
to be due from such entities, other than those being contested in good faith.
All tax liabilities, including those being contested by the Company or the
Subsidiaries are adequately reserved for in the Company's financial statements
(in accordance with generally accepted accounting principles). No tax
deficiency has been asserted and no tax proceedings are pending or is
threatened against the Company or any of the Subsidiaries, and to the knowledge
of the Company, no such deficiency or proceeding is contemplated.
(i) No transfer tax, stamp duty or other similar tax
is payable by or on behalf of the Initial Purchasers in connection with (i) the
issuance by the Company of the Securities, (ii) the purchase by the Initial
Purchaser of the Preferred Stock from the Company or (iii) the consummation by
the Company of any of its obligations under this Agreement.
(j) Each of the Company and the Subsidiaries
maintains liability, casualty and other insurance (subject to customary
deductions and retentions) with responsible insurance companies against such
risk of the types and in the amounts customarily maintained by independent oil
companies of comparable size to the Company engaged in the acquisition,
development and exploration of oil and gas properties (which may include
self-insurance in comparable form to that maintained by such responsible
companies), all of which insurance is in full force and effect.
(k) There is no action, suit, proceeding, litigation
or governmental proceeding pending or threatened or, to the knowledge of the
Company, contemplated against (or circumstances that are reasonably likely to
give rise to the same), or involving the properties or businesses of, the
Company or any of the Subsidiaries
## CT01/SCHIJ/68169.34
4
<PAGE> 5
which (i) questions the validity of the capital stock of the Company or any of
the Subsidiaries, this Agreement, the Indenture, the Registration Rights
Agreement or of any action taken or to be taken by the Company or any of the
Subsidiaries pursuant to or in connection with this Agreement, the Indenture or
the Registration Rights Agreement or (ii) except as disclosed in the Offering
Memorandum, would have a Material Adverse Effect.
(l) The Company has full legal right, power and
authority to authorize, issue, deliver and sell the Preferred Stock, the Notes
upon exchange of the Preferred Stock and the Conversion Shares upon conversion
of the Preferred Stock or the Notes, as applicable, to enter into this
Agreement, the Indenture and the Registration Rights Agreement and to
consummate the transactions provided for in such agreements; and this Agreement
has been duly and properly authorized, executed and delivered by the Company
and when the Company has duly executed and delivered the Registration Rights
Agreement (assuming the due execution and delivery thereof by the Initial
Purchasers) and the Indenture (assuming the due execution and delivery thereof
by the Trustee), this Agreement, the Registration Rights Agreement and the
Indenture each will constitute a legal, valid and binding agreement of the
Company enforceable against the Company in accordance with its terms. None of
the Company's issue and sale of the Preferred Stock, the Notes upon exchange of
the Preferred Stock and the Conversion Shares upon the conversion of the
Preferred Stock or the Notes, as applicable, the execution or delivery of this
Agreement, the Indenture and the Registration Rights Agreement, its performance
hereunder and thereunder, its consummation of the transactions contemplated
herein and therein or the conduct by it and the Subsidiaries of their
businesses as described in the Offering Memorandum or any amendments or
supplements thereto conflicts or will conflict with or results or will result
in any breach or violation of any of the terms or provisions of, or constitutes
or will constitute a default under, or results or will result in the creation
or imposition of any lien, charge, claim, encumbrance, pledge, security
interest, defect or other restriction or equity of any kind whatsoever upon any
property or assets of the Company or any of the Subsidiaries pursuant to the
terms of, (i) the certificate of incorporation or by-laws of the Company or any
of the Subsidiaries, (ii) any license, contract, indenture, mortgage, deed of
trust, voting trust agreement, stockholders' agreement, note, loan or credit
agreement or other agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which it or any Subsidiary is or may be bound or
to which its or any of the Subsidiaries' properties or assets is or may be
subject, or any indebtedness, or (iii) any statute, judgment, decree, order,
rule or regulation applicable to the Company or any of the Subsidiaries of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body, having jurisdiction over the Company or any of the
Subsidiaries or any of their respective activities or properties.
(m) Neither the Company nor any of the Subsidiaries
(i) is in violation of its certificate of incorporation or by-laws, (ii) is in
default in the performance of any obligation, agreement or condition contained
in any license, contract, indenture, mortgage, installment sale agreement,
lease, deed of trust, voting trust agreement, stockholders' agreement, note,
loan or credit agreement, purchase order, agreement or instrument evidencing an
obligation for borrowed money or other material agreement or instrument to
which the Company or any of the Subsidiaries is a party or by which the Company
or any of the Subsidiaries may be bound or to which the property or assets of
the Company or any of the Subsidiaries is subject or affected or (iii) is in
violation in any respect of any law, ordinance, governmental rule, regulation
or court decree to which it or its property or assets may be subject, except
any violation or default under the foregoing clauses (ii) or (iii) as would not
have a Material Adverse Effect.
(n) No consent, approval, authorization or order of,
and no filing with, any court, arbitrator, regulatory body, government agency
or other body, domestic or foreign, is required for the execution, delivery or
performance of this Agreement, the Indenture, the Registration Rights Agreement
or the transactions contemplated hereby or thereby, except such as have been or
may be obtained under the Securities Act or may be required under state
securities or Blue Sky laws.
(o) Subsequent to the respective dates as of which
information is set forth in the Offering Memorandum, and except as may
otherwise be indicated or contemplated herein or therein, neither the Company
nor any of the Subsidiaries has (i) issued any securities (other than upon
exercise of options outstanding on the date hereof pursuant to the Company's
Stock Option Plan, 1994 Outside Directors Stock Option Plan and 1994 Stock
Purchase Plan or upon conversion of the Existing Preferred or the exercise of
warrants outstanding on such respective dates, or incurred any material
liability or obligation, direct or contingent, for borrowed money not in
## CT01/SCHIJ/68169.34
5
<PAGE> 6
the ordinary course of business, (ii) entered into any material transaction
other than in the ordinary course of business or (iii) declared or paid any
dividend or made any other distribution on or in respect of its capital stock
of any class and there has not been any change in the capital stock (excluding
changes contemplated by clause (i) hereof) or long term debt of the Company and
the Subsidiaries taken as a whole or any material adverse change in or
affecting the general affairs, business management, financial conditions,
stockholders' equity or results of operation of the Company or any of the
Subsidiaries.
(p) The Company and the Subsidiaries is in
compliance with all federal, state, local and foreign laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours. There are no pending investigations involving
the Company or any of the Subsidiaries by the U.S. Department of Labor or any
other governmental agency responsible for the enforcement of such federal,
state, local or foreign laws and regulations. There is no unfair labor
practice charge or complaint against the Company or any of the Subsidiaries
pending before the National Labor Relations Board or any strike, picketing,
boycott, dispute, slowdown or stoppage pending or threatened against or
involving the Company or any of the Subsidiaries. No representation question
exists respecting the employees of the Company or any of the Subsidiaries, and
no collective bargaining agreement or modification thereof is currently being
negotiated by the Company or any of the Subsidiaries. No grievance or
arbitration proceeding is pending under any expired or existing collective
bargaining agreements of the Company or any of the Subsidiaries. No material
labor dispute with the employees of the Company or any of the Subsidiaries
exists or, to the knowledge of the Company, is imminent.
(q) Except as identified on Schedule II attached
hereto, neither the Company nor any of the Subsidiaries maintains, sponsors or
contributes to any program or arrangement that is an "employee pension benefit
plan" an "employee welfare benefit plan" or a "multi-employer plan" ("ERISA
Plans") as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). Except as identified on Schedule II attached hereto,
neither the Company nor any of the Subsidiaries maintains or contributes to,
now or at any time previously, a defined benefit plan as defined in Section
3(35) of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in
a "prohibited transaction" within the meaning of Section 406 of ERISA or
Section 4975 of the Code which could subject the Company or any of the
Subsidiaries to any tax penalty on prohibited transactions and which has not
adequately been corrected. No "accumulated funding deficiency" (as defined in
Section 302 of ERISA) or any of the events set forth in Section 4043(b) of
ERISA (other than events with respect to which the 30-day notice under Section
4043 of ERISA has been waived) has occurred with respect to any employee
benefit plan which might reasonably be expected to have a Material Adverse
Effect. Each ERISA Plan is in compliance with all material reporting,
disclosure and other requirements of the Code and ERISA as they relate to such
ERISA Plan. Determination letters have been received from the Internal Revenue
Service with respect to each ERISA Plan which is intended to comply with Code
Section 401(a) stating that such ERISA Plan and the attendant trust are
qualified thereunder. Neither the Company nor any of the Subsidiaries has ever
completely or partially withdrawn from a "multi-employer plan" as so defined.
(r) Neither the Company or any of the Subsidiaries,
nor any of its affiliates has taken or will take, directly or indirectly, any
action designed to or which has constituted or which might be expected to cause
or result in, under the Exchange Act or otherwise, stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Preferred Stock or otherwise.
(s) Each of the Company and the Subsidiaries (i)
owns or has the right to use, free and clear of all liens, claims,
encumbrances, pledges, security interests, and other adverse interests of any
kind whatsoever, all patents, trademarks, service marks, trade names,
copyrights, technology, and all licenses and rights with respect to the
foregoing, used in the conduct of its business as now conducted or proposed to
be conducted without, to the best knowledge of the Company and the
Subsidiaries, infringing upon or otherwise acting adversely to the right or
claimed right of any person, corporation or other entity, (ii) is not obligated
or under any liability whatsoever to make any payments by way of royalties,
fees or otherwise to any owner or licensee of, or other claimant to, any
patent, trademark, service mark, trade name, copyright, know-how, technology or
other intangible asset, with respect to the use thereof or in connection with
the conduct of its business or otherwise and (iii) has not received any notice
of infringement of or conflict with asserted rights of others with respect to
any of the foregoing
## CT01/SCHIJ/68169.34
6
<PAGE> 7
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, might have a Material Adverse Effect.
(t) Except as to its interests in oil and gas
leases, each of the Company and the Subsidiaries has good and marketable title
to, or valid and enforceable leasehold estates in, all items of real and
personal property which are material to its business and/or reflected as owned
by it in the financial statements included in the Offering Memorandum, in each
case free and clear of all liens, charges, claims, encumbrances, pledges,
security interests, defects and other restrictions except those disclosed in
the Offering Memorandum or those which are not material in amount and do not
materially adversely affect the use made or proposed to be made of such
property. Each of the Company and the Subsidiaries has good and defensible
title to its interests in oil and gas leases, free and clear of any liens,
charges, claims, encumbrances, pledges, security interests, defects and other
restrictions of any kind, other than those created pursuant to the Bank One
Loan Agreement and the instruments, documents and agreements executed in
connection therewith, and liens and encumbrances under operating agreements,
unitization and pooling arrangements and gas sales contracts that secure
payment of amounts not yet due and payable and which are of a nature and scope
customary in connection with similar oil and gas drilling and producing
operations, and except those which are not material in amount and do not
materially adversely affect the use made and proposed to be made of such oil
and gas leases. The Company and each of the Subsidiaries has conducted such
title investigations and has acquired its interest in oil and gas leases in
such manner as is customary in the oil and gas industry for the respective
regions in which the property subject to such leases is located. The Company
and each of the Subsidiaries has complied in all material respects with the
terms of oil and gas leases in which each purports to own an interest, and no
claim of any sort has been asserted by any person or entity adverse to the
rights of the Company or any of the Subsidiaries as lessee or sublessee under
any of such leases or questioning its rights to the continued possession of the
leased premises under any such lease, except with respect to claims which do
not materially adversely affect the use made and proposed to be made of such
oil and gas leases by the Company or any of the Subsidiaries. The concessions,
reservations, licenses, permits and rights to hydrocarbons held by the Company
and each of the Subsidiaries are valid, subsisting and enforceable with such
exceptions which do not materially adversely affect the use made and proposed
to be made of such oil and gas leases. Except as set forth in the Offering
Memorandum, neither the Company nor any of the Subsidiaries owns or leases any
material real or personal property, the loss of which would have a Material
Adverse Effect.
(u) Ernst & Young LLP and Arthur Andersen LLP are
independent certified public accountants of the Company as required by the
Securities Act and the Rules and Regulations.
(v) The Preferred Stock and the Notes satisfy the
eligibility requirements of Rule 144A(d)(3) under the Securities Act. The
Common Stock of the Company is registered pursuant to Section 12(g) of the
Exchange Act, and is approved for trading on the Nasdaq National Market
("Nasdaq") under the symbol "LOMK". The Company has taken no action that was
designed to terminate, or that is likely to have the affect of terminating,
trading of the Common Stock on the Nasdaq, nor has the Company received any
notification that the Commission or Nasdaq is contemplating terminating such
trading.
(w) The information provided by the Company or any
of the Subsidiaries to the Petroleum Consultants (as hereinafter defined) for
the preparation of the estimates or reserves in the reserve reports for the oil
and gas properties of the Company prepared by H.J. Gruy & Associates, Harper &
Associates, Inc., Clay, Holt & Klammer, Long Consultants, Inc. and Wright &
Company, Inc., independent petroleum consultants (collectively the "Petroleum
Consultants"), were at the time of delivery thereof to the Petroleum
Consultants complete and accurate in all material respects. The Petroleum
Consultants are each independent petroleum consulting firms as required by the
Securities Act and the Rules and Regulations. Except as expressly stated in
the Preliminary Offering Memorandum and the Offering Memorandum, information in
the Preliminary Offering Memorandum and in the Offering Memorandum regarding
estimates of reserves, future net cash flows and present values of proved
reserves comply in all material respects with the applicable requirements of
Rule 4-10 of Regulation S-X and Industry Guide 2 under the Securities Act.
(x) Neither the Company nor any of the Subsidiaries
has, nor to the knowledge of the Company, has any officer, director or employee
of the Company or any of the Subsidiaries or any other person
## CT01/SCHIJ/68169.34
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<PAGE> 8
acting on behalf of the Company or any of the Subsidiaries, for the benefit of
the Company or any such Subsidiaries at any time during the last five years,
(i) made any unlawful gift or contribution to any candidate for federal, state,
local or foreign political office, or failed to disclose fully any such gift or
contribution in violation of law, or (ii) made any payment to any federal,
state, local or foreign governmental officer or official, which would be
reasonably likely to subject the Company or any of the Subsidiaries to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign). Each of the Company's and the Subsidiaries'
internal accounting controls are sufficient to cause the Company and the
Subsidiaries to comply with the Foreign Corrupt Practices Act of 1977, as
amended.
(y) Except as set forth in the Offering Memorandum,
no officer, director or 5% or greater stockholder of the Company or any of the
Subsidiaries, or any "affiliate" or "associate" (as these terms are defined in
Rule 405 promulgated under the Rules and Regulations) of any of the foregoing
persons or entities, has or has had, either directly or indirectly, (i) a
material interest in any person or entity which (A) furnishes or sells services
or products which are furnished or sold or are proposed to be furnished or sold
by the Company or any of the Subsidiaries or (B) purchases from or sells or
furnishes to the Company or any of the Subsidiaries any goods or services or
(ii) a material beneficiary interest in any contract or agreement to which the
Company or any of the Subsidiaries is a party or by which the Company or any of
the Subsidiaries may be bound or affected. Except as set forth in the Offering
Memorandum under the caption "Certain Transactions," there are no existing
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company or any of the Subsidiaries and any such officer, director, 5% or
greater stockholder, "affiliate" or "associate." For the purpose of this
subsection (y), interests which may be excluded from disclosure pursuant to the
instructions to items of Regulation S-K shall be deemed to be per se not
material.
(z) The minute books of each of the Company and the
Subsidiaries have been made available to the Initial Purchasers, contain a
complete summary of all meetings and actions of the directors and stockholders
of each of the Company and the Subsidiaries since the time of their respective
incorporation and reflect all transactions referred to in such minutes
accurately in all respects.
(aa) Neither the Company nor any of the Subsidiaries
has been notified or is otherwise aware that it is liable with respect to
obligations under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, or any similar law ("Environmental Laws"),
and it is not aware of any facts or circumstances which could reasonably be
expected to result in any such liability. The Company and the Subsidiaries are
in substantial compliance with all applicable existing Environmental Laws,
except for such instances of non-compliance which would not have a Material
Adverse Effect. The term "Hazardous Material" means (i) any "hazardous
substance" as defined by the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, (ii) any "hazardous waste" as defined by
the Resource Conservation and Recovery Act, as amended, (iii) any petroleum or
petroleum product, (iv) any polychlorinated biphenyl and (v) any pollutant or
contaminant or hazardous, dangerous or toxic chemical, material, waste or
substance regulation under or within the meaning of any other Environmental
Law. To the best of the Company's knowledge, no disposal, release or discharge
of "Hazardous Material" has occurred on, in, at or about any of the facilities
or properties of the Company or any of the Subsidiaries. Except as described
in the Offering Memorandum, to the best of the Company's knowledge: (i) there
has been no storage, disposal, generation, transportation, handling or
treatment of hazardous substances or solid wastes by the Company or any of the
Subsidiaries (or to the knowledge of the Company, any of its predecessors in
interest) at, upon or from any of the property now or previously owned or
leased by the Company or any of the Subsidiaries in violation of any applicable
law, ordinance, rule, regulation, order, judgment, decree or permit or which
would require remedial action which has not been taken, under any applicable
law, ordinance, rule, regulation, order, judgment, decree or permit, except for
such violations and failures to take remedial action which would not result in,
singularly or in the aggregate, a Material Adverse Effect; (ii) there has been
no material spill, discharge, leak, emission, injection, escape, dumping or
release of any kind onto such property or into the environment surrounding such
property by the Company or any of the Subsidiaries of any solid waste or
Hazardous Materials, except for such spills, discharges, leaks, emissions,
injections, escapes, dumping or releases which would not result in, singularly
or in the aggregate, a Material Adverse Effect.
## CT01/SCHIJ/68169.34
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<PAGE> 9
(bb) The Company is not an "investment company," a
company controlled by an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended.
(cc) Neither the Company nor any affiliate (as such
term is defined in Rule 501(b) under the Securities Act) of the Company has,
directly or through any agent, sold, offered for sale, solicited offers to buy
or otherwise negotiated in respect of, any "security" (as defined in the
Securities Act), which is or will be integrated with the sale of the Preferred
Stock in a manner that would require the registration of the Preferred Stock
under the Securities Act.
(dd) None of the Company, any affiliate (as such
term is defined in Rule 501(b) under the Securities Act) of the Company and any
other person acting on its or their behalf has engaged, in connection with the
Offering, in any form of general solicitation or general advertising within the
meaning of Rule 502(c) under the Securities Act.
(ee) Assuming the accuracy of the Initial
Purchasers' representations in Section 2(c) hereof and its compliance with the
agreements set forth therein, it is not necessary, in connection with the
issuance and sale of the Preferred Stock and the offer, resale and delivery of
the Preferred Stock in the manner contemplated by this Agreement and the
Offering Memorandum, to register the Preferred Stock, the Notes or the
Conversion Shares under the Securities Act or to qualify the Indenture under
the Trust Indenture Act.
2. Purchase by the Initial Purchasers.
-----------------------------------
(a) On the basis of the representations, warranties
and agreements contained herein, and subject to the terms and conditions set
forth herein, the Company agrees to issue and sell to the Initial Purchasers,
and the Initial Purchasers agree to purchase from the Company, the Firm Shares
at a purchase price equal to $24.15625 per share.
(b) In addition, on the basis of the
representations, warranties and agreements contained herein, and subject to the
terms and conditions set forth herein, the Company hereby grants an option to
the Initial Purchasers to purchase any or all of the Option Shares at a price
equal to $24.15625 per share. Such option will expire 30 days after the date
hereof, and may be exercised in whole or in part from time to time only for the
purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Firm Shares upon notice by the Initial
Purchasers to the Company setting forth the aggregate principal amount of
Option Shares as to which the Initial Purchasers are then exercising the option
and the time and date of delivery and payment therefor. Any such time and date
of delivery and payment (an "Option Closing Date") shall be determined by the
Initial Purchasers, but shall not be later than five full business days after
the exercise of such option unless otherwise agreed by the Company and the
Initial Purchasers.
(c) The Initial Purchasers have advised the Company
that it is their intention, as promptly as they deem appropriate after the
Company shall have furnished the Initial Purchasers with copies of the Offering
Memorandum, to resell the Preferred Stock pursuant to the procedures and upon
the terms set forth in the Offering Memorandum, including not to solicit any
offer to buy or offer to sell the Preferred Stock by means of any form of
general solicitation or general advertising (within the meaning of Regulation D
under the Securities Act) or in any manner involving a public offering within
the meaning of Section 4(2) of the Securities Act. The Initial Purchasers
warrant and agree with the Company that they have solicited and will solicit
offers (the "Exempt Resales") for Preferred Stock only from, and will offer
Preferred Stock only to, persons that they reasonably believe to be (i) QIBs in
transactions that meet the requirements for an exemption from the registration
requirements of the Securities Act under Rule 144A or (ii) to a limited number
of Institutional Accredited Investors that execute and deliver a letter
containing certain representations and agreements in the form attached as Annex
A of the Offering Memorandum. The QIBs and the Institutional Accredited
Investors are referred to herein as "Eligible Purchasers." Each of the Initial
Purchasers represents and warrants that it is an Institutional Accredited
Investor with such knowledge and experience in financial and business matters
as are necessary to evaluate the merits and risks of an investment in the
Preferred Stock, and is acquiring its interest in the Preferred Stock not with
a view to the
## CT01/SCHIJ/68169.34
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<PAGE> 10
distribution or resale thereof, except resales in compliance with the
registration requirements or exemption provisions of the Securities Act and
that neither it, nor anyone acting on its behalf, will offer the Preferred
Stock so as to bring the issuance and sale of the Preferred Stock within the
provisions of Section 5 of the Securities Act. The Company acknowledges and
agrees that the Initial Purchasers may sell Preferred Stock to any affiliate of
either of the Initial Purchasers and any such affiliate may sell Preferred
Stock purchased by it to the Initial Purchasers. Each of the Initial
Purchasers agrees that, prior to or simultaneously with the confirmation of
sale by it to any purchaser of any of the Preferred Stock purchased from the
Company pursuant hereto, such Initial Purchaser shall furnish to that purchaser
a copy of the Offering Memorandum (and any amendment thereof or supplement
thereto that the Company shall have furnished to the Initial Purchasers prior
to the date of such confirmation of sale).
3. DELIVERY OF AND PAYMENT FOR THE PREFERRED STOCK.
Delivery of, and payment for, the Firm Shares shall be made at 10:00 A.M., New
York City time, on November 3, 1995, or at such other date or time as shall be
agreed by the Initial Purchasers and the Company (such date and time being
referred to herein as the "Closing Date"). Delivery of, and payment for, the
Firm Shares and the Option Shares shall be made at the offices of Kelley Drye &
Warren, New York, New York, or any such other place as shall be agreed by the
Initial Purchasers and the Company. On the Closing Date, the Company shall
deliver or cause to be delivered to the Initial Purchasers certificates for the
Firm Shares against payment to or upon the order of the Company of the purchase
price by wire or book-entry transfer of immediately available funds. On each
Option Closing Date, the Company shall deliver or cause to be delivered to the
Initial Purchasers certificates for the Option Shares purchased thereat against
payment to or upon the order of the Company of the purchase price by wire or
book-entry transfer of immediately available funds. Upon delivery, the
Preferred Stock shall be in global form, in such denominations and registered
in such names, or otherwise, as the Initial Purchasers shall have requested in
writing not less than two full business days prior to the Closing Date. The
Company shall make the certificates for the Preferred Stock available for
inspection by the Initial Purchasers in New York, New York, not later than one
full business day prior to the Closing Date.
4. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company
covenants and agrees with the Initial Purchasers as follows:
(a) during the period ending 90 days after the date
hereof to advise the Initial Purchasers promptly and, if requested, confirm
such advice in writing, of the happening of any event which makes any statement
of a material fact made in the Offering Memorandum untrue or that requires the
making of any additions to or changes in the Offering Memorandum (as amended or
supplemented from time to time) in order to make the statements therein, in
light of the circumstances under which they were made, not misleading; to
advise the Initial Purchasers promptly of any order preventing or suspending
the use of the Preliminary Offering Memorandum or the Offering Memorandum, of
the suspension of the qualification of the Preferred Stock for offering or sale
in any jurisdiction and of the initiation or threatening of any proceeding for
any such purpose; and to use its reasonable best efforts to prevent the
issuance of any such order preventing or suspending the use of the Preliminary
Offering Memorandum or of the Offering Memorandum or suspending any such
qualification and, if any such suspension is issued, to use its reasonable best
effort to obtain the lifting thereof at the earliest possible time;
(b) to furnish promptly to the Initial Purchasers
and counsel for the Initial Purchasers, without charge, as many copies of the
Preliminary Offering Memorandum and the Offering Memorandum (and of any
amendments or supplements thereto) as may be reasonably requested; to furnish
to the Initial Purchasers on the date hereof a copy of the independent
accountants' report included in the Offering Memorandum signed by the
accountants rendering such report; and the Company hereby consents to the use
of the Preliminary Offering Memorandum and the Offering Memorandum, and any
amendments and supplements thereto, in connection with Exempt Resales of the
Preferred Stock;
(c) if the delivery of the Offering Memorandum is
required at any time in connection with the sale of the Preferred Stock and if
at such time any events shall have occurred as a result of which the Offering
Memorandum as then amended or supplemented would include an untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made when the Offering Memorandum is delivered, not misleading, or if for any
other
## CT01/SCHIJ/68169.34
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<PAGE> 11
reason it shall be necessary at such time to amend or supplement the Offering
Memorandum in order to comply with any law, to notify the Initial Purchasers
immediately thereof, and to promptly prepare and furnish to the Initial
Purchasers an amended Offering Memorandum or a supplement to the Offering
Memorandum so that statements in the Offering Memorandum, as so amended or
supplemented, will not, in light of the circumstances under which they were
made when it is so delivered, be misleading, or so that the Offering Memorandum
will comply with applicable law. The Initial Purchasers' delivery of any such
amendment or supplement shall not constitute a waiver of any of the conditions
set forth in Section 5 hereof;
(d) during the five-year period following the
Closing Date, provided any of the Preferred Stock or the Notes remain
outstanding, to furnish to the Initial Purchasers all public reports and all
reports, documents, information and financial statements furnished by the
Company to the Commission pursuant to the Trust Indenture Act, the Exchange Act
or the Rules and Regulations;
(e) during the three-year period following the
Closing Date, for so long as and at any time that it is not subject to Section
13 or 15(d) of the Exchange Act, upon request of any holder of the Preferred
Stock or the Notes, to furnish to such holder, and to any prospective purchaser
or purchasers of the Preferred Stock or the Notes designated by such holder,
information satisfying the requirements of subsection (d)(4) of Rule 144(A)
under the Securities Act. This covenant is intended to be for the benefit of
the holders from time to time of the Preferred Stock and the Notes, and
prospective purchasers of the Preferred Stock or the Notes designated by such
holders;
(f) to use the proceeds from the sale of the
Preferred Stock in the manner described in the Offering Memorandum under the
caption "Use of Proceeds";
(g) in connection with the Offering, to make its
officers, employees, independent accountants and legal counsel reasonably
available upon request by the Initial Purchasers;
(h) to use its reasonable best efforts to do and
perform all things required to be done and performed under this Agreement by it
that are within its control prior to or after the Closing Date and to use
reasonable efforts to satisfy all conditions precedent on its part to the
delivery of the Securities;
(i) except following the effectiveness of the Shelf
Registration Statement, to not authorize or knowingly permit any person acting
on its or their behalf to, solicit any offer to buy or offer to sell the
Preferred Stock by means of any form of general solicitation or general
advertising (as such terms are used in Regulation D under the Securities Act)
or in any manner involving a public offering within the meaning of Section 4(2)
of the Securities Act;
(j) to not, and to use its reasonable best efforts
to ensure that no affiliate (as such term is defined in Rule 501(b) under the
Securities Act) of the Company will, offer, sell or solicit offers to buy or
otherwise negotiate in respect of any "security" (as defined in the Securities
Act) which could be integrated with the sale of the Preferred Stock in a manner
that would require the registration of the Preferred Stock under the Securities
Act;
(k) to not, so long as the Preferred Stock or the
Notes are outstanding, be or become, or be or become owned by, an open-end
investment company, unit investment trust or face-amount certificate company
that is or is required to be registered under Section 8 of the Investment
Company Act, and to not be or become, or be or become owned by, a closed-end
investment company required to be registered, but not registered thereunder;
(l) to cooperate with the Initial Purchasers and
counsel for the Initial Purchasers to qualify the Preferred Stock for offering
and sale under the securities laws of such jurisdictions as the Initial
Purchasers may reasonably request and to comply with such laws so as to permit
the continuance of sales and dealings therein in such jurisdictions for as long
as may be necessary to complete the distribution of the Preferred Stock;
provided, however, that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to
## CT01/SCHIJ/68169.34
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<PAGE> 12
file a general consent to service of process or to subject it to taxation in
any jurisdiction where it is not so qualified or so subject;
(m) to comply with the Registration Rights Agreement
and all agreements set forth in the representation letters of the Company to
The Depository Trust Company relating to the approval of the Preferred Stock
and/or the Notes for "book-entry" transfers;
(n) in connection with the Offering, until the
Initial Purchasers shall have notified the Company of the completion of the
resale of the Preferred Stock, to not and use its reasonable best efforts to
not permit any affiliated purchasers (as defined in Rule 10b-6 under the
Exchange Act), either alone or with one or more other persons, to bid for or
purchase, for any account in which it or any of its affiliated purchasers has a
beneficial interest, any Preferred Stock, or attempt to induce any person to
purchase any Preferred Stock; and to not and use its reasonable best efforts to
not permit any of its affiliated purchasers to make bids or purchases for the
purpose of creating actual, or apparent, active trading in or of raising the
price of the Preferred Stock;
(o) prior to the Closing Date, to not issue any
press release or other communication directly or indirectly or hold any press
conference with respect to the Company, its condition, financial or otherwise,
or earnings, business affairs or business prospects, without the prior consent
of the Initial Purchasers, unless in the judgment of the Company and its
counsel, and after notification to the Initial Purchasers, such press release
or communication is required by law;
(p) to not take any action prior to the execution
and delivery of the Indenture which, if taken after such execution and
delivery, would have violated any of the covenants contained in the Indenture;
(q) to not take any action prior to the Closing Date
which in the Company's reasonable judgment would require the Offering
Memorandum to be amended or supplemented pursuant to Section 4(c) hereof;
(r) to maintain a transfer agent and, if necessary
under the laws of the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for the Common Stock; and
(s) for a period of five (5) years from the date
hereof, to use its best efforts to maintain the Private Offerings, Resale and
Trading through Automated Linkages ("Portal") Market (or after the Shelf
Registration Statement, Nasdaq Stock Market or national securities exchange
listing) listing of the Preferred Stock or the Notes, to the extent
outstanding, and the Nasdaq Stock Market (or national securities exchange)
listing of the Common Stock.
5. Payment of Expenses.
--------------------
(a) The Company hereby agrees to pay all of the
following expenses and fees incident to the performance of the obligations of
the Company under this Agreement, the Indenture and the Registration Rights
Agreement, including, regardless of whether any sale of the Preferred Stock to
the Initial Purchasers is consummated (subject to paragraph (b) below): (i) the
fees and expenses of accountants and counsel for the Company (subject to the
limitation set forth in Section 6(i) hereof), (ii) all costs and expenses
incurred in connection with the preparation, duplication, printing (including
mailing and handling charges), delivery and mailing (including the payment of
postage with respect thereto) of each Preliminary Offering Memorandum and the
Offering Memorandum and any amendments and supplements thereto, in quantities
as hereinabove stated, (iii) the printing, engraving, issuance and delivery of
the certificates representing the Preferred Stock and the Notes, (iv) costs and
expenses of travel, food and lodging of Company personnel in connection with
the "road show," information meetings and presentations, (v) fees and expenses
of the transfer agent and registrar, (vi) fees and expenses of the Trustee,
including the Trustee's counsel, in connection with the Indenture and the Notes
and (vii) the fees payable to the NASD, CUSIP Service Bureau and DTC incurred
in connection with the listing of the Preferred Stock, the Notes and the
Conversion Shares for trading in the PORTAL Market, (viii) the fees payable to
the Securities and Exchange Commission and Nasdaq in connection with the filing
of a registration statement with respect to the
## CT01/SCHIJ/68169.34
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<PAGE> 13
Preferred Stock, the Notes and the Underlying Shares and the listing of the
same on Nasdaq and (ix) all other costs and expenses incident to the
performance of its obligations hereunder which are not specifically otherwise
provided for in this Section. In addition, no later than at the Closing the
Company will pay or reimburse up to $25,000 of the Initial Purchasers'
reasonable and accountable out-of-pocket due diligence expenses, including but
not limited to travel and lodging expenses in connection with the Offering, in
connection with the offering, purchase and sale of the Preferred Stock. The
Company shall not be responsible for any promotional or tombstone expenses, if
any, related to the Offering, lodging and travel expenses of the Initial
Purchasers' personnel on the "road show" or expenses of counsel for the Initial
Purchasers.
(b) If this Agreement is terminated for any reason,
the Company shall reimburse and indemnify the Initial Purchasers for their
actual accountable out-of-pocket expenses, less any amounts already paid
pursuant to Section 5(a) hereof.
6. CONDITIONS OF THE INITIAL PURCHASERS' OBLIGATIONS.
The obligations of the Initial Purchasers hereunder shall be subject to the
continuing accuracy of the representations and warranties of the Company herein
as of the date hereof and as of the Closing Date and each Option Closing Date,
if any, as if they had been made on and as of the Closing Date or each Option
Closing Date, as the case may be; and the performance by the Company on and as
of the Closing Date and each Option Closing Date, if any, of its covenants and
obligations hereunder and to the following further conditions:
(a) The Initial Purchasers shall not have advised
the Company that the Offering Memorandum, or any supplement or amendment
thereto, contains an untrue statement of fact which, in the Initial Purchasers'
opinion, is material, or omits to state a fact which, in the Initial
Purchasers' opinion, is material and is required to be stated therein or is
necessary to make the statements, in light of the circumstances under which
they were made, not misleading. No order suspending the sale of the Securities
in any jurisdiction shall have been issued on either the Closing Date or the
relevant Option Closing Date, if any, and no proceedings for that purpose shall
have been instituted or shall be contemplated.
(b) On or prior to the Closing Date, the Initial
Purchasers shall have received from Kelley Drye & Warren such opinion or
opinions with respect to the organization of the Company, the validity of the
Preferred Stock, the Notes, the Conversion Shares, the Offering Memorandum and
other related matters as the Initial Purchasers may request and Kelley Drye &
Warren shall have received such papers and information as they request to
enable it to pass upon such matters.
(c) At Closing Date, the Initial Purchasers shall
have received the favorable opinion of Rubin Baum Levin Constant & Friedman,
counsel to the Company, dated the Closing Date, addressed to the Initial
Purchasers and in form and substance satisfactory to the Initial Purchasers and
Kelley Drye & Warren, to the effect that:
i) (A) the Company and each of the Subsidiaries has
been duly organized and the Company and each of the
Subsidiaries is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation,
(B) the Company and each of the Significant Subsidiaries is
duly qualified and in good standing as a foreign corporation
in each jurisdiction identified in a schedule to such opinion
and (C) the Company and each of the Subsidiaries has all
requisite power and authority to own or lease its properties
and conduct its business as described in the Offering
Memorandum;
ii) the Company's authorized capital stock is as set
forth under the heading "Capitalization" in the Offering
Memorandum, subject to such adjustments therein as are
expressly contemplated by the Offering Memorandum; all of the
outstanding shares of capital stock of each of the
Subsidiaries are owned by the Company, directly or through one
or more Subsidiaries, in each case free and clear of any
liens, charges, claims, pledges, security interests or
encumbrances of any kind whatsoever other than as disclosed in
the Offering Memorandum;
## CT01/SCHIJ/68169.34
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<PAGE> 14
iii) except as disclosed in the Offering Memorandum,
to the best of such counsel's knowledge, neither the Company
nor any of the Subsidiaries is a party to or bound by any
instrument, agreement or other arrangement providing for it to
issue any capital stock, rights, warrants, options or other
securities of the Company or any of the Subsidiaries, except
for this Agreement and as described in the Offering
Memorandum; the Certificate of Designations, the Indenture,
the Securities and all other securities issued or issuable by
each of the Company or any of the Subsidiaries which are
described in the Offering Memorandum conform, or when issued
and paid for, will conform in all material respects to the
descriptions thereof contained in the Offering Memorandum; all
issued and outstanding capital stock of the Company or any of
the Subsidiaries has been duly authorized and validly issued
and is fully paid and non-assessable; to the best of such
counsel's knowledge, none of such securities were issued in
violation of the preemptive rights of any securityholder of
the Company or any of the Subsidiaries or similar contractual
rights granted by the Company or any of the Subsidiaries or
applicable securities laws; the Preferred Stock has been duly
authorized and, when paid for by the Initial Purchasers in the
manner contemplated by this Agreement, will be validly issued,
fully paid and nonassessable; the Notes issuable upon exchange
of the Preferred Stock in accordance with the Certificate of
Designations have been duly authorized and, when executed and
authenticated in the manner contemplated by the Indenture,
will be valid and binding obligations of the Company entitled
to the benefits of the Indenture and enforceable against the
Company in accordance with their terms, except to the extent
that enforceability thereof may be limited by (1) bankruptcy,
insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditors' rights generally;
or (2) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in
equity); the shares of Common Stock issuable upon conversion
of the Preferred Stock or the Notes have been duly authorized
and reserved for issuance upon conversion and, when issued,
delivered and paid for in accordance with the terms of the
Indenture, will be validly issued, fully paid and
nonassessable; and the holders of outstanding securities of
the Company are not entitled to any preemptive rights with
respect to the Securities; all corporate action required to be
taken for the authorization, issue and sale of the Securities
has been duly and validly taken; and the certificates
representing the Securities are in due and proper form; upon
the issuance and delivery pursuant to this Agreement of the
Preferred Stock to be sold by the Company hereunder, the
Initial Purchasers will acquire good and marketable title
thereto free and clear of any pledge, lien, charge, claim,
encumbrance, pledge, security interest or other restriction or
equity of any kind whatsoever;
iv) the descriptions in the Offering Memorandum of
agreements and documents to which the Company or any of the
Subsidiaries is a party or by which any of them or their
respective properties are bound, including any such agreement
or document incorporated by reference into the Offering
Memorandum, or of any statutes, are accurate in all material
respects and fairly present the subject matter thereof; to the
best of such counsel's knowledge, there is no action, suit, or
other proceeding pending or threatened in writing or any
judgments outstanding against the Company or any of the
Subsidiaries which (A) questions the validity of the capital
stock of the Company or any of the Subsidiaries or of this
Agreement, the Certificate of Designations, the Indenture, the
Registration Rights Agreement or of any action taken or to be
taken by the Company or any of the Subsidiaries pursuant to or
in connection with any of the foregoing or (B) except as
disclosed in the Offering Memorandum, could have a Material
Adverse Effect;
v) the Company has the corporate power and authority
to execute, deliver and perform each of this Agreement, the
Certificate of Designations, the Indenture and the
Registration Rights Agreement and to consummate the
transactions provided for herein and therein; the execution
and delivery of this Agreement, the Indenture (if and when
executed) and the Registration Rights Agreement have been duly
authorized by all requisite corporate action on the part of
the Company and each of this Agreement and the Registration
Rights Agreement has been duly executed and delivered by the
Company, and assuming due authorization, execution and
delivery by each other party thereto, constitutes a valid and
binding agreement of the Company enforceable against the
## CT01/SCHIJ/68169.34
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<PAGE> 15
Company in accordance with its terms; except to the extent
that enforcement thereof may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity (regardless of
whether enforceability is considered in a proceeding at law or
in equity) and except to the extent that rights to
indemnification and contribution contained in this Agreement
and the Registration Rights Agreement may be limited by
federal or state securities laws or public policy relating
thereto; the Certificate of Designations has been filed with
the Secretary of State of the State of Delaware;
vi) the execution and delivery by the Company of the
Purchase Agreement, the Indenture (if and when executed) and
the Registration Rights Agreement, the performance by the
Company thereunder, the compliance by the Company with the
provisions thereof and the consummation of the transactions
contemplated thereby, each in accordance with its terms, do
not and will not conflict with or result in any breach or
violation of, constitute a default under or result in the
creation or imposition of any lien, charge, claim, pledge,
security interest or other encumbrance upon any property or
assets of the Company or the Subsidiaries pursuant to the
terms of (A) the charter or by-laws of the Company or any of
the Subsidiaries, (B) any license, contract, indenture,
mortgage, deed of trust, voting trust agreement, stockholders'
agreement, note, loan or credit agreement or other agreement
or instrument known to such counsel to which the Company or
any of the Subsidiaries is a party or by which any of them is
or may be bound or to which any of their respective properties
or assets is or may be subject, except for such conflicts,
breaches, violations, defaults and creations or impositions
which in the aggregate would not have a Material Adverse
Effect, or (C) any statute, rule or regulation (other than
federal or state securities laws) or, to the best of such
counsel's knowledge, any judgment, decree or order applicable
to the Company or any of the Subsidiaries of any arbitrator,
court, regulatory body or administrative agency or other
governmental agency or body having jurisdiction over the
Company or any of the Subsidiaries or any of their respective
activities or properties, except with respect to this clause
(C) for such conflicts, breaches, violations, defaults and
creations or impositions which in the aggregate would not have
a Material Adverse Effect. Such counsel need express no
opinion in this paragraph (vi) as to (A) state securities or
Blue Sky laws or (B) with respect to matters of fact relating
to compliance with any financial covenants, ratios or tests or
any aspect of the financial condition or results of operations
of the Company;
vii) to the knowledge of such counsel, the Company
and the Subsidiaries are not in violation of their charters or
by- laws; neither the Company nor any of the Subsidiaries is
in breach of, or in default with respect to, any provisions of
any license, contract, indenture, mortgage, deed of trust,
voting trust agreement, stockholders' agreement, note, loan or
credit agreement or other agreement or instrument known to
such counsel to which the Company or any of the Subsidiaries
is a party or by which any of them is or may be bound or to
which any of their respective properties or assets is or may
be subject, except for such breaches or defaults as would not
have a Material Adverse Effect, and to the knowledge of such
counsel, the Company and the Subsidiaries are in material
compliance with all judgments, decrees and orders of any
judicial or governmental authority to which the Company or any
of the Subsidiaries or by which any of them is or may be bound
or to which any of their respective properties or assets is or
may be subject, except for such noncompliance as would not
have a Material Adverse Effect;
viii) no consent, approval, authorization or order
of, and no filing with, any court, regulatory body, government
agency or other body (other than such as may have been made or
obtained and such as may be required under state securities or
Blue Sky laws, as to which no opinion need be rendered) is
required in connection with the issuance of the Securities as
contemplated by the Offering Memorandum, the performance of
this Agreement, the Certificate of Designations, the Indenture
and the Registration Rights Agreement, and the transactions
contemplated hereby and thereby; to the knowledge of such
counsel, the Company and each of the Subsidiaries holds all
licenses, certificates, permits, franchises, consents,
authorizations and
## CT01/SCHIJ/68169.34
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<PAGE> 16
approvals from all state and federal regulatory authorities
that are required for the Company and the Subsidiaries to
conduct their business as described in the Offering
Memorandum, except for such licenses, certificates, permits,
franchises, consents, authorizations and approvals the loss of
which or the failure to maintain would not have a Material
Adverse Effect;
ix) the statements in the Offering Memorandum under
the caption "Federal Income Tax Considerations" have been
reviewed by such counsel, and insofar as they refer to
statements of law, or descriptions of statutes, licenses,
rules or regulations or legal conclusions, are correct in all
material respects;
x) assuming the (A) accuracy of the representations,
warranties and agreements of the Company contained in Section
1(z) and (aa) of this Agreement and of the Initial Purchasers
in Section 2 of this Agreement and in the Purchase Letter, if
any, and (B) the due performance by the Company of the
agreements set forth in Section 4 of this Agreement and of the
Initial Purchasers in Section 3 this Agreement, neither the
registration of the Securities under the Securities Act, nor
the qualification of the Indenture under the Trust Indenture
Act with respect thereto is required for the offer, sale and
initial resale of the Preferred Stock in the manner
contemplated by this Agreement and the Offering Memorandum, it
being understood that such counsel need express no opinion as
to any subsequent resale of any of the Securities; and
xi) the Company is not an "investment company,"
within the meaning of, is not registered or otherwise required
to be registered under, and is not "controlled" by a company
which is required to be registered under, the Investment
Company Act of 1940, as amended.
In rendering such opinion, such counsel may rely: (A) as to matters involving
the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to the Initial Purchasers and
Kelley Drye & Warren) of other counsel acceptable to the Initial Purchasers and
Kelley Drye & Warren, familiar with the applicable laws; and (B) as to matters
of fact, to the extent they deem proper, on certificates and written statements
of responsible officers of the Company and certificates or other written
statements of officers of departments of various jurisdictions having custody
of documents respecting the corporate existence or good standing of the Company
and the Subsidiaries, provided, that copies of any such statements or
certificates shall be delivered to the Initial Purchasers and Kelley Drye &
Warren, if requested. In addition, such counsel shall state in such opinion
that they have conducted such investigation as they deem reasonable in support
of the opinions referred to above and in satisfaction of their due diligence
obligations to the Company . The opinion of such counsel for the Company shall
state that the opinion of any such other counsel is in form satisfactory to
such counsel and that the Initial Purchasers and they are justified in relying
thereon.
(d) Rubin Baum Levin Constant & Friedman shall state
in the opinion letter contemplated by Section 6(c) that such counsel has
participated in conferences with officers and other representatives of each of
the Company and the Subsidiaries and representatives of the independent public
accountants for the Company and the Subsidiaries and the Initial Purchasers, at
which conferences the contents of the Offering Memorandum and related matters
were discussed, and, although such counsel is not passing upon, and does not
assume any responsibility for, the accuracy, completeness or fairness of the
statements contained in the Offering Memorandum, on the basis of the foregoing,
no facts have come to the attention of such counsel which has lead them to
believe that the Offering Memorandum, as of its date contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except that such counsel express no opinion or belief with respect to the
financial statements and related notes, the pro forma financial information and
other financial, statistical or accounting data included in the Offering
Memorandum or excluded therefrom);
(e) On or prior to the Closing Date, Kelley Drye &
Warren shall have been furnished such documents, certificates and opinions as
they may reasonably require for the purpose of enabling them to review
## CT01/SCHIJ/68169.34
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<PAGE> 17
or pass upon the matters referred to in subsection (c) of this Section 6 or in
order to evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions of the Company herein contained.
(f) Prior to the Closing Date: (i) there shall have
been no adverse change involving a prospective change in the condition,
financial or otherwise, prospects, stockholders' equity or the business
activities of the Company and the Subsidiaries taken as a whole, whether or not
in the ordinary course of business, from the latest dates as of which such
condition is set forth in the Offering Memorandum; (ii) there shall have been
no transaction, not in the ordinary course of business, entered into by the
Company or any of the Subsidiaries, from the latest date as of which the
financial condition of the Company and the Subsidiaries is set forth in the
Offering Memorandum which is materially adverse to the Company and the
Subsidiaries taken as a whole; (iii) neither the Company nor any of the
Subsidiaries shall be in default under any provision of any instrument relating
to any material outstanding indebtedness; (iv) no material amount of the assets
of the Company or any of the Subsidiaries shall have been pledged or mortgaged,
except as set forth in the Offering Memorandum; (v) no action, suit or
proceeding, at law or in equity, shall have been pending, threatened or, to the
knowledge of the Company, contemplated against the Company or any of the
Subsidiaries, or affecting any of their respective properties or businesses,
before or by any court or federal, state or foreign commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding may
have a Material Adverse Effect, except as set forth in the Offering Memorandum;
and (vi) no stop order shall have been issued under the Securities Act and no
proceedings therefor shall have been initiated or threatened or, to the
knowledge of the Company, contemplated by the Commission or any state
regulatory authority.
(g) At the Closing Date, the Initial Purchasers
shall have received a certificate of the Company signed by the principal
executive officer and by the chief financial or chief accounting officer of the
Company, in their capacities as such, dated the Closing Date, to the effect
that each of such persons has carefully examined the Offering Memorandum, this
Agreement and the Indenture, and that:
i) the representations and warranties of the Company
in this Agreement, the Indenture and the Registration Rights
Agreement are true and correct, as if made on and as of the
Closing Date or such Option Closing Date, as the case may be,
and the Company has complied with all agreements and covenants
and satisfied all conditions contained in this Agreement, the
Indenture and the Registration Rights Agreement on its part to
be performed or satisfied at or prior to the Closing Date;
ii) no stop order suspending the qualification or
exemption from qualification of the Securities shall have been
issued and no proceedings for that purpose shall have been
commenced or, to the knowledge of the Company, be
contemplated;
iii) since the date of the most recent financial
statements included in the Offering Memorandum, there has been
no material adverse change in the condition, financial or
otherwise, business, prospects or results of operation of the
Company and the Subsidiaries, taken as a whole, except as set
forth in the Offering Memorandum;
iv) none of the Offering Memorandum or any amendment
or supplement thereto includes any untrue statement of a
material fact or omits to state any material fact required to
be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading; and
v) subsequent to the respective dates as of which
information is given in the Offering Memorandum: (a) neither
the Company nor any of the Subsidiaries has incurred up to and
including the Closing Date or the Option Closing Date, as the
case may be, other than in the ordinary course of its
business, any material liabilities or obligations, direct or
contingent, except as disclosed in the Offering Memorandum;
(b) neither the Company nor any of the Subsidiaries has paid
or declared any dividends or other distributions on its
capital stock; (c) neither the Company nor any of the
Subsidiaries has entered into any material transactions not in
the ordinary
## CT01/SCHIJ/68169.34
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<PAGE> 18
course of business, except as disclosed in the Offering
Memorandum; (d) there has not been any change in the capital
stock (other than pursuant to the Company's Stock Option Plan,
1994 Outside Directors Stock Option Plan or 1994 Stock
Repurchase Plan or upon conversion of the Existing Preferred
or the exercise of Warrants outstanding on such respective
dates) or the long term debt of the Company or any of the
Subsidiaries; (e) neither the Company nor any of the
Subsidiaries has sustained any material loss or damage to its
property or assets, whether or not insured; (f) there is no
litigation which is pending, threatened or, to the best of the
Company's knowledge, contemplated against the Company, any of
the Subsidiaries or any affiliated party of any of the
foregoing which would have a Material Adverse Effect and which
is required to be set forth in an amended or supplemented
Offering Memorandum which has not been set forth; and (g)
there has occurred no event which would be required to be set
forth in an amended or supplemented prospectus if the Offering
Memorandum were a prospectus included in a registration
statement on Form S-3, which has not been set forth in an
amendment or supplement to the Offering Memorandum.
(h) On or before the date hereof the Initial
Purchasers shall have received a letter, dated such date, addressed to the
Initial Purchasers in form and substance satisfactory in all respects to the
Initial Purchasers and Kelley Drye & Warren, from Arthur Andersen LLP:
i) confirming that they are independent certified
public accountants with respect to the Company within the
meaning of the Securities Act and the Exchange Act and the
applicable Rules and Regulations;
ii) stating that it is their opinion that the
consolidated financial statements and supporting schedules of
the Company and the Subsidiaries included in the Offering
Memorandum or incorporated by reference therein comply as to
form in all material respects with the applicable accounting
requirements of the Securities Act;
iii) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and
earnings, statements and/or other financial information
pertaining to the Company and the Subsidiaries set forth in
the Offering Memorandum in each case to the extent that such
amounts, numbers, percentages, statements and information may
be derived from the general accounting records, including work
sheets, of the Company and/or the Subsidiaries and excluding
any questions requiring an interpretation by legal counsel,
with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which
procedures need not constitute an examination in accordance
with generally accepted auditing standards) set forth in the
letter and found them to be in agreement; and
iv) statements as to such other matters incident to
the transaction contemplated hereby as the Initial Purchasers
may reasonably request.
(i) At the Closing Date and each Option Closing
Date, if any, the Initial Purchasers shall have received from Arthur Andersen
LLP a letter, dated as of the Closing Date or such Option Closing Date, as the
case may be, to the effect that they reaffirm that statements made in the
letter furnished pursuant to subsection (h) of this Section 6, except that the
specified date referred to shall be a date not more than five (5) days prior to
the Closing Date or such Option Closing Date, as the case may be, to the
further effect that they have carried out procedures as specified in clause
(iii) of subsection (h) of this Section 6 with respect to certain amounts,
percentages and financial information as specified by the Initial Purchasers
and deemed to be a part of the Offering Memorandum and have found such amounts,
percentages and financial information to be in agreement with the records
specified in such clause (iii). If there is more than one Option Closing, the
obligations of the Company pursuant to this Section 6(i) shall be conditioned
upon the payment by the Initial Purchasers of the fees and expenses of Arthur
Andersen LLP incurred to provide the foregoing letter at any Option Closing
after the initial Option Closing.
## CT01/SCHIJ/68169.34
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<PAGE> 19
(j) On each of the Closing Date and each Option
Closing Date, if any, there shall have been duly tendered to the Initial
Purchasers the appropriate number of shares of Preferred Stock.
(k) The Preferred Stock and the Notes shall have
been approved by the National Association of Securities Dealers, Inc. for
trading in the PORTAL market.
(l) Trading in the Common Stock shall not have been
suspended by Nasdaq at any time after October 1, 1995.
(m) Subsequent to the execution and delivery of this
Agreement there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange, the American Stock
Exchange or the over-the-counter market shall have been suspended or limited,
or minimum prices shall have been established on either of such exchanges or
such market by the Commission, by such exchange or by any other regulatory body
or governmental authority having jurisdiction, or trading in securities of the
Company on any exchange or in the over-the-counter market shall have been
suspended or (ii) any moratorium on commercial banking activities shall have
been declared by Federal or New York State authorities or (iii) an outbreak or
escalation of hostilities or a declaration by the United States of a national
emergency or war or such a material adverse change in general economic,
political or financial conditions (or the effect of international conditions on
the financial markets in the United States shall be such) as to make it, in the
judgment of the Initial Purchasers, impracticable or inadvisable to proceed
with the offering or the delivery of the Preferred Stock on the terms and in
the manner contemplated in the Offering Memorandum.
(n) The Company and the Initial Purchasers shall
have executed and delivered the Registration Rights Agreement on the date of
this Agreement.
(o) The Certificate of Designations shall have been
duly executed and filed by the Company with the Secretary of State of the State
of Delaware.
(p) If any event shall have occurred that requires
the Company under Section 4(c) hereof to prepare an amendment or supplement to
the Offering Memorandum, such amendment or supplement shall have been prepared,
the Initial Purchasers shall have been given a reasonable opportunity to
comment thereon, and copies thereof delivered to the Initial Purchasers.
(q) There shall not have occurred any invalidation
of Rule 144A under the Securities Act by any court or any withdrawal or
proposed withdrawal of any rule or regulation under the Securities Act or the
Exchange Act by the Commission or any amendment or proposed amendment thereof
by the Commission which in the judgment of the Initial Purchasers would
materially impair the ability of the Initial Purchasers to purchase, hold or
effect resales of the Preferred Stock as contemplated hereby.
All opinions, letters, evidence and certificates mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if they are in form and substance reasonably
satisfactory to the Initial Purchasers.
If any condition to the Initial Purchasers' obligations
hereunder to be fulfilled prior to or at the Closing Date or the relevant
Option Closing Date, as the case may be, is not so fulfilled, the Initial
Purchasers may terminate this Agreement or, if the Initial Purchasers so elect,
they may waive any such conditions which have not been fulfilled or extend the
time for their fulfillment.
7. Indemnification.
----------------
(a) The Company agrees to indemnify and hold
harmless the Initial Purchasers (for purposes of this Section 7, "Initial
Purchasers" shall include the officers, directors, partners, employees and
agents, and each person, if any, who controls either of the Initial Purchasers
("controlling person") within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act, from and against any and all losses,
claims,
## CT01/SCHIJ/68169.34
19
<PAGE> 20
damages, expenses or liabilities, joint or several (and actions, proceedings,
suits and litigation in respect thereof), whatsoever, as the same are incurred,
to which the Initial Purchasers or any such controlling person may become
subject, under the Securities Act, the Exchange Act or any other statute or at
common law or otherwise insofar as such losses, claims, damages, expenses or
liabilities arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Offering
Memorandum or the Offering Memorandum (as from time to time amended and
supplemented) or arise out of or are based upon the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein in the light of the circumstances
under which they were made, not misleading; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, expense or liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Memorandum or the Offering Memorandum or any such amendment or
supplement in reliance upon and in conformity with Initial Purchasers
Information and provided, further, that the Company shall not be liable to the
Initial Purchasers under the indemnity agreement in this subsection (a) (i)
with respect to any Preliminary Offering Memorandum to the extent that any such
loss, liability, claim, damage or expense of the Initial Purchasers arises out
of a sale of the Preferred Stock by such Initial Purchaser to a person to whom
there was not sent or given, at or prior to the written confirmation of such
sale, a copy of the Offering Memorandum (or of the Offering Memorandum as then
amended or supplemented) if the Company has previously furnished sufficient
copies thereof to the Initial Purchasers a reasonable time in advance and the
loss, liability, claim, damage or expense of such Initial Purchaser results
from an untrue statement or alleged untrue statement or omission or alleged
omission of a material fact contained in the Preliminary Offering Memorandum
which was corrected in the Offering Memorandum (or the Offering Memorandum as
amended or supplemented) or (ii) to the extent that any such loss, claim,
damage, expense or liability arises out of or is based upon any action or
failure to act by the Initial Purchasers, that is found in a final judicial
determination (or a settlement tantamount thereto) to constitute bad faith,
willful misconduct or gross negligence on the part of the Initial Purchasers.
The indemnity agreement in this subsection (a) shall be in addition to any
liability which the Company may have at common law or otherwise.
(b) The Initial Purchasers agree severally and not
jointly to indemnify and hold harmless the Company, each of its directors, each
of its officers, and each other person, if any, who controls the Company within
the meaning of the Securities Act, to the same extent as the foregoing
indemnity from the Company to the Initial Purchasers, but only with respect to
statements or omissions made in conformity with the Initial Purchasers
Information in any Preliminary Offering Memorandum or the Offering Memorandum
or any amendment thereof or supplement thereto.
(c) Promptly after receipt by an indemnified party
under this Section 7 of notice of the commencement of any action, suit or
proceeding, such indemnified party shall, if a claim in respect thereof is to
be made against one or more indemnifying parties under this Section 7, notify
each party against whom indemnification is to be sought in writing of the
commencement thereof (but the failure to notify an indemnifying party shall not
relieve it from any liability which it may have under this paragraph (a) or (b)
of Section 7 unless and to the extent that it has been prejudiced in a material
respect by such failure or from the forfeiture of substantial rights and
defenses). In case any such action, suit or proceeding is brought against any
indemnified party, and it notifies an indemnifying party or parties of the
commencement thereof, the indemnifying party or parties will be entitled to
participate therein, and to the extent it may elect by written notice delivered
to the indemnified party promptly after receiving the aforesaid notice from
such indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party, which may be the same counsel as
counsel to the indemnifying party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action at the expense of the
indemnifying party, (ii) the indemnifying parties shall not have employed
counsel reasonably satisfactory to such indemnified party to take charge of the
defense of such action within a reasonable time after notice of commencement of
the action or (iii) such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them which are
different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party
or parties), in any of which events such fees and expenses of one additional
counsel shall be borne by the
## CT01/SCHIJ/68169.34
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<PAGE> 21
indemnifying parties. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances.
Anything in this Section 7 to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim or action effected
without its written consent.
(d) In order to provide for just and equitable
contribution in any case in which (i) an indemnified party makes claim for
indemnification pursuant to this Section 7, but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that the express provisions of this Section 7 provide for indemnification
in such case, or (ii) contribution under the Securities Act may be required,
then each indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid as a result of such losses, claims,
damages, expenses or liabilities (or actions, suits, proceedings or litigation
in respect thereof) (A) in such proportion as is appropriate to reflect the
relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Securities or (B) if the allocation provided by clause (A) above is not
permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of each of the contributing parties, on the one hand, and the
party to be indemnified, on the other hand, in connection with the statements
or omissions that resulted in such losses, claims, damages, expenses or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company, on the one hand, and the Initial
Purchasers, on the other, shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Preferred Stock (before deducting
expenses) bear to the total discounts received by the Initial Purchasers
hereunder, in each case as set forth in the table on the Cover Page of the
Offering Memorandum. Relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Initial Purchasers, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
expenses or liabilities (or actions, suits, proceedings or litigation in
respect thereof) referred to above in this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating, preparing or defending any such action,
claim, suit, proceeding or litigation. Notwithstanding the provisions of this
subsection (d), the Initial Purchasers shall not be required to contribute any
amount in excess of the discount applicable to the Preferred Stock purchased by
the Initial Purchasers hereunder. No person guilty of fraudulent
misrepresentation (within the meaning of Section 12(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person, if
any, who controls the Company within the meaning of the Securities Act, each
executive officer of the Company and each director of the Company shall have
the same rights to contribution as the Company, subject in each case to this
subsection (d). Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit, proceeding or litigation
against such party in respect to which a claim for contribution may be made
against another party or parties under this subsection (d), notify such party
or parties from whom contribution may be sought, but the omission so to notify
such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subsection (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution
agreement set forth above shall be in addition to any liabilities which any
indemnifying party may have at common law or otherwise.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY.
All representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto
shall be deemed to be representations, warranties and agreements at the Closing
Date and each Option Closing Date, as the case may be, and the agreements of
the Company and the provisions with respect to the payment of expenses
contained in Sections 5 and 9 and the respective indemnity agreements contained
in Section 7 hereof shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Initial Purchasers,
the Company, any of the Subsidiaries or any controlling person, and shall
survive termination of this Agreement or the issuance and delivery of the
Preferred Stock to the Initial Purchasers.
## CT01/SCHIJ/68169.34
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<PAGE> 22
9. TERMINATION.
(a) Subject to subsection (b) of this Section 9, the
Initial Purchasers shall have the right to terminate this Agreement (i) if any
domestic or international event or act or occurrence has disrupted, or in the
Initial Purchasers' opinion will in the immediate future disrupt the financial
markets, or (ii) if any material adverse change in the financial markets shall
have occurred or (iii) if trading on the New York Stock Exchange, the American
Stock Exchange or in the over-the-counter market shall have been suspended, or
minimum or maximum prices for trading shall have been fixed, or maximum ranges
for prices for securities shall have been required on the over-the-counter
market by the NASD or by order of the Commission or any other government
authority having jurisdiction; or (iv) if the United States shall have become
involved in a war or major hostilities, or there shall have been an escalation
in an existing war or major hostilities, or a national emergency shall have
been declared in the United States; or (v) if a banking moratorium has been
declared by a state or federal authority; or (vi) if a moratorium in foreign
exchange trading has been declared; or (vii) if the Company or any of the
Subsidiaries shall have sustained a loss material or substantial to the Company
or any of the Subsidiaries by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act which, whether or not such
loss shall have been insured, will, in the Initial Purchasers' opinion, make it
inadvisable to proceed with the delivery of the Securities; or (viii) if there
shall have been such a material adverse change in the general market, political
or economic conditions in the United States or elsewhere, as in the Initial
Purchasers' judgment would make it inadvisable to proceed with the offering,
sale and/or delivery of the Preferred Stock.
(b) If this Agreement is terminated by the Initial
Purchasers in accordance with the provisions of Section 9(a) due to any events
or circumstances specifically applicable to the Company (as opposed to events
or circumstances having a general effect upon market, politcal or economic
conditions) or if this Agreement shall not be carried out within the time
specified herein, or any extension thereof granted to the Initial Purchasers,
by reason of any failure on the part of the Company to perform any undertaking
or satisfy any condition of this Agreement by it to be performed or satisfied
(including, without limitation, pursuant to Section 6, 9 or 10 hereof), then
the Company shall promptly reimburse and indemnify the Initial Purchasers for
all of their out-of-pocket expenses, including the fees and disbursements of
counsel for the Initial Purchasers (less amounts previously paid pursuant to
Section 5). If the amount previously paid pursuant to Section 5(a) above
exceeds the Initial Purchasers' out-of-pocket expenses, the Initial Purchasers
shall refund such excess to the Company. Notwithstanding any contrary
provision contained in this Agreement, any election hereunder or any
termination of this Agreement (including, without limitation, pursuant to
Sections 6, 9 and 10 hereof), and whether or not this Agreement is otherwise
carried out, the provisions of Section 5 and Section 7 shall not be in any way
affected by such election or termination or failure to carry out the terms of
this Agreement or any part hereof.
10. DEFAULT BY THE COMPANY. If the Company shall fail at
the Closing Date or any Option Closing Date, as applicable, to sell and deliver
the number of Securities which it is obligated to sell hereunder on such date,
then this Agreement shall terminate (or, if such default shall occur with
respect to any Option Securities to be purchased on an Option Closing Date, the
Initial Purchasers may, at its option, by notice from the Initial Purchasers to
the Company, terminate the Initial Purchasers' obligation to purchase Option
Preferred Stock from the Company on such date) without any liability on the
part of any non-defaulting party other than pursuant to Sections 5, 7 and 9
hereof. No action taken pursuant to this Section 10 shall relieve the Company
from liability, if any, in respect of such default.
11. NOTICES. All notices and communications hereunder,
except as herein otherwise specifically provided, shall be given in writing and
shall be deemed to have been duly given if mailed or transmitted by any
standard form of telecommunication. Notices to the Initial Purchasers shall be
directed to it at Forum Capital Markets L.P., 53 Forest Avenue, Old Greenwich,
Connecticut 06870, Attention: Mr. Keith Hartley, with a copy to Hanifen,
Imhoff Inc., 1125 17th Street, Suite 1600, Denver, Colorado 80202, Attention:
General Counsel, and with an additional copy to Kelley Drye & Warren, Two
Stamford Plaza, Stamford, Connecticut 06901, Attention: Jay R. Schifferli, Esq.
Notices to the Company shall be directed to the Company at 500 Throckmorton
Street, Fort Worth, Texas 76102, Attention: President, with a copy to Rubin
Baum Levin Constant & Friedman, 30 Rockefeller Plaza, New York, New York 10112,
Attention: Walter M. Epstein, Esq.
## CT01/SCHIJ/68169.34
22
<PAGE> 23
12. PARTIES. This Agreement shall inure solely to the
benefit of and shall be binding upon the Initial Purchasers, the Company and
the controlling persons, directors and officers referred to in Section 7
hereof, and their respective successors, legal representatives and assigns, and
no other person shall have or be construed to have any legal or equitable
right, remedy or claim under or in respect of or by virtue of this Agreement or
any provisions herein contained. No purchaser of Preferred Stock from the
Initial Purchasers shall be deemed to be a successor by reason merely of such
purchase.
13. CONSTRUCTION. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of New York
without giving effect to choice of law or conflict of laws principles.
14. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, and
all of which taken together shall be deemed to be one and the same instrument.
15. ENTIRE AGREEMENT; AMENDMENTS. This Agreement
constitutes the entire agreement of the parties hereto and supersedes all prior
written or oral agreements, understandings and negotiations with respect to the
subject matter hereof. This Agreement may not be amended except in a writing
signed by the Initial Purchasers and the Company.
If the foregoing correctly sets forth the understanding
between the Initial Purchasers and the Company, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement among us.
Very truly yours,
LOMAK PETROLEUM, INC.
By:_____________________________________________
Name:
Title:
Confirmed and accepted as of
the date first above written.
FORUM CAPITAL MARKETS L.P.
By:______________________________________________
Name:
Title:
HANIFEN, IMHOFF INC.
By:______________________________________________
Name:
Title:
## CT01/SCHIJ/68169.34
23
<PAGE> 24
ANNEX I
Subsidiaries
------------
Jurisdictions in
State of Ownership which Qualified to
Name Incorporation Percentage Conduct Business
- ---- ------------- ---------- ----------------
## CT01/SCHIJ/68169.34
24
<PAGE> 25
ANNEX II
ERISA Plans
-----------
## CT01/SCHIJ/68169.34
25
<PAGE> 1
EXHIBIT 4.1(q)
1
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:01 AM 07/08/1993
931895584 - 889546
CERTIFICATE
OF
DESIGNATION, VOTING POWERS,
PREFERENCES AND RIGHTS OF
THE PREFERRED STOCK
OF
LOMAK PETROLEUM, INC.
TO BE DESIGNATED
SERIAL PREFERRED STOCK --
7 1/2% CUMULATIVE CONVERTIBLE EXCHANGEABLE
PREFERRED STOCK SERIES A
Lomak Petroleum, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), pursuant to Section 151
of the General Corporation Law of the State of Delaware, certifies that the
Board of Directors of said Corporation at a meeting thereof duly called and
held on April 29, 1993, at which meeting a quorum was present and acting
throughout, duly adopted the following resolution providing for the issuance of
a series of preferred stock to be designated "Serial Preferred Stock -- 7 1/2%
Cumulative Convertible Exchangeable Preferred Stock Series A" and to consist of
87,400 shares;
"RESOLVED, that pursuant to the authority vested in the Board of
Directors by the Certificate of Incorporation, as amended, there is
hereby created a Series of Preferred Stock consisting of 87,400
shares of Serial Preferred Stock -- 7 1/2% Cumulative Convertible
Exchangeable Preferred Stock Series A, par value $1.00 per share
(such Preferred Stock being hereinafter referred to as the "7 1/2%
Convertible A Preferred Stock") with the designations, powers,
preferences and relative, participating, optional and other special
rights, qualifications, limitations and restrictions set forth in
the Certificate of Incorporation, as amended, which are applicable
to Preferred Stock"; as follows:
<PAGE> 2
2
1. DESIGNATION OF SERIES: NUMBER OF SHARES. The distinctive
designation of this series of Preferred Stock shall be "7 1/2%
Convertible Exchangeable Preferred Stock Series A", the number of
shares which shall constitute such series shall be 87,400 shares.
2. DIVIDENDS. The annual rate of cash dividends payable on
shares of 7 1/2% Convertible B Preferred Stock shall be $1.875,
payable quarterly on the last day of September, December, March,
and June, respectively in each year (each a "Dividend Payment
Date") commencing June 30, 1993, with respect to the quarterly
period ending on such respective Dividend Payment Date. Dividends
on shares of the 7 1/2% Convertible A Preferred Stock shall
commence to accrue and shall be cumulative from and after the date
that the Corporation collects from each purchaser of shares of 7
1/2 % Convertible A Preferred Stock funds in payment of such
shares. If and so long as any dividends have not been paid in
full pursuant to this Section 2 on shares of 7 1/2% Convertible A
Preferred Stock and/or shares of 7 1/2% Convertible Exchangeable
Preferred Stock Series B (individually referred to as "7 1/2%
Convertible B Preferred Stock" and collectively as the "7 1/2%
Preferred Series"), the Corporation agrees that it will not (x)
redeem any shares of preferred stock convertible into Common Stock
or any other shares of capital stock of the Corporation which rank
junior to shares of the 7 1/2% Preferred Series as to dividends
and liquidation preference or (y) pay dividends on shares of
Preferred Stock convertible into Common Stock or any other shares
of capital stock of the Corporation which rank junior to shares of
the 7 1/2% Preferred Series as to dividends and liquidation
preference.
3. REDEMPTION. (a) To the extent the Corporation shall
have funds legally available for such payment, the Corporation may
redeem at its option the 7 1/2% Convertible A Preferred Series, at
any time in whole or from time to time in part after July 1, 1996
at the redemption prices set forth below plus an amount per share
equal to all unpaid dividend thereon, including accrued dividends
to the redemption date.
<TABLE>
<CAPTION>
Period Redemption Price
------ ----------------
<S> <C>
July 1, 1996 - 107.50%
December 31,1996
1997 105.00%
1998 102.50%
1999 and Thereafter 100.00%
</TABLE>
<PAGE> 3
3
The Corporation will provide the holders with a minimum advance
notice of 10 days prior to any redemption, within which period
conversion under Section 6 can be effected by the holders.
(b) If any proposed redemption of shares of the 7 1/2%
Preferred Series shall be of less than all then outstanding shares
of the 7 1/2% Preferred Series, the shares of the 7 1/2% Series to
be redeemed will be selected by lot or pro rata or by any other
method as may be determined by the Board of Directors of the
Corporation in its sole discretion to be equitable.
4. LIQUIDATION RIGHTS. The amount payable to the holders of
shares of the 7 1/2% Preferred Series in the event of any
voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Corporation shall be $25.00 per share plus
accrued and unpaid dividends to the date of payment of the amount
due pursuant to such liquidation, dissolution or winding up of the
affairs of the Corporation. Shares of the 7 1/2% Preferred Series
shall have preference over all shares of Common Stock as to
distribution of assets in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs
of the Corporation. The Corporation agrees that except for the
issuance of shares of the 7 1/2% Preferred Series, it will not
issue any shares of preferred stock which are convertible into
shares of Common Stock of the Corporation which rank senior to
shares of the 7 1/2% Preferred Series as to liquidation preference
without the consent of the holders of a majority of the shares of
the 7 1/2% Preferred Series.
5. VOTING RIGHTS. (a) The holders of shares
of the 7 1/2% Preferred Series shall be entitled to 2 votes for
each such share on all matters presented to the Corporation's
stockholders' and, except as otherwise provided herein or required
by law, the holders of shares of the 7 1/2% Preferred Series and
the holders of shares of Common Stock and any other shares having
voting rights shall vote together as one class on all matters. On
any matter requiring the holders of the 7 1/2% Preferred Series as
a class, said holders shall be treated as a single class.
(b) If at any time or times dividends payable on the 7 1/2%
Preferred Series shall be in arrears and unpaid in an amount equal
to eight (8) full quarterly dividends, then the number of
directors constituting the Board of Directors of the Corporation
shall be increased by two (2) and the holders of 7 1/2% Preferred
Series shall have the exclusive right, voting separately as a
class, to elect the directors of the Corporation to fill such
newly created directorships, the remaining directors to be elected
by the other class or classes of stock entitled to vote therefore,
at each meeting of stockholders
<PAGE> 4
4
held for the purpose of electing directors.
6. CONVERSION. Each share of the 7 1/2% Convertible A
Preferred Stock may be converted at any time, at the option of the
holder hereof, into shares of Common Stock on the terms and
conditions set forth below in Section 6 (a) subject to the
adjustments provided in Section 6 (b). The Corporation may cause
the 7 1/2% Convertible B Preferred Stock to be converted at any
time on or after July 1, 1995 on the terms and conditions set
forth below in Section 6 (a) subject to the adjustments provided
in Section 6 (b) if, but only if: (i) the Corporation's shares of
Common Stock, $.01 par value per share ("Common Stock") are then
listed on a national securities exchange or authorized for
quotation on NASDAQ; and (ii) the closing price of a share of
Common Stock on a national securities exchange (including NASDAQ)
has exceeded $8.80 subject to adjustment as provided in this
Section 6, by 35% or more for at least twenty of the thirty
preceding trading days.
(a) Subject to the provisions for adjustment hereinafter set
forth, each share of the 7 1/2% Convertible A Preferred Stock
shall be convertible into 2.9412 fully paid and nonassessable
shares of Common Stock equal to a conversion price ("Conversion
Price") of $8.50 per share. In lieu of issuing a partial share,
the shares of Common Stock issuable shall be rounded up or down,
as the case may be, to the nearest whole share;
(b) The number of shares of Common Stock into which each
share of the 7 1/2% Convertible A Preferred Stock is convertible
shall be adjusted from time to time as follows:
(i) In case the Corporation shall at any time or from time
to time declare or pay any dividend on its Common Stock payable in
its Common Stock or effect a subdivision of the outstanding shares
of Common Stock (by reclassification, split or otherwise than by
payment of a dividend in its Common Stock), then, and in each such
case, the number of shares of Common Stock into which each share
of the 7 1/2% Convertible A Preferred Stock is convertible shall
be adjusted so that the holder of each share thereof shall be
entitled to receive, upon the conversion thereof, the number of
shares of Common Stock determined by multiplying (a) the number of
shares of Common Stock into which such share was convertible
immediately prior to the occurrence of such event by (b) a
fraction, the numerator of which is the sum of (I) the number of
shares of Common Stock into which such share was convertible
immediately prior to the occurrence of such event plus (II) the
number of shares of Common Stock which such holder would have been
entitled to receive in connection with the occurrence of such
event had such
<PAGE> 5
5
share been converted immediately prior thereto, and the
denominator of which is the number of shares of Common Stock
determined in accordance with clause (I) above. An adjustment
made pursuant to this subparagraph (B) (i) shall become effective
(a) in the case of any such dividend, immediately after the close
of business on the record date for the determination of holders of
Common Stock entitled to receive such dividend, or (b) in the case
of any such subdivision, at the close of business on the day
immediately prior to the day upon which such corporate action
became effective;
(ii) In case the Corporation at any time or from time to
time shall combine or consolidate the outstanding shares of its
Common Stock into a lesser number of shares of Common Stock, by
reverse split, reclassification or otherwise, then, and in each
such case, the number of shares of Common Stock into which each
share of the 7 1/2% Convertible A Preferred Stock is convertible
shall be adjusted so that the holder of each share thereof shall
be entitled to receive, upon the conversion thereof, the number of
shares of Common Stock determined by multiplying (a) the number of
shares of Common Stock into which such share was convertible
immediately prior to the occurrence of such event by (b) a
fraction, the numerator of which is the number of shares which the
holder would have owned after giving effect to such event had such
share been converted immediately prior to the occurrence of such
event and the denominator of which is the number of shares of
Common Stock into which such share was convertible immediately
prior to the occurrence of such event. An adjustment made
pursuant to this subparagraph (B) (ii) shall become effective at
the close of business on the day immediately prior to the day upon
which such corporate action becomes effective;
(iii) In case of any capital reorganization or
reclassification of the capital stock of the Corporation or in
case of the consolidation or merger of the Corporation with
another corporation or in the case of any sale or conveyance of
all or substantially all of the property of the Corporation, each
share of 7 1/2% Convertible A Preferred Stock shall thereafter be
convertible into the number of shares of stock or other securities
or cash or other property receivable upon such capital
reorganization, reclassification of capital stock, consolidation,
merger, sale or conveyance, as the case may be, by a holder of the
number of shares of Common Stock into which such share of 7 1/2%
Convertible A Preferred Stock was convertible immediately prior to
such capital reorganization, reclassification of capital stock,
consolidation, merger, sale or conveyance;
7. RIGHTS DISTRIBUTIONS. If the Corporation after the date
hereof shall
<PAGE> 6
6
distribute to all holders of the Corporation's Common Stock rights
("Rights") to subscribe or purchase shares of Common Stock of the
Corporation and in the event that prior to the record date for
such distribution of Rights the holders of shares of 7 1/2%
Convertible A Preferred Stock have not converted such shares into
shares of Common Stock pursuant to Section 6 of this Certificate
of Designation, the Corporation agrees that it will also
distribute such Rights to holders of shares of 7 1/2% Convertible
A Preferred Stock as if such holder had converted shares of 7 1/2%
Convertible A Preferred Stock for shares of Common Stock.
8. EXCHANGE. The shares of 7 1/2% Convertible A Preferred
Stock are exchangeable, at the option of the Corporation, in whole
(but not in part), on any dividend payment date for the
Corporation's 7 1/2% Convertible Subordinated Notes due July 1,
2003 (the "Notes") in a principal amount equal to $25.00 per
share. The Notes will be convertible into Common Stock on the
same basis as if the exchange had not occurred. The Notes will
bear interest from the date of issuance, payable semi-annually in
arrears on June 30, and December 31 of each year, commencing on
the first such interest payment date following the date of
exchange. At the Corporation's option, the Notes will be
redeemable, in whole or in part, at the redemption prices set
forth above under "Optional Redemption" plus accrued and unpaid
interest. The Notes are not subject to mandatory sinking fund
payments. The Notes will be subordinated to all senior
indebtedness of the Corporation.
9. REGISTRATION RIGHTS.
A. DEMAND RIGHTS. Upon receipt of the written request of
holders ("Registration Holders") of 100,000 or more shares of the
7 1/2% Preferred Series, the Corporation will take, as promptly
as possible, the actions set forth below with respect to the
underlying shares of Common Stock into which the 7 1/2%
Preferred Series are convertible (such shares of Common Stock
referred to herein as "Registrable Shares"):
(a) notify all holders of the 7 1/2% Preferred Series and
permit all such holders to include their Registrable Shares in a
Registration Statement;
(b) prepare and file with the Securities and Exchange
Commission (the "SEC") a Registration Statement with respect to
such Registrable Shares and use its best efforts to cause such
Registration Statement to become and remain effective for a period
of at least three months;
(c) prepare and file with the SEC such amendments and
supplements to
<PAGE> 7
7
such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement
effective for a period of not less than three months and to comply
with the provisions of the Securities Act with respect to the sale
or other disposition of all such Registration Holder's Registrable
Shares covered by such Registration Statement;
(d) furnish to such Registration Holder such number of
copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such
other documents as such Registration Holder may reasonably request
in order to facilitate the public sale or other disposition of
such Registrable Shares owned by such Registration Holder;
(e) register or qualify the Registrable Shares covered by
such Registration Statement under the securities or Blue sky laws
of such states as the Corporation shall determine and perform any
and all other acts and things which may be necessary or advisable
to enable such Registration Holder to consummate the public sale
or other disposition in such jurisdictions of such Registrable
Shares owned by such Registration Holder; PROVIDED, HOWEVER, that
the Corporation shall not be required to qualify to do business as
a foreign corporation in any state where it is not then so
qualified, nor take any action which will subject it to general
service or process in any state where it is not then so subject;
(f) notify such Registration Holder, at any time when a
prospectus relating to such Registration Holder's Registrable
Shares covered by such Registration Statement is required to be
delivered under the Securities Act within the appropriate period
mentioned in clause (c) above, of the happening of any event as a
result of which the prospectus included in such Registration
Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, and at
such Registration Holder's request, prepare and furnish to such
Registration Holder a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such Registrable
Shares, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing; and
<PAGE> 8
8
(g) furnish, at such Registration Holder's request, on the
date that such Registration Holder's Registrable Shares are
delivered to the underwriters for sale pursuant to a Registration
Statement or, if such registrable Shares are not being sold
through underwriters, on the date the Registration Statement
becomes effective, an opinion, dated such date, of the counsel
representing the Corporation for the purposes of such Registration
Statement, stating that such Registration Statement has become
effective under the Securities Act and that (i) to the knowledge
of such counsel, no stop order suspending the effectiveness
thereof has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the
Securities Act; (ii) the Registration Statement, the related
prospectus, and each amendment or supplement thereto, comply as to
form in all material respects with the requirements of the
Securities Act and the applicable rules and regulations of the SEC
thereunder (except that such counsel need express no opinion as to
financial statements contained therein); (iii) the descriptions in
the Registration Statement or the prospectus, or any amendment or
supplement thereto, of all legal documents or instruments present
the information required to be shown in compliance with the
Securities Act; and (iv) such counsel does not know of any legal
or governmental proceedings, pending or contemplated, required to
be described in the Registration statement or prospectus, or any
amendment or supplement thereto, or to be filed as exhibits to the
Registration Statement which are not described and filed as
required; such opinion of counsel shall additionally cover such
other legal matter with respect to the registration in respect of
which such opinion is being given as such Registration Holder may
reasonably request.
(h) EXPENSES. All expenses incurred by the Corporation in
complying with this Section, including, without limitation, all
registration and filing fees (including all expenses incident to
filing with a principal stock exchange or the National Association
of Securities Dealers, Inc.), printing expenses, fees and
disbursements of counsel for the Corporation, the expense of any
special audits incident to or required by any such registration,
and the expense (including counsel fees) of complying with
securities or Blue Sky laws of such states as shall be necessary
by the Corporation. The Registration Holder shall bear the cost
of any underwriters discount with respect to the sale of its
Registrable Shares.
(i) INDEMNIFICATION BY CORPORATION. In the event of any
registration of any of a Registration Holder's Registrable Shares
under the Securities Act pursuant to this Section, the Corporation
will indemnify and hold harmless such Registration Holder, its
attorneys and accountants, each underwriter of such Registrable
Shares and each other person, if any, who controls such
<PAGE> 9
9
Registration Holder or such underwriter within the meaning of the
Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such Registration Holder,
such underwriter or such controlling person may become subject
under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained (on the effective
date thereof) in any Registration Statement under which such
Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances
then existing; and will reimburse such Registration Holder, such
underwriter and each such controlling person for reasonable legal
or any other expenses reasonably incurred by such Registration
Holder, such underwriter or such controlling person in connection
with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the Corporation will
not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an
untrue statement or omission or alleged omission made in said
Registration Statement, said preliminary prospectus or said
amendment or supplement in reliance upon and in conformity with
written information furnished to the Corporation through an
instrument duly executed by such Registration Holder or such
underwriter, as the case may be, specifically for use in the
preparation thereof.
(j) INDEMNIFICATION BY REGISTRATION HOLDERS. In the event
of any registration of any of a Registration Holder's Registrable
Shares pursuant to this Section, such Registration Holder will
indemnify and hold harmless the Corporation, its attorneys,
accountants and each other person, if any, who controls the
Corporation within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which
the Corporation or such controlling person may become subject
under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement of alleged
untrue statement of any material fact contained (on the effective
date thereof) in any Registration Statement under which such
Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances
then existing;
<PAGE> 10
10
in each case to the extent and only to the extent that any such
loss, claim, damage or liability arises out of or is based upon
untrue statement or alleged untrue statement or omission or
alleged omission made in said Registration Statement, said
preliminary prospectus or said prospectus or said amendment or
supplement in reliance upon and in conformity with written
information furnished to the Corporation through an instrument
duly executed by such Registration Holder will reimburse the
Corporation and each such controlling person for reasonable legal
or any other expenses reasonably incurred by the Corporation or
such controlling persons in connection with investigating or
defending any such loss, claim, damage, liability or action;
PROVIDED, HOWEVER, that each Registration Holder shall only be
liable for any losses, claims, damages or liabilities pursuant to
this Section 9 (i) for an amount up to the amount of proceeds of
such Registration Holder receives from the sale of this
Registrable Shares in a Registration.
(k) NOTICE OF CLAIM. In the event of any claim for which
indemnity is sought under Section 9 (i) or 9 (j) above, the party
seeking indemnification shall give prompt notice of its claim to
the other party and shall permit the other party to engage counsel
and to defend against the same.
(l) LIMITATION ON REGISTRATION. (i) The Registration
Holder's right to request registration of Registrable Shares under
this Section shall cease and terminate as to any particular
Registrable Shares when such Registrable Shares shall have been
effectively registered and sold under the Securities Act or have
been transferred in a disposition exempt from such registration
requirement. For purposes of this Certificate of Designation,
shares of Common Stock shall cease to be Registrable Shares when
such shares have been sold pursuant to an effective Registration
Statement under the Securities Act or pursuant to an exemption
from registration thereunder. No demand for registration under
Section 9 can be made by a Registration Holder for a period of 90
days following the end of the effectiveness of any effective
Registration Statement in which the Registration Holders had been
given the opportunity to include all Registrable Shares therein.
(m) The obligation of the Corporation with regard to demand
registration rights shall be limited to two Registrations in the
aggregate for the 7 1/2% Preferred Series.
B. PIGGY-BACK RIGHTS. If the Corporation at any time after
the date hereof proposes to register any of its securities under
the Securities Act (except with respect to any registration filed
on Form S-8 or Form S-4 or such other similar form then in effect
under the Securities Act), it will at each
<PAGE> 11
11
such time promptly give written notice to each Registration Holder
of its intention to do so and, upon the written request of any
Registration Holder given within 10 calendar days after receipt of
any such notice, the Corporation will use its best efforts to
cause Registrable Shares held by such Registration Holder as to
which registration is so requested, to be registered under the
Securities Act, all to the extent requisite to permit the sale or
other disposition by such Registration Holder (each such
registration under the Securities Act being referred to herein as
a "Registration"); PROVIDED; HOWEVER; that (A) the Corporation may
at any time withdraw or cease proceeding with any such
Registration if it shall at the same time withdraw or cease
proceeding with the registration of such other securities
originally proposed to be registered and, (B) if the underwriter
of any offering shall state in writing that in its opinion the
inclusion of such Registrable Shares in the proposed Registration
Statement would have a material adverse effect on he proposed
offering, then at the Corporation's request (i) the Registration
Statement shall include only that number of Registrable Shares, if
any, which the managing underwriter believes may be offered
without causing such adverse effect, and the number of Registrable
Shares shall be allocated among all Registration Holders
requesting to participate in such Registration Statement in
proportion (as nearly as practicable) to the number of Registrable
Shares requested to be included by each Registration Holder or
(ii) the Registration Statement shall provided that the effective
date of the Registration Statement with respect to the Registrable
Shares shall be delayed for ninety (90) days. The Piggy-Back
Rights shall also be governed by the provisions of Section 9A
hereof in all respects other than as otherwise specifically
limited by the terms of Section 9B.
<PAGE> 12
12
IN WITNESS WHEREOF, Lomak Petroleum, Inc. has caused this
certificate to be signed by John M. Pinkerton, its President and Chief
Executive Officer and Walter M. Epstein, its Assistant Secretary, this 8th
day of July 1993.
LOMAK PETROLEUM, INC.
By:
______________________________
John H. Pinkerton
President and Chief
Executive Officer
By:
______________________________
Walter M. Epstein
Assistant Secretary
<PAGE> 13
13
IN WITNESS WHEREOF, Lomak Petroleum, Inc. has caused this
certificate to be signed by John M. Pinkerton, its President and Chief
Executive Officer and Walter M. Epstein, its Assistant Secretary, this 8th
day of July 1993.
LOMAK PETROLEUM, INC.
By:
______________________________
John H. Pinkerton
President and Chief
Executive Officer
By:
______________________________
Walter M. Epstein
Assistant Secretary
<PAGE> 1
EXHIBIT 4.1(r)
1
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:01 AM 07/08/1993
931895584 - 889546
CERTIFICATE
OF
DESIGNATION, VOTING POWERS,
PREFERENCES AND RIGHTS OF
THE PREFERRED STOCK
OF
LOMAK PETROLEUM, INC.
TO BE DESIGNATED
SERIAL PREFERRED STOCK --
7 1/2% CUMULATIVE CONVERTIBLE EXCHANGEABLE
PREFERRED STOCK SERIES B
Lomak Petroleum, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), pursuant to Section 151
of the General Corporation Law of the State of Delaware, certifies that the
Board of Directors of said Corporation at a meeting thereof duly called and
held on April 29, 1993, at which meeting a quorum was present and acting
throughout, duly adopted the following resolution providing for the issuance of
a series of preferred stock to be designated "Serial Preferred Stock -- 7 1/2%
Cumulative Convertible Exchangeable Preferred Stock Series B" and to consist of
112,600 shares;
"RESOLVED, that pursuant to the authority vested in the Board of
Directors by the Certificate of Incorporation, as amended, there
is hereby created a Series of Preferred Stock consisting of
112,600 shares of Serial Preferred Stock -- 7 1/2% Cumulative
Convertible Exchangeable Preferred Stock Series B, par value $1.00
per share (such Preferred Stock being hereinafter referred to as
the "7 1/2% Convertible B Preferred Stock") with the designations,
powers, preferences and relative, participating, optional and
other special rights, qualifications, limitations and restrictions
set forth in the Certificate of Incorporation, as amended, which
are applicable to Preferred Stock"; as follows:
<PAGE> 2
2
1. DESIGNATION OF SERIES: NUMBER OF SHARES. The distinctive
designation of this series of Preferred Stock shall be "7 1/2%
Convertible Exchangeable Preferred Stock Series B", the number of
shares which shall constitute such series shall be 112,600 shares.
2. DIVIDENDS. The annual rate of cash dividends payable on
shares of 7 1/2% Convertible B Preferred Stock shall be $1.875,
payable quarterly on the last day of September, December, March,
and June, respectively in each year (each a "Dividend Payment
Date") commencing September 30, 1993, with respect to the
quarterly period ending on such respective Dividend Payment Date.
Dividends on shares of the 7 1/2% Convertible B Preferred Stock
shall commence to accrue and shall be cumulative from and after
the date that the Corporation collects from each purchaser of
shares of 7 1/2 % Convertible B Preferred Stock funds in payment
of such shares. If and so long as any dividends have not been
paid in full pursuant to this Section 2 on shares of 7 1/2%
Convertible B Preferred Stock and/or shares of 7 1/2% Convertible
Exchangeable Preferred Stock Series A (individually referred to as
"7 1/2% Convertible A Preferred Stock" and collectively as the "7
1/2% Preferred Series"), the Corporation agrees that it will not
(x) redeem any shares of preferred stock convertible into Common
Stock or any other shares of capital stock of the Corporation
which rank junior to shares of the 7 1/2% Preferred Series as to
dividends and liquidation preference or (y) pay dividends on
shares of Preferred Stock convertible into Common Stock or any
other shares of capital stock of the Corporation which rank junior
to shares of the 7 1/2% Preferred Series as to dividends and
liquidation preference.
3. REDEMPTION. (a) To the extent the Corporation shall
have funds legally available for such payment, the Corporation may
redeem at its option the 7 1/2% Convertible B Preferred Series, at
any time in whole or from time to time in part after July 1, 1996
at the redemption prices set forth below plus an amount per share
equal to all unpaid dividend thereon, including accrued dividends
to the redemption date.
<TABLE>
Period Redemption Price
----- ----------------
<S> <C>
July 1, 1996 - 107.50%
December 31,1996
1999 and Thereafter 105.00%
1997 102.50%
1998 100.00%
1999 and Thereafter
</TABLE>
<PAGE> 3
3
The Corporation will provide the holders with a minimum advance
notice of 10 days prior to any redemption, within which period
conversion under Section 6 can be effected by the holders.
(b) If any proposed redemption of shares of the 7 1/2%
Preferred Series shall be of less than all then outstanding shares
of the 7 1/2% Preferred Series, the shares of the 7 1/2% Series to
be redeemed will be selected by lot or pro rata or by any other
method as may be determined by the Board of Directors of the
Corporation in its sole discretion to be equitable.
4. LIQUIDATION RIGHTS. The amount payable to the holders of
shares of the 7 1/2% Preferred Series in the event of any
voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Corporation shall be $25.00 per share plus
accrued and unpaid dividends to the date of payment of the amount
due pursuant to such liquidation, dissolution or winding up of the
affairs of the Corporation. Shares of the 7 1/2% Preferred Series
shall have preference over all shares of Common Stock as to
distribution of assets in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs
of the Corporation. The Corporation agrees that except for the
issuance of shares of the 7 1/2% Preferred Series, it will not
issue any shares of preferred stock which are convertible into
shares of Common Stock of the Corporation which rank senior to
shares of the 7 1/2% Preferred Series as to liquidation preference
without the consent of the holders of a majority of the shares of
the 7 1/2% Preferred Series.
5. VOTING RIGHTS. (a) The holders of shares of the 7 1/2%
Preferred Series shall be entitled to 2 votes for each such share
on all matters presented to the Corporation's stockholders' and,
except as otherwise provided herein or required by law, the
holders of shares of the 7 1/2% Preferred Series and the holders
of shares of Common Stock and any other shares having voting
rights shall vote together as one class on all matters. On any
matter requiring the holders of the 7 1/2% Preferred Series as a
class, said holders shall be treated as a single class.
(b) If at any time or times dividends payable on the 7 1/2%
Preferred Series shall be in arrears and unpaid in an amount equal
to eight (8) full quarterly dividends, then the number of
directors constituting the Board of Directors of the Corporation
shall be increased by two (2) and the holders of 7 1/2% Preferred
Series shall have the exclusive right, voting separately as a
class, to elect the directors of the Corporation to fill such
newly created directorships, the remaining directors to be elected
by the other class or classes of stock entitled to vote therefore,
at each meeting of stockholders
<PAGE> 4
4
held for the purpose of electing directors.
6. CONVERSION. Each share of the 7 1/2% Convertible B
Preferred Stock may be converted at any time, at the option of the
holder hereof, into shares of Common Stock on the terms and
conditions set forth below in Section 6 (a) subject to the
adjustments provided in Section 6 (b). The Corporation may cause
the 7 1/2% Convertible B Preferred Stock to be converted at any
time on or after July 1, 1995 on the terms and conditions set
forth below in Section 6 (a) subject to the adjustments provided
in Section 6 (b) if, but only if: (i) the Corporation's shares of
Common Stock, $.01 par value per share ("Common Stock") are then
listed on a national securities exchange or authorized for
quotation on NASDAQ; and (ii) the closing price of a share of
Common Stock on a national securities exchange (including NASDAQ)
has exceeded $8.80 subject to adjustment as provided in this
Section 6, by 35% or more for at least twenty of the thirty
preceding trading days.
(a) Subject to the provisions for adjustment hereinafter set
forth, each share of the 7 1/2% Convertible B Preferred Stock
shall be convertible into 2.8409 fully paid and nonassessable
shares of Common Stock equal to a conversion price ("Conversion
Price") of $8.80 per share. In lieu of issuing a partial share,
the shares of Common Stock issuable shall be rounded up or down,
as the case may be, to the nearest whole share;
(b) The number of shares of Common Stock into which each
share of the 7 1/2% Convertible B Preferred Stock is convertible
shall be adjusted from time to time as follows:
(i) In case the Corporation shall at any time or from time
to time declare or pay any dividend on its Common Stock payable in
its Common Stock or effect a subdivision of the outstanding shares
of Common Stock (by reclassification, split or otherwise than by
payment of a dividend in its Common Stock), then, and in each such
case, the number of shares of Common Stock into which each share
of the 7 1/2% Convertible B Preferred Stock is convertible shall
be adjusted so that the holder of each share thereof shall be
entitled to receive, upon the conversion thereof, the number of
shares of Common Stock determined by multiplying (a) the number of
shares of Common Stock into which such share was convertible
immediately prior to the occurrence of such event by (b) a
fraction, the numerator of which is the sum of (I) the number of
shares of Common Stock into which such share was convertible
immediately prior to the occurrence of such event plus (II) the
number of shares of Common Stock which such holder would have been
entitled to receive in connection with the occurrence of such
event had such
<PAGE> 5
5
share been converted immediately prior thereto, and the
denominator of which is the number of shares of Common Stock
determined in accordance with clause (I) above. An adjustment
made pursuant to this subparagraph (B) (i) shall become effective
(a) in the case of any such dividend, immediately after the close
of business on the record date for the determination of holders of
Common Stock entitled to receive such dividend, or (b) in the case
of any such subdivision, at the close of business on the day
immediately prior to the day upon which such corporate action
became effective;
(ii) In case the Corporation at any time or from time to
time shall combine or consolidate the outstanding shares of its
Common Stock into a lesser number of shares of Common Stock, by
reverse split, reclassification or otherwise, then, and in each
such case, the number of shares of Common Stock into which each
share of the 7 1/2% Convertible B Preferred Stock is convertible
shall be adjusted so that the holder of each share thereof shall
be entitled to receive, upon the conversion thereof, the number of
shares of Common Stock determined by multiplying (a) the number of
shares of Common Stock into which such share was convertible
immediately prior to the occurrence of such event by (b) a
fraction, the numerator of which is the number of shares which the
holder would have owned after giving effect to such event had such
share been converted immediately prior to the occurrence of such
event and the denominator of which is the number of shares of
Common Stock into which such share was convertible immediately
prior to the occurrence of such event. An adjustment made
pursuant to this subparagraph (B) (ii) shall become effective at
the close of business on the day immediately prior to the day upon
which such corporate action becomes effective;
(iii) In case of any capital reorganization or
reclassification of the capital stock of the Corporation or in
case of the consolidation or merger of the Corporation with
another corporation or in the case of any sale or conveyance of
all or substantially all of the property of the Corporation, each
share of 7 1/2% Convertible B Preferred Stock shall thereafter be
convertible into the number of shares of stock or other securities
or cash or other property receivable upon such capital
reorganization, reclassification of capital stock, consolidation,
merger, sale or conveyance, as the case may be, by a holder of the
number of shares of Common Stock into which such share of 7 1/2%
Convertible B Preferred Stock was convertible immediately prior to
such capital reorganization, reclassification of capital stock,
consolidation, merger, sale or conveyance;
7. RIGHTS DISTRIBUTIONS. If the Corporation after the date
hereof shall
<PAGE> 6
6
distribute to all holders of the Corporation's Common Stock rights
("Rights") to subscribe or purchase shares of Common Stock of the
Corporation and in the event that prior to the record date for
such distribution of Rights the holders of shares of 7 1/2%
Convertible B Preferred Stock have not converted such shares into
shares of Common Stock pursuant to Section 6 of this Certificate
of Designation, the Corporation agrees that it will also
distribute such Rights to holders of shares of 7 1/2% Convertible
B Preferred Stock as if such holder had converted shares of 7 1/2%
Convertible B Preferred Stock for shares of Common Stock.
8. EXCHANGE. The shares of 7 1/2% Convertible B Preferred
Stock are exchangeable, at the option of the Corporation, in whole
(but not in part), on any dividend payment date for the
Corporation's 7 1/2% Convertible Subordinated Notes due July 1,
2003 (the "Notes") in a principal amount equal to $25.00 per
share. The Notes will be convertible into Common Stock on the
same basis as if the exchange had not occurred. The Notes will
bear interest from the date of issuance, payable semi-annually in
arrears on June 30, and December 31 of each year, commencing on
the first such interest payment date following the date of
exchange. At the Corporation's option, the Notes will be
redeemable, in whole or in part, at the redemption prices set
forth above under "Optional Redemption" plus accrued and unpaid
interest. The Notes are not subject to mandatory sinking fund
payments. The Notes will be subordinated to all senior
indebtedness of the Corporation.
9. REGISTRATION RIGHTS.
A. DEMAND RIGHTS. Upon receipt of the written request of
holders ("Registration Holders") of 22,520 or more shares of the 7
1/2% Convertible B Preferred Stock, the Corporation will take, as
promptly as possible, the actions set forth below with respect to
the underlying shares of Common Stock into which the 7 1/2%
Preferred Series are convertible (such shares of Common Stock
referred to herein as "Registrable Shares"):
(a) notify all holders of the 7 1/2% Preferred Series and
permit all such holders to include their Registrable Shares in a
Registration Statement;
(b) prepare and file with the Securities and Exchange
Commission (the "SEC") a Registration Statement with respect to
such Registrable Shares and use its best efforts to cause such
Registration Statement to become and remain effective for a period
of at least three months;
(c) prepare and file with the SEC such amendments and
supplements to
<PAGE> 7
7
such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement
effective for a period of not less than three months and to comply
with the provisions of the Securities Act with respect to the sale
or other disposition of all such Registration Holder's Registrable
Shares covered by such Registration Statement;
(d) furnish to such Registration Holder such number of
copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such
other documents as such Registration Holder may reasonably request
in order to facilitate the public sale or other disposition of
such Registrable Shares owned by such Registration Holder;
(e) register or qualify the Registrable Shares covered by
such Registration Statement under the securities or Blue sky laws
of such states as the Corporation shall determine and perform any
and all other acts and things which may be necessary or advisable
to enable such Registration Holder to consummate the public sale
or other disposition in such jurisdictions of such Registrable
Shares owned by such Registration Holder; provided, however, that
the Corporation shall not be required to qualify to do business as
a foreign corporation in any state where it is not then so
qualified, nor take any action which will subject it to general
service or process in any state where it is not then so subject;
(f) notify such Registration Holder, at any time when a
prospectus relating to such Registration Holder's Registrable
Shares covered by such Registration Statement is required to be
delivered under the Securities Act within the appropriate period
mentioned in clause (c) above, of the happening of any event as a
result of which the prospectus included in such Registration
Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, and at
such Registration Holder's request, prepare and furnish to such
Registration Holder a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such Registrable
Shares, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing; and
<PAGE> 8
8
(g) furnish, at such Registration Holder's request, on the
date that such Registration Holder's Registrable Shares are
delivered to the underwriters for sale pursuant to a Registration
Statement or, if such registrable Shares are not being sold
through underwriters, on the date the Registration Statement
becomes effective, an opinion, dated such date, of the counsel
representing the Corporation for the purposes of such Registration
Statement, stating that such Registration Statement has become
effective under the Securities Act and that (i) to the knowledge
of such counsel, no stop order suspending the effectiveness
thereof has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the
Securities Act; (ii) the Registration Statement, the related
prospectus, and each amendment or supplement thereto, comply as to
form in all material respects with the requirements of the
Securities Act and the applicable rules and regulations of the SEC
thereunder (except that such counsel need express no opinion as to
financial statements contained therein); (iii) the descriptions in
the Registration Statement or the prospectus, or any amendment or
supplement thereto, of all legal documents or instruments present
the information required to be shown in compliance with the
Securities Act; and (iv) such counsel does not know of any legal
or governmental proceedings, pending or contemplated, required to
be described in the Registration statement or prospectus, or any
amendment or supplement thereto, or to be filed as exhibits to the
Registration Statement which are not described and filed as
required; such opinion of counsel shall additionally cover such
other legal matter with respect to the registration in respect of
which such opinion is being given as such Registration Holder may
reasonably request.
(h) EXPENSES. All expenses incurred by the Corporation in
complying with this Section, including, without limitation, all
registration and filing fees (including all expenses incident to
filing with a principal stock exchange or the National Association
of Securities Dealers, Inc.), printing expenses, fees and
disbursements of counsel for the Corporation, the expense of any
special audits incident to or required by any such registration,
and the expense (including counsel fees) of complying with
securities or Blue Sky laws of such states as shall be necessary
by the Corporation. The Registration Holder shall bear the cost
of any underwriters discount with respect to the sale of its
Registrable Shares.
(i) INDEMNIFICATION BY CORPORATION. In the event of any
registration of any of a Registration Holder's Registrable Shares
under the Securities Act pursuant to this Section, the Corporation
will indemnify and hold harmless such Registration Holder, its
attorneys and accountants, each underwriter of such Registrable
Shares and each other person, if any, who controls such
<PAGE> 9
9
Registration Holder or such underwriter within the meaning of the
Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such Registration Holder,
such underwriter or such controlling person may become subject
under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained (on the effective
date thereof) in any Registration Statement under which such
Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances
then existing; and will reimburse such Registration Holder, such
underwriter and each such controlling person for reasonable legal
or any other expenses reasonably incurred by such Registration
Holder, such underwriter or such controlling person in connection
with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Corporation will
not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an
untrue statement or omission or alleged omission made in said
Registration Statement, said preliminary prospectus or said
amendment or supplement in reliance upon and in conformity with
written information furnished to the Corporation through an
instrument duly executed by such Registration Holder or such
underwriter, as the case may be, specifically for use in the
preparation thereof.
(j) INDEMNIFICATION BY REGISTRATION HOLDERS. In the event
of any registration of any of a Registration Holder's Registrable
Shares pursuant to this Section, such Registration Holder will
indemnify and hold harmless the Corporation, its attorneys,
accountants and each other person, if any, who controls the
Corporation within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which
the Corporation or such controlling person may become subject
under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement of alleged
untrue statement of any material fact contained (on the effective
date thereof) in any Registration Statement under which such
Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances
then existing;
<PAGE> 10
10
in each case to the extent and only to the extent that any such
loss, claim, damage or liability arises out of or is based upon
untrue statement or alleged untrue statement or omission or
alleged omission made in said Registration Statement, said
preliminary prospectus or said prospectus or said amendment or
supplement in reliance upon and in conformity with written
information furnished to the Corporation through an instrument
duly executed by such Registration Holder will reimburse the
Corporation and each such controlling person for reasonable legal
or any other expenses reasonably incurred by the Corporation or
such controlling persons in connection with investigating or
defending any such loss, claim, damage, liability or action;
provided, however, that each Registration Holder shall only be
liable for any losses, claims, damages or liabilities pursuant to
this Section 9 (i) for an amount up to the amount of proceeds of
such Registration Holder receives from the sale of this
Registrable Shares in a Registration.
(k) NOTICE OF CLAIM. In the event of any claim for which
indemnity is sought under Section 9 (i) or 9 (j) above, the party
seeking indemnification shall give prompt notice of its claim to
the other party and shall permit the other party to engage counsel
and to defend against the same.
(l) LIMITATION ON REGISTRATION. (i) The Registration
Holder's right to request registration of Registrable Shares under
this Section shall cease and terminate as to any particular
Registrable Shares when such Registrable Shares shall have been
effectively registered and sold under the Securities Act or have
been transferred in a disposition exempt from such registration
requirement. For purposes of this Certificate of Designation,
shares of Common Stock shall cease to be Registrable Shares when
such shares have been sold pursuant to an effective Registration
Statement under the Securities Act or pursuant to an exemption
from registration thereunder. No demand for registration under
Section 9 can be made by a Registration Holder for a period of 90
days following the end of the effectiveness of any effective
Registration Statement in which the Registration Holders had been
given the opportunity to include all Registrable Shares therein.
(m) The obligation of the Corporation with regard to demand
registration rights shall be limited to two Registrations in the
aggregate for the 7 1/2% Preferred Series.
B. PIGGY-BACK RIGHTS. If the Corporation at any time after
the date hereof proposes to register any of its securities under
the Securities Act (except with respect to any registration filed
on Form S-8 or Form S-4 or such other similar form then in effect
under the Securities Act), it will at each
<PAGE> 11
11
such time promptly give written notice to each Registration Holder
of its intention to do so and, upon the written request of any
Registration Holder given within 10 calendar days after receipt of
any such notice, the Corporation will use its best efforts to
cause Registrable Shares held by such Registration Holder as to
which registration is so requested, to be registered under the
Securities Act, all to the extent requisite to permit the sale or
other disposition by such Registration Holder (each such
registration under the Securities Act being referred to herein as
a "Registration"); provided; however; that (A) the Corporation may
at any time withdraw or cease proceeding with any such
Registration if it shall at the same time withdraw or cease
proceeding with the registration of such other securities
originally proposed to be registered and, (B) if the underwriter
of any offering shall state in writing that in its opinion the
inclusion of such Registrable Shares in the proposed Registration
Statement would have a material adverse effect on he proposed
offering, then at the Corporation's request (i) the Registration
Statement shall include only that number of Registrable Shares, if
any, which the managing underwriter believes may be offered
without causing such adverse effect, and the number of Registrable
Shares shall be allocated among all Registration Holders
requesting to participate in such Registration Statement in
proportion (as nearly as practicable) to the number of Registrable
Shares requested to be included by each Registration Holder or
(ii) the Registration Statement shall provided that the effective
date of the Registration Statement with respect to the Registrable
Shares shall be delayed for ninety (90) days. The Piggy-Back
Rights shall also be governed by the provisions of Section 9A
hereof in all respects other than as otherwise specifically
limited by the terms of Section 9B.
<PAGE> 12
12
IN WITNESS WHEREOF, Lomak Petroleum, Inc. has caused this
certificate to be signed by John M. Pinkerton, its President and Chief
Executive Officer and Walter M. Epstein, its Assistant Secretary, this 8th
day of July 1993.
LOMAK PETROLEUM, INC.
By:
______________________________
John H. Pinkerton
President and Chief
Executive Officer
By:
______________________________
Walter M. Epstein
Assistant Secretary
<PAGE> 13
13
IN WITNESS WHEREOF, Lomak Petroleum, Inc. has caused this
certificate to be signed by John M. Pinkerton, its President and Chief
Executive Officer and Walter M. Epstein, its Assistant Secretary, this 8th
day of July 1993.
LOMAK PETROLEUM, INC.
By:
______________________________
John H. Pinkerton
President and Chief
Executive Officer
By:
______________________________
Walter M. Epstein
Assistant Secretary
<PAGE> 1
EXHIBIT 4.1(s)
CERTIFICATE OF DESIGNATIONS
OF
PREFERRED STOCK
OF
LOMAK PETROLEUM, INC.
TO BE DESIGNATED
$2.03 CONVERTIBLE EXCHANGEABLE PREFERRED STOCK, SERIES C
____________________________
Pursuant to Section 151(g) of the
General Corporation Law of the State of Delaware
____________________________
The undersigned DO HEREBY CERTIFY that the following
resolution was duly adopted by the Board of Directors of Lomak Petroleum, Inc.,
a Delaware corporation (the "Corporation"), at a meeting duly convened and
held, at which a quorum was present and acting throughout:
"RESOLVED, that pursuant to the authority conferred on the
Board of Directors of the Corporation by the Corporation's Certificate of
Incorporation, the issuance of a series of preferred stock, $1 par value per
share, of the Corporation which shall consist of 1,150,000 shares of preferred
stock be, and the same hereby is, authorized; and the President and Secretary
or Assistant Secretary of the Corporation be, and they hereby are, authorized
and directed to execute and file with the Secretary of State of the State of
Delaware the Certificate of Designations of Preferred Stock of the Corporation
fixing the designations, powers, preferences and rights of the shares of such
series, and the qualifications, limitations or restrictions thereof (in
addition to the designations, powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, set forth in the
Certificate of Incorporation which may be applicable to the Company's Preferred
Stock), as follows:
1. NUMBER OF SHARES; DESIGNATION. A total of 1,150,000
shares of Preferred Stock, par value $1.00 per share, of the Corporation are
hereby designated as $2.03 Convertible Exchangeable Preferred Stock, Series C
(the "Series"). The number of authorized shares of the Series may be reduced
by the Board of Directors of the Corporation by the filing of a certificate
pursuant to the provisions of the General Corporation Law of the State of
Delaware (the "GCL") stating that the reduction has been so authorized. In
addition, the number of authorized shares of the Series may be increased by the
Board of Directors of the Corporation, but it shall be a condition to the
issuance of any additional shares of the Series so authorized that such shares
be registered under the Securities Act of 1933, as amended, and admitted to
trading on the Private Offerings, Resale and Trading through Automated Linkages
("Portal") Market,
<PAGE> 2
if the shares of the Series are then listed on Portal, or listed on the Nasdaq
Stock Market or other national securities exchange on which shares of the
Series may then be listed.
2. RANK. The Series shall, with respect to payment of
dividends, redemption payments and rights upon liquidation, dissolution or
winding up of the affairs of the Corporation, rank (a) senior and prior to (i)
the Common Stock, par value $.01 per share, of the Corporation (the "Common
Stock"), and (ii) any series of preferred stock of the Corporation which is
stated to be junior to the Series with respect to the payment of dividends or
redemption, payment and rights upon liquidation, dissolution or winding up of
the affairs of the Corporation (all shares identified in this clause (a) which
are junior to the shares of the Series with respect to the payment of dividends
are hereinafter referred to as "Junior Dividend Shares" and all shares
identified in this clause (a) which are junior to the shares of the Series with
respect to redemption, payment and rights upon liquidation, dissolution or
winding up of the affairs of the Corporation being hereinafter referred to as
"Junior Liquidation Shares"); (b) pari passu with (i) the Corporation's issued
and outstanding shares of 7 1/2% Cumulative Convertible Exchangeable Preferred
Stock Series A and 7 1/2% Cumulative Convertible Exchangeable Preferred Stock
Series B (collectively, the "Existing Preferred Shares"), (ii) any additional
series of convertible preferred stock that may in the future be issued by the
Corporation, except and to the extent any such convertible preferred stock is
stated to be junior to the series in the related Certificate of Designations or
amendment to the Company's Certificate of Incorporation and (iii) any Series of
preferred stock that is not convertible for other securities of the Corporation
but only to the extent such preferred stock is stated to be pari passu with the
Series in the related Certificate of Designations or amendments to the
Corporation's Certificate of Incorporation (all shares identified in this
clause (b) which are pari passu with the shares of the Series with respect to
the payment of dividends are hereinafter referred to as "Parity Dividend
Shares" and all shares identified in this clause (b) which are pari passu with
the shares of the Series with respect to redemption, payment and rights upon
liquidation, dissolution or winding up of the affairs of the Corporation being
hereinafter referred to as "Parity Liquidation Shares"); and (c) junior and
subordinate to any additional series of preferred stock which may in the future
be issued by the Corporation that is not convertible for other securities of
the Corporation, except and to the extent any such non-convertible preferred
stock is stated to be junior to or pari passu with the Series in the related
Certificate of Designations or amendment to the Company's Certificate of
Incorporation (all shares identified in this clause (c) which are senior to the
shares of the Series with respect to the payment of dividends are hereinafter
referred to as "Senior Dividend Shares" and all shares identified in this
clause (c) which are senior to the shares of the Series with respect to
redemption, payment and rights upon liquidation, dissolution or winding up of
the affairs of the Corporation being hereinafter referred to as "Senior
Liquidation Shares").
3. DIVIDENDS. (a) The cash dividend rate on shares of the
Series shall be $2.03 per share per annum. Dividends on shares of the Series
shall be fully cumulative, accruing, without interest, from the date of
original issuance of the Series, and shall be payable quarterly in arrears,
when, as and if declared by the Board of Directors out of funds legally
available for the payment of dividends, on March 31, June 30, September
-2-
<PAGE> 3
30 and December 31 of each year, commencing December 31, 1995, except that if
such date is not a business day then the dividend shall be payable on the first
immediately succeeding business day (as used herein, the term "business day"
shall mean any day except a Saturday, Sunday or day on which banking
institutions are legally authorized to close in New York, New York) (each such
period being hereinafter referred to as a "Quarterly Dividend Period"). Each
dividend shall be paid to the holders of record of shares of the Series as they
appear on the stock register of the Corporation on the record date, not less
than 10 nor more than 60 days preceding the payment date thereof, as shall be
fixed by the Board of Directors of the Corporation. Dividends payable for each
Quarterly Dividend Period shall be computed by dividing the annual dividend by
four (rounded to the nearest cent). Dividends payable for any partial
Quarterly Dividend Period shall be computed on the basis of a 360-day year of
twelve 30-day months. Dividends on account of arrearages for any past
Quarterly Dividend Period may be declared and paid at any time, without
reference to any regular dividend payment date, to holders of record on such
date, not exceeding 45 days preceding the payment date thereof, as may be fixed
by the Board of Directors of the Corporation. No interest shall be payable
with respect to any dividend payment that may be in arrears. Holders of Shares
of the Series called for redemption between the close of business on a dividend
payment record date and the close of business on the corresponding dividend
payment date shall, in lieu of receiving such dividend on the dividend payment
date fixed therefor, receive such dividend payment on the date fixed for
redemption together with all other accrued and unpaid dividends to the date
fixed for redemption. The holders of shares of the Series shall be not be
entitled to any dividends other than the cash dividends provided for in this
paragraph 3.
(b) No dividends, except as described in the next
succeeding sentence, shall be declared or paid or set apart for payment on any
Parity Dividend Shares for any period unless full cumulative dividends have
been or contemporaneously are declared and paid or declared and set aside for
payment for all accrued dividends with respect to the Series through the most
recent Quarterly Dividend Period ending on or prior to the date of payment, or
setting apart for payment, of such dividends on such Parity Dividend Shares.
Unless dividends accrued and payable but unpaid on shares of the Series and any
Parity Dividend Shares at the time outstanding have been paid in full, all
dividends declared by the Corporation upon shares of the Series or Parity
Dividend Shares shall be declared pro rata with respect to all such shares, so
that the amounts of any dividends declared on shares of the Series and the
Parity Dividend Shares shall in all cases bear to each other the same ratio
that, at the time of the declaration, all accrued but unpaid dividends on
shares of the Series and the other Parity Dividend Shares, respectively, bear
to each other.
(c) If at any time the Corporation has failed to pay
or set apart for payment all accrued dividends on any shares of the Series
through the then most recent Quarterly Dividend Period, the Corporation shall
not, and shall not permit any corporation or other entity directly or
indirectly controlled by the Corporation to:
(i) declare or pay or set aside for payment any
dividend or other distribution on or with respect to any
Junior Dividend Shares, whether in cash, securities,
## CT01/SCHIJ/69316.34
-3-
<PAGE> 4
obligations or otherwise (other than dividends or
distributions paid in shares of, or options, warrants or
rights to subscribe for or purchase shares which are both
Junior Dividend Shares and Junior Liquidation Shares); or
(ii) redeem, purchase or otherwise acquire, or set
apart money for a sinking or other analogous fund for the
redemption, purchase or other acquisition of, any shares of
the Series (unless all of the shares of the Series are
concurrently redeemed), Parity Dividend Shares, Junior
Dividend Shares, Parity Liquidation Shares or Junior
Liquidation Shares for any consideration (except by conversion
into or exchange for shares which are both Junior Liquidation
Shares and Junior Dividend Shares)
unless, in each such case, all dividends accrued on shares of the Series
through the most recent Quarterly Dividend Period and on any Parity Dividend
Shares have been or contemporaneously are declared and paid in full or declared
and a sum sufficient for the payment thereof set aside for such payment.
(d) Any reference to "distribution" contained in this
paragraph 3 shall not be deemed to include any distribution made in connection
with any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
4. LIQUIDATION. (a) The liquidation value of shares of
the Series, in case of the voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, shall be $25.00 per share, plus an amount equal
to the dividends accrued and unpaid thereon, whether or not declared, to the
payment date (such aggregate amount being hereinafter referred to as the
"Liquidation Amount").
(b) In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, the holders of
shares of the Series (i) shall not be entitled to receive the liquidation value
of the shares held by them until the liquidation value of all Senior
Liquidation Shares shall have been paid in full and (ii) shall be entitled to
receive the liquidation value of such shares held by them in preference to and
in priority over any distributions upon the Junior Liquidation Shares. Upon
payment in full of the liquidation value to which the holders of shares of the
Series are entitled, the holders of shares of the Series will not be entitled
to any further participation in any distribution of assets by the Corporation.
If the assets of the Corporation are not sufficient to pay in full the
liquidation value payable to the holders of shares of the Series and the
liquidation value payable to the holders of any Parity Liquidation Shares, the
holders of all such shares shall share ratably in such distribution of assets
in accordance with the amounts that would be payable on the distribution if the
amounts to which the holders of shares of the Series and the holders of Parity
Liquidation Shares are entitled were paid in full.
(c) Neither a consolidation or merger of the Corporation
with or into any other entity, nor a merger of any other entity with or into
the Corporation, nor a sale or transfer of all or any part of the Corporation's
assets for cash or securities or other property shall be considered a
liquidation, dissolution or winding-up of the Corporation within the meaning
of this paragraph 4.
## CT01/SCHIJ/69316.34
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<PAGE> 5
(d) Written notice of any liquidation, dissolution or
winding up of the Corporation, stating the payment date or dates when and the
place or places where the amounts distributable in such circumstances shall be
payable, shall be given by first class mail, postage prepaid, not less than 30
days prior to any payment date stated therein, to the holders of record of
shares of the Series at their respective addresses as the same shall appear on
the books of the transfer agent with respect to the Series.
5. OPTIONAL REDEMPTIONS FOR CASH. (a) The shares of
the Series are not redeemable by the Corporation prior to November 1, 1998.
Subject to the restrictions in paragraph 3 above, shares of the Series will be
redeemable at the option of the Corporation, in whole or in part, from and
after November 1, 1998 at the following redemption prices per share:
<TABLE>
<CAPTION>
During the 12-month period
commencing November 1, Redemption Price
------------------------ ----------------
<S> <C>
1998 $26.25
1999 $26.00
2000 $25.75
2001 $25.50
2002 $25.25
2003 and thereafter $25.00
</TABLE>
in each case, together with an amount equal to the dividends accrued and unpaid
thereon, whether or not declared, to the redemption date.
(b) Not less than 30 nor more than 60 days prior to the
date fixed for any redemption of shares of the Series pursuant to this
paragraph 5, a notice specifying the time and place of the redemption and the
number of shares to be redeemed shall be given by first class mail, postage
prepaid, to the holders of record of the shares of the Series to be redeemed at
their respective addresses as the same shall appear on the books of the
transfer agent for the Series, calling upon each holder of record to surrender
to the Corporation at such place as shall be designated in such notice on the
redemption date such holder's certificate or certificates representing the
number of shares specified in the notice of redemption. Neither failure to
mail such notice, nor any defect therein or in the mailing thereof, to any
particular holder shall affect the sufficiency of the notice or the validity of
the proceedings for redemption with respect to any other holder. Any notice
mailed in the manner herein provided shall be conclusively presumed to have
been duly given whether or not the holder receives the notice. On or after the
redemption date, each holder of shares of the Series to be redeemed shall
present and surrender such holder's certificate or certificates for such shares
to the Corporation at the place designated in the redemption notice and
thereupon the redemption price of the shares shall be paid to or on the order
of the person whose name appears on such certificate or certificates as the
owner thereof, and each surrendered certificate shall be canceled. In case
less than all the shares represented by any such certificate are redeemed, a
new certificate shall be issued to the holder representing the unredeemed
shares of the Series.
## CT01/SCHIJ/69316.34
-5-
<PAGE> 6
(c) If a notice of redemption has been given
pursuant to this paragraph 5 and if, on or before the date fixed for
redemption, the funds necessary for such redemption shall have been set aside
by the Corporation, separate and apart from its other funds, in trust for the
pro rata benefit of the holders of the shares of the Series so called for
redemption, then, notwithstanding that any certificates for such shares have
not been surrendered for cancellation, on the redemption date dividends shall
cease to accrue on the shares of the Series to be redeemed, and at the close of
business on the redemption date the holders of such shares shall cease to be
stockholders with respect to those shares, shall have no interest in or claims
against the Corporation by virtue thereof and shall have no voting or other
rights with respect thereto, except the right to receive the moneys payable
upon such redemption, without interest thereon, upon surrender (and
endorsement, if required by the Corporation) of their certificates, and the
shares evidenced thereby shall no longer be outstanding. Subject to applicable
escheat laws, any moneys so set aside by the Corporation and unclaimed at the
end of two years from the redemption date shall revert to the general funds of
the Corporation, after which reversion the holders of such shares so called for
redemption shall look only to the general funds of the Corporation for the
payment of the redemption price. Any interest accrued on funds so deposited
shall be paid to the Corporation from time to time.
(d) If a notice of redemption has been given pursuant to
this paragraph 5, and any holder of shares of the Series shall, prior to the
close of business on the date fixed for redemption, give written notice to the
Corporation pursuant to paragraph 7 or 11 below of the conversion of any or all
of the shares to be redeemed held by the holder, then such redemption shall not
become effective as to such shares to be converted and such conversion shall
become effective as provided in paragraph 7 or 11 below, whereupon any funds
deposited by the Corporation, or on its behalf, with a payment agent or
segregated and held in trust by the Corporation for the redemption of such
shares shall (subject to any right of the holder of such shares to receive the
dividend payable thereon as provided in paragraph 7 or 11 below) immediately
upon such conversion be returned to the Corporation or, if then held in trust
by the Corporation, shall be discharged from the trust.
(e) In every case of redemption of less than all of
the outstanding shares of the Series pursuant to this paragraph 5, the
shares to be redeemed shall be selected pro rata or by lot or in such other
manner as the Board of Directors may determine, as may be prescribed by
resolution of the Board of Directors of the Corporation, provided that only
whole shares shall be selected for redemption. Notwithstanding the foregoing,
the Corporation shall not redeem any of the shares of the Series at any time
outstanding until all dividends accrued and in arrears upon all shares of the
Series then outstanding shall have been paid for all past dividend periods.
6. NOTE EXCHANGE. (a) Subject to the restrictions in
paragraph 5 above and paragraph 6(e) below, shares of the Series shall be
exchangeable at the option of the Corporation, in whole but not in part, on any
March 31, June 30, September 30 or December 31 on or after December 31, 1996
and prior to December 31, 2004 through the issuance, in redemption of and in
exchange for the shares of the Series, of the Corporation's 8.125% Convertible
Subordinated Notes due 2005 (the "Notes") in the
## CT01/SCHIJ/69316.34
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<PAGE> 7
manner provided in this paragraph 6. The Notes will be subject to the terms
and conditions of an indenture (the "Indenture") with Keycorp Shareholder
Services, Inc., as Trustee, in substantially the form attached hereto as
Exhibit A and incorporated by reference herein. The Notes shall be convertible
into Common Stock of the Corporation at the Conversion Price (as determined
pursuant to paragraph 7 below) applicable to the Series at the time of
exchange, subject to further adjustment as provided in the Indenture. If, for
any reason, prior to the execution and delivery of the Indenture, either the
Corporation or Keycorp Shareholder Services, Inc. does not desire that Keycorp
Shareholder Services, Inc. act as Trustee under the Indenture, the Corporation
may, in its sole discretion, appoint another entity to act as Trustee under the
Indenture, provided that the other entity meets the qualification requirements
to act as Trustee under the Indenture and the Trust Indenture Act of 1939, as
amended.
(b) The Notes will be issued solely in redemption of and
in exchange for shares of the Series at the rate of $25 principal amount of
Notes for each share of the Series outstanding on the Note Exchange Date (as
defined in paragraph 6(c)).
(c) Not less than 30 nor more than 60 days prior to
the date fixed for the issue of Notes in redemption of and in exchange for
shares of the Series pursuant to this paragraph 6, a notice shall be given by
first class mail, postage prepaid, to the holders of record of shares of the
Series at their respective addresses as the same shall appear on the books of
the transfer agent for the Series, specifying the effective date of the
exchange for the Notes (the "Note Exchange Date") and the place where
certificates for shares of the Series are to be surrendered for Notes and
stating that dividends on shares of the Series will cease to accrue on the Note
Exchange Date. Neither failure to mail such notice, nor any defect therein or
in the mailing thereof, to any particular holder shall affect the sufficiency
of the notice or the validity of the proceedings for redemption and exchange
with respect to any other holder. Any notice mailed in the manner herein
provided shall be conclusively presumed to have been duly given whether or not
the holder receives the notice.
(d) If notice of redemption and exchange has been given
pursuant to this paragraph 6 then (unless the Corporation shall default in
issuing Notes in redemption of and in exchange for shares of the Series or
shall fail to pay or set aside accrued and unpaid dividends on shares of the
Series as provided in paragraph 6(e) and notwithstanding that any certificates
for shares of the Series have not been surrendered for exchange), on the Note
Exchange Date, the holders of such shares shall cease to be stockholders with
respect to the shares and shall have no interest in or claims against the
Corporation by virtue thereof (except the right to receive Notes in exchange
therefor and such accrued and unpaid dividends thereon to the Note Exchange
Date), shall have no voting, conversion or other rights with respect to such
shares, and the shares of the Series shall no longer be outstanding. Upon the
surrender (and endorsement, if required by the Corporation) of the certificates
for shares of the Series in accordance with such notice, such certificates
shall be exchanged for Notes and such accrued and unpaid dividends in
accordance with this paragraph 6. If notice of redemption and exchange has
been given pursuant to this paragraph 6 and any holder of shares of the Series
shall, prior to the close of business on the Note Exchange Date, gives written
notice to the
## CT01/SCHIJ/69316.34
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<PAGE> 8
Corporation pursuant to paragraph 7 or 11 below of the conversion of any or all
of the shares to be redeemed and exchanged held by the holder, then the
redemption and exchange shall not become effective as to the shares to be
converted and the conversion shall become effective as provided in paragraph 7
or 11 below, whereupon any funds deposited by the Corporation, or on its
behalf, with a paying agent or segregated and held in trust by the Corporation
for the redemption and exchange of such shares shall, subject to any right of
the holder of the shares to receive the dividend payable thereon (as provided
in paragraph 7 or 11 below) immediately upon the conversion be returned to the
Corporation or, if then held in trust by the Corporation, shall be discharged
from the trust.
(e) Prior to giving notice of intention to exchange,
the Corporation and the Trustee shall execute and deliver the Indenture,
with such changes therein as may be required by law, Nasdaq National Market
rule or the rules of any securities exchange on which the Notes are to
be listed. The Corporation will cause the Notes to be authenticated on or
before the Note Exchange Date. Additionally, prior to giving notice of
intention to exchange the Corporation shall (i) register the Notes for trading
through the Depository Trust Company, (ii) list the Notes for inclusion in the
principal trading market in which the shares of the Series were trading
immediately prior to such exchange, (iii) arrange for the qualification of the
Notes under applicable securities and blues sky laws, to the extent necessary
under such laws, and (iv) if the exchange is to be consummated prior to
November 6, 1998, register the Notes for public resale pursuant to the
Securities Act on an appropriate form. If on the Note Exchange Date the
Corporation has failed to pay or set aside, separate and apart from its other
funds, in trust for the pro rata benefit of the holders of shares of the
Series, all dividends accrued and unpaid on the shares of the Series to the
Note Exchange Date then no shares of the Series shall be redeemed or exchanged
for Notes.
7. CONVERSION. (a) Holders of shares of the Series
will have the right, exercisable at any time prior to redemption or exchange of
such shares (as described in paragraphs 5 or 6 above), to convert shares of the
Series into shares of Common Stock (calculated as to each conversion to the
nearest 1/100th of a share) at the conversion price of $9.50, subject to
adjustment as described below (the "Conversion Price"). The number of shares
of Common Stock into which each share of the Series shall be convertible shall
be determined by dividing the Liquidation Preference of such share by the
Conversion Price then in effect. In the case of shares of the Series called
for redemption or to be exchanged for the Notes, conversion rights will expire
at the close of business on the redemption date or the Note Exchange Date, as
the case may be. No payment or adjustment for accrued dividends on the shares
of the Series is to be made on conversion, but holders of record of shares of
the Series on a record date fixed for the payment of a dividend on such shares
shall be entitled to receive the dividend notwithstanding the conversion of the
shares prior to the dividend payment date. A share of the Series may not be
converted in part.
(b) In order to exercise the conversion right, the holder
of each share of the Series to be converted shall surrender the certificate
representing such share, duly endorsed or assigned to the Corporation or in
blank, at the office of the transfer agent
## CT01/SCHIJ/69316.34
-8-
<PAGE> 9
for the Series in New York, New York and shall give written notice to the
Corporation in the form set forth on the reverse of the stock certificates for
the shares of the Series that such holder elects to convert the shares
represented by such certificate or a portion thereof. Such notice shall also
state the name or names (with address) in which the certificate or certificates
for the shares of Common Stock which shall be issuable upon such conversion
shall be issued, and shall be accompanied by funds in an amount sufficient to
pay any transfer or similar tax required by the provisions of paragraph 7(e)
below. Each share surrendered for conversion shall, unless the shares issuable
on conversion are to be issued in the same name as the name in which such share
of the Series is registered, be duly endorsed by, or be accompanied by
instruments of transfer (in each case, in form reasonably satisfactory to the
Corporation), duly executed by the holder or such holder's duly authorized
attorney-in-fact.
(c) As promptly as practicable after the surrender
of certificates for shares of the Series for conversion and the receipt
of such notice and funds, if any, as aforesaid, the Corporation shall
issue and shall deliver to such holder, or on such holder's written order, a
certificate or certificates for the number of shares of Common Stock issuable
upon the conversion of such shares of the Series in accordance with the
provisions of this paragraph 7, and a check or cash in respect of any
fractional interest in respect of a share of Common Stock arising upon such
conversion, as provided in paragraph 7(d) below. Each conversion with respect
to any shares of the Series shall be deemed to have been effected immediately
prior to the close of business on the date on which the certificates for shares
of the Series shall have been surrendered (accompanied by the funds, if any,
required by paragraph 7(e) below) and such notice shall have been received by
the Corporation as aforesaid, and the person or persons entitled to receive the
Common Stock issuable upon such conversion shall be deemed for all purposes to
be the record holder or holders of such Common Stock upon that date.
(d) No fractional shares of Common Stock or scrip
representing fractional shares shall be issued upon conversion of shares of the
Series. If more than one share of the Series shall be surrendered for
conversion at one time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of the Series so surrendered. Instead of any
fractional share of Common Stock otherwise issuable upon conversion of any
shares of the Series, the Corporation shall pay a cash adjustment in respect to
such fraction in an amount equal to the same fraction of the Current Market
Price (as defined in paragraph 12 below) of the Common Stock at the close of
business on the day of conversion.
(e) If a holder converts shares of the Series, the
Corporation shall pay any and all documentary, stamp or similar issue or
transfer tax payable in respect of the issue or delivery of the shares of the
Series (or any other securities issued on account thereof pursuant hereto) or
Common Stock upon the conversion; provided, however, the Corporation shall not
be required to pay any such tax that may be payable because any such shares are
issued in a name other than the name of the holder.
## CT01/SCHIJ/69316.34
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<PAGE> 10
(f) The Corporation shall reserve out of its authorized
but unissued Common Stock or its Common Stock held in treasury enough shares
of Common Stock to permit the conversion of all of the outstanding shares of
the Series. The Corporation shall from time to time, in accordance with the
GCL, increase the authorized amount of its Common Stock if at any time the
authorized amount of its Common Stock remaining unissued shall not be
sufficient to permit the conversion of all shares of the Series at the time
outstanding. If any shares of Common Stock required to be reserved for
issuance upon conversion of shares of the Series hereunder require registration
with or approval of any governmental authority under any federal or state law
before the shares may be issued upon conversion, the Corporation shall in good
faith and as expeditiously as possible endeavor to cause the shares to be so
registered or approved. All shares of Common Stock delivered upon conversion
of the shares of the Series will, upon delivery, be duly authorized and validly
issued, fully paid and nonassessable, free from all taxes, liens and charges
with respect to the issue thereof.
(g) The Conversion Price shall be subject to adjustment
from time to time as follows:
(i) In the event that the Corporation shall (A)
pay a dividend or make a distribution on its Common Stock in
shares of its Common Stock, (B) split or subdivide its
outstanding Common Stock into a greater number of shares, (C)
combine its outstanding Common Stock into a smaller number of
shares or (D) issue any shares of Capital Stock by
reclassification of its Common Stock, the Conversion Price in
effect immediately prior thereto shall be adjusted so that the
holder of each share of the Series thereafter surrendered for
conversion shall be entitled to receive the number of shares
of Common Stock or other securities of the Corporation that
such holder would have owned or have been entitled to receive
after the occurrence of any of the events described above had
such share of the Series been converted immediately prior to
the occurrence of such event. An adjustment made pursuant to
this paragraph 7(g)(i) shall become effective immediately
after the close of business on the record date in the case of
a dividend or distribution (except as provided in paragraph
7(k) below) and shall become effective immediately after the
close of business on the effective date in the case of a
subdivision, split, combination or reclassification. Any
shares of Common Stock issuable in payment of a dividend shall
be deemed to have been issued immediately prior to the close
of business on the record date for such dividend for purposes
of calculating the number of outstanding shares of Common
Stock under clauses (ii) and (iii) below.
(ii) In the event that the Corporation shall commit
to issue or distribute Capital Stock or issue rights, warrants
or options entitling the holder thereof to subscribe for or
purchase Capital Stock at a price per share less than the
Current Market Price per share on the earliest of (i) the date
the Corporation shall enter into a firm contract for such
issuance or distribution, (ii) the record date for the
determination of stockholders entitled to receive any such
rights, warrants or options, if applicable, or (iii) the date
of actual issuance or distribution of any such Capital Stock
or rights, warrants or options, (provided that the issuance of
## CT01/SCHIJ/69316.34
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<PAGE> 11
Capital Stock upon the exercise of warrants or options will
not cause an adjustment in the Conversion Price if no such
adjustment would have been required at the time such warrant
or option was issued), then the Conversion Price in effect
immediately prior to such earliest date shall be adjusted so
that the Conversion Price shall equal the price determined by
multiplying the Conversion Price in effect immediately prior
to such earliest date by:
(x) if such Capital Stock is Common
Stock, the fraction whose numerator shall be
the number of shares of Common Stock
outstanding on such date plus the number of
shares which the aggregate offering price of
the total number of shares so offered would
purchase at such Current Market Price (such
amount, with respect to any such rights,
warrants or options, determined by
multiplying the total number of shares
subject thereto by the exercise price of such
rights, warrants or options and dividing the
product so obtained by the Current Market
Price), and of which the denominator shall be
the number of shares of Common Stock
outstanding on such date plus the number of
additional shares of Common Stock to be
issued or distributed or receivable upon
exercise of any such warrant, right or
option; or
(y) if such Capital Stock is other
than Common Stock, the fraction whose
numerator shall be the Current Market Price
per share of Common Stock on such date minus
an amount equal to (A) the sum of (I) the
Current Market Price per share of such class
of Capital Stock multiplied by the number of
shares of such class of Capital Stock to be
so issued minus (II) the offering price per
share of such Capital Stock multiplied by the
number of shares of such class of Capital
Stock to be so issued (B) divided by the
number of shares of Common Stock outstanding
on such date and whose denominator is the
Current Market Price of the Common Stock on
such date.
Such adjustment shall be made successively whenever any such
Capital Stock, rights, warrants or options are issued or
distributed at a price below the Current Market Price therefor
as in effect on the date of issuance or distribution. In
determining whether any rights, warrants or options entitle
the holders to subscribe for or purchase shares of Capital
Stock at less than such Current Market Price, and in
determining the aggregate offering price of shares of Capital
Stock so issued or distributed, there shall be taken into
account any consideration received by the Corporation for such
Capital Stock, rights, warrants or options, the value of such
consideration, if other than cash, to be determined by the
Board of Directors, whose determination shall be conclusive
and described in a certificate filed with the Trustee. If any
right, warrant or option to purchase Capital Stock, the
issuance of which resulted in an adjustment in the Conversion
Price pursuant to this subsection (b), shall expire and shall
not have been exercised, the Conversion Price shall
immediately upon such expiration be recomputed to the
Conversion Price which would have been in effect had the
adjustment of the Conversion Price made upon the issuance of
such right, warrant
## CT01/SCHIJ/69316.34
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or option been made on the basis of offering for subscription
or purchase only that number of shares of Capital Stock
actually purchased upon the actual exercise of such right,
warrant or option.
(iii) In the event that the Corporation shall pay as
a dividend or other distribution to holders of any class of
its Capital Stock generally or to holders of any class of
Capital Stock of any Subsidiary which is not wholly owned by
the Corporation evidences of indebtedness or assets
(including, without limitation, shares of Capital Stock, cash
or other securities, but excluding dividends, rights,
warrants, options and distributions for which adjustment is
made as described in subsections (i) and (ii) above, then in
each such case the Conversion Price shall be adjusted so that
the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the date of
such distribution by a fraction of which the numerator shall
be the Current Market Price per share of Common Stock on the
record date mentioned below less the fair market value on such
record date (as determined by the Board of Directors, whose
determination shall be conclusive and described in a
certificate filed with the Trustee) of the portion of the
Capital Stock or assets or evidences of indebtedness so
distributed or of such rights or warrants attributable to one
share of Common Stock (the amount so attributable equaling the
aggregate fair market value of such indebtedness or assets, as
so determined by the Board of Directors, divided by the number
of shares of Common Stock outstanding on such record date),
and the denominator shall be the Current Market Price of the
Common Stock on such record date. Such adjustment shall become
effective immediately after the record date for the
determination of stockholders entitled to receive such
distribution, except as provided in paragraph 7(k) below.
(iv) No adjustment in the Conversion Price shall be
required unless the adjustment would require an increase or
decrease of at least 1% in the Conversion Price then in
effect; provided, however, that any adjustments that by reason
of this paragraph 7(g)(i) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment. All calculations under this paragraph 7(g)(i)
shall be made to the nearest cent or nearest 1/100th of a
share.
(v) Notwithstanding anything to the contrary set
forth in this paragraph 7(g), no adjustment shall be made to
the Conversion Price upon (A) the issuance of shares of Common
Stock pursuant to any compensation or incentive plan for
officers, directors, employees or consultants of the
Corporation which plan has been approved by the Compensation
Committee of the Board of Directors (or if there is no such
committee then serving, by the majority vote of the Directors
then serving who are not employees or officers of the
Corporation, a 5% or greater stockholder of the Corporation or
an officer, employee or Affiliate or Associate (as defined in
paragraph 12) of any such 5% or greater stockholder) and, if
required by law, the requisite vote of the stockholders of the
Corporation (unless the exercise price thereof is changed
after the date hereof other than solely by operation of the
anti-dilution provisions thereof or by the Compensation
Committee of the Board of Directors or, if applicable, the
Board of Directors
## CT01/SCHIJ/69316.34
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and, if required by law, the stockholders of the Corporation
as provided in this clause (A)) or (B) the issuance of Common
Stock upon the conversion or exercise of the Existing
Preferred Shares or warrants of the Corporation outstanding on
October 31, 1995, unless the conversion or exercise price
thereof is changed after October 31, 1995 (other than solely
by operaion of the anti-dilution provisions thereof) or (C)
the declaration, setting aside or payment of dividends for
payment to the Shares, any Parity Dividend Shares or Senior
Dividend Shares in accordance with paragraph 3 or (D) after
giving effect to the payment or setting aside of any dividends
previously or concurrently declared with respect to the
Shares, any Parity Dividend Shares or Senior Dividend Shares,
the declaration, setting aside or payment of dividends solely
out of the retained earnings of the Corporation.
(vi) The Corporation from time to time may reduce the
Conversion Price by any amount for any period of time in the
discretion of the Board of Directors. A voluntary reduction
of the Conversion Price does not change or adjust the
conversion price otherwise in effect for purposes of this
paragraph 7(g).
(vii) In the event that, at any time as a result of
an adjustment made pursuant to paragraph 7(g)(i) through
7(g)(iii) above, the holder of any share of the Series
thereafter surrendered for conversion shall become entitled to
receive any shares of the Corporation other than shares of the
Common Stock, thereafter the number of such other shares so
receivable upon conversion of any share of the Series shall be
subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions
with respect to the Common Stock contained in paragraphs
7(g)(i) through 7(g)(v) above, and the other provisions of
this paragraph 7(g)(vii) with respect to the Common Stock
shall apply on like terms to any such other shares.
(h) In case of any reclassification of the Common Stock
(other than in a transaction to which paragraph 7(g)(i) applies), any
consolidation of the Corporation with, or merger of the Corporation into, any
other entity, any merger of another entity into the Corporation (other than a
merger that does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock of the Corporation), any
sale or transfer of all or substantially all of the assets of the Corporation
or any compulsory share exchange, pursuant to which share exchange the Common
Stock is converted into other securities, cash or other property, then lawful
provision shall be made as part of the terms of such transaction whereby the
holder of each share of the Series then outstanding shall have the right
thereafter, during the period such share shall be convertible, to convert such
share only into the kind and amount of securities, cash and other property
receivable upon the reclassification, consolidation, merger, sale, transfer or
share exchange by a holder of the number of shares of Common Stock of the
Corporation into which a share of the Series might have been converted
immediately prior to the reclassification, consolidation, merger, sale,
transfer or share exchange. As a condition to any such transaction, the
Corporation, the person formed by the consolidation or resulting from the
merger or which acquires such assets or which acquires the Corporation's
shares, as the case may be, shall make provisions in its
## CT01/SCHIJ/69316.34
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<PAGE> 14
certificate or articles of incorporation or other constituent document to
establish such right. The certificate or articles of incorporation or other
constituent document shall provide for adjustments which, for events subsequent
to the effective date of the certificate or articles of incorporation or other
constituent document, shall be as nearly equivalent as may be practicable to
the adjustments provided for in this paragraph 7. The provisions of this
paragraph 7(h) shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges.
(i) If:
(i) the Corporation shall take any action which
would require an adjustment in the Conversion Price pursuant
to Section 7(g); or
(ii) the Corporation shall authorize the granting to
the holders of its Common Stock generally of rights or
warrants to subscribe for or purchase any shares of any class
or any other rights or warrants; or
(iii) there shall be any reclassification or change
of the Common Stock (other than a subdivision or combination
of its outstanding Common Stock or a change in par value) or
any consolidation, merger or statutory share exchange to which
the Corporation is a party and for which approval of any
stockholders of the Corporation is required, or the sale or
transfer of all or substantially all of the assets of the
Corporation; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then, except as provided otherwise in paragraph 11, the Corporation shall cause
to be filed with the transfer agent for the Series and shall cause to be mailed
to the holders of shares of the Series at their addresses as shown on the books
of the transfer agent for the Series, as promptly as possible, but at least 30
days prior to the applicable date hereinafter specified, a notice stating (A)
the date on which a record is to be taken for the purpose of such dividend,
distribution or granting of rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution or rights or warrants are to be
determined or (B) the date on which such reclassification, change,
consolidation, merger, statutory share exchange, sale, transfer, dissolution,
liquidation or winding up is expected to become effective or occur, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, change, consolidation, merger,
statutory share exchange, sale, transfer, dissolution, liquidation or winding
up. Failure to give such notice or any defect therein shall not affect the
legality or validity of the proceedings described in this paragraph 7(i).
(j) Whenever the Conversion Price is adjusted as
herein provided, the Corporation shall promptly file with the transfer agent
for the Series a certificate of an officer of the Corporation setting forth the
Conversion Price after the adjustment and
## CT01/SCHIJ/69316.34
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<PAGE> 15
setting forth a brief statement of the facts requiring such adjustment and a
computation thereof. The Corporation shall promptly cause a notice of the
adjusted Conversion Price to be mailed to each registered holder of shares of
the Series.
(k) In any case in which paragraph 7(g) provides that an
adjustment shall become effective immediately after a record date for an event
and the date fixed for such adjustment pursuant to paragraph 7(g) occurs after
such record date but before the occurrence of such event, the Corporation may
defer until the actual occurrence of such event (i) issuing to the holder of
any shares of the Series converted after such record date and before the
occurrence of such event the additional shares of Common Stock issuable upon
such conversion by reason of the adjustment required by such event over and
above the Common Stock issuable upon such conversion before giving effect to
such adjustment and (ii) paying to such holder any amount in cash in lieu of
any fraction pursuant to paragraph 7(d).
(l) In case the Corporation shall take any action
affecting the Common Stock, other than actions described in this paragraph 7,
which in the opinion of the Board of Directors would materially adversely
affect the conversion right of the holders of the shares of the Series, the
Conversion Price may be adjusted, to the extent permitted by law, in such
manner, if any, and at such time, as the Board of Directors may determine to be
equitable in the circumstances; provided, however, that in no event shall the
Board of Directors be required to take any such action.
(m) The Corporation will endeavor to list the shares of
Common Stock required to be delivered upon conversion of shares of the Series,
prior to delivery, upon each national securities exchange, the Nasdaq National
Market or any similar system of automated dissemination of securities prices,
if any, upon which the Common Stock is listed at the time of delivery.
8. STATUS OF SHARES. All shares of the Series that are
at any time redeemed pursuant to paragraphs 5 or 6 above or converted pursuant
to paragraph 7 above or paragraph 11 below, and all shares of the Series that
are otherwise reacquired by the Corporation and subsequently canceled by the
Board of Directors, shall have the status of authorized but unissued shares of
preferred stock, without designation as to series, subject to reissuance by the
Board of Directors as shares of any one or more other series.
9. VOTING RIGHTS.
(a) GENERAL. Except as set forth below or otherwise
required by law, holders of shares of the Series shall vote together with the
holders of the Common Stock (and together with any other class of capital stock
of the Corporation which is stated to vote with the holders of Common Stock as
a class) with respect to all matters submitted to the stockholders of the
Corporation for vote or consent. In connection with any right to vote or give
consent, each holder of shares of the Series will have one vote for each share
held; provided, however, any shares of the Series held by the Corporation or
any entity controlled by the Corporation shall not have voting rights hereunder
and shall not be counted in determining the presence of a quorum.
## CT01/SCHIJ/69316.34
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(b) Dividend Defaults.
------------------
(i) If and whenever accrued dividends on the
shares of the Series shall not have been paid in an aggregate
amount equal to or greater than the equivalency of six
quarterly dividends (whether or not consecutive) on shares of
the Series, or if any class of Parity Dividend Shares or
Senior Dividend Shares (together with the Series, but
excluding the Existing Preferred Shares, the "Preferred
Class") shall become entitled to elect directors to the
Corporation's Board of Directors based upon actual missed and
unpaid dividends, then upon such event, without the
requirement of any additional action by the Board of Directors
or stockholders of the Corporation, the number of directors
constituting the Board of Directors of the Corporation shall
automatically be increased by the number of directorships
equal to one-half of the number of directorships constituting
the whole Board of Directors of the Corporation immediately
prior to such event (rounded upwards in the event of a
fraction), but by not less than three, and the holders of
shares of the Preferred Class, voting together as a single
class, shall be entitled to elect the directors to fill the
resulting vacancies on the Board of Directors; provided,
however, that there shall be counted as directors elected by
the Preferred Class up to two directors elected by the
Existing Preferred Shares pursuant to the terms of the
Certificates of Designations related thereto. At elections
for such directors, each holder of shares of the Preferred
Class shall be entitled to one vote for each share of the
Preferred Class held. Such right to vote as a single class to
elect directors shall, when vested, continue until all
dividends in default on the shares of the Preferred Class
shall have been paid in full and, when so paid, such right to
elect directors separately as a class shall cease, subject to
the same provisions for the vesting of such right to elect
directors separately as a class in the case of future dividend
defaults. If at any time after the election of directors by
the Preferred Class, the holders of Existing Preferred Shares
exercise their right to elect up to two directors, a special
meeting shall be held to vote upon the persons who shall be
the remaining directors elected by the Preferred Class.
(ii) Whenever such voting right shall have vested,
such right may be exercised initially either, at a special
meeting of the holders of shares of the Preferred Class called
as hereinafter provided or at any annual meeting of
stockholders held for the purpose of electing directors, and
thereafter at such meetings or by the written consent of such
holders pursuant to Section 228 of the GCL.
(iii) At any time when the voting right granted by
this paragraph 9(b) shall have vested in the holders of shares
of the Preferred Class entitled to vote thereon, and if such
right shall not already have been initially exercised, an
officer of the Corporation shall, upon written request of
holders of record of 10% in the aggregate, of shares of any
series of preferred stock of the Corporation then outstanding,
addressed to the Chief Financial Officer of the Corporation,
call a special meeting of holders of shares of the Preferred
Class. Such meeting shall be held at the earliest practicable
date upon the notice required for annual
## CT01/SCHIJ/69316.34
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meetings of stockholders at the place for holding annual
meetings of stockholders of the Corporation or, if none, at a
place designated by the Chief Financial Officer of the
Corporation. If such meeting shall not be called by the
proper officers of the Corporation within 30 days after such
written request is mailed to the Chief Financial Officer of
the Corporation, by registered mail, addressed to the Chief
Financial Officer of the Corporation at its principal office
(such mailing to be evidenced by the registry receipt issued
by the postal authorities), then the holders of record of 10%
of the shares of the Preferred Class then outstanding may
designate in writing any person to call such meeting at the
expense of the Corporation, and such meeting may be called by
such person so designated upon the notice required for annual
meetings of stockholders and shall be held at the same place
as is elsewhere provided in this paragraph 9(b)(iii). Any
holder of shares of the Preferred Class then outstanding that
would entitled to vote at such meeting shall have access to
the stock record books of the Corporation for the purpose of
causing a meeting of stockholders to be called pursuant to the
provisions of this paragraph 9(b)(iii). Notwithstanding the
provisions of this paragraph, however, no such special meeting
shall be called or held during a period within 30 days
immediately preceding the date fixed for the next annual
meeting of stockholders.
(iv) The directors elected pursuant to this
paragraph 9(b) shall serve until the next annual meeting or
until their respective successors shall be elected and shall
qualify. Any director elected by the holders of shares of the
Preferred Class may be removed by, and shall not be removed
otherwise than by, the vote of the holders of a majority of
the outstanding shares of the Preferred Class who were
entitled to participate in such election of directors, voting
as a special class, at a meeting called for such purpose or by
written consent as permitted by law and the Certificate of
Incorporation and By-laws of the Corporation. If the office
of any director elected by the holders of the shares of the
Preferred Class, voting as a class, becomes vacant by reason
of death, resignation, retirement, disqualification or removal
from office or otherwise, the remaining director elected by
the holders of shares of the Preferred Class, voting as a
class, may choose a successor who shall hold office for the
unexpired term in respect of which such vacancy occurred.
Upon any termination of the right of the holders of the
Preferred Stock to vote for directors as herein provided, the
term of office of all directors then in office elected by
holders of the Preferred Class, voting as a class, shall
terminate immediately. Whenever the terms of office of the
directors elected by the holders of powers vested in the
holders of the Preferred Class shall have expired, the number
of directors shall be such number as may be provided for
pursuant to the By-laws of the Corporation irrespective of any
increase made pursuant to the provisions of this paragraph
9(b).
(v) So long as any shares of the Series are
outstanding, the By-laws shall contain no provisions that
would restrict the exercise, by the holders of shares of the
Preferred Class or the Existing Preferred Shares, of the right
to elect directors under the circumstances provided in
paragraph 9(b)(i) above.
## CT01/SCHIJ/69316.34
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<PAGE> 18
(c) So long as any shares of the Series remain
outstanding, the consent of the holders of at least a majority of the shares of
the Series outstanding at the time, given in person or by proxy either in
writing (as permitted by law and the Certificate of Incorporation and By-laws
of the Corporation) or at any special or annual meeting, shall be necessary to
permit, effect or validate any one or more of the following:
(i) the authorization, creation or issuance, or any
increase in the authorized or issued amount of any class or
series of stock, or any security convertible into stock of
such class of series, ranking prior to the Series as to
dividends or the distribution of assets upon liquidation,
dissolution or winding up, other than preferred stock which is
not convertible into or exchangeable for any other securities
of the Corporation;
(ii) the amendment, alteration or repeal, whether by
merger, consolidation or otherwise, of any of the provisions
of the Certificate of Incorporation (including this
Certificate) or the By-laws of the Corporation which would
adversely affect any right, preference, privilege or voting
power of the Series or of the holders thereof; provided,
however, that any action permitted under the preceding clause
(i) with respect to Preferred Stock which is not convertible
into or exchangeable for any other securities of the
Corporation shall not be deemed to adversely affect such
rights, preferences, privileges or voting powers; or
(iii) the authorization of any reclassification of
the shares of the Series; or
(iv) make any change in the Indenture in a manner
that adversely affects or would adversely affect the rights of
the holders of Notes issued thereunder.
10. MANDATORY REDEMPTION. The shares of the Series are
not subject to mandatory redemption or sinking fund requirements.
11. SPECIAL CONVERSION RIGHTS OF HOLDERS UPON CERTAIN
EVENTS FOLLOWING A FUNDAMENTAL CHANGE OR A CHANGE OF CONTROL OF THE
CORPORATION.
(a) CHANGE OF CONTROL. If a Change of Control (as defined in
paragraph 11(e) below) with respect to the Corporation shall occur, and if at
the time of such occurrence the Current Market Price of the Common Stock is
less than the Conversion Price in effect at the time of such occurrence, then
each holder of shares of the Series shall have the right, at the holder's
option, for a period of 45 days after the mailing of a notice by the
Corporation that a Change of Control has occurred, to convert all, but not less
than all, of such holder's shares of the Series into Common Stock at an
adjusted Conversion Price per share equal to the Special Conversion Price. The
Corporation may, at its option, in lieu of providing Common Stock upon any such
special conversion, provide the holders who have elected to convert their
shares under this paragraph 11(a) with cash equal to the Market Value (as
defined in paragraph 11(e) below) of the Common Stock multiplied by the number
of shares of Common Stock into which shares of the Series would have been
convertible immediately prior to the Change of Control at an adjusted
conversion price equal to the Special Conversion Price, but only if the
Corporation, in
## CT01/SCHIJ/69316.34
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its notice to holders that a Change of Control has occurred, has notified the
holders of the Corporation's election to provide such holder with cash in lieu
of such Common Stock; provided, however, that any such election by the
Corporation shall apply to all shares of the Series for which the special
conversion was elected by the holders thereof. Shares of the Series that
becomes convertible pursuant to a special conversion right shall, unless so
converted, remain convertible in accordance with paragraph 7 into the number of
shares of Common Stock that the holders of the shares would have owned
immediately after the Change of Control if the holders had converted the shares
immediately before the effective date of the Change of Control.
(b) FUNDAMENTAL CHANGE. If a Fundamental Change (as
defined in paragraph 11(e) below) with respect to the Corporation shall occur,
and if at the time of such occurrence the Current Market Price of the Common
Stock is less than the Conversion Price in effect at the time of such
occurrence, then each holder of shares of the Series shall have a special
conversion right, at the holder's option, for a period of 45 days after the
mailing of a notice by the Corporation that a Fundamental Change has occurred,
to convert all, but not less than all, of the holder's shares into the kind and
amount of cash, securities, property or other assets receivable upon the
Fundamental Change by a holder of the number of shares of Common Stock into
which such shares of the Series would have been convertible immediately prior
to the Fundamental Change at an adjusted Conversion Price equal to the Special
Conversion Price. The Corporation or a successor corporation, as the case may
be, may, at its option and in lieu of providing the consideration as required
above upon such conversion, provide the holders who have elected to convert
their shares under this paragraph 11(b) with cash equal to the Market Value of
the Common Stock multiplied by the number of shares of Common Stock into which
such shares of the Series would have been convertible immediately prior to the
Fundamental Change at an adjusted Conversion Price equal to the Special
Conversion Price but only if the Corporation, in its notice to holders that a
Change of Control has occurred, has notified the holders of the Corporation's
election to provide such holder with cash in lieu of such Common Stock;
provided, however, that any such election by the Corporation shall apply to all
shares of the Series for which the special conversion was elected by the
holders thereof. Shares of the Series that becomes convertible pursuant to a
special conversion right shall, unless so converted, remain convertible in
accordance with paragraph 7 into the kind and amount of cash, securities,
property or other assets that the holders of the shares would have owned
immediately after the Fundamental Change if the holders had converted the
shares immediately before the effective date of the Fundamental Change.
(c) NOTICE. Within 30 days after the occurrence of
a Change in Control or Fundamental Change, the Corporation shall mail to
each registered holder of shares of the Series a notice of the occurrence (the
"Special Conversion Notice") setting forth the following:
(i) the event constituting the Change of Control
or Fundamental Change and that such event entitles the holders
of shares of the Series to the special conversion right;
## CT01/SCHIJ/69316.34
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(ii) the Special Conversion Price;
(iii) the Conversion Price then in effect under
paragraph 7 and the continuing conversion rights, if any,
thereunder;
(iv) the name and address of the paying agent and
conversion agent;
(v) that the holders who elect to convert shares of
the Series must satisfy the requirements of paragraph 11(d)
and must exercise their conversion right within the 45 day
period after the mailing of the Special Conversion Notice by
the Corporation;
(vi) the conversion date upon exercise of the
applicable special conversion right;
(vii) the exercise of such conversion right shall be
irrevocable and no dividends on shares of the Series (or
portions thereof) tendered for conversion shall accrue from
and after the conversion date; and
(viii) whether the Corporation (or a successor
corporation, if applicable) has exercised its option to pay
cash (specifying the amount thereof per share) for all shares
of the Series tendered for conversion.
The Special Conversion Notice shall be given by first class mail, postage
prepaid, to the holders of record of the shares of the Series at their
respective addresses as the same shall appear on the books of the transfer
agent for the Series. No failure of the Corporation to give the foregoing
notice shall limit any holder's right to exercise the special conversion right
hereunder.
(d) EXERCISE PROCEDURES. A holder of shares of the
Series must exercise a special conversion right within the 45 day period after
the mailing of the Special Conversion Notice. Such right must be exercised in
accordance with paragraph 7(b) to the extent the procedures therein are
consistent with the provisions of this paragraph 11. Exercise of such
conversion right shall be irrevocable, to the extent permitted by applicable
law, and dividends on shares of the Series tendered for conversion shall cease
to accrue from and after the conversion date. The conversion date with respect
to the exercise of a special conversion right arising upon a Change of Control
or Fundamental Change shall be the 45th day after the mailing of the Special
Conversion Notice. In taking any action in connection with any Change of
Control or Fundamental Change or related special conversion right, the
Corporation will comply with all applicable federal securities laws and
regulations.
(e) DEFINITIONS. The following definitions shall apply
to terms used in this paragraph 11:
(i) a "Change of Control" with respect to the
Corporation shall be deemed to have occurred at such time as
any person (within the meaning of Sections 13(d)
## CT01/SCHIJ/69316.34
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and 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), including a group (within the meaning
of Rule 13d-5 under the Exchange Act), together with any of
its Affiliates or Associates (as defined in paragraph 12), is
or becomes the direct or indirect beneficial owner (as defined
below) of shares of capital stock of the Corporation entitled
to vote in the election of directors of the Corporation under
ordinary circumstances or to elect a majority of the Board of
Directors of the Company. Notwithstanding the foregoing, a
Change of Control will be deemed not to have occurred if (A)
85% or more of the consideration receivable by holders of
shares of the Series upon conversion thereof immediately after
such occurrence consists of Marketable Stock or (B)
immediately after such occurrence (I) the Current Market Price
of the shares of the Series or (II) the sum of the Current
Market Price of any such Marketable Stock receivable upon
conversion of shares of the Series plus any cash receivable
upon such conversion has a value on each of the five trading
days immediately after such Change of Control equal to or in
excess of 105% of the Liquidation Amount. Notwithstanding the
foregoing, a Change of Control will not be deemed to have
occurred with respect to any transaction that constitutes a
Fundamental Change.
For purposes of the foregoing definition, a person shall be
deemed to have "beneficial ownership" with respect to, and
shall be deemed to "beneficially own," any securities of the
Corporation in accordance with Section 13 of the Exchange Act
and the rules and regulations (including Rule 13d-3, Rule
13d-5 and any successor rules) promulgated by the Securities
and Exchange Commission thereunder.
(ii) a "Fundamental Change" with respect to the
Corporation means (A) the occurrence of any transaction or
series of related transactions or event in connection with
which a majority of the outstanding Common Stock of the
Corporation or shares of the Series shall be exchanged for,
converted into, acquired for or converted solely into the
right to receive cash, securities, property or other assets
(whether by means of an exchange offer, liquidation, tender
offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise) or (B) the conveyance, sale,
lease, assignment, transfer or other disposal of a majority of
the Corporation's property, business or assets; provided,
however, a Fundamental Change will not include any transaction
or series of related transactions or events in which (x) 85%
or more of the consideration (I) received by the holders of
the shares of the Series directly for their shares or (II)
receivable upon conversion of their shares immediately after
such transaction (if their shares are not exchanged in
connection with such Fundamental Change) or upon the
conversion or exchange immediately after such transaction of
any convertible or exchangeable securities received directly
for their shares (if their shares are exchanged in connection
with such Fundamental Change) consists of Marketable Stock or
(B) immediately after the consummation of such transaction (I)
the Current Market Price of the shares of the Series (if such
shares are not exchanged in connection with such Fundamental
Change), (II) the sum of the Current Market Price of any
securities for which such shares are exchanged plus
## CT01/SCHIJ/69316.34
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<PAGE> 22
any cash received in connection with such exchange or (III)
the sum of the Current Market Price of any securities into
which such shares or securities identified in the preceding
clauses (i) and (ii) may be converted into or exchanged for
plus any cash received in connection with such conversion or
exchange has a value on each of the five consecutive trading
days preceding such transaction equal to or in excess of 105%
of the Liquidation Amount.
(iii) the "Special Conversion Price" shall mean the
higher of the Market Value of the Common Stock or $5.21 per
share; provided, however, that each time the then prevailing
Conversion Price shall be adjusted as provided elsewhere
herein, such dollar amount shall likewise be adjusted so that
the ratio of such dollar amount to the then prevailing
Conversion Price, after giving effect to any such adjustment,
shall always be the same as the ratio of $5.21 to the initial
Conversion Price (without giving effect to any adjustment).
(iv) the "Market Value" of the Common Stock or any
other Marketable Stock shall be the average of the last
reported sales price of the Common Stock or such other
Marketable Stock, as the case may be, for the five business
days ending on the last business day preceding the date of the
Change of Control or Fundamental Change; provided, however,
that if the Marketable Stock is not traded on any national
securities exchange or similar quotation system as described
in the definition of "Marketable Stock" during such period,
then the Market Value of such Marketable Stock shall be the
average of the last reported sales price per share of such
Marketable Stock during the first five business days
commencing with the first day after the date on which such
Marketable Stock was first distributed to the general public
and traded on the New York Stock Exchange, the American Stock
Exchange, the Nasdaq National Market or any similar system of
automated dissemination of quotations of securities prices in
the United States; and
(v) "Marketable Stock" shall mean Common Stock or
common stock of any corporation that is the successor to all
or substantially all of the business or assets of the
Corporation as a result of a Fundamental Change (or of the
ultimate parent of such successor), which is (or will, upon
distribution thereof, be) listed or quoted on the New York
Stock Exchange, the American Stock Exchange, the Nasdaq
National Market or any similar system of automated
dissemination of quotation securities prices in the United
States.
12. CERTAIN DEFINITIONS. As used in this Certificate,
the following terms shall have the following respective meanings:
"AFFILIATE" of any specified person means any other person
directly or indirectly controlling or controlled by or under common control
with such specified person. For purposes of this definition, "control" when
used with respect to any person means the power to direct the management and
policies of such person, directly or indirectly, whether through the ownership
of voting securities or otherwise; and the term "controlling" and "controlled"
having meanings correlative to the foregoing.
## CT01/SCHIJ/69316.34
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<PAGE> 23
An "ASSOCIATE" of a person means (A) any corporation or
organization, other than the Corporation or any subsidiary of the Corporation,
of which the person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities; (B) any
trust or estate in which the person has a substantial beneficial interest or as
to which the person serves as trustee or in a similar fiduciary capacity; and
(C) any relative or spouse of the person, or any relative of the spouse, who
has the same home as the person or who is a director or officer of the person
or any of its parents or subsidiaries.
"COMMON SHARES" shall mean any stock of the Corporation which
has no preference in respect of dividends or of amounts payable in the event of
any voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation and which is not subject to redemption by the Corporation.
However, Common Shares issuable upon conversion of shares of this series shall
include only shares of the class designated as Common Shares as of the original
date of issuance of shares of the Series, or shares of the Corporation of any
class or classes resulting from any reclassification or reclassifications
thereof and which have no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation and which are not subject to redemption by the
Corporation; provided that if at any time there shall be more than one such
resulting class, the shares of each such class then so issuable shall be
substantially in the proportion which the total number of shares of such class
resulting from such reclassifications bears to the total number of shares of
all classes resulting from all such reclassifications. Unless the context
otherwise specifies or requires, all references in this certificate to "Common
Shares" include the Common Stock.
"CURRENT MARKET PRICE" means, when used with respect to any
security as of any date, the last sale price, regular way, or, in case no such
sale takes place on such date, the average of the closing bid and asked prices,
regular way, in either case as reported for consolidated transactions on the
New York Stock Exchange or, if the security is not listed or admitted to
trading on the New York Stock Exchange, as reported for consolidated
transactions with respect to securities listed on the principal national
securities exchange on which such security is listed or admitted to trading or,
if the security is not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the
## CT01/SCHIJ/69316.34
-23-
<PAGE> 24
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotations System or such other system then in use or,
if the security is not quoted by any such organization, the average of the
closing bid and asked prices furnished by a New York Stock Exchange member firm
selected by the Company.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be duly executed on its behalf by its undersigned President and
attested to by its Secretary this day of November, 1995
Corporate Seal _________________________________________________
John H. Pinkerton
President and Chief Executive Officer
ATTEST:
_________________________________________________________________
Jeffrey A. Bynum, Secretary
## CT01/SCHIJ/69316.34
-24-
<PAGE> 1
EXHIBIT 4.1(t)
================================================================================
LOMAK PETROLEUM, INC.
Company
and
KEYCORP SHAREHOLDER SERVICES, INC.,
Trustee
INDENTURE
Dated as of [___________________]
=============================
[$_____________]
8.125% Subordinated Convertible Notes Due 2005
================================================================================
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
ARTICLE 1.
<S> <C> <C>
DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Other Definitions . . . . . . . . . . . . . . . . . . . . . 7
Section 1.3. Incorporation by Reference of Trust Indenture Act . . . . . 7
Section 1.4. Rules of Construction . . . . . . . . . . . . . . . . . . . 8
ARTICLE 2.
THE DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.1. Form and Dating . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.2. Execution and Authentication . . . . . . . . . . . . . . . 10
Section 2.3. Registrar and Paying Agent . . . . . . . . . . . . . . . . 10
Section 2.4. Paying Agent to Hold Money in Trust . . . . . . . . . . . . 11
Section 2.5. Holder Lists . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.6. Transfer and Exchange . . . . . . . . . . . . . . . . . . . 12
Section 2.7. Replacement Notes . . . . . . . . . . . . . . . . . . . . . 18
Section 2.8. Outstanding Notes . . . . . . . . . . . . . . . . . . . . . 19
Section 2.9. Treasury Notes . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.10. Temporary Securities . . . . . . . . . . . . . . . . . . . 19
Section 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . . . 20
Section 2.13. Deposit of Moneys . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 3.
REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.1. Notices to Trustee . . . . . . . . . . . . . . . . . . . . 21
Section 3.2. Selection of Notes to be Redeemed . . . . . . . . . . . . . 21
Section 3.3. Notice of Redemption . . . . . . . . . . . . . . . . . . . 22
Section 3.4. Effect of Notice of Redemption . . . . . . . . . . . . . . 23
Section 3.5. Deposit of Redemption Price . . . . . . . . . . . . . . . . 23
Section 3.6. Notes Redeemed in Part . . . . . . . . . . . . . . . . . . 23
ARTICLE 4.
COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.1. Payment of Notes . . . . . . . . . . . . . . . . . . . . . 23
Section 4.2. Stay Extension and Usury Laws . . . . . . . . . . . . . . . 24
Section 4.3. Continued Existence . . . . . . . . . . . . . . . . . . . . 24
Section 4.4. SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.5. Limitation on Restricted Payments . . . . . . . . . . . . . 25
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<CAPTION>
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----
<S> <C> <C>
Section 4.6. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.7. Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.8. Limitation on Stock Splits, Consolidations and Reclassifications . 27
Section 4.9. Limitation on Dividend Restrictions Affecting Subsidiaries . . . . 27
Section 4.10. Limitation on Additional Debt After Default . . . . . . . . . . . . 28
Section 4.11. Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . 28
Section 4.12. Further Assurance to the Trustee . . . . . . . . . . . . . . . . . 29
ARTICLE 5.
SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.1. When Company May Merge or Sell Assets . . . . . . . . . . . . . . . 29
Section 5.2. Successor Substituted . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 6.
DEFAULTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 6.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 6.2. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.3. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.4. Waiver of Existing and Past Defaults . . . . . . . . . . . . . . . 32
Section 6.5. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.6. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 6.7. Rights of Holders to Receive Payment . . . . . . . . . . . . . . . 33
Section 6.8. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . 33
Section 6.9. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . 34
Section 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 7.
TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.1. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.2. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.3. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . 36
Section 7.4. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.5. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.6. Reports by Trustee to Holders . . . . . . . . . . . . . . . . . . . 37
Section 7.7. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . 37
Section 7.8. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
## CT01/SCHIJ/68118.34 ii
<PAGE> 4
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<CAPTION>
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----
<S> <C> <C>
Section 7.9. Successor Trustee by Merger, etc. . . . . . . . . . . . . . . . . 39
Section 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . 39
Section 7.11. Preferential Collection of Claims Against Company . . . . . . . . 39
ARTICLE 8.
DISCHARGE OF INDENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 8.1. Termination of Company's Obligations . . . . . . . . . . . . . . 39
Section 8.2. Application of Trust Money . . . . . . . . . . . . . . . . . . . 41
Section 8.3. Repayment to Company . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.4. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 9.
AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.1. Without Consent of Holders . . . . . . . . . . . . . . . . . . . 42
Section 9.2. With Consent of Holders . . . . . . . . . . . . . . . . . . . . . 42
Section 9.3. Compliance with Trust Indenture Act . . . . . . . . . . . . . . . 43
Section 9.4. Revocation and Effect of Consents . . . . . . . . . . . . . . . . 43
Section 9.5. Notation on or Exchange of Notes . . . . . . . . . . . . . . . . 44
Section 9.6. Trustee Protected . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE 10.
CONVERSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 10.1. Conversion Privilege . . . . . . . . . . . . . . . . . . . . . . 44
Section 10.2. Conversion Procedure . . . . . . . . . . . . . . . . . . . . . . 45
Section 10.3. Cash Payments in Lieu of Fractional Shares . . . . . . . . . . . 46
Section 10.4. Adjustment of Conversion Price . . . . . . . . . . . . . . . . . 46
Section 10.5. Effect of Reclassification, Consolidation, Merger or Sale . . . . 49
Section 10.6. Taxes on Shares Issued . . . . . . . . . . . . . . . . . . . . . 50
Section 10.7. Reservation of Shares; Shares to be Fully Paid; Compliance with
Government Requirements; Listing of Common Stock . . . . . . . . . 50
Section 10.8. Responsibility of Trustee Requirements . . . . . . . . . . . . . 50
Section 10.9. Notice to Holders Prior to Certain Actions . . . . . . . . . . . 51
ARTICLE 11.
SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 11.1. Agreement to Subordinate . . . . . . . . . . . . . . . . . . . . 52
</TABLE>
## CT01/SCHIJ/68118.34 iii
<PAGE> 5
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 11.2 Liquidation; Dissolution; Bankruptcy . . . . . . . . . . . . . . 52
Section 11.3 Company Not to Make Payment with Respect to Notes in Certain
Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 11.4 Acceleration of Notes . . . . . . . . . . . . . . . . . . . . . . 53
Section 11.5 When Distribution Must Be Paid Over . . . . . . . . . . . . . . . 53
Section 11.6 Notice by Company . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 11.7 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 11.8 Relative Rights . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 11.9 Subordination May Not be Impaired by Company . . . . . . . . . . 54
Section 11.10 Distribution of Notice to Representative . . . . . . . . . . . . 54
Section 11.11 Rights of Trustee and Paying Agent . . . . . . . . . . . . . . . 54
Section 11.12 Effectuation of Subordination by Trustee . . . . . . . . . . . . 56
Section 11.13 Trust Moneys Not Subordinated . . . . . . . . . . . . . . . . . . 56
ARTICLE 12.
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 12.1. Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . 56
Section 12.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 12.3. Communication by Holders with Other Holders . . . . . . . . . . . 57
Section 12.4. Certificate and Opinion as to Conditions Precedent . . . . . . . 57
Section 12.5. Statements Required in Certificate or Opinion of Counsel . . . . 58
Section 12.6. Rules by Trustee and Agents . . . . . . . . . . . . . . . . . . . 58
Section 12.7. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 12.8. No Recourse Against Others . . . . . . . . . . . . . . . . . . . 58
Section 12.9. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 12.10. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 12.11. No Adverse Interpretation of Other Agreements . . . . . . . . . . 59
Section 12.12. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 12.13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 12.14. Table of Contents, Headings, Etc. . . . . . . . . . . . . . . . . 59
EXHIBITS
Exhibit A - Form of Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A
Exhibit B - Transferee Letter of Representation . . . . . . . . . . . . . . . . . . . . . . . B
</TABLE>
## CT01/SCHIJ/68118.34 iv
<PAGE> 6
INDENTURE dated as of [__________________], between Lomak Petroleum,
Inc., a Delaware corporation (the "Company"), and [Keycorp Shareholder
Services, Inc.], as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of the Company's 8.125%
Subordinated Convertible Notes due December 31, 2005 (the "Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. DEFINITIONS.
"AFFILIATE" of any specified Person means (i) any other Person which,
directly or indirectly, is in control of, is controlled by or is under common
control with such specified Person or (ii) any Person who is a director or
officer (a) of such specified Person, (b) of any Subsidiary of such specified
Person or (c) of any Person described in clause (i) above. For purpose of this
definition, control of a person means the power, directly or indirectly, to
direct or cause the direction of the management and policies of such person
whether by contract or otherwise; and the terms "controlling" or "controlled"
have meanings correlative to the foregoing.
"AGENT" means any Registrar, Paying Agent, Conversion Agent or
co-registrar or any successor thereto.
"BOARD OF DIRECTORS" means the Board of Directors of the Company or
any committee of the Board duly authorized to act under the Indenture.
"BUSINESS DAY" means any day other than a Legal Holiday.
"CAPITAL STOCK" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of
or interests in the common or preferred equity (however designated) of such
Person, including, without limitation, partnership interests.
"CAPITALIZED LEASE OBLIGATION" means, with respect to any person for
any period, an obligation of such Person to pay rent or other amounts under a
lease that is required to be capitalized for financial reporting purposes in
accordance with GAAP; and the amount of such obligation shall be the
capitalized amount shown on the balance sheet of such Person as determined in
accordance with GAAP.
"CHANGE OF CONTROL" means the occurrence of any of the following
events: (i) any person (as the term "person" is used in Section 13(d) or
Section 14(d) of the Exchange Act) is or becomes the direct or indirect
beneficial owner of shares of the Company's Capital Stock
## CT01/SCHIJ/68118.34
<PAGE> 7
representing greater than 50% of the total voting power of all shares of
Capital Stock of the Company entitled to vote in the election of directors
under ordinary circumstances or sufficient to elect a majority of the Board of
Directors or (ii) the Company sells, transfers or otherwise disposes of all or
substantially all of the assets of the Company. Notwithstanding the foregoing,
a Change of Control will not include any transaction or series of related
transactions in which (a) 85% or more of the consideration receivable by the
Holders upon conversion of their Notes immediately after the occurrence of such
Change of Control consists of Common Stock that is listed on a national
securities exchange or approved for quotation on the Nasdaq Stock Market or (b)
immediately after the occurrence of such Change of Control (i) the Current
Market Price of the Notes or (ii) the sum of the Current Market Price of any
such Common Stock receivable upon conversion of the Notes immediately after
such occurrence that is listed on a national securities exchange or approved
for quotation on the Nasdaq Stock Market plus any cash receivable upon such
conversion has a value on each of the five trading days immediately after the
occurrence of such Change of Control equal to or in excess of 105% of the
principal amount of such Notes.
"COMMON STOCK" as applied to the Capital Stock of any corporation,
means the common equity (however designated) of such Person, and with respect
to the Company, means the Common Stock, par value $.01 per share, or any
successor class of common equity into which either such class of common stock
may hereafter be converted.
"COMPANY" means Lomak Petroleum, Inc., a Delaware corporation, until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter "COMPANY" shall mean such successor.
"CONVERSION AGENT" means the Trustee or any successor entity thereto.
"CURRENT MARKET PRICE" means, when used with respect to any security
as of any date, the last sale price, regular way, or, in case no such sale
takes place on such date, the average of the closing bid and asked prices,
regular way, in either case as reported for consolidated transactions on the
New York Stock Exchange or, if the security is not listed or admitted to
trading on the New York Stock Exchange, as reported for consolidated
transactions with respect to securities listed on the principal national
securities exchange on which such security is listed or admitted to trading or,
if the security is not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations System or
such other system then in use or, if the security is not quoted by any such
organization, the average of the closing bid and asked prices furnished by a
New York Stock Exchange member firm selected by the Company. "CURRENT MARKET
PRICE" means, when used with respect to any Property other than a security as
of any date, the market value of such Property on such date as determined by
the Board of Directors of the Company in good faith, which shall be entitled to
rely for such purposes on the advice of any firm of investment bankers or
appraisers having familiarity with such Property.
## CT01/SCHIJ/68118.34 2
<PAGE> 8
"DEBT" with respect to any Person as of any date means and includes
(without duplication) (i) the principal of and premium, if any, in respect of
indebtedness of such Person, contingent or otherwise, for borrowed money,
including, without limitation, all interest, fees and expenses owed with
respect thereto (whether or not the recourse of the lender is to the whole of
the assets of such person or only to a portion thereof), or evidenced by bonds,
notes, debentures or similar instruments, or representing the deferred and
unpaid balance of the purchase price of any property or interest therein or
services, if and to the extent such indebtedness would appear as a liability
(other than a liability for accounts payable and accrued expenses incurred in
the ordinary course of business) upon a balance sheet of such Person prepared
on a consolidated basis in accordance with GAAP, (ii) all obligations issued or
contracted for as payment in consideration of the purchase by such Person of
Capital Stock or substantially all of the assets of another Person or as a
result of a merger or a consolidation (other than any earn-outs or installment
payments), (iii) all Capitalized Lease Obligations of such Person, (iv) all
obligations of such Person in respect of letters of credit or similar
instruments or reimbursement of letters of credit or similar instruments
(whether or not such items would appear on the balance sheet of such Person),
(v) all net obligations of such Person in respect of interest rate protection
and foreign currency hedging arrangements, (vi) all guarantees by such Person
of items that would constitute Debt under this definition (whether or not such
items would appear on such balance sheet), and (vii) the amount of all
obligations of such Person with respect to the redemption, repayment or other
repurchase of any Disqualified Stock, but only to the extent such obligations
arise on or prior to March 31, 2006; provided, however, that Debt issued at a
discount from par shall be treated as if issued at par. The amount of Debt of
any person at any date shall be the outstanding balance on such date of all
unconditional obligations as described above and the maximum determinable
liability, upon the occurrence of the liability giving rise to the obligation,
of any contingent obligations referred to in clauses (i), (iv), (vi) and (vii)
above at such date.
"DEFAULT" means any event which is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"DEPOSITARY" means, with respect to the Notes issued in global form,
the Person specified in Section 2.3 as the Depositary with respect to the
Notes, until a successor shall have been appointed and become such pursuant to
the applicable provisions of this Indenture, and, thereafter "DEPOSITARY" shall
mean or include such successor.
"DISQUALIFIED STOCK" means any Capital Stock which, by its terms or by
the terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof or mandatorily (except to the
extent that such exchange or conversion right cannot be exercised or such
mandatory conversion cannot occur prior to March 31, 2006), is, or upon the
happening of an event or the passage of time would be, (a) required to be
redeemed or repurchased by the Company or any of its Subsidiaries, including at
the option of the holder, in whole or in part, or has, or upon the happening of
an event or passage of time would have, a redemption or similar payment due
prior to March 31, 2006 or (b) exchangeable or convertible into debt securities
of the Company or any of its Subsidiaries at the option of the holder thereof
## CT01/SCHIJ/68118.34 3
<PAGE> 9
or mandatorily, except to the extent that such exchange or conversion right
cannot be exercised or such mandatory conversion cannot occur on or prior to
March 31, 2006.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"GAAP" means, as of any date, generally accepted accounting principles
in the United States and does not include any interpretations or regulations
that have been proposed but that have not become effective.
"HOLDER" means a Person in whose name a Note is registered on the
Register.
"INDENTURE" means this Indenture, as amended or supplemented from time
to time.
"INTEREST PAYMENT DATE" means March 31, June 30, September 30 and
December 31 of each year.
"LEGAL HOLIDAY" means a Saturday, Sunday or any day on which banking
institutions in the state in which the principal corporate trust office of the
Trustee are required or authorized by law or other governmental action to be
closed.
"NOTES CUSTODIAN" means, with respect to the Notes issued in global
form, initially, the Trustee and any successor entity thereto or such other
Person as appointed by the Company from time to time in accordance with the
provisions of this Indenture.
"OFFICER" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary, any Assistant Secretary or any Vice President of
such Person.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers,
one of whom must be the Chairman of the Board, the President, the Treasurer or
a Vice-President of the Company, that meets the requirements of Sections 12.4
and 12.5 hereof.
"OPINION OF COUNSEL" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee that meets the requirements of Sections
12.4 and 12.5 hereof. The counsel may be an employee of or counsel to the
Company or the Trustee.
"PERMITTED DEBT" means (i) Debt owed by the Company to any wholly
owned Subsidiary of the Company, (ii) Debt owed by any wholly owned Subsidiary
of the Company to the Company or any wholly owned Subsidiary of the Company and
(iii) Refinancing Debt.
"PERSON" means any individual, corporation, partnership, association,
trust or any other entity or organization, including a government or political
subdivision or any agency or instrumentality thereof.
## CT01/SCHIJ/68118.34 4
<PAGE> 10
"PREFERRED STOCK" means, with respect to any Person, Capital Stock of
such Person of any class or classes (however designated) which is preferred as
to the payments of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over any other class of the Capital Stock of such Person.
"PRINCIPAL" of a debt security means the principal of the security
plus the premium, if any, on the security.
"PROPERTY" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included on
the most recent consolidated balance sheet of such Person in accordance with
GAAP.
"QUALIFIED STOCK" means Capital Stock of the Company that is not
Disqualified Stock.
"REFINANCING DEBT" means Debt that refunds, refinances or extends any
Notes or other Debt existing on the date hereof or hereafter incurred by the
Company or its Subsidiaries pursuant to the terms of this Indenture, but only
to the extent that (i) the Refinancing Debt is subordinated to the Notes to the
same extent as the Debt being refunded, refinanced or extended, if at all, (ii)
the Refinancing Debt is scheduled to mature either (a) no earlier than the Debt
being refunded, refinanced or extended or (b) after the maturity date of the
Notes, (iii) the portion, if any, of the Refinancing Debt that is scheduled to
mature on or prior to the maturity date of the Notes has a Weighted Average
Life to Maturity at the time such Refinancing Debt is incurred that is equal to
or greater than the Weighted Average Life to Maturity of the portion of the
Debt being refunded, refinanced or extended that is scheduled to mature on or
prior to the maturity date of the Notes, (iv) such Refinancing Debt is in an
aggregate principal amount that is equal to or less than the aggregate
principal amount then outstanding under the Debt being refunded, refinanced or
extended, plus customary fees and expenses associated with refinancing and (v)
such Refinancing Debt is incurred by the same Person that initially incurred
the Debt being refunded, refinanced or extended, except that (a) the Company
may incur Refinancing Debt to refund, refinance or extend Debt of any
Subsidiary of the Company, and (b) any Subsidiary of the Company may incur
Refinancing Debt to refund, refinance or extend Debt of any other wholly owned
Subsidiary of the Company.
"REGULAR RECORD DATE" means March 15, June 15, September 15 and
December 15 of each year.
"REPRESENTATIVE" means the indenture trustee or other trustee, agent
or representative for an issue of Senior Indebtedness.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
## CT01/SCHIJ/68118.34 5
<PAGE> 11
"SENIOR INDEBTEDNESS" means the principal of and premium, if any, and
interest on (a) indebtedness or other obligations under the Amended and
Restated Revolving Credit and Term Loan Agreement dated as of July 6, 1994,
among the Company and certain of its Subsidiaries, as borrowers, Bank One,
Texas, N.A., as agent, and Bank One, Texas, N.A. and Texas Commerce Bank
National Association, as lenders; (b) indebtedness for money borrowed
(including purchase money obligations) evidenced by notes or other written
obligations, including letters of credit and bankers acceptances, (c)
indebtedness evidenced by notes, debentures, bonds or other securities issued
under the provisions of an indenture or similar instrument, (d) obligations as
lessee under capitalized leases and under leases of property made as part of
any sale and leaseback transactions, (e) indebtedness of others of any of the
kinds described in the preceding clauses (a) through (d) assumed or guaranteed
and (f) amendments, renewals, extensions, modifications and refundings of any
obligations or indebtedness described in the foregoing clauses (a) through (e);
provided, however, that the following will not constitute Senior Indebtedness:
(i) any indebtedness or obligation as to which, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is
expressly provided that such indebtedness or obligation is subordinate in right
of payment to all other indebtedness, (ii) any indebtedness or obligation which
refers explicitly to the Notes and states that the indebtedness or obligation
shall not be senior in right of payment thereto, (iii) any indebtedness or
obligation of the Company to any Affiliate and (iv) obligation of the Company
for compensation to employees or for items purchased or services rendered in
the ordinary course of business.
"SUBSIDIARY" of any Person means a corporation or other entity a
majority of whose Capital Stock with voting power, under ordinary
circumstances, entitling holders of such Capital Stock to elect the board of
directors or other governing body, is at the time, directly or indirectly,
owned by such Person and/or a Subsidiary or Subsidiaries of such Person.
"TIA" means the Trust Indenture Act of 1939 (U.S. Code Section Section
77aaa-77bbbb) as in effect on the date of execution of this Indenture;
provided, however, that in the event the TIA is amended after such date, "TIA"
means, to the extent required by any such amendments, to the TIA as so amended.
"TRANSFER RESTRICTED SECURITIES" means Notes that bear or are required
to bear the legend set forth in Section 2.6(g) hereof.
"TRUSTEE" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter "TRUSTEE" shall mean such successor.
"TRUST OFFICER" means any officer or corporate trust officer or
assistant corporate trust officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"U.S. GOVERNMENT OBLIGATIONS" means non-callable (i) direct
obligations (or certificates representing an ownership interest in such
obligations) of the United States for which its full faith and credit are
pledged and (ii) obligations of a person controlled or supervised by, and
## CT01/SCHIJ/68118.34 6
<PAGE> 12
acting as an agency or instrumentality of, the United States, the payment of
which is unconditionally guaranteed as a full faith and credit obligation of
the United States.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Debt or
Preferred Stock or portions thereof (if applicable) at any date, the number of
years obtained by dividing (i) the then outstanding principal amount or
liquidation amount of such Debt or Preferred Stock or portions thereof (if
applicable) into (ii) the sum of the products obtained by multiplying (a) the
amount of each then remaining installment, sinking fund, serial maturity or
other required payment of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment.
<TABLE>
SECTION 1.2. OTHER DEFINITIONS.
<CAPTION>
TERM DEFINED IN SECTION
---- ------------------
<S> <C>
"Agent Members" . . . . . . . . . . . . . . . . . . . . . . . 2.1
"Bankruptcy Law" . . . . . . . . . . . . . . . . . . . . . . 6.1
"Change of Control Date" . . . . . . . . . . . . . . . . . . 4.7
"Change of Control Offer" . . . . . . . . . . . . . . . . . . 4.7
"Change of Control Notice" . . . . . . . . . . . . . . . . . 4.7
"Change of Control Payment" . . . . . . . . . . . . . . . . . 4.7
"Change of Control Payment Date" . . . . . . . . . . . . . . 4.7
"Conversion Price" . . . . . . . . . . . . . . . . . . . . . 10.1
"Custodian" . . . . . . . . . . . . . . . . . . . . . . . . . 6.1
"Definitive Securities" . . . . . . . . . . . . . . . . . . . 2.1
"Event of Default" . . . . . . . . . . . . . . . . . . . . . 6.1
"Global Security" . . . . . . . . . . . . . . . . . . . . . . 2.1
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Register" . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Restricted Payment" . . . . . . . . . . . . . . . . . . . . 4.5
"Rule 144A" . . . . . . . . . . . . . . . . . . . . . . . . . 2.1
</TABLE>
SECTION 1.3. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
This Indenture is subject to the mandatory provisions of the TIA,
which are incorporated by reference in and made part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"INDENTURE SECURITIES" means the Notes;
"INDENTURE SECURITY HOLDER" means a Holder;
## CT01/SCHIJ/68118.34 7
<PAGE> 13
"INDENTURE TO BE QUALIFIED" means this Indenture;
"INDENTURE TRUSTEE" or "institutional trustee" means the
Trustee;
"OBLIGOR" on the Notes means the Company and any successor
obligor upon the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the
TIA have the meanings so assigned to them.
SECTION 1.4. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular; and
(5) provisions apply to successive events and transactions.
(6) references to sections of or rules under the
Securities Act shall be deemed to include substitute,
replacement or successor sections or rules adopted by
the SEC from time to time.
ARTICLE 2.
THE DEBENTURES
SECTION 2.1. FORM AND DATING.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A which is hereby incorporated in and
expressly made a part of this Indenture. The Notes may have notations, legends
or endorsements required by law, stock exchange rule, agreements to which the
Company is subject, if any, or usage (provided that any such notation, legend
or endorsement is in a form acceptable to the Company). Each Note shall be
dated the date of its authentication. The terms of the Notes set forth in
Exhibit A are part of the terms of this Indenture. The Notes are general
unsecured obligations of the Company limited to $___ million in aggregate
principal amount, subject to Section 2.7.
## CT01/SCHIJ/68118.34 8
<PAGE> 14
(a) GLOBAL SECURITIES. The Notes are being issued by the Company
pursuant to the provisions of paragraph 6 of the Certificate of Designations of
Preferred Stock of Lomak Petroleum, Inc. to be designated $2.03 Convertible
Exhangeable Preferred Stock, Series C.
Notes issued to "qualified institutional buyers" (as defined in Rule
144A under the Securities Act ("Rule 144A")) whose interests in the $2.03
Convertible Exchangeable Preferred Stock were represented by interests in a
global certificate held by Person who is the Depositary, or, if different, The
Depository Trust Company or similar institution, shall be issued initially in
the form of one or more permanent global securities in definitive, fully
registered form without interest coupons and with the Global Securities Legend
and, unless removed in accordance with Section 2.6(g) hereof, the Restricted
Securities Legend set forth in Exhibit A hereto (each, a "Global Security"),
which shall be deposited on behalf of such qualified institutional buyers with
the Trustee, at its New York, New York office, as custodian for the Depositary,
and registered in the name of the Depositary or a nominee of the Depositary,
duly executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Global Securities may from time
to time be increased or decreased by adjustments made on the records of the
Trustee and the Depositary or its nominee as hereinafter provided.
(b) BOOK-ENTRY PROVISIONS. This Section 2.1(b) shall apply only
to any Global Security deposited with or on behalf of the Depositary.
The Company shall execute and the Trustee shall, in accordance with
this Section 2.1(b), authenticate and deliver initially one or more Global
Securities that (i) shall be registered in the name of the Depositary for such
Global Security or Global Securities or the nominee of the Depositary and (ii)
shall be delivered by the Trustee to the Depositary or pursuant to the
Depositary's instructions or held by the Trustee as custodian for the
Depositary.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depositary or by the Trustee as the custodian of the
Depositary or under such Global Security, and the Depositary may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or impair, as between the Depositary and its Agent Members, the operation of
customary practices of the Depositary governing the exercise of the rights of a
holder of a beneficial interest in any Global Security.
(c) CERTIFICATED SECURITIES. Except as provided in Section 2.10,
owners of beneficial interests in Global Securities will not be entitled to
receive physical delivery of certificated Notes. Notes issued to Persons who
are not "qualified institutional buyers" shall be issued certificated Notes in
definitive, fully registered form without interest coupons, with the Restricted
Securities Legend and, if such Person is an institutional "accredited investor"
(as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act), the
Institutional Accredited
## CT01/SCHIJ/68118.34 9
<PAGE> 15
Investor Legend, but without the Schedule of Exchanges of Global Security for
Definitive Securities, set forth in Exhibit A hereto ("Definitive Securities");
provided, however, that upon transfer of such Definitive Securities to a
"qualified institutional buyer," such Definitive Securities will, unless the
Global Security has previously been exchanged, be exchanged for an interest in
a Global Security pursuant to the provisions of Section 2.6 hereof.
After a transfer of any Notes during the period of the effectiveness
of a registration statement under the Securities Act with respect to the Notes,
all requirements pertaining to legends on such Notes will cease to apply, the
requirements requiring any such Notes issued to certain Holders be issued in
global form will cease to apply, and a certificated Note without legends will
be available to the transferee of the Holder of such Notes upon exchange of
such transferring Holder's certificated Notes or directions to transfer such
Holder's interest in the Global Security, as applicable.
SECTION 2.2. EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Notes for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Notes and
may be in facsimile form.
If an Officer whose signature is on a Note no longer holds that office
at the time such Note is authenticated, such Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.
The Trustee shall authenticate Notes for original issue up to the
aggregate principal amount stated in Paragraph 4 of the Notes, upon a written
order of the Company signed by an Officer to a Trust Officer directing the
Trustee to authenticate the Notes and certifying that all conditions precedent
to the issuance of the Notes contained herein have been complied with. The
aggregate principal amount of Notes outstanding at any time may not exceed such
amount, except as provided in Section 2.7 hereof.
The Trustee may appoint an authenticating agent reasonably acceptable
to and at the expense of the Company to authenticate Notes. Unless limited by
the terms of such appointment, an authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company.
SECTION 2.3. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange (the "Registrar") and an
office or agency where Notes may be presented for payment (the "Paying Agent").
The Registrar shall keep a register of the Notes (the "Register") and of their
transfer and exchange. The Company may appoint one or more co-registrars and
one or more additional paying agents. The term "Registrar" includes any
## CT01/SCHIJ/68118.34 10
<PAGE> 16
co-registrar and the term "Paying Agent" includes any additional paying agent.
The Company may change any Paying Agent or Registrar without notice to any
Holder. The Company shall notify the Trustee in writing of the name and
address of any Agent not a party to this Indenture. The Company or any of its
Subsidiaries may act as Paying Agent or Registrar. If the Company fails to
appoint or maintain itself or another entity as Registrar or Paying Agent, the
Trustee shall act as such.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall
notify the Trustee of the name and address of any such agent. If the Company
fails to maintain a Registrar or Paying Agent, the Trustee shall act as such
and shall be entitled to appropriate compensation therefor pursuant to Section
7.7. The Company or any of its wholly owned Subsidiaries may act as Paying
Agent, Registrar, co-registrar or transfer agent.
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Security.
The Company initially appoints the Trustee to act as Registrar and
Paying Agent with respect to the Global Security.
SECTION 2.4. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent (other than the Trustee)
to agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal or interest on the Notes, and will notify the Trustee of any default
by the Company in making any such payment. While any such default continues,
the Trustee may require a Paying Agent to pay all money held by it to the
Trustee and account for any money disbursed by it. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee and account
for any money disbursed by it. Upon payment over to the Trustee, the Paying
Agent (if other than the Company or a Subsidiary of the Company) shall have no
further liability for the money delivered to the Trustee. If the Company or a
Subsidiary of the Company acts as Paying Agent, it shall segregate and hold in
a separate trust fund for the benefit of the Holders all money held by it as
Paying Agent. Upon any bankruptcy or reorganization proceedings relating to
the Company, the Trustee shall serve as Paying Agent for the Notes.
SECTION 2.5. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresseS of
Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least three
Business Days before each Interest Payment Date and, at such other times as the
Trustee may request in writing, within five Business Days after such request a
list in such form
## CT01/SCHIJ/68118.34 11
<PAGE> 17
and as of such date as the Trustee may reasonably require, and which the
Trustee may conclusively rely upon, of the names and addresses of Holders, and
the Company shall otherwise comply with TIA Section 312(a).
SECTION 2.6. TRANSFER AND EXCHANGE.
(a) TRANSFER AND EXCHANGE OF DEFINITIVE SECURITIES. When
Definitive Securities are presented to the Registrar with the request:
(x) to register the transfer of the Definitive Securities;
or
(y) to exchange such Definitive Securities for an equal
principal amount of Definitive SecuritieS of other
authorized denominations,
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met; provided, however, that the
Definitive Securities presented or surrendered for register of transfer or
exchange:
i) shall be duly endorsed or accompanied by a written
instruction of transfer in form and substance
satisfactory to the Registrar duly executed by the
Holder thereof or by his or her attorney, duly
authorized in writing; and
ii) in the case of Transfer Restricted Securities that are
Definitive Securities, shall be accompanied by the
following additional information and documents, as
applicable:
(A) if such Transfer Restricted Security is being
delivered to the Registrar by a Holder for
registration in the name of such Holder,
without transfer, a certification from such
Holder to that effect (in the form set forth
on the reverse of the Notes); or
(B) if such Transfer Restricted Security is being
transferred to the Company or a "qualified
institutional buyer" (as defined in Rule
144A) in accordance with Rule 144A, a
certification to that effect (in the form set
forth on the reverse of the Notes); or
(C) if such Transfer Restricted Securities are
being transferred (w) pursuant to an
exemption from registration in accordance
with Rule 144 or Regulation S under the
Securities Act; or (x) to an institutional
"accredited investor" within the meaning of
Rule 501(a)(1), (2), (3) or (7) under the
Securities Act that is acquiring the security
for its own account, or for the account of
such an institutional accredited investor, in
each case in a minimum principal amount of
Notes of $250,000 for investment purposes and
not with a view to, or for offer or sale in
connection with, any
## CT01/SCHIJ/68118.34 12
<PAGE> 18
distribution in violation of the Act;
or (y) in reliance on another from
the registration requirements of the
Securities Act: (i) a certification to
that effect (in the form set forth on the
reverse of the Notes), (ii) if the Company,
Trustee or Registrar so requests, an Opinion
of Counsel reasonably acceptable to the
Company, Trustee and Registrar to the effect
that such transfer is in compliance with the
Securities Act and (iii) in the case of
clause (x), a signed letter in substantially
the form of Exhibit B hereto.
(b) RESTRICTIONS ON TRANSFER OF A DEFINITIVE SECURITY FOR A
BENEFICIAL INTEREST IN A GLOBAL SECURITY. A Definitive Security may not be
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Trustee
of a Definitive Security, duly endorsed or accompanied by appropriate
instruments of transfer, in form satisfactory to the Trustee, together with:
i) if such Definitive Security is a Transfer Restricted
Security, certification, substantially in the form of
Exhibit B hereto, that such Definitive Security is
being transferred to a "qualified institutional buyer"
(as defined in Rule 144A) in accordance with Rule
144A; and
ii) whether or not such Definitive Security is a Transfer
Restricted Security, written instructions directing
the Trustee to make, or to direct the Notes Custodian
to make, an endorsement on the Global Security to
reflect an increase in the aggregate principal amount
of the Notes represented by the Global Security,
then the Trustee shall cancel such Definitive Security in accordance with
Section 2.11 hereof and cause, or direct the Notes Custodian to cause, in
accordance with the standing instructions and procedures existing between the
Depositary and the Notes Custodian, the aggregate principal amount of Notes
represented by the Global Security to be increased accordingly. If no Global
Security is then outstanding, the Company shall issue and the Trustee shall
authenticate a new Global Security in the appropriate principal amount.
(c) TRANSFER AND EXCHANGE OF GLOBAL SECURITY. The transfer and
exchange of a Global Security or beneficial interests therein shall be effected
through the Depositary in accordance with this Indenture (including the
restrictions on transfer set forth herein) and the procedures of the Depositary
therefor.
(d) TRANSFER OF A BENEFICIAL INTEREST IN A GLOBAL SECURITY FOR A
DEFINITIVE SECURITY.
i) Any Person having a beneficial interest in a Global
Security that is being exchanged or transferred
pursuant to an effective registration statement under
the Securities Act or pursuant to clause (A), (B) or
(C) below may upon request, and if accompanied by the
information specified below,
## CT01/SCHIJ/68118.34 13
<PAGE> 19
exchange such beneficial interest for a Definitive Security of the
same aggregate principal amount. Upon receipt by the Trustee of
written instructions or such other form of instructions as is
customary for the Depositary, from the Depositary, or its nominee on
behalf of any Person having a beneficial interest in a Global
Security, and upon receipt by the Trustee of a written order or such
other form of instructions, and, in the case of a Transfer Restricted
Security only, the following additional information and documents (all
of which may be submitted by facsimile):
(A) if such beneficial interest is being
transferred to the Person designated by the
Depositary as being the beneficial owner, a
certification from such Person to that effect
(in the form set forth on the reverse of the
Notes) or
(B) if such beneficial interest is being
transferred to a "qualified institutional
buyer" (as defined in Rule 144A) in
accordance with Rule 144A, a certification to
that effect from the transferor (in the form
set forth on the reverse of the Notes); or
(C) if such beneficial interest is being
transferred (w) pursuant to an exemption from
registration in accordance with Rule 144 or
Regulation S under the Securities Act; or (x)
to an institutional "accredited investor"
within the meaning of Rule 501 (a)( 1), (2),
(3) or (7) under the Securities Act that is
acquiring the security for its own account,
or for the account of such an institutional
accredited investor, in each case in a
minimum principal amount of Notes of $250,000
for investment purposes and not with a view
to, or for offer or sale in connection with,
any distribution in violation of the Notes;
or (y) in reliance on another exemption from
the registration requirements of the
Securities Act: (i) a certification to that
effect from the transferee or transferor (in
the form set forth on the reverse of the
Notes), (ii) if the Company, Trustee or
Registrar so requests, an Opinion of Counsel
from the transferee or transferor reasonably
acceptable to the Company and to the
Registrar to the effect that such transfer is
in compliance with the Securities Act, and
(iii) in the case of clause (x), a signed
letter in substantially the form of Exhibit B
hereto,
then the Trustee or the Notes Custodian, at the direction of the
Trustee, will cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Notes Custodian,
the aggregate principal amount of the Global Security to be reduced on
its books and records and, following such reduction, the Company will
execute and, upon receipt of an authentication order in the form of an
Officers' Certificate in accordance with Section 2.2 hereof, the
Trustee will
## CT01/SCHIJ/68118.34 14
<PAGE> 20
authenticate and deliver to the transferee a
Definitive Security in the appropriate principal
amount.
ii) Definitive Notes issued in exchange for a beneficial
interest in a Global Security pursuant to this Section
2.6(d) shall be registered in such names and in such
authorized denominations as the Depositary, pursuant
to instructions from the Agent Members or otherwise,
shall instruct the Trustee. The Trustee shall deliver
such Definitive Securities to the Persons in whose
names such Notes are so registered.
(e) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL SECURITY.
Notwithstanding any other provisions of this Indenture (other than the
provisions set forth in Section 2.6(f)), a Global Security may not be
transferred as a whole or in part except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) AUTHENTICATION OF DEFINITIVE SECURITIES IN ABSENCE OF
DEPOSITARY. If at any time:
i) the Depositary notifies the Company that the
Depositary is unwilling or unable to continue as
Depositary for the Global Securities and a successor
Depositary for the Global Securities is not appointed
by the Company within 90 days after delivery of such
notice; or
ii) the Company, at its sole discretion, notifies the
Trustee in writing that it elects to cause the
issuance of Definitive Securities under this
Indenture,
then the Company will execute, and the Trustee, upon receipt of an Officers'
Certificate, in accordance with Section 2.2 hereof, requesting the
authentication and delivery of Definitive Securities, will authenticate and
deliver Definitive Securities, in an aggregate principal amount equal to the
principal amount of the Global Securities, in exchange for such Global
Securities.
(g) LEGENDS.
i) Except as permitted by the following paragraph (ii),
each Note certificate evidencing the Global Securities
and the Definitive Securities (and all Notes issued in
exchange therefor or in substitution thereof) shall
bear a legend in substantially the following form:
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE NOR
ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, IN THE
ABSENCE OF SUCH REGISTRATION OR
## CT01/SCHIJ/68118.34 15
<PAGE> 21
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
REGISTRATION. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED
THAT THE SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION
FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER.
"THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) THIS NOTE MAY BE OFFERED, RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (I) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) IN AN
OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER
THE SECURITIES ACT, (III) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (IV) TO THE
COMPANY OR (V) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN EACH
OF CASES (I) THROUGH (V) IN ACCORDANCE WITH ANY APPLICABLE
FEDERAL OR STATE SECURITIES LAWS AND (B) THE HOLDER WILL, AND
EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER
OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO
IN (A) ABOVE."
ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security
represented by a Global Security) pursuant to Rule 144
under the Securities Act or an effective registration
statement under the Securities Act:
(A) in the case of any Transfer Restricted
Security that is a Definitive Security, the
Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security
for a Definitive Security that does not bear
the legends set forth above and rescind any
restriction on the transfer of such Transfer
Restricted Security; and
(B) any such Transfer Restricted Security
represented by a Global Security shall not be
subject to the provisions set forth in (i)
above (such sales or transfers being subject
only to the provisions of Section 2.6(e));
provided, however, that with respect to any
request for an exchange of a Transfer
Restricted Security that is represented by a
Global Security for a Definitive Security
that does not bear a legend, which request is
made in reliance upon Rule 144 under the
Securities Act, the Holder thereof shall
certify in writing to the Registrar that such
request is being made pursuant
## CT01/SCHIJ/68118.34 16
<PAGE> 22
to Rule 144 under the Securities Act (such certification
to be in the form set forth on the reverse of the Notes).
(h) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL SECURITY. At such
time as all beneficial interests in a Global Security have either been
exchanged for Definitive Securities, redeemed, repurchased or cancelled, such
Global Security shall be returned to or retained and cancelled by the Trustee
in accordance with Section 2.11. At any time prior to such cancellation, if
any beneficial interest in a Global Security is exchanged for Definitive
Securities, redeemed, repurchased or cancelled, the principal amount of Notes
represented by such Global Security shall be reduced accordingly and an
endorsement shall be made on such Global Security, by the Trustee or the Notes
Custodian, at the direction of the Trustee, to reflect such reduction.
(i) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF
DEFINITIVE SECURITIES.
i) To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall
authenticate Definitive Securities and a Global
Security at the Registrar's request.
(ii) No service charge shall be made for any registration
of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any transfer tax,
assessments or similar governmental charge payable in
connection therewith.
(iii) The Registrar or co-registrar shall not be required to
register the transfer of or exchange of (a) any
Definitive Security selected for redemption in whole
or in part pursuant to Article 3, except the
unredeemed portion of any Definitive Security being
redeemed in part, or (b) any Note during the 15 day
period preceding the mailing of a notice of redemption
or an offer to repurchase or redeem Notes or the 15
day period preceding an Interest Payment Date.
(iv) Prior to the due presentation for registration of
transfer of any Note, the Company, the Trustee, the
Paying Agent, the Registrar or any co-registrar may
deem and treat the Person in whose name a Note is
registered as the absolute owner of such Note for the
purpose of receiving payment of principal of and
interest on such Note and for all other purposes
whatsoever, whether or not such Note is overdue, and
none of the Company, the Trustee, the Paying Agent,
the Registrar or any co-registrar shall be affected by
notice to the contrary.
(v) All Notes issued upon any transfer or exchange
pursuant to the terms of this Indenture shall evidence
the same debt and shall be entitled to the same
benefits under this Indenture as the Notes surrendered
upon such transfer or exchange.
## CT01/SCHIJ/68118.34 17
<PAGE> 23
(j) NO OBLIGATION OF THE TRUSTEE.
(i) The Trustee shall have no responsibility or obligation
to any beneficial owner of a Global Security, a member
of, or a participant in the Depositary or other Person
with respect to the accuracy of the records of the
Depositary or its nominee or of any participant or
member thereof, with respect to any ownership interest
in the Notes or with respect to the delivery to any
participant, member, beneficial owner or other Person
(other than the Depositary) or any notice (including
any notice of redemption) or the payment of any
amount, under or with respect to such Notes. All
notices and communications to be given to the Holders
and all payments to be made to Holders under the Notes
shall be given or made only to or upon the order of
the registered Holders (which shall be the Depositary
or its nominee in the case of a Global Security). The
rights of beneficial owners in any Global Security
shall be exercised only through the Depositary subject
to the applicable rules and procedures of the
Depositary. The Trustee may rely and shall be fully
protected in relying upon information furnished by the
Depositary with respect to its members, participants
and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to
monitor, determine or inquire as to compliance with
any restrictions on transfer imposed under this
Indenture or under applicable law with respect to any
transfer of any interest in any Note (including any
transfers between or among the Agent Members or
beneficial owners in any Global Security) other than
to require delivery of such certificates and other
documentation or evidence as are expressly required
by, and to do so if and when expressly required by,
the terms of this Indenture, and to examine the same
to determine substantial compliance as to form with
the express requirements hereof.
SECTION 2.7. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee, the Registrar or
Notes Custodian, or if the Holder of a Note claims that such Note has been
lost, destroyed or wrongfully taken, the Company shall issue and the Trustee,
upon the written order of the Company signed by an Officer, shall authenticate
a replacement Note if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond shall be supplied by the Holder that
is sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent and any authenticating agent from any loss
which any of them may suffer if a Note is replaced. The Company may charge the
Holder for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and
shall be entitled to all benefits of this Indenture equally and proportionately
with all other Notes duly issued hereunder.
## CT01/SCHIJ/68118.34 18
<PAGE> 24
SECTION 2.8. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Security effected by
the Trustee hereunder, and those described in this Section 2.8 as not
outstanding. Except as set forth in Section 2.9 hereof, a Note does not cease
to be outstanding because the Company or an Affiliate holds the Note.
If a Note is replaced pursuant to Section 2.7 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.1 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary of the
Company or an Affiliate of any thereof) segregates and holds interest, in
accordance with this Indenture, on a redemption date or maturity date money
sufficient to pay Notes payable on that date, and is not prohibited from paying
such money to the Holders thereof pursuant to the terms of this Indenture, then
on and after that date such Notes shall be deemed to be no longer outstanding
and shall cease to accrue interest.
SECTION 2.9. TREASURY NOTES.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, or by any Affiliate of the Company shall be considered as though not
outstanding, except that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Notes as to which a Trust Officer of the Trustee knows are so owned shall be so
disregarded.
SECTION 2.10. TEMPORARY SECURITIES.
(a) Until Definitive Securities are ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Notes upon a
written order of the Company signed by an Officer and delivered or cause to be
delivered to a Trust Officer. Temporary Notes shall be substantially in the
form of Definitive Securities but may have variations that the Company
considers appropriate for temporary Notes. Without unreasonable delay, the
Company shall prepare and the Trustee shall authenticate, upon receipt of a
written order of the Company signed by two Officers which shall specify the
amount of the temporary Notes to be authenticated and the date on which the
temporary Notes are to be authenticated, Definitive Securities in exchange for
temporary Notes.
(b) A Global Security deposited with the Depositary or with the
Trustee as custodian for the Depositary pursuant to Section 2.1 shall be
transferred to the beneficial owners thereof
## CT01/SCHIJ/68118.34 19
<PAGE> 25
only if such transfer complies with Section 2.6 and (i) the Depositary notifies
the Company that it is unwilling or unable to continue as Depositary for such
Global Security or if at any time such Depositary ceases to be a "clearing
agency" registered under the Exchange Act and a successor depositary is not
appointed by the Company within 90 days after such notice or (ii) an Event of
Default has occurred and is continuing.
(c) Any Global Security that is transferable to the beneficial
owners thereof pursuant to this Section 2.10 shall be surrendered by the
Depositary to the Trustee located in New York, New York, to be so transferred,
in whole or from time to time in part, without charge, and the Trustee shall
authenticate and deliver, upon such transfer of each portion of such Global
Security, an equal aggregate principal amount of Initial Notes of authorized
denominations. Any portion of a Global Security transferred pursuant to this
Section shall be executed, authenticated and delivered only in denominations of
$1,000 and any integral multiple thereof and registered in such names as the
Depository shall direct. Any Note delivered in exchange for an interest in the
Global Security shall, except as otherwise provided by Section 2.6(b) bear the
restricted securities legend set forth in Exhibit A hereto.
(d) Subject to the provisions of Section 2.10(c), the registered
Holder of a Global Security may grant proxies and otherwise authorize any
Person, including Agent Members and Persons that may hold interests through
Agent Members, to take any action which a Holder is entitled to take under this
Indenture or the Notes.
(e) In the event of the occurrence of either of the events
specified in Section 2.10(b), the Company will promptly make available to the
Trustee, at the Company's expense, a reasonable supply of certificated Notes in
definitive, fully registered form without interest coupons.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee and no one else shall cancel all Notes surrendered for registration
of transfer, exchange, payment, replacement or cancellation and certification
of their destruction (subject to the record retention requirements of the
Exchange Act) shall be delivered to the Company unless, by a written order,
signed by an Officer, the Company shall direct that cancelled Notes be returned
to it. The Company may not issue new Notes to replace Notes that it has paid
or that have been delivered to the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, the
Company shall pay defaulted interest (plus interest on such defaulted interest
to the extent lawful) in any lawful manner. The Company shall pay the
defaulted interest to the Persons who are Holders on a subsequent special
record date. The Company shall fix or cause to be fixed (or upon the
## CT01/SCHIJ/68118.34 20
<PAGE> 26
Company's failure to do so the Trustee shall fix) any such special record date
and payment date to the reasonable satisfaction of the Trustee, which specified
record date shall not be less than 10 days prior to the payment date for such
defaulted interest, and shall promptly mail or cause to be mailed to each
Holder a notice that states the special record date, the payment date and the
amount of defaulted interest to be paid. The Company shall notify the Trustee
in writing of the amount of defaulted interest proposed to be paid and the date
of the proposed payment, and at the same time the Company shall deposit with
the Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such defaulted interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the proposed
payment such money when deposited to be held in trust for the benefit of the
Person entitled to such defaulted interest as in this subsection provided.
SECTION 2.13. DEPOSIT OF MONEYS.
Prior to 10:00 a.m. New York City time on each Interest Payment Date
and the maturity date, the Company shall have deposited with the Paying Agent
in immediately available funds money sufficient to make cash payments, if any,
due on such Interest Payment Date or maturity date, as the case may be, in a
timely manner which permits the Paying Agent to remit payment to the Holders on
such Interest Payment Date or maturity date, as the case may be.
ARTICLE 3.
REDEMPTION
SECTION 3.1. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of paragraph 5 of the Notes, it shall notify the Trustee
of the redemption date, the principal amount of Notes to be redeemed and the
redemption price at least 15 days prior to mailing any notice of redemption to
the Holders (unless the Trustee consents to a shorter period). Such notice
shall be accompanied by an Officers' Certificate from the Company to the effect
that such redemption will comply with the conditions herein.
The Company shall give notice to the Holders of any redemption
pursuant to this Article 3 at least 30 days but not more than 60 days before
the redemption date. If fewer than all the Notes are to be redeemed, the
record date relating to such redemption shall be selected by the Company and
given to the Trustee, which record date shall be not less than 15 days after
the date of notice to the Trustee.
SECTION 3.2. SELECTION OF NOTES TO BE REDEEMED.
If less than all the Notes are to be redeemed, the Trustee shall
select the Notes to be redeemed in compliance with the requirements of the
principal national securities exchange, if any, on which the Notes are quoted
or listed or, if the Notes are not listed, on a pro rata basis,
## CT01/SCHIJ/68118.34 21
<PAGE> 27
by lot or by such other method that complies with applicable legal requirements
and that the Trustee considers fair and appropriate. The Trustee shall make
the selection not more than 60 days and not less than 30 days before the
redemption date from Notes outstanding and not previously called for
redemption. The Trustee may select for redemption portions of the principal
amount of Notes that have denominations larger than $1,000. Notes and portions
of them it selects shall be in amounts of $1,000 or integral multiples of
$1,000. Provisions of this Indenture that apply to Notes called for redemption
also apply to portions of Notes called for redemption. The Trustee shall
notify the Company promptly of the Notes or portions of Notes to be called for
redemption.
SECTION 3.3. NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a redemption date,
the Company shall mail a notice of redemption by first class mail to each
Holder whose Notes are to be redeemed.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of
the principal amount of such Note to be redeemed and that, after the
redemption date, upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion will be issued;
(d) the Conversion Price (as defined in the Note);
(e) the name and address of the Paying Agent and
Conversion Agent;
(f) that Notes called for redemption may be converted at
any time before the close of business on the redemption date, in
accordance with Article 10;
(g) that Holders who want to convert Notes must satisfy
the requirements in paragraph 8 of the Notes;
(h) that unless the Company defaults in making such
redemption payment or the Paying Agent is prohibited from making such
payment pursuant to the terms of this Indenture, Notes called for
redemption must be surrendered to the Paying Agent to collect the
redemption price; and
(i) that interest on Notes called for redemption ceases to
accrue on and after the redemption date.
## CT01/SCHIJ/68118.34 22
<PAGE> 28
At the Company's request, the Trustee shall give notice of redemption
in the Company's name and at its expense. In such event, the Company shall
provide the Trustee with the information required by this Section 3.3.
SECTION 3.4. EFFECT OF NOTICE OF REDEMPTION.
Notice of redemption shall be deemed to be given when mailed to each
Holder at its last registered address, whether or not the Holder receives such
notice. Once notice of redemption is mailed, Notes called for redemption become
due and payable on the redemption date at the redemption price set forth in the
Notes. A notice of redemption may not be conditional. Upon surrender to the
Trustee or Paying Agent, such Notes called for redemption shall be paid at the
redemption price, plus accrued but unpaid interest thereon to the redemption
date. If the redemption date is after an Interest Payment Date but prior to the
next succeeding Regular Record Date, interest with respect to any Note
converted after delivery of the related notice of redemption shall be paid to
the Holder so converting for the period from the last Interest Payment Date to
the date of such conversion. If the redemption date is after a Regular Record
Date and on or prior to the related Interest Payment Date, the accrued interest
shall be payable to Holders of record on such Regular Record Date.
SECTION 3.5. DEPOSIT OF REDEMPTION PRICE.
On or before 10:00 a.m. New York City time on any redemption date, the
Company shall deposit with the Trustee or with the Paying Agent available funds
sufficient to pay the redemption price of and accrued interest (if payable
under the Notes) on all Notes to be redeemed on that date other than Notes or
portions of Notes called for redemption which prior thereto have been delivered
by the Company to the Trustee for cancellation or have been converted. The
Trustee or the Paying Agent shall return to the Company any money not required
for that purpose.
SECTION 3.6. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and the Trustee shall authenticate for the Holder at the expense of the
Company a new Note equal in principal amount to the unredeemed portion of the
Note surrendered.
ARTICLE 4.
COVENANTS
SECTION 4.1. PAYMENT OF NOTES.
The Company shall pay the principal of and interest on the Notes on
the dates and in the manner provided in the Notes or pursuant to this
Indenture. Principal and interest shall be considered paid on the date due if
the Paying Agent (other than the Company or a Subsidiary
## CT01/SCHIJ/68118.34 23
<PAGE> 29
of the Company) on that date holds money in accordance with this Indenture
designated for and sufficient to pay in cash all principal and interest then
due and the Paying Agent is not prohibited from paying such money to Holders on
that date pursuant to the terms of this Indenture.
To the extent lawful, the Company shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on (i)
overdue principal at the rate borne by the Notes and (ii) overdue installments
of interest at the same rate.
SECTION 4.2. STAY EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but will
suffer and permit the execution of every such power as though no such law has
been enacted.
SECTION 4.3. CONTINUED EXISTENCE.
Subject to Article 5 hereof, the Company will do or cause to be done
all things necessary to preserve and keep in full force and effect its
existence as a corporation and will refrain from taking any action that would
cause its existence as a corporation to cease, including without limitation any
action that would result in its liquidation, winding up or dissolution.
SECTION 4.4. SEC REPORTS.
The Company shall file with the SEC annual reports and information,
documents and other reports which the Company is required to file with the SEC
pursuant to Section 13 or 15(d) of the Exchange Act. Within 15 days after each
such filing, the Company shall deliver copies of the materials so filed to the
Trustee and the Holders (at their addresses as set forth in the Register) or
cause the Trustee to deliver copies of such materials to the Holders at the
Company's expense. If at any time the Company ceases to be required to file
information, documents and other reports pursuant to Section 13 or 15(d) of the
Exchange Act, the Company shall continue to prepare all such information,
documents and other reports it would be required to prepare and file with the
Commission if it were so required to file with the Commission, in each case
within the filing periods required by such Sections 13 or 15(d), and the
Company shall deliver copies of such materials to the Trustee and the Holders
(at their addresses as set forth in the Register) or cause the Trustee to
deliver copies of such materials to the Holders at the Company's expense. The
Company also shall comply with the other provisions of TIA Section 314(a). The
Company shall timely comply with its reporting and filing obligations under the
applicable federal securities laws.
## CT01/SCHIJ/68118.34 24
<PAGE> 30
SECTION 4.5. LIMITATION ON RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, declare or pay any distribution or dividend on or
in respect of any class of its Capital Stock (except dividends or distributions
payable by wholly owned Subsidiaries of the Company and dividends or
distributions payable in Qualified Stock of the Company or in options, warrants
or other rights to purchase Qualified Stock of the Company) (a "Restricted
Payment"); unless (a) at the time of and after giving effect to a proposed
Restricted Payment no Event of Default (and no event that, after notice or
lapse of time, or both, would become an Event of Default) shall have occurred
and be continuing and (b) such Restricted Payment is made in cash and in an
amount that, together with the sum of the aggregate of all other Restricted
Payments made by the Company and its Subsidiaries after the date of this
Indenture plus the aggregate amount of all dividends paid with respect to the
Company's Preferred Stock after the date of the Indenture, does not exceed the
cumulative retained earnings of the Company arising from and after the date of
this Indenture. Notwithstanding the foregoing, the Company will be permitted
to pay dividends on Preferred Stock of the Company outstanding on the date of
the Indenture in an amount not greater than that specifically provided for in
the Company's certificate of incorporation or the related certificate of
designations.
Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.6 were computed, which calculations may
be based upon the Company's latest available financial statements.
SECTION 4.6. TAXES.
The Company shall, and shall cause each of its Subsidiaries to, pay or
discharge prior to delinquency all taxes, assessments and governmental levies,
except as contested in good faith and by appropriate proceedings.
SECTION 4.7. CHANGE OF CONTROL.
(a) In the event of a Change of Control, the time of such Change
of Control being referred to as the "Change of Control Date," then the Company
shall give written notice (the "Change of Control Notice") to the Holders in
writing of such occurrence and shall make an offer to purchase (as the same may
be extended in accordance with applicable law, the "Change of Control Offer")
all then outstanding Notes at a purchase price equal to 100% of the principal
amount thereof plus accrued and unpaid interest thereon to the Change of
Control Payment Date, if any. The Change of Control Offer shall be mailed by
the Company not more than 30 days following any Change of Control Date, unless
the Company has previously mailed a notice of optional redemption by the
Company of all of the Notes, to each Holder at such Holder's last address on
the Note Register by first class mail with a copy to the Trustee and the Paying
Agent and shall set forth:
## CT01/SCHIJ/68118.34 25
<PAGE> 31
(i) that a Change of Control has occurred and that the
Company is offering to repurchase all of such Holder's Notes;
(ii) the circumstances and relevant facts regarding such
Change of Control (including, but not limited to, information
with respect to pro forma income, cash flow and
capitalization of the Company after giving effect to such
Change of Control);
(iii) the repurchase price (the "Change of Control Payment");
(iv) the expiration date of the Change of Control Offer,
which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed;
(v) the date such purchase shall be effected, which shall
be no later than 30 days after expiration date of the Change
of Control Offer (the "Change of Control Payment Date");
(vi) that any Notes not accepted for payment pursuant to
the Change of Control Offer shall continue to accrue interest;
(vii) that, unless the Company defaults in the payment of
the Change of Control Payment, all Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue
interest after the Change of Control Payment Date;
(viii) the Conversion Price;
(ix) the name and address of the Paying Agent and
Conversion Agent;
(x) that Notes must be surrendered to the Paying Agent to
collect the repurchase price; and
(xi) any other information required by applicable law to be
included therein and any other procedures that a Holder must
follow in order to have such Notes repurchased.
(b) The Change of Control Offer shall remain open until the close
of business on the last day of the Change of Control Offer. If the Change of
Control Payment Date is on or after a Regular Record Date and on or before the
related Interest Payment Date, accrued interest through such Interest Payment
Date will be paid to each Person in whose name a Note repurchased in the Change
of Control Offer is registered at the close of business on such Regular Record
Date, and no additional interest will be payable to Holders who tender Notes
pursuant to the Change of Control Offer.
(c) In the event that the Company is required to make a Change of
Control Offer, the Company will comply with any applicable securities laws and
regulations, including, to the
## CT01/SCHIJ/68118.34 26
<PAGE> 32
extent applicable, Section 14(e), Rule 14e-1 and any other tender offer rules
under the Exchange Act which may then be applicable in connection with any
offer by the Company to purchase Notes at the option of the Holders thereof.
(d) On the Change of Control Payment Date, the Company shall, to
the extent lawful:
(i) accept for payment Notes or portions thereof tendered
pursuant to the Change of Control Notice,
(ii) deposit with the Paying Agent in immediately available
funds an amount equal to the Change of Control Payment in
respect of all Notes or portions thereof so accepted, and
(iii) deliver or cause to be delivered to the Trustee the
Notes so accepted together with an Officers' Certificate
stating the Notes or portions thereof tendered to the
Company.
(e) The Paying Agent shall promptly mail to each Holder of Notes
so accepted payment in an amount equal to the purchase price for the Notes, and
the Trustee shall promptly authenticate and mail to each Holder a new Note
equal in principal amount to any unpurchased portion of the Notes surrendered
by such Holder, if any; provided, that each such new Note shall be in principal
amount of $1,000 or an integral multiple thereof. The Company shall publicly
announce the results of any redemptions by Holders pursuant to this Section 4.9
on or as soon as practicable after the Change of Control Payment Date.
SECTION 4.8. LIMITATION ON STOCK SPLITS, CONSOLIDATIONS AND
RECLASSIFICATIONS.
The Company shall not effect a stock split, consolidation or
reclassification of any class of its Capital Stock unless (a) an equivalent
stock split, consolidation or reclassification is simultaneously made with
respect to each other class of Capital Stock of the Company and all securities
exchangeable or exercisable for or convertible into any Capital Stock of the
Company, and (b) after such stock split, consolidation or reclassification all
of the relative voting, dividend and other rights and preferences of each class
of Capital Stock of the Company are identical to those in effect immediately
preceding such stock split, consolidation or reclassification.
SECTION 4.9. LIMITATION ON DIVIDEND RESTRICTIONS AFFECTING SUBSIDIARIES.
The Company shall not, and shall not permit any of its Subsidiaries
to, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction of any kind on the ability of any Subsidiary of the
Company to (a) pay to the Company dividends or make to the Company any other
distribution on its Capital Stock, (b) pay any Debt owed to the Company or any
of the Company's Subsidiaries, (c) make loans or advances to the Company or any
of the Company's Subsidiaries or (d) transfer any of its property or assets to
the Company or any of the Company's Subsidiaries, other than such encumbrances
or restrictions
## CT01/SCHIJ/68118.34 27
<PAGE> 33
existing or created under or by reason of (i) applicable law, (ii) this
Indenture, (iii) covenants or restrictions contained in any instrument
governing Debt of the Company or any of its Subsidiaries existing on the date
of this Indenture, (iv) customary provisions restricting subletting, assignment
and transfer of any lease governing a leasehold interest of the Company or any
of its Subsidiaries or in any license or other agreement entered into in the
ordinary course of business, (v) any agreement governing Debt of a Person
acquired by the Company or any of its Subsidiaries in existence at the time of
such acquisition (but not created in contemplation thereof), which encumbrances
or restrictions are not applicable to any Person, or the property or assets of
any Person, other than the Person, or the property or assets of the Person so
acquired or (vi) any restriction with respect to a Subsidiary imposed pursuant
to an agreement entered into in accordance with the terms of this Indenture for
the sale or disposition of Capital Stock or property or assets of such
Subsidiary, pending the closing of such sale or disposition.
SECTION 4.10. LIMITATION ON ADDITIONAL DEBT AFTER DEFAULT.
The Company shall not, and shall not permit any of its Subsidiaries
to, incur any additional Debt (other than Permitted Debt) or Senior
Indebtedness following the occurrence of an Event of Default unless such Event
of Default (and all other Events of Default then pending) is cured or waived;
provided, however, that the Company shall be permitted to incur up to $5.0
million of Senior Indebtedness after the occurrence of an Event of Default
notwithstanding that such Event of Default (or any other Event of Default) is
then outstanding.
SECTION 4.11. COMPLIANCE CERTIFICATE.
The Company shall deliver to the Trustee, within 120 days after the
end of each fiscal year of the Company, an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best of
his or her knowledge the Company has kept, observed, performed and fulfilled
each and every covenant contained in this Indenture and is not in default in
the performance or observance of any of the terms, provisions and conditions
hereof (or, if a Default or Events of Default shall have occurred, describing
all such Defaults or Events of Default of which he or she may have knowledge
and what action the Company is taking or proposes to take with respect
thereto), and that, to the best of his or her knowledge, no event has occurred
and remains in existence by reason of which payments on account of the
principal of or interest, if any, on the Notes are prohibited.
The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, within five Business Days after becoming aware of (i)
any Default, Event of Default or default in the performance of any covenant,
agreement or condition in this Indenture or (ii) any event of default under any
other instrument of Debt to which Section 6.1(d) applies, an Officers'
Certificate specifying such Default, Event of Default or default, describing
its status and what action the Company is taking or proposes to take with
respect thereto.
## CT01/SCHIJ/68118.34 28
<PAGE> 34
So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements shall be accompanied by a written statement of the Company's
independent public accountants (who shall be a firm of established national
reputation) that in making the examination necessary for certification of such
financial statements, nothing has come to their attention that would lead them
to believe that the Company has violated any provisions of this Article 4, or
if any such violation has occurred, specifying the nature and, if known, the
period of existence thereof, it being understood that such accountants shall
not be liable directly or indirectly to any Person for any failure to obtain
knowledge of any such violation.
SECTION 4.12. FURTHER ASSURANCE TO THE TRUSTEE.
The Company shall, upon request of the Trustee, execute and deliver
such further instruments and do such further acts as may be reasonably
necessary or proper to carry out more effectively the provisions of this
Indenture.
ARTICLE 5.
SUCCESSORS
SECTION 5.1. WHEN COMPANY MAY MERGE OR SELL ASSETS.
The Company shall not consolidate or merge with or into, or sell,
lease, convey or otherwise dispose of all or substantially all of its assets
to, any Person, without the consent of each Holder, unless:
(a) the Company is the continuing corporation or the Person
formed by or surviving any such consolidation or merger (if other than the
Company), or to which such sale, lease, conveyance or other disposition of
assets shall have been made, is organized and existing under the laws of the
United States, any state thereof or the District of Columbia and such Person
(if other than the Company) assumes by supplemental indenture executed and
delivered to the Trustee and in a form reasonably satisfactory to the Trustee,
all the obligations of the Company under the Notes and this Indenture
including, without limitation, conversion rights in accordance with Article 11
hereof;
(b) immediately after giving effect to the transaction no Event
of Default, and no event which, after notice or lapse of time, or both, would
become an Event of Default, shall have occurred and be continuing;
(c) immediately after giving effect to such transaction, the
Notes and this Indenture will be a valid and enforceable obligation of the
Company or such successor; and
## CT01/SCHIJ/68118.34 29
<PAGE> 35
(d) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such proposed
transaction and such supplemental indenture comply with the applicable
provisions of this Indenture.
SECTION 5.2. SUCCESSOR SUBSTITUTED.
Upon any consolidation or merger, or any sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company in
accordance with Section 5.1, the Person formed by such consolidation or into or
with which the Company is merged or to which such sale, lease, conveyance or
other disposition is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person has been named as the Company herein;
provided, however, that the predecessor Company in the case of a sale, lease,
conveyance or other disposition shall not be released from the obligation to
pay the principal of and interest on the Notes.
ARTICLE 6.
DEFAULTS AND REMEDIES
SECTION 6.1. EVENTS OF DEFAULT.
The following shall constitute an "Event of Default":
(a) failure to pay principal of or premium, if any, on any
Note when due and payable at maturity, upon redemption, upon a Change of
Control Offer or otherwise, whether or not such payment is prohibited by the
subordination provisions of this Indenture;
(b) failure to pay any interest on any Note when due and
payable, which failure continues for 30 days, whether or not such payment is
prohibited by the subordination provisions of this Indenture;
(c) failure to perform the other covenants of the Company
in this Indenture, which failure continues for 60 days after written notice as
provided in this Indenture;
(d) failure to perform any covenants of the Company to the
holders of Senior Indebtedness as required by the terms of such Senior
Indebtedness unless waived by said holders;
(e) a default occurs (after giving effect to any
applicable grace periods or any extension of any maturity date) in the payment
when due of principal of and/or acceleration of, any indebtedness for money
borrowed by the Company or any of its Subsidiaries in excess of $5 million,
individually or in the aggregate, if such indebtedness is not discharged, or
such acceleration is not annulled, within 10 days after written notice as
provided in this Indenture;
(f) the Company pursuant to or within the meaning of any
Bankruptcy Law:
## CT01/SCHIJ/68118.34 30
<PAGE> 36
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief
against it in an involuntary case,
(iii) consents to the appointment of a Custodian of
it or for all or substantially all of it or for all or
substantially all of its property, and such Custodian is not
discharged within 30 days,
(iv) makes a general assignment for the benefit of
its creditors, or
(v) generally is unable to pay its debts as the
same become due; and
(g) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(i) is for relief against the Company or any
Subsidiary of the Company in an involuntary case,
(ii) appoints a Custodian of the Company or any
Subsidiary of the Company or for all or substantially all of
its property, or
(iii) orders the liquidation of the Company or any
Subsidiary of the Company,
and, in each case, the order or decree remains unstayed and in effect for 60
days.
The term "Bankruptcy Law" means title 11, U.S. Code or any similar
federal or state law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
A Default under clause (c) (other than a Default under Section 5.1,
which Default shall be an Event of Default with the notice but without the
passage of time specified in this Section 6.1), (d) or (e) shall not be an
Event of Default until the Trustee notifies the Company or the Holders of at
least 25% in principal amount of the then outstanding Notes notify the Company
and the Trustee of the Default and the Company does not cure the Default under
such clause (c) within 60 days after receipt of the notice, or under clause (d)
within 10 days after receipt of the notice. The notice must specify the
Default, demand that it be remedied and state that the notice is a "Notice of
Default."
SECTION 6.2. ACCELERATION.
If an Event of Default (other than an Event of Default specified in
clauses (e) and (f) of Section 6.1) occurs and is continuing, the Trustee by
notice to the Company, or the Holders of at least 25% in principal amount of
the then outstanding Notes by notice to the Company and
## CT01/SCHIJ/68118.34 31
<PAGE> 37
the Trustee, may declare the unpaid principal of and accrued interest on all
the Notes to be due and payable. Upon such declaration the principal and
interest shall be due and payable immediately. If an Event of Default
specified in clause (f) or (g) of Section 6.1 occurs, such a an amount shall
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Holder. The Holders of a majority
in principal amount of the then outstanding Notes by written notice to the
Trustee may rescind an acceleration and its consequences if the rescission
would not conflict with any judgment or decree and if all existing Events of
Default have been cured or waived except nonpayment of principal or interest
that has become due solely because of the acceleration. No such recision shall
affect any subsequent Default or impair any right consequent thereto.
SECTION 6.3. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal or interest on
the Notes or to enforce the performance of any provision of the Notes or this
Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 6.4. WAIVER OF EXISTING AND PAST DEFAULTS.
The Holders of a majority in principal amount of the then outstanding
Notes by written notice to the Trustee may waive an existing Default or Event
of Default and its consequences, except (i) a continuing Default or Event of
Default in the payment of the principal of, or the interest on, any Note or
(ii) a Default or Event of Default in respect of a provision that under Section
9.2 cannot be amended without the consent of each Holder affected. Upon any
such waiver, such Default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been cured for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default
or impair any right consequent thereon.
SECTION 6.5. CONTROL BY MAJORITY.
The Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or exercising any trust or power conferred
on it. However, the Trustee may refuse to follow any direction that conflicts
with applicable law or this Indenture, that the Trustee determines is unduly
prejudicial to the rights of other Holders or would involve the Trustee in
personal liability; provided, however, that the Trustee may take any other
action deemed proper by the Trustee which is not inconsistent with such
direction.
## CT01/SCHIJ/68118.34 32
<PAGE> 38
In the event the Trustee takes any action or follows any direction
pursuant to this Indenture, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against any loss or expense caused by
taking such action or following such direction.
SECTION 6.6. LIMITATION ON SUITS.
A Holder may pursue a remedy with respect to this Indenture or the
Notes only if:
(a) the Holder gives to the Trustee notice of a continuing
Event of Default;
(b) the Holders of at least 25% in principal amount of the
then outstanding Notes make a request to the Trustee to pursue the
remedy;
(c) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not give the Trustee
a direction inconsistent with the request.
A Holder may not use this Indenture to prejudice the rights of another Holder
or to obtain a preference or priority over another Holder.
SECTION 6.7. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal and interest on the Note,
on or after the respective due dates expressed in the Note, or to bring suit
for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of the Holder.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to bring suit for the enforcement of the right to convert
the Note shall not be impaired or affected without the consent of the Holder.
SECTION 6.8. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.1(a) or (b) occurs and
is continuing, the Trustee may recover judgment in its own name and as trustee
of an express trust against the Company for the whole amount of principal and
interest remaining unpaid on the Notes and interest on overdue principal and
interest, and such further amount as shall be sufficient to cover the costs
and, to the extent lawful, expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
## CT01/SCHIJ/68118.34 33
<PAGE> 39
SECTION 6.9. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee and the Holders allowed in any judicial proceedings relative to the
Company, its creditors or its property. Nothing contained herein shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt
on behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article 6, it shall
pay out the money in the following order:
First: to the Trustee for amounts due under Section 6.8 or
7.7;
Second: to holders of Senior Indebtedness to the
extent required by Article 11;
Third: to Holders for amounts due and unpaid on the Notes for
principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and
payable on the Notes for principal and interest,
respectively; and
Fourth: to the Company or to such party as a court of
competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders.
At least 15 days before the record date, the Company shall mail to the
Trustee and each Holder (at such Holder's address as it appears on the
Register, a notice that states the record date, the payment date and amount to
be paid.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.7, or a suit by Holders of more than 10% in principal
amount of the then outstanding Notes.
## CT01/SCHIJ/68118.34 34
<PAGE> 40
ARTICLE 7.
TRUSTEE
SECTION 7.1. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(b) Except during the continuance of an Event of Default:
(i) The Trustee need perform only those duties that are
specifically set forth in this Indenture or the TIA and no others.
(ii) In the absence of negligence, misconduct or bad faith
on its part, the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to
the requirements of this Indenture. However, the Trustee shall examine
the certificates and opinions to determine whether or not they conform
to the requirements of this Indenture, but the Trustee need not verify
the contents thereof.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own misconduct,
except that:
(i) This paragraph does not limit the effect of paragraph
(b) of this Section.
(ii) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts.
(iii) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.5.
(d) Every provision of this Indenture that in any way relates to
the Trustee is subject to the provisions of the TIA, paragraphs (a), (b), (c)
and (e) of this Section 7.1 and Section 7.2.
(e) The Trustee may refuse to perform any duty or exercise any
right or power unless it receives indemnity satisfactory to it against any
loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds held
in trust except to the extent required by law.
## CT01/SCHIJ/68118.34 35
<PAGE> 41
SECTION 7.2. RIGHTS OF TRUSTEE.
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper Person. The Trustee
need not investigate any fact or matter stated in the document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters to the extent reasonably deemed necessary by it, and if
the Trustee shall determine to make such further inquiry or investigation, it
shall be entitled upon reasonable notice, to examine the books and records and
premises of the Company, personally or by agent, authorized representative or
attorney.
(b) Before the Trustee acts or refrains from acting pursuant to
the terms of the Indenture or otherwise, it may require an Officers'
Certificate or an Opinion of Counsel, or both. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on such
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any Agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers.
SECTION 7.3. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights. However, the Trustee is
subject to and must comply with Sections 7.10 and 7.11.
SECTION 7.4. TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Notes, it shall not be accountable for the Company's use
of the proceeds from the Notes, and it shall not be responsible for any
statement of the Company in the Indenture or any statement in the Notes other
than its authentication.
SECTION 7.5. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
actually known to the Trustee, the Trustee shall mail to each Holder a notice
of the Default or Event of Default within 90 days after it occurs, unless such
Default or Event of Default shall have been cured or waived. Except in the case
of a Default or Event of Default in payment on any Note under Section 6.1(a) or
(b), the Trustee may withhold the notice if and so long as a committee of its
Trust Officers in good faith determines that withholding the notice is in the
best interests of Holders. The second sentence of this Section 7.5 shall be in
lieu of the proviso to Section
## CT01/SCHIJ/68118.34 36
<PAGE> 42
315(b) of the TIA, which proviso is hereby expressly excluded from this
Indenture, as permitted by the TIA.
SECTION 7.6. REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after each July 1, commencing July 1, 1996, the Trustee
shall mail to Holders, at the Company's expense, a brief report dated as of
such reporting date that complies with TIA Section 313(a) (but if no event
described in TIA Section 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA Section 313(b)(2) to the extent applicable. The Trustee
shall also transmit by mail all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to Holders shall be
filed with the SEC and each stock exchange or market on which the Notes are
listed or quoted. The Company shall notify the Trustee when the Notes are
listed on any stock exchange or quoted on any market.
SECTION 7.7. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee (in its capacities as Trustee,
Notes Custodian, Conversion Agent, Paying Agent and Registrar) from time to
time such compensation as may be agreed in writing between the Company and the
Trustee for its services hereunder. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee upon request for all reasonable
out-of-pocket expenses incurred by it. Such expenses may include the reasonable
compensation and out-of-pocket expenses of the Trustee's Agents and counsel,
except such disbursements, advances and expenses as may be attributable to its
negligence, misconduct or bad faith.
The Company shall indemnify and hold harmless the Trustee (in its
capacities as Trustee, Paying Agent and Registrar) against any claim, demand,
expense (including reasonable attorney's fees and expenses), loss or liability
incurred by it in connection with the administration of this trust and the
performance of its duties hereunder, except as set forth in the next paragraph.
The Trustee shall notify the Company promptly of any claim for which it may
seek indemnity. The Company shall defend the claim and the Trustee shall
cooperate in the defense. In the event that a conflict of interest or conflict
of defenses would arise in connection with representation of the Company and
the Trustee by the same counsel, the Trustee may have separate counsel and the
Company shall pay the reasonable fees and expenses of such counsel. The Company
need not pay for any settlement made without its consent, which consent shall
not be unreasonably withheld.
The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through misconduct, negligence or bad
faith.
To secure the Company's payment obligations in this Section 7.7, the
Trustee shall have a lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes.
## CT01/SCHIJ/68118.34 37
<PAGE> 43
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(f) or (g) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
The Company's payment obligations pursuant to this Section 7.7 shall
survive the discharge of this Indenture.
SECTION 7.8. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.8.
The Trustee may resign by so notifying the Company in writing at least
30 days prior to the date of the proposed resignation; provided, however, that
no such resignation shall be effective until a successor Trustee has accepted
its appointment pursuant to this Section 7.8. The Holders of a majority in
principal amount of the then outstanding Notes may remove the Trustee by so
notifying the Trustee and the Company. The Company shall remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent or
an order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) a Custodian or public officer takes charge of the
Trustee or its property; or
(d) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee is not appointed or does not take office within
60 days after the retiring Trustee resigns or is removed, the retiring Trustee,
the Company or the Holders of at least 10% in principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
## CT01/SCHIJ/68118.34 38
<PAGE> 44
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.7. Notwithstanding the replacement of the Trustee
pursuant to this Section 7.8, the Company's obligations under Section 7.7
hereof shall continue for the benefit of the retiring trustee with respect to
expenses and liabilities incurred by it prior to such replacement.
SECTION 7.9. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
This indenture shall always have a Trustee who satisfies the
requirements of TIA Section Section 310(a)(1) and 310(a)(2). The Trustee shall
always have a combined capital and surplus as stated in its most recent
published annual report of condition of at least $150 million. The Trustee
shall comply with TIA Section 310(b), including the optional provision
permitted by the second sentence of TIA Section 310(b)(9). The provisions of
TIA Section 310 shall apply to the Company, as obligor of the Notes.
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein. The provisions of TIA Section 311 shall apply to the Company, as
obligor of the Notes.
ARTICLE 8.
DISCHARGE OF INDENTURE
SECTION 8.1. TERMINATION OF COMPANY'S OBLIGATIONS.
This Indenture shall cease to be of further effect (except that the
Company's obligations under Section 7.7 and 8.3 shall survive) when all
outstanding Notes theretofore authenticated and issued (other than destroyed,
lost or stolen Notes which have been replaced or paid) have been delivered to
the Trustee for cancellation and the Company has paid all sums payable
hereunder. In addition, the Company shall be discharged from all of its
obligations under Section 2.13 and Sections 4.3 through 4.19 while the Notes
remain outstanding if all outstanding Notes will
## CT01/SCHIJ/68118.34 39
<PAGE> 45
become due and payable at their scheduled maturity within one year and the
following conditions have been satisfied:
(a) the Company has deposited, or caused to be deposited,
irrevocably with the Trustee as trust funds specifically pledged as security
for, and dedicated solely for, such purpose, (i) money in an amount, (ii)
non-callable U.S. Government Obligations which through the payment of
principal, premium, if any, and interest in accordance with their terms
(without the reinvestment of such interest or principal) will provide not later
than one day before the due date of any payment money in an amount, or (iii) a
combination thereof, sufficient with respect to clauses (ii) and (iii) in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee at or
prior to the time of such deposit, to pay the principal of, premium, if any,
and discharge each installment of interest on the outstanding Notes, together
with all other amounts payable by the Company under this Indenture.
(b) no Default or Event of Default with respect to the Notes has
occurred and is continuing on the date of such deposit or shall occur as a
result of such deposit or at any time during the period ending on the 91st day
after the date of such deposit, as evidenced to the Trustee by an Officer's
Certificate delivered to the Trustee concurrently with such deposit.
(c) such defeasance does not result in a breach or violation of,
or constitute a default under, any other agreement or instrument to which the
Company is a party or by which it is bound, and is not prohibited by Article
11, as evidenced to the Trustee by an Officers' Certificate delivered to the
Trustee concurrently with such deposit,
(d) the Company has delivered to the Trustee a private Internal
Revenue Service ruling or an opinion of counsel that Holders will not recognize
income, gain or loss for federal income tax purposes as a result of such
deposit, defeasance and discharge and will be subject to federal income tax on
the same amount, in the same manner, and at the same times, as would have been
the case if such deposit, defeasance and discharge had not occurred,
(e) the Company has delivered to the Trustee an Opinion of
Counsel to the effect that the deposit shall not result in the Company, the
Trustee or the trust being deemed to be an "investment company" under the
Investment Company Act of 1940, as amended,
(f) 91 days pass after the deposit is made and during such 91 day
period no event of Default specified in Section 6.1(f) or (g) shall occur and
be continuing at the end of such period, and
(g) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent relating to the discharge of such provisions of the Indenture have
been complied with. Notwithstanding the foregoing, the Company's obligations
to pay principal, premium, if any, and interest on the Notes shall continue
until the Internal Revenue Service ruling or Opinion of Counsel referred to in
clause (d) above is provided.
## CT01/SCHIJ/68118.34 40
<PAGE> 46
If the Company exercises such option to discharge such provisions of
the Indenture, payment of the Notes may not be accelerated because of an event
of default specified in Sections 6.1(c) with respect to the failure to perform
any of the covenants set forth in Section 2.13 and Section 4.3 through 4.19, or
Section 6.1(d).
After a deposit made pursuant to this Section 8.1, the Trustee upon
request shall acknowledge in writing the discharge of the Company's obligations
specified above under this Indenture.
SECTION 8.2. APPLICATION OF TRUST MONEY.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 8.1. It shall apply the deposited money
and the money from U.S. Government Obligations through the Paying Agent and in
accordance with this Indenture to the payment of principal and interest on the
Notes. Money and securities so held in trust are not subject to Article 11.
SECTION 8.3. REPAYMENT TO COMPANY.
Subject to Section 7.7, the Trustee and the Paying Agent shall
promptly pay to the Company upon request any excess money or securities held by
them at any time.
The Trustee and the Paying Agent shall pay to the Company upon written
request by the Company any money held by them for the payment of principal or
interest that remains unclaimed for two years after the date upon which such
payment shall have become due; provided, however, that the Company shall have
first caused notice of such payment to the Company to be mailed to each Holder
entitled thereto no less than 30 days prior to such payment. After payment to
the Company, Holders entitled to the money must look to the Company for payment
as general creditors unless an applicable abandoned property law designates
another Person.
SECTION 8.4. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any money in
accordance with Section 8.2 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's obligations under this Indenture and the Notes shall
be revived and reinstated as though no deposit had occurred pursuant to Section
8.1 until such time as the Trustee or Paying Agent is permitted to apply all
such money in accordance with Section 8.2; provided, however, that if the
Company makes any payment of interest on or principal of any Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.
## CT01/SCHIJ/68118.34 41
<PAGE> 47
ARTICLE 9.
AMENDMENTS
SECTION 9.1. WITHOUT CONSENT OF HOLDERS.
The Company and the Trustee may amend this Indenture or the Notes
without the consent of any Holder:
(a) to cure any ambiguity, defect or inconsistency;
provided that such amendment does not in the opinion of the Trustee
adversely affect the rights of any Holder;
(b) to comply with Section 5.1;
(c) to provide for uncertificated Notes in addition to or
in lieu of certificated Notes;
(d) to make any change that does not adversely affect the
legal rights hereunder of any Holder; or
(e) to comply with requirements of the SEC in order to
effect or maintain the qualification of this Indenture under the TIA;
provided, however, that, in each case, the Company has delivered to the Trustee
an Opinion of Counsel and an Officers' Certificate, each stating that such
amendment complies with the provisions of this Section 9.1.
SECTION 9.2. WITH CONSENT OF HOLDERS.
Subject to the provisions of Sections 6.4 and 6.7, the Company and the
Trustee may amend or modify this Indenture or the Notes with the written
consent of the Holders of at least a majority in principal amount of the then
outstanding Notes, and the Holders of a majority in principal amount of the
Notes then outstanding may waive compliance in a particular instance by the
Company with any provision of this Indenture or the Notes; provided, however,
that, without the consent of each Holder affected, an amendment, modification
or waiver under this Section 9.2 may not (with respect to any Notes held by a
non-consenting Holder):
(a) change the stated maturity of, or any installment of
interest on, any Note;
(b) reduce the principal amount of any Note or reduce the
rate or extend the time of payment of interest on any Note;
(c) increase the conversion price (other than in
connection with a reverse stock split as provided in this Indenture);
## CT01/SCHIJ/68118.34 42
<PAGE> 48
(d) change the place or currency of payment of principal
of, or premium or repurchase price, if any, or interest on, any Note;
(e) impair the right to institute suit for the enforcement
of any payment on or with respect to any Note;
(f) adversely affect the right to exchange or convert
Notes;
(g) reduce the percentage of the aggregate principal
amount of outstanding Notes, the consent of the Holders of which is
necessary to modify or amend this Indenture;
(h) reduce the percentage of the aggregate principal
amount of outstanding Notes, the consent of the Holders of which is
necessary for waiver of compliance with certain provisions of this
Indenture or for waiver of certain defaults;
(i) modify the provisions of this Indenture with respect
to the subordination of the Notes in a manner adverse to the Holders;
(j) modify the provisions of this Indenture with respect
to the right to require the Company to repurchase Notes in a manner
adverse to the Holders; or
(k) modify the provisions of this Indenture with respect to
the vote necessary to amend this Section 9.2.
To secure a consent of the Holders under this Section 9.2, it shall
not be necessary for the Holders to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment or waiver under this Section 9.2 becomes effective,
the Company shall mail to Holders a notice briefly describing the amendment or
waiver. Any failure of the Company to mail such notices, or any defect
therein, shall not, however, in any way, impair or affect the validity of any
such amendment or waiver.
SECTION 9.3. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment to this Indenture or the Notes shall be set forth in a
supplemental indenture that complies with the TIA as then in effect.
SECTION 9.4. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplemental indenture or waiver becomes
effective, a consent to it by a Holder of a Note is a continuing consent by
such Holder and every subsequent Holder of a Note or portion of a Note that
evidences the same debt as such consenting Holder's Note, even if notation of
the consent is not made on any Note. However, prior to becoming effective,
## CT01/SCHIJ/68118.34 43
<PAGE> 49
any such Holder or subsequent Holder may revoke the consent as to its Notes or
a portion thereof if the Trustee receives written notice of revocation before
the consent of Holders of the requisite aggregate principal amount of Notes has
been obtained and not revoked.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment or
waiver. If a record date is fixed, then notwithstanding the provisions of the
immediately preceding paragraph, those Persons who were Holders at such record
date (or their duly designated proxies), and only those Persons, shall be
entitled to consent to such amendment or waiver or to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
record date. No consent shall be valid or effective for more than 90 days after
such record date unless consents from Holders of the principal amount of Notes
required hereunder for such amendment or waiver to be effective shall have also
been given and not revoked within such 90-day period.
After an amendment or waiver becomes effective it shall bind every
Holder, unless it is of the type described in any of clauses (a) through (k) of
Section 9.2. In such case, the amendment or waiver shall bind each Holder of a
Note who has consented to it and every subsequent Holder of a Note that
evidences the same debt as the consenting Holder's Note.
SECTION 9.5. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee (in accordance with the written direction of the Company)
may (at the Company's expense) place an appropriate notation about an
amendment, supplement or waiver on any Note thereafter authenticated. The
Company in exchange for all Notes may issue and the Trustee shall authenticate
new Notes that reflect the amendment or waiver. Failure to make the appropriate
notation or issue a new Note shall not affect the validity and effect of such
amendment, supplement or waiver.
SECTION 9.6. TRUSTEE PROTECTED.
The Trustee shall sign all supplemental indentures, except that the
Trustee need not sign any supplemental indenture that adversely affects its
rights. In signing or refusing to sign such supplemental Indenture, the Trustee
shall be entitled to receive an Officer's Certificate and Opinion of Counsel to
the effect that such supplemental Indenture is authorized or permitted by this
Indenture and will be valid and binding on the Company in accordance with its
terms.
ARTICLE 10.
CONVERSION
SECTION 10.1. CONVERSION PRIVILEGE.
Each Holder may, at such Holder's option, at any time prior to the
close of business on December 31, 2005, unless earlier redeemed or repurchased,
convert such Holder's Notes, in
## CT01/SCHIJ/68118.34 44
<PAGE> 50
whole or in part (in denominations of $1,000 or multiples thereof), at 100% of
the principal amount so converted, into fully paid and non- assessable shares
of the Company's Common Stock at a conversion price per share equal to $____,
as such conversion price may be adjusted from time to time in accordance with
Section 10.4 (the "Conversion Price").
SECTION 10.2. CONVERSION PROCEDURE.
To convert a Note, a Holder must (1) complete and sign the notice on
the reverse of the Note, (2) surrender such Note to the Conversion Agent, (3)
furnish appropriate endorsements and transfer documents if required by the
Registrar or Conversion Agent and (4) pay any transfer or similar tax if
required by Section 10.6. The Company's delivery to the Holder of a fixed
number of shares of Common Stock (and any cash in lieu of fractional shares of
Class A Common Stock into which such Note is converted) shall be deemed to
satisfy the Company's obligation to pay the principal amount of such Note and,
subject to the provisions of Section 3.4, unless such Note is converted after a
Regular Record Date and prior to the related Interest Payment Date, all accrued
interest that has not previously been paid. If such Note is converted after a
Regular Record Date and prior to the related Interest Payment Date, the
interest installment on such Note scheduled to be paid on such Interest Payment
Date shall be payable on such Interest Payment Date to the Holder of record at
the close of business on such Regular Record Date through such date of
conversion.
As promptly as practicable after the surrender of such Note in
compliance with this Section 10.2, the Company shall issue and deliver at such
office or agency to such Holder, or on such Holder's written order, a
certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of such Note or portion thereof in accordance with
the provisions of this Article 10 and a check or cash in respect of any
fractional interest in respect of a share of Common Stock arising upon such
conversion, as provided in Section 10.3. In case any Note of a denomination
greater than $1,000 shall be surrendered for partial conversion, subject to
Article 2, the Company shall execute and the Trustee shall authenticate and
deliver to the Holder of the Note so surrendered, without charge to such
Holder, a new Note or Notes in authorized denominations in an aggregate
principal amount equal to the unconverted portion of the surrendered Note.
Each conversion shall be deemed to have been effected on the date on
which such Note shall have been surrendered in compliance with this Section
10.2, and the Person in whose name any certificate or certificates for shares
of Common Stock shall be issuable upon such conversion shall be deemed to have
become on said date the holder of record of the shares represented thereby;
provided, however, that any such surrender on any date when the stock transfer
books of the Company shall be closed shall constitute the Person in whose name
the certificates are to be issued as the record holder thereof for all purposes
on the next succeeding day on which such stock transfer books are open, but
such conversion shall be at the Conversion Price in effect on the date upon
which such Note shall have been surrendered.
## CT01/SCHIJ/68118.34 45
<PAGE> 51
If the last day on which a Note may be converted is a Legal Holiday in
a place where a Conversion Agent is located, the Note may be surrendered to
that Conversion Agent on the next succeeding day that is not a Legal Holiday.
Provisions of this Indenture that apply to conversion of all of a Note
also apply to conversion of a portion of such Note.
SECTION 10.3. CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES.
No fractional shares of Common Stock or scrip representing fractional
shares shall be issued upon conversion of Notes. If more than one Note shall
be surrendered for conversion at one time by the same Holder, the number of
full shares which shall be issuable upon conversion shall be computed on the
basis of the aggregate principal amount of the Notes (or specified portions
thereof to the extent permitted hereby) so surrendered. If any fractional
share of Common Stock would be issuable upon the conversion of any Note or
Notes, the Company shall make an adjustment therefor in cash at the Current
Market Price of the Common Stock as of the close of business on the Business
Day prior to such conversion.
SECTION 10.4. ADJUSTMENT OF CONVERSION PRICE.
(a) In the event that the Company shall (i) pay a dividend or
other distribution, in shares of its Common Stock, on any class of Capital
Stock of the Company or any Subsidiary which is not wholly owned by the
Company, (ii) subdivide its outstanding Common Stock into a greater number of
shares or (iii) combine its outstanding Common Stock into a smaller number of
shares, the Conversion Price in effect immediately prior thereto shall be
adjusted so that the Holder of any Note thereafter surrendered for conversion
shall be entitled to receive the number of shares of Common Stock of the
Company that such Holder would have owned or have been entitled to receive
after the happening of any of the events described above had such Note been
converted immediately prior to the happening of such event. An adjustment made
pursuant to this subsection (a) shall become effective immediately after the
record date in the case of a dividend and shall become effective immediately
after the effective date in the case of subdivision or combination.
(b) In the event that the Company shall issue or distribute
Capital Stock or issue rights, warrants or options entitling the holder thereof
to subscribe for or purchase Capital Stock at a price per share less than the
Current Market Price per share on the date of issuance or distribution
(provided that the issuance of Capital Stock upon the exercise of warrants or
options will not cause an adjustment in the Conversion Price if no such
adjustment would have been required at the time such warrant or option was
issued), then at the earliest of (i) the date the Company shall enter into a
firm contract for such issuance or distribution, (ii) the record date for the
determination of stockholders entitled to receive any such rights, warrants or
options, if applicable, or (iii) the date of actual issuance or distribution of
any such Capital Stock or rights, warrants or options, the Conversion Price in
effect immediately prior to such earliest date shall be adjusted so that the
Conversion Price shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to such earliest date by:
## CT01/SCHIJ/68118.34 46
<PAGE> 52
(x) if such Capital Stock is Common Stock, the fraction whose
numerator shall be the number of shares of Common Stock outstanding on
such date plus the number of shares which the aggregate offering price
of the total number of shares so offered would purchase at such
Current Market Price (such amount, with respect to any such rights,
warrants or options, determined by multiplying the total number of
shares subject thereto by the exercise price of such rights, warrants
or options and dividing the product so obtained by the Current Market
Price), and of which the denominator shall be the number of shares of
Common Stock outstanding on such date plus the number of additional
shares of Common Stock to be issued or distributed or receivable upon
exercise of any such warrant, right or option; or
(y) if such Capital Stock is other than Common Stock, the
fraction whose numerator shall be the Current Market Price per share
of Common Stock on such date minus an amount equal to (A) the sum of
(I) the Current Market Price per share of such class of Capital Stock
multiplied by the number of shares of such class of Capital Stock to
be so issued minus (II) the offering price per share of such Capital
Stock multiplied by the number of shares of such class of Capital
Stock to be so issued (B) divided by the number of shares of Common
Stock outstanding on such date and whose denominator is the Current
Market Price of the Common Stock on such date.
Such adjustment shall be made successively whenever any such Capital Stock,
rights, warrants or options are issued or distributed at a price below the
Current Market Price therefor as in effect on the date of issuance or
distribution. In determining whether any rights, warrants or options entitle
the holders to subscribe for or purchase shares of Capital Stock at less than
such Current Market Price, and in determining the aggregate offering price of
shares of Capital Stock so issued or distributed, there shall be taken into
account any consideration received by the Company for such Capital Stock,
rights, warrants or options, the value of such consideration, if other than
cash, to be determined by the Board of Directors, whose determination shall be
conclusive and described in a certificate filed with the Trustee. If any
right, warrant or option to purchase Capital Stock, the issuance of which
resulted in an adjustment in the Conversion Price pursuant to this subsection
(b), shall expire and shall not have been exercised, the Conversion Price shall
immediately upon such expiration be recomputed to the Conversion Price which
would have been in effect had the adjustment of the Conversion Price made upon
the issuance of such right, warrant or option been made on the basis of
offering for subscription or purchase only that number of shares of Capital
Stock actually purchased upon the actual exercise of such right, warrant or
option.
(c) In the event that the Company shall pay as a dividend or
other distribution to holders of any class of its Capital Stock generally or to
holders of any class of Capital Stock of any Subsidiary which is not wholly
owned by the Company evidences of indebtedness or assets (including, without
limitation, shares of Capital Stock, cash or other securities, but excluding
dividends, rights, warrants, options and distributions for which adjustment is
made as described in subsections (a) and (b) above and further excluding cash
dividends paid out of cumulative retained earnings of the Company arising after
the date hereof and determined in accordance with GAAP), then in each such case
the Conversion Price shall be adjusted so that the same
## CT01/SCHIJ/68118.34 47
<PAGE> 53
shall equal the price determined by multiplying the Conversion Price in effect
immediately prior to the date of such distribution by a fraction of which the
numerator shall be the Current Market Price per share of Common Stock on the
record date mentioned below less the fair market value on such record date (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a certificate filed with the Trustee) of the portion of the
Capital Stock or assets or evidences of indebtedness so distributed or of such
rights or warrants attributable to one share of Common Stock (the amount so
attributable equaling the aggregate fair market value of such indebtedness or
assets, as so determined by the Board of Directors, divided by the number of
shares of Common Stock outstanding on such record date), and the denominator
shall be the Current Market Price of the Common Stock on such record date. Such
adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such distribution, except as
provided in subsection (f) below.
(d) Notwithstanding anything contained herein to the contrary, no
adjustment in the Conversion Price shall be required unless such adjustment
would require an increase or decrease of at least 1% in the Conversion Price
then in effect; provided, however, that any adjustments which by reason of this
subsection (d) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Article
10 shall be made by the Company and shall be made to the nearest cent or to the
nearest one hundredth of a share, as the case may be and the Trustee shall be
entitled to rely thereon. Anything in this Section 10.4 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Conversion Price, in addition to those required by this Section 10.4, as it in
its discretion shall determine to be advisable in order that any stock
dividends, subdivision of shares, distribution of rights to purchase stock or
securities, or a distribution of securities convertible into or exchangeable
for stock hereafter made by the Company to its stockholders shall not be
taxable. Notwithstanding any provision of this Article 10 to the contrary, no
adjustment in the Conversion Price shall be made upon (i) the issuance of
Common Stock of the Company pursuant to any compensation or incentive plan for
officers, directors, employees or consultants of the Company, which plan has
been approved by the Compensation Committee of the Board of Directors (or if
there is no such committee then serving, by the majority vote of the Directors
then serving on the Company's Board of Directors who are not an employee or
officer of the Company, a 5% or greater stockholder of the Company, an officer,
employee or Affiliate of any such 5% or greater stockholder of the Company or
any relative or spouse of any such Person or of such Person's spouse who has
the same home as such Person), and, if required by law, the requisite vote of
the stockholders of the Company (unless the exercise price thereof is changed
after the date hereof other than solely by operation of the anti-dilution
provisions thereof or by the Compensation Committee, if applicable, the Board
of Directors and, if required by law, the stockholders of the Company as
provided in this clause (i)), (ii) the issuance of Common Stock upon the
conversion or exercise of Preferred Stock or warrants of the Company
outstanding on the date of this Indenture, unless the conversion or exercise
price thereof is changed after the date of this Indenture (other than solely by
operation of the anti-dilution provisions thereof) or (iii) the declaration,
setting aside or payment of dividends out of the Company's cumulative retained
earnings (as evidenced by the quarterly financial statements of the Company,
certified by an Officer's Certificate delivered to the Trustee) from and after
January 1, 1997. Except as provided in this Article 10, no adjustment in the
Conversion Price
## CT01/SCHIJ/68118.34 48
<PAGE> 54
will be made for the issuance of Common Stock or any securities convertible
into or exchangeable for Common Stock, or carrying the right to purchase any of
the foregoing.
(e) Whenever the Conversion Price is adjusted as herein provided,
the Company shall promptly file with the Trustee and any conversion agent other
than the Trustee an Officers' Certificate setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the facts
requiring such adjustment. Promptly after delivery of such certificate, the
Company shall prepare a notice of such adjustment of the Conversion Price
setting forth the adjusted Conversion Price and the date on which such
adjustment becomes effective and shall mail or cause to be mailed such notice
to each Holder at his last address appearing on the Note Register.
(f) In any case in which this Section 10.4 provides that an
adjustment shall become effective immediately after a record date for an event,
the Company may defer until the occurrence of such event (i) issuing to the
Holder of any Note converted after such record date and before the occurrence
of such event the additional shares of Common Stock issuable upon such
conversion by reason of the adjustment required by such event over and above
the Common Stock issuable upon such conversion before giving effect to such
adjustments and (ii) paying to such Holder any amount in cash in lieu of any
fraction pursuant to Section 10.3 :hereof.
SECTION 10.5. EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
In the event of (i) any reclassification or change of outstanding
shares of Common Stock (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result of a
subdivision or combination), (ii) any consolidation, merger or combination of
the Company with another corporation as a result of which holders of Common
Stock shall be entitled to receive securities or other Property (including
cash) with respect to or in exchange for such Common Stock or (iii) any sale or
conveyance of the Property of the Company as, or substantially as, an entirety
to any other corporation as a result of which holders of Common Stock shall be
entitled to receive securities or other Property (including cash) with respect
to or in exchange for such Common Stock, then the Company or the successor or
purchasing corporation, as the case may be, shall enter into a supplemental
indenture providing that each Note shall be convertible into the kind and
amount of securities or other Property (including cash) receivable upon such
reclassification, change, consolidation, merger, combination, sale or
conveyance by a holder of a number of shares of Common Stock issuable upon
conversion of such Notes immediately prior to such reclassification, change,
consolidation, merger, combination, sale or conveyance. Such supplemental
indenture shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Article 10.
The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each Holder, at his address appearing on the
Register.
The above provisions of this Section 10.5 shall similarly apply to
successive reclassification, changes, consolidations, mergers, combinations,
sales and conveyances.
## CT01/SCHIJ/68118.34 49
<PAGE> 55
SECTION 10.6. TAXES ON SHARES ISSUED.
The issuance of stock certificates on conversions of Notes shall be
made without charge to the converting Holder for any tax in respect of the
issuance thereof. The Company shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of a stock certificate in any name other than that of the Holder of
any Note converted, and the Company shall not be required to issue or deliver
any such stock certificate unless and until the person or persons requesting
the issue thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has
been paid.
SECTION 10.7. RESERVATION OF SHARES; SHARES TO BE FULLY PAID; COMPLIANCE
WITH GOVERNMENT REQUIREMENTS; LISTING OF COMMON STOCK.
The Company shall reserve, out of its authorized but unissued Common
Stock or its Common Stock held in treasury, sufficient shares of Common Stock
to provide for the conversion of the Notes that are outstanding from time to
time.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the shares of Common
Stock issuable upon conversion of the Notes, the Company will take all
corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue shares of Common Stock at
such adjusted Conversion Price.
The Company covenants that all shares of Common Stock which may be
issued upon conversion of Notes will upon issuance be fully paid and
nonassessable by the Company and free from all taxes, liens and charges with
respect to the issue thereof.
The Company covenants that if any shares of Common Stock to be
provided for the purpose of conversion of Notes hereunder require registration
with or approval of any governmental authority under any applicable federal or
state law (excluding federal or state securities laws) before such shares may
be validly issued upon conversion, the Company will in good faith and as
expeditiously as possible endeavor to secure such registration or approval, as
the case may be.
The Company further covenants that if at any time Common Stock shall
be listed on the American Stock Exchange or any other national securities
exchange or on the Nasdaq Stock Market the Company will, if permitted by the
rules of such exchange or market, list and keep listed so long as the Common
Stock shall be so listed on such exchange or market, all Common Stock issuable
upon conversion of the Notes.
SECTION 10.8. RESPONSIBILITY OF TRUSTEE REQUIREMENTS.
The Trustee and any other Conversion Agent shall not at any time be
under any duty or responsibility to any Holder to determine whether any fact
exists which may require any
## CT01/SCHIJ/68118.34 50
<PAGE> 56
adjustment of the Conversion Price or other adjustment or with respect to the
nature or extent or calculation of any such adjustment when made, or with
respect to the method employed, or herein or in any supplemental indenture
provided to be employed, in making the same. The Trustee and any other
Conversion Agent shall not be accountable with respect to the validity or value
(or the kind or amount) of any shares of Common Stock, or of any securities or
other Property, which may at any time be issued or delivered upon the
conversion of any Note; and neither the Trustee nor any other Conversion Agent
makes any representations with respect thereto. Subject to the provisions of
Section 8.1 hereof, neither the Trustee nor any Conversion Agent shall be
responsible for any failure of the Company to issue, transfer or deliver any
shares of Common Stock or stock certificates or other securities or other
Property (including cash) upon the surrender of any Note for the purpose of
conversion or to comply with any of the duties, responsibilities or covenants
of the Company contained in this Article 10. Without limiting the generality
of the foregoing, neither the Trustee nor any Conversion Agent shall be under
any responsibility to determine the correctness of any provisions contained in
any supplemental indenture entered into pursuant to Section 10.5 hereof
relating either to the kind or amount of securities or other Property
(including cash) receivable by Holders upon the conversion of their Notes after
any event referred to in Section 10.5 hereof or to any adjustment to be made
with respect thereto, but, subject to the provisions of Section 8.1 hereof, may
accept as conclusive evidence of the correctness of any such provisions, and
shall be protected in relying upon, the Officers' Certificate (which the
Company shall be obligated to file with the Trustee prior to the execution of
any such supplemental indenture) with respect thereto.
SECTION 10.9. NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS.
In the event that:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock (other than in cash out of retained
earnings); or
(b) the Company shall authorize the granting to the holders of
its Common Stock generally of rights or warrants to subscribe for or purchase
any shares of any class of its Capital Stock or any other rights or warrants;
or
(c) of any reclassification of the Common Stock of the Company
(other than a subdivision or combination of its outstanding Common Stock, or a
change in par value, or from par value to no par value, or from no par value to
par value), or of any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company is required, or of
the sale or transfer of all or substantially all of the assets of the Company;
or
(d) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
then, in each such case, the Company shall file or cause to be filed with the
Trustee and to be mailed to each Holder at his address appearing on the
Register, as promptly as possible but in any event at least 15 days prior to
the applicable date hereinafter specified, a notice prepared
## CT01/SCHIJ/68118.34 51
<PAGE> 57
by the Company stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution or rights or warrants, or, if a record
is not to be taken, the date as of which the holders of Common Stock of record
to be entitled to such dividend, distribution, rights or warrants are to be
determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding-up is expected to
become effective or occurring and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their Common
Stock for securities or other Property deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up.
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of such dividend, distribution, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up.
ARTICLE 11.
SUBORDINATION
SECTION 11.1. AGREEMENT TO SUBORDINATE.
The Company agrees, and each Holder by accepting a Note agrees, that
the indebtedness evidenced by the Notes is subordinated in right of payment, to
the extent and in the manner provided in this Article 11, to the prior payment
in full of all Senior Indebtedness, and that the subordination is for the
benefit of the holders of Senior Indebtedness. All provisions of this Article
11 shall be subject to Section 11.13.
SECTION 11.2 LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any payment or distribution to creditors of the Company in a
liquidation, dissolution or winding up of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property:
(a) holders of Senior Indebtedness shall be entitled to
receive payment in full of all Senior Indebtedness before Holders
shall be entitled to receive any payments of principal of or premium,
if any, or interest on the Notes; and
(b) until the Senior Indebtedness is paid in full, any
distribution to which Holders would be entitled but for this Article
11 shall be made to holders of Senior Indebtedness as their interests
may appear, except that Holders may receive securities that are
subordinated to Senior Indebtedness to at least the same extent as the
Notes; provided that no such default will prevent any payment on, or
in respect of, the Notes for more than 120 days unless the maturity of
such Senior Indebtedness has been accelerated.
A distribution may consist of cash, securities or other property.
## CT01/SCHIJ/68118.34 52
<PAGE> 58
SECTION 11.3 COMPANY NOT TO MAKE PAYMENT WITH RESPECT TO NOTES IN CERTAIN
CIRCUMSTANCES.
(a) Upon the maturity of any Senior Indebtedness by lapse of
time, acceleration or otherwise, all principal thereof, premium, if any, and
interest thereon and any other amounts owing in respect thereof shall first be
paid in full, or such payment duly provided for in cash or in a manner
satisfactory to the holders of such Senior Indebtedness before any payment is
made on account of the principal of or premium, if any, or interest on the
Notes or to acquire any of the Notes.
(b) Upon the happening of an event of default (or if any event of
default would result upon any payment upon or with respect to Notes) with
respect to any Senior Indebtedness as such event of default is defined therein
or in the instrument under which it is outstanding, permitting holders to
accelerate the maturity thereof, and, if the default is other than default in
payment of the principal of, premium, if any, or interest on or any other
amount owing in respect of such Senior Indebtedness, upon written notice
thereof given to the Company and the Trustee by the holders of Senior
Indebtedness or their Representative, then, unless (i) such an event of default
shall have been cured or waived or shall have ceased to exist or (ii) the
Company and the Trustee receive written notice from the Representatives of the
Senior Indebtedness with respect to which such event of default relates
approving payment on the Notes, no payment shall be made by the Company with
respect to the principal of or premium, if any, or interest on the Notes or to
acquire any of the Notes; provided that no such default will prevent any
payment on, or in respect of, the Notes for more than 120 days unless the
maturity of such Senior Indebtedness has been accelerated. Not more than one
such 120 day delay may be made in any consecutive 360 day period, irrespective
of the number of defaults with respect to Senior Indebtedness during such
period.
SECTION 11.4 ACCELERATION OF NOTES.
If payment of the Notes is accelerated because of an Event of Default,
the Company shall promptly notify holders of Senior Indebtedness of the
acceleration.
SECTION 11.5 WHEN DISTRIBUTION MUST BE PAID OVER.
If a distribution is made to Holders that, because of this Article 11,
should not have been made to them, the Holders who receive the distribution
shall hold it in trust for holders of Senior Indebtedness and pay it over to
them as their interests may appear.
SECTION 11.6 NOTICE BY COMPANY.
The Company shall promptly notify the Trustee and the Paying Agent of
any facts known to the Company that would cause a payment of principal of or
premium, if any, or interest on the Notes to violate this Article 11.
## CT01/SCHIJ/68118.34 53
<PAGE> 59
SECTION 11.7 SUBROGATION.
After all Senior Indebtedness is paid in full and until the Notes are
paid in full, Holders shall be subrogated to the rights of holders of Senior
Indebtedness to receive distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the Holders have been applied to
the payment of Senior Indebtedness. A distribution made under this Article 11
to holders of Senior Indebtedness which otherwise would have been made to
Holders is not, as between the Company and Holders, a payment by the Company on
Senior Indebtedness.
SECTION 11.8 RELATIVE RIGHTS.
This Article 11 defines the relative rights of Holders and holders of
Senior Indebtedness. Nothing in this Indenture shall:
(a) impair, as between the Company and Holders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and premium, if any, and interest on the Notes in
accordance with their terms;
(b) affect the relative rights of Holders and creditors of
the Company, other than holders of Senior Indebtedness; or
(c) prevent the Trustee or any Holder from exercising its
available remedies upon a Default, subject to the rights of holders of
Senior Indebtedness to receive distributions otherwise payable to
Holders.
If the Company fails because of this Article 11 to pay principal of or
premium, if any, or interest on a Note on the date, such failure shall
nevertheless be deemed a Default. Nothing in this Article 11 shall have any
effect on the right of the Holders or the Trustee to accelerate the maturity of
the Notes.
SECTION 11.9 SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.
No right of any holder of Senior Indebtedness to enforce the
subordination of the indebtedness evidenced by the Notes shall be impaired by
any act or failure to act by the Company or by its failure to comply with the
terms of this Indenture.
SECTION 11.10 DISTRIBUTION OF NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of
Senior Indebtedness, the distribution may be made and the notice given to their
Representative, if any.
SECTION 11.11 RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding any provisions of this Indenture to the contrary, the
Trustee and any Paying Agent may continue to make payments on the Notes and
shall not at any time be charged
## CT01/SCHIJ/68118.34 54
<PAGE> 60
with knowledge of the existence of any facts which would prohibit the making of
such payments until it receives written notice (received by a Trust Officer, in
the case of the Trustee) reasonably satisfactory to it that payments may not be
made under this Article 11 and, prior to the receipt of any such notice, the
Trustee, subject to the provisions of Article 7, and any agent shall be
entitled to assume conclusively that no such facts exist. The Company, an
Agent, a Representative or a holder of Senior Indebtedness may give the notice.
If an issue of Senior Indebtedness has a Representative, only the
Representative (or any Representative, if more than one) may give the notice
with respect to such Senior Indebtedness.
The Trustee shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself to be a holder of Senior
Indebtedness (or a Representative) to establish that such notice has been given
by a holder of Senior Indebtedness (or a Representative), and shall be entitled
to rely on any written notice by a Person representing himself to be a holder
of a Senior Indebtedness to the effect that such issue of Senior Indebtedness
has no Representative.
Any deposit of moneys by the Company with the Trustee or any Paying
Agent (whether or not in trust) for the payment of the principal of or premium,
if any, or interest on, or a payment on account of a Change of Control or Net
Worth Deficiency, if any, of, any Notes shall be subject to the provisions of
this Article 11, except that if, at least three business days prior to the date
on which by the terms of this Indenture any such moneys may become payable for
any purpose (including without limitation, the payment of principal of or
premium, if any, or interest on any Note), the Trustee shall not have received
with respect to such moneys the notice provided for in this Section 11.11, then
the Trustee shall have full power and authority to receive such moneys and to
apply the same to the purpose for which they were received and shall not be
affected by any notice to the contrary which may be received by it within three
business days prior to or on or after such date. This Section 11.11 shall be
construed solely for the benefit of the Trustee and Paying Agent and shall not
otherwise affect the rights of holders of Senior Indebtedness. In the event
that the Trustee determines in good faith that further evidence is required
with respect to the right of any Person as a holder of Senior Indebtedness to
participate in any payment or distribution pursuant to this Article 11, the
Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of the Senior Indebtedness held by
such Person, the extent to which such person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
Person under this Article 11, and, if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive payment.
The Trustee shall not be deemed to owe any fiduciary duty to holders
of Senior Indebtedness by virtue of the provisions of this Article 11. The
Trustee's responsibilities to the holders of Senior Indebtedness are limited to
those set forth in this Article 11 and no implied covenants or obligations
shall be read into this Indenture. The Trustee shall not become liable to
holders of Senior Indebtedness if it makes a payment prohibited by this Article
11 in good faith.
## CT01/SCHIJ/68118.34 55
<PAGE> 61
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights.
SECTION 11.12 EFFECTUATION OF SUBORDINATION BY TRUSTEE.
Each Holder of Notes, by acceptance thereof, authorizes and directs
the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article 11 and
appoints the Trustee his attorney-in-fact for any and all such purposes.
SECTION 11.13 TRUST MONEYS NOT SUBORDINATED.
Notwithstanding anything contained herein to the contrary, payments
from money or the proceeds of U.S. Government Obligations held in trust under
Article 8 by the Trustee for the payment of principal of and interest on the
Notes shall not be subordinated to the prior payment of any Senior Indebtedness
or subject to the restrictions set forth in this Article 11, and none of the
Holders shall be obligated to pay over any such amount to the Company or any
holder of Senior Indebtedness of the Company or any other creditor of the
Company.
ARTICLE 12.
MISCELLANEOUS
SECTION 12.1. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies, or conflicts
with another provision which is required to be included in this Indenture by
the TIA, the required provision shall control.
SECTION 12.2. NOTICES.
Any notice or communication by the Company or the Trustee to the other
is duly given if in writing and delivered in person or mailed by first-class
mail (registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery addressed as follows:
if to the Company:
Lomak Petroleum, Inc.
500 Throckmorton Street, Suite 2104
Fort Worth, Texas 76102
Fax No. (817) 870-2316
Attention: President
## CT01/SCHIJ/68118.34 56
<PAGE> 62
if to the Trustee:
Keycorp Shareholder Services, Inc.
______________________________________
Fax. No. __________________
Attention: Corporate Trust Department
The Company or the Trustee by notice to the other may designate additional or
different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register
kept by the Registrar. Any notice or communication shall also be so mailed to
any Person described in TIA Section 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
All other notices or communications shall be in writing.
SECTION 12.3. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection
of TIA Section 312(c).
SECTION 12.4. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate stating that, in the opinion
of the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
## CT01/SCHIJ/68118.34 57
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(b) at the Trustee's reasonable request, an Opinion of
Counsel stating that, in the opinion of such counsel, all such
conditions precedent have been complied with.
SECTION 12.5. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION OF COUNSEL.
Each Officers' Certificate or Opinion of Counsel with respect to
compliance with a condition or covenant provided for in this Indenture shall
include:
(a) a statement that the individual making such Officers'
Certificate or Opinion of Counsel has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such Officers' Certificate or Opinion of Counsel are
based;
(c) a statement that, in the opinion of such individual,
he or she has made such examination or investigation as is necessary
to enable him or her to express an informed opinion as to whether or
not such covenant or condition has been complied with; and
(d) a statement as to whether or not, in the opinion of
such individual, such condition or covenant has been complied with;
provided, however, that, with respect to certain matters of fact not
involving any legal conclusion, an Opinion of Counsel may, upon the
consent of the parties relying on such opinion, rely on an Officers'
Certificate or certificates of public officials.
SECTION 12.6. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or a meeting of
Holders. The Registrar, Paying Agent or Conversion Agent may make reasonable
rules and set reasonable requirements for its functions.
SECTION 12.7. LEGAL HOLIDAYS.
If a payment date is a Legal Holiday at a place of payment, payment
may be made at that place on the next succeeding Business Day that is not a
Legal Holiday, and no interest shall accrue for the intervening period.
SECTION 12.8. NO RECOURSE AGAINST OTHERS.
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the Notes
or the Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation including with respect to any certificates
delivered thereunder or hereunder. Each Holder by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for the issue of the Notes.
## CT01/SCHIJ/68118.34 58
<PAGE> 64
SECTION 12.9. COUNTERPARTS.
This Indenture may be executed in any number of counterparts and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
SECTION 12.10. GOVERNING LAW.
The internal laws of the State of New York shall govern this Indenture
id the Notes, without regard to the conflict of laws provisions thereof.
SECTION 12.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or a Subsidiary of the Company. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
SECTION 12.12. SUCCESSORS.
All agreements of the Company in this Indenture and the Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successors.
SECTION 12.13. SEVERABILITY.
In case any provision of this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 12.14. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table, and headings of the
Articles and Sections Indenture have been inserted for convenience of reference
only, are not to be considered a part hereof, and shall in no way modify or
restrict any of the terms or provisions hereof.
## CT01/SCHIJ/68118.34 59
<PAGE> 65
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be executed as of the day and year first above written.
LOMAK PETROLEUM, INC.
By:_____________________________________
Name:
Title:
Attest:
__________________________________________
Name:
KEYCORP SHAREHOLDER SERVICES, INC.
By:_____________________________________
Name:
Title:
Attest:
__________________________________________
Name:
Dated: [___________________]
## CT01/SCHIJ/68118.34
60
<PAGE> 66
EXHIBIT A
[Face of Note]
LOMAK PETROLEUM
8.125% SUBORDINATED CONVERTIBLE NOTE DUE 2005
[Global Securities legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities legend]
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY
BE OFFERED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT
THE SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTIONS OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE COMPANY THAT (A)
THIS NOTE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) TO
A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (II) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH
REGULATION S UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (IV) TO THE COMPANY OR (V)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT, IN EACH OF CASES FL) THROUGH (V)IN ACCORDANCE WITH ANY
APPLICABLE FEDERAL OR STATE SECURITIES LAWS AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF
THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.
[Institutional Accredited Investor Legend]
IN CONNECTION WITH ANY TRANSFER OF THIS NOTE, THE HOLDER WILL DELIVER
TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS
A-1
<PAGE> 67
SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER
COMPLIES WITH THE FOREGOING RESTRICTIONS.
CUSIP No. 541509402
$_________
No.______
Lomak Petroleum, Inc., a Delaware corporation, promises to pay to _______
_________________________________________________________________ or registered
assigns, the principal sum of __________________________________________
Dollars on December 31, 2005.
Interest Payment Dates: March 31, June 30, September 30 and
December 31.
Record Dates: March 15, June 15, September 15 and December 15.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
Dated: ________________________ LOMAK PETROLEUM, INC.
By:_____________________________________
Officer of the Company
(SEAL)
Attest: ________________________________
By:_____________________________________
Secretary
Authentication:
This is one of the Notes referred to
in the within-mentioned Indenture:
KEYCORP SHAREHOLDER SERVICES, INC.,
as Trustee
By:_______________________________________
Authorized Signature
Dated:____________________________________
## CT01/SCHIJ/68118.34
A-2
<PAGE> 68
[Reverse Side]
Capitalized terms used herein without definition shall have the
meaning ascribed to them in the Indenture, dated as of ___________________
[Indenture Date] (the "Indenture"), as amended from time to time, between Lomak
Petroleum, Inc. (the "Company") and Keycorp Shareholder Services, Inc., as
trustee (the "Trustee").
1. INTEREST.
(a) The Company shall pay interest on the outstanding
principal amount of this Note at the rate of 8.125% per annum from
_____________________ [Indenture Date] until maturity. The Company will pay
interest quarterly on March 31, June 30, September 30 and December 31 of each
year, or if any such day is not a Business Day, on the next succeeding Business
Day (each an "Interest Payment Date"). Interest on the Notes will accrue from
the most recent date on which interest has been paid or duly provided for or,
if no interest has been paid, from ___________________ [Indenture Date];
provided, however, that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to
on the face hereof and the next succeeding Interest Payment Date, interest
shall accrue from such next succeeding Interest Payment Date. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
(b) To the extent lawful, the Company shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law)
on (i) overdue principal, premium, if any, at the rate borne by the Notes; and
(ii) overdue installments of interest at the same rate.
2. METHOD OF PAYMENT. The Company will pay interest (except
defaulted interest) on the Notes to the Persons who are registered Holders at
the close of business on March 15, June 15, September 15 or December 15 next
preceding the applicable Interest Payment Date (each a "Regular Record Date"),
even if such Notes are cancelled after such Regular Record Date and on or
before such Interest Payment Date. Defaulted interest shall be paid to Holders
as of a special record date established for purposes of determining the Holders
entitled thereto. The Notes will be payable as to principal and interest at the
office or agency of the Company maintained for such purpose within or without
the City and State of New York, or, at the option of the Company, payment of
interest may be made by check mailed to the Holders at their addresses set
forth in the register of Holders, and provided that payment by wire transfer of
immediately available funds will be required with respect to principal of and
interest on the Global Security. Such payment shall be in currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts.
3. PAVING AGENT, REGISTRAR AND CONVERSION AGENT. Initially, the
Trustee will act as Paying Agent, Registrar and Conversion Agent. The Company
may change any Paying Agent, Registrar or Conversion Agent without notice to
any Holder. The Company or any of its subsidiaries may act in any such
capacity.
4. INDENTURE. The Company issued the Notes under the Indenture.
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code Section Section 77aaa-77bbbb) (the "TIA"), as in effect
on the date of the Indenture. The Notes are subject to all such terms, and
Holders are referred to the Indenture and the TIA for a statement of such
terms. The Notes are general unsecured obligations of the Company limited to
$___ million in aggregate principal amount, subject to Section 2.7 of the
Indenture.
5. OPTIONAL REDEMPTION BY THE COMPANY. The Notes shall not be
subject to redemption at the option of the Company prior to November 1, 1998.
On or after November 1, 1998, the Notes will be redeemable at any time prior to
maturity at the option of the Company, in whole or in part from time to time,
upon not less than 30 days' nor more than 60 days' prior notice to the Holders
at the redemption prices (expressed as percentages of principal amount) set
forth below:
## CT01/SCHIJ/68118.34 A-3
<PAGE> 69
<TABLE>
<CAPTION>
AFTER NOVEMBER 1, PERCENTAGE
----------------- ----------
<S> <C>
1998 105%
1999 104
2000 103
2001 102
2002 101
2003 and thereafter 100
</TABLE>
In each case together with accrued but unpaid interest, if any, to the
redemption date.
6. MANDATORY REDEMPTION. Except as set forth in paragraph 7
below, the Company shall not be required to make mandatory redemption payments
with respect to the Notes.
7. REDEMPTION AT THE OPTION OF HOLDER. Upon a Change of
Control, the Company shall offer to repurchase all or any part of the Notes (at
each Holder's option) at a repurchase price equal to 100% of the aggregate
principal amount thereof, plus accrued but unpaid interest, if any, to the date
of repurchase. Within 30 days after a Change of Control, the Company shall mail
a notice to each Holder setting forth the procedures governing the Change of
Control Offer as required by the Indenture. A Holder may tender or refrain from
tendering all or any portion of such Holder's Notes, at such Holder's
discretion, by completing the form entitled "Option of Holder to Elect
Repurchase" below and delivering such form, together with the Notes with
respect to which the repurchase right is being exercised, duly endorsed for
transfer to the Company, to the Trustee. Any partial tender of Notes must be in
an integral multiple of $1,000.
8. CONVERSION.
(a) Subject to the provisions of the Indenture, the Holder
hereof may, at such Holder's option, at any time prior to the close of business
on December 31, 2005, unless earlier redeemed or repurchased, convert this
Note, in whole or in part (provided partial conversions may only be made in
denominations of $1,000 or multiples thereof), at 100% of the principal amount
hereof so converted, into shares of Common Stock of the Company, par value $.01
per share, at a conversion price per share of $__________, subject to
adjustment as provided in the Indenture.
To convert a Note, a Holder must (i) complete and sign the
conversion notice below, (ii) surrender the Note to the Conversion Agent, (iii)
furnish appropriate endorsements and transfer documents if required by the
Registrar or Conversion Agent and (iv) pay any transfer or similar tax if
required by the Indenture. No fractional shares will be issued upon any
conversion, but an adjustment in cash will be made, as provided in the
Indenture, in respect of any fraction of a share which would otherwise be
issuable upon surrender of any Note for conversion. A Holder is not entitled to
any rights of a holder of Common Stock until such Holder has converted its
Notes into Common Stock as provided in the Indenture.
9. SUBORDINATION. The Notes are subordinated to Senior
Indebtedness. To the extent provided in the Indenture, Senior Indebtedness must
be paid before the Notes may be paid. The Company agrees, and each Holder by
accepting a Note agrees, to the subordination provisions contained in the
Indenture and authorizes the Trustee to give effect to such provisions, and
each Holder appoints the Trustee its attorney-in-fact for any and all such
purposes.
10. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form without coupons in denominations of $25 and integral multiples
of $25. A Holder may transfer or exchange Notes as provided in the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not exchange or register
the transfer of any Definitive Security (or portion thereof selected for
redemption). Also,
## CT01/SCHIJ/68118.34 A-4
<PAGE> 70
it need not exchange or register the transfer of any Notes during the 15 day
period preceding the mailing of a notice of redemption or an offer to
repurchase Notes or the 15 day period preceding an Interest Payment Date.
11. PERSONS DEEMED OWNERS. The registered Holder of a Note may
be treated as its owner for all purposes.
12. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the
Indenture or the Notes may be amended with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding, and any
existing Default (except a payment default) may be waived with the consent of
the Holders of at least a majority in principal amount of the Notes then
outstanding. Without the consent of any Holder, the Company and the Trustee may
amend or supplement the Indenture or the Notes to (i) cure any ambiguity,
defect or inconsistency, provided that such amendment does not in the opinion
of the Trustee adversely affect the rights of any Holder, (ii) provide for
uncertificated Notes in addition to or in lieu of certificated Notes, (iii)
comply with Section 5.1 of the Indenture, (iv) make any change that does not
adversely affect the legal rights of any Holder, or (v) comply with
requirements of the SEC in order to effect or maintain the qualification of the
Indenture under the TIA.
13. DEFAULTS AND REMEDIES. Events of Default include: (a)
failure to pay principal of or premium, if any, on any Note when due and
payable at maturity, upon redemption, upon a Change of Control Offer or
otherwise, whether or not such payment is prohibited by the subordination
provisions of the Indenture; (b) failure to pay any interest on any Note when
due and payable, which failure continues for 30 days, whether or not such
payment is prohibited by the subordination provisions of the Indenture; (c)
failure to perform the other covenants of the Company in the Indenture, which
failure continues for 60 days after written notice as provided in the
Indenture; (d) failure to perform any covenants of the Company to the holders
of Senior Indebtedness as required by the terms of such Senior Indebtedness
unless waived by said holders; (e) a default occurs (after giving effect to any
applicable grace periods or any extension of any maturity date) in the payment
when due of principal of and/ or acceleration of, any indebtedness for money
borrowed by the Company or any of its Subsidiaries in excess of $5,000,000,
individually or in the aggregate, if such indebtedness is not discharged, or
such acceleration is not annulled, within 10 days after written notice as
provided in the Indenture; and (f) certain events of bankruptcy, insolvency or
reorganization of the Company or any Subsidiary. If an Event of Default shall
occur and be continuing, the Trustee or the Holders of at least 25% in
aggregate principal amount of the then outstanding Notes may accelerate the
maturity of all Notes, except that in the case of an Event of Default arising
from certain events of bankruptcy or insolvency, all outstanding Notes shall
immediately so accelerate. The Trustee may require indemnity satisfactory to
it before it enforces the Indenture or the Notes at the request or direction of
any of the Holders. Subject to certain limitations, the Holders of a majority
in aggregate principal amount of the outstanding Notes will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee. The Company must furnish an annual compliance certificate to the
Trustee.
14. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not Trustee; provided, however,
that if the Trustee acquires any conflicting interest as described in the TIA,
it must eliminate such conflict or resign.
15. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, of the Company, as such, shall not have any
liability for any obligations of the Company under the Notes or the Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
16. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
## CT01/SCHIJ/68118.34
A-5
<PAGE> 71
17. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (=tenants in common), TEN ENT
(=tenants by the entireties), JT TEN (=joint tenants with right of survivorship
and not as tenants in common), CUST (=Custodian), and U/G/M/A (=Uniform Gifts
to Minors Act).
18. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED
SECURITIES. In addition to the rights provided to Holders of Notes under the
Indenture, Holders of Transfer Restricted Securities shall have all the rights
set forth in the Registration Rights Agreement.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
Lomak Petroleum, Inc.
500 Throckmorton Street, Suite 2104
Fort Worth, Texas 76102
Attn: President
## CT01/SCHIJ/68118.34 A-6
<PAGE> 72
SCHEDULE OF EXCHANGES OF GLOBAL SECURITY
FOR DEFINITIVE SECURITIES
The following exchanges of this Global Security for Definitive Securities have
been made:
<TABLE>
<CAPTION>
Amount of Principal Amount
decrease in Amount of increase of this Global Signature of
Principal Amount in Principal Security following authorized officer of
of this Global Amount of this such decrease or Trustee or Notes
Date of Exchange Security Global Security increase Custodian
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
## CT01/SCHIJ/68118.34 A-7
<PAGE> 73
FORM OF ELECTION TO CONVERT
I (we) hereby irrevocably exercise the option to convert this Note, or
the portion below designated, into shares of Common Stock of Lomak Petroleum,
Inc. in accordance with the terms of the Indenture referred to in this Note,
and direct that the shares issuable and deliverable upon conversion, together
with any check in payment for fractional shares, be issued in the name of and
delivered to the undersigned registered Holder hereof, unless a different name
has been indicated in the assignment below. If shares are to be issued in the
name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto.
Portion of this Note to
be converted (if partial
conversion, $1,000 or an
integral multiple
thereof): $___________________________
If shares of Common Stock are to be issued and registered otherwise than to the
registered Holder named above, please print the name and address, including zip
code, and social security or other taxpayer identification number of the person
to whom such Common Stock is to be issued.
___________________________________________
___________________________________________
___________________________________________
Your Name:__________________________________________
(exactly as your name appears
on the face of this Note)
By:_______________________________________
Title:____________________________________
Date:_____________________________________
## CT01/SCHIJ/68118.34 A-8
<PAGE> 74
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
________________________________________________________________________________
(Insert assignee's social security or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _______________________________________________ agent to
transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date: ___________________
Your Name:______________________________
(exactly as your name
appears on the face of this
Note)
By:_____________________________________
Title:__________________________________
Date:___________________________________
Signature Guaranteed:
By:__________________________________________
(Bank or trust company having an office or
correspondent in the United States or a broker
or dealer which is a member of a registered
securities exchange or the National Association
of Securities Dealers, Inc.)
==========================================
In connection with any transfer or exchange of any of the Notes
evidenced by this certificate occurring prior to the date that is three years
after the later of the date of original issuance of such Notes and the last
date, if any, on which such Notes were owned by the Company or any Affiliate of
the Company, the undersigned confirms that such Notes are being:
[CONTINUED ON NEXT PAGE]
## CT01/SCHIJ/68118.34 A-9
<PAGE> 75
CHECK ONE BOX BELOW:
[ ] (1) acquired for the undersigned's own account, without transfer
(in satisfaction of Section 2.6(a)(ii)(A) or Section
2.6(d)(i)(A) of the Indenture; or
[ ] (2) transferred to the Company; or
[ ] (3) transferred pursuant to and in compliance with Rule 144A
under the Securities Act of 1933; or
[ ] (4) transferred pursuant to id in compliance with Regulation S
under the Securities Act of 1933; or
[ ] (5) transferred to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act of 1933), that has furnished to the Company
and the Trustee a signed letter containing certain
representations and agreements (the form of which letter
appears as Exhibit C to the Indenture); or
[ ] (6) transferred pursuant to another available exemption from the
registration requirements of the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Notes evidenced by this certificate in the name of any person other than
the registered holder thereof; provided, however, that if box (4), (5) or (6)
is checked, the Company, Trustee or Registrar may require, prior to registering
any such transfer of the Notes, in their sole discretion, such legal opinions,
certifications and other information as the Company, Trustee or Registrar has
reasonably requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, including but not limited to the
exemption provided by Rule 144 under such Act.
Your Name:______________________________
(exactly as your name
appears on the face of this
Note)
By:_____________________________________
Title:__________________________________
Date:___________________________________
Signature Guaranteed:
By:__________________________________________
(Bank or trust company having an office or
correspondent in the United States or a broker
or dealer which is a member of a registered
securities exchange or the National Association
of Securities Dealers, Inc.)
## CT01/SCHIJ/68118.34 A-10
<PAGE> 76
OPTION OF HOLDER TO ELECT REPURCHASE
1. If you want to elect to have all or any part of this Note
repurchased by the Company pursuant to Article IV of the Indenture (in
connection with a Change of Control Offer or Deficiency Offer), state the
amount you elect to have repurchased (if all, write "ALL"): $
Your Name:______________________________
(exactly as your name
appears on the face of this
Note)
By:_____________________________________
Title:__________________________________
Date:___________________________________
Signature Guaranteed:
By:__________________________________________
(Bank or trust company having an office or
correspondent in the United States or a broker
or dealer which is a member of a registered
securities exchange or the National
Association of Securities Dealers, Inc.)
## CT01/SCHIJ/68118.34 A-11
<PAGE> 77
EXHIBIT B
TRANSFEREE LETTER OF REPRESENTATION
Lomak Petroleum, Inc.
c/o [_____________________________]
__________________________________
__________________________________
Dear Sirs:
This Certificate is delivered to request a transfer of
$_______________ principal amount of the 8.125% Subordinated Convertible Notes
due 2005 (the "Notes") of Lomak Petroleum, Inc. (the "Company").
Upon transfer, the Notes would be registered in the name of the new
beneficial owner as follows:
Name:______________________________________________________________
Address:___________________________________________________________
Taxpayer ID Number:________________________________________________
The undersigned represents and warrant to you that:
1. We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended
(the "Securities Act")) purchasing for our own account or for the account of
such an institutional "accredited investor," and we are acquiring the Notes for
investment purposes and not with a view to, or for offer or sale in connection
with, any distribution in violation of the Securities Act. We have such
knowledge and experience in financial business matters as to be capable of
evaluating the merits and risk of our investment in the Notes and we invest in
or purchase securities similar to the Notes in the normal course of our
business. We and any accounts for which we are acting are each able to bear
the economic risk of our or its investment.
2. We understand that the Notes have not been registered under
the Securities Act and, unless so registered, may not be sold except as
permitted in the following sentence. We agree on our own behalf and on behalf
of any investor account for which we are purchasing Notes to offer, sell or
otherwise transfer such Notes prior to the date which is three years after the
later of the date of original issue and the last date on which the Company or
any affiliate of the Company was the owner of such Notes (or any predecessor
thereto) (the "Resale Restriction Termination Date") only (a) so long as the
Notes are eligible for resale pursuant to Rule 144A under the Securities Act,
to a person we reasonably believe is a qualified institutional buyer, as
defined in Rule 144A under the Securities Act, (a "QIB") in a transaction
complying with the requirements of Rule 144A, (b) in an offshore transaction in
accordance with Regulation S under the Securities Act, (c) pursuant to a
registration statement which has been declared effective under the Securities
Act, (d) to the Company, or (e) pursuant to any other available exemption from
the registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of our property
or the property of such investor account or accounts be at all times within our
or their control and in compliance with any applicable state securities laws.
The foregoing restrictions on resale will not apply subsequent to the Resale
Restriction Termination Date. Each purchaser acknowledges that the Company,
Trustee and Registrar reserve the right prior to any offer, sale or other
transfer prior to the Resale Termination Date of the Notes pursuant to clauses
(b) or (e) above to require the
## CT01/SCHIJ/68118.34 B-1
<PAGE> 78
delivery of an opinion of counsel, certifications and/or other information
satisfactory to the Company, Trustee and Registrar.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
[Name]
By:______________________________________
Title:___________________________________
## CT01/SCHIJ/68118.34 B-2
<PAGE> 1
EXHIBIT 4.1(u)
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS AGREEMENT is made as of October 31, 1995, by and between Lomak
Petroleum, Inc., a Delaware corporation (the "Company"), and Forum Capital
Markets L.P. and Hanifen, Imhoff, Inc. (together, the "Initial Purchasers").
The Company proposes to issue and sell to the Initial Purchasers, upon the
terms set forth in a purchase agreement dated concurrently herewith (the
"Purchase Agreement"), up to 1,150,000 shares of its $2.03 Convertible
Exchangeable Preferred Stock, par value $1.00 per share (the "Preferred
Stock"). The Preferred Stock is exchangeable at the option of the Company for
up to $28,750,000 aggregate principal amount of the Company's 8.125%
Convertible Subordinated Notes due 2005 (the "Notes"), and the Preferred Stock
and the Notes are each convertible into Common Stock (as defined herein) as
provided in the Notes and the Indenture (as defined herein). As an inducement
to the Initial Purchasers to enter into the Purchase Agreement and in
satisfaction of a condition to the Initial Purchasers' obligations thereunder,
the Company agrees with the Initial Purchasers, for the benefit of the Initial
Purchasers and the other Holders (as defined herein), as follows:
1. Definitions.
------------
As used in this Agreement, the following capitalized terms shall have
the following meanings:
"ACT" means the Securities Act of 1933, as amended from time to time.
"CLOSING DATE" has the meaning set forth in the Purchase Agreement.
"COMMON STOCK" means the Common Stock, par value $.01 per share, of
the Company, or any successor class thereto, issuable upon conversion of the
Preferred Stock or the Notes.
"COMMISSION" means the Securities and Exchange Commission.
"DAMAGES PAYMENT DATE" means March 31, June 30, September 30 and
December 31 in each year.
"EFFECTIVENESS PERIOD" has the meaning set forth in Section 2 hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time.
"HOLDERS" means Persons owning Transfer Restricted Securities.
"INDENTURE" means the Indenture, to be dated the date hereof, between
the Company and Keycorp Shareholder Services, Inc. or other comparable entity
selected by the Company, as trustee (the "TRUSTEE"), pursuant to which the
Notes are to be issued, as such Indenture is amended or supplemented from time
to time in accordance with the terms thereof.
"OPTION CLOSING DATE" has the meaning set forth in the Purchase
Agreement.
<PAGE> 2
"PERSON" means an individual, partnership, corporation, limited
liability company, trust or unincorporated organization, or a government or
agency or political subdivision thereof.
"PROSPECTUS" means the prospectus included in the Shelf Registration
Statement, as amended or supplemented by any prospectus supplement and by all
other amendments thereto, including post-effective amendments, and all material
incorporated by reference into such Prospectus.
"RECORD HOLDER" means (i) with respect to any Damages Payment Date
relating to the Preferred Stock, each Person who is a holder of Preferred Stock
on the record date with respect to the record date established for purposes of
determining the holders entitled to receive the dividend on the Preferred Stock
due on such date (if any) or, if no such record date has been established, the
day that is 15 days prior to such Damages Payment Date, (ii) with respect to
any Damages Payment Date relating to the Notes, each Person who is a holder of
Notes on the record date with respect to the interest payment on the Notes due
on such date and (iii) with respect to any Damages Payment Date relating to the
Common Stock, each Person who is a holder of Common Stock on the day that is
fifteen days prior to such Damages Payment Date.
"REGISTRATION DEFAULT" has the meaning set forth in Section 4 hereof.
"SHELF REGISTRATION STATEMENT" has the meaning set forth in Section 2
hereof.
"SUPPLEMENTAL REGISTRATION PAYMENT" has the meaning set forth in
Section 4 hereof.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the Indenture.
"TRANSFER RESTRICTED SECURITIES" means each share of Preferred Stock
or if the Preferred Stock has been exchanged for Notes, each Note and, if such
Preferred Stock or Note has been converted, each share of Common Stock issued
in connection with such conversion, until (a) the date on which such Preferred
Stock, Note or shares of Common Stock, as applicable, have been effectively
registered under the Act and disposed of in accordance with the Shelf
Registration Statement or (b) the date on which such Preferred Stock, Note or
shares of Common Stock, as applicable, are distributed to the public pursuant
to Rule 144 or any other applicable exemption under the Act without additional
restriction upon public resale.
"UNDERWRITTEN OFFERING" means a registration in which securities of
the Company are sold to an underwriter for reoffering to the public.
2. SHELF REGISTRATION. The Company shall use its reasonable best
efforts to file a registration statement with the Commission within 60 days
after the Closing Date relating to the offer and sale of the Transfer
Restricted Securities by Holders from time to time pursuant to Rule 415 under
the Act and in accordance with the methods of distribution set forth therein,
which registration statement may be substituted for by one or more subsequent
registration statements each relating to the offer and sale of the Transfer
Restricted Securities by Holders from time to time (as in effect from time to
time, the "Shelf Registration Statement"), and the
## CT01/SCHIJ/68170.34
- 2 -
<PAGE> 3
Company shall use its reasonable best efforts to cause such Shelf Registration
Statement to be declared effective by the Commission within 150 days after the
Closing Date, provided, however, that the Company may delay such filing or
effectiveness under the circumstances and during the periods described in
Section 3 hereof. In addition, the Company shall use its reasonable best
efforts to keep the Shelf Registration Statement continuously effective,
supplemented and amended for a period (the "Effectiveness Period") of not less
than three years following the later of the Closing Date or any Option Closing
Date or such shorter period that will terminate when all the Preferred Stock,
Notes and shares of Common Stock covered by the Shelf Registration Statement
have been sold pursuant to the Shelf Registration Statement.
3. Delay Periods; Suspension of Sales.
-----------------------------------
(a) If at any time prior to the expiration of the Effectiveness
Period, counsel to the Company (which counsel shall be experienced in
securities laws matters) has determined in good faith that the filing of the
Shelf Registration Statement or the compliance by the Company with its
disclosure obligations in connection with the Shelf Registration Statement
would require the disclosure of material information which the Company has a
bona fide business purpose for preserving as confidential, then the Company may
delay the filing of the Shelf Registration Statement (if not then filed) and
shall not be required to maintain the effectiveness thereof or amend or
supplement the Shelf Registration Statement for a period (an "Information Delay
Period") expiring upon the earlier to occur of (A) the date on which such
material information is disclosed to the public or ceases to be material or the
Company is able to so comply with its disclosure obligations and Commission
requirements or (B) 30 days after counsel to the Company makes such good faith
determination. There shall not be more than four Information Delay Periods
during the Effectiveness Period, and there shall not be two Information Delay
Periods during any contiguous 90 day period.
(b) If at any time prior to the expiration of the Effectiveness
Period, the Company is advised by a nationally recognized investment banking
firm selected by the Company that, in such firm's written reasonable opinion
addressed to the Company (a copy of which shall be delivered to each Holder of
Transfer Restricted Securities registered under the Shelf Registration
Statement), sales of Preferred Stock of the Company or Common Stock pursuant to
the Shelf Registration Statement at such time would materially adversely affect
any immediately planned underwritten public equity financing by the Company of
at least $5 million, the Company shall not be required to maintain the
effectiveness of the Shelf Registration Statement or amend or supplement the
Shelf Registration Statement for a period (a "Transaction Delay Period")
commencing on the date of pricing of such equity financing and expiring upon
the earliest to occur of (i) the abandonment of such financing or (ii) 90 days
after the completion of such financing. There shall not be more than two
Transaction Delay Periods during the Effectiveness Period.
(c) A Transaction Delay Period and an Information Delay Period are
hereinafter collectively referred to as "Delay Periods" or a "Delay Period."
The Company will give prompt written notice, in the manner prescribed by
Section 10(a) hereof, to each Holder of each Delay Period. Such notice shall
be given (i) in the case of a Transaction Delay Period, 30 days in advance of
the commencement of such Delay Period and (ii) in the case of an Information
Delay
## CT01/SCHIJ/68170.34
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<PAGE> 4
Period, as soon as practicable after the circumstances giving rise thereto are
identified. Such notice shall state to the extent, if any, as is practicable,
an estimate of the duration of such Delay Period. Each Holder, by his
acceptance of any Transfer Restricted Securities, agrees that (i) upon receipt
of such notice of an Information Delay Period it will forthwith discontinue
disposition of Transfer Restricted Securities pursuant to the Shelf
Registration Statement, (ii) upon receipt of such notice of a Transaction Delay
Period it will forthwith discontinue disposition of the Common Stock pursuant
to the Shelf Registration Statement and (iii) in either such case, will not
deliver any prospectus forming a part of the Shelf Registration Statement in
connection with any sale of Transfer Restricted Securities or Common Stock, as
applicable until the expiration of such Delay Period.
4. SUPPLEMENTAL REGISTRATION PAYMENT. (a) Except as provided
in Section 4(b), if (i) the Shelf Registration Statement is not filed with the
Commission within 60 days after the Closing Date, (ii) the Shelf Registration
Statement has not been declared effective by the Commission within 150 days
after the Closing Date (the "Effectiveness Target Date"), or (iii) at any time
prior to the third anniversary of the later of the Closing Date or any Option
Closing Date, the Shelf Registration Statement is filed and declared effective
but shall thereafter cease to be effective (other than as a result of the
effectiveness of a successor registration statement) or fail to be useable for
its intended purpose without being succeeded promptly by a post-effective
amendment to the Shelf Registration Statement that cures such failure and that
is itself declared effective within 75 days after the Shelf Registration
Statement ceases to be effective (each such event referred to in clauses (i)
through (iii), a "Registration Default"), the Company will pay supplemental
registration payments (a "Supplemental Registration Payment") to each Holder
who has complied with its obligations under this Agreement. During the first
90-day period immediately following the occurrence of such Registration
Default, the amount of such Supplemental Registration Payment per $1,000
principal amount of Notes and, if applicable, $.0005 per week per share of
Common Stock constituting Transfer Restricted Securities registered under the
Shelf Registration Statement (subject to adjustment in the event of stock
splits, stock consolidations, stock dividends and the like). During each
subsequent 90-day period following the occurrence of such Registration
Default, the amount of the Supplemental Registration Payment shall increase by
an additional $.00125 per week per share of Preferred Stock or $.05 per week
per $1,000 principal amount of Notes and $.0005 per week per share of Common
Stock constituting Transfer Restricted Securities registered under the Shelf
Registration Statement (subject to adjustment as set forth above); provided,
however, the maximum amount of the Supplemental Registration Payment shall be
$.005 per week per share of Preferred Stock or $.20 per week per $1,000
principal amount of Notes and $.0002 per week per share of Common Stock
constituting Transfer Restricted Securities registered under the Shelf
Registration Statement (subject to adjustment as set forth above). All accrued
Supplemental Registration Payments shall be paid by the Company to Record
Holders entitled thereto on the next succeeding Damages Payment Date by wire
transfer of immediately available funds or by federal funds check. Following
the cure of all Registration Defaults, the accrual of Supplemental Registration
Payments will cease, but any Supplemental Registration Payments accrued through
the date of cure shall be paid to Record Holders on the next succeeding Damages
Payment Date. If the Registration Defaults described in either of clauses (i)
or (ii) above arose solely because the applicable Holder or Holders failed to
provide the Company with certain information within 20 business days after
request therefor pursuant to Section 5(m),
## CT01/SCHIJ/68170.34
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Supplemental Registration Payments in respect thereof will not begin to accrue
until five business days after such information has been provided to the
Company.
All of the Company's obligations set forth in the preceding paragraph
which are outstanding with respect to any Transfer Restricted Security at the
time such security ceases to be a Transfer Restricted Security shall survive
until such time as all such obligations with respect to such security shall
have been satisfied in full.
(b) Notwithstanding the foregoing, the time periods specified in
Section 4(a) shall be tolled during the pendency of any circumstances beyond
the Company's control that prevent performance by the Company of its
obligations hereunder despite the Company's best efforts. Such matters include
events affecting issuers generally, such as the temporary closure of federal
agencies, and events directly affecting the Company, such as the Company's
inability to obtain all information regarding an acquisition entity within a
time period that would permit independent auditors to prepare any required
audited financial information on a timely basis.
5. Registration Procedures.
------------------------
In connection with the Shelf Registration Statement and any Prospectus
required by this Agreement to permit the sale or resale of Transfer Restricted
Securities, the following provisions shall apply:
(a) The Company shall furnish to each Holder, prior to the filing
thereof with the Commission, a copy of the Shelf Registration Statement and
each amendment thereto or each amendment or supplement to the Prospectus
included therein, and shall use its reasonable best efforts to reflect in each
such document, when so filed with the Commission, such comments as any Holder
reasonably may propose.
(b) The Company shall take such action as may be necessary so that
(i) the Shelf Registration Statement and any amendment thereto and any
Prospectus forming a part thereof and any supplement or amendment thereto
complies in all material respects with the Act and the rules and regulations
thereunder, (ii) the Shelf Registration and any amendment thereto (in either
case, other than with respect to written information furnished to the Company
by or on behalf of any Holder specifically for inclusion therein) does not,
when it becomes effective, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make any statement therein not misleading and (C) the Prospectus and any
supplement thereto (in either case, other than with respect to such information
from Holders), does not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) The Company shall promptly advise the Holders of Transfer
Restricted Securities registered under the Shelf Registration Statement (which
advice pursuant to clauses (ii) - (iv) shall be accompanied by an instruction
to suspend the use of the Prospectus until the requisite changes have been
made) and, if requested by such Persons, to confirm such advice in writing;
## CT01/SCHIJ/68170.34
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<PAGE> 6
(i) when the Shelf Registration Statement and any amendment
thereto has been filed with the Commission and when the Shelf
Registration Statement or any post-effective amendment thereto has
become effective;
(ii) of any request by the Commission for amendments to the
Shelf Registration Statement or amendments or supplements to the
Prospectus or for additional information relating thereto;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Shelf Registration Statement or of
the suspension by any state securities commission of the qualification
of the Transfer Restricted Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for any of the
preceding purposes; and
(iv) of the happening of any event that requires the making of
any changes in the Shelf Registration Statement or the Prospectus so
that, as of such date, the Shelf Registration Statement and the
Prospectus do not contain an untrue statement of a material fact and
do not omit to state a material fact required to be stated therein or
necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they were made)
not misleading.
(d) If at any time the Commission shall issue any stop order
suspending the effectiveness of the Shelf Registration Statement, or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the Transfer
Restricted Securities under state securities or Blue Sky laws, the Company
shall use its reasonable best efforts to obtain the withdrawal or lifting of
such order at the earliest possible time.
(e) The Company shall furnish to each Holder of Transfer
Restricted Securities included under the Shelf Registration Statement, without
charge, at least one copy of the Shelf Registration Statement and each
post-effective amendment thereto, including all financial statements and
schedules, documents incorporated by reference therein and, if the Holder so
requests in writing, all exhibits (including exhibits incorporated therein by
reference).
(f) The Company shall, during the Effectiveness Period, deliver to
each Holder of Transfer Restricted Securities included under the Shelf
Registration Statement, without charge, as many copies of the Prospectus
(including each preliminary prospectus) included in the Shelf Registration
Statement and any amendment or supplement thereto as such Holder may reasonably
request; and the Company consents to the use of the Prospectus and any
amendment or supplement thereto by each of the selling Holders in connection
with the offering and the sale of the Transfer Restricted Securities covered by
the Prospectus or any amendment or supplement thereto during the Effectiveness
Period.
(g) Prior to any public offering pursuant to the Shelf
Registration Statement, the Company shall use its reasonable best efforts to
register or qualify or cooperate with the Holders of Transfer Restricted
Securities registered thereunder, the underwriter(s), if any, and their
## CT01/SCHIJ/68170.34
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<PAGE> 7
respective counsel in connection with the registration and qualification of
such Transfer Restricted Securities under the securities or Blue Sky laws of
such jurisdictions as such Holders or underwriters reasonably request in
writing and do any and all other acts or things necessary or advisable to
enable the offer and sale in such jurisdictions of such Transfer Restricted
Securities; provided, however, that the Company will not be required to qualify
generally to do business in any jurisdiction where it is not then so qualified
or to take any action that would subject it to general service of process or to
taxation in any jurisdiction where it is not then so subject.
(h) Unless any Transfer Restricted Securities shall be in
book-entry form only, the Company shall cooperate with the Holders and the
underwriter(s), if any, to facilitate the timely preparation and delivery of
certificates representing Transfer Restricted Securities to be sold under the
Shelf Registration Statement, free of any restrictive legends and in such
denominations and registered in such names as the Holders or the
underwriter(s), if any, may request in connection with the sales of Transfer
Restricted Securities pursuant to the Shelf Registration Statement.
(i) Upon the occurrence of any event contemplated by Section
5(c)(ii) - (iv), the Company shall file (and use its reasonable best efforts to
have declared as soon as possible) a post-effective amendment to the Shelf
Registration Statement or an amendment or supplement to the Prospectus or file
any other required document so that, as thereafter delivered to the purchasers
of Transfer Restricted Securities registered under the Shelf Registration
Statement, the Prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein in light of the circumstances under which they were made not
misleading. Each Holder of Transfer Restricted Securities registered under the
Shelf Registration Statement agrees by acquisition of such Transfer Restricted
Securities that, upon receipt of any notice from the Company of the existence
of any fact of the kind described in Section 5(c)(ii) - (iv) hereof, such
Holder will forthwith discontinue disposition of Transfer Restricted Securities
pursuant to the Shelf Registration Statement until such Holder receives copies
of the supplemented or amended Prospectus contemplated by this Section 5(i), or
until such Holder is advised in writing by the Company that the use of the
Prospectus may be resumed, and such Holder has received copies of any
additional or supplemental filings which are incorporated by reference in the
Prospectus. If so directed by the Company, each Holder will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such Transfer
Restricted Securities current at the time of receipt of such notice. In the
event the Company shall give any such notice, the time period regarding the
Company's obligations to maintain the effectiveness of the Shelf Registration
Statement set forth in Section 2 hereof shall be extended by the number of days
during the period from and including the date of the giving of such notice
pursuant to Section 5(c) hereof to and including the date when such Holder
shall have received the copies of the supplemented or amended Prospectus
contemplated by this Section 5(i).
(j) The Company shall provide CUSIP numbers for all Transfer
Restricted Securities registered under the Shelf Registration Statement, in the
event of and at the time of any distribution thereof to Holders, not later than
the effective date of the Shelf Registration Statement and provide the Trustee
and the transfer agent for the Common Stock with printed
## CT01/SCHIJ/68170.34
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<PAGE> 8
certificates for such Transfer Restricted Securities which are in a form
eligible for deposit with the Depository Trust Company.
(k) The Company shall use its reasonable best efforts to comply
with all applicable rules and regulations of the Commission, and make generally
available to its security holders or otherwise provide in accordance with
Section 11(a) of the Act, as soon as practicable after the effective date of
the Shelf Registration Statement an earnings statement satisfying the
provisions of Section 11(a) of the Act.
(l) If the Company elects to exchange the Preferred Stock for
Notes, the Company shall cause the Indenture to be qualified under the TIA in a
timely manner not later than the effective date of the exchange of the
Preferred Stock for Notes, and, in connection therewith, cooperate with the
Trustee and the Holders of Notes to effect such changes to the Indenture as may
be required for such Indenture to be so qualified in accordance with the terms
of the TIA.
(m) The Company may require each Holder of Transfer Restricted
Securities to be registered under the Shelf Registration Statement to furnish
to the Company such information regarding such Holder and the distribution of
such Holder's securities thereunder as the Company may from time to time
reasonably require for inclusion in the Shelf Registration Statement and the
Company may exclude from such registration the Transfer Restricted Securities
of any Holder that fails to furnish such information within a reasonable time
after receiving such request.
(n) The Company shall, if requested by the Holders of Transfer
Restricted Securities being sold in an Underwritten Offering or the
underwriter(s) thereof, promptly incorporate in the Shelf Registration
Statement or Prospectus, pursuant to a supplement or post-effective amendment,
if necessary, such information as such underwriters and Holders reasonably
agree should be included therein and to which the Company does not reasonably
object including, without limitation, information relating to the plan of
distribution of the Transfer Restricted Securities, information with respect to
the principal amount of Transfer Restricted Securities being sold to such
underwriter(s), the purchase price being paid therefor and with respect to any
other terms of the offering of the Transfer Restricted Securities to be sold in
such offering; and shall make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after the Company
is notified of the matters to be incorporated in such Prospectus supplement or
post-effective amendment.
(o) The Company shall enter into such customary agreements
(including an underwriting agreement in customary form, if applicable) and take
all such other appropriate actions in order to expedite or facilitate the
disposition of the Transfer Restricted Securities pursuant to the Shelf
Registration Statement, and in connection therewith, the Company shall (1) make
such representations and warranties to the Holders of Transfer Restricted
Securities registered thereunder and the underwriter(s), if any, in form,
substance and scope as are customarily made by issuers to underwriters in
primary underwritten offerings; (2) obtain opinions of counsel to the Company
and updates thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to such underwriters and the Holders of a
majority of the Transfer Restricted Securities being sold) addressed to each
such Holder and
## CT01/SCHIJ/68170.34
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<PAGE> 9
underwriter covering such matters as are customarily covered in opinions
requested in underwritten offerings and such other matters as may be reasonably
requested by such Holders and underwriters; (3) if and to the extent permitted
by Statement of Auditing Standards No. 72, obtain comfort letters and updates
thereof from the Company's independent certified public accountants addressed
to the underwriters requesting the same, such letters to be in customary form
and covering matters of the type customarily covered in comfort letters in
connection with primary underwritten offerings; (4) in connection with an
Underwritten Offering only, set forth in full or incorporate by reference in
the underwriting agreement the indemnification provisions and procedures of
Section 6 hereof with respect to all parties to be indemnified pursuant to said
Section; and (5) deliver such documents and certificates as may be reasonably
requested by such Holders or underwriters to evidence compliance with Section
5(i) and with any customary conditions contained in the underwriting agreement
or other agreement entered into by the Company pursuant to this Section 5(o).
The foregoing actions set forth in clauses (1), (2), (3) and (5) of this
Section 5(o) shall be performed at each closing under any underwriting or
similar agreement as and to the extent required thereunder.
(p) The Company shall make available at reasonable times for
inspection by the Holders of the Transfer Restricted Securities, any
underwriter participating in any disposition pursuant to the Shelf Registration
Statement, and any attorney or accountant retained by any such Holders or
underwriters, all financial and other records, pertinent corporate documents
and properties of the Company and its subsidiaries; and cause the Company's
officers, directors and employees to supply all information reasonably
requested by any such Holder, underwriter, attorney or accountant in connection
with the Shelf Registration Statement subsequent to the filing thereof as is
customary for similar due diligence examinations; provided, however, that any
information that is designated in writing by the Company, in good faith, as
confidential at the time of delivery of such information shall be kept
confidential by such Holders or any such underwriter, attorney or accountant,
unless such disclosure is made in connection with a court proceeding or
required by law, or such information becomes available to the public generally
or through a third party without an accompanying obligation of confidentiality;
and provided, further that the foregoing inspection and information gathering
shall, to the greatest extent possible, be coordinated on behalf of the Holders
and the other parties entitled thereto by one counsel designated by and on
behalf of such Holders and other parties.
(q) The Company shall use its reasonable best efforts, subject to
any applicable rules thereto, to cause all Common Stock included among the
Transfer Restricted Securities to be listed on each securities exchange on
which the Common Stock is listed and, if requested by the Holders of a majority
of the outstanding shares of Preferred Stock of a majority in aggregate
principal amount of Notes, to list the Preferred Stock or the Notes registered
under the Shelf Registration Statement on a national securities exchange or the
Nasdaq Stock Market.
6. Registration Expenses.
----------------------
(a) Except as otherwise provided in Section 8, the Company shall
bear all expenses incurred in connection with the performance of or compliance
with its obligations under Sections 2, 4 and 5 hereof, including without
limitation all registration and filing fees, fees and expenses of compliance
with securities or blue sky laws, printing expenses, messenger and delivery
## CT01/SCHIJ/68170.34
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<PAGE> 10
expenses and fees and disbursements of counsel for the Company and all
independent certified public accountants, and other persons retained by the
Company (all such expenses being herein called "Registration Expenses").
Registration Expenses shall also include the Company's internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit or quarterly review, the expense of any liability insurance and the
expenses and fees for listing the securities to be registered on each
securities exchange on which similar securities issued by the Company are then
listed or on the Nasdaq Stock Market. The Company will reimburse the Holders
for the reasonable fees and disbursements of one firm of attorneys chosen by
the Holders of a majority of the shares of Preferred Stock or a majority in
aggregate principal amount of the Notes to be sold pursuant to the Shelf
Registration Statement to act as counsel therefor in connection therewith.
(b) Each Holder will pay any discounts and commissions incurred
upon the sale of securities by it under the Shelf Registration Statement.
7. Indemnification and Contribution.
---------------------------------
(a) In connection with any Shelf Registration Statement, the
Company shall indemnify and hold harmless each Holder, its officers and
directors and each Person who controls such Holder within the meaning of the
Act against any and all losses, claims, damages or liabilities and expenses
whatsoever as incurred, insofar as such losses, claims, damages, liabilities
and expenses arise out of or are based upon any untrue or alleged untrue
statement of material fact contained in the Shelf Registration Statement, or
any Prospectus or preliminary Prospectus or any amendment thereof or supplement
thereto or arise out of or are based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and agrees to reimburse each such
indemnified Person, as incurred, for any legal or other expense reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that (i) the Company
will not be liable in any case to the extent that any loss, claim, damage,
liability or expense arises out of or is based upon any such untrue or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of any such Holder specifically for inclusion therein and (ii) the
foregoing indemnity with respect to any untrue statement or alleged untrue
statement or omission or alleged omission made in any preliminary prospectus
relating to the Shelf Registration Statement shall not inure to the benefit of
any Holder (or any person controlling such Holder) from whom the person
asserting any such loss, claim, damage or liability purchases any of the
Transfer Restricted Securities that are the subject thereof if such person did
not receive a copy of the final prospectus (or the final prospectus as
supplemented) at or prior to the written confirmation of the sale of such
Transfer Restricted Securities to such person and the untrue statement or
alleged omission contained in the preliminary prospectus was corrected in the
final prospectus (or the final prospectus as supplemented).
The Company also agrees to indemnify or contribute to losses of, as
provided in Section 7(d), any underwriters of Transfer Restricted Securities
registered under the Shelf Registration Statement, their officers and directors
and each Person, if any, who controls any such
## CT01/SCHIJ/68170.34
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<PAGE> 11
underwriter (within the meaning of the Act) on substantially the same basis as
that of the indemnification of the Holders provided in this Section 7(a) and
shall, if requested by any Holder, enter into an underwriting agreement
reflecting such agreement, as provided in Section 5(o) hereof.
(b) Each Holder shall indemnify and hold harmless the Company, its
directors and officers and each Person, if any, who controls the Company
(within the meaning of the Act) against any and all losses, claims, damages,
liabilities and expenses described in the indemnity contained in Section 7(a)
hereof, as incurred, resulting from any untrue or alleged untrue statement of
material fact contained in the Shelf Registration Statement or any amendment
thereof or supplement thereto or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading to the extent, but only to the extent, that
such loss, claim, damage, liability or expense relates to or arises from
information relating to such Holder furnished in writing by such Holder
specifically for use in the Shelf Registration Statement; provided, however,
that the obligation to indemnify will be individual to each Holder and will be
limited to the amount of net proceeds received by such Holder from the sale of
Transfer Restricted Securities pursuant to the Shelf Registration Statement.
(c) Any Person entitled to indemnification hereunder shall give
notice as promptly as reasonably practicable to each indemnifying party of any
claim or action commenced against it in respect of which indemnity may be
sought hereunder; provided, however, that failure to so notify an indemnifying
party shall not relieve such indemnifying party from any obligation that it may
have pursuant to this Section except to the extent that it has been materially
prejudiced (through the forfeiture of substantive rights or defenses) by such
failure; provided further, however, that the failure to notify the indemnifying
party shall not relieve it from any liability that it may have to an
indemnified party otherwise than on account of this indemnity agreement. If
any such claim or action shall be brought against an indemnified party, the
indemnified party shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to assume
the defense thereof with counsel reasonably satisfactory to the indemnified
party. After notice from the indemnifying party to the indemnified party of
its election to assume the defense of such claim or action, the indemnifying
party shall not be liable to the indemnified party under this Section 6 for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof; provided, however, that an indemnified
party will have the right to employ its own counsel in any such action, but the
fees, expenses and other charges of such counsel will be at the expense of such
indemnified party unless (1) the employment of counsel by the indemnified party
has been authorized in writing by the indemnifying party, (2) the indemnified
party has reasonably concluded (based on advice of counsel) that there may be
legal defenses available to it or other indemnified parties that are different
from or in addition to those available to the indemnifying party, (3) a
conflict or potential conflict exists (based on advice of counsel to the
indemnified party) between the indemnified party and indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (4) the indemnifying
party has not in fact employed counsel to assume the defense of such action
within a reasonable time after receiving notice of the commencement of the
action, in each of which
## CT01/SCHIJ/68170.34
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<PAGE> 12
cases the reasonable fees, disbursements and other charges of counsel will be
at the expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable
fees, disbursements and other charges of more than one separate firm of
attorneys (in addition to any local counsel) at any one time for all such
indemnified party or parties. Each indemnified party, as a condition to the
indemnity agreements contained in Sections 7(a) and 7(b), shall use all
reasonable efforts to cooperate with the indemnifying party in the defense of
any such action or claim. No indemnifying party shall be liable for any
settlement or any such action effected without its written consent, but if
settled with its written consent or if there be a final judgment of the
plaintiff in any such action, the indemnifying party agrees to indemnify and
hold harmless any indemnified party from and against any loss or liability by
reason of such settlement or judgment. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of
any pending or threatened proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims that are the
subject matter of such proceeding.
(d) If a claim by an indemnified party for indemnification under
this Section 7 is found unenforceable in a final judgment by a court of
competent jurisdiction (not subject to further appeal or review) even though
the express provisions hereof provide for indemnification in such case, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and indemnified party in connection
with the actions, statements or omissions that resulted in such losses as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of
a material fact, has been taken or made by, or relates to information supplied
by, such indemnifying party or indemnified party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action, statement or omission. The amount paid or payable by a party as a
result of any losses shall be deemed to include, subject to the limitations set
forth in Section 7(c), any legal or other fees or expenses reasonably incurred
by such party in connection with any investigation or proceedings.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 7(d), an
indemnifying party that is a Holder shall not be required to contribute any
amount in excess of the amount by which the total price at which the Transfer
Restricted Securities sold by such indemnifying party and distributed to the
public were offered to the public exceeds the amount of any damages that such
indemnifying party has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent
## CT01/SCHIJ/68170.34
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<PAGE> 13
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled any contribution from any person who was not guilty of such fraudulent
misrepresentation.
8. RULES 144 AND 144A. The Company shall use commercially
reasonable efforts to file the reports required to be filed by it under the Act
and the Exchange Act in a timely manner and, if at any time the Company is not
required to file such reports, it will, upon the written request of any Holder
of Transfer Restricted Securities, make publicly available other information so
long as necessary to permit sales of such Holder's securities pursuant to Rules
144 and 144A. The Company covenants that it will take such further action as
any Holder of Transfer Restricted Securities may reasonably request, all to the
extent required from time to time to enable such Holder to sell securities
without registration under the Act within the limitation of the exemptions
provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)).
9. UNDERWRITTEN REGISTRATIONS. If any of the Transfer Restricted
Securities included under the Shelf Registration Statement are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders
of a majority of the shares of Common Stock included among such Transfer
Restricted Securities (calculated as if all of the then outstanding Preferred
Stock or Notes were converted into Common Stock at the time of such selection),
provided, however, that such managing underwriters shall be reasonably
satisfactory to the Company and the Company shall not be obligated to arrange
for more than one underwritten offering during the Effectiveness Period.
No Person may participate in any underwritten registration hereunder
unless such Person (i) agrees to sell such Person's Transfer Restricted
Securities on the basis reasonably provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and
(ii) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements, lock-up letters and other documents
reasonably required under the terms of such underwriting arrangements and (iii)
at least 20% of the outstanding Transfer Restricted Securities are included in
such underwritten offering. The Holders participating in any underwritten
offering shall be responsible for any expenses customarily borne by selling
securityholders, including underwriting discounts and commissions and fees and
expenses of counsel to the selling securityholders.
10. Miscellaneous.
--------------
(a) AMENDMENTS AND WAIVERS. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given, unless the Company has obtained
the written consent of Holders of a majority of the Common Stock issued or
issuable upon conversion of the Notes (calculated as if all of the then
outstanding Notes were converted into Common Stock at the time of such
consent). Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of the Holders of Transfer Restricted Securities being sold pursuant to
the Shelf Registration Statement and that does not
## CT01/SCHIJ/68170.34
- 13 -
<PAGE> 14
directly or indirectly affect the rights of other Holders may be given by
Holders of a majority of the shares of Common Stock included among such
Transfer Restricted Securities.
(b) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class
mail, telex, telecopier, or air courier guaranteeing overnight delivery:
(1) if to a Holder, at the address of such Holder maintained
by the Registrar under the Indenture;
(2) if to the Initial Purchaser, at the address set forth in
the Purchase Agreement;
(3) if to the Company, at its address set forth in the
Purchase Agreement;
or to such other addresses as the recipient party has specified to the sending
party by prior written notice to the sending party.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; one business day after
being delivered to a next-day air courier; five business days after being
deposited in the mail; when answered back, if faxed; and when receipt is
acknowledged by the recipient's telecopier machine, if telecopied.
(c) REMEDIES. In the event of a breach by the Company or by a
Holder of any of their respective obligations under this Agreement, each Holder
or the Company, as the case may be, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(d) SEVERABILITY. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law. If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions set forth herein shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions,
covenants and restrictions without including any of such that may be hereafter
declared invalid, illegal, void or unenforceable.
(e) NO INCONSISTENT AGREEMENTS. The Company will not hereafter
enter into any agreement with respect to its securities which is inconsistent
with or violates the rights granted to the Holders in this Agreement.
(f) SUCCESSORS AND ASSIGNS. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of their respective heirs,
## CT01/SCHIJ/68170.34
- 14 -
<PAGE> 15
executors, administrators, successors, legal representatives and assigns. In
addition, whether or not any express assignment has been made, the provisions
of this Agreement which are for the benefit of Holders are also for the benefit
of, and enforceable by, any subsequent Holder.
(g) COUNTERPARTS. This Agreement may be executed simultaneously
in two or more counterparts, any one of which need not contain the signatures
of more than one party, but all such counterparts taken together will
constitute one and the same Agreement.
(h) DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
(i) GOVERNING LAW. All questions concerning the construction,
validity and interpretation of this Agreement shall be governed by and
construed in accordance with the domestic laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of New
York.
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
LOMAK PETROLEUM, INC.
By: _____________________________________________
Its: ____________________________________________
Acting on behalf of themselves and as the
representatives of the Holders:
FORUM CAPITAL MARKETS L.P.
By: ______________________________________________
Its:______________________________________________
HANIFEN, IMHOFF INC.
By: ______________________________________________
Its:______________________________________________
## CT01/SCHIJ/68170.34
- 15 -
<PAGE> 1
EXHIBIT 5
RUBIN BAUM LEVIN CONSTANT & FRIEDMAN
- ------------------------------------
30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10112
(212) 698-7700
FAX: (212) 698-7825
--------
NEW YORK DIRECT DIAL NUMBER
(212) 698-7700
November 15, 1995
Lomak Petroleum, Inc.
1160 Sunnyside
P.O. Box 556
Hartville, OH 44632
Re: Registration Statement on Form S-3 of Lomak
Petroleum, Inc. (the "Registration Statement")
----------------------------------------------
Dear Sirs:
In connection with the Registration Statement filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Act"), and the rules and regulations promulgated under the Act (the "Rules"),
we have been requested to give our opinion as to the legality of the following
securities of Lomak Petroleum, Inc., a Delaware corporation (the "Company")
being registered thereunder:
(i) 1,350,000 shares of $2.03 Convertible Exchangeable Preferred
Stock, Series C, $1 par value (the "$2.03 Preferred");
(ii) 87,400 shares of 7 1/2% Cumulative Convertible Exchangeable
Preferred Stock, Series A, $1 par value (the "Series A
Preferred");
(iii) 112,600 shares of 7 1/2% Cumulative Convertible Exchangeable
Preferred Stock, $1 par value (the "Series B Preferred")
(the Series A Preferred and the Series B Preferred are
collectively referred to herein as the "7 1/2% Preferred"
and the $2.03 Preferred and the 7 1/2/% Preferred are
collectively referred to herein as the "Preferred Stock");
(iv) $33,750,000 of 8.125% Convertible Subordinated Notes due 2005
(the "Notes"); and
<PAGE> 2
Lomak Petroleum, Inc.
November 15, 1995
Page 2
(v) 6,715,617 shares of Common Stock, $.01 par value per share (the
"Common Stock").
Of the foregoing securities, 200,000 shares of the $2.03 Preferred (the
"Preferred Shares"), 3,026,316 shares of the Common Stock (the "Common Shares")
and $5,000,000 of the Notes may be issued by the Company from time to time.
The Common Shares include the 526,315 shares of the Common Stock issuable upon
conversion of the 200,000 shares of the $2.03 Preferred. Each of the foregoing
securities may be offered by the Company from time to time. The balance
consists of (i) 1,150,000 shares of the $2.03 Preferred, (ii) $28,750,000 of
the Notes into which such 1,150,000 shares of the $2.03 Preferred are
exchangeable, (iii) the 3,026,316 shares of the Common Stock into which such
1,150,000 shares of the $2.03 Preferred or $28,750,000 of the Notes, as the
case may be, are convertible, (iv) 86,040 shares of the Common Stock, (v)
87,400 Shares of the Series A Preferred, (vi) 112,600 Shares of the Series B
Preferred and (vii) 576,945 shares of the Common Stock issuable upon conversion
of the 7 1/2% Preferred. Each of the securities referenced in subsections (i)
through (vii) of this paragraph may be offered for sale from time to time for
the accounts of certain stockholders and noteholders of the Company.
In connection with this opinion, we have reviewed the Certificate of
Incorporation and By-Laws of the Company as amended to date, the resolutions
adopted by the Company's Board of Directors, the Registration Statement, the
Certificate of Designations of the $2.03 Preferred Stock, the Certificate of
Designations of the Series A Preferred Stock, the Certificate of Designations
of the Series B Preferred Stock, the form of Indenture between Keycorp
Shareholder Services, Inc. (the "Trustee") and the Company (the "Indenture"),
and such other documents and proceedings as we have deemed appropriate.
Based on the foregoing, we are of the opinion that:
1. The Preferred Stock is duly authorized and each Certificate of
Designations of the Preferred Stock has been duly adopted by
the Board of Directors of the Company and duly filed in accordance
with Delaware law. The outstanding Preferred Stock is validly
issued, fully paid and nonassessable and the balance of the
Preferred Stock, when issued in accordance to the terms and
conditions of its respective Certificate of Designations,
will be valildly issued, fully paid and nonassessable.
2. The Common Stock has been duly authorized and, when issued in
accordance with the terms and conditions of the
<PAGE> 3
Lomak Petroleum, Inc.
November 15, 1995
Page 3
Registration Statement and/or the Certificates of Designations
will, assuming the Company at such time has authorized but
unissued Shares remaining under its Certificate of
Incorporation, be validly issued, fully paid and nonassessable.
3. The Notes have been duly authorized and the form of
Indenture has been duly adopted by the Board of Directors
of the Company and its execution and delivery has been validly
authorized. When the Indenture is duly executed and delivered,
it will constitute a valid and binding obligation of the
Company in accordance with its terms except as the same may be
limited by bankruptcy, insolvency, reorganization, or other
laws relating to or affecting the enforcement of creditor's
rights or by general equity principles. The Notes, when duly
executed on behalf of the Company, authenticated by or on
behalf of the Trustee, issued and sold as described in the
Registration Statement and delivered by the Company in
accordance to the terms and conditions of the Indenture, will
constitute valid and binding obligations of the Company in
accordance with their respective terms and the terms of the
Indenture except as limited by bankruptcy, insolvency,
reorganization, or other laws affecting the enforcement of
creditor's rights or by general equity principles.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to our name under the caption "Legal Matters."
Rubin Baum Levin Constant & Friedman
<PAGE> 1
<TABLE>
Exhibit 12.
COMPUTATION OF EARNINGS TO FIXED CHARGES
(In Thousands, except ratios)
<CAPTION>
Ratio of earnings to fixed
charges Nine Months Ended
Year Ended December 31, September 30,
------------------------------------------------------------- ---------------------
Pro Forma Pro Forma
1990 1991 1992 1993 1994 1994 1995 1995
------- ------- ------- ------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income before taxes $320 $552 $878 $1,310 $2,758 $10,961 $3,616 $6,348
Fixed charges 418 672 952 1,120 2,807 4,504 3,822 4,769
------- ------- ------- ------- ------- ----------- ------- ---------
738 1,224 1,830 2,430 5,565 15,465 7,438 11,117
------- ------- ------- ------- ------- ----------- ------- ---------
Fixed charges 418 672 952 1,120 2,807 4,504 3,822 4,769
------- ------- ------- ------- ------- ----------- ------- ---------
Ratio of earnings
to fixed charge 1.77 1.82 1.92 2.17 1.98 3.43 1.95 2.33
======= ======= ======= ======= ======= =========== ======= =========
Ratio of earnings to fixed charges
and preferred dividends
Income before taxes $ 320 $ 552 $ 878 $ 1,310 $ 2,758 $ 10,961 $ 3,616 $ 6,348
Fixed charges 418 672 952 1,120 2,807 4,504 3,822 4,769
------- ------- ------- ------- ------- ----------- ------- ---------
738 1,224 1,830 2,430 5,565 15,465 7,438 11,117
------- ------- ------- ------- ------- ----------- ------- ---------
Fixed charges 418 672 952 1,120 2,807 4,504 3,822 4,769
Preferred dividends 270 370 294 329 375 2,250 281 1,801
------- ------- ------- ------- ------- ----------- ------- ---------
688 1,042 1,246 1,449 3,182 6,754 4,103 6,570
------- ------- ------- ------- ------- ----------- ------- ---------
Ratio of earnings to fixed
charges and preferred
dividends 1.07 1.17 1.47 1.68 1.75 2.29 1.81 1.69
======= ======= ======= ======= ======= =========== ======= =========
</TABLE>
<PAGE> 1
EX 24.1(b)
16
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Lomak Petroleum,
Inc. for the registration of 6,715,617 shares of common stock, 1,350,000 shares
of $2.03 Convertible Exchangeable Preferred Stock, 87,400 shares of 7 1/2%
Convertible Exchangeable Preferred Stock - Series A, 112,600 shares of 7 1/2%
Convertible Exchangeable Preferred Stock - Series B and $33,750,000 of its
8.125% Convertible Subordinated Notes due 2005 and to the incorporation by
reference therein of our report dated March 8, 1994 with respect to the
consolidated financial statements of Lomak Petroleum, Inc. at December 31, 1993
and for each of the two years in the period then ended, included in its Annual
Report (Form 10-K) for the year ended December 31, 1994, filed with the
Securities and Exchange Commission.
ERNST & YOUNG LLP
Cleveland, Ohio
November 13, 1995
<PAGE> 1
EX 24.1(c)
14
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm incorporated by reference in this
Registration Statement/Prospectus on Form S-3.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
November 13, 1995
<PAGE> 1
EX 24.1(d)
15
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-3 of our
report dated May 15, 1995, on our audit of the consolidated financial
statements of Red Eagle Resources Corporation and its subsidiaries as of and
for the nine month period ended September 30, 1994. We also consent to the
reference to our firm under the caption "Experts".
COOPERS & LYBRAND LLP
Oklahoma City, Oklahoma
November 13, 1995
<PAGE> 1
EX 24.1(e)
17
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Lomak Petroleum, Inc. on Form S-3 of the report of Deloitte & Touche dated March
25, 1994, appearing in and incorporated by reference in the Annual Report on
Form 10-K of Red Eagle Resources Corporation for the year ended December 31,
1993. We also consent to the reference to Deloitte & Touche LLP under the
heading "Experts" in the Prospectus, which is part of this Registration
Statement.
DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
November 14, 1995
<PAGE> 1
EX 24.1(f)
18
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration
Statement/Prospectus of Lomak Petroleum, Inc. on Form S-3 of our report dated
October 13, 1995, on the statements of assets (other than productive oil and
gas properties) and liabilities as of December 31, 1994 and 1993 of Transfuel
Interests and the statements of revenues and direct operating expenses for each
of the two years in the period ending December 31, 1994 appearing in the Form
8-K/A dated November 8, 1995 of Lomak Petroleum, Inc. We also consent to the
reference to us under the heading "Experts" in this Registration
Statement/Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCH LLP
Houston, Texas
November 13, 1995
