<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 23, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
------------------
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------
LOMAK PETROLEUM, INC.
<TABLE>
<C> <C>
LOMAK OPERATING COMPANY EASTERN PETROLEUM COMPANY
LOMAK PRODUCTION COMPANY LOMAK ENERGY COMPANY
LOMAK RESOURCES COMPANY LPI ACQUISITION, INC.
BUFFALO OILFIELD SERVICES, INC. LOMAK PRODUCTION I, L.P.
LOMAK ENERGY SERVICES COMPANY LOMAK RESOURCES, L.L.C.
TALON TRUCKING COMPANY
</TABLE>
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
<TABLE>
<C> <C>
DELAWARE 34-1312571
OHIO 34-1198756
DELAWARE 75-1722213
DELAWARE 34-1772901
OHIO 34-1458616
DELAWARE 75-2423912
OKLAHOMA 73-1350244
OHIO 34-1447413
DELAWARE 52-1996729
TEXAS 34-1704962
TEXAS 75-2672382
OKLAHOMA 73-1504725
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
</TABLE>
------------------
500 THROCKMORTON STREET
FORT WORTH, TEXAS 76102
(817) 870-2601
(Address, including zip code, and telephone number,
including area code, of Registrants' principal executive offices)
------------------
JOHN H. PINKERTON
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)
Copies To:
<TABLE>
<C> <C>
J. MARK METTS GARY L. SELLERS
VINSON & ELKINS L.L.P. SIMPSON THACHER & BARTLETT
1001 FANNIN, SUITE 2300 425 LEXINGTON AVENUE
HOUSTON, TEXAS 77002-6760 NEW YORK, NEW YORK 10017-3954
(713) 758-2222 (212) 455-2000
</TABLE>
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------
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 registered on this Form are being 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, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share.... 4,600,000 shares $21.0625 $96,887,500 $29,360
- -------------------------------------------------------------------------------------------------------------------------
% Senior Subordinated Notes due 2007.... 100,000 Notes $1,000 $100,000,000 $30,304
- -------------------------------------------------------------------------------------------------------------------------
Subsidiary Guarantees.....................
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated pursuant to Rule 457, with respect to the Common Stock Offering,
solely for the purpose of calculating the amount of the registration fee
based upon the average of the high and low sales prices of the Common Stock
as reported on the New York Stock Exchange.
------------------
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains two forms of Prospectus, one to be
used in connection with the offering of % Senior Subordinated Notes due 2007
(the "Notes Prospectus") and one to be used in a concurrent offering of Common
Stock (the "Common Stock Prospectus"). Neither the offering being made pursuant
to the Notes Prospectus (the "Notes Offering") nor the offering being made
pursuant to the Common Stock Prospectus (the "Common Stock Offering") will be
completed until after the consummation of the Cometra Acquisition as described
herein. The closings of the Common Stock Offering and the Notes Offering are
contingent upon each other. The form of Common Stock Prospectus immediately
follows this page and is followed by alternate pages of the form of Notes
Prospectus.
<PAGE> 3
***************************************************************************
* *
* 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 JANUARY 23, 1997
4,000,000 SHARES
[LOMAK PETROLEUM LOGO]
COMMON STOCK
------------------------------------
All of the shares of Common Stock offered hereby (the "Shares") are being
offered by Lomak Petroleum, Inc. ("Lomak" or the "Company"). The Common Stock
is listed on the New York Stock Exchange under the symbol "LOM." On
January 21, 1997, the closing price of the Common Stock was $20 3/4 per
share. See "Price Range of Common Stock and Dividend Policy."
------------------------------------
The offering of the Shares (the "Common Stock Offering") is being conducted
concurrently with an offering (the "Notes Offering") of $100,000,000 aggregate
principal amount of % Senior Subordinated Notes due 2007 (the "Notes")
of the Company. The proceeds of the Common Stock Offering and the Notes
Offering will be used to refinance certain indebtedness incurred to
fund a portion of the purchase price of the Cometra Acquisition
described herein. Neither the Common Stock Offering nor the Notes
Offering (collectively, the "Offerings") will be completed
until after the Cometra Acquisition has been consummated.
The closing of the Common Stock Offering and the Notes
Offering (collectively, the "Offerings"), are
contingent upon each other.
------------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
Total(3) $ $ $
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deduction of expenses payable by the Company estimated at $ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 600,000 shares of Common Stock to cover over-allotments, if
any. If such option is exercised in full, the total price to public,
underwriting discounts and commissions and proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
------------------------------------
The Common Stock is being offered by the Underwriters named herein when, as and
if received and accepted by them, subject to their right to reject orders in
whole or in part and subject to certain other conditions. It is expected that
delivery of the shares will be made in New York, New York on or
about , 1997.
------------------------------------
DEAN WITTER REYNOLDS INC.
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
A.G. EDWARDS & SONS, INC.
MCDONALD & COMPANY
SECURITIES, INC.
, 1997
<PAGE> 4
[LOMAK LOGO]
[Graphic 1: Map of the United States depicting the Company's core operating
areas and the locations of its corporate offices.]
GEOGRAPHICAL FOCUS
<TABLE>
<CAPTION>
Percent of
Present Value
-------------
<S> <C>
Midcontinent Region 61%
Appalachian Region 21%
Gulf Coast Region 16%
Other 2%
---
Total 100%
===
</TABLE>
[Graphic 2: Bar chart showing the Company's reserve growth (in Bcfe) from 1992
through 1996 and pro forma at December 31, 1996 including the
Cometra Acquisition.]
<PAGE> 5
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR SINCE THE DATES AS OF WHICH INFORMATION IS SET FORTH HEREIN. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information....................................... 4
Incorporation of Certain Information by Reference........... 4
Prospectus Summary.......................................... 5
Risk Factors................................................ 11
Forward-Looking Information................................. 16
Cometra Acquisition......................................... 17
Notes Offering.............................................. 18
Use of Proceeds............................................. 19
Capitalization.............................................. 20
Price Range of Common Stock and Dividend Policy............. 21
Unaudited Pro Forma Consolidated Financial Statements....... 22
Selected Consolidated Financial Data........................ 28
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 29
Business.................................................... 35
Management.................................................. 45
Principal Stockholders and Share Ownership of Management.... 48
Certain Transactions........................................ 49
Description of Capital Stock and Indebtedness............... 49
Underwriting................................................ 52
Legal Matters............................................... 53
Experts..................................................... 53
Glossary.................................................... 54
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------------------
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
3
<PAGE> 6
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities of the Commission, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as the following regional offices: 7 World Trade
Center, Suite 1300, New York, New York 10048; and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies can be obtained
by mail at prescribed rates. Requests for copies should be directed to the
Commission's Public Reference Section, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission also maintains a Website
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. In addition, reports, proxy statements and other information
concerning the Company can be inspected and copied at the offices of the New
York Stock Exchange, Inc. (the "NYSE"), 20 Broad Street, New York, New York,
10005, on which the Common Stock is listed.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Common Stock being offered by this
Prospectus and the Notes which are being offered by a separate prospectus. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits thereto. For further information with respect to the
Company and the Common Stock being offered hereby, reference is made to the
Registration Statement and the exhibits thereto. Statements contained in this
Prospectus concerning the provisions of documents filed with the Registration
Statement as exhibits are necessarily summaries of such documents, and each such
statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission. All of these documents may be
inspected without charge at the offices of the Commission, the addresses of
which are set forth above, and copies may be obtained therefrom at prescribed
rates.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents and information heretofore filed with the
Commission by the Company 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, 1995.
2. The Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 1996, June 30, 1996 and September 30, 1996.
3. The Company's Current Report on Form 8-K, dated April 19, 1996, and Form
8-K/A, dated May 31, 1996.
4. The description of the Common Stock contained in the Registration
Statement on Form 8-A declared effective by the Commission on October 8,
1996.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the Common
Stock Offering shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the date of filing of such documents.
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 other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus. The Company will provide without charge
to each person, including any beneficial owner, to whom a copy of this
Prospectus is delivered, upon the written or oral request of any such person, a
copy of any document described above (other than exhibits). Requests for such
copies should be directed to Lomak Petroleum, Inc., 500 Throckmorton Street,
Fort Worth, Texas 76102, Attn: Corporate Secretary, Telephone No. (817)
870-2601.
4
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere, or incorporated by reference, in this
Prospectus. Unless the context otherwise requires all references herein to
"Lomak" or the "Company" include Lomak Petroleum, Inc. and its consolidated
subsidiaries. Certain industry terms are defined in the Glossary. Pro forma
information gives effect to the Cometra Acquisition (as defined herein) and the
related financings (including the Offerings) and certain other acquisitions and
financings consummated in 1995 and 1996, as described in the notes to the
Unaudited Pro Forma Consolidated Financial Statements. Unless otherwise
indicated, the information set forth herein assumes the Underwriters'
over-allotment option with respect to the Common Stock Offering will not be
exercised.
THE COMPANY
Lomak is an independent energy company engaged in oil and gas development,
exploration and acquisition primarily in three core areas: the Midcontinent,
Appalachia and the Gulf Coast. Over the past five years, the Company has
significantly increased its reserves and production through acquisitions and, to
a growing extent, development and exploration of its properties. On a pro forma
basis as of December 31, 1996, the Company had proved reserves of 644 Bcfe with
a Present Value of $974 million. On an Mcfe basis, the reserves were 63%
developed and 77% natural gas, with a reserve life in excess of 13 years.
Properties operated by the Company accounted for 94% of its pro forma Present
Value. After giving effect to the Cometra Acquisition, the Company also owns
over 2,000 miles of gas gathering systems and a gas processing plant in
proximity to its principal gas properties. On a pro forma basis for the nine
months ended September 30, 1996, the Company had revenues of $123 million and
EBITDA of $72 million.
From 1991 through 1996, the Company has made 63 acquisitions, including the
Cometra Acquisition, for an aggregate purchase price of approximately $627
million and has spent $37 million on development and exploration activities.
These activities have added approximately 720 Bcfe at an average cost of $0.75
per Mcfe. As a result, the Company has achieved substantial growth since 1991:
- Reserves increased from 20 Bcfe in 1991 to 644 Bcfe in 1996, a compound
annual growth rate of 101%;
- Production increased from 2 Bcfe in 1991 to 49 Bcfe in 1996, a compound
annual growth rate of 88%;
- EBITDA increased from $4 million in 1991 to $72 million for the nine
months ended September 30, 1996; and
- Net income increased from $427,000 in 1991 to $12 million for the nine
months ended September 30, 1996.
The Company emphasizes strict cost controls in all aspects of its business.
As a result, combined direct operating and administrative costs have been
reduced from $2.08 per Mcfe in 1991 to $0.90 per Mcfe for the first nine months
of 1996 on a pro forma basis. Consequently, while the average price realized by
the Company has not increased significantly over the last five years, operating
margins have increased from $0.61 per Mcfe in 1991 to $1.65 per Mcfe for the
first nine months of 1996 on a pro forma basis.
THE COMETRA ACQUISITION
On December 31, 1996, the Company agreed to acquire oil and gas properties
located in West Texas, South Texas and the Gulf of Mexico (the "Cometra
Properties") from American Cometra, Inc. ("Cometra") for a purchase price of
$400 million, subject to adjustment (the "Cometra Acquisition"). The Cometra
Acquisition will increase the Company's proved reserves at December 31, 1996 by
68% to 644 Bcfe and increase its Present Value by 98% to $974 million. The
Cometra Properties, located primarily in the Company's core operating areas,
include 515 producing wells, 401 proven development projects and substantial
additional development and exploration potential on approximately 150,000 gross
acres (90,000 net acres). In addition, the Cometra Properties include 265 miles
of gas pipelines, a 25,000 Mcf/d gas processing plant and an above-market gas
contract with a major Texas gas utility covering approximately 30% of the
December 1996 production from the Cometra Properties.
5
<PAGE> 8
BUSINESS STRATEGY
The Company's objective is to maximize shareholder value through aggressive
growth in its reserves, production, cash flow and earnings through a balanced
program of development drilling and acquisitions, as well as a growing
exploration effort. Management believes that the Cometra Acquisition has
substantially enhanced the Company's ability to increase its production and
reserves through drilling activities. The Cometra Acquisition substantially
increased the Company's inventory of proven drilling locations and, to an even
greater degree, its exploration and exploitation drilling potential. Including
the Cometra Properties, the Company has over 1,100 proven recompletion and
development drilling projects. As a result of the Cometra Acquisition, the
Company believes that it can meet its growth objectives over the next several
years without the benefit of future acquisitions. The Company currently plans to
spend $160 million over the next three years on the further development and
exploration of its properties. Consequently, while acquisitions are expected to
continue to play an important role in the Company's future growth, the primary
emphasis will shift towards exploiting the potential of the Company's larger
property base.
In order to most effectively implement its operating strategy, the Company
has concentrated its activities in selected geographic areas. In each core area,
the Company has established separate acquisition, engineering, geological,
operating and other technical expertise. The Company believes that this
geographic focus provides it with a competitive advantage in sourcing and
evaluating new business opportunities within these areas, as well as providing
economies of scale in developing and operating properties.
Lomak believes the competitive strengths described below will greatly
enhance its ability to achieve its long-term goals and objectives.
- Diversified, Long Lived Reserve Base: Lomak has compiled a diversified
group of predictable, long lived properties. The Company's oil and gas
reserves are attributable to 7,280 producing wells that have a reserve
life index in excess of 13 years. The reserves are concentrated in seven
basins and are geographically and geologically diversified.
- Substantial Inventory of Development and Exploration Projects: Lomak has
over 1,100 proven development projects and a substantial number of
exploration and exploitation drilling projects located within core
operating areas in which the Company has significant operating and
technical expertise.
- Successful Acquisition Record: The Company's primary strength has
historically been to identify and acquire properties that have increased
reserves, production, cash flow and earnings. Excluding the Cometra
Acquisition, since 1991 the Company has completed 62 acquisitions for an
aggregate purchase price of $252 million. These acquisitions have added
reserves of approximately 422 Bcfe at an average acquisition cost of
$0.60 per Mcfe.
- Significant Operational Control: Lomak operates properties representing
nearly 94% of its Present Value. This allows the Company to directly
control operating and drilling costs and also allows it to dictate the
timing of development and exploration activities.
- High Operating Margins: The Company's low cost structure, coupled with
the premium gas price it receives for a significant portion of its
production, creates high operating margins. For the first nine months of
1996, Lomak generated operating margins, after deducting direct operating
and administrative costs, of $1.65 per Mcfe.
- Experienced, Incentivized Management Team: The Company's board of
directors, executive officers, technical staff and administrative
personnel have considerable industry experience and will own,
collectively, shares representing approximately 10% of the outstanding
shares of Common Stock, after giving effect to the Cometra Acquisition
and the Common Stock Offering. Over 80% of Lomak's employees either own,
or hold options to acquire, shares of Common Stock.
6
<PAGE> 9
FINANCING THE COMETRA ACQUISITION
After adjustment for cash flow attributable to the Cometra Properties from
October 1, 1996 to funding, it is expected that the adjusted purchase price for
the Cometra Acquisition, based on a scheduled funding of February 14, 1997, will
be approximately $375 million, of which $30 million will consist of shares of
Common Stock to be issued to Cometra.
The Company will finance the cash portion of the purchase price with $220
million of borrowings under a recently expanded bank credit facility (the
"Credit Facility") and the issuance to Cometra of a $125 million non-interest
bearing promissory note due March 31, 1997, which is secured by a bank letter of
credit. The promissory note will be repaid at maturity through borrowings under
the Credit Facility. The Credit Facility will enable the Company to obtain
revolving credit loans and issue letters of credit from time to time in an
aggregate amount not to exceed $400 million initially. Availability under the
Credit Facility will be reduced to $325 million 180 days after the funding of
the Cometra Acquisition, unless otherwise agreed to by the lenders. Upon
consummation of the Offerings, approximately $230.9 million will be outstanding
under the Credit Facility.
The Company maintains its corporate headquarters at 500 Throckmorton
Street, Fort Worth, Texas 76102 and its telephone number is (817) 870-2601.
7
<PAGE> 10
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company........................ 4,000,000 shares
Common Stock Outstanding prior to the Offering............. 14,801,654 shares(1)
Common Stock to be Outstanding after the Offering.......... 20,230,225 shares(1)(2)
Notes Offering............................................. Concurrently with the Common Stock Offering, the
Company is offering $100 million aggregate
principal amount of Notes to the public in the
Notes Offering. The closings of the Common Stock
Offering and the Notes Offering are contingent upon
each other. Neither the Common Stock Offering nor
the Notes Offering will be completed until after
the consummation of the Cometra Acquisition. See
"Notes Offering."
Use of Proceeds............................................ The Company will use the proceeds of the Common
Stock Offering and the Notes Offering to repay a
portion of the indebtedness incurred to fund the
purchase price for the Cometra Properties. See "Use
of Proceeds."
NYSE Symbol................................................ "LOM"
</TABLE>
- ---------------
(1) As of January 17, 1997. Excludes 1,219,432 shares reserved for issuance upon
the exercise of outstanding options and warrants, of which 503,932 are
currently exercisable; 3,026,316 shares issuable upon conversion of the
$2.03 Convertible Preferred Stock; and 2,857,143 shares issuable upon
conversion of the 6% Convertible Subordinated Debentures. See "Description
of Capital Stock and Indebtedness."
(2) Includes 1,428,571 shares to be issued to Cometra as partial consideration
for the Cometra Properties based on an assumed average market price for the
Common Stock of $21 per share.
8
<PAGE> 11
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following tables set forth certain (i) historical and pro forma
financial data and (ii) reserve and operating data. The pro forma financial,
operating and reserve information includes the Cometra Acquisition and the
related financings and certain other acquisitions and financings consummated in
1995 and 1996, as described in the notes to the Unaudited Pro Forma Consolidated
Financial Statements. The historical data should be read in conjunction with the
historical Consolidated Financial Statements and Notes thereto included herein.
See also "Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The pro forma
information should be read in conjunction with the Unaudited Pro Forma
Consolidated Financial Statements included herein. Neither the historical nor
the pro forma results are necessarily indicative of future results.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ -------------------------------
PRO FORMA PRO FORMA
1993 1994 1995 1995 1995 1996 1996
-------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and gas sales.................. $ 11,132 $ 24,461 $ 37,417 $ 98,480 $ 24,135 $ 49,878 $ 94,230
Field services..................... 6,966 7,667 10,097 10,337 7,109 10,483 10,663
Gas transportation and marketing... 559 2,195 3,284 16,261 2,332 4,137 16,858
Interest and other................. 418 471 1,317 1,317 1,052 1,102 1,102
-------- -------- -------- -------- -------- -------- --------
19,075 34,794 52,115 126,395 34,628 65,600 122,853
Expenses:
Direct operating................... 4,438 10,019 14,930 33,713 9,935 18,268 29,139
Field services..................... 5,712 5,778 6,469 6,469 4,192 7,813 7,813
Gas transportation and marketing... 13 490 849 8,549 595 1,206 9,363
Exploration........................ 86 359 512 512 473 836 836
General and administrative......... 2,049 2,478 2,736 4,374 2,187 2,862 4,099
Interest........................... 1,120 2,807 5,584 29,514 3,822 5,563 21,900
Depletion, depreciation and
amortization..................... 4,347 10,105 14,863 39,276 9,808 16,589 31,807
-------- -------- -------- -------- -------- -------- --------
17,765 32,036 45,943 122,407 31,012 53,137 104,957
-------- -------- -------- -------- -------- -------- --------
Income before taxes.................. 1,310 2,758 6,172 3,988 3,616 12,463 17,896
Income taxes......................... 81 (139) (1,782) (1,149) (898) (4,360) (6,254)
-------- -------- -------- -------- -------- -------- --------
Net income........................... $ 1,391 $ 2,619 $ 4,390 $ 2,839 $ 2,718 $ 8,103 $ 11,642
======== ======== ======== ======== ======== ======== ========
Earnings per common share............ $ 0.18 $ 0.25 $ 0.31 $ 0.03 $ 0.21 $ 0.43 $ 0.49
======== ======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA (a)........................... $ 6,863 $ 16,029 $ 27,131 $ 73,290 $ 17,719 $ 35,451 $ 72,439
Net cash provided by operations...... 4,305 11,241 16,561 N/A 9,755 24,335 N/A
Capital expenditures................. 48,240 70,024 88,530 N/A 87,161 73,520 N/A
Ratios:
EBITDA to interest expense......... 6.1x 5.7x 4.9x 2.5x 4.6x 6.4x 3.3x
Earnings to fixed charges (b)...... 2.2x 2.0x 2.1x 1.1x 1.9x 3.2x 1.8x
Total debt to EBITDA............... 4.5x 3.9x 3.1x N/A N/A N/A N/A
BALANCE SHEET DATA (END OF PERIOD):
Cash and equivalents................. $ 2,019 $ 4,897 $ 3,047 N/A $ 2,401 $ 4,880 $ 4,880
Total assets......................... 76,333 141,768 214,664 N/A 203,305 284,152 664,602
Long-term debt (c)................... 31,108 62,592 83,088 N/A 113,238 121,905 393,055
Stockholders' equity................. 32,263 43,248 99,243 N/A 60,554 112,866 222,166
</TABLE>
- ---------------
(a) EBITDA represents net income plus income taxes, exploration expense,
interest expense and depreciation, depletion and amortization expense.
EBITDA is not presented as an indicator of the Company's operating
performance or as a measure of liquidity.
(b) For the purpose of determining the ratio of earnings to fixed charges,
earnings are defined as net income before taxes plus fixed charges. Fixed
charges consist of interest expense.
(c) Long-term debt includes current portion.
9
<PAGE> 12
SUMMARY RESERVE AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
PRO FORMA
1993 1994 1995 1996 1996
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
PROVED RESERVES (A):
Natural gas (Mmcf)............................ 74,563 149,370 232,887 295,594 497,600
Oil and NGLs (Mbbls).......................... 4,539 8,449 10,863 14,675 24,405
Natural gas equivalents (Mmcfe)............... 101,797 200,064 298,065 383,644 644,030
Percent natural gas........................... 73% 75% 78% 77% 77%
Percent proved developed...................... 57% 68% 77% 71% 63%
PRODUCTION VOLUMES:
Natural gas (Mmcf)............................ 2,590 6,996 12,471 21,142 37,687
Oil and NGLs (Mbbls).......................... 318 640 913 1,068 1,855
Natural gas equivalents (Mmcfe)............... 4,498 10,836 17,949 27,550 48,817
RESERVE LIFE INDEX (YEARS) (B).................. 22.6 18.5 16.6 13.9 13.2
PRODUCT PRICES (AT DECEMBER 31) (A):
Natural gas (per Mcf)......................... $ 2.60 $ 2.07 $ 2.28 $ 3.54 $ 3.99
Oil and NGLs (per Bbl)........................ 12.73 16.14 18.14 23.58 23.23
FUTURE NET CASH FLOWS (A):
Undiscounted.................................. $140,892 $270,974 $412,638 $941,393 $1,790,768
Present Value................................. 65,114 150,536 229,238 492,172 973,663
RESERVE ADDITIONS (MMCFE):
Acquisitions.................................. 74,555 103,292 106,283 111,022 371,409
Extensions, discoveries and revisions......... 2,708 7,415 10,943 15,630 15,630
-------- -------- -------- -------- ----------
Net additions................................. 77,263 110,707 117,226 126,652 387,039
COSTS INCURRED:
Acquisition................................... $ 43,177 $ 59,501 $ 69,244 $ 63,538 $ 316,538
Development and exploration................... 3,826 9,710 10,184 12,944 12,944
-------- -------- -------- -------- ----------
Total costs incurred.......................... $ 47,003 $ 69,211 $ 79,428 $ 76,482 $ 329,482
FINDING COSTS (PER MCFE) (C).................... $ 0.61 $ 0.63 $ 0.68 $ 0.60 $ 0.85
RESERVE REPLACEMENT (D)......................... 1,718% 1,022% 653% 460% 1,405%
WELLS DRILLED:
Gross......................................... 30.0 71.0 62.0 76.0 N/A
Net........................................... 18.4 58.8 39.6 57.8 N/A
Success rate (net)............................ 90% 97% 99% 98% N/A
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- -------------------------
PRO PRO
FORMA FORMA
1993 1994 1995 1995 1995 1996 1996
----- ----- ----- --------- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PER MCFE DATA:
Oil and gas sales............................. $2.47 $2.26 $2.08 $2.12 $2.06 $2.40 $2.55
Direct operating expense...................... 0.98 0.93 0.83 0.72 0.85 0.88 0.79
General and administrative expense............ 0.46 0.23 0.15 0.09 0.19 0.14 0.11
----- ----- ----- ----- ----- ----- -----
Operating margin (e).......................... $1.03 $1.10 $1.10 $1.31 $1.02 $1.38 $1.65
===== ===== ===== ===== ===== ===== =====
</TABLE>
- ---------------
(a) Proved reserves and future net cash flows were estimated in accordance with
the Commission's guidelines. Prices at December 31 in each of the years 1993
through 1996 were used in the calculation of proved reserves and future net
cash flows and were held constant through the periods of estimated
production, except as otherwise provided by contract, in accordance with the
Commission's guidelines.
(b) The reserve life index is calculated as proved reserves (on an Mcfe basis)
divided by annual production.
(c) Finding costs are calculated as costs incurred divided by net reserve
additions. The pro forma cost incurred for 1996 excludes $62 million
attributable to unproved reserves ($0.16 per Mcfe impact). However, the pro
forma cost incurred for 1996 includes the value attributable to an
above-market gas contract of $38 million ($0.10 per Mcfe impact).
(d) Reserve replacement is calculated as net reserve additions divided by the
Company's actual production for the period, both on an Mcfe basis.
(e) Operating margin is calculated as oil and gas sales less direct operating
expense and general and administrative expense.
10
<PAGE> 13
RISK FACTORS
Prior to making an investment decision, prospective investors should
carefully consider, together with the other information contained in this
Prospectus, the following risk factors:
VOLATILITY OF OIL AND GAS PRICES
The Company's financial condition, operating results and future growth and
the carrying value of its oil and gas properties are substantially dependent on
prevailing prices of, and demand for, oil and gas. The Company's ability to
maintain or increase its borrowing capacity and to obtain additional capital on
attractive terms is also substantially dependent upon oil and gas prices.
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
large fluctuations in response to relatively minor changes in the supply of and
demand for oil and gas, market uncertainty and a variety of additional factors
beyond the control of the Company. These factors include weather conditions in
the United States and elsewhere, the economic conditions in the United States
and elsewhere, the actions of the Organization of Petroleum Exporting Countries
("OPEC"), governmental regulation, political stability in the Middle East and
elsewhere, the supply and demand of oil and gas, the price of foreign imports
and the availability and prices of alternate fuel sources. Any substantial and
extended decline in the price of oil or gas would have an adverse effect on the
Company's carrying value of its proved reserves, borrowing capacity, the
Company's ability to obtain additional capital, and its revenues, profitability
and cash flows from operations.
Volatile oil and gas prices make it difficult to estimate the value of
producing properties for acquisition and often cause disruption in the market
for oil and gas producing properties, as buyers and sellers have difficulty
agreeing on such value. Price volatility also makes it difficult to budget for
and project the return on acquisitions and development and exploitation
projects.
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. Reserve engineering is a
subjective process of estimating the recovery from underground accumulations of
oil and gas that cannot be measured in an exact manner, and the accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. Estimates of
economically recoverable oil and gas reserves and of future net cash flows
necessarily depend upon a number of variable factors and assumptions, such as
historical production from the area compared with production from other
producing areas, the assumed effects of regulations by governmental agencies and
assumptions concerning future oil and gas prices, future operating costs,
severance and excise taxes, development costs and workover and remedial costs,
all of which may in fact vary considerably from actual results. Because all
reserve estimates are to some degree speculative, the quantities of oil and gas
that are ultimately recovered, production and operation costs, the amount and
timing of future development expenditures and future oil and gas sales prices
may all vary from those assumed in these estimates and such variances may be
material. In addition, different reserve engineers may make different estimates
of reserve quantities and cash flows based upon the same available data.
The present value of estimated future net cash flows referred to in this
Prospectus should not be construed as the current market value of the estimated
proved oil and gas reserves attributable to the Company's properties. In
accordance with applicable requirements of the Commission, the estimated
discounted future net cash flows from proved reserves are generally based on
prices and costs as of the date of the estimate, whereas actual future prices
and costs may be materially higher or lower. The calculation of the Present
Value of the Company's oil and gas reserves were based on prices on December 31,
1996. Average product prices at December 31, 1996 were $23.58 per barrel of oil
and $3.54 per Mcf of gas and pro forma average product prices at December 31,
1996 were $23.23 per barrel of oil and $3.99 per Mcf of gas, which prices were
substantially higher than historical prices used by the Company to calculate
Present Value in recent years. In addition, the Company's reserves may be
subject to downward or upward revision based upon
11
<PAGE> 14
production history, results of future development, prevailing oil and gas prices
and other factors. See "Business -- Oil and Gas 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 degree 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.
The Company's business is capital intensive. To maintain its base of proved
oil and gas reserves, a significant amount of cash flow from operations must be
reinvested in property acquisitions, development or exploration activities. To
the extent cash flow from operations is reduced and external sources of capital
become limited or unavailable, the Company's ability to make the necessary
capital investments to maintain or expand its asset base would be impaired.
Without such investment, the Company's oil and gas reserves would decline.
DEVELOPMENT AND EXPLORATION RISKS
The Company intends to increase its development and exploration activities.
Exploration drilling, and to a lesser extent development drilling, involve a
high degree of risk that no commercial production will be obtained or that the
production will be insufficient to recover drilling and completion costs. The
cost of drilling, completing and operating wells is uncertain. The Company's
drilling operations may be curtailed, delayed or canceled as a result of
numerous factors, including title problems, weather conditions, compliance with
governmental requirements and shortages or delays in the delivery of equipment.
Furthermore, completion of a well does not assure a profit on the investment or
a recovery of drilling, completion and operating costs. See
"Business -- Development Activities" and " -- Exploration Activities."
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 groundwater contamination, are not
necessarily observable even when an inspection is undertaken. See
"Business -- Acquisition Activities."
The consummation of the Cometra Acquisition will substantially increase the
Company's reserves, cash flow and production. The Company's ability to achieve
any advantages from the Cometra Acquisition will depend in large part on
successfully integrating the Cometra Properties into the operations of the
Company. No assurances can be made that the Company will be able to achieve such
integration successfully.
EFFECTS OF LEVERAGE
On a pro forma basis giving effect to the Cometra Acquisition and the
related financings, at September 30, 1996, the Company's outstanding
indebtedness would have been $393 million and the Company's ratio of total debt
to total capitalization would have been 64%. The Company's level of indebtedness
will have several important effects on its future operations, including (i) a
substantial portion of the Company's cash
12
<PAGE> 15
flow from operations must be dedicated to the payment of interest on its
indebtedness and will not be available for other purposes, (ii) covenants
contained in the Company's debt obligations will require the Company to meet
certain financial tests, and other restrictions will limit its ability to borrow
additional funds or to dispose of assets and may affect the Company's
flexibility in planning for, and reacting to, changes in its businesses,
including possible acquisition activities and (iii) the Company's ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may be
impaired. The Company's ability to meet its debt service obligations and to
reduce its total indebtedness will be dependent upon the Company's future
performance, which will be subject to oil and gas prices, the Company's level of
production, general economic conditions and to financial, business and other
factors affecting the operations of the Company, many of which are beyond its
control. There can be no assurance that the Company's future performance will
not be adversely affected by some or all of these factors.
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 the Credit Facility among
the Company and several banks (the "Banks") to borrow a portion of the funds
required for any given transaction or project. If funds under the Credit
Facility 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 Facility 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"). On a pro forma
basis, at January 15, 1997, the Borrowing Base would have been $400 million, of
which the Company would have had borrowings of $220 million outstanding. The
Borrowing Base will be reduced to $325 million 180 days after the funding of the
Cometra Acquisition, unless otherwise agreed to by the Banks. If oil or gas
prices decline below their current levels, the availability of funds and the
ability to pay outstanding amounts under the Credit Facility could be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition -- Liquidity and Capital Resources."
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, cratering, fires, explosions, pipeline ruptures or
spills, pollution and other risks, any of which could result in personal
injuries, loss of life, damage to properties, environmental pollution,
suspension of operations 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 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. The Company is currently not curtailed on any of its production.
Certain of the Cometra Properties are offshore operations in the Gulf of
Mexico which are subject to a variety of operating risks peculiar to the marine
environment, such as hurricanes or other adverse weather conditions, more
extensive governmental regulation, including regulations that may, in certain
circumstances, impose strict liability for pollution damage, and to interruption
or termination of operations by governmental authorities based on environmental
or other considerations.
13
<PAGE> 16
HEDGING RISKS
The Company has currently hedged approximately 12% of its pro forma
production through April 1997. These hedges have in the past involved fixed
price arrangements and other price arrangements at a variety of prices, floors
and caps. The Company may in the future enter into oil and natural gas futures
contracts, options and swaps. The Company's hedging activities, while intended
to reduce the Company's sensitivity to changes in market prices of oil and gas,
are subject to a number of other risks. In addition, such transactions may
expose the Company to the risk of financial loss in certain circumstances,
including instances in which (i) production is less than expected, (ii) there is
a widening of price differentials between delivery points required by fixed
price delivery contracts to the extent they differ from those of the Company's
production, (iii) the Company's customers or the counterparties to its futures
contracts fail to purchase or deliver the contracted quantities of oil or
natural gas or (iv) a sudden, unexpected event materially impacts oil or natural
gas prices. Additionally, the fixed price sales and hedging contracts limit the
benefits the Company will realize if actual prices rise above the contract
prices. In the future, the Company may increase the percentage of its production
covered by hedging arrangements.
GAS CONTRACT RISK
A significant portion of the Company's production is subject to fixed price
contracts. On a pro forma basis, approximately 47% of average gas production for
December 1996 was sold subject to fixed price sales contracts (including a
contract relating to the Cometra Properties described below). These fixed price
contracts are at prices ranging from $2.15 to $3.70 per Mcf. The fixed price
contracts with terms of less than one year, between one and five years and
greater than five years constitute approximately 31%, 65% and 4%, respectively,
of the volume sold under fixed price contracts. The fixed price sales contracts
limit the benefits the Company will realize if actual prices rise above the
contract prices.
As part of the Cometra Acquisition, the Company acquired a gas sales
contract covering 20,000 acres currently producing approximately 20,000 Mcf/d.
The price paid pursuant to the contract was $3.70 per Mcf at December 31, 1996
(55% higher than average 1996 natural gas prices received by the Company) and
escalates at $0.05 per Mcf per annum. The contract is with a large gas utility
and expires in June 2000. This contract represents 14% of the Company's pro
forma December 1996 production on an Mcfe basis.
The Company believes that these fixed price contracts are enforceable and
it has not received any notice or other indication from any of the
counterparties that they intend to cease performing any of their obligations
under these contracts. However, there can be no assurance that one or more of
these counterparties will not attempt to mitigate their obligations under these
contracts. If any of the purchasers under the contracts should be successful in
doing so, then the Company could be required to market its production on less
attractive terms, which could have a material adverse effect on the Company's
earnings and cash flow.
GAS GATHERING, PROCESSING AND MARKETING
The Company's gas gathering, processing and marketing operations depend in
large part on the ability of the Company to contract with third party producers
to produce their gas, to obtain sufficient volumes of committed natural gas
reserves, to maintain throughput in the Company's processing plant at optimal
levels, to replace production from declining wells, to assess and respond to
changing market conditions in negotiating gas purchase and sale agreements and
to obtain satisfactory margins between the purchase price of its natural gas
supply and the sales price for such residual gas volumes and the natural gas
liquids processed. In addition, the Company's operations are subject to changes
in regulations relating to gathering and marketing of oil and gas. The inability
of the Company to attract new sources of third party natural gas or to promptly
respond to changing market conditions or regulations in connection with its
gathering, processing and marketing operations could materially adversely affect
the Company's results of operations.
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
14
<PAGE> 17
oil and gas. These regulations, among other things, control the rate of oil and
gas production, and control the amount of oil that may be imported. The
Company's operations are subject to numerous laws and regulations governing the
discharge of materials into the environment or otherwise relating to
environmental protection. These laws and regulations require the acquisition of
a permit before drilling commences, restrict the types, quantities and
concentration of various substances that can be released into the environment in
connection with drilling and production activities, limit or prohibit drilling
activities on certain lands lying within wilderness, wetlands and other
protected areas, and impose substantial liabilities for pollution which might
result from the Company's operations. Moreover, the recent trend toward stricter
standards in environmental legislation and regulation is likely to continue. For
instance, legislation has been proposed in Congress from time to time that would
reclassify certain crude oil and natural gas exploration and production wastes
as "hazardous wastes" which would make the reclassified wastes subject to much
more stringent handling, disposal and clean-up requirements. If such legislation
were to be enacted, it could have a significant impact on the operating costs of
the Company, as well as the oil and gas industry in general. Initiatives to
further regulate the disposal of crude oil and natural gas wastes are also
pending in certain states, and these various initiatives could have a similar
impact on the Company. The Company could incur substantial costs to comply with
environmental laws and regulations.
COMPETITION
The Company encounters substantial competition in acquiring properties,
marketing oil and gas, securing equipment and personnel and operating its
properties. The competitors in acquisitions, development, exploration and
production include major oil companies, numerous independents, individual
proprietors and others. Many of these competitors have financial and other
resources which substantially exceed those of the Company. 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 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, including John H. Pinkerton, the Company's
President and Chief Executive Officer. However, the Company does not have
employment contracts with any of its officers or key employees. 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"), an independent publicly traded oil and gas company,
and Chairman, President and Chief Executive Officer of Patina Oil & Gas Company
("Patina"), a publicly traded oil and gas company in which SOCO owns a majority
interest. The Company currently has no existing business relationships with
either SOCO or Patina, and neither SOCO nor Patina owns any of the Company's
securities. However, as a result of Mr. Edelman's position in these companies,
conflicts of interests may arise between them. 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 will not compete with
SOCO or Patina for the same acquisition or encounter other conflicts of
interest. See "Management" and "Certain Transactions."
15
<PAGE> 18
FORWARD-LOOKING INFORMATION
Information included in this Prospectus, including information incorporated
by reference herein, contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act, including
projections, estimates and expectations. Those statements by their nature are
subject to certain risks, uncertainties and assumptions and will be influenced
by various factors. Should one or more of these statements or their underlying
assumptions prove to be incorrect, actual results could vary materially.
Although the Company believes that such projections, estimates and expectations
are based on reasonable assumptions, it can give no assurance that such
projections, estimates and expectations will be achieved. Important factors that
could cause actual results to differ materially from those in the
forward-looking statements herein include political developments in foreign
countries, federal and state regulatory developments, the timing and extent of
changes in commodity prices, the extent of success in acquiring oil and gas
properties and in discovering, developing and producing reserves and conditions
of the capital markets and equity markets during the periods covered by the
forward-looking statements. See "Risk Factors" for further information with
respect to certain of such factors. In addition, certain of such projections and
expectations are based on historical results, which may not be indicative of
future performance. See "Unaudited Pro Forma Consolidated Financial Statements."
16
<PAGE> 19
COMETRA ACQUISITION
GENERAL
On December 31, 1996, the Company agreed to acquire the Cometra Properties
for a purchase price of $400 million, subject to adjustment. As a result of the
Cometra Acquisition, the Company will significantly expand its inventory of both
development and exploration projects, increase its proved reserves at December
31, 1996 by 68% to 644 Bcfe and increase the Company's Present Value at December
31, 1996 by 98% to $974 million.
COMETRA PROPERTIES
The Cometra Properties include 150,000 gross acres (90,000 net) located
within the Company's core operating areas in West Texas, South Texas and the
Gulf of Mexico. Netherland, Sewell & Associates, Inc., independent petroleum
consultants, estimated that at December 31, 1996, the Cometra Properties had
proved reserves of 202 Bcf of gas and 9.7 Mmbbls of oil with a Present Value of
$482 million. In December 1996, the Cometra Properties produced at a rate of 66
Mmcfe/d through 515 wells. The Cometra Properties include 265 miles of gas
pipelines and a 25,000 Mcf/d capacity gas processing plant.
The West Texas properties are located in the Val Verde and Permian Basins
and account for 81% of the acquired reserves on a Present Value basis. The South
Texas/Gulf of Mexico properties account for 19% of the acquired reserves on a
Present Value basis. All of the Cometra Properties, except for the Gulf of
Mexico properties, are within the Company's existing core operating areas. As a
result, the Company expects to be able to quickly integrate the properties and
begin exploitation activities. To facilitate the integration, the Company plans
to offer positions to substantially all of Cometra's field and technical staff
associated with these properties.
On a Present Value basis, 95% and 70%, respectively, of the West Texas and
South Texas/Gulf of Mexico properties are operated by the Company. The offshore
properties are operated by experienced third parties. Although the Company has
no definitive plans to do so at this time, the Company has previously announced
that it may elect to sell all or part of the Gulf of Mexico properties because
they are not located in the Company's core areas.
RESERVES
The following table sets forth summary information with respect to the
proved reserves of the Cometra Properties by region at December 31, 1996:
<TABLE>
<CAPTION>
PRESENT VALUE NATURAL
------------------- NATURAL GAS
AMOUNT OIL & NGLS GAS EQUIV.
(THOUSANDS) % (MBBLS) (MMCF) (MMCFE)
----------- ----- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
West Texas................................. $387,852 80.6% 8,271 174,339 223,965
South Texas/Gulf of Mexico................. 93,639 19.4 1,459 27,667 36,421
-------- ----- ----- ------- -------
Total............................ $481,491 100.0% 9,730 202,006 260,386
-------- ----- ----- ------- -------
</TABLE>
The West Texas properties consist of 450 wells on 99,000 gross acres
(70,000 net) located principally in the Val Verde and Permian Basins. The
Company will assume operations on 95% of the properties on a Present Value basis
and will operate the pipelines and gas processing plant. Existing production
ranges in depth from 3,000 to 7,000 feet. The Company has identified 365 proven
recompletion and development drilling projects in this area. In the Val Verde
Basin, the Company will benefit from a $3.70 per Mcf gas sales contract covering
20,000 acres currently producing approximately 20,000 Mcf/d. The contract is
with a large gas utility and expires in June 2000.
The South Texas/Gulf of Mexico properties consist of 99 wells on 51,000
gross acres (20,000 net). The Company will assume operation of 70% of the
properties on a Present Value basis, primarily in South Texas. The Gulf of
Mexico properties include 14 producing wells on seven offshore platforms, all of
which are
17
<PAGE> 20
operated by third parties, including British Borneo Exploration, Samedan Oil
Corporation and Seneca Resources. Total net daily production from the South
Texas/Gulf of Mexico properties is 22.3 Mmcfe. Onshore, production comes from
depths ranging from 1,000 to 12,000 feet, and has an estimated reserve life in
excess of seven years. In the Gulf of Mexico, production ranges in depth from
8,000 to 14,000 feet, while water depths vary from 50 to 220 feet. The Company
has identified a total of 36 development projects. Both shallower and deeper
horizons hold potential exploration opportunities, which the Company expects to
evaluate further with the assistance of 3-D seismic technology.
GAS PLANTS AND PIPELINES
As part of the Cometra Acquisition, the Company will acquire 265 miles of
gas pipelines and a 25,000 Mcf/d capacity gas processing plant in the Permian
Basin. The gas plant, located outside Sterling, Texas, was constructed in 1995
and is currently processing gas, approximately 50% of which is attributable to
Company-operated wells, at the rate of 21,700 Mcf/d. The Company believes that
the plant's capacity could be expanded to 35,000 Mcf/d for an additional capital
expenditure of approximately $4.0 million.
PURCHASE AGREEMENTS
The Company acquired the Cometra Properties pursuant to Purchase and Sale
Agreements dated December 31, 1996 (the "Purchase Agreements"). The Purchase
Agreements have an effective date of October 1, 1996 (the "Effective Date") and
the funding is expected to occur on February 14, 1997 (the "Funding Date").
The Purchase Agreements provide for adjustments to the purchase price for,
among other things, (i) cash flow attributable to the Cometra Properties from
the Effective Date to the Funding Date, (ii) prepaid and unpaid ad valorem,
property, production, severance and similar taxes, (iii) overproduction or
underproduction of natural gas by Cometra as of the Funding Date, (iv)
reimbursement of overhead costs incurred by Cometra from the Effective Date to
the Funding Date, and (v) obligations of Cometra arising under any prepayment
arrangements prior to the Funding Date.
If the Funding Date occurs on February 14, 1997, it is currently estimated
that the adjusted purchase price for the Cometra Properties will be $375
million. Of this amount, $220 million is payable in cash on the Funding Date
(including cash deposits previously made) and $30 million is payable through the
issuance to Cometra of a number of shares of Common Stock determined by dividing
$30 million by the average closing price of the Common Stock on the NYSE for the
five trading days immediately preceding February 14, 1997. The Company will
issue to Cometra a $125 million non-interest bearing promissory note due March
31, 1997, which is secured by a bank letter of credit, for the balance of the
adjusted purchase price. The Cometra Acquisition is subject to certain closing
conditions, including the expiration of any applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
NOTES OFFERING
Concurrently with the Common Stock Offering, the Company is offering $100
million aggregate principal amount of its Senior Subordinated Notes due 2007.
The closings of the Common Stock Offering and the Notes Offering are contingent
upon each other. Neither the Common Stock Offering nor the Notes Offering will
be completed until after the consummation of the Cometra Acquisition. The Notes
will be unconditionally guaranteed on an unsecured, senior subordinated basis,
by each of the Company's subsidiaries, provided that such guarantees will
terminate under certain circumstances. The Indenture for the Notes will contain
certain covenants, including, but not limited to, covenants with respect to the
following matters: (i) limitation on restricted payments; (ii) limitation on the
incurrence of indebtedness; (iii) limitation on issuances and sales of capital
stock by restricted subsidiaries; (iv) limitation on liens; (v) limitation on
disposition of proceeds of asset sales; (vi) limitation on transactions with
affiliates; (vii) limitation on dividends and other payment restrictions
affecting restricted subsidiaries; (viii) restrictions on mergers,
consolidations and transfers of assets; (ix) limitations on subsidiary
indebtedness and preferred stock; and (x) limitation on "layering" indebtedness.
18
<PAGE> 21
USE OF PROCEEDS
The net proceeds of the Common Stock Offering are estimated to be
approximately $79.3 million (assuming an offering price of $21 per share) and
the net proceeds of the Notes Offering are estimated to be approximately $96.7
million, after deducting underwriting discounts and estimated expenses. The
Company intends to use all of such net proceeds to repay certain indebtedness
incurred under the Credit Facility to fund a portion of the cash purchase price
for the Cometra Properties. See "Cometra Acquisition" and "Notes Offering." At
December 31, 1996, indebtedness under the Credit Facility, which expires in
January 2002, had a weighted average interest rate of 6.7%. For additional
information with respect to the interest rates, maturity and covenants related
to the Credit Facility, see "Description of Capital Stock and Indebtedness
- -- Credit Facility."
19
<PAGE> 22
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996, and the pro forma capitalization of the Company at September
30, 1996, giving effect to the offering of 6% Convertible Subordinated
Debentures in December 1996 and the Cometra Acquisition and the related
financings (including the application of the net proceeds from the Offerings as
described in "Use of Proceeds") as if such transactions occurred on September
30, 1996. This table should be read in conjunction with the Consolidated
Financial Statements and Unaudited Pro Forma Consolidated Financial Statements
and Notes thereto included herein, and "Selected Consolidated Financial Data"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------
ACTUAL PRO FORMA
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Current portion of debt..................................... $ -- $ --
======== ========
Long-term debt:
Revolving credit facility................................. $121,905 $238,055
% Senior Subordinated Notes............................. -- 100,000
6% Convertible Subordinated Debentures (1)................ -- 55,000
-------- --------
Total long-term debt........................................ $121,905 $393,055
======== ========
Stockholders' equity:
Preferred Stock, $1 par value, 4,000,000 shares
authorized: $2.03 Convertible Exchangeable
Preferred Stock 1,150,000 shares outstanding
($28,750,000 liquidation preference)(2)................. 1,150 1,150
Common Stock, $.01 par value, 35,000,000 shares
authorized: 14,705,293 issued and outstanding;
20,133,864 shares issued and outstanding
pro forma (3)(4)....................................... 147 201
Capital in excess of par value............................ 109,915 219,161
Retained earnings......................................... 1,654 1,654
-------- --------
Total stockholders' equity........................ 112,866 222,166
-------- --------
Total capitalization......................... $234,771 $615,221
======== ========
</TABLE>
- ---------------
(1) The 6% Convertible Subordinated Debentures were issued on December 27, 1996.
See "Description of Capital Stock and Indebtedness."
(2) The $2.03 Convertible Exchangeable Preferred Stock may, at the election of
the Company, be exchanged for an aggregate of $28,750,000 principal amount
of 8.125% Convertible Subordinated Notes due December 31, 2005. See
"Description of Capital Stock and Indebtedness."
(3) As of January 17, 1997. Excludes 1,219,432 shares reserved for issuance upon
the exercise of outstanding options and warrants, of which 503,932 are
currently exercisable; 3,026,316 shares issuable upon conversion of the
$2.03 Convertible Preferred Stock; and 2,857,143 shares issuable upon
conversion of the 6% Convertible Subordinated Debentures due 2007. See
"Description of Capital Stock and Indebtedness."
(4) Includes 1,428,571 shares to be issued to Cometra as partial consideration
for the Cometra Properties based on an assumed average market price for the
Common Stock of $21 per share.
20
<PAGE> 23
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock was listed on the NYSE on October 11, 1996 under the
symbol "LOM." Prior to listing on the NYSE, the Common Stock was listed on the
Nasdaq National Market under the symbol "LOMK." At January 17, 1997, 14,801,654
shares were held by 4,306 stockholders of record.
<TABLE>
<CAPTION>
COMMON STOCK
HIGH LOW DIVIDENDS
------- ------- ------------
<S> <C> <C> <C>
1997
First Quarter (through January 21).............. $23.625 $17.125 (a)
1996
Fourth Quarter.................................. $17.375 $13.125 $ .02
Third Quarter................................... 14.875 12.750 .02
Second Quarter.................................. 15.500 11.625 .01
First Quarter................................... 12.125 9.560 .01
1995
Fourth Quarter.................................. $ 7.500 $ 5.500 $ .01
Third Quarter................................... 9.250 7.250 --
Second Quarter.................................. 8.188 7.250 --
First Quarter................................... 7.375 5.500 --
</TABLE>
- ---------------
(a) Since the fourth quarter of 1995, dividends have been declared at the
beginning of the last month of each calendar quarter and have been paid at
the end of such calendar quarter.
Dividends on the Common Stock were initiated in December 1995 and have been
paid in each successive quarter. The $2.03 Convertible Preferred Stock receives
cumulative quarterly dividends at the annual rate of $2.03 per share. If there
is any arrearage in dividends on the $2.03 Convertible Preferred Stock, the
Company may not pay dividends on the Common Stock. The Company has never been in
arrears in the payment of dividends on the $2.03 Convertible Preferred Stock.
See "Description of Capital Stock and Indebtedness."
The payment of dividends is subject to declaration by the Board of
Directors and may depend upon earnings, capital expenditures and market factors
existing from time to time. The Credit Facility and the Indenture for the Notes
contain restrictions on the Company's ability to pay dividends on capital stock.
Under the most restrictive of these provisions, the Company could have paid
$ of dividends as of December 31, 1996.
21
<PAGE> 24
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited pro forma consolidated financial statements give
effect to: (i) the purchase by the Company of certain oil and gas properties
from a subsidiary of Parker & Parsley Petroleum Co. ("Parker & Parsley") in
August 1995 for $20 million, (ii) the purchase by the Company of certain oil and
gas properties from Transfuel, Inc. ("Transfuel") in September 1995 for $21
million and (iii) the purchase by the Company of certain oil and gas properties
from Bannon Energy Incorporated (the "Bannon Acquisition") in April 1996 for $37
million (collectively referred to as the "Prior Acquisitions"). The unaudited
pro forma consolidated financial statements also give effect to the Cometra
Acquisition, the private placements of the Company's $2.03 Convertible
Exchangeable Preferred Stock, 1.8 million shares of Common Stock and $55 million
of 6% Convertible Subordinated Debentures (collectively referred to as the
"Private Placements") and the application of the estimated net proceeds
therefrom. Additionally, the unaudited pro forma consolidated financial
statements give effect to the Offerings. The unaudited pro forma consolidated
statement of income for the year ended December 31, 1995 was prepared as if the
Prior Acquisitions, the Cometra Acquisition, the Private Placements and the
Offerings (collectively, the "Transactions") had occurred on January 1, 1995.
The unaudited pro forma consolidated statement of income for the nine months
ended September 30, 1996 was prepared as if the Transactions had occurred on
January 1, 1996. The accompanying unaudited pro forma consolidated balance sheet
of the Company as of September 30, 1996 has been prepared as if the Transactions
had occurred as of that date. The historical information provided in the
statements of income for the year ended December 31, 1995 and for the nine
months ended September 30, 1996, represents the following periods prior to their
inclusion in Lomak's historical results of operations for the various
acquisitions: (i) Parker & Parsley represents the period from January 1, 1995
through July 31, 1995, (ii) Transfuel represents the period from January 1, 1995
through September 30, 1995, (iii) Bannon represents the periods from January 1,
1995 through December 31, 1995 and from January 1, 1996 through March 31, 1996
and (iv) the Cometra Acquisition represents the periods from January 1, 1995
through December 31, 1995 and from January 1, 1996 through September 30, 1996.
This information is not necessarily indicative of future consolidated
results of operations and it should be read in conjunction with the separate
historical statements and related notes of the respective entities appearing
elsewhere in this Registration Statement or incorporated by reference herein.
22
<PAGE> 25
LOMAK PETROLEUM, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRIOR COMETRA PRO FORMA PRE OFFERING OFFERING PRO FORMA
LOMAK ACQUISITIONS ACQUISITION ADJUSTMENTS LOMAK ADJUSTMENTS LOMAK
------- ------------ ----------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Oil and gas sales........... $37,417 $17,549 $43,514 $ $ 98,480 $ $ 98,480
Field services.............. 10,097 -- -- 240(e) 10,337 10,337
Transportation and
marketing................. 3,284 -- 5,277 7,700(e) 16,261 16,261
Interest and other.......... 1,317 -- -- 1,317 1,317
------- ------- --------
52,115 17,549 48,791 126,395 126,395
------- ------- --------
EXPENSES
Direct operating............ 14,930 7,355 12,728 (1,300)(e) 33,713 33,713
Field services.............. 6,469 -- -- 6,469 6,469
Transportation and
marketing................. 849 -- -- 7,700(e) 8,549 8,549
Exploration................. 512 -- -- 512 512
General and
administrative............ 2,736 -- -- 1,638(d,e) 4,374 4,374
Interest.................... 5,584 -- -- 27,106(a) 32,690 (3,176)(b) 29,514
Depletion, depreciation and
amortization.............. 14,863 -- -- 24,413(c) 39,276 -- 39,276
------- ------- --------
45,943 7,355 12,728 125,583 122,407
------- ------- --------
Income before taxes........... 6,172 10,194 36,063 812 3,988
INCOME TAXES
Current..................... (86) -- -- 40(f) (46) (180)(g) (226)
Deferred.................... (1,696) -- -- 1,508(f) (188) (735)(g) (923)
------- ------- --------
Net income.................... $ 4,390 $10,194 $36,063 $ 578 $ 2,839
======= ======= ========
Net income applicable to
common shares............... $ 3,659 $ 505
======= ========
Earnings per common share..... $ 0.31 $ 0.03
======= ========
Weighted average shares
outstanding................. 11,841 4,133 4,000 19,974
======= ========
</TABLE>
See notes to pro forma consolidated financial statements
23
<PAGE> 26
LOMAK PETROLEUM, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRIOR COMETRA PRO FORMA PRE OFFERING OFFERING PRO FORMA
LOMAK ACQUISITIONS ACQUISITION ADJUSTMENTS LOMAK ADJUSTMENTS LOMAK
------- ------------ ----------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Oil and gas sales.......... $49,878 $1,703 $42,649 $ $ 94,230 $ $ 94,230
Field services............. 10,483 -- -- 180(k) 10,663 10,663
Gas transportation and
marketing................ 4,137 -- 4,564 8,157(k) 16,858 16,858
Interest and other......... 1,102 -- -- 1,102 1,102
------- ------ ------- -------- --------
65,600 1,703 47,213 122,853 122,853
------- ------ ------- -------- --------
EXPENSES
Direct operating........... 18,268 562 10,309 29,139 29,139
Field services............. 7,813 -- -- 7,813 7,813
Gas transportation and
marketing................ 1,206 -- -- 8,157(k) 9,363 9,363
Exploration................ 836 -- -- 836 836
General and
administrative........... 2,862 -- -- 1,237(k) 4,099 -- 4,099
Interest................... 5,563 -- -- 17,656(h) 23,219 (1,319)(i) 21,900
Depletion, depreciation and
amortization............. 16,589 -- -- 15,218(j) 31,807 31,807
------- ------ ------- -------- --------
53,137 562 10,309 106,276 104,957
------- ------ ------- -------- --------
Income before taxes.......... 12,463 1,141 36,904 16,577 17,896
INCOME TAXES
Current.................... (299) -- -- (242)(l) (541) (43) (584)
Deferred................... (4,061) -- -- (1,190)(l) (5,251) (419) (5,670)
------- ------ ------- -------- -------- ------- --------
Net income................... $ 8,103 $1,141 $36,904 $ 10,785 $ 11,642
======= ====== ======= ======== ========
Net income applicable to
common shares.............. $ 6,232 $ 9,891
======= ========
Earnings per common share.... $ 0.43 $ 0.49
======= ========
Weighted average shares
outstanding................ 14,615 1,601 4,000 20,216
======= ========
</TABLE>
See notes to pro forma consolidated financial statements
24
<PAGE> 27
LOMAK PETROLEUM, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRE-OFFERING OFFERING PRO FORMA
LOMAK ADJUSTMENTS LOMAK ADJUSTMENTS LOMAK
-------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents......... $ 4,880 $ $ 4,880 $ $ 4,880
Accounts receivable.......... 14,861 14,861 14,861
Marketable securities........ 13,176 13,176 13,176
Inventory and other.......... 1,696 1,696 1,696
---------- ---------- ---------
Total current assets...... 34,613 34,613 34,613
---------- ---------- ---------
Oil and gas properties......... 280,089 315,500(p) 595,589 595,589
Accumulated depletion and
amortization............ (48,025) (48,025) (48,025)
---------- ---------- ---------
232,064 547,564 547,564
---------- ---------- ---------
Gas transportation and field
service assets............... 22,597 60,000 82,597 82,597
Accumulated
depreciation............ (5,122) (5,122) (5,122)
---------- ---------- ---------
17,475 77,475 77,475
---------- ---------- ---------
Other assets................. -- 1,650(n) 1,650 3,300(q) 4,950
---------- ---------- ---------
$284,152 $661,302 $ 664,602
========== ========== =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Accounts payable............. $ 16,752 $ $ 16,752 $ $ 16,752
Accrued liabilities.......... 8,817 8,817 8,817
Current portion of debt...... --
---------- ---------- ---------
Total current
liabilities............. 25,569 25,569 25,569
---------- ---------- ---------
Revolving credit facility...... 121,905 (53,350)(n) 414,055 (79,300)(o) 238,055
345,500(p) (96,700)(q)
% Senior subordinated notes... 100,000(q) 100,000
6% Convertible subordinated
debentures................... -- 55,000(n) 55,000 55,000
---------- ---------- ---------
121,905 469,055 393,055
---------- ---------- ---------
Deferred taxes................. 23,812 23,812 23,812
Stockholders' equity
Preferred stock, $1 par,
4,000,000 shares
authorized
$2.03 convertible
preferred, 1,150,000
issued (liquidation
preference $28,750,000)... 1,150 1,150 1,150
Common Stock, $.01 par,
35,000,000 shares
authorized, 14,705,293
shares issued and
outstanding, 20,133,864
shares issued and
outstanding pro forma..... 147 14(p) 161 40(o) 201
Capital in excess of par
value..................... 109,915 29,986(p) 139,901 79,260(o) 219,161
Retained earnings............ 1,654 1,654 1,654
---------- ---------- ---------
Total stockholders'
equity.................. 112,866 142,866 222,166
---------- ---------- ---------
$284,152 $661,302 $ 664,602
========== ========== =========
</TABLE>
See notes to pro forma consolidated financial statements
25
<PAGE> 28
LOMAK PETROLEUM, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE (1) PRO FORMA ADJUSTMENTS FOR THE TRANSACTIONS -- FOR THE YEAR ENDED
DECEMBER 31, 1995
The accompanying unaudited pro forma consolidated statement of income for
the year ended December 31, 1995 has been prepared as if the Transactions had
occurred on January 1, 1995 and reflects the following adjustments:
(a) To adjust interest expense for the estimated amounts that would have
been incurred on the incremental borrowings in connection with the
Prior Acquisitions and the Cometra Acquisition and for the estimated
amounts that would have been repaid with the net proceeds from the
Private Placements.
(b) To adjust interest expense for the estimated amounts that would have
been repaid with the net proceeds from the Offerings.
(c) To record depletion expense for the Prior Acquisitions and the Cometra
Acquisition at a rate of $0.75 per Mcfe, and to record depreciation
expense on the gas processing plant purchased in the Cometra
Acquisition.
(d) To remove minority interest of $1,200 from January 1995 Red Eagle
income statement.
(e) To adjust historical field services revenues for income increases and
cost reclassifications and oil and gas production and general and
administrative expenses for cost reductions and increases due to
integration of the Prior Acquisitions and the Cometra Acquisition.
(f) To adjust the provision for income taxes for the change in taxable
income resulting from the Prior Acquisitions and the Cometra
Acquisition and the effect on deferred taxes recorded at January 1,
1995 had the acquisitions taken place at that time.
(g) To adjust the provision for income taxes resulting from interest
adjustments made to reflect the amounts of borrowings repaid with the
net proceeds from the Offerings and the effect on deferred taxes
recorded at January 1, 1995 had the Offerings taken place at that time.
NOTE (2) PRO FORMA ADJUSTMENTS FOR THE TRANSACTIONS -- FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
The accompanying unaudited pro forma consolidated statement of income for
the nine months ended September 30, 1996 has been prepared as if the
Transactions had occurred on January 1, 1996 and reflects the following
adjustments:
(h) To adjust interest expense for the estimated amount that would have
been incurred on the incremental borrowings for the Bannon Acquisition
and the Cometra Acquisition, net of proceeds received from the Private
Placements and the Offerings.
(i) To adjust interest expense for the estimated amounts that would have
been repaid with the net proceeds from the Offerings.
(j) To record depletion expense for the Bannon Acquisition and the Cometra
Acquisition at a rate of $0.86 per Mcfe, to adjust the historical
depletion rate for Lomak from $0.73 to $0.86 per Mcfe, and to record
depreciation expense on the gas processing plant purchased in the
Cometra Acquisition.
(k) To adjust historical field services revenues for income increases and
costs reclassifications and general and administrative expenses for
cost increases due to integration of the Bannon Acquisition and the
Cometra Acquisition.
(l) To adjust the provision for income taxes for the change in taxable
income resulting from the Bannon Acquisition and the effect on deferred
taxes recorded at January 1, 1996 had the acquisition taken place at
that time.
(m) To adjust the provision for income taxes for the change in taxable
income resulting from interest adjustments made to reflect the amounts
of borrowings repaid with the net proceeds from the Offerings and the
effect on deferred taxes recorded at January 1, 1996 had the Offerings
taken place at that time.
26
<PAGE> 29
LOMAK PETROLEUM, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
NOTE (3) PRO FORMA ADJUSTMENTS FOR THE COMETRA ACQUISITION, THE PRIVATE
PLACEMENTS AND THE OFFERINGS -- AS OF SEPTEMBER 30, 1996
(n) To record the offering of $55 million of the 6% Convertible
Subordinated Debentures and the application of proceeds therefrom.
(o) To record the Common Stock Offering, net of offering costs and the
application of proceeds therefrom.
(p) To record the Cometra Acquisition.
(q) To record the Notes Offering, net of offering costs and the application
of proceeds therefrom.
27
<PAGE> 30
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables present selected consolidated financial data covering
the five years ended December 31, 1995 and the nine months ended September 30,
1995 and 1996. Such data has been derived from, and should be read in
conjunction with, the audited Consolidated Financial Statements and Notes
thereto for each of the five years ended December 31, 1995, and the nine months
ended September 30, 1996, the Unaudited Pro Forma Consolidated Financial
Statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
PRO FORMA
1991 1992 1993 1994 1995 1995
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and gas sales................... $ 5,466 $ 7,703 $ 11,132 $ 24,461 $ 37,417 $ 98,480
Field services...................... 3,966 5,283 6,966 7,667 10,097 10,337
Gas transportation and marketing.... 197 332 559 2,195 3,284 16,261
Interest and other.................. 939 577 418 471 1,317 1,317
-------- -------- -------- -------- -------- --------
10,568 13,895 19,075 34,794 52,115 126,395
Expenses:
Direct operating.................... 2,164 3,039 4,438 10,019 14,930 33,713
Field services...................... 2,580 3,951 5,712 5,778 6,469 6,469
Gas transportation and marketing.... -- -- 13 490 849 8,549
Exploration......................... 5 36 86 359 512 512
General and administrative.......... 2,208 1,915 2,049 2,478 2,736 4,374
Interest............................ 672 952 1,120 2,807 5,584 29,514
Depletion, depreciation and
amortization....................... 2,387 3,124 4,347 10,105 14,863 39,276
-------- -------- -------- -------- -------- --------
10,016 13,017 17,765 32,036 45,943 122,407
-------- -------- -------- -------- -------- --------
Income before taxes.................. 552 878 1,310 2,758 6,172 3,988
Income taxes......................... (125) (192) 81 (139) (1,782) (1,149)
-------- -------- -------- -------- -------- --------
Net income........................... $ 427 $ 686 $ 1,391 $ 2,619 $ 4,390 $ 2,839
======== ======== ======== ======== ======== ========
Earnings per common share............ $ 0.01 $ 0.08 $ 0.18 $ 0.25 $ 0.31 $ 0.03
======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA (a)........................... $ 3,616 $ 5,003 $ 6,863 $ 16,029 $ 27,131 $ 73,290
Net cash provided by operations...... 1,189 5,168 4,305 11,241 16,561 N/A
Capital expenditures................. 11,901 5,920 48,240 70,024 88,530 N/A
Ratios:
EBITDA to interest expense.......... 5.4x 5.3x 6.1x 5.7x 4.9x 2.5x
Earnings to fixed charges (b)....... 1.8x 1.9x 2.2x 2.0x 2.1x 1.1x
Total debt to EBITDA................ 3.4x 2.6x 4.5x 3.9x 3.1x N/A
BALANCE SHEET DATA (END OF PERIOD):
Cash and equivalents................. $ 1,177 $ 2,261 $ 2,019 $ 4,897 $ 3,047 N/A
Total assets......................... 24,332 28,328 76,333 141,768 214,664 N/A
Long-term debt (c)................... 12,443 13,127 31,108 62,592 83,088 N/A
Stockholders' equity................. 7,962 9,504 32,263 43,248 99,243 N/A
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
PRO FORMA
1995 1996 1996
-------- -------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and gas sales................... $ 24,135 $ 49,878 $ 94,230
Field services...................... 7,109 10,483 10,663
Gas transportation and marketing.... 2,332 4,137 16,858
Interest and other.................. 1,052 1,102 1,102
-------- -------- --------
34,628 65,600 122,853
Expenses:
Direct operating.................... 9,935 18,268 29,139
Field services...................... 4,192 7,813 7,813
Gas transportation and marketing.... 595 1,206 9,363
Exploration......................... 473 836 836
General and administrative.......... 2,187 2,862 4,099
Interest............................ 3,822 5,563 21,900
Depletion, depreciation and
amortization....................... 9,808 16,589 31,807
-------- -------- --------
31,102 53,137 104,957
-------- -------- --------
Income before taxes.................. 3,616 12,463 17,896
Income taxes......................... (898) (4,360) (6,254)
-------- -------- --------
Net income........................... $ 2,718 $ 8,103 $ 11,642
======== ======== ========
Earnings per common share............ $ 0.21 $ 0.43 $ 0.49
======== ======== ========
OTHER FINANCIAL DATA:
EBITDA (a)........................... $ 17,719 $ 35,451 $ 72,439
Net cash provided by operations...... 9,755 24,335 N/A
Capital expenditures................. 87,161 73,520 N/A
Ratios:
EBITDA to interest expense.......... 4.6x 6.4x 3.3x
Earnings to fixed charges (b)....... 1.9x 3.2x 1.8x
Total debt to EBITDA................ N/A N/A N/A
BALANCE SHEET DATA (END OF PERIOD):
Cash and equivalents................. $ 2,401 $ 4,800 $ 4,800
Total assets......................... 203,305 284,152 664,602
Long-term debt (c)................... 113,238 121,905 393,055
Stockholders' equity................. 60,554 112,866 222,166
</TABLE>
- ---------------
(a) EBITDA represents net income plus income taxes, exploration expense,
interest expense and depreciation, depletion and amortization expense.
EBITDA is not presented as an indicator of the Company's operating
performance or as a measure of liquidity.
(b) For the purpose of determining the ratio of earnings to fixed charges,
earnings are defined as net income before taxes plus fixed charges. Fixed
charges consist of interest expense.
(c) Long-term debt includes current portion.
28
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto and the Selected
Consolidated Financial Data included elsewhere herein.
RESULTS OF OPERATIONS
The Company has experienced significant growth in reserves, production,
cash flow and earnings over the past three years. The following tables set forth
selected financial and operating information as well as the annual percentage
change for each of the past three years and the nine month periods ended
September 30, 1995 and 1996:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PRICE DATA)
<S> <C> <C> <C> <C> <C>
Revenues................................. $19,075 $34,794 $52,115 $34,628 $65,600
Expenses................................. 17,765 32,036 45,943 31,012 53,137
Net Income............................... 1,391 2,619 4,390 2,718 8,103
EBITDA(1)................................ 6,863 16,029 27,131 17,719 35,451
Production Volumes:
Natural Gas (Mmcf)..................... 2,590 6,996 12,471 7,825 15,968
Oil and NGLs (Mbbls)................... 318 640 913 649 801
Mmcfe.................................. 4,498 10,836 17,949 11,722 20,776
Average Prices:
Natural Gas (per Mcf).................. $ 2.32 $ 2.10 $ 1.79 $ 1.71 $ 2.19
Oil and NGLs (per Bbl)................. 16.07 15.23 16.57 16.58 18.60
Per Mcfe............................... 2.47 2.26 2.08 2.06 2.40
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGE FROM PRIOR PERIOD
-------------------------------------
YEAR ENDED DECEMBER NINE MONTHS
31, ENDED
-------------------- SEPTEMBER 30,
1993 1994 1995 1996
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Revenues............................................ 37% 82% 50% 89%
Expenses............................................ 37 80 43 71
Net Income.......................................... 103 88 68 198
EBITDA (1).......................................... 39 134 69 100
Production Volumes:
Natural Gas (Mcf)................................. 44 170 78 104
Oil and NGLs (Bbl)................................ 60 101 43 23
Mcfe.............................................. 50 141 66 77
Average Prices:
Natural Gas (per Mcf)............................. 3 (9) (15) 28
Oil and NGLs (per Bbl)............................ (13) (5) 9 12
Per Mcfe.......................................... (4) (9) (8) 17
</TABLE>
- ---------------
(1) EBITDA represents net income plus income taxes, exploration expense,
interest expense and depletion, depreciation and amortization expense.
EBITDA is not presented as an indicator of the Company's operating
performance or as a measure of liquidity.
29
<PAGE> 32
Comparison of Nine Months Ended September 30, 1996 to Nine Months Ended
September 30, 1995
The Company reported net income for the nine months ended September 30,
1996 of $8.1 million, a 198% increase over the same period in 1995. The increase
is the result of higher production levels and product prices.
During the first nine months of 1996, oil and gas production volumes
increased 77% to 20.8 Bcfe, an average of 75.8 Mmcfe/d. Production revenues also
benefited from a 17% increase in the average price received per Mcfe of
production from $2.06 to $2.40. The average oil price increased 12% from $16.58
to $18.60 per barrel and average gas prices increased 28% from $1.71 to $2.19
per Mcf. As a result of a larger base of producing properties, operating
expenses increased 84% to $18.3 million. However, the operating cost per Mcfe
increased only slightly from $0.85 per Mcfe in the nine months ended September
30, 1995 to $0.88 per Mcfe in the 1996 period.
Gas transportation and marketing revenues rose 77% in the first nine months
of 1996 to $4.1 million versus $2.3 million in the first nine months of 1995.
The higher revenues were due primarily to expanded marketing activities and
increased gas transportation revenues attributable to its larger pipeline
network. The increase in gas transportation and marketing expenses of 103%
reflects higher administration costs associated with the growth in gas
marketing.
Field services revenues increased 47% in the first nine months of 1996 to
$10.5 million versus $7.1 million for the same period of 1995. The higher
revenues were due primarily to a larger base of operated properties. Field
services expenses increased 86% in the nine month period of 1996 versus 1995,
due to lower overall margins on the increasing revenue base. Exploration expense
rose 77% due to the Company's increased involvement in acreage acquisition,
seismic and exploratory drilling.
General and administrative expenses increased 31% from $2.2 million for the
first nine months of 1995 to $2.9 million for the first nine months in 1996. On
a per Mcfe of production basis, general and administrative expenses decreased
from $0.19 in the 1995 period to $0.14 for the same period in 1996. Interest and
other income increased slightly primarily due to a higher level of property
sales. Interest expense increased 46% to $5.6 million as a result of the higher
average outstanding debt balance during the 1996 period due to the financing of
acquisitions in the 1996 period.
Depletion, depreciation and amortization expense rose 69% as a result of
increased production volumes. As a percentage of oil and gas revenues,
depletion, depreciation and amortization expense improved to 33% in the 1996
period from 41% in the 1995 period as a result of increased product prices
during the 1996 period. The Company-wide depletion, depreciation and
amortization rate was $0.73 per Mcfe during both periods.
Comparison of 1995 to 1994
The Company reported net income for the year ended December 31, 1995 of
$4.4 million, a 68% increase over 1994. This increase is the result of higher
production volumes attributable to acquisition and development activities.
During the year, oil and gas production volumes increased 66% to 17.9 Bcfe,
an average of 49.2 Mmcfe/d. The increased revenues recognized from production
volumes were partially offset by an 8% decrease in the average price received
per Mcfe of production to $2.08. The average oil price increased 9% to $16.57
per barrel while average gas prices dropped 15% to $1.79 per Mcf. As a result of
the Company's larger base of producing properties and production, oil and gas
production expenses increased 49% to $14.9 million in 1995 versus $10.0 million
in 1994. However, the average operating cost per Mcfe produced decreased 11%
from $0.93 in 1994 to $0.83 in 1995.
Gas transportation and marketing revenues increased 50% to $3.3 million
versus $2.2 million in 1994. Coupled with this increase in gas transportation
and marketing revenues was a 73% increase in associated expenses for the year.
These increases were due primarily to the acquisition of several pipeline
systems, as well as the expansion of the gas marketing efforts.
Field services revenues increased 32% in 1995 to $10.1 million, despite the
September 1994 sale of virtually all well servicing and brine disposal assets in
Ohio. The decrease in activities due to this sale was more than offset by an
increase in well servicing and brine disposal activities in Oklahoma and well
operations
30
<PAGE> 33
on acquired properties. Field services expenses increased 12% in 1995 to $6.5
million versus $5.8 million. The increase is attributed to the Oklahoma well
servicing and the cost of operating a larger base of properties. The increase in
well operating costs was offset to a great extent by the disposal in September
1994 of the Company's lower margin well servicing and brine hauling and disposal
businesses.
Exploration expense increased 43% to $0.5 million due to the Company's
increased involvement in exploration projects. These costs include delay
rentals, seismic and exploratory drilling activities.
General and administrative expenses increased 10% from $2.5 million in 1994
to $2.7 million in 1995. As a percentage of revenues, general and administrative
expenses were 5% in 1995 as compared to 7% in 1994. This improvement reflects
the spreading of administrative costs over a growing asset base.
Interest and other income rose 180% primarily due to higher sales of
non-strategic properties. Interest expense increased 99% to $5.6 million as
compared to $2.8 million in 1994. This was primarily as a result of the higher
average outstanding debt balance during the year due to the financing of capital
expenditures. The average outstanding balances on the bank credit facility were
$42.0 million and $73.3 million for 1994 and 1995, respectively. The weighted
average interest rate on these borrowings was 6.3% and 7.3% for the years ended
December 31, 1994 and 1995, respectively.
Depletion, depreciation and amortization increased 47% compared to 1994 as
a result of increased production volumes during the year. The increased
depletion of oil and gas properties was partially offset by the reduction of
depreciation of field services assets due to the 1994 sale of field service
assets. The Company-wide depletion, depreciation and amortization rate for 1995
was $0.83 per Mcfe versus $0.93 per Mcfe in 1994 due to the addition of
properties at lower than historical Mcfe costs.
Comparison of 1994 to 1993
The Company reported net income for the year ended December 31, 1994 of
$2.6 million, an 88% increase over 1993 net income. This increase can be
attributed primarily to the realization of income from properties acquired in
the fourth quarter of 1993 and 1994, as well as the success of the 1994 drilling
program.
During the year, oil and gas production volumes increased 141% to 10.8
Bcfe, an average of 29.7 Mmcfe per day. The increased revenues recognized from
production volumes were partially offset by a 9% decrease in the average price
received per Mcfe of production to $2.26. The average oil price decreased 5% to
$15.23 per barrel and average gas prices dropped 9% to $2.10 per Mcf. As a
result of the Company's larger base of producing properties and production, oil
and gas production expenses increased 126% to $10.0 million in 1994 versus $4.4
million in 1993. However, the average operating cost per Mcfe produced decreased
5% from $0.98 in 1993 to $0.93 in 1994.
Gas transportation and marketing revenues rose almost 293% to $2.2 million
versus $0.6 million in 1993. Coupled with this increase in gas transportation
and marketing revenues was an increase in associated expenses for the year.
These increases were due primarily to the acquisition of several pipeline
systems in late 1993, as well as the expansion of the gas marketing efforts.
Field services revenues increased 10% in 1994, despite the September 1994
sale of virtually all well servicing and brine hauling and disposal assets in
Ohio. The decrease was offset by a marked increase in well operating revenues
recognized on acquired properties. Field services expenses increased marginally
in 1994 to $5.8 million versus $5.7 million. The slight increase can be
attributed to the cost of operating a growing base of properties. The increase
in well operating costs was offset to a great extent by the disposal in
September 1994 of the Company's low-margin well servicing and brine hauling and
disposal businesses.
Exploration expense increased 317% due to the Company's increased
involvement in drilling projects. The results of these costs can be seen in the
increase in production due partially to its 1994 drilling program.
General and administrative expenses increased 21% from $2.0 million in 1993
to $2.5 million in 1994. As a percentage of revenues, general and administrative
expenses were 7% in 1994 as compared to 11% in 1993. This improvement reflects
the spreading of administrative costs over a growing asset base.
31
<PAGE> 34
Interest and other income rose 13% primarily due to a higher level of
non-strategic property sales. Interest expense increased 151% to $2.8 million as
compared to $1.1 million in 1993. This was a result of the higher average
outstanding debt balance during the year due to the financing of acquisitions
and rising interest rates.
Depletion, depreciation and amortization increased 132% compared to 1993 as
a result of increased production volumes during the year. The increased
depletion of oil and gas properties was partially offset by the reduction of
depreciation of field services assets due to the September 1994 sale of field
service assets.
LIQUIDITY AND CAPITAL RESOURCES
General
Working capital at September 30, 1996 was $9.0 million, representing a $4.6
million increase over the corresponding amount at December 31, 1995. At
September 30, 1996, the Company had $4.9 million in cash and total assets of
$284.2 million. During the nine months, long-term debt rose from $83.0 million
to $121.9 million.
At September 30, 1996, capitalization totaled approximately $235 million,
of which approximately 48% was represented by stockholders' equity and 52% by
long-term debt. All of the long-term debt at that date was comprised of
borrowings under the $250 million revolving bank credit facility provided by the
Credit Facility of which $122 million was outstanding. The Credit Facility
currently provides for quarterly payments of interest with principal payments
beginning February 1999.
In December 1996, the Company sold $55 million of 6% Convertible
Subordinated Debentures Due 2007 (the "Convertible Debentures") in a private
placement. Net proceeds to the Company of approximately $53 million were used,
together with internally generated funds, to reduce the amount outstanding under
the Credit Facility to $61 million at December 31, 1996. The Convertible
Debentures are redeemable by the Company after February 1, 2000 and are
convertible at the option of the holder into Common Stock at any time prior to
maturity or redemption at a conversion price of $19.25 per share, subject to
adjustment in certain circumstances.
Cash Flow
The Company has three principal operating sources of cash: (i) sales of oil
and gas; (ii) revenues from field services and (iii) revenues from gas
transportation and marketing. The Company's cash flow is highly dependent upon
oil and gas prices. Decreases in the market price of oil or gas could result in
reductions of both cash flow and the borrowing base under the Credit Facility
which would result in decreased funds available, including funds intended for
planned capital expenditures.
The Company's net cash provided by operations for the years ended December
31, 1993, 1994 and 1995 and for the nine months ended September 30, 1996 was
$4.3 million, $11.2 million, $16.6 million and $24.3 million, respectively. The
consistent increases in the Company's cash flow from operations can be
attributed to its growth primarily through acquisitions and development.
The Company's net cash used in investing for the years ended December 31,
1993, 1994 and 1995 and for the nine months ended September 30, 1996 was $43.5
million, $29.5 million, $76.1 million and $66.8 million, respectively. Investing
activities for these periods are comprised primarily of additions to oil and gas
properties through acquisitions and development and, to a lesser extent,
exploitation and additions of field service assets. These uses of cash have
historically been partially offset through the Company's policy of divesting
those properties that it deems to be marginal or outside the Company's core
areas of operations. The Company's acquisition and development activities have
been financed through a combination of operating cash flow, bank borrowings and
capital raised through equity and debt offerings.
The Company's net cash provided by financing for the years ended December
31, 1993, 1994 and 1995 and for the nine months ended September 30, 1996 was
$38.9 million, $21.2 million, $57.7 million and $44.3 million, respectively.
Sources of financing used by the Company have been primarily borrowings under
its Credit Facility and capital raised through equity and debt offerings.
32
<PAGE> 35
Capital Requirements
For 1995, the Company incurred capital expenditures for development and
exploration activities of $10.0 million and $0.2 million, respectively. In the
first nine months of 1996, $8.7 million and $0.5 million of expenses were
incurred for development activities and exploration activities, respectively.
Although these expenditures are principally discretionary, the Company is
currently projecting that it will spend approximately $160 million on
development, exploitation and exploration activities, which includes
approximately $45 million on exploitation and exploration expenditures through
1999. Internally generated funds are expected to be sufficient to fund
development and exploration expenditures. See "Business -- Development
Activities" and "-- Exploration Activities."
Credit Facility
In connection with the financing of the Cometra Acquisition, the Company
and its subsidiaries will expand the existing credit facility with the bank
lenders. The Credit Facility will enable the Company to obtain revolving credit
loans and to issue letters of credit for the account of the Company from time to
time in an aggregate amount not to exceed $400 million (of which not more than
$125 million may be represented by letters of credit). The Borrowing Base, which
will initially be $400 million under the expanded facility, will be reduced to
$325 million 180 days after the funding of the Cometra Acquisition, unless
otherwise agreed by the lenders. The Borrowing Base is subject to semi-annual
determination and is calculated based upon a variety of factors, including the
discounted present value of estimated future net cash flow from oil and gas
production.
The Company will be required to make a mandatory prepayment of all amounts
outstanding under the Credit Facility in excess of $325 million 180 days after
the funding of the Cometra Acquisition. At the Company's option, loans may be
prepaid, and revolving credit commitments may be reduced, in whole or in part at
any time in certain minimum amounts.
At the Company's option, the applicable interest rates per annum will be
either LIBOR plus a margin ranging from 0.625% to 1.125% or the Alternate Base
Rate (as defined) plus a margin ranging from 0% to 0.25%. The Alternate Base
Rate is the highest of (a) the agent banks' reference rate, (b) the secondary
market rate for certificates of deposit (adjusted for maximum statutory reserve
requirements) plus 1.0% and (c) the federal funds effective rate plus 0.5%.
Until the occurrence of the Trigger Event (as defined below), the interest rate
margins will be increased by 50 basis points prior to March 31, 1997 and 100
basis points thereafter.
The obligations of the Company under the Credit Facility will be
unconditionally and irrevocably guaranteed by each of the Company's direct and
indirect domestic subsidiaries (collectively, the "Subsidiary Guarantors"). In
addition, the Credit Facility will be secured by first priority security
interests in (i) existing mortgaged oil and gas properties of the Company and
the Cometra Properties, (ii) all accounts receivable, inventory and intangibles
of the Company and the Subsidiary Guarantors, and (iii) all of the capital stock
of the Company's direct or indirect subsidiaries. Substantially all of the
assets of the Company will be pledged as collateral if, 90 days after the
funding of the Cometra Acquisition, the Borrowing Base and amounts outstanding
under the Credit Facility have not been reduced to $325 million. Such additional
security interests will be released upon the (i) reduction of the amounts
outstanding under the Credit Facility to $325 million (or the then determined
Borrowing Base) and (ii) issuance of $75 million of Common Stock and/or the sale
of Company assets in excess of the Borrowing Base value attributable to such
assets as agreed by the lenders (the "Trigger Event").
Immediately following the Cometra Acquisition, the Company expects that
approximately $385 million will be outstanding (including $125 million of then
outstanding letters of credit to secure the promissory note issued to Cometra as
part of the purchase price in the Cometra Acquisition) under the Credit
Facility. Upon consummation of the Offerings, approximately $230.9 million will
be outstanding under the Credit Facility. Accordingly, the Company believes that
a Trigger Event will occur upon completion of the Offerings.
33
<PAGE> 36
Hedging Activities
Periodically, the Company enters into futures, option and swap contracts to
reduce the effects of fluctuations in crude oil and natural gas prices. At
September 30, 1996, the Company had open contracts for oil and gas price swaps
of 280,000 barrels of oil and 586,000 Mcf of gas. These swap contracts are
designed to set average prices of $23.09 per barrel and $1.98 per Mcf. While
these transactions have no carrying value, the Company's mark-to-market exposure
under these contracts at September 30, 1996 was a net loss of $129,000. These
contracts expire monthly through March 1997. In October 1996, the Company
entered into swap contracts for an additional 250,000 barrels of oil at an
average price per barrel of $22.86. These contracts expire monthly through April
1997. The gains or losses on the Company's hedging transactions is determined as
the difference between the contract price and a reference price, generally
closing prices on the New York Mercantile Exchange. The resulting transaction
gains and loses are determined monthly and are included in net income for the
contract month as an adjustment to oil and gas revenue. Net gains relating to
these derivatives for the nine months ended September 30, 1996 approximated
$29,700.
34
<PAGE> 37
BUSINESS
GENERAL
Lomak is an independent energy company engaged in oil and gas development,
exploration and acquisition primarily in three core areas: the Midcontinent,
Appalachia and the Gulf Coast. Over the past five years, the Company has
significantly increased its reserves and production through acquisitions and, to
a growing extent, development and exploration of its properties. On a pro forma
basis as of December 31, 1996, the Company had proved reserves of 644 Bcfe with
a Present Value of $974 million. On an Mcfe basis, the reserves were 63%
developed and 77% natural gas, with a reserve life in excess of 13 years.
Properties operated by the Company accounted for 94% of its pro forma Present
Value. After giving effect to the Cometra Acquisition, the Company also owns
over 2,000 miles of gas gathering systems and a gas processing plant in
proximity to its principal gas properties. On a pro forma basis for the nine
months ended September 30, 1996, the Company had revenues of $123 million and
EBITDA of $72 million.
From 1991 through 1996, the Company has made 63 acquisitions, including the
Cometra Acquisition, for an aggregate purchase price of approximately $627
million and has spent $37 million on development and exploration activities.
These activities have added approximately 720 Bcfe at an average cost of $0.75
per Mcfe. As a result, the Company has achieved substantial growth since 1991:
- Reserves increased from 20 Bcfe in 1991 to 644 Bcfe in 1996, a compound
annual growth rate of 101%;
- Production increased from 2 Bcfe in 1991 to 49 Bcfe in 1996, a compound
annual growth rate of 88%;
- EBITDA increased from $4 million in 1991 to $72 million for the nine
months ended September 30, 1996; and
- Net income increased from $427,000 in 1991 to $12 million for the nine
months ended September 30, 1996.
The Company emphasizes strict cost controls in all aspects of its business.
As a result, combined direct operating and administrative costs have been
reduced from $2.08 per Mcfe in 1991 to $0.90 per Mcfe for the first nine months
of 1996 on a pro forma basis. Consequently, while the average price realized by
the Company has not increased significantly over the last five years, operating
margins have increased from $0.61 per Mcfe in 1991 to $1.65 per Mcfe for the
first nine months of 1996 on a pro forma basis.
BUSINESS STRATEGY
The Company's objective is to maximize shareholder value through aggressive
growth in its reserves, production, cash flow and earnings through a balanced
program of development drilling and acquisitions, as well as a growing
exploration effort. Management believes that the Cometra Acquisition has
substantially enhanced the Company's ability to increase its production and
reserves through drilling activities. The Cometra Acquisition substantially
increased the Company's inventory of proven drilling locations and, to an even
greater degree, its exploration and exploitation drilling potential. Including
the Cometra Properties, the Company has over 1,100 proven recompletion and
development drilling locations. As a result of the Cometra Acquisition, the
Company believes that it can meet its growth objectives over the next several
years without the benefit of future acquisitions. The Company currently plans to
spend $160 million over the next three years on the further development and
exploration of its properties. Consequently, while acquisitions are expected to
continue to play an important role in the Company's future growth, the primary
emphasis will shift towards exploiting the potential of the Company's larger
property base.
In order to most effectively implement its operating strategy, the Company
has concentrated its activities in selected geographic areas. In each core area,
the Company has established separate acquisition, engineering, geological,
operating and other technical expertise. The Company believes that this
geographic focus provides it with a competitive advantage in sourcing and
evaluating new business opportunities within these areas, as well as providing
economies of scale in developing and operating properties.
35
<PAGE> 38
Lomak believes the competitive strengths described below will greatly
enhance its ability to achieve its long-term goals and objectives.
- Diversified, Long Lived Reserve Base: Lomak has compiled a diversified
group of predictable, long lived properties. The Company's oil and gas
reserves are attributable to 7,280 producing wells that have a reserve
life index in excess of 13 years. The reserves are concentrated in seven
basins and are geographically and geologically diversified.
- Substantial Inventory of Development and Exploration Projects: Lomak has
over 1,100 proven development projects and a substantial number of
exploration and exploitation drilling projects located within core
operating areas in which the Company has significant operating and
technical expertise.
- Successful Acquisition Record: The Company's primary strength has
historically been to identify and acquire properties that have increased
reserves, production, cash flow and earnings. Excluding the Cometra
Acquisition, since 1991 the Company has completed 62 acquisitions for an
aggregate purchase price of $252 million. These acquisitions have added
reserves of approximately 422 Bcfe at an average acquisition cost of
$0.60 per Mcfe.
- Significant Operational Control: Lomak operates properties representing
nearly 94% of its Present Value. This allows the Company to directly
control operating and drilling costs and also allows it to dictate the
timing of development and exploration activities.
- High Operating Margins: The Company's low cost structure, coupled with
the premium gas price it receives for a significant portion of its
production, creates high operating margins. For the first nine months of
1996, Lomak generated operating margins, after deducting direct operating
and administrative costs, of $1.65 per Mcfe.
- Experienced, Incentivized Management Team: The Company's board of
directors, executive officers, technical staff and administrative
personnel have considerable industry experience and will own,
collectively, shares representing approximately 10% of the outstanding
shares of Common Stock, after giving effect to the Cometra Acquisition
and the Common Stock Offering. Over 80% of Lomak's employees either own,
or hold options to acquire, shares of Common Stock.
DEVELOPMENT ACTIVITIES
The Company's development activities include recompletions of existing
wells, infield drilling and installation of secondary recovery projects.
Development projects are generated within core operating areas where the Company
has significant operational and technical expertise. Currently, as described
below, the Company has 1,163 proven development projects in inventory. These
projects are geographically diverse, vary between oil and gas and are balanced
with regard to risk. The following table sets forth information pertaining to
the Company's proven development inventory at December 31, 1996.
PROVEN DEVELOPMENT INVENTORY
<TABLE>
<CAPTION>
NUMBER OF PROJECTS
-----------------------------------
DRILLING
RECOMPLETIONS LOCATIONS TOTAL
------------- --------- -----
<S> <C> <C> <C>
Midcontinent Region
Permian Basin.................................... 85 129 214
Val Verde Basin.................................. 76 134 210
Anadarko Basin................................... 117 86 203
San Juan Basin................................... 18 29 47
--- --- -----
Subtotal................................. 296 378 674
Appalachian Region................................. 43 320 363
Gulf Coast Region.................................. 79 47 126
--- --- -----
Total.................................... 418 745 1,163
=== === =====
</TABLE>
36
<PAGE> 39
The Company currently anticipates that it will initiate 175 to 200
development projects in 1997. Assuming that 200 projects are initiated per year,
the Company currently has more than a five year inventory of proven development
projects. Lomak expects to spend approximately $115 million over the next three
years for development.
EXPLORATION ACTIVITIES
The Company has a large inventory of moderate risk/moderate reward
exploitation drilling opportunities, as well as higher risk/higher reward
exploration projects. Lomak has identified 267 exploitation drilling projects on
the Cometra Properties, principally consisting of step-out drilling from
existing proved or proved undeveloped locations. In addition, the Company has
identified numerous other exploitation drilling opportunities within its
existing properties. Current exploration projects target deeper horizons within
existing Company-operated fields, as well as establishing new fields in
exploration trend areas in which Lomak's technical staff has experience. The
Company has not previously, and does not currently, plan to participate in
wildcat exploratory drilling outside its core operating areas.
Lomak's strategy is based on limiting its risk by allocating no more than
10% of its cash flow to higher risk exploration activities and by participating
in a variety of projects with differing characteristics. The Company's existing
inventory of exploration projects and leads varies in risk and reward based on
their depth, location and geology. A significant portion of the existing, as
well as future, exploration projects will be enhanced by use of advanced
technology including 3-D seismic and improved completion techniques.
In each of its core operating areas, the Company's geological and
geophysical staff generate both exploitation and exploration projects with the
assistance of the Company's reservoir engineers, landmen and production
engineers. The Company currently estimates that it will spend $25 million on
exploitation activities and $20 million on exploration activities over the next
three years. Existing exploitation and exploration project inventory is
described below.
Midcontinent. In the Midcontinent region, exploitation and exploration
projects are located on both the Company's existing properties as well as the
Cometra Properties. Exploitation projects include 86 step-out drilling locations
on unproved leasehold acreage adjacent to the Company's production in the
Sterling area of the Permian Basin as well as 134 stepout locations primarily in
the Oakridge and Francis Hill Fields in the Val Verde Basin. In the Big Lake
area of the Permian Basin, the Company is conducting an analysis to determine
the potential for recovery of additional reserves through increased density
drilling. Based on the initial results of the study, the Company believes there
is potential for 200 economic drill sites on its Big Lake area acreage.
Current exploration projects include deeper drilling to the Ellenburger and
Fussleman formations in the Permian and Val Verde Basins. Several projects
targeting the Red Fork, Morrow and Hunton formations are in various stages of
development in the Anadarko Basin. In the San Juan Basin, the Company's acreage
holds exploration potential for production from the Pictured Cliffs, Gallup and
Dakota formations.
Gulf Coast. In the Gulf Coast region exploitation and exploration projects
have been identified on both the Company's existing properties as well as the
Cometra Properties. Exploitation projects include 34 step-out drilling locations
for the Yegua and Frio formations in South Texas. Deeper, higher risk
exploratory projects have been generated in South Texas targeting the Wilcox and
Vicksburg formations. On the offshore properties, 10 exploitation and
exploration projects have been identified to the Lenticulina and Marginulina
sands. There are four exploration projects targeting the Taylor sand of the
Cotton Valley formation in East Texas.
Appalachia. In the Appalachian region, the Company has identified
approximately 100 step-out drilling projects on existing leasehold acreage. In
addition, the Company has identified several hundred additional potential
locations near Company-owned gathering systems on acreage the Company believes
will be available for leasing in the future. The Company believes that the
location of its pipelines will provide it with a competitive advantage in
leasing this acreage, which is currently unleased. These locations target the
blanket Clinton and Medina sandstones. Exploration activity in Appalachia
centers around the drilling of deeper formations from leasehold acreage
generally being held by existing production from shallower production. The
targeted formations are in the Knox Sequence trend, which includes the Rose Run,
Beekmantown and Trempealeau. Lomak currently owns leasehold aggregating over
250,000 net acres in the Knox Sequence trend
37
<PAGE> 40
area. With the assistance of higher quality 2-D seismic as well as 3-D seismic,
Lomak believes the Knox Sequence trend area could generate substantial reserves
over the next five years.
ACQUISITION ACTIVITIES
The Company seeks to acquire properties that are expected to be immediately
accretive to cash flow and earnings and provide long-term growth in reserves and
production. The Company focuses on acquisitions that generally meet the
following criteria.
- Location: The Company targets potential acquisitions located in its core
operating areas which typically contain many small operators and where
the major oil companies are less active.
- Operating Efficiency: The Company targets potential acquisitions in
which it believes direct operating cost reductions and administrative
cost efficiencies can be achieved.
- Potential for Increasing Reserves: The Company pursues properties that
it believes have the potential for increased reserves and production
through development and exploration activities.
- Potential for Incremental Purchases: The Company seeks acquisitions
where opportunities to purchase additional interests in the same or
adjoining properties exist.
- Complex Transactions: The Company often pursues transactions which are
more complex as a result of ownership issues or financial structure as it
believes such transactions will attract fewer potential buyers.
The following table sets forth information pertaining to acquisitions
completed during the period January 1, 1991 through December 31, 1996 (including
the Cometra Acquisition):
<TABLE>
<CAPTION>
PURCHASE
NUMBER OF PRICE(1) MMCFE COST
PERIOD TRANSACTIONS (IN THOUSANDS) ACQUIRED PER MCFE(2)
------ ------------ -------------- -------- -----------
<C> <C> <C> <C> <C>
1991 9 $ 11,189 14,599 $0.75
1992 7 6,884 12,512 0.41
1993 12 43,177 74,555 0.58
1994 17 63,354 103,292 0.58
1995 9 71,074 106,283 0.65
1996 9 431,812 371,409 0.85
-- -------- ------- -----
Total 63 $627,490 682,650 $0.74
== ======== ======= =====
</TABLE>
- ---------------
(1) Includes purchase price for proved reserves as well as other acquired
assets, including gas gathering systems and a processing plant, undeveloped
leasehold acreage and field service assets.
(2) Includes purchase price for proved reserves only. For the Cometra
Acquisition, the purchase price for proved reserves includes the amount
attributable to the above-market gas contract. If the cost per Mcfe was
adjusted for the above-market gas contract, the 1996 cost per Mcfe would be
reduced from $0.85 to $0.75 and the total cost per Mcfe would be reduced
from $0.74 to $0.68.
RECENT SIGNIFICANT ACQUISITIONS
In addition to the Cometra Acquisition, the Company completed a number of
significant acquisitions in 1995 and 1996 as described below. See "Cometra
Acquisition" for a description of the Cometra Acquisition.
Bannon Interests. In April 1996, the Company acquired interests in
approximately 270 producing wells and 108 proven recompletion and development
drilling opportunities for $37.0 million. After giving effect to a subsequent
sale of certain Rocky Mountain region interests for $6.5 million, the acquired
properties were estimated to contain approximately 71 Bcfe of proved reserves.
Also included were 17,300 net undeveloped acres located in east and south Texas.
Red Eagle Resources Corporation. Through a series of transactions effected
in late 1994 and early 1995, the Company acquired Red Eagle Resources
Corporation for $30.0 million in cash and $15.0 million of Common Stock. Red
Eagle's assets included interests in approximately 370 producing wells located
primarily
38
<PAGE> 41
in the Okeene Field of Oklahoma's Anadarko Basin. Subsequently, the Company
acquired additional interests in over 100 Red Eagle wells for $3.9 million.
Eastern Petroleum Company. In January 1996, the Company acquired proved
oil and gas reserves and 40 miles of gas gathering lines in Ohio for $13.7
million. In the second quarter of 1996, the Company initiated a program
extending purchase offers to other interest owners in these properties. Through
September 30, 1996, interests in 61 wells had been purchased for approximately
$100,000.
Transfuel Interests. In September 1995, 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 $21.0 million.
Parker & Parsley Interests. In August 1995, 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.
SIGNIFICANT PROPERTIES
At December 31, 1996, on a pro forma basis, 98% of the Company's reserves
were located in the Midcontinent, Appalachian and Gulf Coast regions. At
December 31, 1996, the Company's properties included, on a pro forma basis,
working interests in 7,280 gross (5,586 net) productive oil and gas wells and
royalty interests in 310 additional wells. The Company also held interests in
243,100 gross (166,700 net) undeveloped acres on a pro forma basis at December
31, 1996. The following table sets forth summary information with respect to the
Company's estimated proved oil and gas reserves on a pro forma basis at December
31, 1996.
<TABLE>
<CAPTION>
PRESENT VALUE
--------------------------- OIL & NATURAL NATURAL
AMOUNT NGLS GAS GAS EQUIV.
(IN THOUSANDS) % (MBBLS) (MMCF) (MMCFE)
-------------- --- ------- -------- ----------
<S> <C> <C> <C> <C> <C>
Midcontinent Region
Permian Basin.............. $218,201 22 12,468 54,833 129,642
Val Verde Basin............ 208,613 21 34 126,579 126,783
Anadarko Basin............. 125,143 13 1,964 71,065 82,851
San Juan Basin............. 43,845 5 3,082 16,836 35,326
--------- -------- --------- ---------
Subtotal........... 595,802 61 17,548 269,313 374,602
Appalachian Region........... 201,215 21 1,189 181,325 188,456
Gulf Coast Region............ 160,353 16 4,179 46,403 71,477
Other........................ 16,293 2 1,489 559 9,495
--------- --- -------- --------- ---------
Total.............. $973,663 100% 24,405 497,600 644,030
========= === ======== ========= =========
</TABLE>
MIDCONTINENT REGION
The Company's Midcontinent properties are situated in the Permian Basin of
west Texas, the Val Verde Basin of west Texas, the Anadarko Basin of western
Oklahoma and the Texas panhandle and the San Juan Basin of New Mexico. Reserves
in these basins represent 61% of total Present Value. Midcontinent proved
reserves total 375 Bcfe, of which approximately 57% are developed. On an Mcfe
basis, 72% of the reserves are natural gas. Combined net daily production from
these properties currently averages 3,300 barrels of oil and 52 Mmcf of natural
gas. At December 31, 1996, the Midcontinent properties had an inventory of 674
proven development projects.
Permian Basin. The Permian Basin properties contain 130 Bcfe of proved
reserves, or 22% of total Present Value. Net daily production currently averages
2,500 barrels of oil and 9 Mmcf of gas. Producing wells total 842 (617 net), of
which the Company operates 88% on a Present Value basis. Major producing
properties include the Sterling area and the Big Lake area. The Sterling area
properties produce gas from Canyon/Cisco sub-marine sand deposits at 4,000 to
8,000 feet and oil from Silurian Fussleman carbonates. The Sterling area
properties are complemented by a 25,000 Mcf/d gas plant, which processes gas
from the Company's operated properties, as well as gas produced by third
parties. The Big Lake area properties produce primarily oil from
39
<PAGE> 42
approximately 2,500 feet in various sequences of the San Andres/Grayburg
formations. At December 31, 1996, the Permian Basin properties contained 85
proven recompletions and 129 development drilling locations.
Val Verde Basin. The Val Verde Basin properties contain 127 Bcfe of proved
reserves, or 21% of total Present Value. From 205 gross wells (163 net), the
Company currently produces 27 Mmcf/d of natural gas. The Company operates 89% of
the wells on a Present Value basis. Production is from 15 different deltaic
Canyon/Cisco sandstones with complex stratigraphic traps at depths ranging from
2,600 to 6,000 feet. On a Present Value basis, the Oakridge and Francis Hill
Fields contribute 95% of the Val Verde Basin reserves. At December 31, 1996, the
Company had an inventory of 76 proven recompletions and 134 development drilling
locations.
Anadarko Basin. The Anadarko Basin properties contain 83 Bcfe of proved
reserves, or 13% of total Present Value. The 431 gross wells (345 net), of which
65% are operated by the Company on a Present Value basis. Net daily production
averages 440 barrels of oil and 14 Mmcf of natural gas. Over 190 operated wells
in the Okeene Field account for 58% of the reserves on a Present Value basis.
The Anadarko Basin wells produce from a variety of sands and carbonates in both
structural and stratigraphic traps in the Hunton, Red Fork and Morrow formations
at depths ranging from 6,000 to 12,000 feet. At December 31, 1996, 117 proven
recompletions and 86 development drilling locations had been identified with
respect to the Anadarko Basin properties.
San Juan Basin. The San Juan Basin properties contain 35 Bcfe of proved
reserves, or 5% of total Present Value. The properties consist of 122 gross
wells (116 net) located in the southeastern portion of the basin, all of which
are Company operated. On an Mcfe basis, 52% of the reserves are oil and natural
gas liquids. Current daily production averages 350 barrels of oil and natural
gas liquids and 2 Mmcf of gas. Producing depths range from 2,000 to 8,000 feet
in the tight blanket sands of the Gallup and Pictured Cliffs zones, as well as
the Dakota formation. These properties have an inventory of 18 proven
recompletions and 29 development drilling locations.
APPALACHIAN REGION
The Appalachian properties contain 189 Bcfe of proved reserves, or 21% of
total Present Value. The reserves are attributable to 5,326 gross wells (4,417
net wells) located in Pennsylvania, Ohio, West Virginia and New York. The
Company operates 94% of these wells. The reserves, which on an Mcfe basis are
96% natural gas, produce principally from the Medina, Clinton and Rose Run
formations at depths ranging from 2,500 to 7,000 feet. Net daily production
currently totals 400 barrels of oil and 32 Mmcf of gas. After initial flush
production, these properties are characterized by gradual decline rates. Gas
production is transported through 1,900 miles of Company owned gas gathering
systems and is sold primarily to utilities and industrial end-users.
GULF COAST REGION
The Gulf Coast region consists of onshore properties located in the East
Texas Basin and in South Texas, as well as offshore properties located in the
Gulf of Mexico. Reserves in these areas represent 16% of the Company's total
Present Value. Gulf Coast properties contain 72 Bcfe of proved reserves, of
which approximately 63% are developed. On an Mcfe basis, 65% of the reserves are
natural gas. Current net daily production from these properties averages 1,800
barrels of oil and 21 Mmcf of natural gas. At December 31, 1996, the Gulf Coast
properties were estimated to contain 126 proven development projects.
South Texas/Gulf of Mexico. The South Texas/Gulf of Mexico properties
contain 54 Bcfe of proved reserves, or 13% of total Present Value. On an Mcfe
basis, gas makes up 79% of the reserves. Current net daily production from the
South Texas/Gulf of Mexico properties totals 1,200 barrels of oil and 21 Mmcf of
gas. Onshore South Texas, these fields range in location from Brooks County in
deep South Texas to Galveston County, near Houston. Significant fields include
Hagist Ranch, Alta Mesa, Riverside, Keeran/Welder and Moses Bayou. These fields
produce from the Wilcox, Frio, Yegua, Vicksburg and Miocene at depths ranging
from 1,000 to 10,000 feet. In total, the onshore fields include 179 gross wells
(153 net), of which 92% are Company operated. The offshore properties in the
Gulf of Mexico include seven platforms offshore Texas and Louisiana in water
depths ranging from 50 to 21 feet. All 15 gross wells (4 net) are operated by
experienced
40
<PAGE> 43
third parties. The Company's working interest in these wells ranges from 11% to
33%. The offshore properties produce from the Miocene and Pleistocene age
formations, at depths ranging from 8,000 to 14,000 feet. With multiple producing
horizons, untested formations and complex faulting, the South Texas/Gulf of
Mexico properties contain substantial development and exploration potential,
including the continued use of 3-D seismic technology. At December 31, 1996,
these properties are estimated to contain 15 proven recompletions and 24
development drilling locations.
East Texas Basin. The East Texas properties contain 18 Bcfe of proved
reserves accounting for 3% of total Present Value. On an Mcfe basis, 79% of the
reserves are oil. Gross wells total 126 (110 net), of which 74% are Company
operated. Current net daily production averages 620 barrels of oil and 150 Mcf
of gas. Production ranges from the shallow Carrizo section of the Wilcox
formation at a depth of approximately 1,600 feet to the tight Cotton Valley
Taylor blanket sands at approximately 12,000 feet. Approximately 79% of the
Present Value of the East Texas properties is ascribed to 64 operated wells in
the Laura LaVelle Field. At December 31, 1996, 64 proven recompletions and 23
development drilling locations had been identified in the East Texas properties.
OIL AND GAS RESERVES
The following table sets forth estimated proved reserves for each year in
the five-year period ended December 31, 1996 and pro forma for the Cometra
Acquisition.
<TABLE>
<CAPTION>
DECEMBER 31, PRO
---------------------------------------------------- FORMA
1992 1993 1994 1995 1996 1996
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Natural gas (Mmcf)
Developed............................... 13,171 38,373 97,251 174,958 207,601 311,350
Undeveloped............................. 4,444 36,190 52,119 57,929 87,993 186,250
------ ------- ------- ------- ------- -------
Total........................... 17,615 74,563 149,370 232,887 295,594 497,600
------ ------- ------- ------- ------- -------
Oil and NGLs (Mbbls)
Developed............................... 1,643 3,344 6,431 8,880 10,703 15,298
Undeveloped............................. 337 1,195 2,018 1,983 3,972 9,107
------ ------- ------- ------- ------- -------
Total........................... 1,980 4,539 8,449 10,863 14,675 24,405
------ ------- ------- ------- ------- -------
Total equivalents (Mmcfe)................. 29,495 101,797 200,064 298,065 383,644 644,030
====== ======= ======= ======= ======= =======
</TABLE>
In connection with the evaluation of its reserves, the Company has engaged
the following independent petroleum consultants: Netherland, Sewell &
Associates, Inc. (Cometra Properties), Wright & Company, Inc. (Appalachia), H.J.
Gruy and Associates, Inc. (Midcontinent and Gulf Coast), Huddleston & Co., Inc.
(Midcontinent) and Clay, Holt & Klammer (Appalachia). These engineers have been
employed primarily based on geographic expertise as well as their history in
engineering certain of the acquired properties. At December 31, 1996,
approximately 96% of the proved reserves set forth above were evaluated by
independent petroleum consultants, while the remainder were evaluated 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."
The following table sets forth on a pro forma basis at December 31, 1996
the estimated future net cash flow from and the present value of the proved
reserves. 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, 1996 were $23.58 per barrel of oil and $3.54 per
Mcf of gas and pro forma average product prices at December 31, 1996 were $23.23
per barrel of oil and $3.99 per Mcf of gas. These prices were substantially
higher than historical prices used by the Company to calculate Present Value in
recent years. A decline in prices relative to year end 1996 would cause a
substantial decline in Present Value. For example, a $0.10 decline in gas
prices, holding all other variables constant, would decrease Present Value by
1.9% or
41
<PAGE> 44
$18.5 million and a $1.00 decline in oil and NGL prices world decrease Present
Value by 1.3% or $12.1 million. Furthermore, 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.............. $1,138,704 $652,064 $1,790,768
Present Value............................... 658,121 315,541 973,663
Standardized Measure........................ N/A N/A 665,035
</TABLE>
PRODUCING WELLS
The following table sets forth certain information relating to productive
wells at December 31, 1996 on a pro forma basis. The Company owns royalty
interests in an additional 310 wells. Wells are classified as oil or gas
according to their predominant production stream.
<TABLE>
<CAPTION>
AVERAGE
GROSS NET WORKING
WELLS WELLS INTEREST
----- ----- ---
<S> <C> <C> <C>
Oil...................................................... 1,510 816 54%
Natural gas.............................................. 5,770 4,770 83%
----- ----- ---
Total............................................... 7,280 5,586 77%
===== ===== ===
</TABLE>
ACREAGE
The following table sets forth the developed and undeveloped gross and net
acreage held at December 31, 1996 on a pro forma basis.
<TABLE>
<CAPTION>
AVERAGE
WORKING
GROSS NET INTEREST
------- ------- ---
<S> <C> <C> <C>
Developed............................................ 659,619 461,999 70%
Undeveloped.......................................... 243,088 166,725 69%
------- ------- ---
Total........................................... 902,707 628,724 70%
======= ======= ===
</TABLE>
DRILLING RESULTS
The following table summarizes actual drilling activities for the three
years ended December 31, 1996. The drilling results below do not reflect the
Cometra Acquisition (or any other acquisitions).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1994 1995 1996
-------------- -------------- --------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Exploratory wells:
Productive........................ 5.0 0.6 4.0 3.9 17.0 8.3
Dry............................... 4.0 1.4 3.0 0.4 2.0 0.4
Development wells:
Productive........................ 59.0 55.8 53.0 35.3 54.0 48.1
Dry............................... 3.0 1.4 2.0 -- 3.0 1.0
----- ----- ----- ----- ----- -----
Total.......................... 71.0 58.2 62.0 39.6 76.0 57.8
===== ===== ===== ===== ===== =====
</TABLE>
GAS GATHERING AND PROCESSING
The Company's natural gas gathering and processing assets are primarily
comprised of (i) its Sterling system, which consists of 265 miles of gas
gathering pipelines and a gas processing plant in the Sterling area of the
Permian Basin, and (ii) over 1,900 miles of gas gathering pipelines in
Appalachia. The Sterling plant is a
42
<PAGE> 45
refrigerated turbo-expander cryogenic gas plant that was placed in service in
early 1995. The plant, designed for approximately 25,000 Mcf/d, is currently
operating at 87% of capacity. The Company estimates that the plant's capacity
can be increased to 35,000 Mcf/d for approximately $4 million in additional
capital expenditures.
The Appalachian gas gathering systems serve to transport a majority of the
Company's Appalachian gas production as well as third party gas to major
trunklines and directly to industrial end-users. This affords the Company
considerable control and flexibility in marketing its Appalachian production.
Third parties who transport their gas through the systems are charged a
gathering fee ranging from $0.20 to $0.32 per Mcf.
OIL AND GAS MARKETING
In order to handle more efficiently the sale of its natural gas, the
Company began to market its own gas production in 1993. On a pro forma basis,
the Company is currently marketing 173 Mmcf/d for its own account as well as
additional volumes for third party producers. The Company's gas production is
sold primarily to utilities and directly to industrial users.
The Company has managed the impact of potential price declines by
developing a balanced portfolio of fixed price and market sensitive contracts
and commodity hedging. On a pro forma basis, approximately 47% of average gas
production at December 31, 1996 was sold subject to fixed price sales contracts.
These fixed price contracts are at prices ranging from $2.15 to $3.70 per Mcf.
The fixed price contracts with terms of less than one year, between one and five
years and greater than five years constitute approximately 31%, 65% and 4%,
respectively, of the volume sold under fixed price contracts.
From time to time, the Company enters into oil and natural gas price hedges
to reduce its exposure to commodity price fluctuations. At December 31, 1996,
approximately 12% on an Mcfe basis of the Company's monthly production for the
period January 1997 to April 1997 was hedged under such arrangements. No
production after this period was hedged. In the future, the Company may hedge a
larger percentage of its production.
Approximately 30% of the Company's pro forma December 1996 gas production
on an Mcfe basis was attributable to Appalachia. Gas production in Appalachia
has historically received a higher price, due to its proximity to the
northeastern gas markets.
The Company's oil production is sold at the well site at posted field
prices tied to the spot oil markets. Oil purchasers are selected on the basis of
price and service.
As part of the Cometra Acquisition, the Company acquired a gas contract,
which expires June 30, 2000, with a major Texas gas utility company representing
18% of the Company's pro forma December 1996 production on an Mcfe basis. The
price paid pursuant to the contract was $3.70 per Mcf at December 31, 1996 (55%
higher than average 1996 natural gas prices received by the Company) and
escalates at $0.05 per Mcf per annum. No other purchaser of the Company's oil or
gas during 1996 exceeded 10% of the Company's total revenues.
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 33,000 square feet in
Fort Worth and Oklahoma City under standard office lease arrangements that
expire at various times through December 2003. 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.
43
<PAGE> 46
EMPLOYEES
As of January 17, 1997, the Company had 268 full-time employees, 163 of
whom were field personnel. None are covered by a collective bargaining agreement
and management believes that its relationship with its employees is good.
LEGAL PROCEEDINGS
The Company is involved in various legal actions and claims arising in the
ordinary course of business. In the opinion of management, such litigation and
claims will be resolved without a material adverse effect on the Company's
financial position.
44
<PAGE> 47
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 1996 annual meeting of stockholders. Executive officers are appointed
by the Board of Directors.
<TABLE>
<CAPTION>
HELD
NAME AGE OFFICE SINCE POSITION WITH COMPANY
---- --- ------------ ---------------------
<S> <C> <C> <C>
Thomas J. Edelman 45 1988 Chairman and Chairman of the Board
John H. Pinkerton 42 1988 President, Chief Executive Officer and Director
Robert E. Aikman 64 1990 Director
Anthony V. Dub 46 1995 Director
Allen Finkelson 50 1994 Director
Ben A. Guill 45 1995 Director
C. Rand Michaels 59 1976 Vice Chairman and Director
Jeffery A. Bynum 42 1985 Vice President-Land
Steven L. Grose 48 1980 Vice President-Appalachia Region
Chad L. Stephens 41 1990 Vice President-Midcontinent Region
Thomas W. Stoelk 41 1994 Vice President-Finance
Danny W. Sowell 46 1996 Vice President-Gas Management
John R. Frank 41 1990 Controller
Geoffrey T. Doke 30 1996 Treasurer
</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 Snyder Oil Corporation ("SOCO"), an independent, publicly traded
oil and gas company. In 1996, Mr. Edelman was appointed Chairman, President and
Chief Executive Officer of Patina Oil & Gas Corporation, a publicly traded
affiliate 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 is the general partner of Star Gas
Partners, L.P., a publicly-traded master limited partnership, which distributes
propane gas.
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 a 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. Mr. Pinkerton is
also director of North Coast Energy, Inc. ("North Coast"), an exploration and
production company in which Lomak acquired an approximately 50% interest in
1996.
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
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
45
<PAGE> 48
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.
Anthony V. Dub was elected to serve as a Director of the Company in 1995.
Mr. Dub is Managing Director-Senior Advisor of Credit Suisse First Boston, an
international investment banking firm with headquarters in New York City. Mr.
Dub joined Credit Suisse First Boston in 1971 and was named a Managing Director
in 1981. Mr. Dub received his Bachelor of Arts Degree from Princeton University
in 1971.
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.
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. 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.
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, and North Coast.
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-Appalachia Region, 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. Mr. Grose is also
a director of North Coast.
Chad L. Stephens, Vice President-Midcontinent Region, 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.
Danny M. Sowell, Vice President-Gas Management, joined the Company in 1996.
Previously, Mr. Sowell was Chief Executive Officer and President of Jay Gas
Marketing, which Lomak acquired May 1, 1996. Prior to founding Jay Gas, Mr.
Sowell was Director of Marketing for a subsidiary of Oklahoma Gas & Electric
46
<PAGE> 49
Company. Mr. Sowell received his Master and Bachelor of Science Degrees in
Mathematics from Lamar University.
John R. Frank, Controller and Chief Accounting Officer, joined the Company
in 1990. From 1989 until he joined Lomak 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.
Geoffrey T. Doke, Treasurer, joined the Company in 1991. He was appointed
Treasurer in 1996. Previously, Mr. Doke served in the accounting department of
Edisto Resources Corporation. Mr. Doke received his Bachelor of Business
Administration Degree in Finance and International Business from Baylor
University and his Master of Business Administration Degree from Case Western
Reserve University.
47
<PAGE> 50
PRINCIPAL STOCKHOLDERS
AND SHARE OWNERSHIP OF MANAGEMENT
The following table sets forth certain information 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 Common Stock, (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 in
each case as of January 17, 1997 and on a pro forma basis giving effect to the
Cometra Acquisition and Offerings. The business address of each officer and
Director listed below is: c/o Lomak Petroleum, Inc., 500 Throckmorton Street,
Fort Worth, Texas 76102.
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
----------------------------- -----------------------------
NUMBER OF SHARES NUMBER OF SHARES
BENEFICIALLY PERCENTAGE BENEFICIALLY PERCENTAGE
OWNED OF CLASS OWNED OF CLASS
---------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
Thomas J. Edelman........................... 979,541(1) 6.55% 979,541(1) 4.81%
John H. Pinkerton........................... 494,093(2) 3.30% 494,093(2) 2.42%
C. Rand Michaels............................ 296,598(3) 2.00% 296,598(3) 1.46%
Robert E. Aikman............................ 77,966(4) 0.53% 77,966(4) 0.38%
Anthony V. Dub.............................. 64,165(5) 0.43% 64,165(5) 0.32%
Allen Finkelson............................. 6,000(6) 0.04% 6,000(6) 0.03%
Ben A. Guill................................ 52,400(7) 0.35% 52,400(7) 0.26%
All Directors and executive officers as a
group (14 persons)........................ 2,342,489(8) 15.71% 2,342,489(8) 11.52%
Public Employees Retirement System of
Ohio...................................... 1,350,000(9) 9.12% 1,350,000(9) 6.67%
American Cometra, Inc. ..................... -- -- 1,428,571(10) 7.06%
</TABLE>
- ---------------
(1) Includes 145,000 shares which may be purchased under currently exercisable
options; 113,333 shares held under IRA, KEOGH and pension plan accounts;
29,916 shares owned by Mr. Edelman's spouse; and 91,200 shares owned by Mr.
Edelman's minor children, to which Mr. Edelman disclaims beneficial
ownership.
(2) Includes 171,667 shares which may be purchased under currently exercisable
stock options; 115,899 shares held under IRA and pension plan accounts;
1,572 shares owned by Mr. Pinkerton's minor children; and 743 shares owned
by Mr. Pinkerton's spouse, to which Mr. Pinkerton disclaims beneficial
ownership.
(3) Includes 55,666 shares which may be purchased under currently exercisable
stock options; 1,804 shares held under the IRA account; 84,464 shares owned
by Mr. Michael's spouse; and 19,460 shares owned by Mr. Michael's minor
children, to which Mr. Michaels disclaims beneficial ownership.
(4) Includes 21,000 shares which may be purchased under currently exercisable
stock options.
(5) Includes 2,400 shares which may be purchased under currently exercisable
stock options.
(6) Includes 6,000 shares which may be purchased under currently exercisable
stock options.
(7) Includes 2,400 shares which may be purchased under currently exercisable
stock options.
(8) Includes 644,682 shares which may be purchased under currently exercisable
stock options.
(9) Such stockholder's address is 227 East Town Street, Columbus, Ohio 43215.
(10) Such stockholder's address is 500 Throckmorton, Suite 2500, Fort Worth,
Texas 76102.
48
<PAGE> 51
CERTAIN TRANSACTIONS
During 1995, the Company incurred fees 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 1995, the Company acquired SOCO's interest in 468 wells located in
Appalachia for $4 million. The price was determined based on arm's-length
negotiations through a third-party broker retained by SOCO. After completion of
this transaction, the Company and SOCO no longer held interests in any of the
same properties. Mr. Edelman is Chairman of the Company and also an officer,
director and shareholder of SOCO. Therefore, Mr. Edelman has an indirect
interest in the foregoing relationships and transactions between the Company and
SOCO.
DESCRIPTION OF CAPITAL STOCK AND INDEBTEDNESS
The authorized capital stock of the Company consists of (i) 4,000,000
shares of serial preferred stock, $1.00 par value, and (ii) 35,000,000 shares of
Common Stock $.01 par value. As of January 17, 1997, the Company had outstanding
14,801,654 shares of Common Stock and 1,150,000 shares of $2.03 Convertible
Preferred Stock.
COMMON STOCK
Holders of Common Stock are entitled to receive dividends if, when and as
declared by the Board of Directors of the Company out of funds legally available
therefor (however, the Indenture for the Notes and the Credit Facility contain
certain restrictions on the payment of cash dividends. 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. All shares of
Common Stock have equal voting rights on the basis of one vote per share on all
matters to be voted upon by stockholders. Cumulative voting for the election of
directors is not permitted. Shares of Common Stock have no preemptive,
conversion, sinking fund or redemption provisions and are not liable for further
call or assessment. Each share of Common Stock is entitled to share on a pro
rata basis in any assets available for distribution to the holders of the Common
Stock upon liquidation of the Company after satisfaction of any liquidation
preference on any series of the Company's preferred stock. All outstanding
shares of Common Stock have been, and all shares offered in the Common Stock
Offering will be when issued, validly issued, 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 2,000,000 shares of Common Stock subject to
a limitation of 10% of the outstanding Common Stock on a fully diluted basis. At
January 17, 1997, a total of 1,239,432 options had been granted under the plan
of which options to purchase 523,932 shares were exercisable at that date. The
options outstanding at January 17, 1997 were granted at an exercise price of
$3.38 to $10.50 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 20,000 shares of Common Stock at a price of $12.88 per
share were outstanding at September 30, 1996. These warrants expire in December
1997.
PREFERRED STOCK
The Board of Directors of the Company, without action by stockholders, is
authorized to issue shares of serial preferred stock in one or more series and,
within certain limitations, to determine the voting rights
49
<PAGE> 52
(including the right to vote as a series on particular matters), preferences as
to dividends and the liquidation, conversion, redemption and other rights of
each such series. The Board of Directors could issue a series with rights more
favorable with respect to dividends, liquidation and voting than those held by
the holders of its Common Stock. At January 17, 1997, 1,150,000 shares of
Preferred Stock were outstanding, designated as $2.03 Convertible Exchangeable
Preferred Stock, Series C (the "$2.03 Convertible Preferred Stock").
The $2.03 Convertible Preferred Stock bears an annual dividend rate of
$2.03 payable quarterly. If dividends have not been paid on the $2.03
Convertible Preferred Stock, the Company cannot redeem or pay dividends on
shares of stock ranking junior to the $2.03 Convertible Preferred Stock. No new
serial preferred stock can be created with rights superior to those of the $2.03
Convertible Preferred Stock, as to dividends and liquidation rights, without the
approval of the holders of a majority of the $2.03 Convertible Preferred Stock.
In addition, the holders of the $2.03 Convertible Preferred Stock are entitled
to one vote for each share owned. Additionally, if dividends remain unpaid for
six full quarterly periods, or if any future class of preferred stockholders is
entitled to elect members of the Board of Directors based on actual missed and
unpaid dividends, the number of members of the Board of Directors will be
increased to such number as may be necessary to entitle the holders of the $2.03
Convertible Preferred Stock and such other future preferred stockholders, voting
as a single class, to elect one-third of the members of the Board of Directors.
The $2.03 Convertible Preferred Stock has liquidation rights of $25 per share.
The Company may exchange the $2.03 Convertible Preferred Stock for an aggregate
of $28,750,000 principal amount of 8.125% Convertible Subordinated Notes due
December 31, 2005. Each share of $2.03 Convertible Preferred Stock is
convertible into Common Stock at a conversion price of $9.50 per share, subject
to adjustment under certain circumstances. The conversion price will be reduced
for a limited period (but to not less than $5.21) if a change in control or
fundamental change in the Company occurs at a time that the market price of the
Common Stock is less than the conversion price. The Company may redeem the $2.03
Convertible Preferred Stock at any time after November 1, 1998, at redemption
prices declining from $26.50 to $25.00 per share, plus cumulative unpaid
dividends.
6% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2007
On December 27, 1996, the Company sold $55,000,000 aggregate principle
amount of 6% Convertible Subordinated Debentures due 2007 (the "Convertible
Debentures") in a private offering not registered under the Securities Act. The
Convertible Debentures are convertible at any time prior to maturity, unless
previously redeemed or repurchased, into shares of Common Stock, at a conversion
price of $19.25 per share, subject to adjustment under certain circumstances.
The Convertible Debentures are unsecured and subordinate to all senior and
senior subordinated indebtedness and do not restrict the incurrence of
additional indebtedness by the Company or any of its subsidiaries. The
Convertible Debentures will mature on February 1, 2007. The Company may redeem
the Convertible Debentures, in whole or in part, on or after February 1, 2000,
at certain redemption prices, plus accrued but unpaid interest at the date fixed
for redemption. Upon certain changes of control of the Company, the Company is
required to offer to repurchase each holder's Convertible Debentures at a
purchase price equal to 100% of the principal amount thereof, plus accrued and
unpaid interest to the date of repurchase.
Pursuant to a Registration Rights Agreement between the Company and the
initial purchasers of the Convertible Debentures, the Company has agreed to file
a shelf registration statement (the "Shelf Registration Statement") relating to
the Debentures and the shares of Common Stock issuable upon conversion of the
Convertible Debentures. 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 Convertible Debentures, 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 Shelf Registration Statement, then a
supplemental payment will be made to the holders of the Convertible Debentures
or shares of Common Stock actually issued upon conversion of the Convertible
Debentures. During the first 90 days of such a default, the supplemental payment
will be $0.05 per week per $1,000 principal amount of the Convertible Debentures
and $0.0005 per week per share of such Common Stock. The amount of such
supplemental payment will increase over time if the default continues, subject
to a maximum
50
<PAGE> 53
supplemental payment of $0.20 per week per $1,000 principal amount of
Convertible Debentures and $0.002 per week per share of Common Stock.
CREDIT FACILITY
In connection with the financing of the Cometra Acquisition, the Company
and its subsidiaries will expand the existing credit facility with the bank
lenders. The Credit Facility will enable the Company to obtain revolving credit
loans and to issue letters of credit for the account of the Company from time to
time in an aggregate amount not to exceed $400 million (of which not more than
$125 million may be represented by letters of credit). The Borrowing Base, which
will initially be $400 million under the expanded facility, will be reduced to
$325 million 180 days after the closing of the Cometra Acquisition, unless
otherwise agreed by the lenders. The Borrowing Base is subject to semi-annual
determination and is calculated based upon a variety of factors, including the
discounted present value of estimated future net cash flow from oil and gas
production.
The Company will be required to make a mandatory prepayment of all amounts
outstanding under the Credit Facility in excess of $325 million 180 days after
the closing of the Cometra Acquisition. At the Company's option, loans may be
prepaid, and revolving credit commitments may be reduced, in whole or in part at
any time in certain minimum amounts.
At the Company's option, the applicable interest rate per annum will be
either LIBOR plus a margin ranging from 0.625% to 1.125% or the Alternate Base
Rate (as defined) plus a margin ranging from 0% to 0.25%. The Alternate Base
Rate is the highest of (a) the agent banks' reference rate, (b) the secondary
market rate for certificates of deposit (adjusted for maximum statutory reserve
requirements) plus 1.0% and (c) the federal funds effective rate plus 0.5%.
Until the occurrence of the Trigger Event, the interest rate margins will be
increased by 50 basis points prior to March 31, 1997 and 100 basis points
thereafter.
The obligations of the Company under the Credit Facility will be
unconditionally and irrevocably guaranteed by each of the Company's direct and
indirect domestic subsidiaries (collectively, the "Subsidiary Guarantors"). In
addition, the Credit Facility will be secured by first priority security
interests in (i) existing mortgaged oil and gas properties of the Company and
the Cometra Properties, (ii) all accounts receivable, inventory and intangibles
of the Company and the Subsidiary Guarantors, and (iii) all of the capital stock
of the Company's direct or indirect subsidiaries. Substantially all of the
assets of the Company will be pledged as collateral if, 90 days after the
closing of the Cometra Acquisition, the Borrowing Base and amounts outstanding
under the Credit Facility have not been reduced to $325 million. Such additional
security interests will be released upon the (i) reduction of the amounts
outstanding under the Credit Facility to $325 million (or the then determined
Borrowing Base) and (ii) issuance of $75 million of Common Stock and/or the sale
of Company assets in excess of the Borrowing Base value attributable to such
assets as agreed by the lenders.
Immediately following the Cometra Acquisition, the Company expects that
approximately $385 million will be outstanding (including $125 million of then
outstanding letters of credit to secure the promissory note issued to Cometra as
part of the purchase price in the Cometra Acquisition) under the Credit
Facility. Upon consummation of the Offerings, approximately $230.9 million will
be outstanding under the Credit Facility. Accordingly, the Company believes that
a Trigger Event will occur upon completion of the Offerings.
The Credit Facility contains various covenants that, among other things,
will restrict the ability of the Company to dispose of assets, incur additional
indebtedness, repay other indebtedness or amend other debt instruments, pay
dividends, create liens on assets, make investments or acquisitions, engage in
mergers or consolidations, make capital expenditures or engage in certain
transactions with affiliates. In addition, under the Credit Facility, the
Company will be required to comply with specified minimum interest coverage and
maximum leverage ratios.
51
<PAGE> 54
UNDERWRITING
Subject to the terms and subject to the conditions contained in an
Underwriting Agreement dated the date hereof, the Underwriters named below, for
whom Dean Witter Reynolds Inc., PaineWebber Incorporated, Smith Barney Inc.,
A.G. Edwards & Sons, Inc. and McDonald & Company Securities, Inc. are serving as
Representatives, have severally agreed to purchase, and the Company has agreed
to sell to the Underwriters, an aggregate of 4,000,000 shares of Common Stock.
The number of shares of Common Stock that each Underwriter has agreed to
purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Dean Witter Reynolds Inc. ..................................
PaineWebber Incorporated....................................
Smith Barney Inc. ..........................................
A.G. Edwards & Sons, Inc. ..................................
McDonald & Company Securities, Inc. ........................
---------
Total............................................. 4,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all of the shares of Common Stock offered hereby (other than those covered
by the over-allotment option described below) if any are taken.
The Underwriters propose to offer part of the shares directly to the public
at the public offering price set forth on the cover page hereof and part to
certain dealers at a price which represents a concession not in excess of
$ per share under the public offering price. The Underwriters may
allow, and such dealers may reallow, a concession not in excess on $
per share to certain other dealers.
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 600,000 additional shares of Common Stock at the
public offering price set forth on the cover page hereof, less underwriting
discounts and commissions. The Underwriters may exercise such option to purchase
solely for the purpose of covering over-allotments, if any, made in connection
with the Common Stock Offering. To the extent such option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such Underwriter's name in the preceding table bears to the total
number of shares of Common Stock offered hereby.
The Company and certain other stockholders and officers of the Company have
agreed with the Underwriters not to sell or otherwise dispose of any shares of
Common Stock (other than gifts to family members) for a period of days
after the date of this Prospectus without the prior written consent of Dean
Witter Reynolds Inc. for the Underwriters. Cometra has agreed with the Company
not to sell or otherwise dispose of the 1,428,521 shares it will receive
pursuant to the Cometra Acquisition for a period of 45 days following the
closing of the Cometra Acquisition.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
52
<PAGE> 55
LEGAL MATTERS
Certain legal matters with respect to the valid issuance, due
authorization, full payment and nonassessability of the Common Stock offered
hereby will be passed upon for the Company by Vinson & Elkins L.L.P., 2300 First
City Tower, Houston, Texas 77002-6760, and for the Underwriters by Simpson
Thacher & Bartlett (a partnership which includes professional corporations), 425
Lexington Avenue, New York, New York 10017-3909.
EXPERTS
The Consolidated Financial Statements of the Company, as of December 31,
1994 and 1995 and for the years then ended, included and incorporated by
reference in this Prospectus, have been audited by Arthur Andersen LLP,
independent public accountants, as stated in their reports appearing herein and
incorporated by reference. The Consolidated Financial Statements of the Company
for the year ended December 31, 1993 included and incorporated by reference in
the Prospectus have been audited by Ernst & Young LLP, independent auditors, as
stated in their reports thereon appearing herein and incorporated by reference.
The statements of revenues and direct operating expenses of the American
Cometra Interests (referred to herein as the Cometra Properties) for the years
ended December 31, 1994 and 1995 and the nine months ended September 30, 1996,
included in the Registration Statement have been audited by Coopers & Lybrand
L.L.P., independent accountants, and are included herein in reliance upon the
authority of that firm as experts in accounting and auditing.
The financial statements of the Bannon Interests as of December 31, 1995
and for the year then ended, have been incorporated by reference herein and in
the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
Certain information with respect to the gas and oil reserves of the Company
derived from the respective reports of Netherland, Sewell & Associates, Inc.,
Wright & Company, Inc., H. J. Gruy and Associates, Inc., Huddleston & Co., Inc.
and Clay, Holt & Klammer, each of which is a firm of independent petroleum
consultants, has been included and incorporated herein and elsewhere in the
Registration Statement in reliance upon the authority of said firm as experts
with respect to the matters contained in their respective reports.
53
<PAGE> 56
GLOSSARY
The terms defined in this glossary are used throughout this Prospectus.
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.
Bcfe. One billion cubic feet of natural gas equivalents, based on a ratio of 6
Mcf for each barrel of oil, which reflects the relative energy content.
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.
Infield well. A well drilled between known producing wells to better exploit
the reservoir.
Mbbl. One thousand barrels of crude oil or other liquid hydrocarbons.
Mcf. One thousand cubic feet.
Mcfe. One thousand cubic feet of natural gas equivalents, based on a ratio of 6
Mcf for each barrel of oil, which reflects the relative energy content.
Mmbbl. One million barrels of crude oil or other liquid hydrocarbons.
Mmcf. One million cubic feet.
Mmcfe. One million cubic feet of natural gas equivalents.
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. The pre-tax present value, discounted at 10%, of future net cash
flows from estimated proved reserves, calculated holding prices and costs
constant at amounts in effect on the date of the report (unless such prices or
costs are subject to change pursuant to contractual provisions) and otherwise in
accordance with the Commission's rules for inclusion of oil and gas reserve
information in financial statements filed with the Commission.
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) provided 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.
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.
54
<PAGE> 57
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.
Standardized Measure. The present value, discounted at 10%, of future net cash
flows from estimated proved reserves after income taxes calculated holding
prices and costs constant at amounts in effect on the date of the report (unless
such prices or costs are subject to change pursuant to contractual provisions)
and otherwise in accordance with the Commission's rules for inclusion of oil and
gas reserve information in financial statements filed with the Commission.
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.
55
<PAGE> 58
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
LOMAK PETROLEUM, INC. CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants.......................................... F-2
Report of Independent Auditors.................................................... F-3
Consolidated balance sheets at December 31, 1994 and 1995......................... F-4
Consolidated statements of income for the years ended December 31, 1993, 1994 and
1995........................................................................... F-5
Consolidated statements of stockholders' equity for the years ended December 31,
1993, 1994 and 1995............................................................ F-6
Consolidated statements of cash flows for the years ended December 31, 1993, 1994
and 1995....................................................................... F-7
Notes to consolidated financial statements........................................ F-8
Consolidated balance sheets at December 31, 1995 and September 30, 1996
(unaudited).................................................................... F-20
Consolidated statements of income for the nine-month periods ended September 30,
1995 and 1996 (unaudited)...................................................... F-21
Consolidated statements of cash flows for the nine-month periods ended September
30, 1995 and 1996 (unaudited).................................................. F-22
Notes to consolidated financial statements........................................ F-23
COMETRA INTERESTS FINANCIAL STATEMENTS:
Report of Independent Accountants................................................. F-31
Statement of revenues and direct operating expenses for the years ended December
31, 1994 and 1995 and the nine months ended September 30, 1996................. F-32
Notes to the statement of revenues and direct operating expenses.................. F-33
</TABLE>
F-1
<PAGE> 59
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Lomak Petroleum, Inc.
We have audited the accompanying consolidated balance sheets of Lomak
Petroleum, Inc. (a Delaware corporation) as of December 31, 1994 and 1995, and
the related consolidated statements of income, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lomak Petroleum, Inc. as of
December 31, 1994 and 1995, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
February 27, 1996
F-2
<PAGE> 60
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Lomak Petroleum, Inc.
We have audited the consolidated statements of income, stockholders' equity
and cash flows of Lomak Petroleum, Inc. for the year ended December 31, 1993.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our 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 of Lomak Petroleum, Inc. referred
to above present fairly, in all material respects, the consolidated results of
its operations and its cash flows for the year ended December 31, 1993, in
conformity with generally accepted accounting principles.
As discussed in Note 10 to the consolidated financial statements, in 1993
the Company changed its method of accounting for income taxes.
ERNST & YOUNG LLP
Cleveland, Ohio
March 8, 1994
F-3
<PAGE> 61
LOMAK PETROLEUM, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents................................................ $ 4,897 $ 3,047
Accounts receivable................................................. 9,431 14,938
Inventory and other................................................. 1,592 1,114
-------- --------
15,920 19,099
-------- --------
Oil and gas properties, successful efforts method..................... 133,373 210,073
Accumulated depletion............................................... (20,409) (33,371)
-------- --------
112,964 176,702
-------- --------
Gas transportation and field service assets........................... 16,125 23,167
Accumulated depreciation............................................ (3,241) (4,304)
-------- --------
12,884 18,863
-------- --------
$141,768 $214,664
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 8,421 $ 9,084
Accrued liabilities................................................. 4,715 3,761
Accrued payroll and benefit costs................................... 1,075 1,762
Current portion of debt (Note 5).................................... 707 53
-------- --------
14,918 14,660
-------- --------
Long-term debt (Note 5)............................................... 61,885 83,035
Deferred taxes (Note 10).............................................. 16,390 17,726
Commitments and contingencies (Note 6)
Minority interest..................................................... 5,327 --
Stockholders' equity (Notes 7 and 8)
Preferred stock, $1 par, 2,000,000 shares authorized,
7 1/2% convertible preferred, 200,000 issued (liquidation
preference $5,000,000)........................................... 200 200
$2.03 convertible preferred, 1,150,000 issued (liquidation
preference $28,750,000).......................................... -- 1,150
Common stock, $.01 par, 20,000,000 shares authorized, 9,754,010 and
13,322,738 issued................................................ 97 133
Capital in excess of par value...................................... 50,495 101,773
Retained earnings (deficit)......................................... (7,544) (4,013)
-------- --------
43,248 99,243
-------- --------
$141,768 $214,664
======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 62
LOMAK PETROLEUM, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Revenues
Oil and gas sales........................................... $11,132 $24,461 $37,417
Field services.............................................. 6,966 7,667 10,097
Gas transportation and marketing............................ 559 2,195 3,284
Interest and other.......................................... 418 471 1,317
------- ------- -------
19,075 34,794 52,115
------- ------- -------
Expenses
Direct operating............................................ 4,438 10,019 14,930
Field services.............................................. 5,712 5,778 6,469
Gas transportation and marketing............................ 13 490 849
Exploration................................................. 86 359 512
General and administrative.................................. 2,049 2,478 2,736
Interest.................................................... 1,120 2,807 5,584
Depletion, depreciation and amortization.................... 4,347 10,105 14,863
------- ------- -------
17,765 32,036 45,943
------- ------- -------
Income before taxes........................................... 1,310 2,758 6,172
Income taxes
Current..................................................... 69 21 86
Deferred.................................................... (150) 118 1,696
------- ------- -------
(81) 139 1,782
------- ------- -------
Net income.................................................... $ 1,391 $ 2,619 $ 4,390
======= ======= =======
Net income applicable to common shares........................ $ 1,062 $ 2,244 $ 3,659
======= ======= =======
Earnings per common share..................................... $ 0.18 $ 0.25 $ 0.31
======= ======= =======
Weighted average shares outstanding........................... 5,853 9,051 11,841
======= ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 63
LOMAK PETROLEUM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------- ---------------- CAPITAL IN RETAINED
PAR PAR EXCESS OF EARNINGS
SHARES VALUE SHARES VALUE PAR VALUE (DEFICIT)
------ ------ ------ ----- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992......... 33 $ 33 4,776 $ 48 $ 20,274 $(10,850)
Preferred dividends.............. -- -- -- -- -- (329)
Common issued.................... -- -- 2,772 28 17,032 --
Common repurchased............... -- -- (41) (1) (202) --
7 1/2% preferred issued.......... 200 200 -- -- 4,639 --
Conversion of 8% preferred....... (33) (33) 802 8 25 --
Net income....................... -- -- -- -- -- 1,391
----- ------ ------ ---- -------- --------
Balance, December 31, 1993......... 200 200 8,309 83 41,768 (9,788)
Preferred dividends.............. -- -- -- -- -- (375)
Common issued.................... -- -- 1,504 15 9,220 --
Common repurchased............... -- -- (59) (1) (493) --
Net income....................... -- -- -- -- -- 2,619
----- ------ ------ ---- -------- --------
Balance, December 31, 1994......... 200 200 9,754 97 50,495 (7,544)
Preferred dividends.............. -- -- -- -- -- (731)
Common dividends................. -- -- -- -- -- (128)
Common issued.................... -- -- 3,609 36 24,953 --
Common repurchased............... -- -- (40) -- (332) --
$2.03 preferred issued........... 1,150 1,150 -- -- 26,657 --
Net income....................... -- -- -- -- -- 4,390
----- ------ ------ ---- -------- --------
Balance, December 31, 1995......... 1,350 $1,350 13,323 $ 133 $ 101,773 $ (4,013)
===== ====== ====== ==== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 64
LOMAK PETROLEUM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operations:
Net income............................................... $ 1,391 $ 2,619 $ 4,390
Adjustments to reconcile net income to net cash provided
by operations:
Depletion, depreciation and amortization.............. 4,347 10,105 14,863
Deferred income taxes................................. (150) 118 1,335
Changes in working capital net of effects of purchases
of businesses:
Accounts receivable................................. (1,534) 2,572 (5,543)
Inventory and other................................. (334) (45) 278
Accounts payable.................................... (1,022) (2,126) 663
Accrued liabilities and payroll and benefit costs... 1,928 (1,531) 1,778
Gain on sale of assets and other...................... (321) (471) (1,203)
-------- -------- --------
Net cash provided by operations............................ 4,305 11,241 16,561
Cash flows from investing:
Acquisition of businesses, net of cash................... (27,607) (9,399) --
Oil and gas properties................................... (15,219) (22,251) (69,992)
Additions to property and equipment...................... (1,237) (813) (9,102)
Proceeds on sale of assets............................... 604 2,927 2,981
-------- -------- --------
Net cash used in investing................................. (43,459) (29,536) (76,113)
Cash flows from financing:
Proceeds from indebtedness............................... 20,275 22,235 21,304
Repayments of indebtedness............................... (1,045) (1,024) (808)
Preferred stock dividends................................ (329) (375) (731)
Common Stock dividends................................... -- -- (128)
Proceeds from Common Stock issuance...................... 15,385 830 10,590
Repurchase of Common Stock............................... (207) (493) (332)
Proceeds from preferred stock issuance................... 4,833 -- 27,807
-------- -------- --------
Net cash provided by financing............................. 38,912 21,173 57,702
-------- -------- --------
Change in cash............................................. (242) 2,878 (1,850)
Cash and equivalents at beginning of period................ 2,261 2,019 4,897
-------- -------- --------
Cash and equivalents at end of period...................... $ 2,019 $ 4,897 $ 3,047
======== ======== ========
</TABLE>
See accompanying notes.
F-7
<PAGE> 65
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND NATURE OF BUSINESS
Lomak Petroleum, Inc. ("Lomak" or the "Company") is an independent oil and
gas company engaged in the acquisition, development, exploration and enhancement
of oil and gas properties in the United States. Lomak's core areas of operation
are located in Texas, Oklahoma and Appalachia. The company has grown through a
combination of acquisition, development, exploration and enhancement activities.
Since January 1, 1990, 60 acquisitions have been consummated at a total cost of
approximately $200 million and approximately $24 million has been expended on
development and exploration activities. As a result, proved reserves and
production have each grown during this period at a rate in excess of 80% per
annum. At December 31, 1995, proved reserves totaled 298 Bcfe, having a pre-tax
present value at constant prices on that date of $229 million and a reserve life
of nearly 12 years.
Lomak's acquisition effort is focused on properties with prices of less
than $30 million within its core areas of operation. Management believes these
purchases are less competitive than those involving larger property interests.
To the extent purchases continue to be made primarily within existing core
areas, efficiencies in operations, drilling, gas marketing and administration
should be realized. In 1994, Lomak initiated a program to exploit its inventory
of over 500 development projects. In the future, Lomak expects its growth to be
driven principally by a combination of acquisitions and development and, to a
lesser extent, exploration.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements include the accounts of the Company,
all majority owned subsidiaries and its pro rata share of the assets,
liabilities, income and expenses of certain oil and gas properties. Temporary
investments with an initial maturity of ninety days or less are considered cash
equivalents.
Oil and Gas Properties
The Company follows the successful efforts method of accounting for oil and
gas properties. Exploratory costs which result in the discovery of reserves and
the cost of development wells are capitalized. Geological and geophysical costs,
delay rentals and costs to drill unsuccessful exploratory wells are expensed.
Depletion is provided on the unit-of-production method. Oil is converted to Mcfe
at the rate of six Mcf per barrel. The depletion rates per Mcfe were $.74, $.74
and $.73 in 1993, 1994 and 1995, respectively. Approximately $5.3 million, $12.9
million and $12.2 million of oil and gas properties were classified as proved
undeveloped or unproved and, therefore, not subject to depletion as of December
31, 1993, 1994 and 1995, respectively. These costs are assessed periodically to
determine whether their value has been impaired, and if impairment is indicated,
the excess costs are charged to expense.
Gas Transportation and Field Services Assets
The Company owns and operates approximately 1,900 miles of gas gathering
lines in proximity to its principal gas properties. Depreciation is calculated
on the straight-line method based on estimated useful lives ranging from four to
fifteen years.
The Company receives fees for providing field related services. These fees
are recognized as earned. Depreciation is calculated on the straight-line method
based on estimated useful lives ranging from one to six years, except for
buildings which are being depreciated over ten to twenty-five year periods.
F-8
<PAGE> 66
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In September 1994, the Company sold substantially all of its brine disposal
and well servicing assets located in the Appalachian region for approximately
$1.8 million. Through an acquisition completed in early 1995, the Company began
conducting brine disposal and well services in Oklahoma.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Accrual results could differ from those estimates.
Nature of Business
The Company operates in an environment with many financial risks,
including, but not limited to, the ability to acquire additional economically
recoverable oil and gas reserves, the inherent risks of the search for,
development of and production of oil and gas, the ability to sell oil and gas at
prices which will provide attractive rates of return, and the highly competitive
nature of the industry and worldwide economic conditions. The Company's ability
to expand its reserve base and diversify its operations is also dependent upon
the Company's ability to obtain the necessary capital through operating cash
flow, additional borrowings or additional equity funds.
Financial Instruments
The Company's financial instruments include cash and equivalents, accounts
receivable, accounts payable and debt obligations. The book value of cash and
equivalents, accounts receivable and payable and short term debt are considered
to be representative of fair value because of the short maturity of these
instruments. The Company believes that the carrying value of its borrowings
under its bank credit facility approximates their fair value as they bear
interest at the bank's prime rate or Libor. The Company's accounts receivable
are concentrated in the oil and gas industry. The Company does not view such a
concentration as an unusual credit risk.
Interest rate swap agreements, which are used by the Company in the
management of interest exposure, is accounted for on an accrual basis. Income
and expense resulting from these agreements are recorded in the same category as
expense arising from the related liability. Amounts to be paid or received under
interest rate swap agreements are recognized as an adjustment to expense in the
periods in which they accrue. At December 31, 1995, the Company had $40 million
of borrowings subject to two swap agreements at rates of 6.25% and 6.49% through
no less than July 1997 and no longer than October 1999, respectively.
The Company uses futures, option and swap contracts to reduce the effects
of fluctuations in crude oil and natural gas prices. At December 31, 1995, the
Company had open contracts for natural gas price swaps in the amount of 360,000
MMbtu's. These contracts expire monthly through September 1996. The resulting
transaction gains and losses are included in net income and are determined
monthly. Net gains for the year ended December 31, 1995 approximated $221,000
relating to these derivatives.
Accounting Standards
In March 1995, the Financial Standards Board (FASB) issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." This standard requires the review of long-lived assets for
impairment. Although the Company in the past has routinely reviewed its oil and
gas assets for impairment, the new accounting rules may require a different
grouping which may affect the amount of impairment, if any. SFAS No. 121 is
required to be adopted for financial statements with fiscal
F-9
<PAGE> 67
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
years beginning after December 15, 1995 and allows the cumulative effect of the
accounting change to be reported in net income in the year of adoption. The
Company is currently reviewing the accounting standard and has not yet
determined the effect, if any, on its consolidated financial position or results
of operations.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This standard requires an audited pro forma footnote disclosure
of what net income and earnings per share would have been for the Company based
upon valuing employee options and other stock based compensation, at their
estimated fair value using an option pricing model. SFAS No. 123 is required to
be adopted for financial statements with fiscal years beginning after December
15, 1995. The Company is currently reviewing the accounting standard and has not
yet determined the effect, if any, on its financial statements.
Earnings per Common Share
Net income per share is computed by subtracting preferred dividends from
net income and dividing by the weighted average number of common and common
equivalent shares outstanding. The calculation of fully diluted earnings per
share assumes conversion of convertible securities when the result would be
dilutive. Outstanding options and warrants are included in the computation of
net income per common share when their effect is dilutive.
Reclassifications
Certain reclassifications have been made to prior period presentation to
conform with current period classifications.
(3) ACQUISITION AND DEVELOPMENT
Since 1990, the Company has acquired $200 million of oil and gas properties
and field service assets. During 1995, the Company completed $71.1 million of
acquisitions. The purchases were funded by working capital, advances under a
revolving credit facility and the issuance of Common Stock. These acquisitions
are discussed below.
1995 Acquisitions
Appalachia
Transfuel, Inc. In September 1995, 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 $20.2 million and
approximately $800,000 of Common Stock.
Parker & Parsley Petroleum Company. In August 1995, 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.
Interests in approximately 470 Company operated properties in Pennsylvania
and Ohio were purchased for $5.4 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.
Interests in Company operated properties were acquired for $3.2 million.
F-10
<PAGE> 68
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 additional equity of Red Eagle acquired in
February 1995 is reflected as minority interest on the Company's balance sheet
at December 31, 1994. Acquisition costs of approximately $46.5 million have been
capitalized in regards to this acquisition. Red Eagle's assets included
interests in approximately 370 producing wells located primarily in the Okeene
Field of Oklahoma's Anadarko Basin. Subsequently, the Company acquired
additional interests in 70 Red Eagle wells for $1.7 million.
Texas
Grand Banks Energy Company. The Company purchased Grand Banks for $3.7
million. Grand Banks' assets included 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 life of over 20 years. The Company also
purchased, for $1.2 million, additional interests in a number of the Grand Banks
properties.
Gillring Oil Company. The Company acquired Gillring for $11.5 million.
Gillring's assets included $5.2 million of working capital and interests in 106
producing oil and gas wells located in south 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 purchase of Gillring, the Company acquired, for $2.1 million,
the limited partner interests and associated debt of a partnership for which
Gillring acted as 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
for approximately $28.4 million. Mark's assets were located primarily in the
Meadville Area of the Appalachian Basin. Mark owned interests in 655 producing
wells, 230 miles of gas gathering lines and over 180 proven drilling locations.
Mark operated nearly all of its properties.
F-11
<PAGE> 69
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Ohio Trend Area. The Company acquired interests in 119 wells and over 70
miles of gas gathering systems in Ohio for $2.9 million.
Meadville Area. The Company acquired interests in 274 wells, one disposal
facility and various undeveloped leaseholds for $2.5 million.
Texas
Big Lake Area. The Company acquired from three parties interests in 84
producing wells in the Big Lake Area of west Texas for $4.2 million.
Laura LaVelle Field. The Company acquired interests in 7,734 gross (7,524
net) acres in the Laura LaVelle Field located in east Texas for $2.5 million.
The Company assumed operations of 44 producing wells.
Unaudited Pro Forma Financial Information
The following table presents unaudited, pro forma operating results as if
the transactions had occurred at the beginning of each period presented. The pro
forma operating results include the following acquisitions, all of which were
accounted for as purchase transactions; (i) the purchase of Grand Banks Energy
Company, (ii) the purchase of Gillring Oil Company, (iii) the purchase of Red
Eagle Resources Corporation, (iv) the purchase by the Company of certain oil and
gas properties from a subsidiary of Parker & Parsley Petroleum, Co., (v) the
purchase by the Company of certain oil and gas properties from Transfuel, Inc.,
(vi) the private placement of 1.15 million shares of Convertible Preferred Stock
and the application of the net proceeds therefrom and (vii) the private
placement of 1.2 million shares of Common Stock and the application of the net
proceeds therefrom.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1994 1995
-------- --------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues............................................... $ 64,465 $ 62,418
Net income............................................. 8,359 6,583
Earnings per share..................................... 0.51 0.39
Total assets........................................... 185,338 214,664
Stockholders' equity................................... 81,755 99,243
</TABLE>
The pro forma operating results have been prepared for comparative purposes
only. They do not purport to present actual operating results that would have
been achieved had the acquisition been made at the beginning of each period
presented or to necessarily be indicative of future operations. Included in the
1994 pro forma financial information are revenues regarding partnership
activities which contributed $0.22 per share. These same activities did not
occur in 1995.
(4) NOTES RECEIVABLE
In 1994, the Company issued $165,000 in notes receivable to three of its
officers in connection with their exercise of stock options. The notes accrued
interest at the prime rate plus 1% payable quarterly. In 1995, the notes were
repaid.
F-12
<PAGE> 70
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) INDEBTEDNESS
The Company had the following debt outstanding as of the dates shown.
Interest rates at December 31, 1995 are shown parenthetically:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Bank credit facility (6.7%)...................................... $61,870 $83,035
Other (5.9%-9.25%)............................................... 722 53
------- -------
62,592 83,088
Less amounts due within one year................................. 707 53
------- -------
Long-term debt, net.............................................. $61,885 $83,035
======= =======
</TABLE>
The Company maintains a $250 million revolving bank credit facility. The
facility provides for a borrowing base which is subject to semi-annual
redeterminations. At December 31, 1995, the borrowing base on the credit
facility was $105 million. The facility bears interest at prime rate or LIBOR
plus 0.75% to 1.25% depending upon the percentage of the borrowing base drawn.
Interest is payable quarterly and the loan is payable in sixteen quarterly
installments beginning February 1, 1999. A commitment fee of 3/8% of the
undrawn balance is payable quarterly. It is the Company's policy to extend the
term period of the credit facility annually. The weighted average interest rates
on these borrowings were 6.3% and 7.3% for the years ended December 31, 1994 and
1995, respectively. The weighted average interest rate gives effect to interest
rate swap arrangements which have the effect of fixing the interest rate on $40
million of the credit facility at a rate of 6.4%. The existing interest rate
swap arrangements will remain in effect through no less than July 1997 and no
longer than October 1999. The Company's other debt is comprised of secured
equipment financings.
The debt agreements contain various covenants relating to net worth,
working capital maintenance and financial ratio requirements. Interest paid
during the years ended December 31, 1993, 1994 and 1995 totaled $1.2 million,
$2.8 million and $4.9 million, respectively.
Maturities of indebtedness as of December 31, 1995 were as follows (in
thousands):
<TABLE>
<S> <C>
1996............................................... $ 53
1997............................................... --
1998............................................... --
1999............................................... 15,569
2000............................................... 20,759
Remainder.......................................... 46,707
-------
$83,088
=======
</TABLE>
(6) COMMITMENTS AND CONTINGENCIES
In January 1995, a lawsuit (the "Lawsuit") was filed in the Delaware Court
of Chancery, New Castle County, against Red Eagle Resources Corporation, each of
the members of the Board of Directors of Red Eagle and the Company. The
Plaintiff sought to represent all holders (the "Class") of Red Eagle Common
Stock, excluding the Red Eagle Directors and Lomak. A settlement was reached
during 1995 under which the Company paid $250,000 in cash plus 74,286 shares of
the Company's Common Stock.
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.
F-13
<PAGE> 71
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) EQUITY SECURITIES
In 1993, $5,000,000 of 7 1/2% cumulative convertible exchangeable preferred
stock (the "7 1/2% Preferred Stock") was privately placed. The 7 1/2% Preferred
Stock is convertible, at the option of the holders, into 576,945 shares of
Common Stock, at an average conversion price of $8.67 per share. The Company may
convert the 7 1/2% Preferred Stock into Common Stock if the closing price for
the Common Stock exceeds an average price of $11.70 for twenty out of thirty
consecutive trading days. Beginning in July 1996, the Company may redeem the
7 1/2% Preferred Stock at a 7 1/2% premium to liquidation value. Holders of the
7 1/2% Preferred Stock are entitled to two votes per share on matters presented
to the shareholders. At the Company's option, it can exchange the 7 1/2%
Preferred Stock for convertible subordinate notes due July 1, 2003. The notes
carry the same conversion and redemption terms as the 7 1/2% Preferred Stock.
In November 1995, the Company sold 1,150,000 shares of $2.03 convertible
exchangeable preferred stock (the "$2.03 Preferred Stock") for $28.8 million.
The $2.03 Preferred Stock is convertible into the Company's Common Stock at a
conversion price of $9.50 per share, subject to adjustment in certain events.
The $2.03 Preferred Stock is redeemable, at the option of the Company, at any
time on or after November 1, 1998, at redemption prices beginning at 105%. At
the option of the Company, the $2.03 Preferred Stock is exchangeable for the
Company's 8 1/8% convertible subordinated notes due 2005. The notes would be
subject to the same redemption and conversion terms as the $2.03 Preferred
Stock.
In December 1995, the Company privately placed 1.2 million shares of its
Common Stock for $10.2 million to a state sponsored retirement plan. Warrants to
acquired 40,000 shares of Common Stock were outstanding at December 31, 1995.
The warrants have an exercise price of $7.50 per share and expire in December
1996.
(8) STOCK OPTION AND PURCHASE PLAN
The Company maintains a Stock Option Plan which authorizes the grant of
options of up to 1.5 million shares of Common Stock. However, no new options may
be granted which would result in their being outstanding aggregate options
exceeding 10% of the Company's common shares outstanding plus those shares
issuable under convertible securities. Under the plan, incentive and
non-qualified options may be issued to officers, key employees and consultants.
The plan is administered by the Compensation Committee of the Board. All options
issued under the plan vest 30% after one year, 60% after two years and 100%
after three years. The following is a summary of stock option activity:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS EXERCISE
------------------------------- PRICE RANGE
1993 1994 1995 PER SHARE
------- ------- ------- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning of year........ 254,001 428,983 680,483 $3.38-$9.38
Granted................................. 174,982 298,500 342,000 4.01- 9.38
Canceled................................ -- (16,000) (12,000) 3.75- 7.75
Exercised............................... -- (31,000) (33,334) 3.75- 5.63
------- ------- ------- -----------
Outstanding at end of year.............. 428,983 680,483 977,149 $3.38-$9.38
======= ======= ======= ===========
</TABLE>
In 1994, the stockholders approved the 1994 Outside Directors Stock Option
Plan (the "Directors Plan"). Only Directors who are not employees of the Company
are eligible under the Directors Plan. The Directors Plan covers a maximum of
200,000 shares. At December 31, 1995, 44,000 options were outstanding under the
Directors Plan of which 3,600 were exercisable as of that date. The exercise
price of the options ranges from $7.75 to $8.00 per share.
In 1994, the stockholders approved the 1994 Stock Purchase Plan (the "1994
Plan") which authorizes the sale of up to 500,000 shares of Common Stock to
officers, directors, key employees and consultants. Under
F-14
<PAGE> 72
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Plan, the right to purchase shares at prices ranging from 50% to 85% of
market value may be granted. The Company had a 1989 Stock Purchase Plan (the
"1989 Plan") which was identical to the 1994 Plan except that it covered 333,333
shares. Upon adoption of the 1994 Plan, the 1989 Plan was terminated. The plans
are administered by the Compensation Committee of the Board. During the year
ended December 31, 1995, the Company sold 85,800 unregistered common shares to
officers and outside directors. From inception of the 1989 Plan through December
31, 1995, a total of 388,000 unregistered shares had been sold, for a total
consideration of approximately $1.8 million at prices equal to 75% of market
value at the time of the sale.
(9) BENEFIT PLAN
The Company maintains a 401(K) Plan for the benefit of its employees. The
Plan permits employees to make contributions on a pre-tax salary reduction
basis. The Company makes discretionary contributions to the Plan. Company
contributions for 1993, 1994 and 1995 were $189,000, $226,000 and $346,000,
respectively.
(10) INCOME TAXES
Federal income tax (benefit) expense was ($81,000), $139,000 and $1.8
million for the years 1993, 1994 and 1995, respectively. The current portion of
the income tax provision represents alternative minimum tax currently payable. A
reconciliation between the statutory federal income tax rate and the Company's
effective federal income tax rate is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------- ------- -------
<S> <C> <C> <C>
Statutory tax rate................................. 34% 34% 34%
Realization of valuation allowance................. (46) (29) (5)
Alternative minimum tax............................ 6 -- --
-------- ------- -------
Effective tax rate................................. (6)% 5% 29%
======== ======= =======
Income taxes paid.................................. $159,000 $47,500 $60,000
======== ======= =======
</TABLE>
In 1993, the Company adopted FASB Statement No. 109, "Accounting for Income
Taxes". Under Statement 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between 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 reverse. Prior to
the adoption, income tax expense was determined using the deferred method and
the Company reported tax expense equal to current alternative minimum taxes
payable. Deferred taxes have not been provided on temporary differences prior to
adoption due to the existence of net operating loss and other carryforwards.
F-15
<PAGE> 73
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's deferred tax liabilities and assets
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Deferred tax liabilities:
Depreciation................................................... $27,217 $29,130
======= =======
Deferred tax assets:
Net operating loss carryforwards............................... 6,042 6,193
Percentage depletion carryforward.............................. 4,388 4,388
AMT credits and other.......................................... 737 863
------- -------
Total deferred tax assets...................................... 11,167 11,444
Valuation allowance for deferred tax assets...................... (340) (40)
------- -------
Net deferred tax assets.......................................... $10,827 $11,404
======= =======
Net deferred tax liabilities..................................... $16,390 $17,726
======= =======
</TABLE>
As permitted by Statement 109, the Company has elected not to restate prior
year financial statements. As a result of tax basis in excess of the basis on
the financial statements at January 1, 1993, the Company estimated deferred tax
assets of $2.6 million and deferred tax liabilities of $0.9 million, for net
deferred tax assets of $1.7 million. Due to uncertainty as to the realizability
of the tax benefit, a valuation allowance was established for the full amount of
the net deferred tax assets. In 1993, 1994 and 1995, income taxes were reduced
from the statutory rate of 34% by approximately $0.5 million, $0.9 million and
$0.3 million, respectively, through realization of a portion of the valuation
allowance, resulting in $1.2 million, $0.3 million and $40,000, respectively of
the remaining allowance at December 31, 1993, 1994 and 1995.
During 1993, the Company acquired Mark Resources Corporation (See Note 3),
a taxable business combination accounted for as a purchase. Deferred tax assets
of $3.9 million and a deferred tax liability of $8.1 million were recorded in
connection with the business combination. During 1994, the Company acquired
Gillring Oil Company and Grand Banks Energy Company, taxable business
combinations accounted for as purchases. Deferred tax assets of $3.5 million and
deferred tax liabilities of $3.4 million were recorded in connection with these
transactions. The Company acquired Red Eagle Resources Corporation, a taxable
business combination accounted for as a purchase. Deferred tax liabilities of
$12.3 million and deferred tax assets of $0.3 million were recorded in
connection with this transaction.
As a result of the Company's issuance of equity and convertible debt
securities, it experienced a change in control during 1988 as defined by Section
382 of the Internal Revenue Code. The change in control placed limitations to
the utilization of net operating loss carryovers. At December 31, 1995, the
Company had available for federal income tax reporting purposes net operating
loss carryovers of approximately $13.3 million which are subject to annual
limitations as to their utilization and otherwise expire between 1996 and 2010,
if unused. The Company has alternative minimum tax net operating loss carryovers
of $8.2 million which are subject to annual limitations as to their utilization
and otherwise expire from 1996 to 2009 if unused. The Company has statutory
depletion carryover of approximately $8.5 million and an alternative minimum tax
credit carryover of approximately $500,000. The statutory depletion carryover
and alternative minimum tax credit carryover are not subject to limitation or
expiration.
(11) MAJOR CUSTOMERS
The Company markets its oil and gas production on a competitive basis. The
type of contract under which gas production is sold varies but can generally be
grouped into three categories: (a) life-of-the-well; (b) long-term (1 year or
longer); and (c) short-term contracts which may have a primary term of one year,
F-16
<PAGE> 74
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
but which are cancelable at either party's discretion in 30-120 days. At
December 31, 1995, approximately 59% of the Company's gas production was being
sold under market sensitive contracts which do not contain floor price
provisions. For the year ended December 31, 1995, no one customer accounted for
more than 10% of the Company's total oil and gas revenues. 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. The company sells to oil purchasers on a basis of price and service.
The Company has currently hedged less than 3% of its monthly 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 potential benefits to the Company of price
increases above the levels of the hedges.
(12) OIL AND GAS ACTIVITIES
The following summarizes selected information with respect to oil and gas
producing activities:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Capitalized costs:
Proved properties................................ $ 67,370 $132,775 $209,310
Unproved properties.............................. 723 598 763
-------- -------- --------
Total.................................... 68,093 133,373 210,073
Accumulated depletion amortization............... (12,783) (20,409) (33,371)
-------- -------- --------
Net capitalized costs.................... $ 55,310 $112,964 $176,702
======== ======== ========
Costs incurred:
Acquisition...................................... $ 43,177 $ 59,501 $ 69,244
Development...................................... 3,695 9,518 9,968
Exploration...................................... 131 192 216
-------- -------- --------
Total costs incurred..................... $ 47,003 $ 69,211 $ 79,428
======== ======== ========
</TABLE>
(13) SUBSEQUENT EVENTS
In February 1996, the Company completed three oil and gas property
acquisitions for $17.5 million of consideration. The properties are located in
Lomak's core operating areas of Appalachia and Texas. In aggregate, the
acquisitions are estimated to contain proved reserves of 20.2 Bcf of gas and
240,000 of Bbls of oil, or 21.6 Bcfe in total.
In March 1996, the Company's Board of Directors approved resolutions
authorizing the Company to repurchase shares of its Common Stock from odd-lot
holders. The Company will acquire any and all shares from stockholders owning 99
or fewer shares for cash at market prices. Additionally, the Board of Directors
approved a dividend of $.01 per share to holders of its Common Stock to be paid
on March 29, 1996.
(14) RELATED PARTY TRANSACTIONS
Mr. Edelman, Chairman of the Company, is also an executive officer and
shareholder of Snyder Oil Corporation ("SOCO"). At December 31, 1995, Mr.
Edelman owned 6.0% of the Company's Common Stock. In 1994, the Company
repurchased 30,000 shares of its Common Stock from SOCO for $240,000. The
purchase price was based upon the prior day's closing price for the stock. In
1995, SOCO sold its remaining shares of the Company's Common Stock.
F-17
<PAGE> 75
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1995, the Company acquired SOCO's interest in certain wells located in
Appalachia for $4 million. The price was determined based on arms-length
negotiations through a third-party broker retained by SOCO. Subsequent to the
transaction, the Company and SOCO no longer held interests in any of the same
properties.
During 1994 and 1995, the Company incurred fees of $369,000 and $145,000,
respectively, to the Hawthorne Company in connection with acquisitions. Mr.
Aikman, a director of the Company, is an executive officer and a principal owner
of the Hawthorne Company. The fees were consistent with those paid by the
Company to third parties for similar services.
(15) UNAUDITED SUPPLEMENTAL RESERVE INFORMATION
The Company's proved oil and gas reserves are located in the United States.
Proved reserves are those quantities of crude oil and natural gas which, upon
analysis of geological and engineering data, can with reasonable certainty be
recovered in the future from known oil and gas reservoirs. Proved developed
reserves are those proved reserves which can be expected to be recovered from
existing wells with existing equipment and operating methods. Proved undeveloped
oil and gas reserves are proved reserves that are expected to be recovered from
new wells on undrilled acreage.
Quantities of Proved Reserves
<TABLE>
<CAPTION>
CRUDE OIL NATURAL GAS
--------- -----------
(BBLS) (MCF)
(IN THOUSANDS)
<S> <C> <C>
Proved reserves
Balance, December 31, 1992.................................... 1,980 17,615
Revisions................................................... (35) 2,559
Extensions, discoveries and additions....................... 9 305
Purchases................................................... 2,905 57,125
Sales....................................................... (2) (451)
Production.................................................. (318) (2,590)
------ -------
Balance, December 31, 1993.................................... 4,539 74,563
Revisions................................................... 15 630
Extensions, discoveries and additions....................... 15 6,605
Purchases................................................... 4,599 75,698
Sales....................................................... (79) (1,130)
Production.................................................. (640) (6,996)
------ -------
Balance, December 31, 1994.................................... 8,449 149,370
Revisions................................................... 255 (3,513)
Extensions, discoveries and additions....................... 475 10,076
Purchases................................................... 2,618 90,575
Sales....................................................... (21) (1,150)
Production.................................................. (913) (12,471)
------ -------
Balance, December 31, 1995.................................... 10,863 232,887
====== =======
Proved developed reserves
December 31, 1993........................................... 3,344 38,373
====== =======
December 31, 1994........................................... 6,430 97,251
====== =======
December 31, 1995........................................... 8,880 174,958
====== =======
</TABLE>
F-18
<PAGE> 76
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The "Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves" (Standardized Measure) is a disclosure requirement
under Statement of Financial Accounting Standards No. 69 "Disclosures about Oil
and Gas Producing Activities". The Standardized Measure does not purport to
present the fair market value of proved oil and gas reserves. This would require
consideration of expected future economic and operating conditions, which are
not taken into account in calculating the Standardized Measure.
Future cash inflows were estimated by applying year end prices to the
estimated future production less estimated future production costs based on year
end costs. Future net cash inflows were discounted using a 10% annual discount
rate to arrive at the Standardized Measure.
Standardized Measure
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1993 1994 1995
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Future cash inflows.............................. $255,363 $ 457,048 $ 729,566
Future costs:
Production..................................... (74,247) (133,972) (256,374)
Development.................................... (40,224) (52,102) (60,554)
-------- --------- ---------
Future net cash flows............................ 140,892 270,974 412,638
Income taxes..................................... (34,031) (59,950) (102,108)
-------- --------- ---------
Total undiscounted future net cash flows......... 106,861 211,024 310,530
10% discount factor.............................. (53,110) (91,475) (136,480)
-------- --------- ---------
Standardized measure............................. $ 53,751 $ 119,549 $ 174,050
======== ========= =========
</TABLE>
Changes in Standardized Measure
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1993 1994 1995
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure, beginning of year.......... $ 21,608 $ 53,751 $ 119,549
Revisions:
Prices......................................... (963) 4,224 (4,100)
Quantities..................................... (1,085) 2,240 2,267
Estimated future development costs............. -- -- (5,238)
Accretion of discount.......................... 2,161 6,512 15,054
Income taxes................................... (6,936) (19,624) (24,200)
------- -------- ---------
Net revisions............................... (6,823) (6,648) (16,217)
Purchases........................................ 45,271 84,836 87,741
Extensions, discoveries and additions............ 716 2,402 7,419
Production....................................... (6,711) (14,442) (22,487)
Sales............................................ (310) (350) (1,955)
------- -------- ---------
Standardized measure, end of year................ $ 53,751 $ 119,549 $ 174,050
======= ======== =========
</TABLE>
F-19
<PAGE> 77
LOMAK PETROLEUM, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................................... $ 3,047 $ 4,880
Accounts receivable................................................ 14,109 14,861
Marketable securities.............................................. 829 13,176
Inventory and other................................................ 1,114 1,696
-------- --------
19,099 34,613
-------- --------
Oil and gas properties, successful efforts method.................... 210,073 280,089
Accumulated depletion, depreciation and amortization............... (33,371) (48,025)
-------- --------
176,702 232,064
-------- --------
Gas transportation and field service assets.......................... 23,167 22,597
Accumulated depreciation........................................... (4,304) (5,122)
-------- --------
18,863 17,475
-------- --------
$214,664 $ 284,152
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 9,084 $ 16,752
Accrued liabilities................................................ 5,523 8,817
Current portion of debt (Note 4)................................... 53 --
-------- --------
14,660 25,569
-------- --------
Long-term debt (Note 4).............................................. 83,035 121,905
Deferred taxes (Note 10)............................................. 17,726 23,812
Commitments and contingencies (Note 6)
Stockholders' equity (Notes 7 and 8)
Preferred stock, $1 par, 4,000,000 shares authorized, 7 1/2%
convertible preferred, 200,000 issued........................... 200 --
$2.03 convertible preferred, 1,150,000 issued (liquidation
preference $28,750,000)......................................... 1,150 1,150
Common Stock, $.01 par, 35,000,000 shares authorized, 13,322,738
and 14,705,293 issued........................................... 133 147
Capital in excess of par value..................................... 101,773 109,915
Retained earnings (deficit)........................................ (4,013) 1,654
-------- --------
99,243 112,866
-------- --------
$214,664 $ 284,152
======== ========
</TABLE>
See accompanying notes.
F-20
<PAGE> 78
LOMAK PETROLEUM, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1995 1996 1995 1996
------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Oil and gas sales................................. $ 8,802 $16,623 $24,135 $49,878
Field services.................................... 2,216 3,638 7,109 10,483
Gas transportation and marketing.................. 817 1,660 2,332 4,137
Interest and other................................ 301 391 1,052 1,102
------- ------- ------- -------
12,136 22,312 34,628 65,600
------- ------- ------- -------
Expenses
Direct operating.................................. 3,496 6,103 9,935 18,268
Field services.................................... 1,315 2,671 4,192 7,813
Gas transportation and marketing.................. 206 493 595 1,206
Exploration....................................... 197 345 473 836
General and administrative........................ 669 960 2,187 2,862
Interest.......................................... 1,423 2,053 3,822 5,563
Depletion, depreciation and amortization.......... 3,704 5,508 9,808 16,589
------- ------- ------- -------
11,010 18,133 31,012 53,137
------- ------- ------- -------
Income before taxes................................. 1,126 4,179 3,616 12,463
Income taxes
Current........................................... 19 120 66 299
Deferred.......................................... 210 1,340 832 4,061
------- ------- ------- -------
229 1,460 898 4,360
------- ------- ------- -------
Net income.......................................... $ 897 $ 2,719 $ 2,718 $ 8,103
======= ======= ======= =======
Earnings per common share........................... $ .07 $ .14 $ .21 $ .43
======= ======= ======= =======
Weighted average shares outstanding................. 12,130 15,158 11,588 14,615
======= ======= ======= =======
</TABLE>
See accompanying notes.
F-21
<PAGE> 79
LOMAX PETROLEUM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1995 1996
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from operations:
Net income........................................................... $ 2,718 $ 8,103
Adjustments to reconcile net income to net cash provided by
operations:
Depletion, depreciation and amortization.......................... 9,808 16,589
Deferred income taxes............................................. 832 4,061
Changes in working capital net of effects of purchases of
businesses:
Accounts receivable............................................. (768) (264)
Marketable securities........................................... (295) (12,342)
Inventory and other............................................. 121 (659)
Accounts payable................................................ (1,223) 7,703
Accrued liabilities and payroll and benefit costs............... (698) 1,868
Gain on sale of assets and other.................................. (740) (724)
-------- --------
Net cash provided by operations........................................ 9,755 24,335
Cash flows from investing:
Acquisition of businesses, net of cash............................... -- (13,950)
Oil and gas properties............................................... (56,913) (55,491)
Additions to gas transportation and field service assets............. (7,733) (723)
Proceeds on sale of assets........................................... 1,770 3,399
-------- --------
Net cash used in investing............................................. (62,876) (66,765)
Cash flows from financing:
Proceeds from indebtedness, net of repayments........................ 50,671 38,817
Stock dividends...................................................... (281) (2,435)
Proceeds from Common Stock issuance, net of repurchases.............. 235 7,881
-------- --------
Net cash provided by financing......................................... 50,625 44,263
-------- --------
Change in cash......................................................... (2,496) 1,833
Cash and equivalents at beginning of period............................ 4,897 3,047
-------- --------
Cash and equivalents at end of period.................................. $ 2,401 $ 4,880
======== ========
</TABLE>
See accompanying notes.
F-22
<PAGE> 80
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION
Lomak Petroleum, Inc. ("Lomak" or the "Company") is an independent oil and
gas company engaged in the acquisition, production, development and exploration
of oil and gas in the United States. Lomak's core areas of operation are located
in the Mid-Continent and Appalachia regions. Since January 1, 1990, the Company
has made 68 acquisitions at a total cost of $256 million and $34 million has
been expended on development and exploration activities. As a result, proved
reserves and production have each grown during this period at a rate in excess
of 80% per annum. At December 31, 1995, proved reserves totaled 298 Bcfe, having
a pre-tax present value at constant prices of $229 million and a reserve life of
nearly 12 years.
Lomak's acquisition effort is focused on properties with prices of less
than $30 million within its core areas of operation. Management believes these
purchases are less competitive than those involving larger property interests.
To the extent purchases continue to be made primarily within existing core
areas, efficiencies in operations, drilling, marketing and administration should
be realized. In 1992, Lomak began to exploit its growing inventory of
development projects. In 1994, the Company initiated exploration activities. In
the future, Lomak expects its growth to be driven by a combination of
acquisitions, development and exploration.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements include the accounts of the Company,
all majority owned subsidiaries and its pro rata share of the assets,
liabilities, income and expenses of certain oil and gas properties. Temporary
investments with an initial maturity of ninety days or less are considered cash
equivalents.
Oil and Gas Properties
The Company follows the successful efforts method of accounting.
Exploratory costs which result in the discovery of reserves and the cost of
development wells are capitalized. Geological and geographical costs, delay
rentals and costs to drill unsuccessful exploratory wells are expensed.
Depletion is provided on the unit-of-production method. Oil is converted to Mcfe
at the rate of six Mcf per barrel. The depletion rate per Mcfe produced was $.73
in both the third quarters of 1995 and 1996. Approximately $12.2 million ($11.5
million -- proved undeveloped properties and $.8 million -- unproved acreage)
and $21.7 million ($20.6 million proved undeveloped properties and $1.1
million -- unproved acreage) of oil and gas properties were not subject to
depletion as of December 31, 1995 and September 30, 1996, respectively. These
costs are assessed periodically to determine whether their value has been
impaired. If they have, the amount of any impairment is expensed.
Gas Transportation and Field Service Assets
The Company owns and operates over 1,900 miles of gas gathering systems in
proximity to its principal gas properties. Depreciation of these systems is
calculated on the straight-line method based on estimated useful lives ranging
from four to fifteen years.
The Company receives fees for providing field related services. These fees
are recognized as earned. Depreciation is calculated on the straight-line method
based on estimated useful lives ranging from one to five years, except buildings
which are being depreciated over ten to twenty-five years.
Nature of Business
The Company operates in an environment with many financial risks,
including, but not limited to, the ability to acquire additional economically
recoverable oil and gas reserves, the inherent risks of the search for,
F-23
<PAGE> 81
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
development of and production of oil and gas, the ability to sell oil and gas at
prices which will provide attractive rates of return, and the highly competitive
nature of the industry and worldwide economic conditions. The Company's ability
to expand its reserve base and diversify its operations is also dependent upon
the Company's ability to obtain the necessary capital through cash flow,
borrowings or equity funds.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Financial Instruments and Hedging Activities
The following table sets for the book value and estimated fair values of
the Company's financial instruments:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
--------------------- -----------------------
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
-------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and equivalents.................. $ 3,047 $ 3,047 $ 4,880 $ 4,880
Marketable securities................. 829 1,020 13,176 13,392
Senior debt........................... (83,035) (83,035) (121,905) (121,905)
Commodity swaps....................... -- 93 -- (129)
Interest rate swaps................... -- 375 -- 88
</TABLE>
The Company's financial instruments include cash and equivalents, accounts
receivable, accounts payable and debt obligations. The book value of cash and
equivalents, accounts receivable and payable and short term debt are considered
to be representative of fair value because of the short maturity of these
instruments. The Company believes that the carrying value of its borrowings
under its bank credit facility approximates their fair value as they bear
interest at rates indexed at LIBOR. The Company's accounts receivable are
concentrated in the oil and gas industry. The Company does not view such a
concentration as an unusual credit risk.
A portion of the Company's prices received in crude oil and natural gas
sales are periodically hedged against market risks through the use of futures,
option or swap contracts. The gains and losses on these instruments are included
in the valuation of the production being hedged in the contract month and are
included as an adjustment to oil and gas revenue. The company also manages
interest rate risk on its credit facility through the use of interest rate swap
agreements. Gains and losses on swap agreements are included as an adjustment to
interest expenses.
Marketable Securities
In 1996, the Company adopted Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
Under Statement No. 115, debt and marketable equity securities are required to
be classified in one of three categories: trading, available-for-sale, or held
to maturity. The Company's equity securities qualify under the provisions of
Statement No. 115 as available-for-sale. Such securities are recorded at fair
value, and unrealized holding gains and losses, net of the related tax effect,
are not reflected in earnings or as a separate component of stockholders' equity
because the amounts are immaterial. A decline in the market value of an
available-for-sale security below cost that is deemed other than temporary is
charged to earnings and results in the establishment of a new cost basis for the
security. Realized gains and losses are determined on the specific
identification method and are reflected in income.
F-24
<PAGE> 82
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net Income Per Share
Net income per share is computed by subtracting preferred dividends from
net income and dividing by the weighted average number of common and common
equivalent shares outstanding. The calculation of fully diluted earnings per
share assumes conversion of convertible securities when the result would be
dilutive. Outstanding options and warrants are included in the computation of
net income per common share when their effect is dilutive.
Reclassifications
Certain reclassifications have been made to prior period presentations to
conform with current period classifications.
(3) ACQUISITIONS
Since 1990, the Company has acquired over $256 million of oil and gas
properties. During 1995, the Company completed $71.1 million of acquisitions. In
the first nine months of 1996, acquisitions totaling $56.8 million were
completed. The purchases were funded by working capital, advances under a
revolving credit facility and the issuance of common and preferred stock. These
acquisitions are discussed below.
1996 Acquisitions
Mid-Continent
Bannon Interests. In April 1996, the Company acquired interests in
approximately 270 producing wells and 108 proven recompletion and development
drilling opportunities for $37.0 million. Also included were 17,300 net
undeveloped acres located in east and south Texas.
The Company purchased incremental interests in approximately 40 properties
located in the Laura La Velle Field of east Texas for $.8 million.
Appalachia
Eastern Petroleum Company. In January 1996, the Company acquired proven
oil and gas reserves and 40 miles of gas gathering lines in Ohio for $13.7
million. In the second quarter of 1996, the Company initiated a program
extending purchase offers to other interest owners in these properties. Through
September 30, 1996, interests in 61 wells had been purchased for approximately
$100,000.
The Company purchased incremental interests in approximately 440 operated
properties in Pennsylvania and Ohio for $5.2 million.
1995 Acquisitions
Mid-Continent
Red Eagle Resources Corporation. In late 1994, the Company acquired
effective control of Red Eagle through the purchase of two stockholders'
holdings. In early 1995, the remaining stockholders of Red Eagle 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
additional equity of Red Eagle acquired in February 1995 was reflected as
minority interest on the Company's balance sheet at December 31, 1994.
Acquisition costs of approximately $46.5 million were capitalized in regards to
this acquisition. Red Eagle's assets included interests in approximately 370
producing wells located primarily in the Okeene Field of Oklahoma's Anadarko
Basin. Subsequently, the Company acquired additional interests in 70 Red Eagle
wells for $1.7 million.
F-25
<PAGE> 83
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company purchased interests in 52 wells in the Caddo and Canadian
counties of Oklahoma for $4.8 million. The Company assumed operation of half of
these wells.
Additional interests in properties acquired from Red Eagle in 1994 were
purchased for $3.2 million.
The Company purchased interests in 140 wells located primarily in the Big
Lake Area of west Texas and the Laura La Velle Field of east Texas for $2.8
million.
Appalachia
Transfuel Interests. In September 1995, the Company acquired proved oil
and gas reserves, 1,100 miles of gas gathering lines and 175,000 undeveloped
acres of Ohio, Pennsylvania and New York from Transfuel, Inc. for $21 million.
Parker & Parsley Interests. 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.
Unaudited Pro Forma Financial Information
The following table presents unaudited, pro forma operating results as if
the transactions had occurred at the beginning of each period presented. The pro
forma operating results include the following acquisitions, all of which were
accounted for as purchase transactions; (i) the purchase of certain oil and gas
properties from a subsidiary of Parker & Parsley Petroleum Co., (ii) the
purchase of certain oil and gas properties from Transfuel, Inc., (iii) the
purchase of certain oil and gas properties from Bannon Energy Inc. and (iv) the
private placement of preferred and Common Stock of the Company and the
application of the net proceeds, therefrom.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1995 1996
------- -------
<S> <C> <C>
Revenues................................................. $50,366 $67,303
Net income............................................... 3,819 8,055
Earnings per share....................................... .29 .42
</TABLE>
The pro forma operating results have been prepared for comparative purposes
only. They do not purport to present actual results had the acquisitions been
made at the beginning of each period presented or to necessarily be indicative
of future operations.
(4) INDEBTEDNESS
The Company had the following debt outstanding as of the dates shown.
Interest rates at September 30, 1996 are shown parenthetically (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
DECEMBER 31, -------------
1995
------------ (UNAUDITED)
<S> <C> <C>
Bank credit facility (6.7%).......................... $ 83,035 $ 121,905
Other................................................ 53 --
------- --------
83,088 121,905
Less amounts due within one year..................... 53 --
------- --------
Long-term debt, net........................ $ 83,035 $ 121,905
======= ========
</TABLE>
F-26
<PAGE> 84
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company maintains a $250 million revolving bank credit facility. The
facility provides for a borrowing base which is subject to semi-annual
redeterminations. At November 4, 1996, the borrowing base on the credit facility
was $150 million, of which $112 million was outstanding. The facility bears
interest at the prime rate or LIBOR plus 0.75% to 1.25% depending upon the
percentage of the borrowing base drawn. Interest is payable quarterly and the
loan is payable in sixteen quarterly installments beginning February 1, 1999. A
commitment fee of 3/8% of the undrawn balance is payable quarterly. It is the
Company's policy to extend the term period of the credit facility annually. The
weighted average interest rate on these borrowings were 7.5% and 6.7% for the
nine months ended September 30, 1995 and 1996, respectively. The weighted
average interest rate gives effect to two $20 million interest rate swap
arrangements which have the effect of fixing the interest rate on $40 million of
the credit facility at a rate of 6.4%. The interest rate swaps will remain in
effect through July 1997 and October 1997, respectively, but may be extended at
the counterparties' option for two years.
The debt agreements contain various covenants relating to net worth,
working capital maintenance and financial ratio requirements. Interest paid in
cash during the nine months ended September 30, 1995 and 1996 totaled $3.5
million and $4.1 million, respectively.
(5) FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
The Company uses derivative financial instruments to manage well-defined
commodity price and interest rate risks and does not use them for speculative
purposes.
Periodically, the Company enters into futures, option and swap contracts to
reduce the effects of fluctuations in crude oil and natural gas prices. At
September 30, 1996, the Company had open contracts for oil and gas price swaps
of 280,000 barrels and 586,000 Mcfs. These swap contracts are designed to set
average prices of $23.09 per barrel and $1.98 per Mcf. While these transactions
have no carrying value, their fair value, represented by the estimated amount
that would be required to terminate the contracts, was a net cost of
approximately $129,000 at September 30, 1996. These contracts expire monthly
through March 1997. In October 1996, the Company entered into swap contracts for
an additional 250,000 barrels of oil at an average price per barrel of $22.86.
These contracts expire monthly through April 1997. The gains or losses on the
Company's hedging transactions is determined as the difference between the
contract price and a reference price, generally closing prices on the New York
Mercantile Exchange. The resulting transaction gains and losses are determined
monthly and are included in net income for the contract month as an adjustment
to oil and gas revenue. Net gains relating to these derivatives for the nine
months ended September 30, 1996 approximated $29,700.
Interest rate swap agreements, which are used by the Company in the
management of interest exposure, is accounted for on an accrual basis. Income
and expense resulting from these agreements are recorded in the same category as
expense arising from the related liability. Amounts to be paid or received under
interest rate swap agreements are recognized as an adjustment to expense in the
periods in which they accrue. At September 30, 1996, the Company had $40 million
of borrowings subject to two interest rate swap agreements at rates of 5.25% and
5.49% through July 1997 and October 1997, respectively, but may be extended at
the counterparties' option for two years. The agreements require that the
Company pay the counterparty interest at the above fixed swap rates and requires
the counterparty to pay the Company interest at the 30-day LIBOR rate. The
closing 30-day LIBOR rate on September 30, 1996 was 5.44%. The fair value of the
interest rate swap agreements at September 30, 1996, based upon current quotes
for equivalent agreements, amounted to $87,700, which represents the Company's
income if the agreements were terminated on this date. In October 1996, the
Company entered into a swap arrangement on an additional $20 million of the
credit facility at a rate of 5.7%, which will remain in effect through October
1998, but may be extended at the counterparties' option for two years.
These financial instruments are executed with major financial or
commodities institutions which expose the Company to acceptable levels of market
and credit risks and may at times be concentrated with certain
F-27
<PAGE> 85
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
counterparties or groups of counterparties. The credit worthiness of
counterparties is subject to continuing review and full performance is
anticipated.
(6) COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal actions and claims arising in the
ordinary course of business. In the opinion of management, such litigation and
claims are likely to be resolved without material adverse effect on the
Company's financial position.
(7) EQUITY SECURITIES
In 1993, $5 million of 7 1/2% cumulative convertible exchangeable preferred
stock (the "7 1/2% Preferred Stock") was privately placed. In April and May
1996, the Company exercised it's option and converted the 7 1/2% Preferred Stock
into 576,945 shares of Common Stock.
In November 1995, the Company sold 1,150,000 shares of $2.03 convertible
exchangeable preferred stock (the "$2.03 Preferred Stock") for $28.8 million.
The $2.03 Preferred Stock is convertible into the Company's Common Stock at a
conversion price of $9.50 per share, subject to adjustment in certain events.
The $2.03 Preferred Stock is redeemable, at the option of the Company, at any
time on or after November 1, 1998, at redemption prices beginning at 105%. At
the option of the Company, the $2.03 Preferred Stock is exchangeable for the
Company's 8 1/8% convertible subordinated notes due 2005. The notes would be
subject to the same redemption and conversion terms as the $2.03 Preferred
Stock.
In December 1995, the Company privately placed 1.2 million shares of its
Common Stock for $10.2 million to a state employees retirement plan. In April
1996, the Company privately placed 600,000 shares of its Common Stock to a
limited number of institutional investors for approximately $6.9 million.
Warrants to acquire 40,000 shares of Common Stock at a price of $7.50 per share
were exercised in October 1996. Additionally, warrants to acquire 20,000 shares
of Common Stock at a price of $12.88 per share were outstanding at September 30,
1996 and will expire in December 1997.
(8) STOCK OPTION AND PURCHASE PLAN
The Company maintains a Stock Option Plan which authorizes the grant of
options of up to 2.0 million shares of Common Stock. However, no new options may
be granted which would result in their being outstanding aggregate options
exceeding 10% of common shares outstanding plus those shares issuable under
convertible securities. Under the plan, incentive and non-qualified options may
be issued to officers, key employees and consultants. The plan is administered
by the Compensation Committee of the Board. All options issued under the plan
vest 30% after one year, 60% after two years and 100% after three years. During
the nine months ended September 30, 1996, options covering 109,750 shares were
exercised at prices ranging from $3.38 to $8.25 per share. At September 30,
1996, options covering a total of 1.2 million shares were outstanding under the
plan, of which 504,000 options were exercisable. The exercise prices of the
outstanding options range from $3.38 to $10.50.
In 1994, the stockholders approved the 1994 Outside Directors Stock Option
Plan (the "Directors Plan"). Only Directors who are not employees of the Company
are eligible under the Directors Plan. The Directors Plan covers a maximum of
200,000 shares. At September 30, 1996, 76,000 options were outstanding under the
Directors Plan of which 16,800 were exercisable as of that date. The exercise
price of the options ranges from $7.75 to $13.88 per share.
In 1994, the stockholders approved the 1994 Stock Purchase Plan (the "1994
Plan") which authorizes the sale of up to 500,000 shares of Common Stock to
officers, directors, key employees and consultants. Under the Plan, the right to
purchase shares at prices ranging from 50% to 85% of market value may be
granted. The Company had a 1989 Stock Purchase Plan (the "1989 Plan") which was
identical to the 1994 Plan except
F-28
<PAGE> 86
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that it covered 333,333 shares. Upon adoption of the 1994 Plan, the 1989 Plan
was terminated. The plans are administered by the Compensation Committee of the
Board. During the nine months ended September 30, 1996, the Company sold 100,000
unregistered common shares to officers and outside directors. From inception of
the 1989 Plan through September 30, 1996, a total of 488,000 unregistered shares
had been sold, for a total consideration of approximately $2.8 million at prices
equal to 75% of market value at the time of the sale.
(9) BENEFIT PLAN
The Company maintains a 401(K) Plan for the benefit of its employees. The
Plan permits employees to make contributions on a pre-tax salary reduction
basis. The Company makes discretionary contributions to the Plan. Company
contributions for 1995 totaled $346,000.
(10) INCOME TAXES
In 1993, the Company adopted FASB Statement No. 109, "Accounting for Income
Taxes". As permitted by Statement 109, the Company elected not to restate prior
year financial statements. As a result of tax basis in excess of the basis on
the financial statements at January 1, 1993, the Company estimated deferred tax
assets of $2.6 million and deferred tax liabilities of $900,000, for net
deferred tax assets of $1.7 million. Due to uncertainty as to the Company's
ability to realize the tax benefit, a valuation allowance was established for
the full amount of the net deferred tax assets. In 1993 and 1994, income taxes
were reduced from the statutory rate of 34% by approximately $.5 million and $.3
million, respectively, through realization of the valuation allowance that was
established.
During 1993, the Company acquired Mark Resources Corporation, in a taxable
combination accounted for as a purchase. Deferred tax assets of $3.9 million and
a deferred tax liability of $8.1 million were recorded in the transaction.
During 1994, the Company acquired Gillring Oil Company and Grand Banks Energy
Company, taxable combinations accounted for as purchases. Deferred tax assets of
$3.5 million and deferred tax liabilities of $3.4 million were recorded in these
transactions. In late 1994, the Company acquired Red Eagle Resources
Corporation, a taxable combination accounted for as a purchase. Deferred tax
liabilities of $12.3 million and deferred tax assets of $.3 million were
recorded in this transaction. In 1996, the Company acquired Eastern Petroleum
Company in a taxable combination accounted for as a purchase. A net deferred tax
liability of $2.1 million was recorded in the transaction.
For the nine months ended September 30, 1995 and 1996, the Company made a
provision for federal income taxes of $898,000 and $4.4 million, respectively.
At September 30, 1996, the Company had available for federal income tax
reporting purposes net operating loss carryovers of approximately $16.9 million
which are subject to annual limitations as to their utilization and expire
between 1996 and 2010. The Company has alternative minimum tax net operating
loss carryovers of $11.6 million which are subject to annual limitations as to
their utilization and expire from 1996 to 2009. The Company has statutory
depletion carryover of approximately $8.2 million and an alternative minimum tax
credit carryover of $500,000. The statutory depletion carryover and alternative
minimum tax credit carryover are not subject to limitation or expiration.
(11) MAJOR CUSTOMERS
The Company markets its oil and gas production on a competitive basis. The
type of contract under which gas production is sold varies but can generally be
grouped into three categories: (a) life-of-the-well; (b) long-term (1 year or
longer); and (c) short-term contracts which may have a primary term of one year,
but which are cancelable at either party's discretion in 30-120 days.
Approximately 60% of the Company's gas production is currently sold under market
sensitive contracts which do not contain floor price provisions. For the nine
months ended September 30, 1996, no one customer accounted for 10% or more of
the Company's total oil and gas revenues. Management believes that the loss of
any one customer would not have a material adverse effect on the operations of
the Company. Oil is sold on a basis such that the purchaser can be changed
F-29
<PAGE> 87
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
on 30 days notice. The price received is generally equal to a posted price set
by the major purchasers in the area. Oil is sold on a basis of price and
service.
The Company has currently hedged 88% of its oil production through April
1997. 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 potential benefits to the Company of price increases above the
levels of the hedges.
(12) OIL AND GAS ACTIVITIES
The following summarizes selected information with respect to oil and gas
activities (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Capitalized costs:
Proved properties........................................ $209,310 $ 279,001
Unproved properties...................................... 763 1,088
-------- --------
Total............................................ 210,073 280,089
Accumulated depletion, depreciation and amortization..... (33,371) (48,025)
-------- --------
Net capitalized costs............................ $176,702 $ 232,064
======== ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Costs incurred:
Property acquisition..................................... $ 69,244 $ 63,538
Development.............................................. 9,968 8,621
Exploration.............................................. 216 638
-------- --------
Total costs incurred............................. $ 79,428 $ 72,797
======== ========
</TABLE>
(13) RELATED PARTY TRANSACTIONS
Mr. Edelman, Chairman of the Company, is also an executive officer and
shareholder of Snyder Oil Corporation ("SOCO"). At September 30, 1996, Mr.
Edelman owned 5.7% of the Company's Common Stock. In 1995, the Company acquired
SOCO's interest in certain wells located in Appalachia for $4 million. The price
was determined based on arms-length negotiations through a third-party broker
retained by SOCO. Subsequent to the transaction, the Company and SOCO no longer
hold interests in any of the same properties.
During 1995, the Company incurred fees of $145,000 to the Hawthorne Company
in connection with acquisitions. Mr. Aikman, a director of the Company, is an
executive officer and a principal owner of the Hawthorne Company. The fees were
consistent with those paid by the Company to third parties for similar services.
F-30
<PAGE> 88
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Lomak Petroleum, Inc.:
We have audited the accompanying statements of revenues and direct
operating expenses of the American Cometra Interests, as described in Note 1,
for the years ended December 31, 1994 and 1995 and the nine months ended
September 30, 1996. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying statements of revenues and direct operating expenses
reflect the revenues and direct operating expenses attributable to the American
Cometra Interests, as described in Note 1, and are not intended to be a complete
presentation of the revenues and expenses of the American Cometra Interests.
In our opinion, the statements referred to above present fairly the
revenues and direct operating expenses of the American Cometra Interests, as
described in Note 1, for the years ended December 31, 1994 and 1995 and the nine
months ended September 30, 1996, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Worth, Texas
January 20, 1997
F-31
<PAGE> 89
THE AMERICAN COMETRA INTERESTS
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -----------------
<S> <C> <C> <C>
Revenues:
Oil and gas production.......................... $46,808,830 $43,513,982 $42,649,511
Marketing and gas plant operating activities
(net)........................................ 3,370,500 5,276,900 4,563,600
----------- ----------- -----------
Total revenues............................. 50,179,330 48,790,882 47,213,111
Direct operating expenses......................... 14,447,533 12,727,532 10,309,096
----------- ----------- -----------
Excess of revenues over operating
expenses................................ $35,731,797 $36,063,350 $36,904,015
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE> 90
THE AMERICAN COMETRA INTERESTS
NOTES TO THE STATEMENTS OF REVENUES
AND DIRECT OPERATING EXPENSES
1. GENERAL:
Organization
The accompanying statements present the revenues and direct operating
expenses of certain working and other interests in oil and gas properties and
the Sterling gas plant and related pipeline owned by American Cometra, Inc. (the
"American Cometra Interests") which were purchased by Lomak Petroleum, Inc.
("Lomak"). Such financial statements were derived from the historical records of
the predecessor owner and represent Lomak's interest.
Basis of Presentation
The historical financial statements reflecting financial position, results
of operations and cash flows required by generally accepted accounting
principles are not presented, as such information is neither readily available
on an individual property basis nor meaningful for the American Cometra
Interests. During the periods presented, the American Cometra Interests were not
accounted for as a separate entity. These statements do not include
depreciation, depletion and amortization, general and administrative, interest,
federal income tax expenses, or federal income tax credits allowed under Section
29 of the Internal Revenue Code. Accordingly, the accompanying financial
statements are not intended to be a complete presentation of the results of
operations of the American Cometra Interests in conformity with generally
accepted accounting principles.
Revenue Recognition
Revenues are recognized when oil and gas production is sold. Direct
operating expenses are accrued when services are provided. Netted against
marketing and gas plant operating activities is $9,758,300, $7,700,000 and
$8,156,900 for the years ended December 31, 1994 and 1995 and the nine months
ended September 30, 1996, respectively, relating to costs associated with those
activities.
Use of Estimates
Management has made a number of estimates and assumptions relating to the
reporting of the revenues and direct operating expenses to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
2. SALES TO MAJOR CUSTOMERS:
For the years ended December 31, 1994 and 1995, four purchasers accounted
for 33% and 54% of total revenues, respectively. For the nine months ended
September 30, 1996, four purchasers accounted for 60% of total revenues.
3. OIL AND GAS RESERVES INFORMATION (UNAUDITED):
The estimates of the American Cometra Interests in proved oil and gas
reserves, which are located entirely in the United States, are based on
evaluations by an independent petroleum engineer, Netherland, Sewell &
Associates as of September 30, 1996. These reserves were estimated in accordance
with guidelines established by the Securities and Exchange Commission which
require that reserve reports be prepared under existing economic and operating
conditions with no provision for price escalations except by contractual
arrangements. Reserves as of December 31, 1994 and 1995 were derived from the
September 30, 1996 reserve estimates after considering production and drilling
activities.
Lomak's management emphasizes that reserve estimates are inherently
imprecise. Accordingly, the estimates are expected to change as future
information becomes available.
F-33
<PAGE> 91
THE AMERICAN COMETRA INTERESTS
NOTES TO THE STATEMENTS OF REVENUES
AND DIRECT OPERATING EXPENSES -- (CONTINUED)
The following unaudited table sets forth the estimated proved oil and gas
reserve quantities of the American Cometra Interests at December 31, 1994 and
1995 and September 30, 1996:
<TABLE>
<CAPTION>
CRUDE OIL NATURAL GAS
(BBLS) (MCFS)
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
PROVED RESERVES:
Balance, December 31, 1993................................... 10,107 194,508
Production................................................ (404) (14,372)
Purchases................................................. -- 1,294
Extensions, discoveries, renewals......................... 505 12,683
Sales..................................................... -- --
Balance, December 31, 1994................................... 10,208 194,113
Production................................................ (626) (15,212)
Purchases................................................. 93 1,502
Extensions, discoveries, renewals......................... 24 9,210
Sales..................................................... (14)
Balance, December 31, 1995................................... 9,685 189,613
Production................................................ (576) (11,807)
Extensions, discoveries, renewals......................... 669 20,379
----- -------
9,778 198,185
===== =======
PROVED DEVELOPED RESERVES:
Balance, December 31, 1994................................... 5,062 97,269
===== =======
Balance, December 31, 1995................................... 4,550 93,398
===== =======
Balance, September 30, 1996.................................. 4,643 104,109
===== =======
</TABLE>
The "Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves" (Standardized Measure) is a disclosure requirement
under Statement of Financial Accounting Standards No. 69. The Standardized
Measure does not purport to present the fair market value of proved oil and gas
reserves. This would require consideration of expected future economic and
operating conditions, which are not taken into account in calculating the
Standardized Measure.
Future cash inflows were estimated by applying September 30, 1996 prices,
adjusted for fixed and determinable escalations to the estimated future
production less estimated future production costs based on period-end costs and
future development costs. Future net cash inflows were discounted using a 10%
annual discount rate to arrive at the Standardized Measure. Future income tax
estimates are not included, as the historical tax basis of the properties is not
relevant.
F-34
<PAGE> 92
THE AMERICAN COMETRA INTERESTS
NOTES TO THE STATEMENTS OF REVENUES
AND DIRECT OPERATING EXPENSES -- (CONTINUED)
The standardized measure of discounted future net cash flows relating to
proved oil and gas properties is as follows:
<TABLE>
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Future cash inflows............................ $ 769,841 $ 741,378 $ 736,914
Future costs:
Production................................... (192,086) (180,713) (171,482)
Development.................................. (94,386) (87,567) (83,383)
--------- --------- ---------
Future net cash flows.......................... 483,369 473,098 482,049
Income taxes................................... -- -- --
--------- --------- ---------
Undiscounted future net cash flows............. 483,369 473,098 482,049
10% discount factor............................ (236,628) (217,624) (196,261)
--------- --------- ---------
Standardized measure........................... $ 246,741 $ 255,474 $ 285,788
========= ========= =========
</TABLE>
Changes in standardized measure of discounted future net cash flows from
proved reserve quantities are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure, beginning of year........ $ 238,067 $ 246,741 $ 255,474
Purchases...................................... 627 1,228 --
Extensions, discoveries, additions............. 17,730 15,051 38,185
Production..................................... (33,490) (32,141) (33,418)
Sales.......................................... -- (79) --
Accretion of discount.......................... 23,807 24,674 25,547
--------- --------- ---------
Standardized measure, end of year.............. $ 246,741 $ 255,474 $ 285,788
========= ========= =========
</TABLE>
F-35
<PAGE> 93
[Lomak Logo]
4,000,000 SHARES
COMMON STOCK
PROSPECTUS
DEAN WITTER REYNOLDS INC.
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
A.G. EDWARDS & SONS, INC.
MCDONALD & COMPANY
SECURITIES, INC.
, 1997
<PAGE> 94
***************************************************************************
* *
* 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 JANUARY 23, 1997
PROSPECTUS
$100,000,000
LOMAK PETROLEUM, INC.
% SENIOR SUBORDINATED NOTES DUE 2007
[LOMAK PETROLEUM LOGO]
The % Senior Subordinated Notes due 2007 (the "Notes") are being offered (the
"Notes Offering") by Lomak Petroleum, Inc., a Delaware corporation ("Lomak" or
the "Company"). The Company's payment obligations under the Notes will be
jointly, severally and unconditionally guaranteed (the "Guarantees") on a senior
subordinated basis by each Subsidiary of the Company and any future Subsidiary
of the Company (the "Subsidiary Guarantors").
Interest on the Notes will accrue at the rate of % per annum and will be
payable semi-annually in arrears on and of each year, commencing
on , 1997. The Notes mature on , 2007, unless previously
redeemed. The Notes will be subject to redemption at the option of the Company,
in whole or in part, on or after , 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest, if any, thereon to the
applicable redemption date. Upon the occurrence of a Change of Control (as
defined), the Company will be required to offer to repurchase all or a portion
of each Holder's Notes at an offer price in cash equal to 101% of the aggregate
principal amount of such Notes plus accrued and unpaid interest, if any, thereon
to the date of repurchase. Prior to , 2000, the Company may, at its
option, on any one or more occasions, redeem up to 33 1/3% of the original
aggregate principal amount of the Notes at a redemption price equal to % of
the principal amount thereof, plus accrued and unpaid interest, if any, thereon
to the redemption date, with all or a portion of the net proceeds of public
sales of Common Stock of the Company. See "Description of Notes."
Concurrently with the Notes Offering, the Company is offering 4,000,000 shares
of its Common Stock (the "Common Stock Offering" and together with the Notes
Offering, the "Offerings") by a separate prospectus. The closing of the Notes
Offering and the Common Stock Offering are contingent upon each other. Neither
the Notes Offering nor the Common Stock Offering will be completed until after
the Cometra Acquisition (as defined herein) has been consummated.
The Notes will be general unsecured obligations of the Company and will be
subordinated in right of payment to Senior Debt (as defined) of the Company,
which will include borrowings under the Credit Facility (as defined herein). As
of September 30, 1996, after giving pro forma effect to the Offerings, the
application of the proceeds therefrom, as described under "Use of Proceeds," and
the consummation of the Cometra Acquisition, the principal amount of Senior Debt
outstanding would have been $238 million, which represents borrowings under the
Credit Facility (as defined herein). The Company also has $55 million principal
amount outstanding of 6% Convertible Subordinated Debentures due 2007, which are
expressly subordinated to the Notes.
The Company does not intend to apply for listing of the Notes on any securities
exchange or inclusion of the Notes in any automated quotation system.
- --------------------------------------------------------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE NOTES.
- --------------------------------------------------------------------------------
THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note................................ % % %
Total................................... $ $ $
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from the date of issuance.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses estimated at $ payable by the Company.
- --------------------------------------------------------------------------------
The Notes are offered by Chase Securities Inc., NationsBanc Capital Markets,
Inc., Bear, Stearns & Co. Inc. and Credit Suisse First Boston Corporation
(together, the "Underwriters"), subject to prior sale, when, as and if issued by
the Company and delivered to and accepted by the Underwriters, and subject to
certain other conditions. The Underwriters reserve the right to withdraw, cancel
or modify such offer and reject orders in whole or in part. It is expected that
delivery of the Notes will be made in New York, New York in book-entry form
through the facilities of The Depository Trust Company on or about ,
1997.
CHASE SECURITIES INC.
NATIONSBANC CAPITAL MARKETS, INC.
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON CORPORATION
, 1997
<PAGE> 95
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements, and
other information filed by the Company can be inspected and copied at the public
reference facilities of the Commission, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as the following regional offices: 7 World Trade
Center, Suite 1300, New York, New York 10048; and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies can be obtained
by mail at prescribed rates. Requests for copies should be directed to the
Commission's Public Reference Section, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission also maintains a Website
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. In addition, reports, proxy statements and other information
concerning the Company can be inspected and copied at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, on which
the Common Stock is listed.
The Company has filed with the Commission a Registration Statement on Form
S-3 ("Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Notes being offered by this Prospectus
and the Common Stock which is being offered by a separate prospectus. This
Prospectus does not contain all the information set forth on the Registration
Statement and the exhibits thereto. For further information with respect to the
Company and the Notes being offered hereby, reference is made to the
Registration Statement and the exhibits thereto. Statements contained in this
Prospectus concerning the provisions of documents filed with the Registration
Statement as exhibits are necessarily summaries of such documents, and each such
statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission. All of these documents may be
inspected without charge at the offices of the Commission, the addresses of
which are set forth above, and copies may be obtained therefrom at prescribed
rates.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents and information heretofore filed with the
Commission by the Company 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, 1995.
2. The Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1996, June 30, 1996 and September 30,
1996.
3. The Company's Current Report on Form 8-K, dated April 19, 1996, and
Form 8-K/A, dated May 31, 1996.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the Notes
Offering shall be deemed to be incorporated by reference into this Prospectus
and to be a part hereof from the date of filing of such documents. 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 other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus. The Company will provide without charge
to each person, including any beneficial owner, to whom a copy of this
Prospectus is delivered, upon the written or oral request of any such person, a
copy of any document described above (other than exhibits). Requests for such
copies should be directed to Lomak Petroleum, Inc., 500 Throckmorton Street,
Fort Worth, Texas 76102, Attn: Corporate Secretary, Telephone No. (817)
870-2601.
A-2
<PAGE> 96
THE OFFERING
ISSUER........................ Lomak Petroleum, Inc.
SECURITIES OFFERED............ $100 million aggregate principal amount
of % Senior Subordinated Notes due 2007.
MATURITY...................... , 2007.
INTEREST PAYMENT DATES........ and of each year,
commencing on , 1997.
MANDATORY REDEMPTION.......... None.
OPTIONAL REDEMPTION........... Except as otherwise described below, the Notes
will not be redeemable at the Company's option
prior to , 2002. Thereafter, the
Notes will be subject to redemption at the
option of the Company, in whole or in part, at
the redemption prices set forth herein, plus
accrued and unpaid interest thereon to the
applicable redemption date. In addition, prior
to , 2000, the Company may, at its
option, on any one or more occasions, redeem up
to 33 1/3% of the original principal amount of
the Notes at a redemption price equal to % of
the principal amount thereof, plus accrued and
unpaid interest, if any, to the redemption
date, with all or a portion of the net proceeds
of public sales of Common Stock of the Company;
provided that at least 66 2/3% of the original
aggregate principal amount of the Notes remains
outstanding immediately after the occurrence of
such redemption. See "Description of the
Notes -- Optional Redemption."
CHANGE OF CONTROL............. Upon the occurrence of a Change of Control, the
Company will generally be required to offer to
repurchase all or a portion of each Holder's
Notes, at an offer price in cash equal to 101%
of the aggregate principal amount of such
Notes, plus accrued and unpaid interest, if
any, to the date of repurchase, and to
repurchase all Notes tendered pursuant to such
offer. The Credit Facility will prohibit the
Company from repurchasing any Notes pursuant to
a Change of Control offer prior to the
repayment in full of the Senior Debt under the
Credit Facility. Therefore, if a Change of
Control were to occur, there can be no
assurance that the Company or the Subsidiary
Guarantors will have the financial resources or
be permitted under the terms of their
indebtedness to repurchase the Notes. If any
Event of Default (as defined) occurs, the
applicable trustee or holders of at least 25%
in principal amount of the applicable Notes
then outstanding may declare the principal of
and the accrued and unpaid interest on such
Notes to be due and payable immediately.
However, such repayment would be subject to
certain subordination provisions in the
Indenture. See "Risk Factors-Risks Relating to
a Change of Control" and "Description of the
Notes--Subordination" and "--Repurchase at the
Option of Holders--Change of Control," and
"--Events of Default and Remedies."
RANKING....................... The Notes will be general, unsecured
obligations of the Company, will be
subordinated in right of payment to Senior Debt
of the Company, which includes borrowings under
the Credit Facility and any other permitted
indebtedness which does not expressly provide
A-3
<PAGE> 97
that it is on a parity with or subordinated in
right of payment to the Notes. The claims of
the holders of the Notes will be subordinated
to Senior Debt, which, as of September 30,
1996, on a pro forma basis after giving effect
to the Offerings and the application of the
proceeds therefrom, would have been
approximately $238 million, which represents
borrowings under the Credit Facility. See
"Capitalization," "Description of the
Notes-Subordination" and "Description of
Capital Stock and Indebtedness--Credit
Facility."
SUBSIDIARY GUARANTEES......... The Company's payment obligations under the
Notes will be jointly, severally and
unconditionally guaranteed on a senior
subordinated basis (the "Guarantees") by each
Subsidiary of the Company and any future
Subsidiary of the Company. The Guarantees will
be subordinated to Senior Debt of the
Subsidiary Guarantors to the same extent and in
the same manner as the Notes are subordinated
to Senior Debt. See "Description of the Notes-
Guarantees" and "Description of Capital Stock
and Indebtedness -- Credit Facility."
CERTAIN COVENANTS............. The Notes will be issued pursuant to an
indenture (the "Indenture") containing certain
covenants that will, among other things, limit
the ability of the Company and its Subsidiaries
to incur additional indebtedness and issue
Disqualified Stock, pay dividends, make
distributions, make investments, make certain
other Restricted Payments, enter into certain
transactions with affiliates, dispose of
certain assets, incur liens securing
Indebtedness (as defined) of any kind (other
than Permitted Liens, as defined) and engage in
mergers and consolidations. See "Description of
the Notes--Certain Covenants."
USE OF PROCEEDS............... The Company will use the proceeds of the Notes
Offering and the Common Stock Offering to repay
a portion of the indebtedness incurred to fund
the purchase price for the Cometra Properties.
See "Use of Proceeds."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in connection with an investment in the Notes offered hereby,
including information regarding the Company's highly leveraged capital
structure, the uncertainty of oil and gas prices and certain risks associated
with an investment in the Notes offered hereby.
A-4
<PAGE> 98
[NOTE: THESE RISK FACTORS SUPPLEMENT THE RISK FACTORS CONTAINED IN THE COMMON
STOCK PROSPECTUS.]
SUBORDINATION OF NOTES
The Notes will be subordinated in right of payment to all existing and
future Senior Debt of the Company, including borrowings under the Credit
Facility. In the event of bankruptcy, liquidation or reorganization of the
Company, the assets of the Company will be available to pay obligations on the
Notes only after all Senior Debt has been paid in full, and there may not be
sufficient assets remaining to pay amounts due on any or all of the Notes
outstanding. The aggregate principal amount of Senior Debt of the Company, as of
September 30, 1996, would have been $238 million on a pro forma basis.
Additional Senior Debt may be incurred by the Company from time to time, subject
to certain restrictions. In addition to being subordinated to all existing and
future Senior Debt of the Company, the Notes will not be secured by any of the
Company's assets, unlike the borrowings under the Credit Facility. See
"Description of Notes--Subordination."
FRAUDULENT CONVEYANCE
The incurrence of indebtedness (such as the Notes) in connection with the
financing and refinancing of the Cometra Acquisition is subject to review under
relevant federal and state fraudulent conveyance statutes in a bankruptcy or
reorganization case or a lawsuit by or on behalf of other creditors of the
Company. The Company's obligations under the Notes will be guaranteed on a
senior subordinated basis by its subsidiaries. To the extent that a court were
to find that (x) the Notes or a Subsidiary Guarantee was incurred with the
intent to hinder, delay or defraud any present or future creditor or that the
Company or such Subsidiary Guarantor contemplated insolvency with a design to
favor one or more creditors to the exclusion in whole or in part of others or
(y) the Company or a Subsidiary Guarantor did not receive fair consideration or
reasonably equivalent value for issuing the Notes or Subsidiary Guarantee and,
at the time thereof, the Company or such Subsidiary Guarantor (i) was insolvent
or rendered insolvent by reason of the issuance of the Notes or the Subsidiary
Guarantee, (ii) was engaged or about to engage in a business or transaction for
which its remaining assets constituted unreasonably small capital or (iii)
intended to incur, or believed that it would incur, debts beyond its ability to
pay such debts as they matured, a court could avoid or subordinate the Notes or
Subsidiary Guarantee in favor of other creditors. Among other things, a legal
challenge of the Subsidiary Guarantee issued by such Subsidiary Guarantor on
fraudulent conveyance grounds may focus on the benefits, if any, realized by
such Subsidiary Guarantor as a result of the issuance by the Company of the
Notes. To the extent the Subsidiary Guarantee issued by a Subsidiary Guarantor
is voided as a fraudulent conveyance or held unenforceable for any other reason,
the Holders of the Notes would cease to have any claim in respect of such
Subsidiary Guarantor and would be creditors solely of the Company and any other
Subsidiary Guarantors.
On the basis of historical financial information, recent operating history
as discussed in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and other information currently available to it, the
Company believes that the Notes and the Subsidiary Guarantees issued
concurrently with the issuance of the Notes are being incurred for proper
purposes and in good faith and that, after giving effect to Indebtedness
incurred in connection with the issuance of the Notes and the issuance of the
Subsidiary Guarantees, the Company and the Subsidiary Guarantors are solvent,
will have sufficient capital for carrying on their respective businesses and
will be able to pay their debts as such debts become absolute and mature. There
can be no assurance, however, that a court passing on such questions would reach
the same conclusions.
ABSENCE OF A PUBLIC MARKET FOR NOTES
There is no existing market for the Notes and, although the Underwriters
have advised the Company that they currently intend to make a market in the
Notes, the Underwriters are not obligated to do so and may discontinue such
market making at any time. The Company does not intend to apply for listing of
the Notes on a securities exchange or to seek approval for quotation through an
automated quotation system. Accordingly, there can be no assurance that an
active market will develop upon completion of the Notes Offering or, if
developed, that such market will be sustained or as to the liquidity of any
market. The initial offering price of
A-5
<PAGE> 99
the Notes will be determined through negotiations between the Company and the
Underwriters, and may bear no relationship to the market price of the Notes
after the Notes Offering. Factors such as quarterly or cyclical variations in
the Company's financial results, variations in interest rates, future
announcements concerning the Company or its competitors, government regulation,
general economic and other conditions and developments affecting the oil and gas
industry could cause the market price of the Notes to fluctuate substantially.
RISKS RELATING TO A CHANGE OF CONTROL
Upon a Change of Control (as defined herein), holders of the Notes will
have the right to require the Company to repurchase all or any part of such
holders' Notes at a price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of repurchase. The events that
constitute a Change of Control hereunder would constitute a default under the
Credit Facility, which prohibits the purchase of the Notes by the Company in the
event of certain Change of Control events unless and until such time as the
Company's indebtedness under the Credit Facility is repaid in full. There can be
no assurance that the Company and the Subsidiary Guarantors would have
sufficient financial resources available to satisfy all of its or their
obligations under the Credit Facility and the Notes in the event of a Change of
Control. The Company's failure to purchase the Notes would result in a default
under the Indenture and under the Credit Facility, each of which could have
adverse consequences for the Company and the holders of the Notes. See
"Description of Capital Stock and Indebtedness" and "Description of the Notes
- -- Repurchase at the Option of Holders -- Change of Control." The definition of
"Change of Control" in the Indenture includes a sale, lease, conveyance or other
disposition of "all or substantially all" of the assets of the Company and its
Subsidiaries taken as a whole to a person or group of persons. There is little
case law interpreting the phrase "all or substantially all" in the context of an
indenture. Because there is no precise established definition of this phrase,
the ability of a holder of the Notes to require the Company to repurchase such
Notes as a result of a sale, lease, conveyance or transfer of all or
substantially all of the Company's assets to a person or group of persons may be
uncertain.
A-6
<PAGE> 100
USE OF PROCEEDS
The net proceeds of the Notes Offering are estimated to be approximately
$96.7 million and the net proceeds of the Common Stock Offering are estimated to
be approximately $79.3 million (assuming an offering of $21 per share), after
deducting underwriting discounts and estimated expenses. The Company intends to
use all of such net proceeds to repay certain indebtedness incurred under the
Credit Facility to fund a portion of the cash purchase price for the Cometra
Properties. See "Cometra Acquisition." As of December 31, 1996, indebtedness
under the Credit Facility, which expires in January, 2002, had a weighted
average interest rate of 6.7%. For additional information with respect to the
interest rates, maturity and covenants related to the Credit Facility, see
"Description of Capital Stock and Indebtedness -- Credit Facility."
A-7
<PAGE> 101
DESCRIPTION OF THE NOTES
GENERAL
The Senior Subordinated Notes (the "Notes") will be issued pursuant to an
Indenture (the "Indenture") among the Company, the Subsidiary Guarantors and
, as trustee (the "Trustee"). Copies of the Indenture
are filed as exhibits to the Registration Statement of which this Prospectus
forms a part and will be made available to prospective purchasers of the Notes
upon request. The Indenture is subject to and governed by the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). 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. The Notes are subject to all such terms,
and Holders of the Notes are referred to the Indenture and the Trust Indenture
Act for a statement thereof. The following summary of certain provisions of the
Indenture does not purport to be complete and is qualified in its entirety by
reference to the Indenture, including the definitions therein of certain terms
used below. The definitions of certain terms used in the following summary are
set forth below under "-- Certain Definitions."
The Notes will be general unsecured obligations of the Company and will be
subordinated in right of payment to Senior Debt. The Notes will be guaranteed on
a senior subordinated basis by each of the Subsidiaries of the Company and any
future Subsidiary of the Company. The obligations of the Subsidiary Guarantors
under the Guarantees will be general unsecured obligations of each of the
Subsidiary Guarantors and will be subordinated in right of payment to all
obligations of the Subsidiary Guarantors in respect of Senior Debt. See "--
Guarantees" and "Risk Factors -- Subordination."
For purposes of this section, the term "Company" means Lomak Petroleum,
Inc.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes and
any other payment obligations of the Company in respect of the Notes (including
any obligation to repurchase the Notes) will be subordinated in certain
circumstances in right of payment, as set forth in the Indenture, to the prior
payment in full in cash of all Senior Debt, whether outstanding on the date of
the Indenture or thereafter incurred.
Upon any payment or distribution of property or securities to creditors of
the Company in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, or in an assignment for the benefit of creditors or any
marshalling of the Company's assets and liabilities, the holders of Senior Debt
will be entitled to receive payment in full of all Obligations due in respect of
such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt, whether or not a
claim for such interest would be allowed in a proceeding) before the Holders of
the Notes will be entitled to receive any payment with respect to the Notes, and
until all Obligations with respect to Senior Debt are paid in full, any
distribution to which the Holders of the Notes would be entitled shall be made
to the holders of Senior Debt (except that Holders of the Notes may receive
payments made from the trust described under "-- Legal Defeasance and Covenant
Defeasance").
The Company also may not make any payment (whether by redemption, purchase,
retirement defeasance or otherwise) upon or in respect of the Notes (except from
the trust described under "-- Legal Defeasance and Covenant Defeasance") if (i)
a default in the payment of the principal of, premium, if any, or interest on
Designated Senior Debt occurs or (ii) any other default occurs and is continuing
with respect to Designated Senior Debt that permits, or with the giving of
notice or passage of time or both (unless cured or waived) will permit, holders
of the Designated Senior Debt as to which such default relates to accelerate its
maturity and the Trustee receives a notice of such default (a "Payment Blockage
Notice") from the Company or the holders of any Designated Senior Debt. Cash
payments on the Notes shall be resumed (a) in the case of a payment default,
upon the date on which such default is cured or waived and (b) in case of a
nonpayment default, the earlier of the date on which such nonpayment default is
cured or waived or 90 days after the date on which the applicable Payment
Blockage Notice is received, unless the maturity of any Designated Senior Debt
has been accelerated or a default of the type described in clause (ix) under the
caption "Events of
A-8
<PAGE> 102
Default" has occurred and is continuing. No new period of payment blockage may
be commenced unless and until 360 days have elapsed since the date of
commencement of the payment blockage period resulting from the immediately prior
Payment Blockage Notice. No nonpayment default in respect of Designated Senior
Debt that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent
Payment Blockage Notice.
The Indenture will further require that the Company promptly notify holders
of Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency of the Company, Holders of the Notes may recover
less ratably than creditors of the Company who are holders of Senior Debt. On a
pro forma basis, after giving effect to the Cometra Acquisition, the related
financing transactions and the application of the proceeds therefrom, the
principal amount of Senior Debt outstanding at September 30, 1996 would have
been approximately $ million, which includes $ million of borrowings under the
Credit Agreement. See "Description of Capital Stock and Indebtedness." The
Indenture will limit, subject to certain financial tests, the amount of
additional Indebtedness, including Senior Debt, that the Company and its
Subsidiaries can incur. See "-- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Disqualified Stock."
GUARANTEES
The Company's payment obligations under the Notes will be jointly,
severally and unconditionally guaranteed (the "Guarantees") by each Subsidiary
of the Company and any future Subsidiary of the Company. The Guarantees will be
subordinated to Indebtedness of the Subsidiary Guarantors to the same extent and
in the same manner as the Notes are subordinated to the Senior Debt. Each
Guarantee by a Subsidiary Guarantor will be limited in an amount not to exceed
the maximum amount that can be guaranteed by the applicable Subsidiary Guarantor
without rendering such Guarantee, as it relates to such Subsidiary Guarantor,
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer or similar laws affecting rights of creditors generally.
The Indenture will provide that no Subsidiary Guarantor may consolidate
with or merge with or into (whether or not such Subsidiary Guarantor is the
surviving Person), another Person whether or not affiliated with such Subsidiary
Guarantor, unless (i) subject to the provisions of the following paragraph, the
Person formed by or surviving any such consolidation or merger (if other than
such Subsidiary Guarantor) assumes all the obligations of such Subsidiary
Guarantor pursuant to a supplemental indenture in form and substance reasonably
satisfactory to the Trustee in respect of the Notes, the Indenture and the
Guarantees; (ii) immediately after giving effect to such transaction, no Default
or Event of Default exists; and (iii) such transaction does not violate any of
the covenants described under the heading "-- Certain Covenants."
The Indenture will provide that in the event of a sale or other disposition
of all or substantially all of the assets of a Subsidiary Guarantor to a third
party in a transaction that does not violate any of the covenants in the
Indenture, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the capital stock of a Subsidiary Guarantor, then such
Subsidiary Guarantor (in the event of a sale or other disposition, by way of
such a merger, consolidation or otherwise, of all of the capital stock of such
Subsidiary Guarantor) or the Person acquiring the property (in the event of a
sale or other disposition of all or substantially all of the assets of such
Subsidiary Guarantor) will be released from and relieved of any obligations
under its Guarantee; provided that the Net Proceeds of such sale or other
disposition are applied in accordance with the covenant described under the
caption "-- Repurchase at the Option of Holders -- Asset Sales."
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $100.00 million
and will mature on , 2007. Interest on the Notes will accrue at the
rate of % per annum and will be payable semi-annually in arrears
on - and - of each year, commencing on
, 1997, to Holders of the Notes of record on the immediately
preceding and . Interest on the
A-9
<PAGE> 103
Notes will accrue from the most recent date on which interest has been paid or,
if no interest has been paid, from the date of original issuance.
Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. Principal, premium, if any, and interest on the Notes will
be payable at the office or agency of the Company maintained for such purpose
within 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 of the Notes at their
respective addresses set forth in the applicable register of Holders of the
Notes. Until otherwise designated by the Company, the Company's office or agency
in New York will be the office of the Trustee maintained for such purpose. The
Notes will be fully registered as to principal and interest in minimum
denominations of $1,000 and integral multiples of $1,000 in excess thereof.
OPTIONAL REDEMPTION
Except as otherwise described below, the Notes will not be redeemable at
the Company's option prior to , 2002. Thereafter, the Notes will be
subject to redemption at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002......................................... %
2003......................................... %
2004......................................... %
2005 and thereafter.......................... 100%
</TABLE>
Prior to , 2000, the Company may, at its option, on any one or
more occasions, redeem up to 33 1/3% of the original aggregate principal amount
of the Notes at a redemption price equal to % of the principal amount thereof,
plus accrued and unpaid interest, if any, thereon to the redemption date, with
all or a portion of the net proceeds of public sales of Common Stock of the
Company; provided that at least 66 2/3% of the original aggregate principal
amount of the Notes remains outstanding immediately after the occurrence of such
redemption; and provided, further, that such redemption shall occur within 60
days of the date of the closing of the related sale of Common Stock of the
Company.
SELECTION AND NOTICE
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed, or, if such Notes are not so listed, on a pro rata basis, by lot or by
such method as such Trustee shall deem fair and appropriate; provided that no
Note of $1,000 or less shall be redeemed in part. Notices of redemption shall be
mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each Holder of the Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
will cease to accrue on the Notes or portions of them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
A-10
<PAGE> 104
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of the Notes will
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount of the Notes plus accrued and
unpaid interest, if any, thereon to the date of purchase (the "Change of Control
Payment"). Within 30 days following any Change of Control, the Company will (i)
mail a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offer to repurchase the Notes pursuant to
the procedures required by the Indenture and described in such notice and (ii)
(a) offer to repay in full all Obligations under the Credit Agreement and to
repay in full all Obligations of each lender who has accepted such offer or (b)
obtain the requisite consent under the Credit Agreement to permit the purchase
of the Notes as described herein. The Company will comply with the requirements
of Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable in
connection with the repurchase of the Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all the Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the relevant Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount of such Notes or portions thereof being
purchased by the Company. The Paying Agent will promptly mail to each Holder of
the Notes so tendered the Change of Control Payment for such Notes, and the
Trustee will promptly authenticate and mail (or cause to be transferred by book
entry) to each Holder a new Note equal in principal amount to any unpurchased
portion of the Notes surrendered, if any; provided that each such new Note will
be in a principal amount of $1,000 or an integral multiple thereof. The
Indenture will provide that, prior to complying with the provisions of this
covenant, but in any event within 90 days following a Change of Control, the
Company will either repay all outstanding Senior Debt or obtain the requisite
consents, if any, under all agreements governing outstanding Senior Debt to
permit the repurchase of the Notes required by this covenant. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the
Indenture will not contain provisions that permit the Holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction.
The Company will not be required to make a Change of Control Offer if a
third party makes the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements set forth in the Indenture
applicable to a Change of Control Offer made by the Company and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of the Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
Asset Sales
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, engage in an Asset Sale unless (i) the Company or
the Subsidiary, as the case may be, receives consideration at the time of such
Asset Sale at least equal to the fair market value (as determined in good faith
by a
A-11
<PAGE> 105
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee, which determination shall be conclusive evidence of
compliance with this provision) of the assets or Equity Interests issued or sold
or otherwise disposed of and (ii) at least 85% of the consideration therefor
received by the Company or such Subsidiary is in the form of cash or Cash
Equivalents; provided that the amount of (x) any liabilities (as shown on the
Company's or such Subsidiary's most recent balance sheet), of the Company or any
Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the Notes or any guarantee thereof) that are assumed by
the transferee of any such assets pursuant to a customary novation agreement
that releases the Company or such Subsidiary from further liability and (y) any
non-cash consideration received by the Company or any such Subsidiary from such
transferee that is converted by the Company or such Subsidiary into cash within
180 days of closing such Asset Sale, shall be deemed to be cash for purposes of
this provision (to the extent of the cash received).
Within 180 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to reduce Senior
Debt or (b) to acquire a controlling interest in another Oil and Gas Business,
to make capital expenditures in respect of the Company's or its Subsidiaries'
Oil and Gas Business, or to purchase long-term assets that are used or useful in
the Oil and Gas Business. Pending the final application of any such Net
Proceeds, the Company may temporarily reduce Senior Debt that is revolving debt
or otherwise invest such Net Proceeds in any manner that is not prohibited by
the Indenture. Any Net Proceeds from Asset Sales that are not applied as
provided in the first sentence of this paragraph will (after the expiration of
the periods specified in this paragraph) be deemed to constitute "Excess
Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5 million, the
Company will be required to make an offer to all Holders of the Notes and, to
the extent required by the terms thereof, to all holders or lenders of Pari
Passu Indebtedness (an "Asset Sale Offer") to purchase the maximum principal
amount of the Notes and any such Pari Passu Indebtedness to which the Asset Sale
Offer applies that may be purchased out of the Excess Proceeds, at an offer
price in cash equal to 100% of the principal amount thereof plus accrued and
unpaid interest thereon to the date of purchase, in accordance with the
procedures set forth in the Indenture or the agreements governing the Pari Passu
Indebtedness, as applicable. To the extent that the aggregate principal amount
of the Notes and Pari Passu Indebtedness tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Company may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
the Notes surrendered by Holders thereof and other Pari Passu Indebtedness
surrendered by holders or lenders thereof, collectively, exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes and Pari Passu Indebtedness
to be purchased on a pro rata basis, based on the aggregate principal amount
thereof surrendered in such Asset Sale Offer. Upon completion of such Asset Sale
Offer, the amount of Excess Proceeds shall be reset at zero.
The Credit Agreement may prohibit the Company from purchasing any Notes and
also provides that certain change of control events with respect to the Company
would constitute a default thereunder. Any future credit agreements or other
agreements relating to Senior Debt to which the Company becomes a party may
contain similar restrictions and provisions. In the event a Change of Control or
Asset Sale Offer occurs at a time when the Company is prohibited from purchasing
the Notes, the Company could seek the consent of its lenders to the purchase or
could attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company may
remain prohibited from purchasing the Notes. In such case, the Company's failure
to purchase tendered Notes would constitute an Event of Default under the
Indenture which would, in turn, constitute a default under the Credit Agreement.
In such circumstances, the subordination provisions in the Indenture would
likely restrict payments to the Holders of the Notes.
CERTAIN COVENANTS
Restricted Payments
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
Equity Interests (including, without limitation, any payment in connection with
any merger or
A-12
<PAGE> 106
consolidation involving the Company) to the direct or indirect holders of the
Company's Equity Interests in their capacity as such (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of the
Company); (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any direct or indirect parent or other
Affiliate of the Company that is not a Subsidiary of the Company; (iii) make any
principal payment on, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated to the Notes, except at
final maturity; or (iv) make any Restricted Investment (all such payments and
other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "-- Incurrence of
Indebtedness and Issuance of Disqualified Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the date
of the Indenture (excluding Restricted Payments permitted by clauses (2),
(3), (5), (6) and (7) of the next succeeding paragraph), is less than the
sum of (i) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the date of the Indenture to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus (ii) 100% of the aggregate net cash proceeds received
by the Company from the issue or sale since the date of the Indenture of
Equity Interests of the Company or of debt securities of the Company that
have been converted into or exchanged for such Equity Interests (other than
Equity Interests (or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Stock or debt securities that have
been converted into Disqualified Stock), plus (iii) to the extent that any
Restricted Investment that was made after the date of the Indenture is sold
for cash or otherwise liquidated or repaid for cash, the lesser of (A) the
net proceeds of such sale, liquidation or repayment and (B) the initial
amount of such Restricted Investment, provided, however, that the foregoing
provisions of this paragraph (c) will not prohibit Restricted Payments in
an aggregate amount not to exceed $10 million.
The foregoing provisions will not prohibit (1) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (2) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c)(ii) of the preceding paragraph; (3) the defeasance, redemption
or repurchase of subordinated Indebtedness with the net cash proceeds from an
incurrence of subordinated Permitted Refinancing Debt or the substantially
concurrent sale (other than to a Subsidiary of the Company) of Equity Interests
of the Company (other than Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c)(ii) of the
preceding paragraph; (4) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or any Subsidiary of
the Company held by any of the Company's (or any of its Subsidiaries') employees
pursuant to any management equity subscription agreement or stock option
agreement in effect as of the date of the Indenture; provided that the aggregate
price paid for all such repurchased, redeemed, acquired or retired Equity
Interests shall not exceed $1 million in any twelve-month period; and provided
further that no Default or Event of Default shall have occurred and be
continuing immediately after such transaction; (5) repurchases
A-13
<PAGE> 107
of Equity Interests deemed to occur upon exercise of stock options if such
Equity Interests represent a portion of the exercise price of such options; (6)
the redemption of the Company's 6% Convertible Subordinated Debentures Due
February 1, 2007; provided that the average closing price of the Company's
common stock for the 30 trading days prior to the date of such redemption is
greater than 120% of the conversion price and (7) conversion of the Company's
$2.03 Convertible Preferred Stock in accordance with its terms.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (as determined in good faith by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee, which
determination shall be conclusive evidence of compliance with this provision) on
the date of the Restricted Payment of the asset(s) proposed to be transferred by
the Company or the applicable Subsidiary, as the case may be, pursuant to the
Restricted Payment. Not later than five days after 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 the covenant "Restricted
Payments" were computed.
Incurrence of Indebtedness and Issuance of Disqualified Stock
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company will not issue any
Disqualified Stock and will not permit any of its Subsidiaries to issue any
shares of preferred stock; provided, however, that the Company may incur
Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock if:
(i) the Fixed Charge Coverage Ratio for the Company's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have
been at least 2.5 to 1, determined on a pro forma basis as set forth in the
definition of Fixed Charge Coverage Ratio; and
(ii) no Default or Event of Default shall have occurred and be
continuing at the time such additional Indebtedness is incurred or such
Disqualified Stock is issued or would occur as a consequence of the
incurrence of the additional Indebtedness or the issuance of the
Disqualified Stock.
Notwithstanding the foregoing, the Indenture will not prohibit any of the
following (collectively, "Permitted Indebtedness"): (a) the Indebtedness
evidenced by the Notes; (b) the incurrence by the Company of Indebtedness
pursuant to Credit Facilities, so long as the aggregate principal amount of all
Indebtedness outstanding under all Credit Facilities does not, at any one time,
exceed the lesser of (i) $500 million (or, if there is any permanent reduction
in the aggregate principal amount permitted to be borrowed under the Credit
Agreement, such lesser aggregate principal amount) and (ii) the Borrowing Base;
(c) the guarantee by any Subsidiary Guarantor of any Indebtedness that is
permitted by the Indenture to be incurred by the Company; (d) all Indebtedness
of the Company and its Subsidiaries in existence as of the date of the Indenture
after giving effect to the Cometra Acquisition, the related financing
transactions and the application of the proceeds thereof; (e) intercompany
Indebtedness between or among the Company and any of its Wholly Owned
Subsidiaries; provided, however, that (i) if the Company is the obligor on such
Indebtedness, such Indebtedness is expressly subordinate to the payment in full
of all Obligations with respect to the Notes and (ii)(A) any subsequent issuance
or transfer of Equity Interests that results in any such Indebtedness being held
by a Person other than the Company or a Wholly Owned Subsidiary and (B) any sale
or other transfer of any such Indebtedness to a Person that is not either the
Company or a Wholly Owned Subsidiary shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such Subsidiary,
as the case may be; (f) Indebtedness in connection with one or more standby
letters of credit, guarantees, performance bonds or other reimbursement
obligations, in each case, issued in the ordinary course of business and not in
connection with the borrowing of money or the obtaining of advances or credit
(other than advances or credit on open account, includible in current
liabilities, for goods and services in the ordinary course of business and on
terms and conditions which are customary in the Oil and Gas Business, and other
than the extension of credit represented by such letter of credit, guarantee or
performance bond itself), not to
A-14
<PAGE> 108
exceed in the aggregate at any given time 5% of Total Assets; (g) Indebtedness
under Interest Rate Hedging Agreements entered into for the purpose of limiting
interest rate risks, provided that the obligations under such agreements are
related to payment obligations on Indebtedness otherwise permitted by the terms
of this covenant and that the aggregate notional principal amount of such
agreements does not exceed the principal amount of the Indebtedness to which
such agreements relate; (h) Indebtedness under Oil and Gas Hedging Contracts,
provided that such contracts were entered into in the ordinary course of
business for the purpose of limiting risks that arise in the ordinary course of
business of the Company and its Subsidiaries; (i) the incurrence by the Company
of Indebtedness not otherwise permitted to be incurred pursuant to this
paragraph, provided that the aggregate principal amount of all Indebtedness
incurred pursuant to this clause (i), together with all Permitted Refinancing
Debt incurred pursuant to clause (j) of this paragraph in respect of
Indebtedness previously incurred pursuant to this clause (i), does not exceed $[
] million at any one time outstanding; (j) Permitted Refinancing Debt incurred
in exchange for, or the net proceeds of which are used to refinance, extend,
renew, replace, defease or refund, Indebtedness that was permitted by the
Indenture to be incurred (including Indebtedness previously incurred pursuant to
this clause (j)); (k) accounts payable or other obligations of the Company or
any Subsidiary to trade creditors created or assumed by the Company or such
Subsidiary in the ordinary course of business in connection with the obtaining
of goods or services; (l) Indebtedness consisting of obligations in respect of
purchase price adjustments, guarantees or indemnities in connection with the
acquisition or disposition of assets; and (m) production imbalances that do not,
at any one time outstanding, exceed 2% of the Total Assets of the Company.
No Layering
The Indenture will provide that (i) the Company will not incur, create,
issue, assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the Notes and (ii) the Subsidiary Guarantors will
not directly or indirectly incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any guarantees issued in respect of Senior Debt and senior in any
respect in right of payment to the Guarantees, provided, however, that the
foregoing limitations will not apply to distinctions between categories of
Indebtedness that exist by reason of any Liens arising or created in respect of
some but not all such Indebtedness.
Liens
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, create, incur, assume or otherwise cause or suffer
to exist or become effective any Lien securing Indebtedness of any kind (other
than Permitted Liens) upon any of its property or assets, now owned or hereafter
acquired.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (i)(x) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (1) on its Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (y) pay any indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries or (iii) transfer any of its properties or assets to the Company or
any of its Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) the Credit Agreement as in effect as of the date of
the Indenture, and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof or any
other Credit Facility, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements,
refinancings or other Credit Facilities are no more restrictive with respect to
such dividend and other payment restrictions than those contained in the Credit
Agreement as in effect on the date of the Indenture, (b) the Indenture and the
Notes, (c) applicable law, (d) any instrument governing Indebtedness or Capital
Stock of a Person acquired by the Company or any of its Subsidiaries as in
effect at the time of such acquisition (except, in the case of Indebtedness, to
the extent
A-15
<PAGE> 109
such Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person and its
Subsidiaries, or the property or assets of the Person and its Subsidiaries, so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred, (e) by reason of
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, (f) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired, or (g) Permitted Refinancing Debt, provided that the restrictions
contained in the agreements governing such Permitted Refinancing Debt are no
more restrictive than those contained in the agreements governing the
Indebtedness being refinanced.
Merger, Consolidation, or Sale of Assets
The Indenture will provide that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets, in one or more related transactions, to another
Person, and the Company may not permit any of its Subsidiaries to enter into any
such transaction or series of transactions if such transaction or series of
transactions would, in the aggregate, result in a sale, assignment, transfer,
lease, conveyance, or other disposition of all or substantially all of the
properties or assets of the Company to another Person unless (i) the Company is
the surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (the "Surviving Entity") is a corporation organized or existing under the
laws of the United States, any state thereof or the District of Columbia; (ii)
the Surviving Entity (if the Company is not the continuing obligor under the
Indenture) assumes all the obligations of the Company under the Notes and the
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee; (iii) immediately before and after giving effect to such
transaction or series of transactions no Default or Event of Default exists;
(iv) immediately after giving effect to such transaction or a series of
transactions on a pro forma basis (and treating any Indebtedness not previously
an obligation of the Company and its Subsidiaries which becomes the obligation
of the Company or any of its Subsidiaries as a result of such transaction or
series of transactions as having been incurred at the time of such transaction
or series of transactions), the Consolidated Net Worth of the Company and its
Subsidiaries or the Surviving Entity (if the Company is not the continuing
obligor under the Indenture) is equal to or greater than the Consolidated Net
Worth of the Company and its Subsidiaries immediately prior to such transaction
or series of transactions and (v) the Company or the Surviving Entity (if the
Company is not the continuing obligor under the Indenture) will, at the time of
such transaction or series of transactions and after giving pro forma effect
thereto as if such transaction or series of transactions had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the test set forth in the first
paragraph of the covenant described above under the caption "-- Incurrence of
Indebtedness and Issuance of Disqualified Stock."
Transactions with Affiliates
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any of
its Affiliates (each of the foregoing, an "Affiliate Transaction"), unless (i)
such Affiliate Transaction is on terms that are no less favorable to the Company
or the relevant Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Subsidiary with an unrelated
Person and (ii) the Company delivers to the Trustee (a) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $1.0 million, an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above, (b)
with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $5.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved in good faith by a majority of
the members of the Board of Directors who are
A-16
<PAGE> 110
disinterested with respect to such Affiliate Transaction, which resolution shall
be conclusive evidence of compliance with this provision, and (c) with respect
to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $10.0 million, an opinion as to
the fairness to the Holders of such Affiliate Transaction from a financial point
of view issued by an accounting, appraisal, engineering or investment banking
firm of national standing; provided that the following shall not be deemed
Affiliate Transactions: (1) transactions contemplated by any employment
agreement or other compensation plan or arrangement entered into by the Company
or any of its Subsidiaries in the ordinary course of business and consistent
with the past practice of the Company or such Subsidiary, (2) transactions
between or among the Company and/or its Subsidiaries, (3) Restricted Payments
and Permitted Investments that are permitted by the provisions of the Indenture
described above under the caption "-- Restricted Payments," and (4) the
transactions described in this Prospectus under the caption "Certain
Transactions".
Additional Subsidiary Guarantees
The Indenture will provide that if the Company or any of its Subsidiaries
shall acquire or create another Subsidiary after the date of the Indenture, then
such newly acquired or created Subsidiary will be required to execute a
Guarantee and deliver an opinion of counsel, in accordance with the terms of the
Indenture.
Business Activities
The Company will not, and will not permit any Subsidiary to, engage in any
material respect in any business other than the Oil and Gas Business.
Commission Reports
Notwithstanding that the Company may not be required to remain subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act, to the
extent permitted by the Exchange Act the Company will file with the Commission
and provide, within 15 days after such filing, the Trustee and Holders and
prospective Holders (upon request) with the annual reports and the information,
documents and other reports which are specified in Sections 13 and 15(d) of the
Exchange Act. In the event that the Company is not permitted to file such
reports, documents and information with the Commission, the Company will provide
substantially similar information to the Trustee, the Holders, and prospective
Holders (upon request) as if the Company were subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act. The Company also will
comply with the other provisions of Section 314(a) of the Trust Indenture Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event
of Default: (i) a default for 30 days in the payment when due of interest on the
Notes (whether or not prohibited by the subordination provisions of the
Indenture); (ii) a default in payment when due of the principal of or premium,
if any, on the Notes (whether or not prohibited by the subordination provisions
of the Indenture); (iii) the failure by the Company to comply with its
obligations under "Certain Covenants -- Merger, Consolidation or Sale of Assets"
above; (iv) the failure by the Company for 30 days after notice from the Trustee
or the Holders of at least 25% in aggregate principal amount of the Notes then
outstanding to comply with the provisions described under the captions
"Repurchase at the Option of Holders and "Certain Covenants" other than the
provisions described under "-- Merger, Consolidation or Sale of Assets"; (v)
failure by the Company for 60 days after notice from the Trustee or the Holders
of at least 25% in aggregate principal amount of the Notes then outstanding to
comply with any of its other agreements in the Indenture or the Notes; (vi)
except as permitted by the Indenture, any Guarantee shall be held in any
judicial proceeding to be unenforceable or invalid or shall cease for any reason
to be in full force and effect or a Subsidiary Guarantor, or any Person acting
on behalf of such Subsidiary Guarantor, shall deny or disaffirm its obligations
under its Guarantee; (vii) a default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Subsidiaries
(or the payment of which is guaranteed by the Company or any of its
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the date of the Indenture, which default (a) is caused by a failure to pay
principal of
A-17
<PAGE> 111
or premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there is then existing a Payment Default or the maturity of which
has been so accelerated, aggregates $10.0 million or more; (viii) the failure by
the Company or any of its Subsidiaries to pay final, non-appealable judgments
aggregating in excess of $5.0 million, which judgments remain unpaid or
discharged for a period of 60 days; and (ix) certain events of bankruptcy or
insolvency with respect to the Company or any of its Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Notes then outstanding may
declare the principal of and accrued but unpaid interest on such Notes to be due
and payable immediately. Notwithstanding the foregoing, in the case of an Event
of Default arising from certain events of bankruptcy or insolvency, with respect
to the Company or any Subsidiary, all outstanding Notes will become due and
payable without further action or notice. Holders of the Notes may not enforce
the Indenture or the Notes except as provided in the Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the Notes then
outstanding may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of the Notes notice of any continuing Default
or Event of Default (except a Default or Event of Default relating to the
payment of principal or interest) if it determines that withholding notice is in
their interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest or premium on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, within
five business days of becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event of Default.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of such outstanding Notes to
receive payments in respect of the principal of, premium, if any, interest on
such Notes when such payments are due from the trust referred to below, (ii) the
Company's obligations with respect to such Notes concerning issuing temporary
Notes, registration of such Notes, mutilated, destroyed, lost or stolen Notes
and the maintenance of an office or agency for payment and money for security
payments held in trust, (iii) the rights, powers, trusts, duties and immunities
of the Trustee, and the Company's obligations in connection therewith and (iv)
the Legal Defeasance provisions of the Indenture. In addition, the Company may,
at its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default. In the event
Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default and Remedies" will no longer constitute an Event of Default.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the outstanding Notes
on the stated maturity or on the applicable redemption date, as the case may be,
and the Company must specify whether the Notes are being defeased to maturity or
to a particular redemption date; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to such Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or
A-18
<PAGE> 112
(B) since the date of the Indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to such Trustee confirming
that the Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Covenant Defeasance
had not occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) or insofar
as Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day after the date of deposit: (v) such
Legal Defeasance or Covenant Defeasance will not result in a breach or violation
of, or constitute a default under any material agreement or instrument (other
than the Indenture) to which the Company or any of its Subsidiaries is a party
or by which the Company or any of its Subsidiaries is bound; (vi) the Company
must have delivered to the Trustee an opinion of counsel to the effect that
after the 91st day following the deposit, the trust funds will not be subject to
the effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; (vii) the Company must deliver to
the Trustee an Officers' Certificate stating that the deposit was not made by
the Company with the intent of preferring the Holders of the Notes over the
other creditors of the Company, or with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others; and (viii) the
Company must deliver to the Trustee an Officers' Certificate and an opinion of
counsel, each stating that all conditions precedent provided for relating to the
Legal Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of the Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, the Notes), and any existing default or
compliance with any provision of such Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for the Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of the Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Note, (iii) reduce the rate of or change the time for payment of interest
on any Note, (iv) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Notes (except a recision of
acceleration of the Notes by the Holders of at least a majority in principal
amount of such Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any Note payable in money other than that stated in the
Notes, (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders of the Notes to receive
payments of principal of or premium,
A-19
<PAGE> 113
if any, or interest on the Notes or (vii) make any change in the foregoing
amendment and waiver provisions. In addition, any amendment to the provisions of
Article [ ] of the Indenture (which relate to subordination) will require the
consent of the Holders of at least 66 2/3% in principal amount of the Notes then
outstanding if such amendment would adversely affect the rights of Holders of
such Notes. However, no amendment may be made to the subordination provisions of
the Indenture that adversely affects the rights of any holder of Senior Debt
then outstanding unless the holders of such Senior Indebtedness (or any group or
representative thereof authorized to give a consent) consents to such change.
Notwithstanding the foregoing, without the consent of any Holder of the
Notes the Company and the Trustee may amend or supplement the Indenture or the
Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
in the case of a merger or consolidation, to make any change that would provide
any additional rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, or to
comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest, it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of the Notes, unless such Holder shall have offered to
such Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition
(but excluding the creation of a Lien) of any assets including, without
limitation, by way of a sale and leaseback (provided that the sale, lease,
A-20
<PAGE> 114
conveyance or other disposition of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole will be governed by the provisions
of the Indenture described above under the caption "--Repurchase at the Option
of Holders -- Change of Control" and/or the provisions described above under the
caption "-- Certain Covenants -- Merger, Consolidation, or Sale of Assets" and
not by the provisions described above under "-- Repurchase at the Option of
Holders -- Asset Sales"), and (ii) the issue or sale by the Company or any of
its Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in
the case of either clause (i) or (ii), whether in a single transaction or a
series of related transactions (a) that have a fair market value in excess of $2
million or (b) for net proceeds in excess of $2 million. Notwithstanding the
foregoing, the following shall not be deemed to be Asset Sales: (i) a transfer
of assets by the Company to a Wholly Owned Subsidiary of the Company or by a
Wholly Owned Subsidiary of the Company to the Company or to another Wholly Owned
Subsidiary of the Company, (ii) an issuance of Equity Interests by a Wholly
Owned Subsidiary of the Company to the Company or to another Wholly Owned
Subsidiary of the Company, (iii) a Restricted Payment or Permitted Investment
that is permitted by the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments," (iv) the abandonment, farm-out, lease or
sublease of undeveloped oil and gas properties in the ordinary course of
business, (v) the trade or exchange by the Company or any Subsidiary of the
Company of any oil and gas property owned or held by the Company or such
Subsidiary for any oil and gas property owned or held by another Person, which
the Board of Directors of the Company determine in good faith to be of
approximately equivalent value or (vi) the sale or transfer of hydrocarbons or
other mineral products or surplus or obsolete equipment in the ordinary course
of business.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Borrowing Base" means, as of any date, the aggregate amount of borrowing
availability as of such date under all Credit Facilities that determine
availability on the basis of a borrowing base or other asset-based calculation.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any lender party to the Credit
Agreement or with any domestic commercial bank having capital and surplus in
excess of $500 million and a Thompson Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above and (v) commercial paper having a rating of at least Pl from Moody's
Investors Service, Inc. (or its successor) and a rating of at least Al from
Standard & Poor's Ratings Group (or its successor).
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any
A-21
<PAGE> 115
"person" or group of related "persons" (a "Group") (as such terms are used in
Section 13(d)(3) of the Exchange Act), (ii) the adoption of a plan relating to
the liquidation or dissolution of the Company, (iii) the consummation of any
transaction (including, without limitation, any purchase, sale, acquisition,
disposition, merger or consolidation) the result of which is that any "person"
(as defined above) or Group becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act) of more than 35% of
the aggregate voting power of all classes of Capital Stock of the Company having
the right to elect directors under ordinary circumstances or (iv) the first day
on which a majority of the members of the Board of Directors of the Company are
not Continuing Directors.
"Commission" means the Securities and Exchange Commission.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss, plus any net loss realized in connection with
an Asset Sale (together with any related provision for taxes), to the extent
such losses were included in computing such Consolidated Net Income, plus (ii)
provision for taxes based on income or profits of such Person and its
Subsidiaries for such period, to the extent that such provision for taxes was
included in computing such Consolidated Net Income, plus (iii) consolidated
interest expense of such Person and its Subsidiaries for such period, whether
paid or accrued (including, without limitation, amortization of original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letters
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Interest Rate Hedging Agreements), to the extent that any such expense was
included in computing such Consolidated Net Income, plus (iv) depreciation,
depletion and amortization expenses (including amortization of goodwill and
other intangibles) for such Person and its Subsidiaries for such period to the
extent that such depreciation, depletion and amortization expenses were included
in computing such Consolidated Net Income, plus (v) exploration expenses for
such Person and its Restricted Subsidiaries for such period to the extent such
exploration expenses were included in computing such Consolidated Net Income,
plus (vi) other non-cash charges (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Subsidiaries for such period to the extent that
such other non-cash charges were included in computing such Consolidated Net
Income, in each case, on a consolidated basis and determined in accordance with
GAAP. Notwithstanding the foregoing, the provision for taxes on the income or
profits of, and the depreciation, depletion and amortization and other non-cash
charges and expenses of, a Subsidiary of the referent Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent
(and in the same proportion) that the Net Income of such Subsidiary was included
in calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary without prior governmental approval
(that has not been obtained), and without direct or indirect restriction
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or
that is accounted for by the equity method of accounting shall be included only
to the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
A-22
<PAGE> 116
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending prior to the taking of any action for the
purpose of which the determination is being made and for which financial
statements are available (but in no event ending more than 135 days prior to the
taking of such action), as (i) the par or stated value of all outstanding
Capital Stock of the Company, plus (ii) paid-in capital or capital surplus
relating to such Capital Stock plus (iii) any retained earnings or earned
surplus less (A) any accumulated deficit and (B) any amounts attributable to
Disqualified Stock.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of original issuance of the Notes or (ii) was nominated
for election or elected to such Board of Directors with the approval of (x)
two-thirds of the Continuing Directors who were members of such Board at the
time of such nomination or election or (y) two-thirds of those Directors who
were previously approved by Continuing Directors.
"Credit Agreement" means that certain Credit Agreement, dated as of
, 1997, by and among the Company, the Subsidiaries, BankOne, as
administrative agent and as a lender, The Chase Manhattan Bank, as syndication
agent and as a lender, NationsBank, as documentation agent and as a lender, and
certain banks, financial institutions and other entities, as lenders, providing
for up to $400 million of Indebtedness, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, restated, modified, renewed, refunded,
replaced or refinanced, in whole or in part, from time to time, whether or not
with the same lenders or agents.
"Credit Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Credit Agreement) or commercial
paper facilities with banks or other institutional lenders providing for
revolving credit loans, term loans, production payments, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
of credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time. Indebtedness under
Credit Facilities outstanding on the date on which the Notes are first issued
and authenticated under the Indenture (after giving effect to the use of
proceeds thereof) shall be deemed to have been incurred on such date in reliance
on the exception provided by clause (b) of the definition of Permitted
Indebtedness.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) the Credit Agreement and (ii) any other
Senior Debt permitted under the Indenture the principal amount of which is $25
million or more and that has been designated by the Company as "Designated
Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and
A-23
<PAGE> 117
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Interest Rate Hedging
Agreements) and (ii) the consolidated interest expense of such Person and its
Subsidiaries that was capitalized during such period, and (iii) any interest
expense on Indebtedness of another Person that is guaranteed by such Person or
any of its Subsidiaries or secured by a Lien on assets of such Person or any of
its Subsidiaries (whether or not such guarantee or Lien is called upon) and (iv)
the product of (a) all cash dividend payments (and non-cash dividend payments in
the case of a Person that is a Subsidiary) on any series of preferred stock of
such Person or any of its Subsidiaries, times (b) a fraction, the numerator of
which is one and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the calculation of the
Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date (including, without limitation, any acquisition to
occur on the Calculation Date) shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income, (ii) the net
proceeds of Indebtedness incurred or Disqualified Stock issued by the Company
pursuant to the first paragraph of the covenant described under the caption
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Disqualified
Stock" during the four-quarter reference period or subsequent to such reference
period and on or prior to the Calculation Date shall be deemed to have been
received by the Company on the first day of the four-quarter reference period
and applied to its intended use on such date, (iii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, and (iv) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of the
referent Person or any of its Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Indebtedness" means, with respect to any Person, without duplication, (a)
any indebtedness of such Person, whether or not contingent, (i) in respect of
borrowed money, (ii) evidenced by bonds, notes, debentures or similar
instruments, (iii) evidenced by letters of credit (or reimbursement agreements
in respect thereof) or banker's acceptances, (iv) representing Capital Lease
Obligations, (v) representing the balance deferred and unpaid of the purchase
price of any property, except any such balance that constitutes an accrued
expense or trade payable, (vi) representing any obligations in respect of
Interest Rate Hedging Agreements or Oil and Gas Hedging Contracts, and (vii) in
respect of any Production Payment, (b) all indebtedness of
A-24
<PAGE> 118
others secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person), (c) obligations of such Person in
respect of production imbalances, (d) Attributable Debt of such Person, and (e)
to the extent not otherwise included in the foregoing, the guarantee by such
Person of any indebtedness of any other Person, provided that the indebtedness
described in clauses (a)(i), (ii), (iv) and (v) shall be included in this
definition of Indebtedness only if, and to the extent that, the indebtedness
described in such clauses would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP.
"Interest Rate Hedging Agreements" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations, but
excluding trade credit and other ordinary course advances customarily made in
the oil and gas industry), advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities, together with all items
that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP; provided that the following shall not constitute
Investments: (i) an acquisition of assets, Equity Interests or other securities
by the Company for consideration consisting of common equity securities of the
Company, (ii) Interest Rate Hedging Agreements entered into in accordance with
the limitations set forth in clause (h) of the second paragraph of the covenant
described under the caption "-- Certain Covenants -- Incurrence (g) of
Indebtedness and Issuance of Disqualified Stock" and (iii) Oil and Gas Hedging
Agreements entered into in accordance with the limitations set forth in clause
(h) of the second paragraph of the covenant described under the caption
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Disqualified
Stock." If the Company or any Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Subsidiary of the
Company such that, after giving effect to any such sale or disposition, such
Person is no longer a Subsidiary of the Company, the Company shall be deemed to
have made an Investment on the date of any such sale or disposition equal to the
fair market value of the Equity Interests of such Subsidiary not sold or
disposed of.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale, but excluding cash amounts placed in
escrow, until such amounts are released to the Company), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the
A-25
<PAGE> 119
repayment of Indebtedness (other than Indebtedness under any Credit Facility)
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP and any reserve established for
future liabilities.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Oil and Gas Business" means (i) the acquisition, exploration, development,
operation and disposition of interests in oil, gas and other hydrocarbon
properties, (ii) the gathering, marketing, treating, processing, storage,
selling and transporting of any production from such interests or properties,
(iii) any business relating to exploration for or development, production,
treatment, processing, storage, transportation or marketing of oil, gas and
other minerals and products produced in association therewith and (iv) any
activity that is ancillary to or necessary or appropriate for the activities
described in clauses (i) through (iii) of this definition.
"Oil and Gas Hedging Contracts" means any oil and gas purchase or hedging
agreement, and other agreement or arrangement, in each case, that is designed to
provide protection against oil and gas price fluctuations.
"Pari Passu Indebtedness" means Indebtedness that ranks pari passu in right
of payment to the Notes.
"Permitted Indebtedness" has the meaning given in the covenant described
under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Disqualified Stock."
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Subsidiary of the Company; (b) any Investment in Cash Equivalents
or securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof having maturities of
not more than one year from the date of acquisition; (c) any Investment by the
Company or any Subsidiary of the Company in a Person if, as a result of such
Investment and any related transactions that at the time of such Investment are
contractually mandated to occur, (i) such Person becomes a Wholly Owned
Subsidiary of the Company or (ii) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys all or substantially all of
its assets to, or is liquidated into, the Company or a Wholly Owned Subsidiary
of the Company; (d) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with the covenant described above under the caption "-- Repurchase at the Option
of Holders -- Asset Sales"; (e) other Investments in any Person or Persons
having an aggregate fair market value (measured on the date each such Investment
was made and without giving effect to subsequent changes in value), when taken
together with all other Investments made pursuant to this clause (e) that are at
the time outstanding, not to exceed $5 million; (f) any Investment acquired by
the Company in exchange for Equity Interests in the Company (other than
Disqualified Stock); and (g) shares of Capital Stock received in connection with
any good faith settlement of a bankruptcy proceeding involving a trade creditor.
"Permitted Liens" means (i) Liens securing Indebtedness of a Subsidiary or
Senior Debt that is outstanding on the date of issuance of the Notes (after
giving effect to the Cometra Acquisition, the related financing transactions and
the application of the proceeds therefrom) or that is permitted by the terms of
the Indenture to be incurred; (ii) Liens in favor of the Company; (iii) Liens on
property existing at the time of acquisition thereof by the Company or any
Subsidiary of the Company and Liens on property or assets of a Subsidiary
existing at the time it became a Subsidiary, provided that such Liens were in
existence prior to the contemplation of the acquisition and do not extend to any
assets other than the acquired property; (iv) Liens incurred or deposits made in
the ordinary course of business in connection with workers' compensation,
unemployment insurance or other kinds of social security, or to secure the
payment or performance of tenders, statutory or regulatory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business (including lessee or operator
obligations under statutes, governmental regulations or instruments related to
the ownership, exploration and production of oil, gas and minerals on state or
federal lands or waters); (v) Liens existing on the date of the Indenture (after
giving effect to the Cometra Acquisition, the related financing transactions and
the application of proceeds
A-26
<PAGE> 120
therefrom); (vi) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded, provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (vii) statutory liens of
landlords, mechanics, suppliers, vendors, warehousemen, carriers or other like
Liens arising in the ordinary course of business; (viii) judgment Liens not
giving rise to an Event of Default so long as any appropriate legal proceeding
that may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceeding may be
initiated shall not have expired; (ix) Liens on, or related to, properties or
assets to secure all or part of the costs incurred in the ordinary course of the
Oil and Gas Business for the exploration, drilling, development, or operation
thereof; (x) Liens in pipeline or pipeline facilities that arise under operation
of law; (xi) Liens arising under operating agreements, joint venture agreements,
partnership agreements, oil and gas leases, farm-out agreements, division
orders, contracts for the sale, transportation or exchange of oil or natural
gas, unitization and pooling declarations and agreements, area of mutual
interest agreements and other agreements that are customary in the Oil and Gas
Business; and (xiii) Liens reserved in oil and gas mineral leases for bonus or
rental payments and for compliance with the terms of such leases.
"Permitted Refinancing Debt" means any Indebtedness of the Company or any
of its Subsidiaries issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund other Indebtedness
(other than Indebtedness incurred under a Credit Facility) of the Company or any
of its Subsidiaries; provided that: (i) the principal amount of such Permitted
Refinancing Indebtedness does not exceed the principal amount of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of reasonable expenses incurred in connection therewith); (ii)
such Permitted Refinancing Indebtedness has a final maturity date on or later
than the final maturity date of, and has a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of the Notes as those contained in
the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred
either by the Company or by the Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Production Payments" means Dollar-Denominated Production Payments and
Volumetric Production Payments, collectively.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Senior Debt" means (i) Indebtedness of the Company or any Subsidiary of
the Company under or in respect of any Credit Facility, whether for principal,
interest (including interest accruing after the filing of a petition initiating
any proceeding pursuant to any bankruptcy law, whether or not the claim for such
interest is allowed as a claim in such proceeding), reimbursement obligations,
fees, commissions, expenses, indemnities or other amounts, and (ii) any other
Indebtedness permitted under the terms of the Indenture, unless the instrument
under which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Notes. Notwithstanding
anything to the contrary in the foregoing sentence, Senior Debt will not include
(w) any liability for federal, state, local or other taxes owed or owing by the
Company, (x) any Indebtedness of the Company to any of its Subsidiaries or other
Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in
violation of the Indenture (other than Indebtedness under (i) any Credit
Agreement or (ii) any other Credit Facility that is incurred on the basis of a
representation by the Company to the applicable lenders that it is permitted to
incur such Indebtedness under the Indenture).
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock, entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time
A-27
<PAGE> 121
owned or controlled, directly or indirectly, by such Person or one or more of
the other Subsidiaries of that Person (or a combination thereof) and (ii) any
partnership (a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person or (b) the only general
partners of which are such Person or of one or more Subsidiaries of such Person
(or any combination thereof).
"Subsidiary Guarantors" means Lomak Operating Company, Lomak Production
Company, Lomak Resources Company, Buffalo Oilfield Services, Inc., Lomak Energy
Services Company, Talon Trucking Co., Eastern Petroleum Company, Lomak Energy
Company, LPI Acquisition, Inc., Lomak Production I, L.P. and Lomak Resources,
L.L.C. and any other Subsidiary of the Company that executes a Guarantee in
accordance with the provisions of the Indenture, and, in each case, their
respective successors and assigns.
"Total Assets" means, with respect to any Person, the total consolidated
assets of such Person and its Subsidiaries, as shown on the most recent balance
sheet of such Person.
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned, directly
or indirectly, by such Person or by one or more Wholly Owned Subsidiaries of
such Person.
A-28
<PAGE> 122
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") among the Company and the underwriters named
below (the "Underwriters"), the Company has agreed to sell to the Underwriters,
and the Underwriters have severally agreed to purchase from the Company, the
following respective principal amounts of Notes:
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITERS AMOUNT
------------ ---------
<S> <C>
Chase Securities Inc........................................ $
NationsBanc Capital Markets, Inc............................
Bear, Stearns & Co. Inc.....................................
Credit Suisse First Boston Corporation......................
------------
Total............................................. $
============
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Notes offered
hereby if any are purchased. The Company has been advised by the Underwriters
that the Underwriters propose to offer the Notes to the public initially at the
public offering price set forth on the cover page of this Prospectus, and to
certain dealers initially at such price less a discount not in excess of %
of the principal amount of the Notes. The Underwriters may allow, and such
dealers may reallow, a concession to certain other dealers not in excess
of % of the principal amount of the Notes. After the initial offering of the
Notes to the public, the Underwriters may change the public offering price,
concession and discount.
The Notes comprise new issues of securities with no established trading
market. The Company has been advised by the Underwriters that the Underwriters
currently intend to make a market in the Notes, as permitted by applicable laws
and regulations. No assurance can be given, however, that the Underwriters will
make a market in the Notes, or as to the liquidity of, or the trading market
for, the Notes.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities including liabilities under the Securities Act, and to contribute to
payments which the Underwriters might be required to make in respect thereof.
The Chase Manhattan Bank, an affiliate of Chase Securities Inc., and
NationsBank of Texas, N.A., an affiliate of NationsBanc Capital Markets, Inc.,
are each an agent and a lender under the Credit Facility. See "Description of
Capital Stock and Indebtedness." Net proceeds of the Notes Offering will be
applied to repay indebtedness under the Credit Facility. See "Use of Proceeds."
In addition, The Chase Manhattan Bank and NationsBank of Texas, N.A., and their
affiliates, may perform financial and banking services for the Company in the
ordinary course of business. Anthony Dub, a Director of the Company, is a
Managing Director of Credit Suisse First Boston Corporation, one of the
Underwriters.
The Notes Offering is being made pursuant to the provisions of Section
2710(c)(8) of the Conduct Rules of the National Association of Securities
Dealers, Inc. Bear Stearns & Co., Inc. ("Bear Stearns") has agreed to act as
Qualified Independent Underwriter for the Notes Offering, and as such has
assumed the responsibilities of pricing the Notes and conducting due diligence
and the public offering price of the Notes will not be higher than the price
recommended by Bear Stearns.
A-29
<PAGE> 123
LEGAL MATTERS
Certain legal matters with respect to the validity of the Notes offered
hereby will be passed upon for the Company by Vinson & Elkins L.L.P., 2300 First
City Tower, Houston, Texas 77002-6760, and for the Underwriters by Simpson
Thacher & Bartlett (a partnership which includes professional corporations), 425
Lexington Avenue, New York, New York 10017-3909.
EXPERTS
The Consolidated Financial Statements of the Company, as of December 31,
1994 and 1995 and for the years then ended, included and incorporated by
reference in this Prospectus, have been audited by Arthur Andersen LLP,
independent public accountants, as stated in their reports appearing herein and
incorporated by reference. The Consolidated Financial Statements of the Company
for the year ended December 31, 1993 included and incorporated by reference in
the Prospectus have been audited by Ernst & Young LLP, independent auditors, as
stated in their reports thereon appearing herein and incorporated by reference.
The financial statements of the Cometra Properties, to the extent and for
the periods indicated in their report, have been audited by Coopers & Lybrand
LLP, independent public accountants, and are included and incorporated herein
and elsewhere in the Registration Statement in reliance upon the authority of
said firm as experts in accounting and auditing in giving said report.
The financial statements of the Bannon Interests as of December 31, 1995
and for the year then ended, have been incorporated by reference herein and in
the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
Certain information with respect to the gas and oil reserves of the Company
derived from the respective reports of Netherland, Sewell & Associates, Inc.,
Wright & Company, Inc., H. J. Gruy and Associates, Inc., Huddleston & Co., Inc.
and Clay, Holt & Klammer, each of which is a firm of independent petroleum
consultants, has been included and incorporated herein and elsewhere in the
Registration Statement in reliance upon the authority of said firm as experts
with respect to the matters contained in their respective reports.
A-30
<PAGE> 124
NO DEALER, SALES PERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES
OR ANY OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER WILL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Additional Information................
Incorporation of Certain Information
by Reference........................
Prospectus Summary....................
Risk Factors..........................
Forward-Looking Information...........
Cometra Acquisition...................
Use of Proceeds.......................
Capitalization
Price Range of Common Stock and
Dividend Policy.....................
Unaudited Pro Forma Consolidated......
Financial Statements................
Selected Consolidated Financial Data
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................
Business..............................
Management............................
Principal Stockholders and Share
Ownership of Management.............
Description of Notes..................
Certain Transactions..................
Description of Capital Stock and
Indebtedness........................
Underwriting..........................
Legal Matters.........................
Experts...............................
Glossary..............................
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
Prospectus
$100,000,000
LOMAK PETROLEUM, INC.
% SENIOR SUBORDINATED
NOTES DUE 2007
LOMAK LOGO
CHASE SECURITIES INC.
NATIONSBANC CAPITAL MARKETS, INC.
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
CORPORATION
, 1997
<PAGE> 125
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of the Offerings are estimated to be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 59,644
NASD filing fee............................................. 20,500
New York Stock Exchange listing fee......................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses (including legal fees)........... *
Printing expenses........................................... *
Rating agency fees.......................................... *
Trustee fees and expenses................................... *
Transfer Agent fees......................................... *
Engineering fees and expenses............................... *
Miscellaneous............................................... *
--------
TOTAL..................................................... $ *
========
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL authorizes, inter alia, a corporation to indemnify
any person ("indemnitee") who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), by reason of the fact that such person
is or was an officer or director of such corporation, or is or was serving at
the request of such corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that he acted in good
faith and in a manner he reasonably believes to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. A
Delaware corporation may indemnify past or present officers and directors of
such corporation or of another corporation or other enterprise at the former
corporation's request, in an action by or in the right of the corporation to
procure a judgment in its favor under the same conditions, except that no
indemnification is permitted without judicial approval if such person is
adjudged to be liable to the corporation. Where an officer or director is
successful on the merits or otherwise in defense of any action referred to
above, or in defense of any claim, issue or matter therein, the corporation must
indemnify him against the expenses (including attorneys' fees) which he actually
and reasonably incurred in connection therewith. Section 145 further provides
that any indemnification shall be made by the corporation only as authorized in
each specific case upon a determination by the (i) stockholders, (ii) Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding or (iii) independent counsel if a
quorum of disinterested directors so directs. Section 145 provides that
indemnification pursuant to its provision is not exclusive of other rights of
indemnification to which a person may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise.
Section 145 of the DGCL also empowers the Company to purchase and maintain
insurance on behalf of any person who is or was an officer or director of the
Company against liability asserted against or incurred by him in any such
capacity, whether or not the Company would have the power to indemnify such
officer or director against such liability under the provisions of Section 145.
II-1
<PAGE> 126
Article SEVENTH, section (5) of the Company's 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.
Article EIGHTH of the Company's Certificate of Incorporation provides:
No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director
derived an improper personal benefit. This paragraph shall not eliminate or
limit the liability of a director for any act or omission occurring prior
to the effective date of its adoption. If the General Corporation Law of
the State of Delaware is hereafter amended to authorize corporate action
further limiting or eliminating the personal liability of directors, then
the liability of a director to the Corporation shall be limited or
eliminated to the fullest extent permitted by the General Corporation Law
of the State of Delaware, as so amended from time to time. No repeal or
modification of this Article VIII, directly or by adoption of an
inconsistent provision of this Certificate of Incorporation, by the
stockholders of the Corporation shall be effective with respect to any
cause of action, suit claim or other matter, but for this Article VIII,
would accrue or arise prior to such repeal or modification.
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.
The form of the Underwriting Agreements filed as Exhibit 1.1 and 1.2 to
this Registration Statement contains certain provisions for indemnification of
directors and officers of the Company and the Underwriters against civil
liabilities under the Securities Act.
II-2
<PAGE> 127
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<S> <C> <C>
*1.1 -- Form of Common Stock Underwriting Agreement
*1.2 -- Form of Notes Underwriting Agreement
2.1 -- Purchase and Sale Agreement between Cometra Energy, L.P. and
Cometra Production Company, L.P., as seller, and Lomak
Petroleum, Inc., as buyer, dated December 31, 1996,
including First Amendment to Purchase and Sale Agreement,
dated January 10, 1997.
2.2 -- Purchase and Sale Agreement between Rockland, L.P., as
seller, and Lomak Petroleum, Inc., as buyer, dated December
31, 1996
*4.1 -- Specimen certificate for Common Stock
*4.2 -- Specimen certificate for Notes (included as part of Section
of Exhibit 4.3)
*4.3 -- Form of Trust Indenture relating to the Senior Subordinated
Notes due 2009 between Lomak Petroleum, Inc. and
as trustee.
*4.4(a) -- Certificate of Incorporation of the Company dated March 24,
1980.
*4.4(b) -- Certificate of Amendment of Certificate of Incorporation of
the Company dated July 22, 1981.
*4.4(c) -- Certificate of Amendment of Certificate of Incorporation of
the Company dated September 8, 1982.
*4.4(d) -- Certificate of Amendment of Certificate of Incorporation of
the Company dated December 28, 1988.
*4.4(e) -- Certificate of Amendment by Certificate of Incorporation of
the Company dated August 31, 1989.
*4.4(f) -- Certificate of Amendment of Certificate of Incorporation of
the Company dated May 17, 1991.
*4.4(g) -- Certificate of Amendment to the Certificate of Incorporation
of the Company dated November 20, 1992.
*4.4(h) -- Certificate of Amendment to the Certificate of Incorporation
of the Company dated May 24, 1996.
*4.5 -- By-Laws of the Company.
*5.1 -- Opinion of Vinson & Elkins L.L.P.
12.1 -- Statement re computation of ratios
23.1 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit 5.1
hereto)
23.2 -- Consent of Arthur Andersen LLP
23.3 -- Consent of Ernst & Young LLP
23.4 -- Consent of Coopers & Lybrand LLP
23.5 -- Consent of KPMG Peat Marwick LLP
23.6 -- Consent of Netherland, Sewell & Associates, Inc.
23.7 -- Consent of Wright & Company, Inc.
23.8 -- Consent of H.J. Gruy and Associates, Inc.
23.9 -- Consent of Huddleston & Co., Inc.
23.10 -- Consent of Clay, Holt & Klammer
24.1 -- Powers of Attorney (included on the signature page to this
Registration Statement)
*25.1 -- Statement of eligibility of trustee
</TABLE>
- ---------------
* To be filed by amendment.
II-3
<PAGE> 128
ITEM 17. UNDERTAKINGS
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 this
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
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 Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by 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 Securities Act of 1933 and will be governed by the
final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act of 1933,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-4
<PAGE> 129
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe 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 Houston, State of Texas, on January 23, 1997.
LOMAK PETROLEUM, INC.
By /s/ John H. Pinkerton
-------------------------------------
John H. Pinkerton
President and Chief Executive Officer
KNOW BY ALL THESE PRESENTS, that each of the undersigned directors and
officers of Lomak Petroleum, Inc hereby constitutes and appoints John H.
Pinkerton and Thomas W. Stoelk, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and on his
behalf and in his name, place and stead in any and all capacities, to sign,
execute and file with the Securities and Exchange Commission and any state
securities regulatory board or commission any documents relating to the proposed
issuance and registration of the securities offered pursuant to this
Registration Statement on Form S-3 under the Securities Act of 1933, including
any and all amendments (including post-effective amendments and amendments
thereto) to this Registration Statement on Form S-3 and any registration
statement for the same offering that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, with all exhibits and any and all
documents required to be filed with respect thereto with any regulatory
authority, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises in order to effectuate the same as fully to
all intents and purposes as he might or could do if personally present, hereby
ratifying and confirming all that said attorneys-in-fact and agents or either of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed by the following persons in
the capacities indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Thomas J. Edelman Chairman and Chairman of the Board January 23, 1997
- -------------------------------------------
Thomas J. Edelman
/s/ John H. Pinkerton President, Chief Executive Officer, and January 23, 1997
- ------------------------------------------- Director (Chief-Executive-Officer)
John H. Pinkerton
/s/ Thomas W. Stoelk Chief Financial Officer and Vice President January 23, 1997
- ------------------------------------------- -- Finance (Principal-Financial-Officer)
Thomas W. Stoelk
/s/ John R. Frank Chief Accounting Officer and Controller January 23, 1997
- ------------------------------------------- (Principal-Accounting-Officer)
John R. Frank
/s/ Robert E. Alkman Director January 23, 1997
- -------------------------------------------
Robert E. Alkman
/s/ Allen Finkelson Director January 23, 1997
- -------------------------------------------
Allen Finkelson
/s/ Anthony V. Dub Director January 23, 1997
- -------------------------------------------
Anthony V. Dub
/s/ Ben A. Guill Director January 23, 1997
- -------------------------------------------
Ben A. Guill
/s/ C. Rand Michaels Director January 23, 1997
- -------------------------------------------
C. Rand Michaels
</TABLE>
II-5
<PAGE> 130
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant
certifies that it has reasonable grounds to believe 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 Houston, State of Texas, on January 23, 1997.
LOMAK OPERATING COMPANY
LOMAK ENERGY COMPANY
LOMAK PRODUCTION COMPANY
LOMAK RESOURCES COMPANY
LOMAK RESOURCES, L.L.C.
TALON TRUCKING COMPANY
LPI ACQUISITION, INC.
EASTERN PETROLEUM COMPANY
BUFFALO OILFIELD SERVICES, INC.
LOMAK ENERGY SERVICES COMPANY
By /s/ John H. Pinkerton
--------------------------------
John H. Pinkerton
President and Chief Executive Officer
KNOW BY ALL THESE PRESENTS, that each of the undersigned directors and
officers of the Subsidiary Guarantors hereby constitute and appoints John H.
Pinkerton and Thomas W. Stoelk, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and on his
behalf and in his name, place and stead in any and all capacities, to sign,
execute and file with the Securities and Exchange Commission and any state
securities regulatory board or commission any documents relating to the proposed
issuance and registration of the securities offered pursuant to this
Registration Statement on Form S-3 under the Securities Act of 1933, including
any and all amendments (including post-effective amendments and amendments
thereto) to this Registration Statement on Form S-3 and any registration
statement for the same offering that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, with all exhibits and any and all
documents required to be filed with respect thereto with any regulatory
authority, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises in order to effectuate the same as fully to
all intents and purposes as he might or could do if personally present, hereby
ratifying and confirming all that said attorneys-in-fact and agents or either of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed by the following persons in
the capacities indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ John H. Pinkerton President, Chief Executive Officer, and January 23, 1997
- ---------------------------------------- Director (Chief-Executive-Officer)
John H. Pinkerton
/s/ Thomas W. Stoelk Vice President -- Finance, Chief Financial January 23, 1997
- ---------------------------------------- Officer and Director (Chief-Financial-
Thomas W. Stoelk Officer)
/s/ John R. Frank Chief Accounting Officer and Controller January 23, 1997
- ---------------------------------------- (Principal-Accounting-Officer)
John R. Frank
/s/ C. Rand Michaels Director January 23, 1997
- ----------------------------------------
C. Rand Michaels
</TABLE>
II-6
<PAGE> 131
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe 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 Houston, State of Texas, on January 23, 1997.
LOMAK PRODUCTION I, L.P.
By: LOMAK PRODUCTION COMPANY
By /s/ John H. Pinkerton
----------------------------------
John H. Pinkerton
President and Chief Executive Officer
KNOW BY ALL THESE PRESENTS, that each of the undersigned directors and
officers of the registrant hereby constitutes and appoints John H. Pinkerton and
Thomas W. Stoelk, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and on his behalf and in his
name, place and stead in any and all capacities, to sign, execute and file with
the Securities and Exchange Commission and any state securities regulatory board
or commission any documents relating to the proposed issuance and registration
of the securities offered pursuant to this Registration Statement on Form S-3
under the Securities Act of 1933, including any and all amendments (including
post-effective amendments and amendments thereto) to this Registration Statement
on Form S-3 and any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
with all exhibits and any and all documents required to be filed with respect
thereto with any regulatory authority, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as he might or could do
if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed by the following persons in
the capacities indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ John H. Pinkerton President, Chief Executive Officer, and Director January 23, 1997
- ---------------------------------------- (Chief-Executive-Officer)
John H. Pinkerton
/s/ Thomas W. Stoelk Vice President -- Finance, Chief Financial January 23, 1997
- ---------------------------------------- Officer and Director (Principal-Financial-
Thomas W. Stoelk Officer)
/s/ John R. Frank Chief Accounting Officer and Controller January 23, 1997
- ----------------------------------------
John R. Frank (Principal-Accounting-Officer)
/s/ C. Rand Michaels Director January 23, 1997
- ----------------------------------------
C. Rand Michaels
</TABLE>
II-7
<PAGE> 132
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. INDEX TO EXHIBITS
- --------------- -----------------------------------------------------------------------
<C> <C> <S>
*1.1 -- Form of Common Stock Underwriting Agreement
*1.2 -- Form of Notes Underwriting Agreement
2.1 -- Purchase and Sale Agreement between Cometra Energy, L.P. and Cometra
Production Company, L.P., as seller, and Lomak Petroleum, Inc., as
buyer, dated December 31, 1996, including First Amendment to Purchase
and Sale Agreement, dated January 10, 1997.
2.2 -- Purchase and Sale Agreement between Rockland, L.P., as seller, and
Lomak Petroleum, Inc., as buyer, dated December 31, 1996
*4.1 -- Specimen certificate for Common Stock
*4.2 -- Specimen certificate for Notes (included as part of Section of
Exhibit 4.3)
*4.3 -- Form of Trust Indenture relating to the Senior Subordinated Notes due
2009 between Lomak Petroleum, Inc. and as trustee.
*4.4(a) -- Certificate of Incorporation of the Company dated March 24, 1980.
*4.4(b) -- Certificate of Amendment of Certificate of Incorporation of the Company
dated July 22, 1981.
*4.4(c) -- Certificate of Amendment of Certificate of Incorporation of the Company
dated September 8, 1982.
*4.4(d) -- Certificate of Amendment of Certificate of Incorporation of the Company
dated December 28, 1988.
*4.4(e) -- Certificate of Amendment by Certificate of Incorporation of the Company
dated August 31, 1989.
*4.4(f) -- Certificate of Amendment of Certificate of Incorporation of the Company
dated May 17, 1991.
*4.4(g) -- Certificate of Amendment to the Certificate of Incorporation of the
Company dated November 20, 1992.
*4.4(h) -- Certificate of Amendment to the Certificate of Incorporation of the
Company dated May 24, 1996.
*4.5 -- By-Laws of the Company.
*5.1 -- Opinion of Vinson & Elkins L.L.P.
12.1 -- Statement re computation of ratios
23.1 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit 5.1 hereto)
23.2 -- Consent of Arthur Andersen LLP
23.3 -- Consent of Ernst & Young LLP
23.4 -- Consent of Coopers & Lybrand LLP
23.5 -- Consent of KPMG Peat Marwick LLP
23.6 -- Consent of Netherland, Sewell & Associates, Inc.
23.7 -- Consent of Wright & Company, Inc.
23.8 -- Consent of H.J. Gruy and Associates, Inc.
23.9 -- Consent of Huddleston & Co., Inc.
23.10 -- Consent of Clay, Holt & Klammer
24.1 -- Powers of Attorney (included on the signature page to this Registration
Statement)
*25.1 -- Statement of eligibility of trustee
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
Exhibit 2.1
PURCHASE AND SALE AGREEMENT
DATED DECEMBER 31, 1996
BETWEEN
COMETRA ENERGY, L.P.
AND
COMETRA PRODUCTION COMPANY, L.P.
AS SELLER
AND
LOMAK PETROLEUM, INC.
AS BUYER
<PAGE> 2
1. TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I Purchase and Sale............................................... 1
1.01 - Purchase and Sale............................................... 1
1.02 - Excluded Assets................................................. 2
1.03 - Effective Time.................................................. 3
ARTICLE II Purchase Price................................................. 3
2.01 - Purchase Price.................................................. 3
2.02 - Adjustments to Purchase Price................................... 4
2.03 - Allocation of Purchase Price.................................... 5
ARTICLE III Representations and Warranties................................ 6
3.01 - Representations and Warranties of Seller........................ 6
3.02 - Representations and Warranties of Buyer......................... 7
ARTICLE IV Covenants...................................................... 10
4.01 - Covenants of Seller............................................. 10
4.02 - Covenants of Buyer.............................................. 12
ARTICLE V Title Matters and Defective Interests........................... 13
5.01 - Defensible Title................................................ 13
5.02 - Defective....................................................... 15
5.03 - Buyer's Right of Inspection..................................... 16
5.04 - Notice of Defective Interests................................... 17
5.05 - Arbitration Procedures.......................................... 18
5.06 - Effect of Defective Interests on Closing........................ 19
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
5.07 - Identification of Upward Adjustment............................. 20
ARTICLE VI Conditions to Closing.......................................... 20
6.01 - Seller's Conditions............................................. 20
6.02 - Buyer's Conditions.............................................. 21
ARTICLE VII Closing....................................................... 22
7.01 - Date of Closing................................................. 22
7.02 - Closing Obligations............................................. 22
ARTICLE VIII Obligations After Closing.................................... 24
8.01 - Post-Closing Adjustments........................................ 24
8.02 - Sales Taxes and Recording Fees.................................. 25
8.03 - Further Assurances.............................................. 25
8.04 - Buyer's Post-Closing Obligations................................ 26
8.05 - Seller's Post-Closing Obligations............................... 28
8.06 - Files and Records............................................... 29
8.07 - Disclaimers of Representations and Warranties................... 29
8.08 - Waiver of DTPA.................................................. 29
8.09 - Resignation of Operator......................................... 30
8.10 - Registration Obligations of Buyer............................... 30
8.11 - Survival........................................................ 34
ARTICLE IX Termination of Agreement....................................... 34
9.01 - Termination..................................................... 34
9.02 - Liabilities..................................................... 34
ARTICLE X Earnest Money................................................... 35
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE XI Indemnification................................................ 35
11.01 - Right to Employ Counsel........................................ 35
11.02 - Claim Reimbursement and Reduction.............................. 36
ARTICLE XII General....................................................... 37
12.01 - Exhibits....................................................... 37
12.02 - Expenses....................................................... 37
12.03 - Notices........................................................ 37
12.04 - Amendments..................................................... 37
12.05 - Headings....................................................... 38
12.06 - Counterparts................................................... 38
12.07 - References..................................................... 38
12.08 - Governing Law.................................................. 38
12.09 - Entire Agreement............................................... 38
12.10 - Parties in Interest............................................ 38
12.11 - Assignments.................................................... 38
12.12 - Public Announcements........................................... 38
12.13 - Notices After Closing.......................................... 38
12.14 - Severability................................................... 39
12.15 - Time is of the Essence......................................... 39
</TABLE>
iii
<PAGE> 5
Exhibit "A" - Lease Description
Exhibit "B" - Rights-of-Way, Easements and Surface Rights
Exhibit "C" - Contracts
Exhibit "D" - Wells
Exhibit "E" - The Note
Exhibit "F" - Allocated Value
Exhibit "G" - Litigation
Exhibit "H" - AFEs
Exhibit "I" - Take or Pay Liability; Gas Imbalances
Exhibit "J" - PUD and Probable Locations
Exhibit "K" - Additional Permitted Encumbrances
Exhibit "L" - Form of Conveyance
Exhibit "M" - Opinion of Seller's Counsel
Exhibit "N" - Opinion of Buyer's Counsel
iv
<PAGE> 6
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (the "Agreement") dated as of the 31st
day of December, 1996, is between COMETRA ENERGY, L.P. ("CE"), a Texas limited
partnership, the general partner of which is Aveneg, Inc., a Delaware
corporation, and COMETRA PRODUCTION COMPANY, L.P. ("CPC"), a Texas limited
partnership, the general partner of which is Grand Lacs, Inc,, a Delaware
corporation (CE and CPC are jointly referred to herein as "Seller"), and LOMAK
PETROLEUM, INC. a Delaware corporation ("Buyer").
In consideration of the mutual promises contained herein, the benefits
to be derived by each party hereunder and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer
agree as follows:
ARTICLE I
PURCHASE AND SALE
1.01 - PURCHASE AND SALE. Subject to the terms and conditions of the
Agreement, Seller agrees to sell and convey and Buyer agrees to purchase and pay
for the following described assets (hereinafter referred to as the
"Properties"):
(a) The interests described in Exhibit "A" hereto, in and to
the oil and gas leases, and oil, gas and mineral leases described in
Exhibit "A" hereto (the "Leases") insofar as they cover the land (the
"Lands") also described in Exhibit "A" hereto, together with
corresponding undivided interests in (i) all rights, privileges,
benefits, and powers conferred upon the holder of the Leases with
respect to the use and occupation of the surface of the Lands that may
be necessary, convenient, or incidental to the possession and enjoyment
of the Leases, (ii) all rights in respect of any pooled or unitized
acreage located in whole or in part within the Lands by virtue of the
Leases, including rights to production from the pool or unit allocated
to any Lease being a part thereof, regardless of whether such
production is from the Lands, (iii) all rights, options, titles, and
interests of Seller granting Seller the right to obtain, or otherwise
earn interests within the Lands no matter how earned, and (iv) all
tenements, hereditaments, and appurtenances belonging to any of the
foregoing;
(b) All of the right title and interest of Seller in and to
the rights-of-way, easements, surface rights and similar interests
described on Exhibit "B" attached hereto and made a part hereof;
(c) All of the right, title and interest of Seller under the
contracts, agreements, and other instruments described on Exhibit "C"
attached hereto and made a part hereof together with all of the right,
title and interest of Seller under any surface leases, farmin
1
<PAGE> 7
agreements, farmout agreements, bottom hole agreements, acreage
contribution agreements, operating agreements, unit agreements,
processing agreements, options, leases of equipment or facilities, and
other contracts, agreements, and rights that are owned by Seller in
whole or in part, which are not described on Exhibit "C" hereto, and
that are appurtenant to the Properties or used or held for use in
connection with the ownership or operation of the Properties or with
the production, treatment, sale, or disposal of water, hydrocarbons and
associated substances therefrom or thereon (in the aggregate the
"Contracts");
(d) All of the right, title and interest of Seller in and to
the real, personal and mixed property used in the operation of the
Properties owned by Seller in whole or in part or credited to the joint
account of Seller (the "Equipment") including, but not limited to (i)
all wellhead equipment, fixtures (including, but not limited to, field
separators and liquid extractors), pipe, casing, and tubing in, on or
appurtenant to the wells ("Wells") described on Exhibit "D" attached
hereto and made a part hereof; (ii) all production, gathering,
treating, processing, compression, dehydration, salt water disposal,
injection, gathering line and pipeline equipment and facilities; (iii)
all tanks, machines, equipment, tools, dies, vessels and other
facilities;
(e) Seller's seismic, geological, geochemical and geophysical
data relating to any of the Properties, but only to the extent that
such materials are not restricted from transfer by any legal
constraints, obligations of confidence or prior agreements with third
parties;
(f) Any office building, district office, or similar facility
used in connection with or relating to the Properties and the entire
furnishing and contents thereof (other than the Records);
(g) Any vehicles used by Seller in the operation of the
Properties;
(h) All inventory items related to the operation of the
Properties; and
(i) Subject to the provisions of Section 8.06 hereof, all of
the files, records, documents, correspondence and data now in the
possession or control of Seller that relates to the items described in
sub-paragraphs (a), (b), (c), (d), (e) (f), (g) and (h) above, without
limitation (the "Records").
1.02 - EXCLUDED ASSETS. Notwithstanding anything to the contrary
contained herein, there is hereby excluded from this purchase and sale, and the
Properties not cover or include any of the following:
(a) All accounts receivable, deposits with utilities, claims,
credits and causes of action of Seller (specifically excluding Under
Production, defined below, for which Seller is paid pursuant to this
Agreement) arising under the Contracts, or otherwise attributable
2
<PAGE> 8
to the Properties, which arise prior to the Effective Time and for
which Seller has not otherwise received payment or an adjustment credit
under the terms of this Agreement.
(b) Photocopies of any of the Records made by Seller.
1.03 - EFFECTIVE TIME. The purchase and sale of the Properties shall be
effective as of 7:00 a.m. Central Standard Time on October 1, 1996, (herein
called the "Effective Time").
ARTICLE II
PURCHASE PRICE
2.01 - PURCHASE PRICE. The purchase price payable by Buyer for the
Properties shall be THREE HUNDRED FIFTY MILLION AND NO/100 DOLLARS
($350,000,000) (the "Purchase Price"), payable as follows:
(a) Cash. $170,000,000 of the Purchase Price shall be
paid in cash at the Closing, inclusive of cash payments represented by
transfer of the Earnest Money to Seller.
(b) Buyer's Stock. $30,000,000 of the Purchase Price shall be
payable to Seller in newly issued shares of common stock of Buyer (par value
$0.01 per share) (the "Buyer's Stock") valued at the Index Price (as defined
below). For the purpose of this Agreement, the term "Index Price" means the
average closing sale price of the Buyer's Stock for the five (5) trading days
immediately preceding February 14, 1997 as reported in the Wall Street Journal.
All shares of the Buyer's Stock issued to Seller hereunder shall be rounded to
the nearest whole share.
(c) Balance of Purchase Price. The balance of the
Purchase Price shall be payable as follows:
(i) Promissory Note. If the Securities and Exchange Commission
(the "SEC") gives notice to Buyer of its intention to review Buyer's proposed
public offering of Buyer's common stock pursuant to a registration statement to
be filed by Buyer with the SEC on or about January 15, 1997 (the "Public
Offering"), the balance of the Purchase Price after giving effect to all
Purchase Price adjustments to be made at the Closing according to Section 2.02
hereof (such amount is herein called the "Payment Amount") shall be evidenced by
a promissory note (the "Note") dated the Closing Date and (i) executed by Buyer
and made payable to the order of Seller in the original principal amount of
Payment Amount, (ii) shall not bear interest unless not paid at its maturity
date, (iii) having a final maturity date of March 31, 1997, and (iv) being in
the form of Exhibit "E" attached hereto with blanks appropriately completed in
conformity herewith. The Note shall be secured by an irrevocable standby letter
of credit in form and substance satisfactory to Seller (including bankruptcy
preference provisions) and drawn on a financial institution acceptable to Seller
(the "Letter of Credit"). The Letter of Credit shall expire on the earlier of
April 30, 1997 or the date on which the Note has been paid in full. The
aggregate face amount of the Letter of Credit shall be equal to the original
face amount of the Note; or
3
<PAGE> 9
(ii) Cash. If the SEC gives notice to Buyer of its intention not to
review Buyer's Public Offering, the balance of the Purchase Price after giving
effect to all Purchase Price adjustments to be made at Closing according to
Section 2.02 hereof, shall be paid in cash at Closing.
2.02 - ADJUSTMENTS TO PURCHASE PRICE. The Purchase Price
shall be adjusted as follows:
(a) The Purchase Price shall be adjusted upward
by the following:
(1) the value of all merchantable, allowable
oil in storage at the Effective Time, above the
pipeline connection, which is sold and which is
credited to the Properties and paid to Buyer, such
value to be the actual price received less taxes
deducted by the purchaser;
(2) the amount of all verifiable
expenditures (including, without limitation, expenses
under applicable operating agreements or other
similar arrangements or agreements and, in the
absence of such agreements, such expenses of the sort
customarily billed thereunder, but specifically
excluding any amounts attributable to Seller's
overhead) paid by Seller in connection with the
operation of the Properties in accordance with this
Agreement for work actually performed subsequent to
the Effective Time and prior to the Closing Date;
(3) an amount equal to all prepaid ad
valorem, property, production, severance and similar
taxes (but not including income taxes) based upon or
measured by the ownership of property or the
production of hydrocarbons or the receipt of proceeds
therefrom;
(4) an amount equal to the value (based on
the price which could be received by Seller on the
date(s) that such under production occurred) of the
volume of gas less than its ownership percentage
which Seller has produced from any of the Wells
("Under Production");
(5) as to those Properties that are operated
by Seller, an aggregate amount equal to $87,500 per
month (pro rated for partial months) for the period
between the Effective Time and the Closing Date as
reimbursement to Seller for overhead costs incurred
in operating and managing the Properties for the
period after the Effective Time to the Closing; and
(6) any other amount agreed
upon by Seller and Buyer.
4
<PAGE> 10
(b) The Purchase Price shall be adjusted
downward by the following:
(1) proceeds and revenues received by Seller
attributable to the Properties and which accrued
after the Effective Time;
(2) an amount equal to all unpaid ad
valorem, property, production, severance and similar
taxes and assessments (but not including income
taxes) based upon or measured by the ownership of
property or the production of hydrocarbons or the
receipt of proceeds therefrom accruing to the
Properties prior to the Effective Time, which amount
shall be computed based upon such taxes assessed
against the applicable portion of the Properties for
the preceding calendar year or, if such taxes are
assessed on other than a calendar year basis, for the
tax related year last ended;
(3) the aggregate amount of the Defect Value
(defined below) of the Defective Interests (defined
below) less Upward Adjustments (as defined in Section
5.07 hereof), to the extent that such difference
exceeds one half of one percent (1/2%) of the
Purchase Price (without giving effect to this Section
2.02 (b)(3));
(4) an amount equal to the value of that
portion of the Properties with respect to which (i)
Seller is obligated by virtue of any prepayment
arrangements under any contract for the sale of
hydrocarbons and containing a "take or pay" or
similar provision or a production payment or any
other arrangement to deliver hydrocarbons produced
from the Properties at some future time without then
or thereafter receiving full payment therefor
("Take-or-Pay Liability"), and/or (ii) Seller has
produced a share of gas in excess of its ownership
percentage and Seller is obligated to reduce its
share of production under a gas balancing agreement
or similar arrangement to allow under-produced
parties to come back into balance ("Over Production")
(the value of such Take-or-Pay Liability and Over
Production to be based on the price which could have
been received by Seller on the dates(s) that such
Take-or-Pay Liability accrued or the date(s) that
such Over Production occurred; and
(5) any other amount agreed upon by Seller
and Buyer, including without limitation the amounts
provided in Section 5.04(c) hereof.
2.03 - ALLOCATION OF PURCHASE PRICE. Seller and Buyer agree that the
Purchase Price will be allocated among the Properties as set forth on Exhibit
"F" attached hereto and made a part hereof.
ARTICLE III
5
<PAGE> 11
REPRESENTATIONS AND WARRANTIES
3.01 - REPRESENTATIONS AND WARRANTIES OF SELLER. Each
Seller separately represents and warrants the following:
(a) Each Seller is a duly organized, validly existing limited
partnership organized and in good standing under the laws of its state
of formation and is qualified to do business in the State of Texas.
(b) Each Seller has all requisite power and authority,
partnership, corporate and otherwise, to carry on its business as
presently conducted, to enter into the Agreement, to sell and convey,
free and clear of all adverse claims, the Properties on the terms
described in the Agreement and to perform its other obligations under
the Agreement.
(c) The execution and delivery of this Agreement has been, and
the execution and delivery of all certificates, documents and
instruments required to be executed and delivered by Seller at the
Closing, and the consummation of the transactions contemplated hereby
as of the Effective Time shall have been duly authorized by all
necessary partnership and corporate action on the part of the Seller,
and, assuming expiration or termination of the applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
("HSR Act"), no further authorization is required by any law, statute,
regulation, court order or judgment applicable to Seller. This
Agreement constitutes a legal, valid and binding obligation of Seller
enforceable in accordance with its terms, subject however, to the
effects of bankruptcy, insolvency, reorganization, moratorium and
similar laws, as well as to principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
(d) The execution and delivery of the Agreement and the
consummation of the transactions contemplated hereby will not (i)
violate, or be in conflict with, any provisions of Seller's agreement
of limited partnership or other governing documents, (ii) constitute a
material breach of, or any event of default under, any contract or
agreement to which Seller is a party or by which it or its assets are
bound, or constitute the happening of an event or condition upon which
any other party to such a contract or agreement may exercise any right
or option which will materially adversely affect any of the Properties
(except any provision as to (A) required consents to transfer and
related provisions, (B) maintenance of uniform interests provisions and
(C) any other third-party approvals contemplated herein), (iii)
assuming expiration or termination of the applicable waiting period
under the HSR Act, violate any judgment, decree, order, statute, rule
or regulation applicable to Seller, or (iv) result in any material
liability to Buyer under the terms of any contracts or agreements,
except those obligations related to the Properties after the Effective
Time and assumed by Buyer pursuant to the terms of the Agreement.
6
<PAGE> 12
(e) Except as shown on Exhibit "G" attached hereto and made a
part hereof, no suit, action or other proceeding is pending before any
court or governmental agency as of the date of this Agreement to which
Seller is a party and which might result in substantial impairment or
loss of Seller's title to any material part of the Properties or that
might materially hinder or impede the operation of the Leases or the
ability of Seller to perform its obligations hereunder.
(f) During the period the Seller has owned the Properties (the
"Ownership Period") to the knowledge of Seller all material royalties
(other than royalties held in suspense), rentals and other payments due
under the Leases have been properly and timely paid.
(g) During the Ownership Period all ad valorem, property,
production, severance and similar taxes and assessments based on or
measured by the ownership of property or the production of hydrocarbons
or the receipt of proceeds therefrom on the Properties have been
properly paid.
(h) Seller has incurred no liability, contingent or otherwise,
for brokers' or finders' fees relating to the transactions contemplated
by this Agreement for which Buyer shall have any responsibility
whatsoever.
(i) The only material surface leases, farmin agreements,
farmout agreements, bottom hole agreements, acreage contribution
agreements, operating agreements, unit agreements, processing
agreements, options, leases of equipment or facilities, and other
contracts, agreements and rights that cover or affect the Properties
are those Contracts described on Exhibit "C" attached hereto and made a
part hereof.
(j) Seller is not a "foreign person" within the meaning of
Section 1445 of the Internal Revenue Code of 1986, as amended.
(k) The financial information furnished by Seller to Buyer in
Section 2 of each of Seller's Data Package dated October 1, 1996 for
the Val Verde Basin Group, the Midland Basin Group, the South Texas
Group and the Offshore Group is correct in all material respects.
(l) The Authorities for Expenditures (AFE's) set forth on
Exhibit "H" attached hereto constitute all of the material AFE's which
have been approved by Seller or other working interest owners
respecting operations to be conducted on the Properties after the
Effective Time.
(m) Exhibit "I" attached hereto sets forth the amount of
Take-or-Pay Liability and Over Production currently known to Seller.
3.02 - REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer
represents and warrants to
7
<PAGE> 13
Seller that:
(a) Buyer is a duly organized, validly existing corporation
organized and in good standing under the laws of the State of its
incorporation and is qualified to do business in the State of Texas.
(b) Buyer has all requisite power and authority, corporate and
otherwise, to carry on its business as presently conducted, to enter
into the Agreement, and to perform its obligations under the Agreement.
(c) The execution and delivery of this Agreement has been, and
the execution and delivery of all certificates, documents and
instruments required to be executed and delivered by Buyer at Closing,
and the consummation of the transactions contemplated hereby as of the
Effective Time shall have been duly authorized by all necessary
corporate action on the part of the Buyer and, assuming expiration or
termination of the applicable waiting period under the HSR Act, no
further authorization is required by any law, statute, regulation,
court order or judgment applicable to Buyer. This Agreement constitutes
a legal, valid and binding obligation of Buyer enforceable in
accordance with its terms, subject however, to the effects of
bankruptcy, insolvency, reorganization, moratorium and similar laws, as
well as to principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(d) The execution and delivery of the Agreement and the
consummation of the transactions contemplated hereby will not (i)
violate, or be in conflict with, any provisions of Buyer's articles of
incorporation, bylaws or governing documents, (ii) constitute a
material breach of, or any event of default under, any contract or
agreement to which Buyer is a party or by which it or its assets are
bound, or constitute the happening of an event or condition upon which
any other party to such a contract or agreement may exercise any right
or option which will materially adversely affect the ability of Buyer
to perform its obligations hereunder, (iii) assuming expiration or
termination of the applicable waiting period under the HSR Act, violate
any judgment, decree, order, statute, rule or regulation applicable to
Buyer, or (iv) result in any material liability to Seller under the
terms of any contracts or agreements to which Buyer is a party.
(e) No suit, action or other proceeding is pending before any
court or governmental agency as of the date of this Agreement to which
Buyer is a party and which might materially hinder or impede the
ability of Buyer to perform its obligations hereunder. Buyer shall
promptly notify Seller of any such proceeding arising prior to the
Closing with respect to which Buyer receives actual notice.
(f) Buyer has incurred no liability, contingent or otherwise,
for brokers' or finders' fees relating to the transactions contemplated
by this Agreement for which Seller shall have any responsibility
whatsoever.
8
<PAGE> 14
(g) Buyer is a knowledgeable purchaser, owner and operator of
oil and gas properties, has the ability to evaluate (and in fact has
evaluated) the Properties for purchase, and is acquiring the Properties
for its own account and not with the intent to make a distribution
thereof within the meaning of the Securities Act of 1933 (and the rules
and regulations pertaining thereto) or a distribution thereof in
violation of any other applicable securities laws.
(h) In entering into this Agreement, Buyer has relied solely
on the express representations and covenants of Sellers in this
Agreement, its independent investigation of, and judgment with respect
to, the Properties and the advice of its own legal, tax, economic,
environmental, engineering, geological and geophysical advisors and not
on any comments or statements of Seller or any representatives of, or
consultants or advisors engaged by Seller.
(i) The Buyer's Stock to be issued by Buyer to Seller at
Closing have been duly authorized for such issuance and, when issued
and delivered by Buyer in accordance with the provisions of this
Agreement, will be validly issued, fully paid, and nonassessable. Once
registered in accordance with the provisions of Section 8.10 hereof,
the Buyer's Stock shall be freely tradable by Seller or its assignees
according to Section 8.10 hereof. The issuance of the Buyer's Stock
under this Agreement is not subject to any preemptive or similar
rights.
(j) Buyer is current in its obligations to file all periodic
report and proxy statements with the Securities and Exchange Commission
required to be filed under the Securities Exchange Act of 1934, as
amended, and applicable rules and regulations promulgated thereunder.
Buyer's Annual Report on Form-10K for the year ended December 31, 1995
(the "SEC Document") does not contain 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. Since December
31, 1995, there have been no material developments, transactions or
events affecting Buyer (other than developments or events affecting the
oil and gas exploration and production industry generally) other than
as disclosed by Buyer in the SEC Document or to Seller in writing.
There are no material liabilities of Buyer (contingent or otherwise),
other than as disclosed in the SEC Document and the financial
statements included therein.
(k) The authorized and outstanding capital stock of Buyer as
of September 30, 1996, consists solely of (a) 35,000,000 shares of
Buyer's common stock, of which 14,705,293 shares are duly authorized,
validly issued and outstanding, fully paid and non-assessable, and (b)
4,000,000 shares of preferred stock, par value $1.00 per share, of
which 1,150,000 shares are outstanding and are convertible into
3,026,316 shares of Buyer's common stock.
ARTICLE IV
9
<PAGE> 15
COVENANTS
4.01 - COVENANTS OF SELLER. Seller covenants and agrees
with Buyer that:
(a) Prior to the Closing, Seller will make available to Buyer
for examination at Seller's office in Fort Worth, Texas, all title and
other information relating to the Properties insofar as the same are in
Seller's possession and will cooperate with Buyer in Buyer's efforts to
obtain, at Buyer's expense, such additional information relating to the
Properties as Buyer may reasonably desire, to the extent in each case
that Seller may do so without violating legal constraints or any
obligation of confidence or other contractual commitment of Seller to a
third party. Historical file information in Seller's possession
regarding crude oil and produced water which may have been spilled or
disposed of on-site and the locations thereof; pits and pit closures;
burials; landfarming; landspreading; underground injection; and solid
waste disposal sites will be made available to Buyer for inspection
prior to Closing. Seller shall permit representatives of Buyer to make
such environmental tests as they deem appropriate, including without
limitation Phase I and Phase II testing. Seller shall permit Buyer, at
Buyer's expense, to inspect and photocopy such information and records
at any reasonable time during the term of this Agreement but only to
the extent, in each case, that Seller may do so without violating any
obligation of confidence or contractual commitment to a third party.
Seller shall not be obligated to furnish any updated abstracts, title
opinions or additional title information, but shall cooperate with
Buyer in Buyer's efforts to obtain, at Buyer's expense, such additional
title information as Buyer may reasonably deem prudent.
(b) From the date of this Agreement Seller shall furnish to
Buyer and shall cause its independent auditors to furnish to Buyer all
information regarding the Properties, Seller and its respective
business, assets, properties, and financial condition which, in the
reasonable judgment of Buyer and/or its legal counsel and independent
auditors is necessary to enable Buyer to comply with filing
requirements under the Securities Act of 1933 (the "Act") and the
Securities and Exchange Act of 1934 ("Exchange Act") to the extent
deemed necessary by the Buyer and its representatives.
(c) From the date of this Agreement until Closing, Seller (i)
will cause the Properties to be operated and maintained in a good and
workmanlike manner consistent with prior practices, and will pay or
cause to be paid all costs and expenses in connection therewith, (ii)
will not abandon any Properties, (iii) will maintain insurance now in
force with respect to the Properties, (iv) will comply with all the
rules, regulations and orders of the Texas Railroad Commission which
are applicable to Seller and the Properties, and will timely, properly
and accurately make all reports required to be filed with the Texas
Railroad Commission, (v) will perform and comply with all of the
material covenants and conditions contained in the agreements relating
to the Properties, and (vi) will pay all taxes and assessments with
respect to the Properties which become due and payable prior to the
Closing Date; provided however, in the absence of Buyer's written
consent, from the date of this Agreement until the Closing, Seller
shall not conduct or authorize any operation on
10
<PAGE> 16
the Properties requiring Authority for Expenditure (AFE) approval by
working interest owners under applicable operating agreements, or an
expenditure of $100,000.00 or more for the entire 100% of any single
project (except for emergency operations and except for any AFEs
identified on Exhibit "H" hereto). With respect to the Properties that
are operated by Seller, as reimbursement for Seller's operating and
managing the Properties for the period from the Effective Time to the
Closing Date, Seller shall retain for its own account the amounts that
are paid to Seller from third party non-operators as overhead charges
under the accounting procedure attached to the applicable operating
agreements with respect to the period after the Effective Time.
(d) Without the prior written consent of Buyer, from the date
of this Agreement until Closing, Seller shall not enter into any new
agreements or commitments with respect to the Properties, will not
modify or terminate any of the agreements relating to the Properties,
shall not encumber, sell, transfer, assign, convey, or otherwise
dispose of any of the Properties other than personal property which is
replaced by equivalent property or consumed in the operation of the
Properties, and will not voluntarily compromise any amounts payable to
Seller due to any casualty loss or any pending or threatened taking
related to the Properties.
(e) Seller shall use all reasonable efforts to maintain its
partnership status and to assure that as of the Closing it shall not be
under any material partnership, legal or contractual restriction that
would prohibit or delay the timely consummation of this transaction.
With respect to any third-party consents and notices required under
preferential rights to purchase provisions, Seller shall make requests
of such third parties in compliance with applicable agreements, that
such consents be given or waived and that such preferential rights be
waived; provided however, nothing contained in this subsection of
Section 4.01 shall require Seller to pay money or undertake any
additional legal obligation.
(f) From the date of this Agreement until Closing, Seller
shall permit Buyer's authorized representatives to consult with Seller
and/or such third-party operator's agents and employees during
reasonable business hours concerning the operations on or respecting
the Properties that occur after the Effective Time and to conduct, at
Buyer's sole risk and expense, on-site inspections (including, without
limitation, site visits to offshore facilities of Seller),
environmental assessments, reasonable tests and inventories of the
Properties as provided in Section 5.03 hereof.
(g) As promptly as practicable and in any event not more than
ten (10) days following the date on which the parties hereto shall have
executed and delivered this Agreement, Seller will file with the
Federal Trade Commission and the Department of Justice the notification
and report form required for the transactions contemplated hereby and
will as promptly as practicable furnish any supplemental information
which may be reasonably requested in connection therewith pursuant to
the HSR Act. Seller shall bear one-half (1/2) of the filing fees
associated with filings made under the HSR Act and paid
11
<PAGE> 17
by Buyer or Seller.
(h) During the period from the date of this Agreement to the
Closing Date, Seller shall use its best efforts to maintain its
relationships with all suppliers, customers and others having business
relationships with Seller with respect to the Properties so that such
relationships will be preserved for Buyer on and after the Closing
Date.
(i) Seller shall give Buyer notice of any litigation initiated
by or against Seller, of which Seller has notice, and which relates to
the Properties or the ability of Seller to proceed to Closing.
4.02 - COVENANTS OF BUYER. Buyer covenants and agrees with
Seller that:
(a) Buyer shall use all reasonable efforts to maintain its
corporate status and to assure that as of the Closing, it will not be
under any material corporate, legal or contractual restriction that
would prohibit or delay the timely consummation of this transaction.
(b) As promptly as practicable and in any event not more than
ten (10) days following the date on which each of the parties hereto
shall have executed and delivered this Agreement, Buyer will file with
the Federal Trade Commission and the Department of Justice the
notification and report form required for the transactions contemplated
hereby and will as promptly as practicable furnish any supplemental
information which may be reasonably requested in connection therewith
pursuant to the HSR Act. Buyer shall bear one-half (1/2) of the filing
fees associated with filings made under the HSR Act and paid by Buyer
or Seller.
(c) Buyer shall exercise all due diligence in safeguarding and
maintaining secure all engineering, geological and geophysical data,
reports and maps, accounting records, and all other confidential data
or information relating to the Properties in the possession of Buyer.
If the transaction contemplated by this Agreement is not consummated,
Buyer shall return to Seller all information which Seller has delivered
to Buyer which relate to the Properties.
(d) Buyer shall give Seller notice of any litigation initiated
by or against Buyer, of which Buyer has notice, and which relates to
the Properties or the ability of Buyer to proceed to Closing.
ARTICLE V
12
<PAGE> 18
TITLE MATTERS AND DEFECTIVE INTERESTS
5.01 - DEFENSIBLE TITLE.
(a) As used herein, the term "Defensible Title" shall mean, as
to the Properties, and each of them, such title, subject to the
Permitted Encumbrances, which in all material respects
(1) is free and clear of liens or encumbrances, and
(A) is otherwise only subject to contractually binding
arrangements which are conventional and which are customarily
experienced in the oil and gas industry and (B) is not subject
to any matters which will result in a breach of any warranty
or representation made by Seller hereunder;
(2) entitles Seller to receive not less than (A) the
"Revenue Interest" set forth on Exhibit "D" hereto for each of
the Wells of all oil, gas and associated liquid and gaseous
hydrocarbons produced, saved and marketed from such Well,
after deducting all royalty, overriding royalty and other
leasehold burdens, and (B) the "Revenue Interest" set forth in
Exhibit "J" attached hereto and made a part hereof for each of
the separate tracts of land or proposed well locations
described on Exhibit "J" hereto of all oil, gas and associated
liquid and gaseous hydrocarbons produced, saved and marketed
from a well which may be drilled on such separate tract of
lands also, after deducting all royalty, overriding royalty
and other leasehold burdens; and
(3) obligates Seller to bear costs and expenses
relating to the maintenance, development and operation of each
of the Wells in an amount not greater than (A) the "Working
Interest" set forth on Exhibit "D" hereto with respect to each
of the Wells, unless there is a corresponding and
proportionately equal increase in the Revenue Interest
attributable to such Well, and (B) the "Working Interest" set
forth on Exhibit "J" hereto with respect to each tract of land
or proposed well location separately identified on Exhibit "J"
hereto, unless there is a corresponding and proportionately
equal increase in the Revenue Interest attributable to such
tract of land.
(b) The term "Permitted Encumbrances" as used herein shall
mean the following items relating to the Properties, provided
none of the following items shall operate to increase the
Working Interest of Seller set forth in Exhibit "D" and
Exhibit "J" hereto for any of the Properties without a
corresponding increase in the applicable Revenue Interests, or
decrease the Revenue Interests of Seller set forth on Exhibit
"D" and Exhibit "J" hereto for any of the Properties:
(1) lessors' royalties, overriding royalties, net
profits interests,
13
<PAGE> 19
production payments, reversionary interests and similar
burdens;
(2) preferential rights to purchase and required
third party or governmental consents to assignments and
similar agreements with respect to which prior to Closing (i)
waivers or consents are obtained from the appropriate parties,
(ii) the appropriate time period for asserting such rights has
expired without an exercise of such rights, (iii) with respect
to consent, such consent is not necessary to the validity of
an assignment to Buyer and need not be obtained prior to an
assignment, or (iv) arrangements can be made by Buyer or
Seller to allow Buyer to receive substantially the same
economic benefit as if all such waivers and consents had been
obtained;
(3) liens for taxes or assessments not yet due or not
yet delinquent or, if delinquent, that are being contested in
good faith in the normal course of business;
(4) liens, charges, or other encumbrances in favor of
operators relating to obligations not yet due or pursuant to
which Seller is not in default;
(5) all rights to consent by, required notices to,
filings with, or other actions by governmental entities in
connection with the sale or conveyance of oil and gas leases
or interests therein;
(6) the terms and conditions of division orders,
sales contracts, the Leases, and the Contracts;
(7) rights of re-assignments in the event of intended
release or surrender of an interest;
(8) easements, rights-of-way, servitudes, permits,
surface leases and other rights in respect of surface
operations, pipelines, grazing, logging, canals, ditches,
reservoirs or the like; and easements for streets, alleys,
highways, pipelines, telephone lines, power lines, railways
and other easements and rights-of-way, on, over or in respect
of any of the Properties, that are not such as to interfere
materially with the operation, value or use of the Properties;
(9) rights reserved to or vested in any municipality
or governmental, statutory or public authority to control or
regulate any of the Properties in any manner, and all
applicable laws, rules and orders of governmental authority;
(10) Those matters described on Exhibit "K" attached
hereto and made a part hereof; and
(11) such Title Defects or other defects as Buyer has
waived in writing
14
<PAGE> 20
or otherwise pursuant to the terms of this Agreement.
(c) The term "Title Defect" as used herein shall mean any
encumbrances, encroachment, irregularity, defect in or objection to
Seller's title to the Properties (expressly excluding Permitted
Encumbrances), that alone or in combination with other defects renders
Seller's title to the Properties less than Defensible Title.
5.02 - DEFECTIVE INTERESTS.
(a) As used herein the term "Defective Interest" shall
mean
(1) That portion of the Properties affected by a
Title Defect;
(2) That portion of the Properties adversely affected
by Seller's material noncompliance with the laws, rules,
regulations, ordinances or orders of any governmental agency
or authority having jurisdiction over any portion of the
Properties, including without limitation Environmental Laws
(defined below) as may be reasonably determined in accordance
with generally accepted industry practices and standards;
(3) That portion of the Properties adversely affected
by the default of Seller, or any other party, under an
obligation of the Leases or Contracts;
(4) That portion of the Properties with respect to
which any preferential right to purchase is exercised unless
Buyer elects to receive the consideration received from the
exercise of such preferential right to purchase;
(5) That portion of the Equipment which has a
material defect, (resulting from design, construction, wear or
other reason) which will prevent the continued operation of
that portion of the Equipment in accordance with prior
practice;
(6) That portion of the Properties destroyed by fire
or other casualty, or with respect to which there is a taking
or threatened taking in condemnation or under the right of
eminent domain, unless Buyer elects to receive the proceeds
payable under any insurance policy covering such events;
(7) That portion of the Properties affected by any
suit, action or other proceeding before any court or
government agency that would result in a loss or impairment of
Seller's title to any portion of the Properties, or a portion
of the value thereof; and
(8) Any Lease or Contract which is not valid and
subsisting and in full force and effect.
15
<PAGE> 21
(b) As used herein the term "Defect Value" shall mean the
lesser of:
(1) the Allocated Value of that part of the Property
affected by a Defective Interest; or
(2) the reduction in value of the Properties caused
by a Defective Interest.
5.03 - BUYER'S RIGHT OF INSPECTION.Seller grants Buyer and its duly
authorized representatives, contractors and subcontractors
(collectively "Representatives") the limited right of entry to the
Properties for the purpose of, inspecting the Properties in accordance
with the terms of Section 4.01(e) hereof ("Permitted Activities"),
subject however, to the following conditions:
(a) Buyer shall notify Seller of its desire to enter the
Properties to conduct Permitted Activities at least 48 hours prior to
such entry.
(b) Upon receipt of such notice, Seller shall allow Buyer and
its Representatives to enter the Properties during normal business
hours to conduct Permitted Activities. The Permitted Activities of
Buyer and its Representatives shall not unreasonably interfere with
Seller's operations or business, and Buyer and its Representatives
shall not remain on the Properties subsequent to the completion of
their Permitted Activities.
(c) The Permitted Activities shall be conducted in accordance
with all applicable environmental and regulatory laws, rules and
regulations, and commonly accepted standards for conducting such
activities. Upon completion of its activity, Buyer and its
Representatives shall restore the Property to its condition existing as
of Buyer's entry thereon and remove all equipment and materials that
were brought onto the Properties by Buyer and its Representatives. As
soon as reasonably possible, Buyer shall provide Seller with a copy of
all written reports prepared for Buyer as a result of conducting
Permitted Activities.
(d) Buyer will be responsible for the conduct and protection
of all persons involved in the Permitted Activities. Seller shall not
have any right to control and shall not exercise any responsibility
with respect to the Permitted Activities conducted by Buyer on the
Properties, except that Seller shall have the right (but not the
obligation) to prevent any damage to its property or disruption to its
business. Buyer and its Representatives will undertake all measures
reasonably necessary to protect all persons conducting the Permitted
Activities on the Properties and any other persons who may enter the
Properties during or after completion of the Permitted Activities.
16
<PAGE> 22
(e) Neither Buyer nor its Representatives shall contact any
federal, state, or local agency with respect to environmental
conditions discovered on the Properties without the prior written
permission and consent of Seller, except as may be otherwise required
by applicable law, rule or regulation. Any proposal of Buyer or its
Representatives to contact any federal, state, or local agency shall be
delivered in writing to Seller for review and approval.
(f) BUYER AGREES TO FULLY INDEMNIFY, DEFEND, AND HOLD SELLER,
ITS AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS AND CONTRACTORS HARMLESS FROM AND AGAINST ANY ALL CLAIMS,
LIABILITIES, CAUSES OF ACTIONS, JUDGMENTS OR DEFENSE EXPENSES
(INCLUDING REASONABLE ATTORNEYS FEES AND EXPERT EXPENSES) OF ANY
PERSON, INCLUDING BUYER, ITS AFFILIATES AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS AND CONTRACTORS, FOR (I) PERSONAL INJURY
OR DEATH OF ANY PERSON, (II) DAMAGE TO THE PROPERTY OF SELLER, BUYER OR
ANY OTHER PERSON, OR (III) ALL OTHER DAMAGES OR ECONOMIC LOSSES
(INCLUDING ANY DAMAGES CAUSED BY THE NEGLIGENCE OF SELLER),
ATTRIBUTABLE TO OR ARISING FROM THE PERMITTED ACTIVITIES, EXCEPT THERE
SHALL BE NO LIABILITY OF BUYER TO THE EXTENT ANY SUCH INJURY, DAMAGE,
OR LOSS IS CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
SELLER.
5.04 - NOTICE OF DEFECTIVE INTERESTS.
(a) Buyer shall give Seller notice of Defective Interests not
later than twenty-one (21) days from the date of this Agreement. Such
notice shall be in writing and shall include (i) a description of the
Defective Interest (ii) the reason Buyer believes such Properties to be
a Defective Interest, and (iii) the Defect Value asserted by Buyer with
respect to the asserted Defective Interest. Buyer's notice(s) of
Defective Interests shall not be effective unless and until the total
of the asserted Defect Values for the asserted Defective Interests
exceeds one-half of one percent (1/2%) of the Purchase Price. Buyer
shall be deemed to have waived all Defective Interests of which Seller
has not been given such notice within the time period prescribed in
this Section 5.04(a).
(b) Upon being notified by Buyer pursuant to Section 5.04(a)
of any asserted Defective Interest the Seller shall give written
counter-notice to Buyer within five (5) days (i) that it either (A)
will attempt to correct the asserted Defective Interest, or (B) does
not intend to attempt to correct the Defective Interest; and (ii)
whether it agrees or disagrees that the asserted Defective Interest
exist, and (iii) whether it agrees or disagrees with the Defect Value
asserted by the Buyer.
(c) If Seller gives counter-notice of intent to attempt to
correct any asserted
17
<PAGE> 23
Defective Interest, it shall have a period of thirty (30) days from the
receipt of the Buyer's notice (the "Cure Period") to attempt to correct
such asserted Defective Interest at its own expense. The Closing shall
not be extended, but to the extent that the Defect Value allocated to
the Defective Interest when combined with the Defect Value of all other
asserted Defective Interests exceeds one-half of one percent (1/2%) of
the Purchase Price, a downward adjustment of the Purchase Price shall
be made in such amount according to Section 2.02(b)(5). If Seller shall
subsequently cure such Defective Interest within the Cure Period, such
Defect Value as to which curative has been effected shall be a credit
to Seller in the determination of the Final Settlement according to
Section 8.01 hereof. If Seller is unable to cure such Defective
Interest, Seller shall still have the right to assert the provisions of
Sections 5.04 (d) and (e) below after Closing, in which case Buyer
shall deposit the amount of the disputed Defect Value with the Escrow
Agent according to Section 5.06 (b) below.
(d) If Seller gives counter-notice (or notice after the Cure
Period according to Section 5.04 (c)) that it disagrees there is a
Defective Interest, then the existence (and if it exists, the Defect
Value), will be determined by arbitration pursuant to Section 5.05
hereof.
(e) If Seller gives counter-notice (or notice after the Cure
Period according to Section 5.04 (c)) that it disagrees with the Defect
Value asserted by Buyer in connection with a Defective Interest, then
the amount of the Defect Value will be determined by arbitration
pursuant to Section 5.05 hereof.
(f) The failure of Seller to deliver written counter-notice
shall be deemed to be notice that Seller (i) will not attempt to
correct that asserted Defective Interest, (ii) agrees that there is a
Defective Interest and (iii) agrees with the Defect Value asserted by
the Buyer.
(g) In determining which portions of the Properties are
Defective Interests, it is the intent of the parties to include, when
possible, only that portion of the Properties affected by the defect.
5.05 - ARBITRATION PROCEDURES. If any matter is required by this
Article to be arbitrated, such arbitration shall be conducted as set forth in
this Section 5.05.
(a) The parties shall jointly select an acceptable person to
serve as the sole arbitrator under this Agreement. If the parties are
unable to agree upon the designation of a person as arbitrator under
this Section 5.05, then either Seller or Buyer, or both such parties,
may in writing request the American Arbitration Association to appoint
a qualified arbitrator.
(b) Any arbitration hearing shall be held at a place in Fort
Worth, Texas
18
<PAGE> 24
acceptable to the arbitrator.
(c) The arbitrator shall settle disputes regarding the
existence of Defective Interests and/or the Defect Value thereof and
Seller's attempts to correct any Title Defects in accordance with the
Texas General Arbitration Act. Such arbitrator shall hear all
arbitration matters arising under this Article V. The decision of the
arbitrator shall be binding upon the parties, and may be enforced in
any court of competent jurisdiction. Seller and Buyer, respectively,
shall bear their own legal fees and other costs incurred in presenting
their respective cases. The charges and expenses of the arbitrator
shall be shared equally by Seller and Buyer.
(d) The arbitration shall commence within ten days after the
arbitrator is selected as set forth in Section 5.05(a) above. In
fulfilling his duties hereunder, the arbitrator shall be bound by the
terms of this Agreement. In fulfilling any of his arbitration duties,
the arbitrator may consider such other matters as in the opinion of the
arbitrator are necessary or helpful to make a proper evaluation.
Additionally, the arbitrator may consult with and engage disinterested
third parties, including, without limitation, petroleum engineers,
attorneys and consultants, to advise the arbitrator.
(e) If any arbitrator selected hereunder should die, resign or
be unable to perform his duties hereunder, the parties, or if the
parties are unable to agree, the American Arbitration Association shall
select a replacement arbitrator. The aforesaid procedure shall be
followed from time to time as necessary.
5.06 - EFFECT OF DEFECTIVE INTERESTS ON THE CLOSING. If Buyer asserts
any Defective Interests the following shall apply:
(a) The parties shall proceed to the Closing as provided in
this Agreement if (i) Seller elects to cure the asserted defect
according to Section 5.04(c), (ii) Buyer agrees to waive the relevant
Defective Interest and purchase the Defective Interest notwithstanding
the asserted Defective Interest, or (iii) Buyer and Seller agree to a
Defect Value and the Purchase Price is reduced by such amount in
accordance with Section 2.02(b) hereof.
(b) If any matter is referred to arbitration under Section
5.05 of this Agreement and the Defect Value or Values asserted by Buyer
with respect to the matters under arbitration when combined with all
other Defective Interests totals less than ten percent (10%) of the
Purchase Price (including an agreement by Buyer to waive any
arbitration award which when combined with all other Defective
Interests would exceed ten percent (10%) of the Purchase Price), then
the parties shall proceed to Closing, the asserted Defective Interests
shall be conveyed to Buyer, and the Closing Amount (defined below)
shall be reduced by an amount equal to the asserted Defect Values of
the asserted Defective Interests (the "Withheld Payment"). The Withheld
Payment shall be placed in escrow with the same entity under
essentially the same terms as the Earnest Money (defined below). The
Withheld Payment shall be paid as follows:
19
<PAGE> 25
(i) If the arbitrator decides that any Defective Interest
asserted by the Buyer is not a Defective Interest, then the
Withheld Payment with respect to the asserted Defective
Interest shall be paid to the Seller.
(ii) If the arbitrator decides that any one or more of the
Defective Interests asserted by the Buyer are in fact
Defective Interests, then, the Withheld Payment, to the extent
it, when combined with all other Defective Interests, exceeds
one-half of one percent (1/2%) of the Purchase Price up to the
amount of the Defect Value, as determined by the arbitrator,
shall be distributed to the Buyer, and the remainder, if any,
shall be distributed to the Seller.
(c) If any matter is referred to arbitration under Section
5.05 of this Agreement and the Defect Value asserted by Buyer with
respect to the matters under arbitration when combined with all other
Defective Interests totals ten percent (10%) of the Purchase Price or
more, then, unless the parties otherwise agree, the Buyer waives its
rights to an arbitration award, which, when combined with all other
Defective Interests exceeds ten percent (10%) of the Purchase Price, or
this Agreement is terminated by Seller pursuant to Article IX hereof.
If none of the foregoing occurs, the Closing shall be postponed until
the arbitrator renders his final decision . After the arbitrator
renders his final decision the parties shall proceed to the Closing,
and the Purchase Price will be reduced by the Defect Value found by the
arbitrator to the extent it, when combined with all other Defective
Interests, exceeds one-half of one percent (1/2%) of the Purchase
Price; provided however, nothing contained in this Section 5.06(c)
shall be deemed to in any way modify or terminate Seller's or Buyer's
conditions to Closing under Section 6.01(d) or 6.02(d).
5.07 - INCREASED INTERESTS OF SELLER.. If Seller owns a greater
undivided interest in the Properties than reflected in the Exhibits hereto which
results in an increase in value of a portion of the Properties, the party
discovering such inaccuracy shall immediately notify the other party and Buyer
and Seller shall endeavor to agree upon an amount that will be set-off against
the Defect Value of the Defective Interests in accordance with Section
2.02(b)(3) (the "Upward Adjustment"). If Buyer and Seller fail to agree to the
Upward Adjustment, Seller may elect to have that portion of the Properties
subject to such increase in value excluded from the Properties to be purchased
by Buyer.
ARTICLE VI
CONDITIONS TO CLOSING
6.01 - SELLER'S CONDITIONS. The obligations of Seller at the Closing
are subject, at the option of Seller, to the satisfaction at or prior to the
Closing of the following conditions:
(a) All representations and warranties of Buyer contained in
this Agreement
20
<PAGE> 26
shall be true in all material respects at and as of the Closing as if
such representations and warranties were made at and as of the Closing;
and Buyer shall have performed and satisfied all material obligations
in all material respects required by this Agreement to be performed and
satisfied by Buyer at or prior to the Closing.
(b) No suit or other proceeding shall be pending before any
court or governmental agency seeking to restrain or prohibit or declare
illegal, or seeking substantial damages in connection with, the
purchase and sale contemplated by this Agreement.
(c) All necessary consents, permissions, novations and
approvals by third parties in connection with the sale and transfer of
the Properties shall have been received prior to Closing, except those
required consents, permissions, novations and approvals which are
Permitted Encumbrances.
(d) Defective Interests will not reduce the Purchase Price by
more than ten percent (10%).
(e) The waiting period (and any extension thereof) under the
HSR Act applicable to the transactions contemplated hereby shall have
expired or been terminated.
(f) All transactions contemplated by that certain Purchase and
Sale Agreement (the "Plant Agreement") of even date herewith between
Rockland, L.P. and Buyer shall have closed pursuant to the terms of
such agreement.
6.02 - BUYER'S CONDITIONS. The obligations of Buyer at the Closing are
subject, at the option of Buyer, to the satisfaction at or prior to the Closing
of the following conditions:
(a) All representations and warranties of Seller contained in
this Agreement ( except for the the representations and warranties set
forth in Sections 3.01(i),(k), (l) and (m))shall be true in all
material respects at and as of the Closing as if such representations
and warranties were made at and as of the Closing; and Seller shall
have performed and satisfied all material agreements in all material
respects required by this Agreement to be performed and satisfied by
Seller at or prior to the Closing.
(b) No suit or other proceeding shall be pending before any
court or governmental agency seeking to restrain or prohibit or declare
illegal, or seeking substantial damages in connection with, the
purchase and sale contemplated by this Agreement.
(c) All necessary consents, permissions, novations and
approvals by third parties in connection with the sale and transfer of
the Properties shall have been received prior to Closing, except those
required consents, permissions, novations and approvals which are
Permitted Encumbrances.
21
<PAGE> 27
(d) Defective Interests will not reduce the Purchase Price by
more than ten percent (10%).
(e) The waiting period (and any extension thereof) under the
HSR Act applicable to the transactions contemplated hereby shall have
expired or been terminated.
(f) All transactions contemplated by the Plant Agreement shall
have closed pursuant to the terms of such agreement.
ARTICLE VII
CLOSING
7.01 - DATE OF CLOSING. Unless the parties hereto mutually agree
otherwise and subject to the conditions stated in this Agreement, the
consummation of the transactions contemplated hereby (herein called the
"Closing") shall be held at the offices of Seller in Fort Worth, Texas, on the
later of:
(i) February 14, 1997;
(ii) February 21, 1997 if the SEC gives notice to Buyer that it will
not review Buyer's Public Offering and as of February 14, 1997 Buyer is
actively engaged in soliciting offers to purchase the securities to be
offered in the Public Offering and Buyer has requested in writing on or
before February 14, 1997 an extension to the Closing Date and Buyer has
paid to Seller the sum of $500,000 in cash (which shall be in addition
to the Purchase Price) on or prior to February 14, 1997;
notwithstanding the extension of the Closing Date under this subclause
(ii) to February 21, 1997, on February 14, 1997, Buyer shall issue to
Seller Buyer's Stock;
(iii) February 28, 1997 if Buyer has extended the Closing Date
according to subclause (ii) above, and Buyer has requested a further
extension to February 28, 1997 which Seller has, in its sole
discretion, agreed to and Buyer has paid to Seller the additional sum
of $500,000 in cash (which shall be in addition to the Purchase Price)
on or prior to February 21, 1997; or
(iv) Three (3) business days following the expiration or termination of
the applicable waiting period (and any extension thereof) under the HSR
Act.
The date on which closing occurs is referred to herein as the "Closing
Date."
7.02 - CLOSING OBLIGATIONS. At the Closing, the following events shall
occur, each being a condition precedent to the others and each being deemed to
have occurred simultaneously with the others:
22
<PAGE> 28
(a) Seller shall execute, acknowledge and deliver an
assignment, bill of sale, and conveyance in recordable form (in
sufficient counterparts to facilitate recording) sufficient to convey
to Buyer the Properties with covenants of special warranty as to all
Leases, such conveyance to be in the form attached hereto as Exhibit
"L"; provided, however, the assets described in Sections 1.01 (f), (g)
and (h) hereof shall be transferred to Buyer on a form of conveyance or
bill of sale reasonably acceptable to Buyer and Seller without warranty
of title, AS IS, WHERE IS, and with all faults, and disclaiming all
implied warranties, and, as to state or federal leases that are
included in the Properties, Seller shall execute, acknowledge and
deliver an assignment (in sufficient counterparts for filing with the
applicable governmental agency) sufficient to convey to Buyer such
state or federal leases, such conveyances to be in the form prescribed
by the applicable governmental agency.
(b) Seller shall prepare and deliver to Buyer and Seller and
Buyer shall execute and deliver a settlement statement (herein called
the "Preliminary Settlement Statement") that shall set forth the
Closing Amount (as hereinafter defined) and each adjustment and the
calculation of such adjustments used to determine such amount. The term
"Closing Amount" shall mean the Purchase Price adjusted as provided in
Section 2.02, using for such adjustments the best information then
available. Seller shall deliver a draft of the Preliminary Settlement
Statement to Buyer at least three (3) business days prior to Closing.
(c) Buyer shall pay the cash portion of the Purchase Price
other than the Earnest Money (being the amounts set forth in Section
2.01(a) and, if applicable, Section 2.01(c)(ii)) to Seller by wire
transfer in immediately available funds.
(d) The Escrow Agent shall deliver the Earnest Money plus
interest earned thereon to Seller.
(e) Unless previously delivered to Seller under Section
7.01(ii), Buyer shall deliver to Seller a certificate or certificates
in definitive form representing the Buyer's Stock to be issued to
Seller pursuant to Section 2.01 hereof.
(f) If Section 2.01(c)(i) is applicable, Buyer shall execute
and deliver to Seller the Note.
(g) If Section 2.01(c)(i) is applicable, Buyer shall deliver
to Seller the Letter of Credit.
(h) Seller and Buyer shall execute Texas Railroad Commission
Forms P-4 designating Buyer operator of the Properties previously
operated by Seller, subject however to the rights of third parties
under applicable operating agreements, and Seller shall file such forms
with the Texas Railroad Commission.
23
<PAGE> 29
(i) Seller shall deliver to Buyer, (1) a certificate signed by
a responsible officer of the General Partner of Seller certifying that
all of the representations and warranties of Seller made hereunder are
true and correct at and as of Closing, as if made on the Closing Date,
(2) a certified copy of the Executive Committee of the Board of
Directors of the General Partner of Seller authorizing the transactions
contemplated by the Agreement, such certified copy to show the dates of
adoption and that on the Closing Date the resolutions have not been
rescinded or modified, and (3) a Certificate of the Secretary of the
General Partner of Seller showing the incumbency of the officers of the
General Partner of Seller executing instruments on behalf of the
General Partner of Seller.
(j) Buyer shall deliver to Seller (1) a certificate signed by
a responsible officer of Buyer certifying that all of the
representations and warranties of Buyer made hereunder are true and
correct at and as of Closing, as if made on the Closing Date, (2) a
certified copy of the Board of Directors resolution of Buyer
authorizing the transaction contemplated by the Agreement, such
certified copy to show the date of adoption and that on the Closing
Date it has not been rescinded or modified, (3) a Certificate of the
Secretary of Buyer showing the incumbency of the officers of Buyer
executing instruments on behalf of Buyer, and (4) such documents as may
be reasonably requested by Seller demonstrating that Buyer is a
qualified operator with the Texas Railroad Commission and has posted
all bonds required by it.
(k) Seller shall deliver to Buyer all funds held in suspense
by Seller with respect to the Properties together with a report in
reasonable detail setting forth the reasons such funds are held in
suspense.
(l) Seller and Buyer shall execute, acknowledge and deliver
such transfer orders or letters in lieu thereof, as may be reasonably
requested and prepared by Buyer, directing all purchasers of production
to make payment to Buyer of proceeds attributable to production from
the Properties assigned to Buyer.
(m) Seller shall have delivered to Buyer a favorable opinion
of Murphy Mahon Keffler & Farrier, L.L.P., counsel to Seller, dated the
Closing Date, substantially in the form of Exhibit "M" hereof.
(n) Buyer shall have delivered to Seller a favorable opinion
of Rubin Baum Levin Constant & Friedman, counsel to Buyer, dated the
Closing Date, substantially in the form of Exhibit "N" hereof.
ARTICLE VIII
OBLIGATIONS AFTER CLOSING
8.01 - POST-CLOSING ADJUSTMENTS.
24
<PAGE> 30
(a) As soon as practicable after the Closing, but not later
than 60 days after the Closing, Seller shall prepare and deliver to
Buyer, in accordance with this Agreement and generally accepted
accounting principles, a statement ("Seller's Final Settlement
Statement") setting forth each adjustment to Purchase Price that was
not finally determined as of the Closing and showing the calculation of
such adjustments. As soon as practicable after receipt of Seller's
Final Settlement Statement, and no later than 90 days after the Closing
Date, Buyer shall deliver to the Seller a written report containing any
changes that Buyer proposes be made to Seller's Final Settlement
Statement. The parties shall undertake to agree with respect to the
amounts due pursuant to such Post-Closing adjustment not later than 135
days after the Closing Date. If Buyer fails to propose any changes to
the accounting set forth in the Seller's Final Settlement Statement, it
shall be deemed that Buyer agrees with Seller's Final Settlement
Statement. The final agreed price paid by Buyer to Seller for the
Properties after all adjustments is hereinafter referred to as the
"Final Purchase Price." The date upon which such agreement is reached
or upon which the Final Purchase Price is established, shall be herein
called the "Final Settlement Date".
(b) If Seller and Buyer are unable to agree upon the Final
Sales Price within 135 days from the Closing Date, Price Waterhouse,
independent public accountants, is designated to act as an arbitrator
and to decide all points of disagreement with respect to the Final
Sales Price, such decision to be binding upon both parties. If such
firm is unwilling or unable to serve in such capacity, Seller and Buyer
shall attempt to, in good faith, designate another acceptable person as
the sole arbitrator under this Section . If the parties are unable to
agree upon the designation of a person as substitute arbitrator, then
Seller or Buyer, or both of them, may in writing request the American
Arbitration Association to appoint the substitute arbitrator. The
arbitration shall be conducted under the Texas General Arbitration Act
and the rules of the American Arbitration Association to the extent
such rules do not conflict with the terms of such Act and terms hereof.
The costs and expenses of the arbitrator, whether the firm designated
above, or a third party appointed pursuant to the preceding sentence
shall be shared equally by Seller and Buyer. Within five (5) days after
the decision of the arbitrator, the Buyer or Seller, as the case may
be, shall promptly make a cash payment to the other equal to the sum as
may be found to be due as the Final Sales Price. Notwithstanding the
foregoing provisions of this Section 8.01(b), any questions with
respect to a Defective Interest or Defect Value shall be resolved
pursuant to the terms of Article V hereof.
8.02 - SALES TAXES AND RECORDING FEES. Buyer shall pay all sales taxes
occasioned by the sale of the Properties and all documentary, filing and
recording fees required in connection with the filing and recording of any
assignments.
8.03 - FURTHER ASSURANCES. After Closing, Seller and Buyer shall
execute, acknowledge and deliver or cause to be executed, acknowledged and
delivered such instruments and take such other action including payment of
monies as may be necessary or advisable to carry out their
25
<PAGE> 31
obligations under this Agreement and under any document, certificate or other
instrument delivered pursuant hereto or required by law.
8.04 - BUYER'S POST-CLOSING OBLIGATIONS.
(a) If at any time subsequent to the Closing, Buyer comes into
possession of money or property belonging to the Seller that was not
previously accounted for by credit or adjustment according to this
Agreement such money or other property shall be promptly delivered to
the Seller.
(b) Buyer assumes all liabilities attributable to the
Properties arising from, attributable to, or alleged to be arising from
or attributable to a violation of, or the failure to perform any
obligation imposed by any and all laws, statutes, ordinances, rules,
regulations, orders or determinations of any governmental authority
pertaining to health or environment, including Environmental Laws, in
effect where the Properties are located, regardless of when such
violation or failure to perform occurred or is deemed to have occurred,
EXCEPT THAT Buyer does not assume, and Seller shall retain any
liability attributable to compliance with, violation of, or the failure
to perform any obligation with respect to the Properties imposed by any
Environmental Laws (as defined below) provided that such liability,
when added to any liability of Rockland, L.P. under the Plant Agreement
for the violation of, or the failure to perform any obligation imposed
by any Environmental Law with respect to the assets covered by the
Plant Agreement, shall not exceed $8,000,000 in the aggregate (the
"Aggregate Liability Amount"), if and only if (i) such liability or
obligation occurred prior to the Effective Time, and (ii) Buyer has
provided written notice of such liability or obligation specifying the
location and nature of the such liability within one (1) year from the
Closing Date ("Environmental Liability"). Buyer does assume any
liability attributable to compliance with, violation of, or the failure
to perform any obligation with respect to the Properties imposed by,
any Environmental Laws which occurred prior to the Effective Time and
which is in excess of the Aggregate Liability Amount. In connection
with this assumption of liability by Buyer, Buyer agrees that prior to
Closing it will conduct such inspections of the properties as deemed
necessary by it to fully evaluate the condition of the Properties. As
used in this Agreement "Environmental Laws" means all laws, as they
exist on the date hereof, relating to (a) the control of any pollutant
or potential pollutant or protection of the air, water, land or the
environment, (b) solid, gaseous or liquid waste generation, handling,
treatment, storage, disposal or transportation, or (c) exposure to
hazardous, toxic, explosive, corrosive or other substances alleged to
be harmful. "Environmental Laws" shall include, but not be limited to,
the Clean Air Act, 42 U.S.C. Section 7401 et seq., the Clean Water Act
33 U.S.C. Section 1251 et seq., the Resource Conservation Recovery Act,
42 U.S.C. Section 6901 et seq., the Superfund Amendments and
Reauthorization Act, 42 U.S.C. Section 11001 et seq., the Water
Pollution Control Act, 33 U.S.C. Section 1251 et seq., the Safe
Drinking Water Act, 42 U.S.C. Section 300f et seq., and the
Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. Section 9601 et seq.
26
<PAGE> 32
(c) Except with respect to Environmental Liabilities as
defined in Section 8.04(b), Buyer assumes all duties and obligations of
the owner of the Properties which accrue or arise from and after the
Effective Time. Without limitation of the foregoing, Buyer assumes (i)
all obligations of Seller under the Contracts arising after the
Effective Time, (ii) all accounts payable and contractual obligations
incurred by Seller in accordance with this Agreement with respect to
the Properties attributable to periods on or after the Effective Time,
(iii) the obligation to make proper distribution of any suspense
accounts transferred to Buyer in accordance with standard industry
practice, regardless of whether the suspense funds accrued prior or
subsequent to the Effective Time, (iv) all obligations to properly
remove all pipe and equipment, close pits and to cleanup and restore
any property included in or affected by the Properties, and (v) all
liabilities and obligations resulting from injury or death to persons
and damage to property which occur after the Closing Date.
(d) If, pursuant to Section 4.01(d), Seller does not provide
notice to any third parties under preferential rights to purchase
provisions requesting waiver of such provisions, or if such request for
waiver is made by Seller prior to Closing, but the third party's waiver
of or election to exercise the preferential right is not due under the
applicable agreement until after Closing, the affected Property shall
be conveyed to and purchased by Buyer at Closing pursuant to the terms
of this Agreement subject to the terms of the applicable preferential
right to purchase. After Closing, Buyer shall, if necessary, provide
notice to the appropriate third parties requesting waiver of the
applicable preferential rights to purchase and/or comply with the terms
of the preferential rights to purchase that are properly exercised
after Closing, with Buyer receiving all consideration payable upon the
exercise of such preferential rights to purchase.
(e) For a period of one (1) year after the Closing Date,
Buyer, or its successor who expressly assumes its obligations and
liabilities hereunder, shall maintain its corporate or other legal
status and shall at all times own assets having a value net of
liabilities of not less than $50,000,000.
(f) BUYER AGREES TO INDEMNIFY, RELEASE, DEFEND AND HOLD
HARMLESS SELLER, ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
REPRESENTATIVES, AFFILIATES, SUBSIDIARIES, SUCCESSORS AND ASSIGNS FROM
AND AGAINST ANY CLAIMS, LIABILITIES, LOSSES, DAMAGES, COSTS AND
EXPENSES (INCLUDING WITHOUT LIMITATION, DAMAGE TO PROPERTY, OR INJURY
OR DEATH OF PERSONS, COURT COSTS, REASONABLE ATTORNEY'S FEES AND
EXPENSES OF EXPERTS) CAUSED BY, ARISING FROM OR ATTRIBUTABLE TO THE
BREACH BY BUYER OF ANY OF ITS OBLIGATIONS UNDER THIS AGREEMENT OR THE
OWNERSHIP OR OPERATION OF THE PROPERTIES AFTER THE EFFECTIVE DATE,
REGARDLESS OF WHETHER SUCH CLAIMS, LIABILITIES, LOSSES, DAMAGES, COSTS
OR EXPENSES ARE DUE IN WHOLE OR IN PART TO THE NEGLIGENCE OF SELLER.
27
<PAGE> 33
8.05 - SELLER'S POST-CLOSING OBLIGATIONS.
(a) If at any time subsequent to the Closing, Seller comes
into possession of money or property belonging to the Buyer that was
not previously accounted for by credit or adjustment according to this
Agreement such money or other property shall be promptly delivered to
the Buyer.
(b) Except for the obligations assumed by Buyer pursuant to
Section 8.04 hereof, Seller shall be responsible for and discharge (i)
Environmental Liabilities as defined in Section 8.04(b) hereof, and in
connection therewith, Buyer shall allow Seller reasonable access to the
Properties affected by the Environmental Liabilities to conduct
clean-up and remedial operations, and (ii) all other claims, costs,
expenses and liabilities with respect to the Properties which accrue or
relate to the times prior to the Effective Time, including claims and
liabilities for unpaid royalties that are not included in the suspense
funds transferred to Buyer.
(c) For a period of one (1) year after the Closing Date,
Seller Rockland, L..P., or any of their respective successors who
expressly assumes its obligations and liabilities hereunder, shall
maintain its partnership or other legal status and shall at all times
own assets having a value net of liabilities of not less than
$50,000,000.
(d) If Seller is unable to transfer to Buyer any seismic,
geological, geochemical or geophysical data (the "Seismic Data")
concerning or relating to the Properties because of legal constraints,
obligations of confidence or prior agreements with third parties,
Seller shall, upon request by Buyer, make such Seismic Data available
for review by Seller to the extent that such review is also not
prohibited by such restrictions.
(e) SELLER AGREES TO INDEMNIFY, RELEASE, DEFEND AND HOLD
HARMLESS BUYER, ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
REPRESENTATIVES, AFFILIATES, SUBSIDIARIES, SUCCESSORS AND ASSIGNS FROM
AND AGAINST ANY CLAIMS, LIABILITIES, LOSSES, DAMAGES, COSTS AND
EXPENSES (INCLUDING WITHOUT LIMITATION, DAMAGE TO PROPERTY, OR INJURY
OR DEATH OF PERSONS, COURT COSTS, REASONABLE ATTORNEY'S FEES AND
EXPENSES OF EXPERTS) CAUSED BY, ARISING FROM OR ATTRIBUTABLE TO THE
BREACH BY SELLER OF ANY OF ITS OBLIGATIONS UNDER THIS AGREEMENT, THE
ENVIRONMENTAL LIABILITIES AS DEFINED IN SECTION 8.04(b), OR THE
OWNERSHIP OR OPERATION OF THE PROPERTIES PRIOR TO THE EFFECTIVE TIME
(EXCEPT WITH RESPECT TO LIABILITIES EXPRESSLY ASSUMED BY BUYER UNDER
THIS AGREEMENT).
28
<PAGE> 34
8.06 - FILES AND RECORDS. As soon as practicable after Closing, Buyer
and Seller shall arrange for the delivery of the Records to Buyer. For a period
of two years after the Closing Date Buyer shall allow Seller access to the
Records during Buyer's normal business hours after Closing for the purpose of
filing or amending a tax return or for any other legitimate business purpose;
provided that any copies of Records made by Seller shall be at the sole expense
of Seller.
8.07 - DISCLAIMERS OF REPRESENTATIONS AND WARRANTIES. The express
representation and warranties of Seller contained in this Agreement are
exclusive and are in lieu of all other representations and warranties, express,
implied or statutory. BUYER ACKNOWLEDGES THAT, EXCEPT FOR SELLER'S EXPRESS
REPRESENTATIONS, WARRANTIES AND AGREEMENTS CONTAINED HEREIN, SELLER HAS NOT
MADE, AND SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES, AND BUYER HEREBY
EXPRESSLY WAIVES ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT COMMON
LAW, BY STATUTE OR OTHERWISE RELATING TO (I) THE ENVIRONMENTAL CONDITION OF THE
ASSETS, (II) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (III) ANY
IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (IV) ANY
IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, (V)
ANY RIGHTS OF PURCHASERS UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF
CONSIDERATION, (VI) ANY AND ALL IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LAW
AND (VII) THE QUALITY, QUANTITY OR VOLUME OF ANY OIL, AND GAS RESERVES; IT BEING
THE EXPRESS INTENTION OF BOTH BUYER AND SELLER THAT THE PERSONAL PROPERTY,
EQUIPMENT AND FIXTURES INCLUDED WITHIN THE ASSETS ARE TO BE CONVEYED TO BUYER IN
THEIR PRESENT CONDITION AND STATE OF REPAIR, "AS IS" AND "WHERE IS" WITH ALL
FAULTS, AND THAT BUYER HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS BUYER
DEEMS APPROPRIATE. SELLER AND BUYER AGREE THAT, TO THE EXTENT REQUIRED BY
APPLICABLE LAW TO BE EFFECTIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED
IN THIS SECTION ARE "CONSPICUOUS" DISCLAIMERS FOR THE PURPOSES OF ANY APPLICABLE
LAW, RULE OR ORDER.
8.08 - WAIVER OF DTPA. It is the intent of the parties that Buyer's
rights and remedies with respect to this transaction and with respect to all
acts or practices of Seller, past, present or future, in connection with this
transaction shall be governed by legal principles other than the Texas Deceptive
Trade Practices - Consumer Protection Act, Tex. Bus. & Ann. Section 17.41 et
seq. (Vernon 1987 and Supp. 1994) (the "DTPA") or any similar statute of any
jurisdiction that may be applicable to the transactions contemplated hereby. As
such, Buyer hereby waives the applicability of the DTPA or any similar statute
to this transaction and any and all duties, rights or remedies that might be
imposed by the DTPA or any similar statute; provided, however, Buyer does not
waive Section 17.555 of the DTPA. Buyer acknowledges, represents and warrants
that it is purchasing the assets covered by this Agreement for commercial or
business matters; that it is
29
<PAGE> 35
able to evaluate the merits and risks of a transaction such as this; and that it
is not in a significantly disparate bargaining position with Seller. Buyer
expressly recognizes that the price for which Seller has agreed to sell the
assets and perform its obligations under this Agreement has been predicated upon
the inapplicability of the DTPA or any similar statute and this waiver of the
DTPA and any similar statute. Buyer further recognizes that Seller, in
determining to proceed with the entering into of this Agreement has expressly
relied on the provisions of this Section 8.08.
8.09 - RESIGNATION OF OPERATOR. On the Closing Date, Seller shall
resign as operator of all of the Properties it operates, as provided in any
applicable operating agreement, and shall use reasonable efforts to secure the
consents necessary for Buyer to become operator of the Properties previously
operated by Seller. With respect to those Properties as to which Buyer becomes
operator, Seller shall relinquish operations to Buyer on the Closing Date. At
the time Seller relinquishes operations to Buyer, Seller shall deliver to Buyer
all amounts payable to third parties out of production attributable to the
Properties and held in suspense by Seller.
8.10 - REGISTRATION OBLIGATIONS OF BUYER.
(a) Shelf Registration. Within thirty (30) days from the
Closing Date, Buyer shall prepare and file with the Securities and Exchange
Commission, or any successor body thereto (the "Commission"), a shelf
registration statement on Form S-3 or other appropriate form (the "Registration
Statement") pursuant to Rule 415 under the Securities Act of 1933, as amended,
and all rules and regulations under such Act (the "Securities Act") covering the
Buyer's Stock.
(b) Registration Procedures. In connection with the
Registration Statement, Buyer shall use its best efforts to effect the
registration of the Buyer's Stock, and pursuant thereto, Buyer shall as
expeditiously as possible:
(i) prepare and file with the Commission the
Registration Statement on the appropriate form with respect to such Buyer's
Stock and use all reasonable efforts to cause the Registration Statement to
become effective as soon as legally practicable following its filing (provided
that before filing a Registration Statement or prospectus or any amendments or
supplements thereto, Buyer will furnish to the counsel selected by Seller copies
of all such documents proposed to be filed, which documents will be subject to
the review of such counsel);
(ii) prepare and file with the Commission such
amendments and supplements to the Registration Statement and the prospectus used
in connection therewith as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by the
Registration Statement in accordance with the intended methods of disposition by
Sellers set forth in the Registration Statement;
30
<PAGE> 36
(iii) furnish to Seller such number of copies of the
Registration Statement, each amendment and supplement thereto, the prospectus
included in the Registration Statement (including each preliminary prospectus)
and such other documents as Seller may reasonably request in order to facilitate
the disposition of the Buyer's Stock;
(iv) use its reasonable efforts to register or
qualify the Buyer's Stock under such other securities or blue sky laws of such
jurisdictions within the United States as Seller reasonably requests and do any
and all other acts and things which may be reasonably necessary or advisable to
enable Seller to consummate the disposition in such jurisdictions of the Buyer's
Stock (provided that Buyer will not be required to qualify generally to do
business or file any general consent to service of process in any jurisdiction
where it would not otherwise be required to qualify or file but for this
subparagraph);
(v) notify Seller, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in the
Registration Statement contains an 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 not misleading, and, at the request of Seller, Buyer will
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of the Buyer's Stock, such prospectus will not
contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading;
(vi) use its reasonable efforts to cause all of the
Buyer's Stock to be listed on each securities exchange on which similar
securities issued by Buyer are then listed;
(vii) provide a transfer agent and registrar (which
may be Buyer) for all of the Buyer's Stock not later than the effective date of
the Registration Statement;
(viii) enter into such customary agreements
(including underwriting agreements in customary form) and take all such other
actions as Seller reasonably requests in order to expedite or facilitate the
disposition of the Buyer's Stock (including, without limitation, effecting a
stock split or a combination of shares);
(ix) make available for inspection by Seller, any
underwriter participating in any disposition pursuant to the Registration
Statement and any attorney, accountant or other agent retained by Seller or
underwriter, all financial and other records (as may be reasonably requested),
pertinent corporate documents and properties of Buyer as shall be reasonably
necessary to enable them to exercise their due diligence responsibility, and
cause Buyer's officers, directors,, employees and independent accountants to
supply all information reasonably requested by Seller, underwriter, attorney,
accountant or agent in connection with the Registration Statement; provided,
however, Seller agrees that information obtained by it as a result of such
inspections which is deemed confidential shall not be used by it as the basis
for any market transaction in securities of the company unless and until such
information is made
31
<PAGE> 37
generally available to the public and Seller shall cause any attorney,
accountant or agent retained by Seller to keep confidential any information so
deemed;
(x) otherwise use reasonable efforts to comply with
all applicable rules and regulations of the Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least 12 months beginning with the first day of
Buyer's first full calendar quarter after the effective date of the Registration
Statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder;
(ix) in the event of the issuance of any stop order
suspending the effectiveness of the Registration Statement, or of any order
suspending or preventing the use of any related prospectus or suspending the
qualification of any common stock included in the Registration Statement for
sale in any jurisdiction, Buyer will use reasonable efforts promptly to obtain
the withdrawal of such order;
(xii) use reasonable efforts to cause the Buyer's
Stock covered by the Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to enable
Seller to consummate the disposition of the Buyer's Stock;
(c) Registration Expenses. Buyer shall bear and pay all
expenses in connection with the registration effected pursuant to this Section
8.10, including, without limitation, (i) all expenses incident to Buyer's
performance of or compliance with the registration rights granted hereunder,
including (without limitation) all registration and filing fees, fees and
expenses of compliance with securities and blue sky laws, printing and engraving
expenses, messenger, telephone and delivery expenses, and fees and disbursements
of counsel for Buyer, all independent certified public accountants and
underwriters (excluding discounts and commissions, which shall be the obligation
of Seller), (ii) the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the securities to be registered on
each of the securities exchange on which similar securities issued by Buyer are
then listed, and (iii) in connection with the registration hereunder, the
reasonable fees and disbursements of counsel chosen by Seller.
(d) Restriction on Sales of Buyer's Stock.. If, in the written
opinion of Buyer's managing underwriter for the Public Offering, the sale by
Seller of any of Buyer's Stock during the offering period for the Public
Offering could have a material adverse affect on the Public Offering, then
Seller shall not sell or cause to be sold any of the Buyer's Stock for such
period that is recommended in the written opinion of Buyer's managing
underwriter, provided that such period shall not exceed 45 days after the
effective date of the registration statement for the Public Offering.
(e) INDEMNIFICATION. BUYER SHALL INDEMNIFY AND HOLD HARMLESS,
WITH RESPECT TO THE REGISTRATION STATEMENT FILED BY IT, TO THE FULL EXTENT
PERMITTED BY LAW, SELLER AND EACH OTHER
32
<PAGE> 38
PERSON OR ENTITY, IF ANY, WHO CONTROLS SELLERS WITH IN THE MEANING OF SECTION 15
OF THE SECURITIES ACT (COLLECTIVELY, "HOLDER INDEMNIFIED PARTIES") AGAINST ALL
LOSSES, CLAIMS, DAMAGES, LIABILITIES AND EXPENSES, JOINT OR SEVERAL, TO WHICH
ANY SUCH HOLDER INDEMNIFIED PARTY MAY BECOME SUBJECT UNDER THE SECURITIES ACT,
THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED, AND ALL RULES AND
REGULATIONS UNDER SUCH ACT, AT COMMON LAW OR OTHERWISE, INSOFAR AS SUCH LOSSES,
CLAIMS, DAMAGES, LIABILITIES OR EXPENSES (OR ACTIONS OR PROCEEDINGS, WHETHER
COMMENCED OR THREATENED, IN RESPECT THEREOF) ARISE OUT OF OR ARE BASED UPON (I)
ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT CONTAINED IN
THE REGISTRATION STATEMENT AS CONTEMPLATED HEREBY 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, (II) ANY UNTRUE
STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT CONTAINED IN ANY
PRELIMINARY, FINAL OR SUMMARY PROSPECTUS, TOGETHER WITH THE DOCUMENTS
INCORPORATED BY REFERENCE THEREIN (AS AMENDED OR SUPPLEMENTED IF BUYER SHALL
HAVE FILED WITH THE COMMISSION 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 IN ORDER TO MAKE THE STATEMENTS THEREIN, IN THE
LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING, OR (III)
ANY VIOLATION BY BUYER OF ANY FEDERAL, STATE OR COMMON LAW RULE OR REGULATION
APPLICABLE TO BUYER AND RELATING TO ACTION OF OR INACTION BY BUYER IN CONNECTION
WITH ANY SUCH REGISTRATION; AND IN EACH SUCH CASE, BUYER SHALL REIMBURSE EACH
SUCH HOLDER INDEMNIFIED PARTY FOR ANY REASONABLE LEGAL OR OTHER EXPENSES
INCURRED BY ANY OF THEM IN CONNECTION WITH INVESTIGATING OR DEFENDING ANY SUCH
LOSS, CLAIM, DAMAGE, LIABILITY, EXPENSE, ACTION OR PROCEEDING; PROVIDED,
HOWEVER, THAT BUYER SHALL NOT BE LIABLE TO ANY SUCH HOLDER INDEMNIFIED PARTY IN
ANY SUCH CASE TO THE EXTENT, THAT ANY SUCH LOSS, CLAIM, DAMAGE, LIABILITY OR
EXPENSE (OR ACTION OR PROCEEDING, WHETHER COMMENCED OR THREATENED, IN RESPECT
THEREOF) ARISES OUT OF OR IS BASED UPON ANY UNTRUE STATEMENT OR ALLEGED UNTRUE
STATEMENT OR OMISSION OR ALLEGED OMISSION MADE IN THE REGISTRATION STATEMENT OR
AMENDMENT THEREOF OR SUPPLEMENT THERETO OR IN ANY SUCH PRELIMINARY, FINAL OR
SUMMARY PROSPECTUS IN RELIANCE UPON AND IN CONFORMITY WITH WRITTEN INFORMATION
FURNISHED TO BUYER BY OR ON BEHALF OF ANY SUCH HOLDER INDEMNIFIED PARTY FOR USE
IN THE PREPARATION THEREOF. SUCH INDEMNITY AND REIMBURSEMENT OF EXPENSES AND
33
<PAGE> 39
OTHER OBLIGATIONS SHALL REMAIN IN FULL FORCE AND EFFECT REGARDLESS OF ANY
INVESTIGATION MADE BY OR ON BEHALF OF THE HOLDER INDEMNIFIED PARTIES AND SHALL
SURVIVE THE TRANSFER OF SUCH SECURITIES BY SUCH HOLDER INDEMNIFIED PARTIES.
8.11 - SURVIVAL. The representations, warranties, covenants, agreements
and indemnities included or provided in Article III, in Article IV, in Section
5.03(f), this Article VIII, in Article X, in Article XI, in Article XII, and in
the assignments and agreements to be delivered at the Closing shall survive the
Closing for a period of one (1) year after the Closing Date. All other
representations, warranties, covenants, certificates, instruments and agreements
contained in or referred to in this Agreement shall terminate at Closing.
ARTICLE IX
TERMINATION OF AGREEMENT
9.01 - TERMINATION. This Agreement and the transactions contemplated
hereby may be terminated in the following instances:
(a) by Seller if the conditions set forth in Section 6.01 are
not satisfied in all material respects or waived prior to the Closing
Date;
(b) by Buyer if the conditions set forth in Section 6.02 are
not satisfied in all material respects or waived prior to the Closing
Date;
(c) By Seller if pursuant to Section 5.04 hereof Buyer gives
Seller notice of Defective Interests having a Defect Value equal to or
greater than ten percent (10%) of the Purchase Price and Buyer asserts
a reduction in the Purchase Price according to Section 2.02(b)(3)
hereof that is in excess of ten percent (10%) of the Purchase Price;
(d) by Seller if Buyer does not deposit all of the Earnest
Money with the Escrow Agent before 2:00 p.m. on January 2, 1997;
(e) By Seller if Buyer does not provide to Seller by 5:00 p.m.
on January 2, 1997, a letter from a reputable financial institution
that such financial institution is highly confident that Buyer can
obtain financing for the cash portion of the Purchase Price at or prior
to the Closing; or
(f) at any time by the mutual written agreement of Buyer and
Seller.
9.02 - LIABILITIES. Nothing contained in this Agreement shall limit
Seller's or Buyer's legal or equitable remedies including, without limitation,
damages for the breach or failure of any representation, warranty, covenant or
agreement contained herein and the right to enforce specific
34
<PAGE> 40
performance of this Agreement; provided however, (i) neither party hereto shall
be liable to the other for consequential damages; (ii) if all conditions
precedent to the obligation of Buyer to close have been satisfied, but Buyer
refuses to close, Seller shall have the option to either pursue specific
performance, receive the Earnest Money and retain Buyer's Stock issued under
Section 7.01(ii) as liquidated damages and terminate this Agreement or pursue
its actual damages, and if Seller receives the Earnest Money and retains Buyer's
Stock issued under Section 7.01(ii) as liquidated damages pursuant to Article X
hereof, then Seller shall have no further recourse against Buyer; (iii) if all
conditions precedent to the obligation of Seller to close have been satisfied,
but Seller refuses to close, Buyer shall have the option to either pursue
specific performance, receive the Earnest Money and Buyer's Stock issued under
Section 7.01(ii) as liquidated damages and terminate this Agreement or pursue
its actual damages, and if Buyer receives the Earnest Money and Buyer's Stock
issued under Section 7.01(ii) as liquidated damages pursuant to Article X
hereof, then Buyer shall have no further recourse against Seller; and (iv)
Seller shall have no liability to Buyer if Buyer terminates this Agreement
because any representation or warranty made by Seller herein is incorrect.
ARTICLE X
EARNEST MONEY
Upon the execution of this Agreement, Buyer has deposited into escrow
with Bank One, Texas, N.A., in Fort Worth, Texas (the "Escrow Agent"), the sum
of money equal to Thirty Five Million and No/100 Dollars ($35,000,000) as
earnest money (the "Earnest Money"). At Closing, the Earnest Money, less any
costs or fees incurred, plus any interest earned thereon shall be applied
against the Purchase Price. If this transaction fails to close due to any breach
by Buyer of the terms, conditions, representations and warranties found in this
Agreement, then at the election of Seller, the Earnest Money and all interest
earned thereon may be delivered to Seller as liquidated damages. If this
transaction fails to close, due to any breach by Seller of the terms,
conditions, representations and warranties found in this Agreement, then the
Earnest Money and all interest earned thereon shall be delivered to Buyer. If
this transaction fails to close for any other reason whatsoever, then the
Earnest Money and all interest earned thereon shall be delivered to Buyer.
Seller and Buyer agree to give the Escrow Agent joint instructions for the
delivery of the Earnest Money, together with any interest earned thereon, in
accordance with the terms of this Agreement
ARTICLE XI
INDEMNIFICATION
11.01 - RIGHT TO EMPLOY COUNSEL.
(a) When any claim, action, or suit shall be filed or asserted
in writing against any party which is indemnifiable under the terms of
this Agreement, the indemnified party shall promptly notify the
indemnifying party of the same in writing, specifying in detail the
35
<PAGE> 41
basis of such claim and the facts pertaining thereto, and the
indemnifying party shall, at its option, have the right to assume the
defense thereof or participate in the defense thereof and to employ its
own legal counsel in connection with such defense. Failure of the
indemnified party to notify the indemnifying party of such claim,
action, or suit within twenty (20) calendar days after notice to the
indemnified party of such claim, action, or suit shall constitute a
waiver of its rights under this Article, unless such failure to notify
within such time period shall not prejudice the rights of the
indemnifying party in respect of such claim, action or suit, in which
case prompt notification as provided above shall be sufficient.
(b) The indemnified party shall have the right to employ
counsel separate from counsel employed by the indemnifying party in any
such action and to participate in the defense thereof, but the fees and
expenses of such counsel employed by the indemnified party shall be at
the sole expense of the indemnified party unless (i) the indemnifying
party shall have elected not or shall have failed to assume or
participate in the defense thereof, (ii) the employment thereof has
been specifically authorized by the indemnifying party in writing, or
(iii) the parties to any such action (including any impleaded parties)
include both the indemnifying and indemnified party, and the
indemnified party shall have been advised by its counsel that there may
be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party (in any
which case (i), (ii) or (iii) above the indemnifying party shall not
have the right to assume the defense of such action on behalf of the
indemnified party and the fees and expenses of such counsel employed by
the indemnified party shall be at the sole expense of the indemnifying
party).
(c) Prior to effectuating any settlement of any such action or
proceeding, the indemnified party shall furnish the indemnifying party
with written notice of any proposed settlement in sufficient time to
allow the indemnifying party to act thereon. The indemnifying party
shall not be liable for any settlement of any such action or proceeding
effected without the written consent of the indemnifying party. The
indemnifying party shall not effect a settlement of any claim without
the written consent of the indemnified party unless the indemnifying
party secures the complete release of the indemnified party as a part
of such settlement.
11.02 - CLAIM REIMBURSEMENT AND REDUCTION.
(a) Should the indemnified party realize any benefit,
including any tax benefit, resulting from any loss, liability, cost or
damage for which such indemnified party has been indemnified under this
Article, such indemnified party shall reimburse the indemnifying party,
at the time such benefit is realized, an amount equal to the dollar
amount of such benefit so realized.
(b) Any claim shall be reduced to the extent of any third
party insurance or condemnation payment actually received by the
indemnified party or, alternatively, at the
36
<PAGE> 42
option of the indemnified party, the rights of the indemnified party
against any insurer or governmental unit with respect to such claim
shall be assigned to the indemnifying party.
ARTICLE XII
GENERAL
12.01 - EXHIBITS. All Exhibits are hereby incorporated in this
Agreement by reference and constitute a part of this Agreement. Each party to
this Agreement and its counsel has received a complete set of Exhibits prior to
and as of the execution of this Agreement.
12.02 - EXPENSES. All fees, costs and expenses incurred by Buyer or
Seller in negotiating this Agreement or in consummating the transactions
contemplated by this Agreement shall be paid by the party incurring the same
including, without limitation, legal and accounting fees, costs and expenses.
12.03 - NOTICES. All notices or communications required or permitted
under this Agreement shall be in writing, and any notices or communications
hereunder shall be deemed to have been duly made if delivered by (i) hand, (ii)
overnight delivery service, (iii) telecopy, or (iv) three days after being
placed in first class certified mail, postage prepaid, with return receipt
requested to the following addresses:
All notices to Seller shall be delivered to:
Cometra Energy, L.P.
500 Throckmorton, Suite 2500
Fort Worth, Texas 76102
Telecopy: 817/877-4464
All notices to Buyer shall be delivered to:
Lomak Petroleum, Inc.
500 Throckmorton, Suite 2100
Fort Worth, Texas 76102
Telecopy: 817/870-2316
The address at which any party hereto is to receive notice may be changed from
time to time by such party by giving notice of the new address to all other
parties hereto. Any notice or communication given by telecopy shall be promptly
confirmed by delivery of a copy of such notice or communication by hand or
overnight delivery service.
12.04 - AMENDMENTS. This Agreement may not be amended nor any rights
hereunder waived except by an instrument in writing signed by the party to be
charged with such amendment or waiver and delivered by such party to the party
claiming the benefit of such amendment or waiver.
37
<PAGE> 43
12.05 - HEADINGS. The headings of the articles and sections of this
Agreement are for guidance and convenience of reference only and shall not limit
or otherwise affect any of the terms or provisions of this Agreement.
12.06 - COUNTERPARTS. This Agreement may be executed by Buyer and
Seller in any number of counterparts, each of which shall be deemed an original
instrument, but all of which together shall constitute but one and the same
instrument.
12.07 - REFERENCES. References made in this Agreement, including use of
a pronoun, shall be deemed to include where applicable, masculine, feminine,
singular or plural, individuals, partnerships or corporations. As used in this
Agreement, "person" shall mean any natural person, corporation, partnership,
trust, estate or other entity.
12.08 - GOVERNING LAW. This Agreement and the transactions contemplated
hereby shall be construed in accordance with, and governed by, the laws of the
State of Texas.
12.09 - ENTIRE AGREEMENT. This Agreement (including the Exhibits
hereto) constitutes the entire understanding among the parties with respect to
the subject matter hereof, superseding all negotiations, prior discussions and
prior agreements and understandings relating to such subject matter.
12.10 - PARTIES IN INTEREST. This Agreement shall be binding upon and
shall inure to the benefit of, the parties hereto and, except as otherwise
prohibited, their respective successors and assigns; and except as otherwise
stated herein, nothing contained in this Agreement, or implied herefrom, is
intended to confer upon any other person or entity any benefits, rights or
remedies.
12.11 - ASSIGNMENTS. Neither Buyer nor Seller may assign all or any
portion of their respective rights or delegate any portion of their duties
hereunder without the prior written consent of the other, which consent shall
not be unreasonably withheld. Provided, however, that Buyer may assign this
Agreement and its rights and duties hereunder to a wholly owned limited
partnership, limited liability company or corporation, in which case, Buyer's
Stock shall remain common stock to be issued by Lomak Petroleum, Inc.
12.12 - PUBLIC ANNOUNCEMENTS. The parties hereto agree that prior to
making any public announcement or statement with respect to the transactions
contemplated by this Agreement, the party desiring to make such public
announcement or statement shall consult with the other party hereto and exercise
their best efforts to agree upon the text of a joint public announcement or
statement to be made solely by Seller or Buyer, as the case may be; provided,
however, if Seller or Buyer is required by law to make such public announcement
or statement, then the same may be made without the approval of the other party.
The opinion of counsel of either party shall be conclusive evidence of such
requirement by law.
12.13 - NOTICES AFTER CLOSING. Buyer and Seller hereby agree that each
party shall notify the other of its receipt, after the Closing Date, of any
instrument, notification or other document affecting the Properties while owned
by such other party.
38
<PAGE> 44
12.14 - SEVERABILITY. If a court of competent jurisdiction determines
that any clause or provision of this agreement is void, illegal or
unenforceable, the other clauses and provisions of the Agreement shall remain in
full force and effect and the clauses and provisions that are determined to be
void, illegal or unenforceable shall be limited so that they shall remain in
effect to the extent permissible by law.
12.15 - TIME IS OF THE ESSENCE. It is understood and agreed
that time is of the essence in this Agreement.
39
<PAGE> 45
IN WITNESS WHEREOF, the parties have executed or caused the Agreement
to be executed as of the day and year first above written.
COMETRA ENERGY, L.P.
a Texas limited partnership
By: AVENEG, INC., a Delaware corporation,
its General Partner
By:___________________________
Mark W. Young, President
COMETRA PRODUCTION COMPANY, L.P.,
a Texas limited partnership
By: GRAND LACS, INC., a Delaware
corporation, its General Partner
By:______________________________
Mark W. Young, President
SELLER
LOMAK PETROLEUM, INC.,
a Delaware corporation
By: ______________________________
John Pinkerton, President
BUYER
<PAGE> 46
FIRST AMENDMENT TO PURCHASE
AND SALE AGREEMENT
This FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT (the "Amendment")
is made and entered into as of the 10th day of January, 1997, by and among
COMETRA ENERGY, L.P. ("CE"), a Texas limited partnership, COMETRA PRODUCTION
COMPANY, L.P. ("CPC"), a Texas limited partnership (CE and CPC are jointly
referred to herein as "Seller") and LOMAK PETROLEUM, INC., a Delaware
corporation ("Buyer").
RECITALS
A. Seller and Buyer have entered into that certain Purchase and Sale
Agreement dated December 31, 1996 (the "Agreement").
B. Seller and Buyer desire to amend the Agreement as set forth herein
in order to, among other things, extend the date that the Buyer's Stock will be
issued to Seller if the issuance of the Buyer's Stock will require filings to be
made under the HSR Act.
C. Capitalized terms used in this Amendment are defined in the
Agreement, as amended hereby, unless otherwise stated in this Amendment.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound, agree as
follows:
ARTICLE I
Amendments
1.01. Amendment to Section 4.01(g). Effective as of the date hereof,
Section 4.01(g) of the Agreement is hereby deleted in its entirety and the
following shall be substituted therefor:
"(g) If on February 14, 1997 it is determined that the shares of stock
comprising the Buyer's Stock represent more than ten percent (10%) of the
outstanding voting securities of Buyer, then as soon as practicable, but before
February 19, 1997, Seller will file with the Federal Trade Commission and the
Department of Justice the notification and report form required for the issuance
of the Buyer's Stock and will as promptly as possible furnish any supplemental
information which may be reasonably requested in connection therewith pursuant
to the HSR Act. Seller shall bear one-half (1/2) of the filing fees associated
with filings made under the HSR Act and paid by Buyer or Seller."
1
<PAGE> 47
1.02. Amendment to Section 4.02(b). Effective as of the date hereof,
Section 4.02(b) of the Agreement is hereby deleted in its entirety and the
following shall be substituted therefor:
"(b) If on February 14, 1997 it is determined that the shares of stock
comprising the Buyer's Stock represent more than ten percent (10%) of the
outstanding voting securities of Buyer, then as soon as practicable, but before
February 19, 1997, Buyer will file with the Federal Trade Commission and the
Department of Justice the notification and report form required for the issuance
of the Buyer's Stock and will as promptly as possible furnish any supplemental
information which may be reasonably requested in connection therewith pursuant
to the HSR Act. Buyer shall bear one-half (1/2) of the filing fees associated
with filings made under the HSR Act and paid by Buyer or Seller."
1.03. Deletion of Section 6.01(e). Effective as of the date hereof,
Section 6.01(e) of the Agreement is hereby deleted in its entirety.
1.04. Deletion of Section 6.02(e). Effective as of the date hereof,
Section 6.02(e) of the Agreement is hereby deleted in its entirety.
1.05. Amendment to Subclause (ii) of Section 7.01. Effective as of the
date hereof, subclause (ii) of Section 7.01 of the Agreement is hereby deleted
in its entirety and the following shall be substituted therefor:
"(ii) February 21, 1997 if the SEC gives notice to Buyer that it will
not review Buyer's Public Offering and as of February 14, 1997 Buyer is actively
engaged in soliciting offers to purchase the securities to be offered in the
Public Offering and Buyer has requested in writing on or before February 14,
1997 an extension to the Closing Date and Buyer has paid to Seller the sum of
$500,000 in cash (which shall be in addition to the Purchase Price) on or prior
to February 14, 1997; notwithstanding the extension of the Closing Date under
this subclause (ii) to February 21, 1997, on February 14, 1997, Buyer shall
issue to Seller the Buyer's Stock if the shares comprising Buyer's Stock
represent less than ten percent (10%) of the outstanding voting securities of
Buyer as of February 14, 1997; provided, however, if the shares comprising the
Buyer's Stock represent ten percent (10%) or more of the outstanding voting
securities of Buyer as of February 14, 1997, the Buyer's Stock shall be issued
to Seller (whether before or after the Closing Date) on the earlier to occur of
(a) one (1) business day following the expiration or termination of the
applicable waiting period (and any extensions thereof) under the HSR Act that is
specifically applicable to the issuance of the Buyer's Stock to Seller or (b)
one (1) business day after the date that the securities are issued under Buyer's
Public Offering if, as of such date, the shares comprising the Buyer's Stock
represent less than ten percent (10%) of the outstanding voting securities of
Buyer, inclusive of the securities issued under Buyer's Public Offering."
2
<PAGE> 48
1.06. Deletion of Subclause (iv) of Section 7.01. Effective as of the
date hereof, subclause (iv) of Section 7.01 of the Agreement is hereby deleted
in its entirety.
1.07. Amendment to Section 7.02(e). Effective as of the date hereof,
Section 7.02(e) of the Agreement is hereby deleted in its entirety and the
following shall be substituted therefor:
"(e) Unless previously delivered to Seller under Section 7.01(ii) or
unless Section 8.04(g) shall apply after Closing, Buyer shall deliver to Seller
a certificate or certificates in definitive form representing the Buyer's Stock
to be issued pursuant to Section 2.01 hereof."
1.08. Inclusion of Section 8.04(g). Effective as of the date hereof,
the following is hereby added as Section 8.04(g) of the Agreement:
"(g) If the Buyer's Stock is not issued to Seller prior to Closing
according to Section 7.01(ii) or at Closing according to Section 7.02(e), then
after Closing (or if Closing does not occur and this Agreement is terminated,
then according to subclause (ii) of Section 9.02, if applicable), Buyer shall
deliver to Seller a certificate or certificates in definitive form representing
the Buyer's Stock on the earlier to occur of (a) one (1) business day following
the expiration or termination of the applicable waiting period (and any
extension thereof) under the HSR Act that is specifically applicable to the
issuance of the Buyer's Stock to Seller or (b) one (1) business day after the
date the securities are issued under Buyer's Public Offering if as of such date
the shares comprising the Buyer's Stock represent less than ten percent (10%) of
the outstanding voting securities of Buyer, inclusive of the securities issued
under Buyer's Public Offering."
1.09. Amendment to Subclauses (ii) and (iii) of Section 9.02. Effective
as of the date hereof, subclauses (ii) and (iii) of Section 9.02 of the
Agreement are hereby deleted in their entirety and the following shall be
substituted therefor:
"(ii) if all conditions precedent to the obligation of Buyer to close
have been satisfied, but Buyer refuses to close, Seller shall have the option to
either pursue specific performance, receive the Earnest Money and retain Buyer's
Stock previously issued under Section 7.01(ii) or to be issued under Section
8.04(g) as liquidated damages and terminate this Agreement or pursue its actual
damages, and if Seller receives the Earnest Money and retains Buyer's Stock
previously issued under Section 7.01(ii) or to be issued under Section 8.04(g)
as liquidated damages pursuant to Article X hereof, then Seller shall have no
further recourse against Buyer; (iii) if all conditions precedent to the
obligation of Seller to close have been satisfied, but Seller refuses to close,
Buyer shall have the option to either pursue specific performance, receive the
Earnest Money and Buyer's Stock previously issued under Section 7.01(ii) or to
be issued under Section 8.04(g) as liquidated damages and terminate this
Agreement or pursue its actual damages, and if Buyer receives the Earnest Money
and Buyer's Stock previously issued under Section
3
<PAGE> 49
7.01(ii) or to be issued under Section 8.04(g) as liquidated damages pursuant to
Article X hereof, then Buyer shall have no further recourse against Seller."
ARTICLE II
Ratifications
2.01. Ratifications. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Agreement, and, except as expressly modified and superseded by this
Amendment, the terms and provisions of the Agreement are ratified and confirmed
and shall continue in full force and effect. Buyer and Seller agree that the
Agreement, as amended hereby, shall continue to be legal, valid, binding and
enforceable in accordance with its terms.
ARTICLE III
Miscellaneous Provisions
3.01. Reference to Agreement. The Agreement and any and all other
agreements, documents or instruments now or hereafter executed and delivered
pursuant to the terms of the Agreement, as amended hereby, are hereby amended so
that any reference in the Agreement and such other documents to the Agreement
shall mean a reference to the Agreement as amended hereby.
3.02. Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
3.03. Counterparts. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
3.04. Headings. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
3.05 Applicable Law. THIS AMENDMENT SHALL BE DEEMED TO HAVE BEEN MADE
AND TO BE PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS.
4
<PAGE> 50
IN WITNESS WHEREOF, the parties have executed or caused this Amendment
to be executed as of the day and year first above written.
COMETRA ENERGY, L.P.,
a Texas limited partnership
By: AVENEG, INC., a Delaware corporation,
its General Partner
By: ______________________________
Mark W. Young, President
COMETRA PRODUCTION COMPANY, L.P.,
a Texas limited partnership
By: GRAND LACS, INC., a Delaware
corporation, its General Partner
By: ______________________________
Mark W. Young, President
SELLER
LOMAK PETROLEUM, INC.,
a Delaware corporation
By: _____________________________________
John Pinkerton, President
BUYER
5
<PAGE> 1
Exhibit 2.2
PURCHASE AND SALE AGREEMENT
DATED DECEMBER 31, 1996
BETWEEN
ROCKLAND, L.P.
AS SELLER
AND
LOMAK PETROLEUM, INC.
AS BUYER
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I PURCHASE AND SALE.......................................................1
1.01 - PURCHASE AND SALE.......................................................1
1.02 - EXCLUDED ASSETS.........................................................2
1.03 - EFFECTIVE TIME..........................................................2
ARTICLE II PURCHASE PRICE.........................................................2
2.01 - PURCHASE PRICE..........................................................2
2.02 - ADJUSTMENTS TO PURCHASE PRICE...........................................3
ARTICLE III REPRESENTATIONS AND WARRANTIES........................................4
3.01 - REPRESENTATIONS AND WARRANTIES OF SELLER................................4
3.02 - REPRESENTATIONS AND WARRANTIES OF BUYER.................................6
ARTICLE IV COVENANTS..............................................................7
4.01 - COVENANTS OF SELLER.....................................................7
4.02 - COVENANTS OF BUYER......................................................9
ARTICLE V TITLE MATTERS AND DEFECTIVE INTERESTS..................................10
5.01 - DEFENSIBLE TITLE.......................................................10
5.02 - DEFECTIVE..............................................................12
5.03 - BUYER'S RIGHT OF INSPECTION............................................13
5.04 - NOTICE OF DEFECTIVE INTERESTS..........................................15
5.05 - ARBITRATION PROCEDURES.................................................16
5.06 - EFFECT OF DEFECTIVE INTERESTS ON CLOSING...............................17
ARTICLE VI CONDITIONS TO CLOSING.................................................18
6.01 - SELLER'S CONDITIONS....................................................18
6.02 - BUYER'S CONDITIONS.....................................................19
ARTICLE VII CLOSING..............................................................19
7.01 - CLOSING................................................................19
7.02 - CLOSING OBLIGATIONS....................................................20
ARTICLE VIII OBLIGATIONS AFTER CLOSING...........................................21
8.01 - POST-CLOSING ADJUSTMENTS...............................................21
8.02 - SALES TAXES AND RECORDING FEES.........................................22
8.03 - FURTHER ASSURANCES.....................................................22
8.04 - BUYER'S POST-CLOSING OBLIGATIONS.......................................22
8.05 - SELLER'S POST-CLOSING OBLIGATIONS......................................24
8.06 - FILES AND RECORDS......................................................25
8.07 - DISCLAIMERS OF REPRESENTATIONS AND WARRANTIES..........................25
8.08 - WAIVER OF DTPA.........................................................26
8.09 - SURVIVAL...............................................................26
ARTICLE IX TERMINATION OF AGREEMENT..............................................27
9.01 - TERMINATION............................................................27
9.02 - LIABILITIES............................................................27
ARTICLE X EARNEST MONEY..........................................................28
ARTICLE XI INDEMNIFICATION.......................................................28
11.01 - RIGHT TO EMPLOY COUNSEL...............................................28
11.02 - CLAIM REIMBURSEMENT AND REDUCTION.....................................29
ARTICLE XII GENERAL..............................................................29
12.01 - EXHIBITS..............................................................30
12.02 - EXPENSES..............................................................30
12.03 - NOTICES...............................................................30
12.04 - AMENDMENTS............................................................30
12.05 - HEADINGS..............................................................30
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
12.06 - COUNTERPARTS..........................................................31
12.07 - REFERENCES............................................................31
12.08 - GOVERNING LAW.........................................................31
12.09 - ENTIRE AGREEMENT......................................................31
12.10 - PARTIES IN INTEREST...................................................31
12.11 - ASSIGNMENTS...........................................................31
12.12 - PUBLIC ANNOUNCEMENTS..................................................31
12.13 - NOTICES AFTER CLOSING.................................................31
12.14 - SEVERABILITY..........................................................32
12.15 - TIME IS OF THE ESSENCE................................................32
</TABLE>
Exhibit "A" - Easements and Surface Agreements
Exhibit "B" - Facilities Description
Exhibit "C" - Contracts
Exhibit "D" - Litigation
Exhibit "E" - Additional Permitted Encumbrances
Exhibit "F" - Form of Conveyance
ii
<PAGE> 4
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (this "Agreement") dated as of the
31st day of December, 1996 is executed by ROCKLAND, L.P., a Texas limited
partnership, the general partner of which is Esperanza Pipeline, Inc. a Delaware
corporation ("Seller") and LOMAK PETROLEUM, INC., a Delaware corporation
("Buyer").
In consideration of the mutual promises contained herein, the benefits
to be derived by each party hereunder and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer
agree as follows:
ARTICLE I
PURCHASE AND SALE
1.01 - PURCHASE AND SALE. Subject to the terms and conditions of this
Agreement, Seller agrees to sell and convey to Buyer, and Buyer agrees to
purchase and pay for the following described assets (hereinafter referred to as
the "Properties"):
(a) All of the rights-of-way, easements, surface use
agreements and other agreements described on Exhibit "A" attached
hereto and made a part hereof together with any other easement, surface
use agreement or other similar agreement relating to the Facilities
(defined below) held by Seller and not described on Exhibit "A" hereto
(in the aggregate the "Easements").
(b) All of those certain plants, pipelines and related
separating equipment and meter stations, compressors and compressor
stations, valves, pumps, and other equipment, personal property and
fixtures described on Exhibit "B" attached hereto and made a part
hereof (collectively the "Facilities").
(c) All of the Contract Rights (defined below) under those
certain contracts described on Exhibit "C" attached hereto and made a
part hereof together with all other gas purchase agreements,
transportation agreements, gathering agreements, marketing agreements
and other similar agreements relating to gas moved through the
Facilities and not described on Exhibit "C" attached hereto (in the
aggregate the "System Contracts").
(d) All of Seller's right, title and interest in and to all of
the environmental and other governmental (whether federal, state or
local) permits, licenses. orders, authorizations, franchises and
related instruments or rights relating to the ownership, operation or
use of the Facilities (the "Permits"), including without limitation
those described on Exhibit "C" attached hereto and made a part hereof.
(e) Any office building, district office, or similar facility
used in connection
1
<PAGE> 5
with or relating to the Properties and the entire furnishing and
contents thereof (other than the Records).
(f) Any vehicles used by Seller in the operation of the
Properties.
(g) All inventory items related to the operation of the
Properties.
(h) All of Seller's right, title and interest in and to all
books, files, records, correspondence, studies, surveys, reports and
other data in the actual possession or control of Seller relating to
the operation of the Facilities, including without limitation all title
records, customer lists, supplier lists, sales materials, promotional
materials, operational records, technical records, production and
processing records, division order and lease right-of-way files,
accounting files and contract files (the "Records").
As used herein, the term "Contract Rights" shall mean all rights,
titles, interests, benefits and remedies in, to and under a contract,
which under the terms of such contract inure to the benefit of Seller,
together with all other rights titles, interests, benefits, obligations
and remedies of Seller in, to and under the contract.
1.02 - EXCLUDED ASSETS. Notwithstanding anything to the contrary
contained herein, there is hereby excluded from this purchase and sale, and the
Properties not cover or include any of the following:
(a) All accounts receivable related to the period prior to the
Effective Time and all deposits with utilities made prior to the
Effective Time and all claims, credits and causes of action of Seller
arising under the System Contracts or otherwise attributable to the
Properties which arise prior to the Effective Time and for which Seller
has not otherwise received payment or an adjustment credit under the
terms of this Agreement..
(b) Photocopies of any Records made by Seller.
1.03 - EFFECTIVE TIME. The purchase and sale of the Properties shall be
effective as of 7:00 a.m. on October 1, 1996, local time at the location of the
Properties (herein called the "Effective Time").
ARTICLE II
PURCHASE PRICE
2.01 - PURCHASE PRICE. The purchase price payable by Buyer for the
Properties shall be FIFTY MILION AND NO/100DOLLARS ($50,000,000) (the "Purchase
Price"), payable in cash at the Closing, inclusive of the cash payments
represented by transfer of the Earnest Money to Seller.
2
<PAGE> 6
2.02 - ADJUSTMENTS TO PURCHASE PRICE. The Purchase Price shall be
subject to adjustment as follows:
(a) The Purchase Price shall be adjusted upward as follows:
(i) The value of all merchantable, allowable
condensate in storage at the Effective Time,
which is sold and which is credited to the
Properties and paid to Buyer, such value to
be the actual price received less taxes and
deductions by the purchaser;
(ii) The amount of all verifiable expenditures
paid by Seller or any affiliate of Seller in
connection with the operation of the
Properties in accordance with this Agreement
for work actually performed subsequent to
the Effective Time, but specifically
excluding any amounts attributable to
Seller's overhead;
(iii) An amount equal to all prepaid ad valorem,
property, production, severance and similar
taxes (but not including income taxes) based
upon or measured by the ownership of
property or the production of hydrocarbons
or the receipt of proceeds therefrom;
(iv) an aggregate amount equal to $12,500.00 per
month (pro rated for partial months) for the
period between the Effective Time and the
Closing Date as reimbursement to Seller for
costs incurred in operating and managing the
Properties after the Effective Time;
(v) Any other amount agreed upon by Seller and
Buyer.
(b) The Purchase Price shall be adjusted downward as follows:
(i) Proceeds and revenues received by Seller
from the Properties which are attributable
to the period after the Effective Time;
(ii) An amount equal to all unpaid ad valorem,
property, production, severance and similar
taxes and assessments (but not including
income taxes) based upon or measured by the
ownership of property or the production of
hydrocarbons or the receipt of proceeds
therefrom accruing to the Properties prior
to the Effective Time;
(iii) The amount of all verifiable expenditures
paid by Buyer for work actually done and
performed in connection with the Properties
prior
3
<PAGE> 7
to the Effective Time;
(iv) The aggregate amount of the Defect Value
(defined below) of any Defective Interest
(defined below) determined to exist in
accordance with Article V hereof, to the
extent the Defect Value of all such
Defective Interests exceeds one half of one
percent (1/2%) of the Purchase Price
(without giving effect to this Section
2.02(b)(iv)); and
(v) Any other amount agreed upon by Seller and
Buyer, including without limitation the
amounts provided in Section 5.04(c).
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.01 - REPRESENTATIONS AND WARRANTIES OF SELLER. Except as provided
below, Seller represents and warrants to Buyer as follows:
(a) Seller is a duly organized, validly existing limited
partnership organized and in good standing under the laws of its state
of formation and is qualified to do business in the State of Texas.
(b) Seller has all requisite power and authority, partnership,
corporate and otherwise, to carry on its business as presently
conducted, to enter into the Agreement, to sell and convey, free and
clear of all adverse claims, the Properties on the terms described in
the Agreement and to perform its other obligations under the Agreement.
(c) The execution and delivery of this Agreement has been, and
the execution and delivery of all certificates, documents and
instruments required to be executed and delivered by Seller at the
Closing, and the consummation of the transactions contemplated hereby
as of the Effective Time shall have been duly authorized by all
necessary partnership and corporate action on the part of the Seller,
and, assuming expiration or termination of the applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
("HSR Act"), no further authorization is required by any law, statute,
regulation, court order or judgment applicable to Seller. This
Agreement constitutes a legal, valid and binding obligation of Seller
enforceable in accordance with its terms, subject however, to the
effects of bankruptcy, insolvency, reorganization, moratorium and
similar laws, as well as to principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
(d) The execution and delivery of the Agreement and the
consummation of the transactions contemplated hereby will not (i)
violate, or be in conflict with, any provisions of Seller's agreement
of limited partnership or governing documents, (ii) constitute a
4
<PAGE> 8
material breach of, or any event of default under, any contract or
agreement to which Seller is a party or by which it or its assets are
bound, or constitute the happening of an event or condition upon which
any other party to such a contract or agreement may exercise any right
or option which will materially adversely affect any of the Properties
(except any provision as to (A) required consents to transfer and
related provisions, (B) maintenance of uniform interests provisions and
(C) any other third-party approvals contemplated herein), (iii)
assuming expiration or termination of the applicable waiting period
under the HSR Act, violate any judgment, decree, order, statute, rule
or regulation applicable to Seller, or (iv) result in any material
liability to Buyer under the terms of any contracts or agreements,
except those obligations related to the Properties after the Effective
Time and assumed by Buyer pursuant to the terms of the Agreement.
(e) Except as shown on Exhibit "D" attached hereto and made a
part hereof, no suit, action or other proceeding is pending before any
court or governmental agency as of the date of this Agreement to which
Seller is a party and which might result in substantial impairment or
loss of Seller's title to any material part of the Properties or that
might materially hinder or impede the operation of the Leases or the
ability of Seller to perform its obligations hereunder.
(f) Seller holds such permits, governmental licenses,
approvals, authorizations and exemptions, including environmental
permits, that are necessary to carry on its business as presently
conducted and all of same are transferable to Buyer. The Facilities, as
currently operated by Seller, do not require certificate authority from
the Federal Energy Regulatory Commission. Seller has complied with all
of the laws, regulations and orders of the Texas Railroad Commission
and the United States Department of Transportation affecting the
Properties. While Seller has owned the Properties (the "Ownership
Period"), all necessary reports required by any governmental agency
with respect to the Properties have been timely, properly and
accurately made.
(g) During the Ownership Period, all ad valorem, property,
production, severance and similar taxes and assessments based on or
measured by the ownership of property or the production of hydrocarbons
or the receipt of proceeds therefrom on the Properties have been
properly paid.
(h) Seller has incurred no liability, contingent or otherwise,
for brokers' or finders' fees relating to the transactions contemplated
by this Agreement for which Buyer shall have any responsibility
whatsoever.
(i) The contracts described on Exhibit "C" hereto are the only
material agreements which provide for the purchase, sale, gathering,
delivery, compressing, transporting, processing, marketing or any other
disposition of the gas through the Facilities, and the contracts
described on Exhibit "C" hereto and the easements described on Exhibit
"A" hereto are the only agreements relating to the Facilities which
might require a consent to assign or contain a preferential right to
purchase or similar provision.
5
<PAGE> 9
(j) Seller is not a "foreign person" within the meaning of
Section 1445 of the Internal Revenue Code of 1986, as amended.
(k) The Properties comprise all assets, equipment and
agreements that are necessary to operate the Properties in the ordinary
course of business as such business was conducted as of the Effective
Time.
(l) Seller is not in material default under any of the System
Contracts.
(m) Seller has complied with all terms of the Surface Lease
("Plant Lease") dated December 17, 1993 by and between Michael L.
Foster, Pat A. Foster and Gary D. Foster (collectively "Grantor") and
Seller.
3.02 - REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to the Seller that:
(a) Buyer is a duly organized, validly existing corporation
organized and in good standing under the laws of the State of its
incorporation and is qualified to do business in the State of Texas.
(b) Buyer has all requisite power and authority, corporate and
otherwise, to carry on its business as presently conducted, to enter
into the Agreement, and to perform its obligations under the Agreement.
(c) The execution and delivery of this Agreement has been, and
the execution and delivery of all certificates, documents and
instruments required to be executed and delivered by Buyer at Closing,
and the consummation of the transactions contemplated hereby as of the
Effective Time shall have been duly authorized by all necessary
corporate action on the part of the Buyer and, assuming expiration or
termination of the applicable waiting period under the HSR Act, no
further authorization is required by any law, statute, regulation,
court order or judgment applicable to Buyer. This Agreement constitutes
a legal, valid and binding obligation of Buyer enforceable in
accordance with its terms, subject however, to the effects of
bankruptcy, insolvency, reorganization, moratorium and similar laws, as
well as to principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(d) The execution and delivery of the Agreement and the
consummation of the transactions contemplated hereby will not (i)
violate, or be in conflict with, any provisions of Buyer's articles of
incorporation, bylaws or governing documents, (ii) constitute a
material breach of, or any event of default under, any contract or
agreement to which Buyer is a party or by which it or its assets are
bound, or constitute the happening of an event or condition upon which
any other party to such a contract or agreement may
6
<PAGE> 10
exercise any right or option which will materially adversely affect the
ability of Buyer to perform its obligations hereunder, (iii) assuming
expiration or termination of the applicable waiting period under the
HSR Act, violate any judgment, decree, order, statute, rule or
regulation applicable to Buyer, or (iv) result in any material
liability to Seller under the terms of any contracts or agreements to
which Buyer is a party.
(e) No suit, action or other proceeding is pending before any
court or governmental agency as of the date of this Agreement to which
Buyer is a party and which might materially hinder or impede the
ability of Buyer to perform its obligations hereunder. Buyer shall
promptly notify Seller of any such proceeding arising prior to the
Closing with respect to which Buyer receives actual notice.
(f) Buyer has incurred no liability, contingent or otherwise,
for brokers' or finders' fees relating to the transactions contemplated
by this Agreement for which Seller shall have any responsibility
whatsoever.
(g) Buyer is a knowledgeable purchaser, owner and operator of
oil and gas properties, has the ability to evaluate (and in fact has
evaluated) the Properties for purchase, and is acquiring the Properties
for its own account and not with the intent to make a distribution
thereof within the meaning of the Securities Act of 1933 (and the rules
and regulations pertaining thereto) or a distribution thereof in
violation of any other applicable securities laws.
(h) In entering into this Agreement, Buyer has relied solely
on the express representations and covenants of Sellers in this
Agreement, its independent investigation of, and judgment with respect
to, the Properties and the advice of its own legal, tax, economic,
environmental, engineering, geological and geophysical advisors and not
on any comments or statements of Seller or any representatives of, or
consultants or advisors engaged by Seller.
ARTICLE IV
COVENANTS
4.01 - COVENANTS OF SELLER. Seller agrees with Buyer that:
(a) Prior to the Closing, Seller will make available to Buyer
for examination at a Seller's offices in Fort Worth, Texas, all title
and other information relating to the Properties insofar as the same
are in Seller's possession and will cooperate with Buyer in Buyer's
efforts to obtain, at Buyer's expense, such additional information
relating to the Properties as Buyer may reasonably desire, to the
extent in each case that Seller may do so without violating legal
constraints or any obligation of confidence or other contractual
commitment of Seller to a third party. Historical file information in
Seller's possession regarding condensate which may have been spilled or
disposed of on-site and the locations
7
<PAGE> 11
thereof; pits and pit closures; burials; landfarming; landspreading;
underground injection; and solid waste disposal sites will be made
available to Buyer for inspection prior to Closing. Seller shall permit
representatives of Buyer to make such environmental tests as they deem
appropriate, including without limitation Phase I and Phase II testing.
Seller shall permit Buyer, at Buyer's expense, to inspect and photocopy
such information and records at any reasonable time during the term of
this Agreement but only to the extent, in each case, that Seller may do
so without violating any obligation of confidence or contractual
commitment to a third party. Seller shall not be obligated to furnish
any updated abstracts, title opinions or additional title information,
but shall cooperate with Buyer in Buyer's efforts to obtain, at Buyer's
expense, such additional title information as Buyer may reasonably deem
prudent.
(b) From the date of this Agreement, Seller shall furnish to
Buyer and shall cause its independent auditors to furnish to Buyer all
information regarding the Properties, Seller and its respective
business, assets, properties, and financial condition which, in the
reasonable judgment of Buyer and/or its legal counsel and independent
auditors, is necessary to enable Buyer to comply with filing
requirements under the Securities Act of 1933 (the "Act") and the
Securities and Exchange Act of 1934 ("Exchange Act") to the extent
deemed necessary by the Buyer and its representatives.
(c) From the date of this Agreement until Closing, Seller (i)
will cause the Properties to be operated and maintained in a good and
workmanlike manner consistent with prior practices, and will pay or
cause to be paid all costs and expenses in connection therewith, (ii)
will not abandon any of the Properties, (iii) will maintain insurance
now in force with respect to the Properties, (iv) will comply with all
the rules, regulations and orders of the Texas Railroad Commission and
the United States Department of Transportation which are applicable to
Seller and the Properties, and will timely, properly and accurately
make all reports required to be filed with the Texas Railroad
Commission and the United States Department of Transportation (v) will
perform and comply with all the covenants and conditions contained in
the System Contracts, and (vi) will pay all taxes and assessments with
respect to the Properties which come due and payable prior to the
Closing Date; provided, however, in the absence of Buyer's written
consent, from the date of this Agreement until the Closing, Seller
shall not conduct or authorize any operation on the Properties
requiring an expenditure of $100,000 or more for the entire 100% of any
single project (except emergency operations).
(d) Without the prior written consent of Buyer from the date
of this Agreement until Closing, Seller shall not enter into any new
agreements or commitments with respect to the Properties, will not
modify or terminate any of the agreements relating to the Properties,
shall not encumber, sell, transfer, assign, convey, or otherwise
dispose of any of the Properties other than personal property which is
replaced by equivalent property or consumed in the operation of the
Properties, and will not voluntarily compromise any amounts payable to
Seller due to any casualty loss or any pending or
8
<PAGE> 12
threatened taking related to the Properties..
(e) Seller shall use all reasonable efforts to maintain its
partnership status and to assure that as of the Closing it shall not be
under any material partnership, legal or contractual restriction that
would prohibit or delay the timely consummation of this transaction..
With respect to any third-party consents and notices required under
preferential rights to purchase provisions, Seller shall make requests
of such third parties in compliance with applicable agreements, that
such consents be given or waived and that such preferential rights be
waived; provided however, nothing contained in this subsection of
Section 4.01 shall require Seller to pay money or undertake any
additional legal obligation.
(f) Seller shall permit Buyer's authorized representatives to
consult with Seller and/or such third-party operator's agents and
employees during reasonable business hours and to conduct, at Buyer's
sole risk and expense, on-site inspections, environmental assessments,
reasonable tests and inventories of the Properties as provided in
Section 5.03 hereof.
(g) As promptly as practicable and in any event not more than
ten (10) days following the date on which the parties hereto shall have
executed and delivered this Agreement, Seller will file with the
Federal Trade Commission and the Department of Justice the notification
and report form required for the transactions contemplated hereby and
will as promptly as practicable furnish any supplemental information
which may be reasonably requested in connection therewith pursuant to
the HSR Act. Seller shall bear one-half of the filing fees associated
with filings made under the HSR Act and paid by Buyer or Seller.
(h) During the period from the date of this Agreement to the
Closing Date, Seller shall use its best efforts to maintain its
relationships with all suppliers, customers and others having business
relationships with Seller with respect to the Properties so that such
relationships will be preserved for Buyer on and after the Closing
Date.
(i) Seller shall give Buyer notice of any litigation initiated
by or against against Seller, of which Seller has notice, and which
relates to the Properties or the ability of Seller to proceed to
Closing.
4.02 - COVENANTS OF BUYER. Buyer covenants and agrees with Seller as
follows:
(a) Buyer shall use all reasonable efforts to maintain its
corporate status and to assure that as of the Closing, it will not be
under any material corporate, legal or contractual restriction that
would prohibit or delay the timely consummation of this transaction.
(b) As promptly as practicable and in any event not more than
ten days
9
<PAGE> 13
following the date on which each of the parties hereto shall have
executed and delivered this Agreement, Buyer will file with the Federal
Trade Commission and the Department of Justice the notification and
report form required for the transactions contemplated hereby and will
as promptly as practicable furnish any supplemental information which
may be reasonably requested in connection therewith pursuant to the HSR
Act. Buyer shall bear one-half of the filing fees associated with
filings made under the HSR Act and paid by Buyer or Seller
(c) Buyer shall exercise all due diligence in safeguarding and
maintaining secure all engineering data, reports and maps, accounting
records, and all other confidential data or information relating to the
Properties in the possession of Buyer. If the transaction contemplated
by this Agreement is not consummated, Buyer shall return to Seller all
information which Seller has delivered to Buyer which relate to the
Properties.
(d) Buyer shall give Seller notice of any litigation initiated
by or against against Buyer, of which Buyer has notice, and which
relates to the Properties or the ability of Buyer to proceed to
Closing.
ARTICLE V
TITLE MATTERS AND DEFECTIVE INTERESTS
5.01 - DEFENSIBLE TITLE.
(a) As used herein, the term "Defensible Title" shall have the
following meaning
(i) With respect to the Easements, Defensible Title
means that subject to the Permitted Encumbrances (A)
Seller owns all of the rights of the original grantee
of the Easements free and clear of mortgages, liens,
security interests, pledges, charges, encumbrances,
claims, limitations, irregularities, burdens or
defects, and is otherwise only subject to
contractually binding arrangements which are
conventional and which are customarily experienced in
the oil and gas industry, (B) the Easements grant to
the grantee the right to construct, maintain and
operate the Facilities (C) all necessary consents,
permissions, novations and approvals by third parties
in connection with the sale and transfer of the
Easements shall have been received, except those
governmental consents customarily generated and
received in the ordinary course of business at a
Post-Closing date; and (D) with respect to
preferential rights to purchase, waivers of such
rights have been obtained, or the time period for
exercising such right has expired without an exercise
of such right;
10
<PAGE> 14
(ii) With respect to the Facilities, Defensible Title
means that (A) either (I) Seller constructed the
particular component of the Facilities, or (II)
Seller has acquired the rights of the person who
originally constructed the particular component of
the Facilities through a chain of one or more
assignments, (B) the Facilities are located on
Easements as to which Seller has Defensible Title,
and (C) the rights of Seller to the Facilities are
free and clear (except for Permitted Encumbrances) of
mortgages, liens, security interests, pledges,
charges, encumbrances, claims, limitations,
irregularities, burdens or defects, and is otherwise
only subject to contractually binding arrangements
which are conventional and which are customarily
experienced in the oil and gas industry.
(iii) With respect to the System Contracts,
Defensible Title means that subject to the Permittted
Encumbrances (A) either (I) Seller was an original
signatory to the contract, or (II) Seller has
acquired the rights of an original signatory to the
contract through a chain of one or more assignments,
(B) the rights of Seller under the contract are free
and clear of mortgages, liens, security interests,
pledges, charges, encumbrances, claims, limitations,
irregularities, burdens or defects, and is otherwise
only subject to contractually binding arrangements
which are conventional and which are customarily
experienced in the oil and gas industry; (C) all
necessary consents, permissions, novations and
approvals by third parties in connection with the
sale and transfer of the System Contracts shall have
been received; and (D) with respect to preferential
rights to purchase, waivers of such rights have been
obtained, or the time period for exercising such
right has expired without an exercise of such right;
(b) The term "Permitted Encumbrances" as used herein
shall mean:
(i) Any (A) undetermined or inchoate liens or
charges constituting or securing the payment
of expenses that were incurred incidental to
maintenance or operation of the Properties
or for the purpose of processing oil, gas or
other hydrocarbons, and (B) materialman's,
mechanics', repairman's, employees',
contractors', operators', or other similar
liens or charges for liquidated amounts
arising in the ordinary course of business
(x) that Seller has agreed to assume or pay
pursuant to the terms hereof, (y) for which
Seller is responsible for paying or
releasing at Closing, or (z) for which Buyer
has agreed to assume or pay pursuant to the
terms hereof;
(ii) Preferential rights to purchase and required
third party consents to assignments and
similar agreements with respect to which
prior to Closing (i) waivers or consent are
obtained from the appropriate parties, (ii)
the appropriate time period for asserting
such rights has
11
<PAGE> 15
expired without an exercise of such rights,
and (iii) with respect to consent, such
consent is not necessary to the validity of
an assignment to Buyer and need not be
obtained prior to an assignment;
(iii) Liens for taxes or assessments not yet due
or not yet delinquent or, if delinquent,
that are being contested in good faith in
the normal course of business;
(iv) All rights to consent by, required notices
to, filings with, or other actions by
governmental entities if the same are
customarily obtained subsequent to such sale
or conveyance;
(v) Rights of reassignment in the event of
intended release or surrender of any of the
Properties;
(vi) Easements, rights-of-way, servitudes,
permits, surface leases and other rights in
respect of surface operations, pipelines,
grazing, logging, canals, ditches,
reservoirs or the like; and easements for
streets, alleys, highways, pipelines,
telephone lines, power lines, railways and
other easements and rights-of-way, on, over
or in respect of any of the Properties which
do not materially interfere with the
operation of the Properties;
(vii) Rights reserved to or vested in any
municipality or governmental, statutory or
public authority to control or regulate any
of the Properties in any manner, and all
applicable laws, rules and orders of any
governmental authority;
(viii) Such Title Defects (defined below) or other
defects as Buyer has waived in writing or
otherwise pursuant to this Agreemnt, or
which individually and in the aggregate do
not operate to interfere materially with the
operation, value or use of the Properties;
and
(ix) Those matters described on Exhibit "E"
attached hereto and made a part hereof.
(c) The term "Title Defect" as used herein shall mean any
encumbrances, encroachment, irregularity, defect in or objection to
Seller's title to the Properties (expressly excluding Permitted
Encumbrances), that alone or in combination with other defects renders
Seller's title to the Properties less than Defensible Title.
5.02 - DEFECTIVE INTERESTS.
12
<PAGE> 16
(a) As used herein the term "Defective Interest" shall mean
(1) That portion of the Properties affected by a
Title Defect.;
(2) That portion of the Properties adversely affected
by Seller's material noncompliance with the laws, rules,
regulations, ordinances or orders of any governmental agency
or authority having jurisdiction over any portion of the
Properties, including without limitation Environmental Laws
(defined below) as may be reasonably determined in accordance
with generally accepted industry practices and standards;
(3) That portion of the Properties adversely affected
by the default of Seller, or any other party, under an
obligation under the Systems Contracts;
(4) That portion of the Properties with respect to
which any preferential right to purchase is exercised unless
Buyer elects to receive the consideration received from the
exercise of such preferential right to purchase;
(5) That portion of the Facilities which have a
defect (resulting from design, construction, wear or other
reason) which will prevent the continued operation of the
Facilities in accordance with prior practice;
(6) That portion of the Properties affected by any
suit, action or other proceeding before any court or
government agency that would result in loss or impairment of
Seller's title to any portion of the Properties, or a portion
of the value thereof;
(7) That portion of the Properties destroyed by fire
or other casualty, or with respect to which there is a taking
or threatened taking in condemnation or under the right of
eminent domain, unless Buyer elects to receive the proceeds
payable under any insurance policy covering such events; and
(8) Any Easement or Systems Contract which is not
valid and subsisting and in full force and effect.
(b) As used herein the term "Defect Value" shall mean the the
reduction in value of the Properties caused by a Defective Interest.
5.03 - BUYER'S RIGHT OF INSPECTION. Seller grants Buyer and its duly
authorized representatives, contractors and subcontractors
(collectively "Representatives") the limited right of entry to the
Properties for the purpose of, inspecting the Properties in accordance
with the terms of Section 4.01(e) hereof, ("Permitted Activities"),
subject however, to the following conditions:
13
<PAGE> 17
(a) Buyer shall notify Seller of its desire to enter the
Properties to conduct Permitted Activities at least 48 hours prior to
such entry.
(b) Upon receipt of such notice, Seller shall allow Buyer and
its Representatives to enter the Properties during normal business
hours to conduct Permitted Activities. The Permitted Activities of
Buyer and its Representatives shall not unreasonably interfere with
Seller's operations or business, and Buyer and its Representatives
shall not remain on the Properties subsequent to the completion of
their Permitted Activities. As soon as reasonably possible, Buyer shall
provide Seller with a copy of all reports prepared for Buyer as a
result of conducting Permitted Activities.
(c) The Permitted Activities shall be conducted in accordance
with all applicable environmental and regulatory laws, rules and
regulations, and commonly accepted standards for conducting such
activities. Upon completion of its activity, Buyer and its
Representatives shall restore the Property to its condition existing as
of Buyer's entry thereon and remove all equipment and materials that
were brought onto the Properties by Buyer and its Representatives. As
soon as reasonably possible, Buyer shall provide Seller with a copy of
all written reports prepared for Buyer as a result of conducting
Permitted Activities.
(d) Buyer will be responsible for the conduct and protection
of all persons involved in the Permitted Activities. Seller shall not
have any right to control and shall not exercise any responsibility
with respect to the Permitted Activities conducted by Buyer on the
Properties, except that Seller shall have the right (but not the
obligation) to prevent any damage to its property or disruption to its
business. Buyer and its Representatives will undertake all measures
reasonably necessary to protect all persons conducting the Permitted
Activities on the Properties and any other persons who may enter the
Properties during or after completion of the Permitted Activities.
(e) Neither Buyer nor its Representatives shall contact any
federal, state, or local agency with respect to environmental
conditions discovered on the Properties without the prior written
permission and consent of Seller, except as may be otherwise required
by applicable law, rule or regulation. Any proposal of Buyer or its
Representatives to contact any federal, state, or local agency shall be
delivered in writing to Seller for review and approval.
(f) BUYER AGREES TO FULLY INDEMNIFY, DEFEND, AND HOLD SELLER,
ITS AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS AND CONTRACTORS HARMLESS FROM AND AGAINST ANY ALL CLAIMS,
LIABILITIES, CAUSES OF ACTIONS, JUDGMENTS OR DEFENSE EXPENSES
(INCLUDING REASONABLE ATTORNEYS FEES AND EXPERT EXPENSES) OF ANY
PERSON, INCLUDING BUYER, ITS AFFILIATES AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS AND CONTRACTORS, FOR
14
<PAGE> 18
(I) PERSONAL INJURY OR DEATH OF ANY PERSON, (II) DAMAGE TO THE PROPERTY
OF SELLER, BUYER OR ANY OTHER PERSON, OR (III) ALL OTHER DAMAGES OR
ECONOMIC LOSSES (INCLUDING ANY DAMAGES CAUSED BY THE NEGLIGENCE OF
SELLER), ATTRIBUTABLE TO OR ARISING FROM THE PERMITTED ACTIVITIES,
EXCEPT THER SHALL BE NO LIABILITY OF BUYER TO THE EXTENT ANY SUCH
INJURY, DAMAGE, OR LOSS IS CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF SELLER.
5.04 - NOTICE OF DEFECTIVE INTERESTS.
(a) Buyer shall give Seller notice of Defective Interests not
later than twenty-one (21) days from the date of this Agreement. Such
notice shall be in writing and shall include (i) a description of the
Defective Interest (ii) the reason Buyer believes such Properties to be
a Defective Interest, and (iii) the Defect Value asserted by Buyer with
respect to the asserted Defective Interest. Buyer's notice(s) of
Defective Interests shall not be effective unless and until the total
of the asserted Defect Values for the asserted Defective Interests
exceeds one-half of one percent (1/2%) of the Purchase Price. Buyer
shall be deemed to have waived all Defective Interests of which Seller
has not been given such notice within the time period prescribed in
this Section 5.04(a).
(b) Upon being notified by Buyer pursuant to Section 5.04(a)
of any asserted Defective Interest the Seller shall give written
counter-notice to Buyer within five (5) days (i) that it either (A)
will attempt to correct the asserted Defective Interest, or (B) does
not intend to attempt to correct the Defective Interest; and (ii)
whether it agrees or disagrees that the asserted Defective Interest
exist, and (iii) whether it agrees or disagrees with the Defect Value
asserted by the Buyer.
(c) If Seller gives counter-notice of intent to attempt to
correct any asserted Defective Interest, it shall have a period of
thirty (30) days from the receipt of the Buyer's notice (the "Cure
Period") to attempt to correct such asserted Defective Interest at its
own expense. The Closing shall not be extended, but to the extent that
the Defect Value allocated to the Defective Interest when combined with
the Defect Value of all other asserted Defective Interests exceeds
one-half of one percent (1/2%) of the Purchase Price, a downward
adjustment of the Purchase Price shall be made in such amount according
to Section 2.02(b)(5). If Seller shall subsequently cure such Defective
Interest within the Cure Period, such Defect Value as to which curative
has been effected shall be a credit to Seller in the determination of
the Final Settlement according to Section 8.01 hereof. If Seller is
unable to cure such Defective Interest, Seller shall still have the
right to assert the provisions of Sections 5.04 (d) and (e) below after
Closing, in which case Buyer shall deposit the amount of the disputed
Defect Value with the Escrow Agent according to Section 5.06(b) below.
15
<PAGE> 19
(d) If Seller gives counter-notice (or notice after the Cure
Period according to Section 5.04(c)) that it disagrees there is a
Defective Interest, then the existence (and if it exists, the Defect
Value), will be determined by arbitration pursuant to Section 5.05
hereof.
(e) If Seller gives counter-notice (or notice after the Cure
Period according to Section 5.04(c)) that it disagrees with the Defect
Value asserted by Buyer in connection with a Defective Interest, then
the amount of the Defect Value will be determined by arbitration
pursuant to Section 5.05 hereof.
(f) The failure of Seller to deliver written counter-notice
shall be deemed to be notice that Seller (i) will not attempt to
correct that asserted Defective Interest, (ii) agrees
that there is a Defective Interest and (iii) agrees with the Defect
Value asserted by the Buyer.
(g) In determining which portions of the Properties are
Defective Interests, it is the intent of the parties to include, when
possible, only that portion of the Properties affected by the defect.
5.05 - ARBITRATION PROCEDURES. If any matter is required by this
Article to be arbitrated, such arbitration shall be conducted as set forth in
this Section 5.05.
(a) The parties shall jointly select an acceptable person as
the sole arbitrator under this Agreement. If the parties are unable to
agree upon the designation of a person as arbitrator, then either
Seller or Buyer, or both such parties, may in writing request the
American Arbitration Association to appoint a qualified arbitrator.
(b) Any arbitration hearing shall be held at a place in Fort
Worth, Texas acceptable to the arbitrator.
(c) The arbitrator shall settle disputes regarding the
existence of Defective Interests and/or the Defect Value thereof and
Seller's attempts to correct any Title Defects
in accordance with the Texas General Arbitration Act. Such arbitrator
shall hear all arbitration matters arising under this Article V. The
decision of the arbitrator shall be binding upon the parties, and may
be enforced in any court of competent jurisdiction.
Seller and Buyer, respectively, shall bear their own legal fees and
other costs incurred in presenting their respective cases. The charges
and expenses of the arbitrator shall be shared equally by Seller and
Buyer.
(d) The arbitration shall commence within ten days after the
arbitrator is selected as set forth in Section 5.05(a) above. In
fulfilling his duties hereunder, the arbitrator shall be bound by the
terms of this Agreement. In fulfilling any of his arbitration duties,
the arbitrator may consider such other matters as in the opinion of the
arbitrator are necessary or helpful to make a proper evaluation.
Additionally, the arbitrator may
16
<PAGE> 20
consult with and engage disinterested third parties, including, without
limitation, petroleum engineers, attorneys and consultants, to advise
the arbitrator.
(e) If any arbitrator selected hereunder should die, resign or
be unable to perform his duties hereunder the parties or if the parties
are unable to agree, the American Arbitration Association shall select
a replacement arbitrator. The aforesaid procedure shall be followed
from time to time as necessary.
5.06 - EFFECT OF DEFECTIVE INTERESTS ON THE CLOSING. If Buyer asserts
any Defective Interests the following shall apply:
(a) The parties shall proceed to the Closing as provided in
this Agreement if (i) Seller elects to cure the asserted defect
according to Section 5.04(c), (ii) Buyer agrees to waive the relevant
Defective Interest and purchase the Defective Interest notwithstanding
the asserted Defective Interest, or (iii) Buyer and Seller agree to a
Defect Value and the Purchase Price is reduced by such amount in
accordance with Section 2.02(b) hereof.
(b) If any matter is referred to arbitration under Section
5.05 of this Agreement and the Defect Value or Values asserted by Buyer
with respect to the matters under arbitration when combined with all
other Defective Interests totals less than ten percent (10%) of the
Purchase Price (including an agreement by Buyer to waive any
arbitration award which when combined with all other Defective
Interests would exceed ten percent (10%) of the Purchase Price), then
the parties shall proceed to Closing, the asserted Defective Interests
shall be conveyed to Buyer, and the Closing Amount (defined below)
shall be reduced by an amount equal to the asserted Defect Values of
the asserted Defective Interests (the "Withheld Payment"). The Withheld
Payment shall be placed in escrow with the same entity under
essentially the same terms as the Earnest Money (defined below). The
Withheld Payment shall be paid as follows:
(i) If the arbitrator decides that any Defective
Interest asserted by the Buyer is not a Defective
Interest, then the Withheld Payment with respect to
the asserted Defective Interest shall be paid to the
Seller.
(ii) If the arbitrator decides that any one or more
of the Defective Interests asserted by the Buyer are
in fact Defective Interests, then, the Withheld
Payment, to the extent it, when combined with all
other Defective Interests, exceeds one-half (1/2) of
one percent (1/2%) of the Purchase Price up to the
amount of the Defect Value, as determined by the
arbitrator, shall be distributed to the Buyer, and
the remainder, if any, shall be distributed to the
Seller.
(c) If any matter is referred to arbitration under Section
5.05 of this Agreement and the Defect Value asserted by Buyer with
respect to the matters under arbitration when combined with all other
Defective Interests totals ten percent (10%) of the Purchase Price
17
<PAGE> 21
or more, then, unless the parties otherwise agree, the Buyer waives its
rights to an arbitration award which, when combined with all other
Defective Interests exceeds ten percent (10%) of the Purchase Price, or
this Agreement is terminated by Seller pursuant to Article IX hereof.
If none of the foregoing occurs, the Closing shall be postponed until
the arbitrator renders his final decision. After the arbitrator renders
his final decision the parties shall proceed to the Closing, and the
Purchase Price will be reduced by the Defect Value found by the
arbitrator to the extent it, when combined with all other Defective
Interests, exceeds one-half of one percent (1/2%) of the Purchase
Price; provided however, nothing contained in this Section 5.06(c)
shall be deemed to in any way modify or terminate Seller's or Buyer's
conditions to Closing under Section 6.01(d) or 6.02(d).
ARTICLE VI
CONDITIONS TO CLOSING
6.01 - SELLER'S CONDITIONS. The obligations of Seller at the Closing
are subject, at the option of Seller, to the satisfaction at or prior to the
Closing of all of the following conditions, any one or more of which may be
waived, in whole or in part, in writing by Seller:
(a) All representations and warranties of Buyer contained in
this Agreement shall be true in all material respects at and as of the
Closing as if such representations and warranties were made at and as
of the Closing; and Buyer shall have performed and satisfied all
material obligations in all material respects required by this
Agreement to be performed and satisfied by Buyer at or prior to the
Closing.
(b) No suit or other proceeding shall be pending before any
court or governmental agency seeking to restrain or prohibit or declare
illegal, or seeking substantial damages in connection with, the
purchase and sale contemplated by this Agreement.
(c) All necessary consents, permissions, novations and
approvals by third parties in connection with the sale and transfer of
the Properties shall have been received prior to Closing, except those
required consents, permissions, novations and approvals which are
Permitted Encumbrances.
(d) Defective Interests will not reduce the Purchase Price by
more than ten percent (10%).
(e) The waiting period (and any extension thereof) under the
HSR Act applicable to the transactions contemplated hereby shall have
expired or been terminated.
(f) All transactions contemplated by that certain Purchase and
Sale Agreement of even date herewith between Cometra Energy, L.P.,
Cometra Production Company, L.P.
18
<PAGE> 22
and Buyer ( the "Producing Properties Agreement") shall have closed
pursuant to the terms of the Producing Properties Agreement.
6.02 - BUYER'S CONDITIONS. The obligations of Buyer at the Closing are
subject, at the option of Buyer, to the satisfaction at or prior to the Closing
of all of the following conditions, any one or more of which may be waived, in
whole or in part, in writing by Buyer:
(a) All representations and warranties of Seller contained in
this Agreement (except for the representations and warranties set forth
in Sections 3.01(k) and (l) shall be true in all material respects at
and as of the Closing as if such representations and warranties were
made at and as of the Closing; and Seller shall have performed and
satisfied all material agreements in all material respects required by
this Agreement to be performed and satisfied by Seller at or prior to
the Closing.
(b) No suit or other proceeding shall be pending before any
court or governmental agency seeking to restrain or prohibit or declare
illegal, or seeking substantial damages in connection with, the
purchase and sale contemplated by this Agreement.
(c) All necessary consents, permissions, novations and
approvals by third parties in connection with the sale and transfer of
the Properties shall have been received prior to Closing, except those
required consents, permissions, novations and approvals which are
Permitted Encumbrances, but specifically including the consent to
assign the Surface Lease (as defined in Section 8.05(d) below) from the
Surface Owners (as defined in Section 8.05(d) below).
(d) Defective Interests will not reduce the Purchase Price by
more than ten percent (10%).
(e) The waiting period (and any extension thereof) under the
HSR Act relating to the transactions contemplated hereby shall have
expired or been terminated.
(f) All transactions contemplated by the Producing Properties
Agreement shall have closed pursuant to the terms of the Producing
Properties Agreement.
ARTICLE VII
CLOSING
7.01 - CLOSING. Unless the parties hereto agree otherwise and subject
to the conditions stated in this Agreement, the consummation of the transactions
contemplated hereby (herein called the "Closing") shall be held at the offices
of Seller in Fort Worth, Texas, on the later of:
(i) February 14, 1997;
19
<PAGE> 23
(ii) February 21, 1997, if the period to close the Producing Properties
Agreement is extended to such date according to the terms of the
Producing Properties Agreement;
(iii) February 28, 1997, if the period to close the Producing
Properties Agreement is extended to such date according to the terms of
the Producing Properties Agreement; or
(iv) Three (3) business days following the expiration or termination of
the applicable waiting period (and any extension thereof) under the HSR
Act.
The date on which closing occurs is referred to herein as the "Closing Date."
7.02 - CLOSING OBLIGATIONS. At the Closing, the following events shall
occur, each being a condition precedent to the others and each being deemed to
have occurred simultaneously with the others:
(a) Seller shall execute, acknowledge and deliver an
assignment, bill of sale, and conveyance in recordable form (in
sufficient counterparts to facilitate recording) sufficient to convey
to Buyer the Properties with covenants of special warranty as to all
Leases, such conveyance to be in the form attached hereto as Exhibit
"F", provided, however, the assets described in Sections 1.01 (e), (f)
and (g) hereof shall be transferred to Buyer on a form of conveyance or
bill of sale reasonably acceptable to Buyer and Seller without warranty
of title, AS IS, WHERE IS, and with all faults, and disclaiming all
implied warranties.
(b) Seller shall prepare and deliver to Buyer and Seller and
Buyer shall execute and deliver a settlement statement (herein called
the "Preliminary Settlement Statement") that shall set forth the
Closing Amount (as hereinafter defined) and each adjustment and the
calculation of such adjustments used to determine such amount. The term
"Closing Amount" shall mean the Purchase Price adjusted as provided in
Section 2.02, using for such adjustments the best information then
available. Seller shall deliver a draft of the Preliminary Settlement
Statement to Buyer at least three (3) days prior to Closing.
(c) Buyer shall pay the Purchase Price other than the Earnest
Money to Seller by wire transfer in immediately available funds.
(d) The Escrow Agent shall deliver the Earnest Money plus
interest earned thereon to Seller.
(e) Seller shall deliver to Buyer, (1) a certificate signed by
a responsible officer of the General Partner of Seller certifying that
all of the representations and warranties of Seller made hereunder are
true and correct at and as of Closing, as if made on the Closing Date,
(2) a certified copy of the Executive Committee of the Board of
Directors of the General Partner of Seller authorizing the transaction
contemplated by the Agreement, such
20
<PAGE> 24
certified copy to show the dates of adoption and that on the Closing
Date the resolutions have not been rescinded or modified, and (3) a
Certificate of the Secretary of Seller showing the incumbency of the
officers of the General Partner of Seller executing instruments on
behalf of the General Partner of Seller.
(f) Buyer shall deliver to Seller (1) a certificate signed by
a responsible officer of Buyer certifying that all of the
representations and warranties of Buyer made hereunder are true and
correct at and as of Closing, as if made on the Closing Date, (2) a
certified copy of the Board of Directors resolution of Buyer
authorizing the transaction contemplated by the Agreement, such
certified copy to show the date of adoption and that on the Closing
Date it has not been rescinded or modified, and (3) a Certificate of
the Secretary of Buyer showing the incumbency of the officers of Buyer
executing instruments on behalf of Buyer.
(g) Seller shall deliver to Buyer all funds held in suspense
by Seller with respect to the Properties together with a report in
reasonable detail setting forth the reasons such funds are held in
suspense.
(h) Seller shall have delivered to Buyer a favorable opinion
of Murphy Mahon Keffler & Farrier, L.L.P., counsel to Seller, dated the
Closing Date, substantially in the form of Exhibit "G" hereof.
(i) Buyer shall have delivered to Seller a favorable opinion
of Rubin Baum Levin Constant & Friedman, counsel to Buyer, dated the
Closing Date, substantially in the form of Exhibit "H" hereof.
ARTICLE VIII
OBLIGATIONS AFTER CLOSING
8.01 - POST-CLOSING ADJUSTMENTS.
(a) As soon as practicable after the Closing, but not later
than 60 days after the Closing, Seller shall prepare and deliver to
Buyer, in accordance with this Agreement and generally accepted
accounting principles, a statement ("Seller's Final Settlement
Statement" ) setting forth each adjustment to Purchase Price that was
not finally determined as of the Closing and showing the calculation of
such adjustments. As soon as practicable after receipt of Seller's
Final Settlement Statement, and no later than 90 days after the Closing
Date, Buyer shall deliver to the Seller a written report containing any
changes that Buyer proposes be made to Seller's Final Settlement
Statement. The parties shall undertake to agree with respect to the
amounts due pursuant to such Post-Closing adjustment not later than 135
days after the Closing Date. If Buyer fails to propose any
21
<PAGE> 25
changes to the accounting set forth in the Seller's Final Settlement
Statement, it shall be deemed that Buyer agrees with Seller's Final
Settlement Statement. The final agreed price paid by Buyer to Seller
for the Properties after all adjustments is hereinafter referred to as
the "Final Purchase Price." The date upon which such agreement is
reached or upon which the Final Purchase Price is established, shall be
herein called the "Final Settlement Date".
(b) If Seller and Buyer are unable to agree upon the Final
Sales Price within 135 days from the Closing Date, Price Waterhouse,
independent public accountants, is designated to act as an arbitrator
and to decide all points of disagreement with respect to the Final
Sales Price, such decision to be binding upon both parties. If such
firm is unwilling or unable to serve in such capacity, Seller and Buyer
shall attempt to, in good faith, designate another acceptable person as
the sole arbitrator under this Section . If the parties are unable to
agree upon the designation of a person as substitute arbitrator, then
Seller or Buyer, or both of them, may in writing request the American
Arbitration Association to appoint the substitute arbitrator. The
arbitration shall be conducted under the Texas General Arbitration Act
and the rules of the American Arbitration Association to the extent
such rules do not conflict with the terms of such Act and terms hereof.
The costs and expenses of the arbitrator, whether the firm designated
above, or a third party appointed pursuant to the preceding sentence
shall be shared equally by Seller and Buyer. Within five (5) days after
the decision of the arbitrator, the Buyer or Seller, as the case may
be, shall promptly make a cash payment to the other equal to the sum as
may be found to be due as the Final Sales Price. Notwithstanding the
foregoing provisions of this Section 8.01(b), any questions with
respect to a Defective Interest or Defect Value shall be resolved
pursuant to the terms of Article V hereof.
8.02 - SALES TAXES AND RECORDING FEES. Buyer shall pay all sales taxes
occasioned by the sale of the Properties and all documentary, filing and
recording fees required in connection with the filing and recording of any
assignments.
8.03 - FURTHER ASSURANCES. After Closing, Seller and Buyer shall
execute, acknowledge and deliver or cause to be executed, acknowledged and
delivered such instruments and take such other action including payment of
monies as may be necessary or advisable to carry out their obligations under
this Agreement and under any document, certificate or other instrument delivered
pursuant hereto or required by law.
8.04 - BUYER'S POST-CLOSING OBLIGATIONS.
(a) If at any time subsequent to the Closing, Buyer comes into
possession of money or property belonging to the Seller that was not
previously accounted for by credit or adjustment according to this
Agreement such money or other property shall be promptly delivered to
the Seller.
(b) Buyer assumes all liabilities attributable to the
Properties arising from,
22
<PAGE> 26
attributable to, or alleged to be arising from or attributable to a
violation of, or the failure to perform any obligation imposed by any
and all laws, statutes, ordinances, rules, regulations, orders or
determinations of any governmental authority pertaining to health or
environment in effect where the Properties are located, regardless of
when such violation or failure to perform occurred or is deemed to have
occurred, EXCEPT THAT Buyer does not assume, and Seller shall retain
any liability attributable to compliance with, violation of, or the
failure to perform any obligation with respect to the Properties
imposed by any Environmental Laws (as defined below) provided that such
liability, when added to any liability of Cometra Energy, L.P. and
Cometra Production Company, L.P. under the Producing Properties
Agreement for the violation of, or the failure to perform any
obligation imposed by any Environmental Law with respect to the assets
covered by the Producing Properties Agreement, shall not exceed
$8,000,000 in the aggregate (the "Aggregate Liability Amount"), if and
only if (i) such liability or obligation occurred prior to the
Effective Time, and (ii) Buyer has provided written notice of such
liability or obligation specifying the location and nature of the such
liability within 180 days from the Closing Date ("Environmental
Liability"). Buyer does assume any liability attributable to compliance
with, violation of, or the failure to perform any obligation with
respect to the Properties imposed by, any Environmental Laws which
occurred prior to the Effective Time and which is in excess of the
Aggregate Liability Amount. In connection with this assumption of
liability by Buyer, Buyer agrees that prior to Closing it will conduct
such inspections of the properties as deemed necessary by it to fully
evaluate the condition of the Properties. As used in this Agreement
"Environmental Laws" means all laws, as they exist on the date hereof,
relating to (a) the control of any pollutant or potential pollutant or
protection of the air, water, land or the environment, (b) solid,
gaseous or liquid waste generation, handling, treatment, storage,
disposal or transportation, or (c) exposure to hazardous, toxic,
explosive, corrosive or other substances alleged to be harmful.
"Environmental Laws" shall include, but not be limited to, the Clean
Air Act, 42 U.S.C. Section 7401 et seq., the Clean Water Act 33 U.S.C.
Section 1251 et seq., the Resource Conservation Recovery Act, 42 U.S.C.
Section 6901 et seq., the Superfund Amendments and Reauthorization Act,
42 U.S.C. Section 11001 et seq., the Water Pollution Control Act, 33
U.S.C. Section 1251 et seq., the Safe Drinking Water Act, 42 U.S.C.
Section 300f et seq., and the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq.
(c) Except with respect to Environmental Liabilities defined
in Section 8.04(b). Buyer assumes all duties and obligations of the
owner of the Properties which accrue or arise from and after the
Effective Time. Without limitation of the foregoing, Buyer assumes (i)
all obligations of Seller under the Easements, System Contracts and
Permits arising after the Effective Time, (ii) all accounts payable and
contractual obligations incurred by Seller in accordance with this
Agreement with respect to the Properties attributable to periods on or
after the Effective Time, (iii) the obligation to make proper
distribution of any suspense accounts transferred to Buyer in
accordance with standard industry practice, regardless of whether the
suspence funds accrued prior or subsequent to the Effective Time, (iv)
all obligations to properly remove all pipe and equipment now located
on the land subject to the Easements or hereafter placed on the
Easements by
23
<PAGE> 27
Buyer, its successors and assigns, and cleanup and restore any property
included in or affected by the Properties, and (v) all liabilities and
obligations resulting from injury or death to persons and damage to
property which occur after the Closing Date.
(d) If, pursuant to Section 4.01(d), Seller does not provide
notice to any third parties under preferential rights to purchase
provisions requesting waiver of such provisions, or if such request for
waiver is made by Seller prior to Closing, but the third party's waiver
of or election to exercise the preferential right is not due under the
applicable agreement until after Closing, the affected Property shall
be conveyed to and purchased by Buyer at Closing pursuant to the terms
of this Agreement subject to the terms of the applicable preferential
right to purchase. After Closing, Buyer shall, if necessary, provide
notice to the appropriate third parties requesting waiver of the
applicable preferential rights to purchase and/or comply with the terms
of the preferential rights to purchase that are properly exercised
after Closing, with Buyer receiving all consideration payable upon the
exercise of such preferential rights to purchase.
(e) For a period of one (1) year after the Closing Date,
Buyer, or its successor who expressly assumes its obligations and
liabilities hereunder, shall maintain its corporate or other legal
status and shall at all times own assets having a value net of
liabilities of not less than $50,000,000.
(f) BUYER AGREES TO INDEMNIFY, RELEASE, DEFEND AND HOLD
HARMLESS SELLER, ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
REPRESENTATIVES, AFFILIATES, SUBSIDIARIES, SUCCESSORS AND ASSIGNS FROM
AND AGAINST ANY CLAIMS, LIABILITIES, LOSSES, DAMAGES, COSTS AND
EXPENSES (INCLUDING WITHOUT LIMITATION, DAMAGE TO PROPERTY, OR INJURY
OR DEATH OF PERSONS, COURT COSTS, REASONABLE ATTORNEY'S FEES AND
EXPENSES OF EXPERTS) CAUSED BY, ARISING FROM OR ATTRIBUTABLE TO THE
BREACH BY BUYER OF ANY OF ITS OBLIGATIONS UNDER THIS AGREEMENT OR THE
OWNERSHIP OR OPERATION OF THE PROPERTIES AFTER THE EFFECTIVE TIME,
REGARDLESS OF WHETHER SUCH CLAIMS, LIABILITIES, LOSSES, DAMAGES, COSTS
OR EXPENSES ARE DUE IN WHOLE OR IN PART TO THE NEGLIGENCE OF SELLER.
8.05 - SELLER'S POST-CLOSING OBLIGATIONS.
(a) If at any time subsequent to the Closing, Seller comes
into possession of money or property belonging to the Buyer that was
not previously accounted for by credit or adjustment according to this
Agreement such money or other property shall be promptly delivered to
the Buyer.
(b) Except for the obligations assumed by Buyer pursuant to
Section 8.04 hereof, Seller shall be responsible for and discharge (i)
Environmental Liabilities as defined
24
<PAGE> 28
in Section 8.04(b) hereof, and in connection therewith, Buyer shall
allow Seller reasonable access to the Properties effected by the
Environmental Liabilities to conduct clean-up and remedial operations,
and (ii) all other claims, costs, expenses and liabilities with respect
to the Properties which accrue or relate to the times prior to the
Effective Time.
(c) For a period of one (1) year after the Closing Date,
Seller, Cometra Energy, L.P., and Cometra Production Company, L.P. or
any of their respective successors who expressly assumes its
obligations and liabilities hereunder, shall maintain their partnership
or other legal status and shall at all times collectively own assets
having a value net of liabilities of not less than $50,000,000.
(d) After the Closing, Seller shall use its best efforts, but
without any obligation to incur any costs or expenses by Seller, to
cause the Grantors under the Plant Lease to confirm in writing that the
Plant Lease is in full force and effect as of the Closing Date and that
Seller is not in breach of any provision of the Plant Lease as of the
Closing Date. Unless and until Seller has obtained and delivered such
confirmation to Seller, SELLER AGREES TO INDEMNIFY, RELEASE, DEFEND AND
HOLD HARMLESS BUYER, ITS SUCCESSORS AND ASSIGNS, FROM AND AGAINST ANY
LOSSES, DAMAGES, COSTS AND EXPENSES CAUSED BY, ARISING FROM OR
ATTRIBUTABLE TO SELLER'S BREACH OF THE SURFACE LEASE PRIOR TO THE
EFFECTIVE TIME.
(e) SELLER AGREES TO INDEMNIFY, RELEASE, DEFEND AND HOLD
HARMLESS BUYER, ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
REPRESENTATIVES, AFFILIATES, SUBSIDIARIES, SUCCESSORS AND ASSIGNS FROM
AND AGAINST ANY CLAIMS, LIABILITIES, LOSSES, DAMAGES, COSTS AND
EXPENSES (INCLUDING WITHOUT LIMITATION, DAMAGE TO PROPERTY, OR INJURY
OR DEATH OF PERSONS, COURT COSTS, REASONABLE ATTORNEY'S FEES AND
EXPENSES OF EXPERTS) CAUSED BY, ARISING FROM OR ATTRIBUTABLE TO THE
ENVIRONMENTAL LIABILITIES AS DEFINED IN SECTION 8.04(B), THE BREACH BY
SELLER OF ANY OF ITS OBLIGATIONS UNDER THIS AGREEMENT OR THE OWNERSHIP
OR OPERATION OF THE PROPERTIES PRIOR TO THE EFFECTIVE TIME (EXCEPT WITH
RESPECT TO LIABILITIES EXPRESSLY ASSUMED BY BUYER UNDER THIS
AGREEMENT).
8.06 - FILES AND RECORDS.As soon as practicable after Closing, Buyer
and Seller shall arrange for the delivery of the Records to Buyer. For a period
of two years after the Closing Date Buyer shall allow Seller access to the
Records during Buyer's normal business hours after Closing for the purpose of
filing or amending a tax return or for any other legitimate business purpose;
provided that any copies of Records made by Seller shall be at the sole expense
of Seller.
8.07 - DISCLAIMERS OF REPRESENTATIONS AND WARRANTIES. The express
representation
25
<PAGE> 29
and warranties of Seller contained in this Agreement are exclusive and are in
lieu of all other representations and warranties, express, implied or statutory.
BUYER ACKNOWLEDGES THAT, EXCEPT FOR SELLER'S EXPRESS REPRESENTATIONS, WARRANTIES
AND AGREEMENTS CONTAINED HEREIN, SELLER HAS NOT MADE, AND SELLER HEREBY
EXPRESSLY DISCLAIMS AND NEGATES, AND BUYER HEREBY EXPRESSLY WAIVES ANY
REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT COMMON LAW, BY STATUTE OR
OTHERWISE RELATING TO (I) THE ENVIRONMENTAL CONDITION OF THE ASSETS, (II) ANY
IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (III) ANY IMPLIED OR EXPRESS
WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (IV) ANY IMPLIED OR EXPRESS
WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, (V) ANY RIGHTS OF
PURCHASERS UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION, AND
(VI) ANY AND ALL IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LAW; IT BEING THE
EXPRESS INTENTION OF BOTH BUYER AND SELLER THAT THE PERSONAL PROPERTY, EQUIPMENT
AND FIXTURES INCLUDED WITHIN THE ASSETS ARE TO BE CONVEYED TO BUYER IN THEIR
PRESENT CONDITION AND STATE OF REPAIR, "AS IS" AND "WHERE IS" WITH ALL FAULTS,
AND THAT BUYER HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS BUYER DEEMS
APPROPRIATE. SELLER AND BUYER AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE
LAW TO BE EFFECTIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED IN THIS
SECTION ARE "CONSPICUOUS" DISCLAIMERS FOR THE PURPOSES OF ANY APPLICABLE LAW,
RULE OR ORDER.
8.08 - WAIVER OF DTPA. It is the intent of the parties that Buyer's
rights and remedies with respect to this transaction and with respect to all
acts or practices of Seller, past, present or future, in connection with this
transaction shall be governed by legal principles other than the Texas Deceptive
Trade Practices - Consumer Protection Act, Tex. Bus. & Ann. Section 17.41 et
seq. (Vernon 1987 and Supp. 1994) (the "DTPA") or any similar statute of any
jurisdiction that may be applicable to the transactions contemplated hereby. As
such, Buyer hereby waives the applicability of the DTPA or any similar statute
to this transaction and any and all duties, rights or remedies that might be
imposed by the DTPA or any similar statute; provided, however, Buyer does not
waive Section 17.555 of the DTPA. Buyer acknowledges, represents and warrants
that it is purchasing the assets covered by this Agreement for commercial or
business matters; that it is able to evaluate the merits and risks of a
transaction such as this; and that it is not in a significantly disparate
bargaining position with Seller. Buyer expressly recognizes that the price for
which Seller has agreed to sell the assets and perform its obligations under
this Agreement has been predicated upon the inapplicability of the DTPA or any
similar statute and this waiver of the DTPA and any similar statute. Buyer
further recognizes that Seller, in determining to proceed with the entering into
of this Agreement has expressly relied on the provisions of this Section 8.08.
8.09 - SURVIVAL. The representations, warranties, covenants, agreements
and indemnities
26
<PAGE> 30
included or provided in Article III, in Article IV in Section 5.03(f), this
Article VIII, in Article X, in Article XI, in Article XII, and in the
assignments and agreements to be delivered at the Closing shall survive the
Closing for a period of one (1) year after the Closing Date. All other
representations, warranties, covenants, certificates, instruments and agreements
contained in or referred to in this Agreement shall terminate at Closing.
ARTICLE IX
TERMINATION OF AGREEMENT
9.01 - TERMINATION. This Agreement and the transactions contemplated
hereby may be terminated in the following instances:
(a) By Seller if the conditions set forth in Section 6.01 are
not satisfied in all material respects or waived prior to the Closing
Date;
(b) By Buyer if the conditions set forth in Section 6.02 are
not satisfied in all material respects or waived prior to the Closing
Date;
(c) By Seller if pursuant to Section 5.04 hereof Buyer gives
Seller notice of Defective Interests having a Defect Value equal to or
greater than ten percent (10%) of the Purchase Price and Buyer asserts
a reduction to the Purchase Price according to Section 2.02(b)(iv)
hereof that is in excess of ten percent (10%) of the Purchase Price;
(d) By Seller if Buyer does not deposit all of the Earnest
Money with the Escrow Agent before 2:00 p.m. on January 2, 1997;
(e) By Seller if Buyer does not provide to Seller by 5:00 p.m.
on January 2, 1997, a letter from a reputable financial institution
that such financial institution is highly confident that Buyer can
obtain financing for the Purchase Price at or prior to the Closing; or
(f) At any time by the mutual written agreement of Buyer and
Seller.
9.02 - LIABILITIES. Nothing contained in this Agreement shall limit
Seller's or Buyer's legal or equitable remedies including, without limitation,
damages for the breach or failure of any representation, warranty, covenant or
agreement contained herein and the right to enforce specific performance of this
Agreement; provided however, (i) neither party hereto shall be liable to the
other for consequential damages; (ii) if all conditions precedent to the
obligation of Buyer to close have been satisfied, but Buyer refuses to close,
Seller shall have the option to either pursue specific performance, receive the
Earnest Money as liquidated damages and terminate this Agreement or pursue its
actual damages, and if Seller receives the Earnest Money as liquidated
27
<PAGE> 31
damages pursuant to Article X hereof, then Seller shall have no further recourse
against Buyer; (iii) if all conditions precedent to the obligation of Seller to
close have been satisfied, but Seller refuses to close, Buyer shall have the
option to either pursue specific performance, receive the Earnest Money as
liquidated damages and terminate this Agreement or pursue its actual damages,
and if Buyer receives the Earnest Money as liquidated damages pursuant to
Article X hereof, then Buyer shall have no further recourse against Seller and
(iv) Seller shall have no liability to Buyer if Buyer terminates this Agreement
because any representation or warranty made by Seller herein is incorrect.
ARTICLE X
EARNEST MONEY
Upon the execution of this Agreement, Buyer has deposited into escrow
with Bank One,Texas, N.A. in Fort Worth, Texas (the "Escrow Agent"), the sum of
money equal to Five Million and No/100 Dollars ($5,000,000) (the "Earnest
Money"). At Closing, the Earnest Money, less any costs or fees incurred, plus
any interest earned thereon shall be applied against the Purchase Price. If this
transaction fails to close due to any breach by Buyer of the terms, conditions,
representations and warranties found in this Agreement, then at the election of
Seller, the Earnest Money and all interest earned thereon may be delivered to
Seller as liquidated damages. If this transaction fails to close, due to any
breach by Seller of the terms, conditions, representations and warranties found
in this Agreement, then the Earnest Money and all interest earned thereon shall
be delivered to Buyer. If this transaction fails to close for any other reason
whatsoever, then the Earnest Money and all interest earned thereon shall be
delivered to Buyer. Seller and Buyer agree to give the Escrow Agent joint
instructions for the delivery of the Earnest Money, together with any interest
earned thereon, in accordance with the terms of this Agreement
ARTICLE XI
INDEMNIFICATION
11.01 - RIGHT TO EMPLOY COUNSEL.
(a) When any claim, action, or suit shall be filed or asserted
in writing against any party which is indemnifiable under the terms of
this Agreement, the indemnified party shall promptly notify the
indemnifying party of the same in writing, specifying in detail the
basis of such claim and the facts pertaining thereto, and the
indemnifying party shall, at its option, have the right to assume the
defense thereof or participate in the defense thereof and to employ its
own legal counsel in connection with such defense. Failure of the
indemnified party to notify the indemnifying party of such claim,
action, or suit within twenty (20) calendar days after notice to the
indemnified party of such claim, action, or suit shall constitute a
waiver of its rights under this Article, unless such failure to notify
within such time period shall not prejudice the rights of the
indemnifying party in respect of such claim, action or suit, in which
case prompt notification as provided above shall be sufficient.
28
<PAGE> 32
(b) The indemnified party shall have the right to employ
counsel separate from counsel employed by the indemnifying party in any
such action and to participate in the defense thereof, but the fees and
expenses of such counsel employed by the indemnified party shall be at
the sole expense of the indemnified party unless (i) the indemnifying
party shall have elected not or shall have failed to assume or
participate in the defense thereof, (ii) the employment thereof has
been specifically authorized by the indemnifying party in writing, or
(iii) the parties to any such action (including any impleaded parties)
include both the indemnifying and indemnified party, and the
indemnified party shall have been advised by its counsel that there may
be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party (in any
which case (i), (ii) or (iii) above the indemnifying party shall not
have the right to assume the defense of such action on behalf of the
indemnified party and the fees and expenses of such counsel employed by
the indemnified party shall be at the sole expense of the indemnifying
party).
(c) Prior to effectuating any settlement of any such action or
proceeding, the indemnified party shall furnish the indemnifying party
with written notice of any proposed settlement in sufficient time to
allow the indemnifying party to act thereon. The indemnifying party
shall not be liable for any settlement of any such action or proceeding
effected without the written consent of the indemnifying party. The
indemnifying party shall not effect a settlement of any claim without
the written consent of the indemnified party unless the indemnifying
party secures the complete release of the indemnified party as a part
of such settlement.
11.02 - CLAIM REIMBURSEMENT AND REDUCTION.
(a) Should the indemnified party realize any benefit,
including any tax benefit, resulting from any loss, liability, cost or
damage for which such indemnified party has been indemnified under this
Article, such indemnified party shall reimburse the indemnifying party,
at the time such benefit is realized, an amount equal to the dollar
amount of such benefit so realized.
(b) Any claim shall be reduced to the extent of any third
party insurance or condemnation payment actually received by the
indemnified party or, alternatively, at the option of the indemnified
party, the rights of the indemnified party against any insurer or
governmental unit with respect to such claim shall be assigned to the
indemnifying party.
ARTICLE XII
GENERAL
29
<PAGE> 33
12.01 - EXHIBITS. All Exhibits are hereby incorporated in this
Agreement by reference and constitute a part of this Agreement. Each party to
this Agreement and its counsel has received a complete set of Exhibits prior to
and as of the execution of this Agreement.
12.02 - EXPENSES. All fees, costs and expenses incurred by Buyer or
Seller in negotiating this Agreement or in consummating the transactions
contemplated by this Agreement shall be paid by the party incurring the same
including, without limitation, legal and accounting fees, costs and expenses.
12.03 - NOTICES. All notices or communications required or permitted
under this Agreement shall be in writing, and any notices or communications
hereunder shall be deemed to have been duly made if delivered by (i) hand, (ii)
overnight delivery service, (iii) telecopy, or (iv) three days after being
placed in first class certified mail, postage prepaid, with return receipt
requested to the following addresses:
All notices to Seller shall be delivered to:
Rockland, L.P.
500 Throckmorton, Suite 2500
Fort Worth, Texas 76102
Telecopy: 817/877-4464
All notices to Buyer shall be delivered to:
Lomak Petroleum, Inc.
500 Throckmorton, Suite 2100
Fort Worth, Texas 76102
Telecopy: 817/870-2316
The address at which any party hereto is to receive notice may be changed from
time to time by such party by giving notice of the new address to all other
parties hereto. Any notice or communication given by telecopy shall be promptly
confirmed by delivery of a copy of such notice or communication by hand or
overnight delivery service.
12.04 - AMENDMENTS. This Agreement may not be amended nor any rights
hereunder waived except by an instrument in writing signed by the party to be
charged with such amendment or waiver and delivered by such party to the party
claiming the benefit of such amendment or waiver.
12.05 - HEADINGS. The headings of the articles and sections of this
Agreement are for guidance and convenience of reference only and shall not limit
or otherwise affect any of the terms or provisions of this Agreement.
30
<PAGE> 34
12.06 - COUNTERPARTS. This Agreement may be executed by Buyer and
Seller in any number of counterparts, each of which shall be deemed an original
instrument, but all of which together shall constitute but one and the same
instrument.
12.07 - REFERENCES. References made in this Agreement, including use of
a pronoun, shall be deemed to include where applicable, masculine, feminine,
singular or plural, individuals, partnerships or corporations. As used in this
Agreement, "person" shall mean any natural person, corporation, partnership,
trust, estate or other entity.
12.08 - GOVERNING LAW. This Agreement and the transactions contemplated
hereby shall be construed in accordance with, and governed by, the laws of the
State of Texas.
12.09 - ENTIRE AGREEMENT. This Agreement (including the Exhibits
hereto) constitutes the entire understanding among the parties with respect to
the subject matter hereof, superseding all negotiations, prior discussions and
prior agreements and understandings relating to such subject matter.
12.10 - PARTIES IN INTEREST. This Agreement shall be binding upon and
shall inure to the benefit of, the parties hereto and, except as otherwise
prohibited, their respective successors and assigns; and except as otherwise
stated herein, nothing contained in this Agreement, or implied herefrom, is
intended to confer upon any other person or entity any benefits, rights or
remedies.
12.11 - ASSIGNMENTS. Neither Buyer nor Seller may assign all or any
portion of their respective rights or delegate any portion of their duties
hereunder without the prior written consent of the other, which consent shall
not be unreasonably withheld. Provided, however, that Buyer may assign this
Agreement and its rights and duties hereunder to a wholly owned limited
partnership, limited liability company or corporation.
12.12 - PUBLIC ANNOUNCEMENTS. The parties hereto agree that prior to
making any public announcement or statement with respect to the transactions
contemplated by this Agreement, the party desiring to make such public
announcement or statement shall consult with the other party hereto and exercise
their best efforts to agree upon the text of a joint public announcement or
statement to be made solely by Seller or Buyer, as the case may be; provided,
however, if Seller or Buyer is required by law to make such public announcement
or statement, then the same may be made without the approval of the other party.
The opinion of counsel of either party shall be conclusive evidence of such
requirement by law.
12.13 - NOTICES AFTER CLOSING. Buyer and Seller hereby agree that each
party shall notify the other of its receipt, after the Closing Date, of any
instrument, notification or other document affecting the Properties while owned
by such other party.
31
<PAGE> 35
12.14 - SEVERABILITY. If a court of competent jurisdiction determines
that any clause or provision of this agreement is void, illegal or
unenforceable, the other clauses and provisions of the Agreement shall remain in
full force and effect and the clauses and provisions that are determined to be
void, illegal or unenforceable shall be limited so that they shall remain in
effect to the extent permissible by law.
12.15 - TIME IS OF THE ESSENCE. It is understood and agreed that time
is of the essence in this Agreement.
IN WITNESS WHEREOF, the parties have executed or caused the Agreement
to be executed as of the day and year first above written.
ROCKLAND, L.P., a Texas limited partnership
By: ESPERANZA PIPELINE, INC., a Delaware
corporation
By:
---------------------------------------
Mark W. Young, President
SELLER
LOMAK PETROLEUM, INC., a Delaware
corporation
By:
---------------------------------------
John Pinkerton, President
BUYER
<PAGE> 1
EXHIBIT 12.1
LOMAK PETROLEUM, INC.
COMPUTATIONS OF RATIOS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
---------------------------------------------------------- -----------------------------
Pro Forma Pro Forma
1991 1992 1993 1994 1995 1995 1995 1996 1996
------- ------- ------- ------- ------- --------- ------- ------- ---------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA:
Net income.................... $ 427 $ 686 $ 1,391 $ 2,619 $ 4,390 $ 2,839 $ 2,718 $ 8,103 $11,642
Taxes......................... 125 192 (81) 139 1,782 1,149 898 4,360 6,254
Exploration expense........... 5 49 86 359 512 512 473 836 836
Interest expense.............. 672 952 1,120 2,807 5,584 29,514 3,822 5,563 21,900
Depletion, depreciation and
amortization................ 2,387 3,124 4,347 10,105 14,863 39,276 9,808 16,589 31,807
------- ------- ------- ------- ------- ------- ------- ------- -------
EBITDA...................... 3,616 5,003 6,863 16,029 27,131 73,290 17,719 35,451 72,439
EBITDA to Interest Expense...... 5.4x 5.3x 6.1x 5.7x 4.9x 2.5x 4.6x 6.4x 3.3x
Earnings:
Income before taxes........... 552 878 1,310 2,758 6,172 3,988 3,616 12,463 17,869
Interest expense.............. 672 952 1,120 2,807 5,584 29,514 3,822 5,563 21,900
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings.................... 1,224 1,830 2,430 5,565 11,756 33,502 7,438 18,026 39,769
Fixed charges:
Interest expense.............. 672 952 1,120 2,807 5,584 29,514 3,822 5,563 21,900
Earnings to fixed charges..... 1.8x 1.9x 2.2x 2.0x 2.1x 1.1x 1.9x 3.2x 1.8x
Total Debt.................. 12,443 13,126 31,108 62,592 83,088 N/A N/A N/A N/A
Total Debt to EBITDA........ 3.4x 2.6x 4.5x 3.9x 3.1x N/A N/A N/A N/A
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our firm) included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
January 23, 1997
<PAGE> 1
EXHIBIT 23.3
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 4,600,000 shares of common stock and Senior
Subordinated Notes due 2007 and to the inclusion and incorporation by reference
therein of our report dated March 8, 1994, with respect to the consolidated
financial statements of Lomak Petroleum, Inc. for the year ended December 31,
1993 included in its Annual Report (Form 10-K) for the year ended December 31,
1995, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Cleveland, Ohio
January 23, 1997
<PAGE> 1
EXHIBIT 23.4
[Coopers & Lybrand Letterhead]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-3 of our
report dated January 20, 1997, on our audits of the statements of revenues and
direct operating expenses of the American Cometra Interests, for the years
ended December 31, 1994 and 1995 and the nine months ended September 30, 1996.
We also consent to the reference to our firm under the caption "Experts".
COOPERS & LYBRAND L.L.P.
Fort Worth, Texas
January 23, 1997
<PAGE> 1
EXHIBIT 23.5
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
Lomak Petroleum, Inc.
We consent to the incorporation by reference in the registration
statement (No. 333-XXXX) on Form S-3 of Lomak Petroleum, Inc. of our report
dated May 23, 1996, with respect to the statement assets (other than productive
oil and gas properties) and liabilities of the Bannon Interests as of
December 31, 1995 and the related statement of revenues and direct operating
expenses for the year then ended, which report appears in the Form 8-K/A of
Lomak Petroleum, Inc. dated May 31, 1996.
KPMG Peat Marwick LLP
Houston, Texas
January 22, 1997
<PAGE> 1
Exhibit 23.6
[NETHERLAND, SEWELL & ASSOCIATES, INC. LETTERHEAD]
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
We hereby consent to the reference to our firm under the captions
"Cometra Acquisition," "Business -- Oil and Gas Reserves" and "Experts" in this
Registration Statement on Form S-3 and the related Prospectuses of Lomak
Petroleum, Inc.
NETHERLAND, SEWELL & ASSOCIATES, INC.
/s/ FREDERIC D. SEWELL
---------------------------------
Frederic D. Sewell
President
Dallas, Texas
January 22, 1997
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT PETROLEUM CONSULTANTS
Wright & Company, Inc. (Wright) consents to the reference to the firm
under the captions "Business -- Oil and Gas Reserves" and "Experts" in this
Registration Statement on Form S-3 and the related Prospectus.
WRIGHT & COMPANY, INC.
BY: /s/ D. RANDALL WRIGHT
-----------------------------------
President
Brentwood, Tennessee
January 22, 1997
<PAGE> 1
Exhibit 23.8
[H.J. GRUY AND ASSOCIATES, INC. LETTERHEAD]
CONSENT OF H.J. GRUY AND ASSOCIATES, INC.
We hereby consent to the use of the name H.J. Gruy and Associates, Inc. and of
references to H.J. Gruy and Associates, Inc. under the caption "Experts" and
"Business -- Oil and Gas Reserves," and of information contained in our reserve
letter dated January 16, 1997, prepared for Lomak Petroleum Inc., in the
Registration Statement on Form S-3 and the related Prospectus of Lomak
Petroleum Inc.
H.J. GRUY AND ASSOCIATES, INC.
/s/ MARILYN WILSON
------------------------------
Marilyn Wilson, P.E.
Chief Operating Officer
Houston, Texas
January 20, 1997
<PAGE> 1
Exhibit 23.9
[HUDDLESTON & CO., INC. LETTERHEAD]
CONSENT OF ENGINEERS
Lomak Petroleum, Inc.
500 Throckmorton Street, Suite 2104
Fort Worth, Texas 76102
We consent to the reference to our firm under the captions "Business-Oil and
Gas Reserves" and "Experts" in this Registration Statement on Form S-3 and the
related Prospectus.
HUDDLESTON & CO., INC.
/s/ PETER D. HUDDLESTON
---------------------------
Peter D. Huddleston, P.E.
President
Houston, Texas
January 20, 1997
<PAGE> 1
EXHIBIT 23.10
CONSENT OF ENGINEERS
We consent to the reference to our firm under the captions "Business --
Oil and Gas Reserves" and "Experts" in this Registration Statement on Form S-3
and the related Prospectus.
CLAY, HOLT & KLAMMER
/s/ T. J. HOLT
---------------------------------------
T. J. Holt
Pittsburgh, Pennsylvania
January 20, 1997
