<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-10727
TIDE WEST OIL COMPANY
(Exact name of registrant as specified in its charter)
Delaware 84-0846048
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6666 South Sheridan, Suite 250
Tulsa, Oklahoma 74133-1750
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (918) 488-8962
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
Common Stock Purchase Warrants
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 14, 1996, 9,787,628 shares of the Registrant's Common Stock were
outstanding, and the aggregate market value of the Common Stock held by non-
affiliates was approximately $59,353,518.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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TIDE WEST OIL COMPANY
FORM 10-K
YEAR ENDED DECEMBER 31, 1995
TABLE OF CONTENTS
Page
----
PART I
Items 1
and 2. Business and Properties................................ 4
Item 3. Legal Proceedings...................................... 18
Item 4. Submission of Matters to a Vote of Security Holders.... 18
PART II
Item 5. Market for the Registrant's
Common Equity and Related Stockholder Matters.......... 18
Item 6. Selected Financial Data................................ 19
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 20
Item 8. Financial Statements and Supplementary Data............ 25
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................. 25
PART III
Item 10. Directors and Executive Officers of the Registrant..... 26
Item 11. Executive Compensation................................. 28
Item 12. Security Ownership of Certain Beneficial
Owners and Management.................................. 29
Item 13. Certain Relationships and Related Party Transactions... 31
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K................................ 32
Signatures ....................................................... 35
Index to Financial Statements..................................... F-1
2
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Certain Definitions
As used in this Form 10-K, "Mcf" means thousand cubic feet, "MMcf" means
million cubic feet, "Bcf" means billion cubic feet, "Bbl" means barrel, "MBbls"
means thousand barrels, "MMBbls" means million barrels, "BOE" means equivalent
barrels of oil, "MBOE" means thousand equivalent barrels of oil, and "MMBOE"
means million equivalent barrels of oil. Unless otherwise indicated in this
Form 10-K, gas volumes are stated at the legal pressure base of the state or
area in which the reserves are located and at 60(degree) Fahrenheit. Barrels of
oil equivalent are determined using the ratio of six Mcf of gas to one Bbl of
crude oil, condensate or natural gas liquids. The term "gross" refers to the
total acres or wells in which the Company has a working interest. The term "net"
refers to gross acres or wells multiplied by the percentage working interest
owned by the Company. Unless the context requires otherwise, all references to
the "Company" include Tide West Oil Company and its consolidated subsidiaries.
Unless otherwise indicated in this Form 10-K, the financial data, reserve
estimates and production and other data for 1995 include 100% of Horizon Gas
Partners, L.P. ("Horizon") and do not reflect reductions for minority interest
ownership because such amounts were immaterial. The Company has a 95% limited
partnership interest in capital and a 93% limited partnership interest in
profits in Horizon which was formed in January 1994. In 1994, the Company's
investment in Horizon was accounted for using the equity method and is presented
in this Form 10-K as the "equity method investee" with respect to 1994.
3
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PART I
Items 1 and 2. Business and Properties.
General
The Company is an independent oil and gas company focused on the acquisition
and enhancement of producing oil and gas properties. Since October 1989, the
Company has completed 58 acquisitions of producing oil and gas properties. The
Company intensively evaluates acquired properties in order to identify
profitable enhancement opportunities through efforts such as operating cost
reductions, equipment additions, workovers, recompletions and drilling
development wells. Management believes that its acquisition practices, when
combined with its enhancement activities, significantly reduces the risk profile
of its acquisitions. The Company is also engaged in the marketing of natural
gas through its wholly-owned marketing subsidiary, Tide West Trading & Transport
Company ("Tide West Trading").
All of the Company's properties are located in the United States, with
principal operations conducted in portions of the Anadarko and Arkoma geological
basins located in Oklahoma and Texas, as well as in portions of the Southern
Oklahoma and Texas/New Mexico regions. At December 31, 1995, the Company's
estimated net proved reserves totalled 7.0 MMBbls of oil and 237 Bcf of gas (or
46.6 MMBOE), an increase of approximately 40% over year-end 1994 net proved
reserves (including Horizon as equity method investee). The pre-tax present
value of estimated future net cash flows from proved reserves (assuming constant
prices and a 10% discount rate) was $231.7 million at December 31, 1995. On a
BOE basis, approximately 85% of the Company's proved reserves are natural gas
and approximately 82% of the Company's proved reserves are proved developed
reserves. At year-end 1995, the Company owned interests in 561 operated and 666
non-operated oil and gas wells.
In October 1989, the Company (as Draco Gas Partners, L.P. ("Draco")) was
formed as a limited partnership by Natural Gas Partners, L.P. ("NGP") and
another entity of which Philip B. Smith and Robert H. Mase were ultimately the
sole stockholders. Effective December 1, 1992, Tide West Oil Company (Colorado)
("Old Tide West") acquired Draco and its general partner, Draco Petroleum, Inc.
("Draco Petroleum"), in exchange for 80% of the then-outstanding common stock of
Old Tide West (the "Draco Transaction"). The resulting entity was
reincorporated in Delaware as the Company. The Draco Transaction was accounted
for as a reverse acquisition of the Company by Draco. Therefore, the history,
business strategy, financial and other information of the Company presented
herein for periods prior to December 1, 1992, are that of Draco.
Financial information relating to the Company's business segments is set forth
in "Note 13 to Consolidated Financial Statements - Business Segments."
The Company's principal office is located at 6666 South Sheridan, Suite 250,
Tulsa, Oklahoma 74133-1750, and its telephone number is (918) 488-8962.
Recent Developments
Merger Agreement
On February 25, 1996, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with HS Resources, Inc. ("HS Resources") and a wholly-
owned subsidiary of HS Resources, whereby the Company is to be merged with and
into such subsidiary ("the Merger"). In the Merger, each share of the Company's
common stock will be converted into .6295 of a share
4
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of HS Resources common stock and the right to receive a cash payment of $8.75
less 3% of the amount by which the average of the per share closing sales prices
of HS Resources common stock for the 10 trading days preceding the closing of
the Merger exceeds $10.50, subject to adjustments in certain events. The Merger
is subject to the approval of the stockholders of the Company and the issuance
of HS Resources common stock pursuant to the Merger is subject to the approval
of the stockholders of HS Resources.
The affirmative vote of the holders of a majority of the outstanding shares of
the Company's common stock is required to approve the Merger. Two of the
Company's stockholders (NGP and Philip B. Smith) have entered into voting
agreements with HS Resources whereby such stockholders have agreed to vote, and
granted HS Resources a proxy to vote, shares representing a majority of the
Company's outstanding common stock in favor of the Merger.
The Merger Agreement also contains various other terms and provisions,
including certain representations and warranties made by both the Company and HS
Resources, certain covenants and agreements made by both the Company and HS
Resources (including agreements relating to the conduct of the Company's
business pending consummation of the Merger and agreements restricting the
Company's ability to solicit or enter into an agreement with respect to an
alternative transaction or furnish information to or negotiate with another
party with respect to an alternative transaction), certain conditions that must
be satisfied or waived prior to consummation of the Merger (including obtaining
requisite stockholder approvals and certain governmental approvals) and rights
of the parties to terminate the Merger Agreement without completing the Merger.
A copy of the Merger Agreement is filed as an exhibit to this Form 10-K.
Business Strategy
The business strategy of the Company is to increase its reserves, cash flow
and profitability by acquiring, operating and enhancing producing oil and gas
properties and by maintaining a low operating cost structure. The Company seeks
to purchase properties which will be operated by the Company, which have
sufficient production history to allow the Company to more accurately predict
future performance, and which the Company may be able to enhance by implementing
operational improvements. The Company believes it has been successful in
implementing its strategy due, in part, to the following factors:
Geographic Concentration
The Company focuses its acquisition program on the mid-continent region of the
United States (principally Oklahoma and Texas) where management is best able to
exploit its expertise and experience obtained through operating properties in
that region. Management believes its understanding of the reservoir and
production characteristics of oil and gas properties in this region allows it to
identify acquisitions with an attractive risk/reward profile.
Focus on Acquisition of Producing Reserves
Management emphasizes acquiring producing reserves with a long production
history (generally more than five years) in order to reduce the risks inherent
in estimating the remaining oil and gas reserves and the future production
profile. In most cases, the Company limits the amount it is willing to pay for
non-producing reserves to 10% or less of any single transaction.
5
<PAGE>
Aggressive Value Enhancement
The Company undertakes an operational study of acquired properties in order to
identify value enhancements. In many cases, cost saving measures or production
improvements are rapidly implemented which increase cash flow and, in some
cases, add incremental reserves. Other activities include identifying
development drilling, recompletion or workover opportunities which can be
performed to add incremental production or extend the life of an existing well.
The Company implements its development drilling activities through ongoing
geological analysis of producing properties that have developmental drilling
potential. The Company emphasizes the acquisition of operated properties in
order to have greater control over the implementation of value enhancing
activities. In addition, by aggregating the Company's gas volumes with third-
party gas, the Company has gained greater flexibility in marketing its own
production.
Low Cost Operating Strategy
The Company pursues a low cost operating strategy and believes that it
maintains a lower overhead than many similarly-sized publicly-held independent
oil and gas operators. This has contributed to the Company's profitability in
each year since inception.
Active Risk Management
The Company seeks to reduce further the oil and gas reserve, price and
financial risks to which it is exposed by: (i) diversifying its property
holdings and avoiding concentrating a large value in any single property, (ii)
periodically using commodity price swaps and other hedging strategies, (iii)
maintaining what the Company believes to be a prudent level of indebtedness, and
(iv) using interest rate swaps and other financial strategies when management
deems them appropriate.
Formation of Horizon
In January 1994, Horizon, a Delaware limited partnership, was formed and the
Company contributed certain minor properties thereto in exchange for a 95%
limited partnership interest. The Company is the sole limited partner of
Horizon. In 1994, the Company's investment in Horizon was accounted for using
the equity method and is presented herein as the equity method investee with
respect to 1994. In 1995, Horizon was consolidated into the Company's financial
statements, reserve estimates, and production and other data. The Company
believes that Horizon has acted as a mechanism for the Company to increase the
value of its minor or marginal properties in a manner that is different from the
industry norm. Rather than neglecting or selling minor or marginal properties,
which the Company believes to be the industry norm, through Horizon the Company
has been able to cost effectively enhance the value of previously minor or
marginal properties. The general partner of Horizon is more effectively able to
give these properties the level of attention such properties require, while
Company personnel can concentrate on higher value properties. As an additional
benefit, Horizon also is a source for new acquisitions. See "Note 2 to
Consolidated Financial Statements - Summary of Significant Accounting Policies -
Principles of Consolidation" and "Note 11 to Consolidated Financial Statements -
Related Party Transactions."
Acquisition Activities
From October 1989 through December 1995, the Company completed 58 oil and gas
property acquisitions, involving total acquisition and development costs of
$140.0 million. In 1995, the Company spent $16.0 million on 11 property
acquisitions.
The Company concentrates its acquisition efforts on oil and gas producing
properties which demonstrate a potential for enhancement through operational
improvement or additional
6
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development. Enhancement activities include operating cost reductions, equipment
additions, workovers, recompletions, secondary recovery operations, drilling
development wells and such other procedures as situations dictate. The Company
operates wells which comprise approximately 80% of its proved reserves on a BOE
basis. It attempts to acquire operated properties so that it may assert greater
control over enhancement activities.
The Company frequently reviews acquisition opportunities and anticipates
making additional acquisitions when the properties, and the terms and conditions
of the transaction, are determined to be appropriate for the Company and the
Company has available financial resources. Subject to change in the event the
proposed Merger is consummated, the Company has budgeted capital expenditures of
approximately $10.0 million for oil and gas property acquisitions in 1996. At
the date of this Form 10-K, no acquisition agreements have been executed by the
Company with respect to any acquisition by the Company which would require
disclosure on Form 8-K.
Production Enhancement and Developmental Drilling Activities
Subsequent to each acquisition, the Company performs an intensive operational
and engineering review of acquired properties to identify cost saving and
production enhancement opportunities. The Company has often improved its
properties through relatively inexpensive operational or equipment changes. In
the mid-continent areas where the Company generally operates, the geological
features are such that many wells penetrate multiple productive horizons so that
additional developmental drilling and recompletion opportunities are often
identified. Subject to change in the event the proposed Merger is consummated,
the Company has budgeted approximately $17.0 million for the enhancement of 34
wells during 1996. The Company expects to fund these expenditures from
internally-generated cash flows and its revolving credit facility. The Company
spent $13.4 million on developmental drilling in 1995.
Developmental drilling opportunities are sometimes generated as a result of
the Company's producing property acquisitions. Developmental drilling allows
for addition of reserves with less risk of dry holes than exploratory drilling.
From January 1993 through December 1995, the Company participated in the
drilling of 44 gross (34.8 net) development wells of which only 5 gross (3.5
net) wells were dry holes. There can be no assurance that this rate of drilling
success will continue in the future. The Company intends to implement its
developmental drilling activities through its ongoing geological analysis of
producing properties that have developmental drilling potential.
The results of the Company's developmental drilling efforts are shown in the
following table:
<TABLE>
<CAPTION>
1993 1994 1995
-------------------------------------
Productive Wells: Gross Net Gross Net Gross Net
----- --- ----- --- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Gas 7 4.1 6 5.0 17 13.7
Oil 1 1.0 1 0.6 7 6.9
Dry holes --- --- 1 0.7 4 2.8
-------------------------------------
Total 8 5.1 8 6.3 28 23.4
=====================================
</TABLE>
The Company has not drilled any exploratory wells. The Company has completed
two additional gas wells subsequent to December 31, 1995.
7
<PAGE>
Principal Areas of Operations
The Company owns and operates producing properties located primarily in four
geological areas: (i) the Anadarko Basin in western Oklahoma and the Texas
panhandle, (ii) the Arkoma Basin in southeastern Oklahoma, (iii) the Southern
Oklahoma Region and (iv) the Texas/New Mexico Region. At December 31, 1995, the
Company operated 561 gross (461.6 net) wells and owned non-operated interests in
666 gross (103.8 net) wells. Waterfloods are counted as one well.
Oil and gas sales from the Company's producing properties accounted for
approximately 25%, 25%, and 31% of the Company's total revenues for the years
ended December 31, 1993, 1994, and 1995, respectively.
The focus of the Company's activities is in the following geological areas:
Anadarko Basin
The Anadarko Basin is a major oil and gas producing area in the mid-continent
region of the United States, encompassing approximately 35,000 square miles in
western Oklahoma, the northern Texas panhandle and southwestern Kansas. The
greatest concentration of oil fields occurs on the eastern flank of the basin,
with gas fields dominating the shelf to the west, the Texas panhandle area and
the deep basin located in southwestern Oklahoma. The majority of the Company's
production comes from the Red Fork, Springer-Morrow, Chester, Mississippi and
Hunton geological formations. Oil and gas are produced in this Basin from
depths of only a few hundred feet to over 20,000 feet. Most of the Company's
wells produce from depths between 6,000 and 16,000 feet. The Company has access
to gas pipelines which service the Anadarko Basin, including those operated by
Northern Natural Gas Company, ANR Pipeline Company, Panhandle Eastern Pipe Line
Co., Noram, Inc., Oklahoma Natural Gas Company, Enogex, Inc., GPM Gas
Corporation and Transok, Inc.
At December 31, 1995, the Company owned 573 gross (248.0 net) wells in the
Anadarko Basin, of which 209 gross (192.9 net) wells were operated by the
Company. The Company's properties in the Anadarko Basin contained estimated
proved reserves of 2.4 MMBbls of oil and 95.2 Bcf of natural gas (or 18.3
MMBOE), which represented approximately 39% of the Company's proved reserves on
a BOE basis.
Arkoma Basin
The Arkoma Basin is a crescent-shaped region 250 miles long and 20 to 50 miles
wide, encompassing approximately 9,000 square miles straddling the Arkansas-
Oklahoma border. The Arkoma Basin is a major natural gas region, with most
wells producing from depths between 5,000 and 12,000 feet. The majority of the
Company's production comes from the Booch, Hartshorne, Atoka, Spiro and Cromwell
geological formations. The well depth for most of the Company's wells in the
Arkoma Basin is between 5,000 and 10,000 feet. Gas pipeline companies which
provide the Company access from this Basin to interstate markets include Noram,
Inc., Transok, Inc. and Enogex, Inc.
At December 31, 1995, the Company owned 192 gross (98.1 net) wells in the
Arkoma Basin, of which 109 gross (82.0 net) wells were operated by the Company.
The Company's properties in the Arkoma Basin contained estimated proved reserves
of 58.4 Bcf of natural gas (or 9.8 MMBOE), which represented approximately 21%
of the Company's proved reserves on a BOE basis.
8
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Southern Oklahoma Region
The Southern Oklahoma Region is a faulted and folded geologic province that
extends across seven counties in south-central Oklahoma. The area is
characterized by many large oil and gas fields producing from some of Oklahoma's
premier reservoirs. The Company's production is mainly from the Pennsylvanian
Hoxbar, Deese and Springer sands, the Hunton and Viola carbonates, and the
Simpson sands. The Company's wells in this region produce from depths ranging
from 5,000 to 17,000 feet. The Company has access to gas pipelines which service
the Southern Oklahoma Region, including those operated by Transok, Inc., Mobile
Natural Gas, Inc., Texaco Exploration & Production, Inc., and Parker & Parsley
Gas Processing Co.
At December 31, 1995, the Company owned 95 gross (53.2 net) wells in the
Southern Oklahoma Region, of which 62 gross (49.0 net) wells were operated by
the Company. The Company's properties in this region contain estimated proved
reserves of 3.0 MMBbls of oil and 29.4 Bcf of natural gas (or 7.9 MMBOE), which
represented approximately 17% of the Company's proved reserves on a BOE basis.
Texas/New Mexico Region
In this region, the Company's properties are found principally in the Permian
Basin and the East Texas Basin.
The Permian Basin of west Texas and southeastern New Mexico is one of the
United States' major oil and gas producing regions. This Basin extends over
36,000 square miles and is subdivided, west to east, into the Delaware Basin,
Central Basin Platform and Midland Basin, with the Northwestern Shelf region
extending into New Mexico. The Company's properties are located entirely in the
New Mexico portion of the Basin. Most of the Company's oil production is from
the Delaware Sand geological formation at depths of 4,000 to 6,000 feet. Gas
production is principally from the Abo geological formation at 4,000 to 5,000
feet. Transwestern Pipeline Company primarily provides the Company with access
to interstate gas markets from the Permian Basin.
The East Texas Basin is a structural embayment along the Texas Gulf coast
bounded on the west by the Mexia-Talco fault system and on the east by the
Sabine Uplift. This Basin occupies the greater part of Texas east and south of
Dallas, north of Houston and eastward into northwest Louisiana. The predominant
reservoirs are normally pressured Cretaceous sandstones and carbonates at depths
ranging from 5,000 to 11,000 feet. The Company's fields are located in Houston,
Freestone, Cherokee, and Henderson Counties in Texas and DeSoto Parish in
Louisiana. The Company produces mostly gas with some oil from principal
reservoirs that include the Woodbine, Glen Rose, Rodessa, Pettet, and the
Hosston. Lone Star Gas Co. and Delhi Gas Pipeline provide the Company with
access to interstate gas markets from the East Texas Basin.
At December 31, 1995, the Company owned 140 gross (111.4 net) wells in the
Texas/New Mexico Region, of which 120 gross (103.9 net) wells were operated by
the Company. The Company's properties in this region contained estimated proved
reserves of 1.3 MMBbls of oil and 40.1 Bcf of natural gas (or 8.0 MMBOE), which
represented approximately 17% of the Company's proved reserves on a BOE basis.
Horizon
The Company is the sole limited partner of Horizon, of which Horizon Natural
Resources, Inc. is the sole general partner. As limited partner, the Company
contributes 95% of the partnership's capital costs and receives 93% of the
partnership's net income. At December 31, 1995, Horizon owned 538 gross (101.3
net) wells primarily in the Anadarko Basin. Horizon's estimated proved reserves
contain 0.3 MMBbls of oil and 26.5 Bcf of natural gas (or 4.7 MMBOE). The well
count and reserve data for Horizon is included in the discussion of the four
geological areas above.
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Proved Reserves
The quantities of the Company's proved reserves of oil and natural gas
presented below include only those amounts which the Company reasonably expects
to recover in the future from known oil and gas reservoirs under existing
economic and operating conditions. Proved developed reserves are limited to
those quantities which are recoverable commercially at current prices and costs,
under existing regulatory practices and with existing technology. Accordingly,
any changes in prices, operating and development costs, regulations, technology
or other factors could significantly increase or decrease estimates of the
Company's proved developed reserves. The Company's proved undeveloped reserves
include only those quantities which the Company reasonably expects to recover
from the drilling of new wells based on geological evidence from directly
offsetting wells. The risks of recovering these reserves are higher from both
geological and mechanical perspectives than the risks of recovering proved
developed reserves.
Netherland, Sewell & Associates, Inc. ("Netherland Sewell"), an independent
petroleum engineering consulting firm, has made estimates of certain of the
Company's oil and gas reserves at December 31, 1993 and 1994. Netherland
Sewell's reports for reserves at December 31, 1993 and 1994 covered properties
accounting in those years for approximately 80% of the estimated present value
of future net cash flows before income taxes (discounted at 10%) attributable to
the Company's proved reserves, with the balance being estimated by the Company
for those years. Reserve estimates at December 31, 1995, were prepared by the
Company's engineers.
Set forth below are estimates of the Company's net proved reserves, proved
developed reserves, the future net revenues from such reserves, and the present
value thereof based upon the standardized measure of discounted future net cash
flows relating to proved oil and gas reserves in accordance with the provisions
of Statement of Financial Accounting Standards No. 69, "Disclosures about Oil
and Gas Producing Activities." Estimated future net cash flows from proved
reserves are determined by using estimated quantities of proved reserves and the
periods in which they are expected to be developed and produced based on
economic conditions at the date of the report. The estimated future production
is priced at current prices at the date of the report. The resulting estimated
future cash inflows are then reduced by estimated future costs to develop and
produce reserves based on cost levels at the date of the report. No deduction
has been made for depletion, depreciation or income taxes or for indirect costs,
such as general corporate overhead. Present values were computed by discounting
future net revenues at 10% per annum.
The estimated net proved and proved developed reserves were as follows at the
dates indicated (Horizon's reserves are presented as equity method investee in
1994 and are consolidated with the Company's reserves in 1995):
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------
1994 1995
-----------------------------------------
Oil Gas Oil Gas
(MBbls) (MMcf) (MBbls) (MMcf)
------- ------ ------- ------
<S> <C> <C> <C> <C>
Proved reserves 2,898 165,093 6,985 237,487
Proved developed reserves 2,810 142,756 5,831 194,624
The Company's share of equity method investee reserves (not included above):
Proved reserves 390 14,846 --- ---
Proved developed reserves 390 14,846 --- ---
</TABLE>
10
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The following table sets forth amounts, as of December 31, 1995, determined in
accordance with the requirements of the applicable accounting standards, with
respect to the estimated future net cash flows from production and sale of the
proved reserves attributable to oil and gas properties before income taxes and
the present value thereof (average prices used in determining the Company's
future net cash flow estimates at December 31, 1995, were $18.04 per Bbl for oil
and $1.86 per Mcf for gas):
<TABLE>
<CAPTION>
At December 31, 1995
-------------------------------------
Proved Proved Total
Developed Undeveloped Proved
(In thousands) Reserves Reserves Reserves
--------- ----------- --------
<S> <C> <C> <C>
Estimated future net cash flows from $323,586 $67,136 $390,722
proved reserves before income taxes
Present value of estimated future net
cash flows from proved reserves before
income taxes (discounted at 10%) $192,417 $39,313 $231,730
</TABLE>
The estimation of oil and gas reserves is a complex and subjective process
which is subject to continued revisions as additional information becomes
available. Reserve estimates prepared by different engineers from the same data
can vary widely. Therefore, the reserve data presented herein should not be
construed as being exact. Any reserve estimate depends in part on the quality
of available data, engineering and geological interpretation, and thus
represents only an informed professional judgment. Subsequent reservoir
performance may justify upward or downward revision of such estimates.
Estimates of the Company's proved reserves have never been filed with or
included in reports to any federal authority or agency, other than the
Securities and Exchange Commission.
11
<PAGE>
Production, Prices and Operating Expenses
The Company is not presently obligated to provide a fixed and determined
quantity of oil or gas production under any existing contract or agreement. The
following table sets forth the Company's net production of oil and gas, average
sales prices and certain production data during the periods indicated:
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------------------------
1993 1994 1995(1)
------ ------ ---------
<S> <C> <C> <C>
Net sales volumes:
Oil (MBbls) 297 362 571
Gas (MMcf) 10,053 14,087 18,099
Average sales prices:
Oil (per Bbl) $15.79 $15.39 $16.55
Gas (per Mcf) 1.95 (2) 1.66 1.44
Average production costs per BOE(3) $3.22 $2.54 $2.86
</TABLE>
- -------------------
(1) Includes the consolidation of Horizon.
(2) Due primarily to a short-term gas price hedge initiated in 1992, the
effective price for gas decreased from $1.95 to $1.84 per Mcf in 1993.
(3) The components of production costs include lease operating expense and
severance tax.
Productive Wells and Acreage
Substantially all of the Company's producing properties are leased by the
Company for an indeterminate number of years, as long as commercial production
is maintained.
The following table sets forth, at December 31, 1995, by geological basin, the
Company's producing wells, developed acreage and undeveloped acreage:
<TABLE>
<CAPTION>
Producing Developed Undeveloped
Wells(1) Acreage Acreage
-------- ------- -------
Basin Gross Net Gross Net Gross Net
- ----- ----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Anadarko 573 248.0 197,187 80,399 26,253 22,714
Arkoma 192 98.1 65,688 35,081 8,960 3,616
Southern Oklahoma Region 95 53.2 22,753 7,495 --- ---
Texas/New Mexico Region 140 111.4 30,289 20,635 --- ---
Others 227 54.7 77,120 17,472 1,280 1,280
---------------------------------------------------------------
Totals 1,227 565.4 393,037 161,082 36,493 27,610
</TABLE>
- --------------------
(1) A total of 171 gross (98.5 net) wells are oil wells and 1,056 gross (467.0
net) wells are gas wells. Waterfloods are counted as one well.
12
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Marketing Activities
The natural gas production of the Company is sold primarily on the spot market
to a variety of purchasers, including intrastate and interstate pipelines, their
marketing affiliates, independent marketing companies and other purchasers.
Because an insignificant amount of its gas is committed under long-term fixed
price contracts, the Company is positioned to take advantage of rising prices
for natural gas but is also subject to gas price reductions. Substantially all
of the Company's crude oil and condensate production is sold at NYMEX-based
prices under short-term contracts, which terms are customary in the industry.
During 1993 and 1995, no single purchaser contributed more than 10% of the
Company's total revenues. One purchaser in 1994 represented 11% of the Company's
total revenues.
From time to time, the Company hedges the price of a portion of its future oil
and gas production with commodity price swap contracts and futures contracts.
At December 31, 1995, the Company had closed or covered all of its significant
hedged contracts with offsetting contracts.
The Company employs a group of five employees charged with marketing the
Company's natural gas and generating fees from marketing the gas of unrelated
third parties. By taking control of the marketing of its own gas volumes, the
Company generally can increase the prices which it receives for its own gas. In
addition, the aggregation of the Company's gas volumes with gas of third parties
sometimes allows the marketing group to arrange more favorable sales contracts.
Gas marketing accounted for approximately 75%, 75%, and 69% of the Company's
revenues for the years ended December 31, 1993, 1994 and 1995, respectively.
The availability of a market for oil and gas produced by the Company is
dependent upon a number of factors beyond its control which at times cannot be
accurately predicted. These factors include the proximity of wells to, and the
available capacity of, natural gas pipelines, the extent of competitive domestic
production and imports of oil and gas, the availability of other sources of
energy, fluctuations in seasonal supply and demand, and governmental regulation.
In addition, there is always the possibility that new legislation may be enacted
which would impose price controls or additional excise taxes upon crude oil or
natural gas, or both. In the event a productive gas well is completed in an
area that is distant from existing gas pipelines, the Company may allow the well
to remain shut-in until a pipeline is extended to the well or until additional
wells are drilled to establish the existence of sufficient producing reserves to
justify the cost of extending existing pipelines to the area. The United States
has experienced oversupplies of natural gas which have caused delays,
restrictions and reductions of natural gas production. In addition, increased
imports of natural gas, primarily from Canada, have occurred and are expected to
continue. Oversupplies of natural gas can be expected to recur from time to
time and may result in the gas producing wells of the Company being shut-in.
Since the early 1970s, the market price for crude oil has been significantly
affected by policies adopted by the member nations of the Organization of
Petroleum Exporting Countries ("OPEC"). Members of OPEC establish prices and
production quotas among themselves for petroleum products from time to time with
the intent of manipulating the global supply and price levels for crude oil. In
addition, Canada recently amended its tax laws and other laws affecting the
exportation of its natural gas to the United States, and such amendments are
expected to increase competition and may adversely affect the price of natural
gas in certain areas of the United States. Also, the United States is lifting
its ban on exporting Alaska Northslope crude oil. The Company is unable to
predict the effect, if any, which OPEC or such Canadian and United States
legislation will have on the amount of, or the prices received for, oil and
natural gas produced and sold from the Company's wells.
Seasonal and other changes in oil and natural gas prices significantly affect
the revenues and cash flow of the Company and the value of its oil and gas
properties. Significant declines in the
13
<PAGE>
prices of oil or natural gas could have a material adverse effect on the
business and financial condition of the Company. The Company is unable to
predict accurately whether the prices of oil and natural gas will rise,
stabilize or decline in the future.
Relationship with NGP
NGP and Tide West Trading (formerly Draco Production Company) formed Draco in
late 1989 with the objective of building a large independent oil and gas company
through the acquisition and enhancement of producing oil and gas properties.
NGP is an investment fund organized in 1988 to make equity-related investments
in oil and gas companies. From inception through early 1992, NGP funded 95% of
the equity capital needed by Draco to complete acquisitions. Since early 1992,
Draco, and subsequently the Company, has been able to fund acquisitions from
internally-generated cash flow, bank borrowings and from its offering of common
stock in March 1993. As representatives of the largest stockholder, principals
of NGP have been involved in the acquisition approval process as well as the
formulation of strategic and financial plans for Draco and, after the Draco
Transaction, the Company. NGP principals currently occupy three seats on the
Company's Board of Directors and maintain their involvement in the strategic and
financial planning of the Company. Since January 1, 1993, NGP has provided
financial advisory services to the Company under a contractual arrangement.
Competition
Competition in the oil and gas industry is intense. Both in seeking to obtain
and acquire producing properties and in marketing oil and gas, the Company faces
competition both from major and independent oil and gas companies and from
numerous individuals. Many of these competitors have financial and other
resources substantially in excess of those available to the Company.
Increases in worldwide energy production capability have brought about
surpluses in energy supplies in recent years. This, in turn, has resulted in
substantial competition in markets historically served by domestic natural gas
from alternative sources of energy, such as residual fuel oil, and among
domestic natural gas suppliers. Changes in government regulations relating to
the production, transportation and marketing of natural gas have also resulted
in significant changes in the historical marketing patterns of the industry.
Generally, these changes have resulted in the abandonment by many pipelines of
long-term contracts for the purchase of natural gas, the development by natural
gas producers of their own marketing programs to take advantage of new
regulations requiring pipelines to transport natural gas for regulated fees, and
the emergence of various types of marketing companies and other aggregators of
gas supplies. As a consequence, natural gas prices, which were once effectively
determined by government regulations, are now largely established by
competition. Competitors of the Company in this market include other producers,
natural gas pipelines and their affiliated marketing companies, independent
marketers and providers of alternate energy supplies.
Exploration for and production of oil and gas are affected by the availability
of pipe, casing and other tubular goods and certain other oil field equipment,
including drilling rigs and tools. The Company is dependent upon independent
drilling contractors to furnish rigs, equipment and tools to drill the wells
they operate. The Company has not experienced and does not anticipate
difficulty in obtaining supplies, materials, drilling rigs, equipment or tools.
Regulation
General
The oil and gas industry is extensively regulated by federal, state and local
authorities. Legislation affecting the oil and gas industry is under constant
review for amendment or expansion.
14
<PAGE>
Numerous departments and agencies have issued rules and regulations affecting
the oil and gas industry and its individual members, some of which carry
substantial penalties for the failure to comply. The regulatory burden on the
oil and gas industry increases its cost of doing business and, consequently,
affects its profitability. Inasmuch as such laws and regulations are frequently
amended or reinterpreted, the Company is unable to predict the future cost or
impact of complying with such regulations.
Exploration and Production
Exploration and production operations of the Company are subject to various
types of regulation at the federal, state and local levels. Such regulation
includes requiring drilling permits, requiring the maintenance of bonds in order
to drill or operate wells, and regulating the location of wells, the method of
drilling and casing wells, the surface use and restoration of properties upon
which wells are drilled and the plugging and abandoning of wells. The Company's
operations are also subject to various conservation regulations, including
regulation of the size of drilling and spacing units or proration units, the
density of wells which may be drilled and the unitization or pooling of oil and
gas properties. In this regard, some states, including the states in which the
Company operates, allow the forced pooling or integration of lands and leases to
facilitate exploration, while other states rely on voluntary pooling of lands
and leases. In addition, state conservation laws establish maximum rates of
production from oil and gas wells, generally prohibit the venting or flaring of
gas and impose certain requirements regarding the ratability of production. The
cumulative effect of these regulations is to limit the amounts of crude oil and
natural gas the Company can produce from its wells and the number of wells or
the locations at which the Company can drill.
Oklahoma has enacted legislation which further limits the daily allowable of
natural gas production during periods of low demand for natural gas. The
Oklahoma Corporation Commission sets production level limitations quarterly.
The production of natural gas from a single well is limited to the greater of a
specified Mcf per day or a percentage of the total daily production capacity of
the well. Since March 1992, the Oklahoma Corporation Commission has set the
daily Mcf between 750 and 1,000 Mcf and the total daily production limit has
ranged from 35% to 50%. Effective July 1, 1992, the Texas Railroad Commission
(the "TRC"), which is the state agency that regulates oil and gas production in
Texas, enacted regulations that can limit the rate at which oil and gas may be
produced from the Company's Texas properties. Under these Texas regulations,
the TRC relies upon certain information filed monthly by well operators, in
addition to using historical production data for each well during comparable
past periods, to arrive at a production allowable. These Oklahoma and Texas
regulations and legislation have not had a significant impact on the Company's
operations. The Company cannot predict whether other states will adopt similar
regulations or legislation. However, the effect of such legislation and
regulations may be to decrease the allowable daily production and the revenues
from gas properties, including properties that produce both oil and gas. It is
also possible that such legislation and regulations may result in a decrease in
natural gas production in such states, which could exert upward pressure on the
price of natural gas.
Various federal, state and local laws and regulations covering the discharge
of materials into the environment, or otherwise relating to the protection of
the environment, may affect the exploration, development and production
operations of the Company. The Company is also subject to laws and regulations
concerning occupational safety and health. It is not anticipated that the
Company will be required in the near future to expend amounts that are material
to its overall operations by reason of environmental or occupational safety and
health laws and regulations, but because such laws and regulations are
frequently changed, the Company is unable to predict the ultimate cost of
compliance.
15
<PAGE>
Natural Gas Sales and Transportation
Federal legislation and regulatory controls have historically affected the
price of the gas produced and sold by the Company and the manner in which such
production is marketed. Historically, the transportation and sale for resale of
gas in interstate commerce have been regulated pursuant to the Natural Gas Act
of 1938 (the "NGA"), the Natural Gas Policy Act of 1978 (the "NGPA") and the
regulations promulgated thereunder by the Federal Energy Regulatory Commission
(the "FERC"). Since 1978, maximum selling prices of certain categories of
natural gas sold in so-called "first sales" (which include the types of sales
made by the Company), whether sold in interstate or intrastate commerce, were
regulated pursuant to the NGPA. The NGPA established various categories of
natural gas and provided for graduated deregulation of price controls of several
categories of natural gas and the deregulation of sales of certain categories of
natural gas. Most "first sale" price deregulation contemplated under the NGPA
occurred by mid-1987. Moreover, on July 26, 1989, the Natural Gas Wellhead
Decontrol Act of 1989 was enacted. This act amended the NGPA by removing both
price and non-price controls from natural gas sold in "first sales" on the
earlier of the termination of the applicable contract or January 1, 1993. In
addition, in December 1992, the FERC issued Order 547, which, since January 7,
1993, has constituted a blanket certificate of public convenience and necessity
pursuant to Section 7 of the NGA authorizing any company which is not an
interstate natural gas pipeline or an affiliate thereof to make sales for resale
at negotiated rates in interstate commerce of any category of gas that is
subject to the FERC's NGA jurisdiction. As a result, since January 7, 1993,
none of the Company's natural gas production has been subject to federal price
controls. Under current market conditions, deregulated natural gas prices under
recently negotiated contracts tend to be substantially lower than most regulated
price ceilings that were previously prescribed by the NGPA.
Historically, interstate pipeline companies have generally acted as wholesale
merchants by purchasing natural gas from producers and reselling the gas to
local distribution companies and large end-users. Under the NGA and NGPA, the
transportation and sale of natural gas by interstate pipeline companies have
been subject to extensive regulation, and the construction of new pipelines, the
extension of existing pipelines and the commencement and cessation of sales or
transportation services by pipeline companies generally have required prior FERC
authorization.
Commencing in 1985, the FERC promulgated a series of orders and regulations
adopting changes that significantly affect the transportation and marketing of
natural gas. These changes have been intended to foster competition in the
natural gas industry by, among other things, inducing or mandating that
interstate pipeline companies provide nondiscriminatory transportation services
to producers, distributors and other shippers (so-called "open access"
requirements). The FERC has also sought to expedite the certification process
for new services, facilities and operations of those pipeline companies
providing "open access" services. The FERC's actions in these areas have been
subject to extensive judicial review and have generated significant industry
comment and proposals for modifications to existing regulations.
In April 1992 (clarified in August 1992 and finalized in November 1992), the
FERC issued Order 636, a complex regulation which has had a major impact on
natural gas pipeline operations, services and rates. Among other things, Order
636 requires each interstate pipeline company to "unbundle" its traditional
wholesale services and create and make available on an open and
nondiscriminatory basis numerous constituent services (such as gathering
services, storage services, firm and interruptible transportation services, and
stand-by sales services), and to adopt a new rate making methodology to
determine appropriate rates for those services. To the extent the pipeline
company or its sales affiliate makes gas sales as a merchant, it now does so in
direct competition with all other sellers pursuant to private contracts;
however, pipeline companies are not required to remain "merchants" of gas, and
many of the interstate pipeline companies have become transporters only. Each
pipeline company had to develop the specific terms of service in individual
proceedings. Although the regulations do not directly regulate natural gas
producers such as the Company, the
16
<PAGE>
availability of non-discriminatory transportation services and the ability of
pipeline customers to modify or terminate their existing purchase obligations
under these regulations have greatly enhanced the ability of producers to market
their natural gas directly to end-users and local distribution companies. In
this regard, access to markets through interstate natural gas pipelines is
critical to the marketing activities of the Company. The Company has access to
several natural gas pipelines which serve interstate markets in each of its
principal areas of operations. See "Items 1 and 2. Business and Properties -
Principal Areas of Operations."
As a result of Order 636, a number of interstate pipeline companies have (i)
"spun down" their gathering systems from regulated pipeline transportation
companies to unregulated affiliates, (ii) spun-off gathering systems to non-
related entities, and/or (iii) "refunctionalized" portions of their pipeline
facilities from transmission to gathering. In a May 27, 1994 order and a
December 2, 1994 rehearing order, FERC ruled that it generally does not have
jurisdiction over gathering facilities absent abuse involving the pipeline-
affiliate relationship. However, FERC directed pipelines spinning down or off
their gathering systems to include certain Order No. 497 standards of conduct in
their tariffs and to enter into continuity of service agreements with existing
users or to execute a "default contract" with users with whom they cannot reach
agreement, with the default contract to contain a minimum two-year term, use the
pipeline gatherer's then current rate (with an appropriate escalator clause) for
existing customers for similar service, and contain terms and conditions
consistent with those applicable to the pipeline's gathering service. In
addition, the interstate pipeline must seek authority under Section 7(b) of the
NGA to abandon certified gathering facilities and must file for authority under
Section 4 of the NGA to terminate gathering service from both certified and
uncertified facilities. A consequence of this divestiture of gathering
facilities could be the charging of higher gathering fees.
With respect to oil pipeline rates subject to the FERC's jurisdiction, in
October 1993 the FERC issued Order 561 in order to fulfill the requirements of
Title XVIII of the Energy Policy Act of 1992. Order 561 established an indexing
system, effective January 1, 1995, under which oil pipelines are able to readily
change their rates to track changes in the Producer Price Index for Finished
Goods (PPI-FG), minus one percent. This index established ceiling levels for
rates. Order 561 also permits cost-of-service proceedings to establish just and
reasonable rates for initial rates for new service. Cost-of-service review may
also be invoked when an oil pipeline company claims it is significantly under-
recovering its costs, or when customers claim the pipeline's rates are excessive
in relation to actual costs. The order does not alter the right of a pipeline
to seek FERC authorization to charge market-based rates. However, until the
FERC makes the finding that the pipeline does not exercise significant market
power, the pipeline's rates cannot exceed the applicable index ceiling level or
a level justified by the pipeline's cost of service.
Operational Hazards and Insurance
The operations of the Company are subject to all risks inherent in the
exploration for, and development and production of, oil and gas, including such
natural hazards as blowouts, cratering and fires, which could result in damage
or injury to, or destruction of drilling rigs and equipment, formations,
producing facilities or other property, or could result in personal injury, loss
of life or pollution of the environment. Any such event could result in
substantial cost to the Company which could have a material adverse effect upon
the financial condition of the Company to the extent it is not fully insured
against such risk. The Company carries insurance against certain of these risks,
but, in accordance with standard industry practice, the Company is not fully
insured for all risks, either because such insurance is unavailable or because
the Company elects not to obtain such insurance coverage because of cost.
Although such operational risks and hazards may to some extent be minimized, no
combination of experience, knowledge and scientific evaluation can eliminate the
risk of investment or assure a profit to any company engaged in oil and gas
operations.
17
<PAGE>
Employees and Organizational Structure
At March 15, 1996, the Company employed 47 people in its Tulsa and
Holdenville, Oklahoma, offices. In January 1995, the Company reorganized its
internal operating structure. The new structure sets forth departments having
functions associated with management, operations, land, geology, acquisitions,
accounting, and oil and gas marketing in order to provide increased autonomy for
department heads. In addition, committees were formed to oversee and to
authorize capital commitments. The new operating structure was designed to
spread responsibilities and decision-making to more of the Company's highly-
qualified employees. The Company primarily uses independent contractors for
operating wells. Management believes that its relations with its employees are
excellent.
Office Properties
The Company has leased approximately 14,193 square feet for its principal
office space in Tulsa, Oklahoma until October 1997. An additional 3,499 square
feet in Tulsa was sub-leased until June 1997. In addition, the Company owns a
15,400 square foot office and warehouse building and a repair shop and yard, all
of which are located in Holdenville, Oklahoma. The Holdenville properties are
used as district offices and facilities.
Item 3. Legal Proceedings.
The Company is a defendant in certain legal proceedings that have resulted
from the ordinary conduct of its business. In the opinion of the Company's
management, none of these proceedings will have a material adverse effect on the
Company's financial condition or operations.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to the Company's stockholders during the
fourth quarter of the fiscal year ended December 31, 1995.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The Company's common stock trades on The Nasdaq Stock Market under the symbol
"TIDE." At March 15, 1996, there were approximately 1,000 stockholders of
record. The Company has not declared or paid any dividends on its common stock
since the Draco Transaction and does not presently intend to pay cash dividends
in the foreseeable future. The Company currently is restricted from paying cash
dividends, in excess of 30% of cash flow, on its common stock under its existing
bank credit facility. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Financing Arrangements."
The following table sets forth, for the periods indicated, the high and low
sales prices of the Company's common stock on The Nasdaq Stock Market:
<TABLE>
<CAPTION>
Quarter
ended High Low
------ ---- ---
<S> <C> <C>
3/31/94 $12.75 $ 9.25
6/30/94 12.50 10.75
9/30/94 15.50 11.00
12/31/94 13.00 9.75
3/31/95 10.63 8.25
6/30/95 11.75 9.88
9/30/95 11.50 10.00
12/31/95 14.00 10.13
</TABLE>
18
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------------------
(In thousands, except per share amounts and operating data) 1991(1) 1992(1) 1993(1) 1994(1) 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Data
Statement of Income Data:
Total operating revenues $ 5,030 $24,958 $ 96,028 $117,720 $119,435
Total operating expenses 4,094 19,957 88,393 107,604 106,828
----------------------------------------------------------
Operating income 936 5,001 7,635 10,116 12,607
Other income (expense) 424 (626) (757) (2,118) (1,920)
--------------------------------------------------------
Income before income taxes and cumulative
effect of change in accounting principle(2) 1,360 4,375 6,878 7,998 10,687
Net income (3) $ 1,360 $ 4,239 $ 4,030 $ 5,095 $ 6,671
------------------------------------------------------------
Net income per share - primary(2) $ 0.26 $ 0.80 $ 0.43 $ 0.52 $ 0.67
Net income per share - fully diluted 0.26 0.80 0.43 0.52 0.65
Other Financial Data:
Net cash provided by operating activities $ 3,397 $ 4,614 $ 11,884 $ 17,683 $ 24,056
Capital expenditures 3,204 28,786 42,039 27,380 29,859
Balance Sheet Data (at period end):
Total assets $14,771 $70,481 $106,606 $124,320 $144,397
Long-term debt --- 21,565 22,300 32,300 40,800
Partners' capital 13,550 --- --- --- ---
Stockholders' equity (4) --- 29,475 65,364 70,459 74,506
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Data
Net production:
Oil (MBbls) 58 99 297 362 571
Natural gas (MMcf) 2,317 4,933 10,053 14,087 18,099
Average price received:
Oil (per Bbl) $ 21.17 $ 18.78 $ 15.79 $ 15.39 $ 16.55
Natural gas (per Mcf) 1.55 1.85 1.95 1.66 1.44
Estimated net proved reserves (at period end):
Oil (MBbls)(5) 341 2,396 3,378 3,288 6,985
Natural gas (MMcf)(5) 30,195 85,616 142,667 179,939 237,487
Equivalent barrels of oil (MBOE)(5) 5,374 16,666 27,156 33,279 46,566
Present value of estimated future net cash flows
before income tax (discounted at 10%)(in thousands)(5) $27,443 $97,973 $157,802 $132,597 $231,730
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1995
----------------------------------------------------
Well and Acreage Data: Producing Operated Developed Undeveloped
wells wells acreage acreage
----------------------------------------------------
<S> <C> <C> <C> <C>
Gross 1,227 561 393,037 36,493
Net 565 462 161,082 27,610
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations," Consolidated Statements of Income on page F-4 and Notes
to Consolidated Financial Statements and Quarterly Financial Data for
information relating to significant items affecting the results of operations.
(1) Certain reclassifications were made to the 1991, 1992, 1993, and 1994
amounts to conform to the presentation used in 1995.
(2) Effective January 1, 1993, the Company changed its method of accounting for
income taxes. The cumulative effect of this change reduced 1993 net income
$300,000, or $0.05 per share.
(3) The Company was a partnership until the reverse acquisition of Draco,
effective December 1, 1992, and, therefore, was not subject to income tax.
(4) No cash dividends have been paid. Draco, which was a partnership, paid a
$1.1 million cash distribution to its partners in January 1992.
(5) For 1994 and 1995, the reserve data includes Horizon.
19
<PAGE>
Item 7. 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 other financial
information included in this Form 10-K.
Recent Developments
On February 25, 1996, the Company entered into the Merger Agreement with HS
Resources, whereby the Company is to be merged with and into a subsidiary of HS
Resources, with the Company's stockholders receiving $8.75 of cash and .6295 of
a share of HS Resources common stock for each share of the Company's common
stock ("Common Stock"), subject to adjustments in certain events. Certain
stockholders of the Company (holding, in the aggregate, more than 50% of the
outstanding shares of Common Stock) have agreed with HS Resources to, among
other things, vote shares representing a majority of the outstanding Common
Stock in favor of the Merger. See "Items 1 and 2. Business and Properties -
Recent Developments - Merger Agreement."
Results of Operations
General
The factors that most significantly affect the Company's operating results
are (i) the sales prices of oil and natural gas; (ii) the amount of oil and gas
sold; (iii) the amount of operating expenses; and (iv) the interest rates on,
and amount of, borrowing. Sales of oil and gas are significantly affected by the
Company's ability to complete producing property acquisitions and to maintain or
increase production from existing properties through developmental drilling and
production enhancement activities.
The comparability of results during the periods presented is impacted by the
fact that, during the period from October 1989 through December 1995, the
Company completed 58 property acquisitions involving total acquisition and
development costs of $140 million that added substantial proved oil and gas
reserves and increased production levels. As a result, the Company's equivalent
reserves increased 63% in 1993, 22% in 1994, and 40% in 1995, while production
and revenues also increased.
Prices received by the Company for sales of oil and natural gas fluctuate
significantly from period to period. Relatively modest changes in either oil or
gas prices can significantly impact the Company's results of operations and cash
flows. The prices of natural gas are influenced by weather conditions and
supply imbalances, particularly in the domestic market, and by world-wide oil
price levels. Declines in natural gas or oil prices could adversely effect the
semi-annual borrowing base determination under the Company's current credit
agreement.
In October 1992, the Company began marketing natural gas. Through its
wholly-owned subsidiary, Tide West Trading, the Company actively markets its own
natural gas production as well as that of third parties. During 1995, the
Company marketed, on average, 174.6 MMcf of gas per day. The Company believes
that this activity gives it more control over the marketing of its product and,
thus, affords the Company a higher sales price than it would otherwise receive
if its gas were marketed by a third party. The revenues and the associated
expenses of this activity are recognized under the heading "Trading and
transportation" in the Company's financial statements. Tide West Trading strives
to provide all of the functions of a large marketing company, but with the
better service of a smaller company. Its primary
20
<PAGE>
mission is to find the best markets for the Company's gas at no net cost to the
Company while generating additional profit by marketing third party supply.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Oil and gas revenues increased from 1994 to 1995 by $7 million, or 24%. This
increase was primarily due to a 58% increase in crude oil sales volumes, a 28%
increase in natural gas sales volumes, and an increase in the average sales
prices received for crude oil of $1.16 per Bbl, or 8%, although the average
sales prices received for natural gas decreased by $.22 per Mcf, or 13%.
Excluding the effects of the consolidation of Horizon into the Company's
financial statements in 1995, crude oil sales volumes increased 40% and natural
gas sales volumes increased 13% due to oil and gas property acquisitions and
increased drilling activity in 1995. The consolidation of Horizon, in 1995,
resulted in an additional 16% increase in oil and gas revenues. Excluding the
effects of such consolidation, the increase in crude oil and natural gas sales
volumes and oil prices, partially offset by a decrease in natural gas prices,
increased oil and gas revenues 8% in 1995, compared to 1994.
Trading and transportation net margins increased by $441,000 in 1995 compared
to 1994. The quantity of gas marketed in 1995 increased to 63.7 Bcf, up from
58.0 Bcf in 1994. Net margins per Mcf were slightly lower at 3.2 cents per Mcf
in 1995, compared to 4.0 cents per Mcf for the same period in 1994, partially
offsetting the increased quantity of gas marketed. Natural gas marketed on the
Company's behalf amounted to 19% of the total gas sold by Tide West Trading in
1995, as compared to 16% in 1994.
In order to reduce price fluctuation risk, Tide West Trading hedges its
position throughout each trading month. This hedging activity impacts the
trading and transportation revenue reported. In 1995, Tide West Trading's
hedging activity yielded a gain of $253,000, however it yielded a loss of
$272,000 in 1994.
Lease operating expenses increased $2.8 million, or 58%, in 1995 compared to
1994. Such increase was due to property acquisitions, the developmental wells
drilled, and the consolidation of Horizon. Such consolidation increased lease
operating expenses by $1.5 million, or 31%. Excluding the effects of the
consolidation of Horizon, lease operating expenses increased $1.3 million, or
27%, from 1994.
Severance taxes increased $509,000, or 25%, as a result of a 24% increase in
oil and gas revenues.
General and administrative expenses, excluding compensation expense - stock
options, increased $755,000, or 24%, in 1995 compared to 1994, due primarily to
the consolidation of Horizon. Such consolidation of Horizon increased general
and administrative expenses $383,000, or 12%.
Depreciation, depletion and amortization increased $916,000, or 9%, primarily
as a result of the consolidation of Horizon, partially offset by a decrease due
to the revision of reserve estimates and a change in the method of calculating
depletion. The consolidation of Horizon increased depreciation, depletion and
amortization by $1.2 million, or 11%. Excluding the consolidation of Horizon,
depreciation, depletion and amortization decreased $229,000, or 2%.
21
<PAGE>
Interest expense increased by $1.3 million, or 72%, as a result of the
increase in the average outstanding advances under the Company's revolving
credit facility and an increase in interest rates.
Interest income increased $216,000, or 243%, due to interest earned on short-
term investments and due to the consolidation of Horizon. Horizon increased
interest income $136,000, or 153%, in 1995.
In 1995, a net gain on commodity transactions was recorded in the amount $1.4
million, before income tax, of which $615,000 has been realized. These
commodity transactions do not qualify as hedges. The Company did not have any
comparable commodity transactions in 1994. Since 1991, the Company has engaged
in limited hedging activities through commodity swaps and futures contracts in
order to reduce the effect of the volatility of oil and gas prices. At December
31, 1995, the Company had covered all of its significant hedged oil and gas
commodity transactions with offsetting contracts.
Other expenses increased $75,000, or 16%, in 1995 compared to 1994. Other
expenses in 1995 consisted primarily of merger expenses in the amount of
$355,000 for costs associated with the merger of Killgore Investments, Inc. with
and into the Company and the proposed Merger with HS Resources.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
The Company's oil and gas revenues increased 24% from 1993 to 1994 primarily
because of increased sales of oil and gas volumes. Total revenues increased by
$21.7 million in 1994 compared to 1993, which consisted of a $5.7 million
increase in oil and gas revenues and a $16.0 million increase in trading and
transportation revenues.
Oil and gas production increased 37% in 1994 compared to 1993, on a BOE
basis. This increase was due to a 22% increase in crude oil sales volumes and a
40% increase in natural gas sales volumes. The increase in production was
primarily related to the acquisition of certain oil and gas properties from
Pennzoil Petroleum Company and Pennzoil Exploration and Production Company in
December 1993 ("the Pennzoil Properties"), and three acquisitions completed in
the third quarter of 1994, partially offset by the contributions of oil and gas
properties to Horizon during 1994.
In 1994 as compared to 1993, average sales prices received for crude oil
decreased by $.40 per Bbl, or 3%, and average sales prices received for natural
gas decreased by $.29 per Mcf, or 15%. The decrease in the price of oil was due
to an overall market decline and the acquisition of the Pennzoil Properties
which consisted, in part, of oil properties containing lower-priced heavy and
sour crude. The decrease in the price of gas was due to an overall market
decline.
Lease operating expenses increased $225,000, or 5%, in 1994 compared to 1993.
The relatively modest change in lease operating expenses was due to the property
acquisitions in the last half of 1993 and in 1994, which have relatively low
lease operating expenses, further reduced by the oil and gas property
contributions to Horizon and overall improvements in operating efficiencies.
Severance taxes increased $329,000, or 20%, in 1994 as a result of a 24%
increase in oil and gas revenues.
General and administrative expenses increased $891,000 or 39%, in 1994
compared to 1993, due primarily to the acquisition of oil and gas properties and
the expansion of the Company's developmental drilling and workover activities.
22
<PAGE>
Depreciation, depletion and amortization increased $1.6 million, or 18%, as a
result of increased sales volumes stemming from the acquisition of the Pennzoil
Properties and other oil and gas properties acquired in the third quarter of
1994, and which was partially offset by high depletion charges on the Company's
Austin Chalk wells which were contributed to Horizon in 1994.
Interest expense increased by $969,000, or 109%, in 1994 as a result of the
increase in the average outstanding advances under the Company's revolving
credit facility and increases in interest rates.
Other expenses increased $321,000, or 228%, in 1994 primarily as a result of
$150,000 in expenses associated with a merger agreement with Parker & Parsley
Petroleum Company, which agreement was mutually terminated in 1995, and a
$200,000 provision for litigation expense.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("FAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
Effective for fiscal years beginning after December 15, 1995, FAS 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to such assets. The
Company will adopt FAS 121 in 1996. Management believes that the impact of this
pronouncement on the Company's consolidated financial statements will not be
material.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-Based
Compensation." FAS 123 establishes a fair value method and disclosure standards
for stock-based employee compensation arrangements, such as stock purchase plans
and stock options. As allowed by FAS 123, the Company will continue to follow
the provisions of Accounting Principles Board Opinion No. 25 for such stock-
based compensation arrangements and will disclose the pro forma effects of
applying FAS 123 for 1995 and 1996 in its 1996 financial statements.
Capital Resources and Liquidity
Subject to change in the event the proposed Merger with HS Resources is
consummated, the Company intends to continue expanding its reserve base through
acquisitions of producing oil and gas properties, developmental drilling and
workover programs. Sources of capital for such expansion include internally-
generated cash flow from operations and borrowing capacity under the Company's
revolving credit facility. At December 31, 1995, the Company had positive
working capital of $4.4 million, long-term debt of $40.8 million, and
stockholders' equity of $74.5 million. The Company's principal source of cash
flow is the production and sale of its crude oil and natural gas reserves, which
are depleting assets. Cash flow from oil and gas sales depends upon the quantity
of production and the price obtained for such production. An increase in prices
permits the Company to finance its operations to a greater extent with
internally-generated funds. A decline in prices reduces the cash flow generated
by operations, which in turn reduces the funds available for servicing debt,
acquiring additional properties and exploring for and developing new reserves.
At December 31, 1994, the Company had positive working capital, long-term debt,
and stockholders' equity of $3.0 million, $32.3 million, and $70.5 million,
respectively.
23
<PAGE>
Net cash provided by operating activities was $11.9 million, $17.7 million
and $24.1 million for the years ended December 31, 1993, 1994, and 1995,
respectively. The increase in 1995 was primarily due to an increase in
operating income.
Capital Expenditures
The Company's ability to finance its oil and gas acquisitions is determined
by its cash flow from operations and sources of debt financing. Subject to
change in the event the proposed Merger is consummated, the Company presently
budgets capital expenditures in 1996 of approximately $10.0 million for oil and
gas property acquisitions and approximately $17.0 million for drilling and
enhancement activities. The timing of most capital expenditures is discretionary
because the Company has no material long-term commitments. Thus, the Company
has the flexibility to adjust expenditure levels as conditions warrant. The
Company uses internally-generated cash flow to fund capital expenditures
associated with the development and enhancement of existing properties. In the
event the Company's internally-generated cash flow should be otherwise
insufficient to meet its debt service or other obligations, the Company may
reduce the level of discretionary capital expenditures in order to meet such
obligations. The level of the Company's capital expenditures can vary,
depending on energy market conditions, potential return on investment, and other
related economic factors. The Company believes that its cash flow and available
credit capacity will be sufficient to fund the budgeted capital expenditures and
debt service for 1996.
Net cash used in investing activities was $40.0 million, $27.8 million and
$26.6 million for the years ended December 31, 1993, 1994, and 1995,
respectively. The decrease in net cash used in investing activities in 1995 was
primarily due to a $2.3 million increase in the amount of proceeds from the sale
of assets offset by a $2.5 million increase in capital expenditures and a $1.3
million decrease in contributions to Horizon. Of the $29.9 million in capital
expenditures for 1995, $13.4 million was spent on developmental drilling and
enhancement activities, $16.0 million on producing property acquisitions, and
$500,000 on other assets.
Financing Arrangements
Certain banks have provided the Company with a revolving credit facility,
which is secured by substantially all of the Company's oil and gas assets, and
is renewable on July 1 of each year. At December 31, 1995, the outstanding
principal balance under the facility was $40.8 million. On a semi-annual basis,
the banks redetermine the Company's borrowing base based upon their review of
the Company's reserves. In the event of non-renewal, the outstanding advances
will be convertible into a three-year term loan. The unused and available
portion of the revolving commitment under the Company's bank credit facility was
$39.2 million at December 31, 1995 and $43.0 million on March 15, 1996. The
unused portion of the Company's revolving credit facility provides liquidity to
finance future acquisitions. The Company expects that cash flow from operations
which is not utilized for capital expenditures will be used to reduce
indebtedness.
At December 31, 1995, the borrowing base under the revolving facility was
$80.0 million. Advances under the revolving credit facility bear interest,
payable monthly, at a floating rate based on the prime rate or, at the Company's
option, at a fixed rate for up to six months based on the Eurodollar market rate
("LIBOR"). The Company's interest rate increments above LIBOR vary based on the
level of outstanding advances and the borrowing base at the time. In addition,
the Company must pay a quarterly standby
24
<PAGE>
commitment fee of .25% to .375%, depending upon the relationship of outstanding
borrowing to the borrowing base.
The Company has a total of $40 million notional amount hedged through
interest rate swaps for five years beginning in 1995 and continuing through
1999. The effective interest rates to be paid by the Company on its interest
rate swaps are 7.9% for 1995, 8.7% for 1996, and 8.8% for 1997 through 1999.
On December 20, 1993, the Company's wholly-owned subsidiary, Tide West
Trading, completed a $5.0 million letter of credit facility, all of which was
available on December 31, 1995.
Net cash provided by financing activities was $27.4 million, $10.0 million,
and $5.9 million for the years ended December 31, 1993, 1994, and 1995,
respectively. The cash provided by financing activities for the year ended
December 31, 1993, consisted primarily of $31.9 million in proceeds from the
Company's Common Stock offering offset by a $4.4 million reduction in long-term
debt, compared with a $10.0 million net increase in long-term debt in 1994, and
for 1995, an $8.5 million net increase in long-term debt offset by Common Stock
repurchases of $2.7 million.
The Company's existing debt and credit agreements contain covenants which
limit the amount of additional indebtedness the Company may incur, restrict
acquisitions and sales of oil and gas properties above a certain amount, and
restrict dividends to 30% of cash flow.
Item 8. Financial Statements and Supplementary Data.
See "Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K."
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
25
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Set forth below is certain information with respect to each director and
executive officer of the Company. Each director is elected for a one-year term.
Executive officers are elected by the Board of Directors and serve at its
discretion.
Name Age Position
- ---- --- --------
Philip B. Smith.............. 44 Director, President and Chief Executive
Officer
Robert H. Mase............... 42 Director and Vice President-Acquisitions
Douglas J. Flint............. 39 Director and Vice President-Operations
R. Gamble Baldwin............ 73 Director
David R. Albin............... 36 Director
Kenneth A. Hersh............. 33 Director
Robert A. Curry.............. 48 Director
Peggy E. Gwartney............ 37 Chief Financial Officer, Controller,
Treasurer and Secretary
The following is a brief description of the business background of each of
the directors and executive officers of the Company.
Mr. Philip B. Smith has been President, Chief Executive Officer and a
Director of the Company since November 20, 1992. He has been President and a
director of Draco Petroleum, a wholly-owned subsidiary of the Company, since
April 1991 and of Tide West Trading, formerly Draco Production Company, a
wholly-owned subsidiary of the Company, since July 1989. From May 1986 until
April 1991, Mr. Smith was a Senior Vice President of Mega Natural Gas Company, a
natural gas gathering company and the former parent company of Tide West Trading
and its predecessor companies ("Mega"). Prior to that time, he held various
technical and management positions at other independent and major oil and gas
companies.
Mr. Robert H. Mase has been a Vice President and a Director of the Company
since November 20, 1992. He has been a Vice President and a director of Draco
Petroleum and a director of Tide West Trading since April 1991. He has been a
Vice President of Tide West Trading since June 1990. From March 1990 until June
1990, Mr. Mase was employed by Tide West Trading as manager of acquisitions and
land. From July 1981 until March 1990, he was a Vice President and land manager
at Oakland Petroleum, an independent oil and gas company.
Mr. Douglas J. Flint has been a Vice President and a Director of the Company
since November 20, 1992. He served as Secretary of the Company from November
1992 until September 1994. From February 1986 until November 1992, he was
President and a director of Old Tide West. From September 1986 until February
1988, Mr. Flint was President, and from February 1981 until September 1986, he
was Vice President, of Square D Drilling & Production, Inc., a former wholly-
owned subsidiary of Old Tide West.
26
<PAGE>
Mr. R. Gamble Baldwin has been a Director of the Company since November 20,
1992. Since November 1988, he has been the general partner of G.F.W. Energy,
L.P. ("GFW"), the general partner of NGP, an investment fund organized to make
equity-related investments in the North American oil and gas industry. Mr.
Baldwin is also a member/manager of two limited liability companies which are
the general partners of the general partners of Natural Gas Partners II, L.P.
(formed in June 1994) ("NGP II") and Natural Gas Partners III, L.P. (formed in
May 1995) ("NGP III"), limited partnerships which similarly invest in the North
American oil and gas industry, and is active in the management of NGP II and NGP
III. From 1974 until November 1988, Mr. Baldwin was a Managing Director of The
First Boston Corporation, an investment banking firm, specializing in all
aspects of the natural gas business. Mr. Baldwin has been a member of the
International Advisory Board of Creditanstalt Bankverein, of Vienna, Austria,
since 1984, and a director of Coflexip Stena Offshore, a provider of advanced
technology oilfield equipment and service, since 1993.
Mr. David R. Albin has been a Director of the Company since November 20,
1992. Since November 1988, he has been a limited partner of GFW and has been
responsible for the management of NGP's portfolio. Mr Albin is also a
member/manager of the two limited liability companies which are the general
partners of the general partners of NGP II and NGP III and co-manages the
portfolios of NGP II and NGP III. From December 1984 until November 1988, Mr.
Albin was employed by Bass Investment Limited Partnership, an investment
partnership, where he was also responsible for portfolio management.
Mr. Kenneth A. Hersh has been a Director of the Company since November 20,
1992. Since March 1989, he has been a limited partner of GFW and has co-managed
NGP's portfolio. Mr. Hersh is also a member/manager of the two limited
liability companies which are the general partners of the general partners of
NGP II and NGP III and co-manages the portfolios of NGP II and NGP III. During
1988, he was a consultant with McKinsey & Co., a management consulting firm.
From August 1985 until August 1987, Mr. Hersh was employed by the investment
banking division of Morgan Stanley & Co., where he was a member of that firm's
energy group, specializing in oil and gas financing and acquisition
transactions. Mr. Hersh currently serves as a director of HS Resources, an
independent oil and gas company.
Mr. Robert A. Curry has been a Director of the Company since November 20,
1992. He has been a shareholder and a director of the law firm of Conner &
Winters, A Professional Corporation, in Tulsa, Oklahoma since February 1992.
From 1975 until February 1992, he was employed by the law firm of Hall, Estill,
Hardwick, Gable, Golden & Nelson, P.C., in Tulsa, Oklahoma.
Ms. Peggy E. Gwartney was named Chief Financial Officer of the Company, in
conjunction with her positions as Controller, Secretary and Treasurer, in
January 1995. She has been Treasurer and Controller of the Company since the
closing of the Draco Transaction in November 1992 and Secretary beginning
September 1994. She has been Controller of Draco Petroleum and Tide West
Trading since April 1991. From May 1981 until April 1991, she was employed by
Mega as a senior accountant. Ms. Gwartney is a Certified Public Accountant.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
the Company's Common Stock to report their initial ownership of Common Stock and
any subsequent changes in that ownership to the Securities and Exchange
Commission ("SEC") and to furnish the Company with a copy of each such report.
SEC regulations impose specific due dates for such reports, and the Company is
required to disclose any failure to file such reports by their due dates during
and for fiscal year 1995.
27
<PAGE>
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to its
officers, directors and more than ten percent stockholders were complied with
during and for fiscal year 1995.
Item 11. Executive Compensation.
The following tables set forth information relating to compensation paid by
the Company during the fiscal years ended December 31, 1993, 1994 and 1995, to
its chief executive officer and to its other executive officers who earned, in
salary and bonuses, more than $100,000 for services rendered during 1995.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------------- -----------------------------------
Awards Payouts
-----------------------------------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Compensa- Award(s) Options/ Payouts Compensa-
Principal Position Year Salary($) Bonus($) tion($) ($) SARs(#) ($) tion($)
- ------------------ -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Philip B. Smith, 1995 135,000 207,510 (1) -- -- -- 4,620(2)
President 1994 120,000 199,175 (1) -- -- -- 4,620(2)
1993 90,000 10,250 (1) -- 60,000 -- 3,743(2)
Robert H. Mase, Vice 1995 130,000 207,385 (1) -- -- -- 4,620(2)
President-Acquisitions 1994 115,000 199,050 (1) -- -- -- 4,620(2)
1993 85,000 10,125 (1) -- 60,000 -- 2,678(2)
Douglas J. Flint, Vice 1995 130,000 207,385 (1) -- -- -- 4,620(2)
President-Operations 1994 115,000 199,050 (1) -- -- -- 4,620(2)
1993 85,000 10,125 (1) -- 60,000 -- 2,678(2)
</TABLE>
(1) Other annual compensation paid or distributed did not exceed the lesser of
$50,000 or 10% of the executive's annual salary and bonus.
(2) Represents the Company's contribution to such officer's account under its
401(k) Plan.
28
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-the-
Underlying Unexercised Money Options/SARs at
Options/SARs at FY-End(#) FY-End($)(1)
------------------------- ----------------------------
Shares
Acquired on Value
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Philip B. Smith............ -- -- 150,000 20,000 836,250 67,500
Robert H. Mase............. -- -- 180,000 20,000 1,026,900 67,500
Douglas J. Flint........... -- -- 157,875 22,625 876,996 81,337
</TABLE>
- -------------------
(1) The product of (a) the difference between (i) the per share Option exercise
price, and (ii) the per share market price of Common Stock on December 29,
1995 ($13.375); and (b) the number of shares of Common Stock underlying the
unexercised in-the-money Options outstanding at December 31, 1995.
Compensation of Directors
Employee directors receive no additional compensation for serving on the
Board of Directors or any committee thereof. Non-employee directors receive an
annual retainer of $10,000 and are reimbursed for expenses they incur to attend
meetings of the Board of Directors and committees thereof. The Company's
Certificate of Incorporation and By-laws provide for mandatory indemnification
of directors and officers to the fullest extent permitted by Delaware law. The
Company also has entered into indemnification agreements with, and carries
liability insurance on behalf of, all of its directors and officers.
Compensation Committee Interlocks and Insider Participation
Mr. Smith, President and Chief Executive Officer of the Company, is a member
of the Compensation Committee and participates in deliberations concerning
executive officer compensation. The other two members of the Compensation
Committee, Messrs. Albin and Curry, are outside directors of the Company. No
executive officer of the Company served on the Stock Option Committee during
1995 or is currently serving on such Committee.
In January 1993, the Company and NGP entered into a financial advisory
services contract whereby NGP provides financial advisory services to the
Company for a quarterly fee of $12,500. The Company has also indicated that it
will pay NGP a completion bonus of $150,000 upon the completion of a sale of the
Company. Messrs. Albin and Hersh are limited partners of GFW, the general
partner of NGP, and co-manage NGP's portfolio. For details of these
transactions, see "Item 13. Certain Relationships and Related Party
Transactions." The law firm of Conner & Winters, A Professional Corporation, of
which Mr. Curry is a shareholder and director, has regularly performed legal
services as counsel to the Company since November 20, 1992.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information, as of March 15, 1996,
regarding ownership of the Company's Common Stock by (a) all persons known by
the Company to be beneficial owners of more than five percent of such stock, (b)
each director of the Company, (c) each of the executive officers of the Company
named in the Summary Compensation Table above, and (d) all executive
29
<PAGE>
officers and directors of the Company as a group. Unless otherwise noted, the
persons named below have sole voting and investment power with respect to such
shares:
<TABLE>
<CAPTION>
Amount and
Nature of
Name of Owner or Beneficial Percentage
Identity of Group Ownership of Class
- ----------------- ----------- ------------
<S> <C> <C>
Natural Gas Partners, L.P. (1)(2)................ 4,550,000 46.49
Philip B. Smith (2)(3)........................... 639,558 6.44
Douglas J. Flint (4)............................. 498,375 5.01
Robert H. Mase (5)............................... 302,389 3.03
R. Gamble Baldwin (6)............................ 4,552,000 46.51
David R. Albin................................... -- --
Kenneth A. Hersh................................. 5,450 0.06
Robert A. Curry.................................. -- --
Executive officers and directors
as a group (eight persons) (7)................ 6,009,755 58.42
</TABLE>
- ---------------
(1) Excludes 340,500 shares owned by Douglas J. Flint which have been pledged
to NGP in connection with a loan by NGP to Mr. Flint. NGP disclaims
beneficial ownership of such shares. NGP's address is 777 Main Street,
Suite 2700, Fort Worth, Texas 76102.
(2) The stockholder has sole dispositive power with respect to the indicated
shares, but shares voting power with HS Resources (only as to 344,000
shares, for Mr. Smith) pursuant to an irrevocable proxy as to certain
matters granted by the stockholder in connection with the proposed Merger
of the Company with a subsidiary of HS Resources. See "Items 1 and 2.
Business and Properties-Recent Developments." The address of HS Resources
is One Maritime Plaza, 15th Floor, San Francisco, California 94111.
(3) Includes (i) 150,000 shares subject to stock options which are currently
exercisable at an average exercise price of $7.80 per share, and (ii)
85,000 shares held by Mr. Smith, as trustee of two trusts for benefit of
his children, and as to which he has sole dispositive and voting power.
(4) Includes 10,000 shares owned by Mr. Flint that are subject to a currently
exercisable purchase option granted to a former executive officer and
director of Old Tide West and 157,875 shares subject to stock options
which are currently exercisable at an average exercise price of $7.82 per
share, and excludes 8,000 shares held by Mr. Flint's wife, as custodian
for their children, as to which he disclaims beneficial ownership.
(5) Includes 180,000 shares subject to stock options which are currently
exercisable at an average exercise price of $7.67 per share.
(6) Mr. Baldwin is the sole general partner of GFW, the sole general partner
of NGP. Therefore, Mr. Baldwin and GFW are deemed to be the beneficial
owners of all shares beneficially owned by NGP. GFW's address is 777 Main
Street, Suite 2700, Fort Worth, Texas 76102. Mr. Baldwin's address is 115
East Putnam Avenue, Greenwich, Connecticut 06830.
(7) Includes 499,858 shares subject to stock options which are currently
exercisable at an average exercise price of $7.79 per share. Excludes
8,000 shares held by Mr. Flint's wife, as custodian for their children, as
to which he disclaims beneficial ownership.
30
<PAGE>
Changes in Control
On February 25, 1996, the Company entered into the Merger Agreement with HS
Resources, whereby the Company is to be merged with and into a subsidiary of HS
Resources, with the Company's stockholders receiving $8.75 of cash and .6295 of
a share of HS Resources common stock for each share of the Company's Common
Stock, subject to adjustments in certain events. Certain stockholders of the
Company (holding, in the aggregate, more than 50% of the outstanding shares of
Common Stock) have agreed with HS Resources to, among other things, vote shares
representing a majority of the outstanding Common Stock in favor of the Merger.
See "Items 1 and 2. Business and Properties - Recent Developments - Merger
Agreement" for more details of the proposed Merger.
Item 13. Certain Relationships and Related Party Transactions.
Effective December 1, 1992, the Company acquired (a) from NGP, the limited
partner interest in Draco in exchange for 4,550,000 shares of Common Stock
(approximately 76% of the Company's then outstanding Common Stock), and (b) from
Messrs. Smith and Mase, all of the issued and outstanding stock of Draco
Petroleum, the sole general partner of Draco, in exchange for 489,558 and
122,389 shares of Common Stock, respectively. The stock of Draco Petroleum was
acquired by Messrs. Smith and Mase in April 1991. Mr. Smith's interest in Draco
Petroleum was acquired in exchange for shares of common stock of Mega owned by
Mr. Smith. Mr. Mase acquired his interest in Draco Petroleum using $97,500
borrowed from Draco. Such loan was secured by the Draco Petroleum stock
purchased by Mr. Mase. On November 20, 1992, the loan was assigned by Draco to
the Company as part of a distribution in liquidation of Draco. The loan, which
bears interest, payable quarterly, at a rate equal to the base lending rate of
the Company's bank, is now secured by 20,000 shares of Common Stock owned by Mr.
Mase. The largest amount outstanding under the loan during fiscal year 1995 was
$65,250 on January 1, 1995. The outstanding principal balance of Mr. Mase's
loan at December 31, 1995, was $50,000. The loan is repayable in 20 equal
quarterly installments which commenced on June 1, 1993.
Effective January 1, 1993, the Company and NGP entered into a financial
advisory services contract whereby NGP provides financial advisory services to
the Company for a quarterly fee of $12,500. In addition, NGP is reimbursed for
its out-of-pocket expenses incurred in performing such services. The agreement
is renewable annually and can be terminated by NGP or the Company at the end of
any fiscal quarter. Under the agreement, NGP assists the Company in managing
its public and private financing activities, its public financial reporting
obligations, its budget planning processes, and its investor relations program,
as well as providing ongoing strategic advice. NGP has not received any other
transaction-related compensation for its advisory assistance to the Company.
However, at the time the Company's Board of Directors determined and publicly
announced that the Company would be sold, the Board of Directors decided to pay
NGP a completion bonus of $150,000 upon the completion of the sale of the
Company, in recognition of the extra effort required by NGP to prepare the
Company for sale.
The law firm of Conner & Winters, A Professional Corporation, has regularly
performed legal services as counsel to the Company since November 20, 1992.
Robert A. Curry, a Director of the Company, is a shareholder and director of
Conner & Winters.
Sandia Energy Corporation ("Sandia"), a drilling contractor which Old Tide
West utilized to drill wells operated by Old Tide West, filed for reorganization
under Chapter 11 of the United States Bankruptcy Code on March 2, 1992. Sandia
is wholly-owned by Donald J. Flint, the brother of Douglas J. Flint, who was
then the President and a director of Old Tide West. A second bankruptcy
petition with respect to Sandia was filed and approved on October 26, 1994.
Under the second bankruptcy plan, the Company elected to receive the amount of
its unsecured claim from revenues from Sandia's royalty interest in an oil and
gas property. At the time of the second bankruptcy filing, Sandia owed the
Company $141,000 in receivables from operating and prepaid drilling costs. The
Company expects to receive periodic payments in satisfaction of its claim
beginning in 1996.
31
<PAGE>
The Company's By-laws currently provide that, in the event the Company
enters into a transaction or loan involving more than $10,000 in consideration
or value with or involving any of its officers, directors, affiliates or
stockholders in the future, such transaction or loan must be undertaken on terms
no less favorable to the Company than those generally available from
unaffiliated third parties, and that such transaction or loan must be approved
by a majority of the members of the Board of Directors not having any interest
in the transaction.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements:
The financial statements are listed in the accompanying Index to Financial
Statements and are filed as a part of this Form 10-K.
(2) Financial Statement Schedules:
All schedules are omitted as inapplicable or because the required
information is included in the Consolidated Financial Statements or notes
thereto.
(3) Exhibits:
The following documents are included as exhibits to this Form 10-K. Those
exhibits below incorporated by reference herein are indicated as such by the
information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, such exhibit is filed herewith.
2.1 Agreement and Plan of Merger dated February 25, 1996, between H.S.
Resources, Inc., HSR Acquisition, Inc. and the Company.
3.1 Certificate of Incorporation of the Company (filed as Exhibit 4.1 to
the Company's Current Report on Form 8-K dated November 20, 1992 (the
"1992 Form 8-K")).
3.2 Amendment to Certificate of Incorporation dated January 29, 1993
(effective February 1, 1993) (filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-1, No. 33-57058 (the "S-1
Registration Statement")).
3.3 Restated By-laws of the Company (filed as Exhibit 3.3 to the S-1
Registration Statement).
4.1 Form of stock certificate for the Company's Common Stock, par value
$.01 per share (filed as Exhibit 4.1 to the S-1 Registration
Statement).
10.1 Second Amended and Restated Credit Agreement dated June 15, 1995,
between the Company, as borrower, and Union Bank, Colorado National
Bank, Texas Commerce Bank, National Association, and Den norske Bank
AS, as lenders, and Union Bank, as agent (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q dated August 11, 1995 (the
"Second Quarter 1995 Form 10-Q")).
10.2 First Amendment to Second Amended and Restated Credit Agreement dated
December 21, 1995, between the Company, as borrower, and Union Bank,
Colorado National Bank, Texas Commerce Bank, National Association, and
Den norske Bank AS, as lenders, and Union Bank, as agent.
32
<PAGE>
10.3 Credit Agreement dated December 23, 1993, between Tide West Trading &
Transport Company, as borrower, and Union Bank, Colorado National Bank
and Den norske Bank AS, as lenders, and Union Bank, as agent (filed as
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q dated
August 12, 1994).
10.4 First Amendment to Credit Agreement dated December 19, 1994, between
Tide West Trading & Transport Company, as borrower, and Union Bank,
Colorado National Bank and Den norske Bank AS, as lenders, and Union
Bank, as agent (filed as Exhibit 10.9 to the Company's Annual Report
on Form 10-K dated March 30, 1995 (the "1994 Form 10-K")).
10.5 Second Amendment to Credit Agreement dated February 17, 1995, between
Tide West Trading & Transport Company, as borrower, and Union Bank,
Colorado National Bank, and Den norske Bank AS, as lenders, and Union
Bank, as agent (filed as Exhibit 10.10 to the 1994 Form 10-K).
10.6 Third Amendment to Credit Agreement dated March 17, 1995, among Tide
West Trading & Transport Company, as borrower, Union Bank, Den norske
Bank AS and Colorado National Bank, as lenders, and Union Bank, as
agent (filed as Exhibit 10.3 to the Second Quarter 1995 Form 10-Q).
10.7 Fourth Amendment to Credit Agreement dated April 17, 1995, among Tide
West Trading & Transport Company, as borrower, Union Bank, Den norske
Bank AS and Colorado National Bank, as lenders, and Union Bank, as
agent (filed as Exhibit 10.2 to the Second Quarter 1995 Form 10-Q).
10.8 Limited Partnership Agreement dated December 28, 1993, between the
Company and Horizon Natural Resources, Inc. (filed as Exhibit 10.7 to
Company's Annual Report on Form 10-K dated March 30, 1994 (the "1993
Form 10-K")).
10.9* Registration Rights Agreement dated November 20, 1992, among the
Company, Natural Gas Partners, L.P. ("NGP"), Philip B. Smith and
Robert H. Mase (filed as Exhibit 10.2 to the S-1 Registration
Statement).
10.10* Shareholders' Agreement dated November 19, 1992, among NGP, Philip B.
Smith, Robert H. Mase and Douglas J. Flint (filed as Exhibit 28 to the
1992 Form 8-K).
10.11* Promissory Note dated May 31, 1991, between Draco Gas Partners, L.P.
("Draco"), as lender, and Robert H. Mase, as borrower, and Assignment
thereof by Draco to the Company, dated November 20, 1992 (filed as
Exhibit 10.6 to the S-1 Registration Statement).
10.12* Security Agreement dated November 20, 1992, between the Company, as
secured party, and Robert H. Mase (filed as Exhibit 10.7 to the S-1
Registration Statement).
10.13 Financial Advisory Services Contract dated January 1, 1993, between
the Company and NGP (filed as Exhibit 10.8 to the S-1 Registration
Statement).
10.14 First Amendment to Financial Advisory Services Contract dated January
1, 1994, between the Company and NGP (filed as Exhibit 10.13 to the
1993 Form 10-K).
10.15* Form of Indemnification Agreement dated as of November 20, 1992,
between the Company and each of its officers and directors (filed as
Exhibit 10.9 to the S-1 Registration Statement).
33
<PAGE>
10.16* The Company's 1991 Stock Option Plan and Amendment No. 1 thereto
(filed as Exhibit 10.10 to the S-1 Registration Statement).
10.17* Amendment No. 2 to the Company's 1991 Stock Option Plan (filed as
Exhibit 4(e) to the Company's Registration Statement on Form S-8, No.
33-73020).
10.18* Amendment No. 3 to the Company's 1991 Stock Option Plan (filed as
Exhibit 10.17 to the 1993 Form 10-K).
10.19* Form of Stock Option Agreement under the Tide West Oil Company 1991
Stock Option Plan (filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q dated November 11, 1994).
10.20 Form of Warrant Agreement between the Company and American Securities
Transfer, Incorporated, dated June 21, 1991 (filed as Exhibit 10.11 to
the S-1 Registration Statement).
10.21 First Supplement and Amendment to Warrant Agreement between the
Company and The First National Bank of Boston dated March 14, 1994
(filed as Exhibit 10.20 to the 1993 Form 10-K).
10.22 Form of Purchase Warrant dated June 21, 1991, issued to Paulson
Investment Company, Inc. and affiliates (filed as Exhibit 10.12 to the
S-1 Registration Statement).
21. Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Netherland, Sewell & Associates, Inc.
27. Financial Data Schedule.
-----------
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of the fiscal
year ended December 31, 1995.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TIDE WEST OIL COMPANY
Date: March 25, 1996 By: /s/ Philip B. Smith
---------------------------
Philip B. Smith
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/ Philip B. Smith Director and President March 25, 1996
- -------------------------- (Principal Executive Officer)
Philip B. Smith
/s/ Robert H. Mase Director and Vice President March 25, 1996
- --------------------------
Robert H. Mase
/s/ Douglas J. Flint Director and Vice President March 25, 1996
- ---------------------------
Douglas J. Flint
/s/ Peggy E. Gwartney Chief Financial Officer, March 25, 1996
- --------------------------- Controller and Treasurer
Peggy E. Gwartney (Principal Financial Officer
and Principal Accounting Officer)
/s/ R. Gamble Baldwin Director March 25, 1996
- ---------------------------
R. Gamble Baldwin
/s/ David R. Albin Director March 25, 1996
- ---------------------------
David R. Albin
/s/ Kenneth A. Hersh Director March 25, 1996
- ---------------------------
Kenneth A. Hersh
/s/ Robert A. Curry Director March 25, 1996
- ---------------------------
Robert A. Curry
35
<PAGE>
TIDE WEST OIL COMPANY
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report......................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995......... F-3
Consolidated Statements of Income for the years ended
December 31, 1993, 1994, and 1995.................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1993, 1994, and 1995.................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1993, 1994, and 1995.................................... F-6
Notes to Consolidated Financial Statements........................... F-7 - F-18
F-1
<PAGE>
Independent Auditors' Report
To the Stockholders of Tide West Oil Company
We have audited the accompanying consolidated balance sheets of Tide West Oil
Company and subsidiaries (the "Company") as of December 31, 1994 and 1995, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1994
and 1995, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for income taxes effective January 1, 1993 to
conform with Statement of Financial Accounting Standards No. 109.
Deloitte & Touche LLP
Tulsa, Oklahoma
February 26, 1996
F-2
<PAGE>
TIDE WEST OIL COMPANY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
-------------------
(In thousands, except shares and per share amounts) 1994 1995
- -----------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ --- $ 3,744
Accounts receivable:
Revenues 14,977 16,692
Other 2,960 2,763
Other current assets 1,753 1,509
--------------------
Total current assets 19,690 24,708
Property and Equipment:
Oil and gas properties (successful efforts
method) 111,263 149,734
Other property and equipment 1,304 1,802
--------------------
112,567 151,536
Accumulated depreciation, depletion and
amortization (20,350) (33,090)
--------------------
Property and equipment, net 92,217 118,446
Investments 12,064 980
Other Assets - Net 349 263
- ------------------------------------------------------------------------------
$124,320 $144,397
=====================
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable:
Gas purchases $ 9,652 $ 10,281
Other 2,706 3,345
Revenues payable 3,604 3,788
Accrued liabilities 736 2,924
--------------------
Total current liabilities 16,698 20,338
Long-Term Debt 32,300 40,800
Deferred Tax Liability 4,863 8,636
Commitments and Contingencies (Note 9) --- ---
Minority Interest --- 117
Stockholders' Equity:
Preferred stock, $.01 par value, 20,000,000
shares authorized, none outstanding --- ---
Common stock, $.01 par value, 20,000,000 shares
authorized, 9,901,690 and
9,787,628 shares issued and outstanding at
December 31, 1994 and 1995 99 98
Additional paid-in capital 60,685 58,062
Retained earnings 9,675 16,346
--------------------
Total stockholders' equity 70,459 74,506
- ------------------------------------------------------------------------------
$124,320 $144,397
=====================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
TIDE WEST OIL COMPANY
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
(In thousands, except per share amounts) 1993 1994 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Oil and gas $23,769 $ 29,510 $ 36,508
Trading and transportation 72,259 88,210 82,927
-----------------------------
Total revenues 96,028 117,720 119,435
-----------------------------
Operating Expenses:
Cost of trading and transportation 70,398 86,366 80,642
General and administrative - trading and
transportation 334 563 485
Lease operating 4,666 4,891 7,747
Severance tax 1,679 2,008 2,517
General and administrative 2,256 3,147 3,902
Compensation expense - stock options 190 180 170
Depreciation, depletion and amortization 8,870 10,449 11,365
-----------------------------
Total operating expenses 88,393 107,604 106,828
-----------------------------
Operating Income 7,635 10,116 12,607
-----------------------------
Other Income (Expense):
Interest income 274 89 305
Interest expense (886) (1,855) (3,186)
Gain (loss) from sale of assets (4) 110 99
Gain on commodity transactions, net --- --- 1,399
Other income (expense) (141) (462) (537)
-----------------------------
Total other income (expense) (757) (2,118) (1,920)
-----------------------------
Income Before Income Taxes and Cumulative
Effect of Change in Accounting Principle 6,878 7,998 10,687
Provision for Income Taxes 2,548 2,903 4,016
- --------------------------------------------------------------------------------
Income Before Cumulative Effect of Change in
Accounting Principle 4,330 5,095 6,671
Cumulative Effect of Change in Accounting
Principle (300) --- ---
- --------------------------------------------------------------------------------
Net Income $ 4,030 $ 5,095 $ 6,671
- --------------------------------------------------------------------------------
Net Earnings Per Common Share:
Net Income Per Common Share - Primary
Before cumulative effect of change in
accounting principle $0.47 $0.52 $0.67
After cumulative effect of change in
accounting principle 0.43 0.52 0.67
Weighted Average Shares Outstanding 9,303 9,902 9,897
Net Income Per Common Share - Fully Diluted $0.43 $0.52 $0.65
Weighted Average Shares Outstanding 9,303 9,902 10,247
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
TIDE WEST OIL COMPANY
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
Common Stock Additional
--------------- Paid-in Retained
(In thousands) Shares Amount Capital Earnings Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 6,452 $65 $28,860 $ 550 $29,475
Common stock issuance 3,450 34 31,825 --- 31,859
Net income --- --- --- 4,030 4,030
-----------------------------------------------
Balance, December 31, 1993 9,902 99 60,685 4,580 65,364
Net income --- --- --- 5,095 5,095
-----------------------------------------------
Balance, December 31, 1994 9,902 99 60,685 9,675 70,459
Common stock issued in
merger 150 2 65 --- 67
Stock options exercised 2 --- 16 --- 16
Common stock repurchased
and retired (266) (3) (2,704) --- (2,707)
Net income --- --- --- 6,671 6,671
- ------------------------------------------------------------------------------
Balance, December 31, 1995 9,788 $98 $58,062 $16,346 $74,506
==============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
TIDE WEST OIL COMPANY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
(In thousands) 1993 1994 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net Income $ 4,030 $ 5,095 $ 6,671
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 8,870 10,449 11,365
(Gain) loss from sale of assets 4 (110) (99)
Impairment provision 241 234 ---
Equity in loss of unconsolidated affiliate --- 12 ---
Unrealized gain on commodity transactions --- --- (784)
Cumulative effect of change in accounting principle 300 --- ---
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (4,557) 1,811 149
(Increase) decrease in income tax receivable --- (1,491) 1,491
(Increase) decrease in other current assets 3 (867) 730
Increase in other assets (78) (70) (177)
Increase (decrease) in income taxes payable (195) (94) 436
Increase in accounts and revenues payable
and accrued liabilities 2,715 52 501
Increase in deferred income taxes 551 2,662 3,773
-------------------------------
Total adjustments 7,854 12,588 17,385
-------------------------------
Net cash provided by operating
activities 11,884 17,683 24,056
-------------------------------
Investing Activities:
Capital expenditures (42,039) (27,380) (29,859)
Proceeds from sale of assets 1,830 812 3,116
Collections on note receivable 153 137 175
Distributions from (investments in)
partnerships, net 11 (1,329) ---
-------------------------------
Net cash used in investing activities (40,045) (27,760) (26,568)
-------------------------------
Financing Activities:
Borrowings of long-term debt 27,300 28,900 51,161
Principal payments on long-term debt (31,735) (18,900) (42,661)
Issuance of note receivable (4) (13) ---
Collections on note receivable 6 18 16
Common Stock repurchased --- --- (2,707)
Exercise of stock options --- --- 16
Other --- --- 67
Proceeds from stock offering 31,859 --- ---
-------------------------------
Net cash provided by financing
activities 27,426 10,005 5,892
-------------------------------
Net Increase (Decrease) in Cash and Cash
Equivalents (735) (72) 3,380
Cash and Cash Equivalents, Beginning of Period 807 72 364
- ---------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 72 $ --- $ 3,744
=============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
TIDE WEST OIL COMPANY
Notes to Consolidated Financial Statements
Years ended December 31, 1993, 1994 and 1995
1. Organization, Business Combinations, and Stockholders' Equity
Organization Tide West Oil Company (the "Company") is an independent oil and
gas company focused on the acquisition and enhancement of producing oil and gas
properties. The Company's principal operations are conducted in the Anadarko
Basin, Arkoma Basin, the Southern Oklahoma Region, and the Texas/New Mexico
Region. The Company also has a natural gas marketing subsidiary.
Prices received by the Company for sales of oil and natural gas fluctuate
significantly from period to period. Relatively modest changes in either oil or
gas prices can significantly impact the Company's results of operations and cash
flow. The prices of natural gas are influenced by weather conditions and supply
imbalances, particularly in the domestic market, and by world-wide oil price
levels. Declines in natural gas or oil prices could adversely affect the semi-
annual borrowing base determination under the Company's current credit
agreement.
Business Combinations On April 10, 1995, Killgore Investments, Inc.
("Killgore") was merged with and into the Company, and 149,538 shares of the
Company's common stock were issued in exchange for all of the outstanding common
stock of Killgore. The merger was accounted for as a pooling of interests.
Financial statements for prior periods were not restated because the effect of
this business combination was not material.
Stockholders' Equity On January 28, 1993, the Company completed a 1-for-10
reverse common stock split. All common stock and per share amounts in the
accompanying consolidated financial statements have been restated to reflect
this reverse split.
In March 1993, the Company completed a stock offering of 3.45 million shares
of common stock which yielded net proceeds of $31.9 million.
During 1995, the Company purchased 266,000 shares of its common stock for $2.7
million. The shares were retired at December 31, 1995.
2. Summary of Significant Accounting Policies
Principles of Consolidation The financial statements include the accounts of
the Company's majority-owned subsidiaries, Tide West Trading & Transport Company
("Tide West Trading"), Draco Petroleum, Inc., and, for 1995, Horizon Gas
Partners, L.P. ("Horizon"), after elimination of all material inter-company
transactions and balances.
Management Estimates The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents Cash and cash equivalents include cash and interest
bearing time deposits with original maturities of three months or less.
Commodity Transactions From time to time, the Company hedges the price of a
portion of its future oil and gas production with commodity price swap contracts
and futures contracts. Gains and losses on contracts which effectively hedge the
sales price of future production are deferred and included in income
F-7
<PAGE>
TIDE WEST OIL COMPANY
in the period that was hedged. Other commodity contracts that do not qualify as
hedges are recorded at market value and gains or losses are recognized
currently. Margin deposits on futures are recorded as other current assets. At
December 31, 1995, the Company had covered all of its significant commodity
transactions with offsetting contracts.
Interest Rate Swaps Interest rate swaps are entered into primarily as a hedge
against interest rate fluctuations on variable rate debt. The amounts to be paid
or received on swaps are included in interest expense as payments are made or
received.
Marketing Natural gas is sold primarily on the spot market to a variety of
purchasers, including intrastate and interstate pipelines, their marketing
affiliates and other independent marketing companies. Based on actual pipeline
deliveries and receipts, pipeline imbalance positions occur in the normal course
of business. These positions are reflected as natural gas inventories or
liabilities depending on the net position. The revenues and the associated
expenses of Tide West Trading are presented under the heading "trading and
transportation."
Gas Imbalances Gas imbalances are accounted for under the sales method
whereby revenues are recognized based on actual production sold. The proved
reserves are adjusted for any significant volume imbalances existing on the
property for purposes of determining depletion and any required valuation
allowances. At December 31, 1995, the Company's gas balancing position was
approximately 840,000 Mcf overproduced.
Property and Equipment The Company follows the successful efforts method of
accounting for oil and gas producing activities. Under this method, property
acquisition costs, costs of productive exploratory wells and all development
costs (including lease acquisition, tangible, and intangible costs) are
capitalized. These costs are amortized on a physical unit-of-production basis at
the field level using proved oil and gas reserves estimates. All costs
associated with unsuccessful exploratory wells, geological and geophysical
costs, and delay rentals are expensed as incurred.
Valuation allowances are provided if the net capitalized costs of oil and gas
properties at the field level exceed their estimated realizable values based on
the undiscounted future net revenues. Unproved oil and gas properties are
periodically assessed for impairment of value at the field level and, if
necessary, a loss is recognized by providing an allowance.
Other property and equipment is recorded at cost and depreciated on the
straight-line method based on the estimated useful lives of the assets ranging
from three to eight years.
During the third quarter of 1995, the Company changed from the property-by-
property basis to the field basis of applying the unit-of-production method to
calculate depreciation, depletion and amortization ("DD&A") on producing oil and
gas property. The field basis provides a better matching of expenses with
revenues over the productive life of the properties, and, therefore, the Company
believes the new method is preferable to the property-by-property basis. The
effect of the accounting change was not material and prior interim periods were
not restated. There was no material cumulative effect related to this change in
computing DD&A at January 1, 1995.
DD&A per equivalent barrel of production from the Company's oil and gas
properties for the years ended December 31, 1993, 1994 and 1995 was $4.50, $3.86
and $3.17, respectively.
Investments Effective January 1, 1995, the Company began consolidating
Horizon into its financial statements. Horizon was accounted for under the
equity method during 1994 (its first year of operations). The Company's
remaining unconsolidated investment, at December 31, 1995, consists of a
F-8
<PAGE>
TIDE WEST OIL COMPANY
17.9 percent limited partnership interest in an oil and gas partnership
accounted for under the cost method.
Income Taxes The Company adopted Statement of Financial Accounting Standards
("FAS 109"), Accounting for Income Taxes on a prospective basis effective
January 1, 1993. Prior to January 1, 1993, the Company accounted for income
taxes under the provisions of Accounting Principles Board Opinion No. 11.
Under FAS 109, the Company accounts for income taxes on an asset and liability
method which requires the recognition of deferred tax liabilities and assets for
the tax effects of (a) temporary differences between tax bases and financial
reporting bases of assets and liabilities, (b) operating loss carryforwards and
(c) tax credit carryforwards.
Supplemental Disclosures of Cash Flow Information During the years ended
December 31, 1993, 1994 and 1995, cash payments for interest totaled $880,000,
$1.8 million, and $3.4 million, respectively, of which $230,000 was capitalized
for the year ended December 31, 1995. No interest was capitalized during 1993 or
1994. Cash payments for income taxes totaled $2.2 million, $1.8 million, and
$38,000 for the years ended December 31, 1993, 1994 and 1995, respectively. The
Company received an income tax refund in the amount of $1.6 million in 1995.
Effective January 1, 1995, the Company began consolidating the accounts and
operations of Horizon in the consolidated financial statements. On April 10,
1995, Killgore was merged with and into the Company, and 149,538 shares of the
Company's common stock were issued in exchange for all the outstanding common
stock of Killgore.
The following table presents the balance sheet accounts that were combined in
the Company's consolidated balance sheet at the dates indicated:
<TABLE>
<CAPTION>
Horizon Killgore
(In thousands) 01/01/95 04/10/95
- ----------------------------------------------------------------
<S> <C> <C>
Cash $ 364 $ ---
Accounts receivable 1,997 165
Note receivable 97 ---
Property and equipment 12,062 1,052
Accumulated depreciation, depletion and
amortization 2,245 355
Other non-current assets 99 67
Accounts and revenues payable and
accrued liabilities 1,345 150
Long-term debt --- 645
Stockholder equity --- 67
</TABLE>
Earnings Per Common Share Earnings per common share for the periods presented
have been computed using the weighted average number of common shares
outstanding. Outstanding stock options and warrants are included in the weighted
average shares outstanding for all periods in which their effect on earnings per
share is dilutive.
Reclassifications Certain reclassifications were made to the 1993 and 1994
financial statements to conform to the presentation used in 1995.
F-9
<PAGE>
TIDE WEST OIL COMPANY
3. Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 "Disclosures About Fair
Value of Financial Instruments," requires disclosure of the fair value of
certain financial instruments. The carrying value of short-term investments,
accounts receivable, short-term borrowing, accounts payable and accrued
liabilities approximates fair value. The carrying value of long-term debt is
also considered to approximate fair value based on its current interest rate and
terms. The estimated fair value amounts of the Company's off-balance sheet
financial instruments have been determined by the Company, using appropriate
market information and valuation methodologies. Considerable judgment is
required to develop the estimates of fair value, thus, the estimates provided
herein are not necessarily indicative of the amounts that could be realized in a
current market exchange. At December 31, 1995, the Company had interest rate
swaps which, if terminated on that date, would result in a loss of approximately
$2.0 million.
4. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
(In thousands) 1994 1995
- ----------------------------------------------------------------
<S> <C> <C>
Proved oil and gas properties:
Leasehold costs $ 82,537 $106,530
Intangible drilling costs 17,208 16,899
Vehicles 315 371
Lease and well equipment 11,203 25,934
-------------------
111,263 149,734
-------------------
Other property and equipment:
Land and buildings 272 326
Computer equipment 653 1,072
Furniture and fixtures 379 404
-------------------
1,304 1,802
-------------------
112,567 151,536
Less: accumulated depreciation, depletion
and amortization (20,350) (33,090)
- ----------------------------------------------------------------
Net capitalized costs $ 92,217 $118,446
===================
The Company's share of equity method
investee's net capitalized costs $ 9,419 $ ---
===================
</TABLE>
Costs incurred in oil and gas property acquisitions and development activities
are as follows:
<TABLE>
<CAPTION>
(In thousands) 1993 1994 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Property acquisitions $37,228 $19,227 $16,048
Development costs 4,425 7,759 13,356
-------------------------
Total costs incurred $41,653 $26,986 $29,404
=========================
The Company's share of equity
method investee's costs of
property acquisitions and
development costs $ --- $ 3,800 $ ---
=========================
</TABLE>
The Company did not incur any exploration costs during the three years ended
December 31, 1995.
F-10
<PAGE>
TIDE WEST OIL COMPANY
5. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(In thousands) 1994 1995
- --------------------------------------------------------------------
<S> <C> <C>
Bank revolving credit facility:
Interest payable based upon a one-month
LIBOR option plus 1.875% and 1.13% (8.0%
and 6.9% at December 31, 1994 and
1995, respectively) $31,150 $40,000
Interest payable monthly at the bank's base
lending rate plus .25% and 0%(8.75% and 8.5% at
December 31, 1994 and 1995, respectively) 1,150 800
- --------------------------------------------------------------------
Long-term debt $32,300 $40,800
====================
</TABLE>
The revolving credit facility is secured by substantially all of the Company's
oil and gas assets.
In June and December of each year, the borrowing base, as defined under the
revolving credit facility, is redetermined by the banks based upon their review
of the Company's oil and gas reserves. The amount of the revolving commitment
and borrowing base was $80.0 million at December 31, 1995. The Company must pay
a quarterly standby commitment fee of 0.25% to 0.375%, depending upon the
relationship of borrowings to the borrowing base. The revolving credit facility
is renewable on July 1 of each year. In the event the facility is not renewed,
the balance outstanding, not to exceed the borrowing base, will be converted to
a three-year term note. Advances under the revolving credit facility bear
interest, payable monthly, at a floating rate based on the prime rate or, at the
Company's option, at a fixed rate for up to six months based on the Eurodollar
market rate ("LIBOR"). The Company's interest rate increments above LIBOR vary
based on the level of outstanding advances and the borrowing base at the time of
the fixed rate election.
On December 20, 1993, the Company's wholly-owned subsidiary, Tide West
Trading, obtained a $5.0 million letter of credit facility. No amounts were
outstanding under this facility at December 31, 1994 or 1995.
The Company fixed the interest rate on $40 million notional amount of debt
through interest rate swaps for five years beginning in 1995 and continuing
through 1999. The effective interest rates to be paid by the Company on its
interest rate swaps were 7.9% for 1995, and are 8.7% for 1996, and 8.8% for 1997
through 1999.
The Company's credit agreement contains covenants which limit the amount of
additional indebtedness the Company may incur, restrict acquisitions and sales
of oil and gas properties above a certain amount, and restrict dividends to 30%
of cash flow. The Company was in compliance with all such covenants at December
31, 1995.
F-11
<PAGE>
TIDE WEST OIL COMPANY
6. Income Taxes
The Company's income tax expense consists of:
<TABLE>
<CAPTION>
(In thousands) 1993 1994 1995
- ----------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $1,835 $ 91 $ 171
State 162 150 72
----------------------
1,997 241 243
----------------------
Deferred:
Federal 506 2,497 3,201
State 45 165 572
----------------------
551 2,662 3,773
- ----------------------------------------------------
Provision for income taxes $2,548 $2,903 $4,016
----------------------
</TABLE>
Deferred tax liabilities and assets at December 31, 1994 and 1995 are
composed of the following:
<TABLE>
<CAPTION>
(In thousands) 1994 1995
- --------------------------------------------------------------
<S> <C> <C>
Deferred tax liability:
Difference between book and
tax basis of property $(6,622) $(10,525)
-------------------
Deferred tax assets:
Operating loss carryforward 1,434 1,157
Stock options 141 205
Alternative minimum tax carryforward 184 503
Nonconventional source fuel credit --- 24
-------------------
1,759 1,889
- --------------------------------------------------------------
Net deferred tax liability $(4,863) $ (8,636)
===================
</TABLE>
The effect of adopting FAS 109 was to decrease net income by $946,000 ($0.10
per share) in 1993, not including the cumulative effect of $300,000.
The Company's income tax expense, for the years ended December 31, 1993,
1994 and 1995, differs from the amount computed by applying the statutory
federal income tax rate for the following reasons:
<TABLE>
<CAPTION>
(In thousands) 1993 1994 1995
- -------------------------------------------------------
<S> <C> <C> <C>
Tax provision at the federal
statutory rate $2,339 $2,719 $3,631
State income taxes 206 320 644
Decrease in taxes resulting
from tax credits --- (221) (348)
Other 3 85 89
- -------------------------------------------------------
Provision for income taxes $2,548 $2,903 $4,016
========================
</TABLE>
The Company had net operating loss carryforwards at December 31, 1995,
totaling approximately $3.4 million for federal income tax purposes. The tax
loss carryforwards will be available to offset future federal income tax that
would be otherwise payable. These carryforwards expire during the years 2000
through 2006. Substantially all of these carryforwards relate to operations
prior to December 1, 1992. The Company's ability to use the carryforwards to
offset future income is subject to certain restrictions resulting from the
change in stock ownership which occurred in November 1992. These net operating
loss carryforwards may be further limited as a result of the proposed merger as
described in Note 15.
F-12
<PAGE>
TIDE WEST OIL COMPANY
7. Stock Purchase Warrants
Effective June 28, 1991, the Company completed an offering to the public of
common stock. The Company sold 1,400,000 units at $4.25 per unit, each unit
consisting of two shares of common stock (or two-tenths of a share after
adjustment for the one-for-ten reverse stock split) and two warrants, with each
warrant exercisable to purchase one share of common stock (or one-tenth of a
share on a post-split basis). Each warrant represents the right to purchase one-
tenth of a share of common stock for $3.00. The warrants expire on June 21,
1996. In addition, the Company issued warrants to the underwriter. These
warrants are exercisable at anytime during the four-year period commencing June
21, 1992, to purchase up to 140,000 units for $5.10 per unit, each unit
consisting of two-tenths of a share of common stock and two stock purchase
warrants, each exercisable to purchase one-tenth of a share of common stock for
$3.00. Substantially all of the above-noted warrants were outstanding at
December 31, 1995. Upon the exercise of any of these warrants after June 21,
1992, the Company has agreed to pay broker-dealers responsible for the exercise
of warrants a fee of up to, but not in excess of, five percent of the aggregate
exercise price of such warrants, if certain conditions are met.
8. Stock Option Plan
Effective May 31, 1991, the Company established the Tide West Oil Company
1991 Stock Option Plan (as amended, the "Plan"). The Plan provides for the
granting of stock options ("Options"), including incentive stock options ("ISO
Options"), with or without stock appreciation rights ("SARs"), and nonincentive
stock options ("NSO Options"), with or without SARs, to employees and
consultants of the Company, including employees who also serve as directors of
the Company. The Plan will terminate on May 31, 2001. The total amount of common
stock authorized and reserved for issuance under the Plan is 1,000,000 shares.
Options granted under the Plan are exercisable in such amounts, at such
intervals and upon such terms as the option grant provides. The option price of
the common stock may not be less than 85% (100% for ISO Options) of the fair
market value of the shares on the date of grant of the option. However, if a
participant owns more than 10% of the total combined voting power of all classes
of capital stock of the Company, the exercise price of ISO Options may not be
less than 110% of the fair market value of the common stock on the date of the
grant, and such ISO Options expire five years after the date of grant.
Information with respect to options under the Plan follows:
<TABLE>
<CAPTION>
Options
-----------------------------
Price per Number
share of shares
-----------------------------
<S> <C> <C>
Outstanding, December 31, 1992 $7.00 - $17.50 537,840
Granted 10.00 320,000
Cancelled or expired 8.13 (6,000)
-----------------------------
Outstanding, December 31, 1993 7.00 - 17.50 851,840
Granted --- ---
Cancelled or expired --- ---
-----------------------------
Outstanding, December 31, 1994 7.00 - 17.50 851,840
Granted 10.00 90,000
Cancelled or expired 8.13 (2,000)
Exercised 8.13 (2,000)
- ---------------------------------------------------------------
Outstanding December 31, 1995 $7.00 - $17.50 937,840
</TABLE>
F-13
<PAGE>
TIDE WEST OIL COMPANY
At December 31, 1995, 754,589 shares were exercisable.
NSO Options were granted on December 11, 1992, September 16, 1993, November
16, 1993, January 19, 1995, and August 30, 1995, and vest over a three-year
period at the rate of one-third per year. The difference between the exercise
price of the December 11, 1992 options and the market value at date of grant
($1.125 per share) is being recognized as compensation expense ratably over the
vesting period. The Options granted on December 11, 1992, vest over a four-year
period at the rate of one-fourth per year. The options granted on September 16,
1993, November 16, 1993, January 19, 1995, and August 30, 1995, vest over a
three-year period at a rate of one-third per year. All of the NSO and ISO
Options expire on May 31, 2001.
At December 31, 1995, 62,160 shares were available for future grants under
the Plan.
9. Commitments and Contingencies
The Company is a defendant in certain legal proceedings during the normal
course of business. Management believes the disposition of these matters will
not have a material adverse effect on the consolidated financial position or
results of operations of the Company.
The Company leases office space under an operating lease expiring in October
1997. Rent expense was $81,705, $115,224 and $173,000 in 1993, 1994 and 1995,
respectively. Minimum annual rental commitments at December 31, 1995, are
$162,000 in 1996, and $152,000 in 1997, for an aggregate commitment of $314,000.
10. Significant Customers and Credit Risk
There were no purchasers in 1993 or 1995 representing more than 10% of total
revenues. There was one natural gas purchaser in 1994 which represented 11% of
the Company's total revenues. Financial instruments which potentially subject
the Company to credit risk are primarily accounts receivable. Historically, the
Company has not experienced significant losses related to receivables from
individual purchasers or groups of purchasers.
11. Related Party Transactions
In 1994, the Company contributed certain minor oil and gas properties and
the Company's interest in two limited partnerships, with a net book value and
estimated fair market value totaling $9.7 million, to Horizon in return for a
95% limited partnership interest.
On July 6, 1994, the Company acquired from Merit Energy Partners II, L.P.
("Merit") certain oil and gas properties for $8.2 million. Natural Gas Partners,
L.P., the Company's largest stockholder and who has three representatives on the
Company's Board of Directors, was the majority limited partner of Merit.
12. Accounting Standards to be Adopted
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("FAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
Effective for fiscal years beginning after December 15, 1995, FAS 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to such assets. The
Company will adopt FAS 121 in 1996. Management believes that the effect of this
pronouncement on the Company's consolidated financial statements will not be
material.
F-14
<PAGE>
TIDE WEST OIL COMPANY
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-
Based Compensation." FAS 123 establishes a fair value method and disclosure
standards for stock-based employee compensation arrangements, such as stock
purchase plans and stock options. As allowed by FAS 123, the Company will
continue to follow the provisions of Accounting Principles Board Opinion No. 25
for such stock-based compensation arrangements, and disclose the pro forma
effects of applying FAS 123 for 1995 and 1996 in its 1996 financial statements.
13. Business Segments
The Company's operations include oil and gas exploration and production and
gas marketing. Intersegment sales are generally made at prevailing market
prices. The following table sets forth information with respect to the industry
segments of the Company:
<TABLE>
<CAPTION>
(In thousands) 1993 1994 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Oil and gas $ 23,769 $ 29,510 $ 36,508
Trading and transportation 84,993 105,424 99,984
Eliminations and corporate (12,734) (17,214) (17,057)
------------------------------
Consolidated $ 96,028 $117,720 $119,435
------------------------------
Operating income:
Oil and gas $ 8,747 $ 12,454 $ 15,211
Trading and transportation 1,861 1,844 2,285
Eliminations and corporate (2,973) (4,182) (4,889)
------------------------------
Consolidated $ 7,635 $ 10,116 $ 12,607
------------------------------
Identifiable assets:
Oil and gas $ 91,576 $108,908 $125,169
Trading and transportation 13,314 12,289 13,659
Corporate 1,716 3,123 5,569
------------------------------
Consolidated $106,606 $124,320 $144,397
------------------------------
Depreciation, depletion and amortization:
Oil and gas $ 8,677 $ 10,157 $ 11,033
Trading and transportation --- --- ---
Corporate 193 292 332
------------------------------
Consolidated $ 8,870 $ 10,449 $ 11,365
------------------------------
Capital expenditures:
Oil and gas $ 41,775 $ 27,084 $ 29,460
Trading and transportation --- --- ---
Corporate 264 296 399
------------------------------
Consolidated $ 42,039 $ 27,380 $ 29,859
------------------------------
</TABLE>
F-15
<PAGE>
TIDE WEST OIL COMPANY
14. Quarterly Financial Data (Unaudited)
The following is a summary of the unaudited quarterly financial information
for the years ended December 31, 1994 and 1995:
<TABLE>
<CAPTION>
Quarter ended
------------------------------------
(In thousands, except per share amounts) 3/31/94 6/30/94 9/30/94 12/31/94
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $37,097 $32,614 $27,826 $20,183
Operating income 3,278 2,890 2,305 1,643
Net income 1,635 1,989 1,083 388
Net income per share 0.17 0.20 0.11 0.04
</TABLE>
<TABLE>
<CAPTION>
Quarter ended
------------------------------------
(In thousands, except per share amounts) 3/31/95 6/30/95 9/30/95 12/31/95
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $27,686 $30,507 $27,795 $33,447
Operating income 1,754 2,252 4,445 4,156
Net income 2,592 (1,482) 2,430 3,131
Net income per share - Primary 0.26 (0.15) 0.25 0.31
Net income per share - Fully Diluted 0.26 (0.15) 0.25 0.29
</TABLE>
15. Subsequent Event
On February 25, 1996, the Company entered into an agreement with HS
Resources, Inc., a Delaware corporation ("HS Resources"), whereby the Company is
to be merged with and into a subsidiary of HS Resources (the "Merger"). In the
Merger, each share of the Company's common stock will be converted into .6295 of
a share of HS Resources common stock and the right to receive a cash payment of
$8.75 less 3% of the amount by which the average per share closing sales price
of HS Resources common stock for the 10 trading days preceding the closing of
the Merger exceeds $10.50, subject to adjustments in certain events. The Merger
is subject to approval by the stockholders of the Company, and the issuance of
HS Resources common stock pursuant to the Merger is subject to approval of the
stockholders of HS Resources. Certain stockholders of the Company (holding, in
the aggregate, more than 50% of the outstanding shares of common stock of the
Company) have agreed with HS Resources to vote their shares representing a
majority of the outstanding common stock in favor of the Merger.
At the time the Company's Board of Directors (the "Board") determined and
publicly announced that the Company would be sold, the Board decided, and it was
announced to the employees of the Company, that the Company would pay to each
employee who is still employed by the Company at the closing date a completion
bonus, payable immediately prior to the closing date (whether or not the
employee is employed by the surviving corporation), in order to provide such
employees with an incentive to remain in the employ of the Company and to help
prepare the Company for sale. The amounts of such bonuses are, in the case of
certain employees, measured in part by the market price of HS Resources common
stock. The Board also decided to pay to Natural Gas Partners, L.P. ("NGP")
(which acts as financial advisor to the Company) a fixed completion bonus in
recognition of the extra effort required of NGP to prepare the Company for sale.
The amount of all completion bonuses to be paid at closing, treating February
26, 1996 (the date of the public announcement of the execution of the Merger
agreement), as the closing date, would be approximately $2.8 million.
F-16
<PAGE>
TIDE WEST OIL COMPANY
16. Supplemental Information about Oil and Gas
Producing Activities (Unaudited)
The following information summarizes the Company's net proved reserves of
oil and gas and the present values thereof for the years ended December 31,
1993, 1994 and 1995. The information presented for 1993 and 1994 is based upon
estimates prepared by Netherland, Sewell & Associates, Inc., which was engaged
to perform an evaluation of approximately 80% of the present value of estimated
future net cash flows before income tax (discounted at 10%), with the balance
being estimated by the Company for those years. All of the reserve estimates for
1995 were prepared by the Company's engineers. The information was prepared in
accordance with Statement of Financial Accounting Standards No. 69.
Prices of crude oil, condensate, and gas were those prices in effect at the
respective dates. Estimated future production costs, which include lease
operating costs and severance taxes (estimated assuming existing economic
conditions will continue over the lives of the individual leases, with no
adjustment for inflation), have been deducted in arriving at the estimated
future net revenues. The present value amounts should not necessarily be equated
with fair market value of the Company's oil and gas reserves. All reserves are
located in the United States.
The reliability of any reserve estimate is a function of the quality of
available information and of engineering interpretation and judgment. These
reserves should be accepted with the understanding that subsequent drilling
activities or additional information might require their revision.
F-17
<PAGE>
TIDE WEST OIL COMPANY
The following schedules present certain data pertaining to the Company's proved
reserves at December 31, 1993, 1994 and 1995:
Estimated Quantities of Proved Reserves:
<TABLE>
<CAPTION>
--------------------------------------------------
1993 1994 1995
- -----------------------------------------------------------------------------------------------
Oil Gas Oil Gas Oil Gas
MBbls MMcf MBbls MMcf MBbls MMcf
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Proved Reserves
Beginning of year 2,396 85,616 3,378 142,667 2,898 165,093
Consolidation of limited partnership --- --- --- --- 419 15,964
Sales and transfers of minerals in place (29) (1,717) (265) (7,116) (22) (594)
Revisions of previous estimates (541) 11,263 (77) (4,682) 672 21,421
Extensions and discoveries 90 12,581 71 20,673 885 39,953
Purchases of minerals in place 1,759 44,977 153 27,638 2,704 13,749
Production (297) (10,053) (362) (14,087) (571) (18,099)
- -------------------------------------------------------------------------------------------------
End of Year 3,378 142,667 2,898 165,093 6,985 237,487
===================================================
Proved Developed Reserves, end of year 3,163 128,898 2,810 142,756 5,831 194,624
===================================================
The Company's share of equity method
investee, end of year (not included above) --- --- 390 14,846 --- ---
===================================================
</TABLE>
Standardized Measure of Estimated Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves:
<TABLE>
<CAPTION>
-------------------------------
(In thousands) 1993 1994 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Future cash inflows $352,922 $303,885 $ 569,582
Future development costs (8,160) (12,405) (23,045)
Future production costs (92,937) (92,045) (155,815)
-------------------------------
Future net cash flows, before income taxes 251,825 199,435 390,722
Future income taxes (72,372) (44,792) (112,085)
-------------------------------
Future net cash flows, after income taxes 179,453 154,643 278,637
10% annual discount for estimated timing of
cash flows (65,798) (59,318) (112,317)
- -------------------------------------------------------------------------------
Standardized measure of estimated
discounted future net cash flows $113,655 $ 95,325 $ 166,320
===============================
The Company's share of equity method investee
(not included above) $ --- $ 9,662 $ ---
===============================
</TABLE>
Estimated discounted future net cash flows before income taxes were $157.8
million at December 31, 1993, $132.6 million at December 31, 1994 (which
includes the Company's proportionate share of equity method investee), and
$231.7 million at December 31, 1995.
Changes in the Standardized Measure of Estimated Discounted Future Net Cash
Flows from Proved Oil and Gas Reserves:
<TABLE>
<CAPTION>
------------------------------
(In thousands) 1993 1994 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Standardized measure, beginning of period $ 75,908 $113,655 $ 95,325
Consolidation of limited partnership --- --- 10,389
Sales of production, net of production costs (17,962) (21,774) (25,386)
Net changes in prices and production costs 2,542 (40,879) 34,175
Purchases of minerals in place 54,712 18,519 34,713
Extensions and discoveries 13,757 12,068 39,544
Sales and transfers of minerals in place (1,586) (6,751) (511)
Revisions of previous quantity estimates 7,847 (3,723) 21,619
Accretion of discount 9,797 15,780 13,332
Net changes in income taxes (22,082) 16,537 (37,800)
Timing and other (9,278) (8,107) (19,080)
- ------------------------------------------------------------------------------
Standardized measure, end of period $113,655 $ 95,325 $166,320
==============================
</TABLE>
F-18
<PAGE>
INDEX TO EXHIBITS
The following documents are included as exhibits to this Form 10-K. Those
exhibits below incorporated by reference herein are indicated as such by the
information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, such exhibit is filed herewith.
Sequentially
Exhibit Numbered
Number Description Page
2.1 Agreement and Plan of Merger dated February 25, 1996, between
H.S. Resources, Inc., HSR Acquisition, Inc. and the Company.
3.1 Certificate of Incorporation of the Company (filed as Exhibit 4.1 to
the Company's Current Report on Form 8-K dated November 20, 1992
(the "1992 Form 8-K")).
3.2 Amendment to Certificate of Incorporation dated January 29, 1993
(effective February 1, 1993) (filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-1, No. 33-57058 (the "S-1 Registration
Statement")).
3.3 Restated By-laws of the Company (filed as Exhibit 3.3 to the S-1
Registration Statement).
4.1 Form of stock certificate for the Company's Common Stock, par value
$.01 per share (filed as Exhibit 4.1 to the S-1 Registration
Statement).
10.1 Second Amended and Restated Credit Agreement dated June 15, 1995,
between the Company, as borrower, and Union Bank, Colorado National
Bank, Texas Commerce Bank, National Association, and Den norske
Bank AS, as lenders, and Union Bank, as agent (filed as Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q dated August 11, 1995
(the "Second Quarter 1995 Form 10-Q")).
10.2 First Amendment to Second Amended and Restated Credit Agreement dated
December 21, 1995, between the Company, as borrower, and Union Bank,
Colorado National Bank, Texas Commerce Bank, National Association,
and Den norske Bank AS, as lenders, and Union Bank, as agent.
10.3 Credit Agreement dated December 23, 1993, between Tide West Trading
& Transport Company, as borrower, and Union Bank, Colorado National
Bank and Den norske Bank AS, as lenders, and Union Bank, as agent
(filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
dated August 12, 1994).
10.4 First Amendment to Credit Agreement dated December 19, 1994,
between Tide West Trading & Transport Company, as borrower, and
Union Bank, Colorado National Bank and Den norske Bank AS, as lenders,
and Union Bank, as agent (filed as Exhibit 10.9 to the Company's Annual
Report on Form 10-K dated March 30, 1995 (the "1994 Form 10-K")).
10.5 Second Amendment to Credit Agreement dated February 17, 1995,
between Tide West Trading & Transport Company, as borrower, and
<PAGE>
Union Bank, Colorado National Bank, and Den norske Bank AS, as lenders,
and Union Bank, as agent (filed as Exhibit 10.10 to the 1994 Form
10-K).
10.6 Third Amendment to Credit Agreement dated March 17, 1995, among
Tide West Trading & Transport Company, as borrower, Union Bank,
Den norske Bank AS and Colorado National Bank, as lenders, and Union
Bank, as agent (filed as Exhibit 10.3 to the Second Quarter 1995 Form
10-Q).
10.7 Fourth Amendment to Credit Agreement dated April 17, 1995,
among Tide West Trading & Transport Company, as borrower,
Union Bank, Den norske Bank AS and Colorado National Bank, as lenders,
and Union Bank, as agent (filed as Exhibit 10.2 to the Second Quarter
1995 Form 10-Q).
10.8 Limited Partnership Agreement dated December 28, 1993, between
the Company and Horizon Natural Resources, Inc. (filed as Exhibit 10.7
to Company's Annual Report on Form 10-K dated March 30, 1994
(the "1993 Form 10-K")).
10.9* Registration Rights Agreement dated November 20, 1992, among
the Company, Natural Gas Partners, L.P. ("NGP"), Philip B. Smith and
Robert H. Mase (filed as Exhibit 10.2 to the S-1 Registration
Statement).
10.10* Shareholders' Agreement dated November 19, 1992, among NGP,
Philip B. Smith, Robert H. Mase and Douglas J. Flint (filed as Exhibit
28 to the 1992 Form 8-K).
10.11* Promissory Note dated May 31, 1991, between Draco Gas Partners, L.P.
("Draco"), as lender, and Robert H. Mase, as borrower, and Assignment
thereof by Draco to the Company, dated November 20, 1992 (filed as
Exhibit 10.6 to the S-1 Registration Statement).
10.12* Security Agreement dated November 20, 1992, between the Company, as
secured party, and Robert H. Mase (filed as Exhibit 10.7 to the S-1
Registration Statement).
10.13 Financial Advisory Services Contract dated January 1, 1993,
between the Company and NGP (filed as Exhibit 10.8 to the S-1
Registration Statement).
10.14 First Amendment to Financial Advisory Services Contract dated
January 1, 1994, between the Company and NGP (filed as Exhibit
10.13 to the 1993 Form 10-K).
10.15* Form of Indemnification Agreement dated as of November 20, 1992,
between the Company and each of its officers and directors (filed as
Exhibit 10.9 to the S-1 Registration Statement).
10.16* The Company's 1991 Stock Option Plan and Amendment No. 1
thereto (filed as Exhibit 10.10 to the S-1 Registration Statement).
10.17* Amendment No. 2 to the Company's 1991 Stock Option Plan (filed
as Exhibit 4(e) to the Company's Registration Statement on Form
<PAGE>
S-8, No. 33-73020).
10.18* Amendment No. 3 to the Company's 1991 Stock Option Plan (filed
as Exhibit 10.17 to the 1993 Form 10-K).
10.19* Form of Stock Option Agreement under the Tide West Oil
Company 1991 Stock Option Plan (filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q dated November 11, 1994).
10.20 Form of Warrant Agreement between the Company and American
Securities Transfer, Incorporated, dated June 21, 1991 (filed as
Exhibit 10.11 to the S-1 Registration Statement).
10.21 First Supplement and Amendment to Warrant Agreement between the
Company and The First National Bank of Boston dated
March 14, 1994 (filed as Exhibit 10.20 to the 1993 Form 10-K).
10.22 Form of Purchase Warrant dated June 21, 1991, issued to
Paulson Investment Company, Inc. and affiliates (filed as
Exhibit 10.12 to the S-1 Registration Statement).
21. Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Netherland, Sewell & Associates, Inc.
27.1 Financial Data Schedule.
____________________
* Management contract or compensatory plan or arrangement.
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made and entered into
as of the 25th day of February, 1996, by and among HS RESOURCES, INC.
("PARENT"), a Delaware corporation; HSR ACQUISITION, INC. ("MERGER SUB"), a
Delaware corporation; and Tide West Oil Company ("TIDE WEST"), a Delaware
corporation.
Recitals
A. The board of directors of each of Parent and Tide West has determined that
it is in the best interests of its respective stockholders to approve the
strategic alliance of Parent and Tide West by means of the merger of Tide West
with and into Merger Sub upon the terms and subject to the conditions set forth
in this Agreement.
B. For federal income tax purposes, it is intended that such merger qualify
as a "reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended.
C. Parent, Merger Sub, and Tide West desire to make certain representations,
warranties, covenants and agreements in connection with such merger and also to
prescribe various conditions to such merger.
NOW, THEREFORE, for and in consideration of the recitals and the mutual
covenants and agreements set forth in this Agreement, the parties to this
Agreement hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, each of the following terms
has the meaning given in this Section 1.1 or in the Sections referred to below:
"AFFILIATE" means, with respect to any Person, each other Person that directly
or indirectly (through one or more intermediaries or otherwise) controls, is
controlled by, or is under common control with such Person.
"AGREEMENT" means this Agreement and Plan of Merger, as amended, supplemented
or modified from time to time.
"ALLOCATED VALUES" means the allocation of values shown on SCHEDULE 1.1(A).
"ALTERNATIVE PROPOSAL" has the meaning specified in Section 5.4(b).
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"ALTERNATIVE TRANSACTION" has the meaning specified in Section 5.4(d).
"BANK CREDIT AGREEMENT" means (a) the Second Amended and Restated Credit
Agreement, dated as of June 15, 1995, between Tide West, as borrower, and Union
Bank, Den norske Bank AS, Colorado National Bank, and Texas Commerce Bank,
National Association, as lenders (as amended and supplemented as of the date
hereof), and/or (b) the Credit Agreement, dated as of December 20, 1993, between
TWTT, as borrower, and Union Bank, Den norske Bank AS, and Colorado National
Bank, as lenders (as amended and supplemented as of the date hereof).
"CASH CONSIDERATION" means $8.75 less three percent of the amount by which the
Market Price exceeds $10.50.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, or any successor statutes and any regulations
promulgated thereunder.
"CERCLIS" means the Comprehensive Environmental Response, Compensation and
Liability Information System List.
"CERTIFICATE OF MERGER" means the certificate of merger, prepared and executed
in accordance with the applicable provisions of the DGCL, filed with the
Secretary of State of Delaware to reflect the consummation of the Merger.
"CLOSING" means the closing of the Merger and the consummation of the other
transactions contemplated by this Agreement.
"CLOSING DATE" means the date on which the Closing occurs, which date shall be
the first business day following the day on which both the Tide West Meeting and
the Parent Meeting have been held (or such later date as is agreed upon by the
parties).
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIALITY AGREEMENT" means, collectively, the letter agreements dated
November 28, 1995, and February 17, 1996, between Tide West and Parent relating
to Tide West's furnishing of information to Parent and Parent's furnishing of
information to Tide West in connection with Parent's and Tide West's evaluation
of the possibility of the Merger.
"CONVERSION NUMBER" means 0.6295.
"DGCL" means the Delaware General Corporation Law.
"DEFENSIBLE TITLE" means such right, title and interest that is (a) evidenced
by an instrument or instruments filed of record in accordance with the
conveyance and recording laws of the applicable jurisdiction to the extent
necessary to prevail against competing claims of bona fide purchasers for value
without notice and (b) subject to Permitted Encumbrances, free and clear of all
Liens, claims, infringements, burdens or other defects.
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"DISCLOSURE SCHEDULE" means the DISCLOSURE SCHEDULE attached hereto and any
documents listed on such DISCLOSURE SCHEDULE and expressly incorporated therein
by reference.
"DISSENTING STOCKHOLDER(S)" means holder(s) of Tide West Common Stock who have
validly perfected appraisal rights under Section 262 of the DGCL.
"DRACO" means Draco Petroleum, Inc., an Oklahoma corporation and a wholly-
owned subsidiary of Tide West.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"EFFECTIVE TIME" has the meaning specified in Section 2.7.
"ENVIRONMENTAL LAW" means any federal, state, local or foreign statute, code,
ordinance, rule, regulation, policy, guideline, permit, consent, approval,
license, judgment, order, writ, decree, common law, injunction or other
authorization in effect on the date hereof or at a previous time applicable to
Tide West's operations relating to (a) emissions, discharges, releases or
threatened releases of Hazardous Materials into the natural environment,
including into ambient air, soil, sediments, land surface or subsurface,
buildings or facilities, surface water, groundwater, publicly-owned treatment
works, septic systems or land; (b) the generation, treatment, storage, disposal,
use, handling, manufacturing, transportation or shipment of Hazardous Materials;
(c) occupational health and safety; or (d) otherwise relating to the pollution
of the environment, solid waste handling treatment or disposal, or operation or
reclamation of oil and gas operations or mines.
"EXCHANGE AGENT" means Harris Savings and Trust, the transfer agent for shares
of Parent Common Stock.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE FUND" has the meaning specified in Section 2.5(a).
"FAILURE AMOUNT" has the meaning specified in Section 6.2(a).
"GAAP" means generally accepted accounting principles, as recognized by the
U.S. Financial Accounting Standards Board (or any generally recognized
successor).
"GOVERNMENTAL ACTION" means any authorization, application, approval, consent,
exemption, filing, license, notice, registration, permit or other requirement
of, to or with any Governmental Authority.
"GOVERNMENTAL AUTHORITY" means any national, state, county or municipal
government, domestic or foreign, any agency, board, bureau, commission, court,
department or other instrumentality of any such government, or any arbitrator in
any case that has jurisdiction over any of the Tide West Companies, Parent or
Merger Sub or any of their respective properties or assets.
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"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"HAZARDOUS MATERIAL" means (a) any "hazardous substance," as defined by
CERCLA; (b) any "hazardous waste" or "solid waste," in either case as defined by
the Resource Conservation and Recovery Act, as amended; (c) any solid,
hazardous, dangerous or toxic chemical, material, waste or substance, within the
meaning of and regulated by any Environmental Law; (d) any radioactive material,
including any naturally occurring radioactive material, and any source, special
or byproduct material as defined in 42 U.S.C. 2011 et seq. and any amendments or
authorizations thereof; (e) any asbestos-containing materials in any form or
condition; (f) any polychlorinated biphenyls in any form or condition; or (g)
petroleum, petroleum hydrocarbons, or any fraction or byproducts thereof.
"HORIZON" means Horizon Gas Partners, L.P., a Delaware limited partnership.
"HYDROCARBON AGREEMENT" means any of the Hydrocarbon Sales Agreements, the
Hydrocarbon Purchase Agreements and the Hydrocarbon Support Agreements.
"HYDROCARBON PURCHASE AGREEMENT" means any sales agreement, purchase contract
or marketing agreement that is currently in effect and under which any of the
Tide West Companies is a buyer of Hydrocarbons for resale (other than purchase
agreements entered into in the ordinary course of business with a term of three
months or less, terminable without penalty on 30 days' notice or less, which
provide for a price not greater than the market value price that would be paid
pursuant to an arm's-length contract for the same term with an unaffiliated
third party seller, and which do not obligate the purchaser to take any
specified quantity of Hydrocarbons or to pay for any deficiencies in quantities
of Hydrocarbons not taken).
"HYDROCARBON SALES AGREEMENT" means any sales agreement, purchase contract or
marketing agreement that is currently in effect and under which any of the Tide
West Companies is a seller of Hydrocarbons (other than "spot" sales agreements
entered into in the ordinary course of business with a term of three months or
less, terminable without penalty on 30 days' notice or less, and which provide
for a price not less than the market value price that would be received pursuant
to an arms'-length contract for the same term with an unaffiliated third party
purchaser).
"HYDROCARBON SUPPORT AGREEMENT" means any gathering, transportation,
treatment, compression, processing or similar agreement that is currently in
effect and to which any of the Tide West Companies is a party (other than
gathering, transportation, treatment, compression, processing and similar
agreements that have been entered into in the ordinary course of business and
which contain market value prices and terms of the type found in gathering,
transportation, treatment, compression, processing and similar agreements
entered into between unaffiliated parties in arm's-length transactions).
"HYDROCARBONS" means oil, condensate, gas, casinghead gas and other liquid or
gaseous hydrocarbons.
"INDEMNIFIED PARTIES" has the meaning specified in Section 5.15.
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"LIEN" means any lien, mortgage, security interest, pledge, deposit,
production payment, restriction, burden, encumbrance, rights of a vendor under
any title retention or conditional sale agreement, or lease or other arrangement
substantially equivalent thereto.
"MAJOR TIDE WEST STOCKHOLDER" means Natural Gas Partners, L.P., a Delaware
limited partnership.
"MARKET PRICE" means the average of the per share closing sales prices of the
Parent Common Stock on the NYSE (as reported by The Wall Street Journal, or if
not so reported, by another authoritative source) over the 10 trading days
immediately preceding the Closing Date.
"MATERIAL" or "MATERIALLY" (whether or not capitalized) means circumstances or
results having an economic effect in excess of $500,000, except as otherwise
specified.
"MATERIAL ADVERSE EFFECT" means (a) when used with respect to Tide West, a
result or consequence that would materially adversely affect the condition
(financial or otherwise), results of operations or business of the Tide West
Companies (taken as a whole) or the aggregate value of their assets, would
materially impair the ability of the Tide West Companies (taken as a whole) to
own, hold, develop and operate their assets, or would impair Tide West's ability
to perform its obligations hereunder or consummate the transactions contemplated
hereby; and (b) when used with respect to Parent, a result or consequence that
would materially adversely affect the condition (financial or otherwise),
results of operations or business of Parent and the Parent Material Subsidiaries
(taken as a whole) or the aggregate value of their assets, would materially
impair the ability of Parent and the Parent Material Subsidiaries (taken as a
whole) to own, hold, develop and operate their assets, or would impair Parent's
or Merger Sub's ability to perform its respective obligations hereunder or
consummate the transactions contemplated hereby.
"MERGER" has the meaning specified in Section 2.1.
"MERGER CONSIDERATION" means the sum of (a) the Cash Consideration plus (b)
the product of the Conversion Number and the Market Price.
"MERGER SUB" means HSR Acquisition, Inc., a Delaware corporation and a wholly-
owned subsidiary of Parent.
"MERGER SUB COMMON STOCK" means the common stock, par value $.001 per share,
of Merger Sub.
"MERRILL LYNCH" means Merrill Lynch, Pierce, Fenner & Smith Incorporated.
"NYSE" means The New York Stock Exchange, Inc.
"OIL AND GAS INTEREST(S)" means (a) direct and indirect interests in and
rights with respect to oil, gas, mineral and related properties and assets of
any kind and nature, direct or indirect, including working, royalty and
overriding royalty interests, production payments, operating rights, net profits
interests, other non-working interests and non-operating interests; (b)
interests in and
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rights with respect to Hydrocarbons and other minerals or revenues therefrom and
contracts in connection therewith and claims and rights thereto (including oil
and gas leases, operating agreements, unitization and pooling agreements and
orders, division orders, transfer orders, mineral deeds, royalty deeds, oil and
gas sales, exchange and processing contracts and agreements and, in each case,
interests thereunder), surface interests, fee interests, reversionary interests,
reservations and concessions; (c) easements, rights of way, licenses, permits,
leases, and other interests associated with, appurtenant to, or necessary for
the operation of any of the foregoing; and (d) interests in equipment and
machinery (including well equipment and machinery), oil and gas production,
gathering, transmission, compression, treating, processing and storage
facilities (including tanks, tank batteries, pipelines and gathering systems),
pumps, water plants, electric plants, gasoline and gas processing plants,
refineries and other tangible personal property and fixtures associated with,
appurtenant to, or necessary for the operation of any of the foregoing.
References in this Agreement to the "OIL AND GAS INTERESTS OF TIDE WEST" or
"TIDE WEST'S OIL AND GAS INTERESTS" mean the collective Oil and Gas Interests of
the Tide West Companies.
"OWNERSHIP INTERESTS" means the ownership interests of Tide West in its
assets, as set forth on SCHEDULE 1.1(B).
"PARENT" means HS Resources, Inc., a Delaware corporation.
"PARENT CERTIFICATE" means a certificate representing shares of Parent Common
Stock.
"PARENT COMMON STOCK" means the common stock, par value $.001 per share, of
Parent.
"PARENT FINANCIAL STATEMENTS" means the audited and unaudited consolidated
financial statements of Parent and its subsidiaries (including the related
notes) included (or incorporated by reference) in Parent's Annual Report on Form
10-K for the year ended December 31, 1994, and Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995, in each case as filed with the SEC.
"PARENT MATERIAL SUBSIDIARY(IES)" means Resource Gathering Systems, Inc.,
Resolute Resources, Inc., Elk Exploration, Inc. and HS Partners, Inc.
"PARENT MEETING" means the meeting of the stockholders of Parent called for
the purpose of voting on the Tide West Proposal.
"PARENT PREFERRED STOCK" means the preferred stock, par value $.001 per share,
of Parent.
"PARENT REPRESENTATIVE" means any director, officer, employee, agent, advisor
(including legal, accounting and financial advisors), Affiliate or other
representative of Parent or its subsidiaries.
"PARENT SEC DOCUMENTS" has the meaning specified in Section 4.5.
"PAYOUT BALANCES" has the meaning specified in Section 3.36.
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"PERMITTED ENCUMBRANCES" means (a) Liens for Taxes, assessments or other
governmental charges or levies if the same shall not at the particular time in
question be due and delinquent or (if foreclosure, distraint, sale or other
similar proceedings shall not have been commenced or, if commenced, shall have
been stayed) are being contested in good faith by appropriate proceedings and if
any of the Tide West Companies shall have set aside on its books such reserves
(segregated to the extent required by sound accounting practices) as may be
required by or consistent with GAAP and, whether reserves are set aside or not,
are listed on the DISCLOSURE SCHEDULE; (b) Liens of carriers, warehousemen,
mechanics, laborers, materialmen, landlords, vendors, workmen and operators
arising by operation of law in the ordinary course of business or by a written
agreement existing as of the date hereof and necessary or incident to the
exploration, development, operation and maintenance of Hydrocarbon properties
and related facilities and assets for sums not yet due or being contested in
good faith by appropriate proceedings, if any of the Tide West Companies shall
have set aside on its books such reserves (segregated to the extent required by
sound accounting practices) as may be required by or consistent with GAAP and,
whether reserves are set aside or not, are listed on the DISCLOSURE SCHEDULE;
(c) Liens incurred in the ordinary course of business in connection with
worker's compensation, unemployment insurance and other social security
legislation (other than ERISA) which would not, individually or in the
aggregate, result in a Material Adverse Effect on the Tide West Companies; (d)
Liens incurred in the ordinary course of business to secure the performance of
bids, tenders, trade contracts, leases, statutory obligations, surety and appeal
bonds, performance and repayment bonds and other obligations of a like nature;
(e) Liens, easements, rights-of-way, restrictions, servitudes, permits,
conditions, covenants, exceptions, reservations and other similar encumbrances
incurred in the ordinary course of business or existing on property and not
materially impairing the value of the assets of any of Tide West Companies or
interfering with the ordinary conduct of the business of any of the Tide West
Companies or rights to any of their assets; (f) Liens arising pursuant to
Section 9.319 of the Texas Business and Commerce Code and all other similar
Liens created or arising by operation of law to secure a party's obligations as
a purchaser of oil and gas; (g) all rights to consent by, required notices to,
filings with, or other actions by Governmental Authorities to the extent
customarily obtained subsequent to closing; (h) farmout, carried working
interest, joint operating, unitization, royalty, overriding royalty, sales and
similar agreements relating to the exploration or development of, or production
from, Hydrocarbon properties entered into in the ordinary course of business and
not in violation of Section 5.1(c), provided the effect thereof on the working
and net revenue interest of Tide West has been properly reflected in the
Ownership Interests; (i) any defects, irregularities or deficiencies in title to
easements, rights-of-way or other surface use agreements that do not materially
adversely affect the value of any asset of any of the Tide West Companies by an
amount in excess of $10,000; (j) preferential rights to purchase and Third-Party
Consents; (k) Liens arising under or created pursuant to either Bank Credit
Agreement; and (l) Liens described on the DISCLOSURE SCHEDULE.
"PERSON" means any natural person, corporation, company, limited or general
partnership, joint stock company, joint venture, association, limited liability
company, trust, bank, trust company, land trust, business trust or other entity
or organization, whether or not a Governmental Authority.
"PROXY STATEMENT/PROSPECTUS" means a joint proxy statement in definitive form
relating to the Tide West Meeting and the Parent Meeting, which proxy statement
will be included as a prospectus in the Registration Statement.
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"REGISTRATION STATEMENT" means the Registration Statement on Form S-4 to be
filed by Parent in connection with the issuance of Parent Common Stock pursuant
to the Merger.
"RESERVE DATA VALUE" means the 10% present value of the proved reserves
contained in Tide West's Oil and Gas Interests, as shown on the October 1, 1995,
reserve report of Tide West.
"RESPONSIBLE OFFICER" means, with respect to any corporation, the Chief
Executive Officer, President or any Vice President of such corporation.
"RETAINED EMPLOYEES" has the meaning specified in Section 5.16.
"RODEN" means Roden Participants, Ltd., a Texas limited partnership.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARE PRICE" means the per share closing sales price of the Parent Common
Stock on the NYSE (as reported by The Wall Street Journal, or if not so
reported, by another authoritative source) on the day immediately preceding the
Closing Date.
"SURVIVING CORPORATION" has the meaning specified in Section 2.2.
"TAX RETURNS" has the meaning specified in Section 3.16(a).
"TAXES" means taxes of any kind, levies or other like assessments, customs,
duties, imposts, charges or fees, including income, gross receipts, ad valorem,
value added, excise, real or personal property, asset, sales, use, federal
royalty, license, payroll, transaction, capital, net worth and franchise taxes,
estimated taxes, withholding, employment, social security, workers compensation,
utility, severance, production, unemployment compensation, occupation, premium,
windfall profits, transfer and gains taxes or other governmental taxes imposed
or payable to the United States or any state, local or foreign governmental
subdivision or agency thereof, and in each instance such term shall include any
interest, penalties or additions to tax attributable to any such Tax, including
penalties for the failure to file any Tax Return or report.
"THIRD-PARTY CONSENT" means the consent or approval of any Person other than
Tide West, Parent or any Governmental Authority.
"TIDE WEST" means Tide West Oil Company, a Delaware corporation.
"TIDE WEST CERTIFICATE" means a certificate representing shares of Tide West
Common Stock.
"TIDE WEST COMMON STOCK" means the common stock, par value $.01 per share, of
Tide West.
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"TIDE WEST COMMON STOCK WARRANT" means a common stock purchase warrant (issued
and outstanding on the date hereof and at the Effective Time or subject to a
Tide West Unit Warrant issued and outstanding on the date hereof and at the
Effective Time) representing the right to purchase one-tenth of a share of Tide
West Common Stock for an exercise price of $3.00, whether issued pursuant to the
Warrant Agreement, dated as of June 21, 1991, between Tide West and American
Securities Transfer, Incorporated (as amended or supplemented as of the date
hereof) or upon exercise of a Tide West Unit Warrant.
"TIDE WEST COMPANIES" means Tide West, TWTT and Draco.
"TIDE WEST EMPLOYEE BENEFIT PLANS" has the meaning specified in Section
3.17(a).
"TIDE WEST FINANCIAL STATEMENTS" means the audited and unaudited consolidated
financial statements of Tide West and its subsidiaries (including the related
notes) included (or incorporated by reference) in Tide West's Annual Report on
Form 10-K for the year ended December 31, 1994, and Quarterly Report on Form 10-
Q for the quarter ended September 30, 1995, in each case as filed with the SEC.
"TIDE WEST GUARANTY" means a guarantee by Tide West of TWTT's obligations
under any Hydrocarbon Agreement or other natural gas purchase agreement.
"TIDE WEST MATERIAL AGREEMENT(S)" means (a) any written or oral agreement,
contract, commitment or understanding to which any of the Tide West Companies is
a party, by which any of the Tide West Companies is directly or indirectly
bound, or to which any asset of any of the Tide West Companies may be subject,
involving total value or consideration in excess of $500,000, (b) either Bank
Credit Agreement, and/or (c) the partnership agreement of Horizon, in each case
as amended and supplemented as of the date hereof.
"TIDE WEST MEETING" means the meeting of the stockholders of Tide West called
for the purpose of voting on the Tide West Proposal.
"TIDE WEST PERMITS" has the meaning specified in Section 3.11.
"TIDE WEST PROPOSAL" means the proposal to approve this Agreement and the
Merger, which proposal is to be presented to the stockholders of Tide West and
Parent in the Proxy Statement/Prospectus.
"TIDE WEST REPRESENTATIVE" means any director, officer, employee, agent,
advisor (including legal, accounting and financial advisors), Affiliate or other
representative of any of the Tide West Companies.
"TIDE WEST SEC DOCUMENTS" has the meaning specified in Section 3.6.
"TIDE WEST STOCK OPTION" means an option (issued and outstanding on the date
hereof and immediately prior to the Effective Time) to acquire shares of Tide
West Common Stock granted pursuant to the Tide West Oil Company 1991 Stock
Option Plan.
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"TIDE WEST UNIT WARRANT" means a purchase warrant (issued and outstanding on
the date hereof and at the Effective Time) representing the right to purchase a
unit for an exercise price of $5.10, with each such unit consisting of two-
tenths of a share of Tide West Common Stock and two Tide West Common Stock
Warrants.
"TIDE WEST WARRANT" means a Tide West Common Stock Warrant or a Tide West Unit
Warrant.
"TWTT" means Tide West Trading & Transport Company, an Oklahoma corporation
and a wholly-owned subsidiary of Tide West.
1.2 REFERENCES AND TITLES. All references in this Agreement to Exhibits,
Schedules, Articles, Sections, subsections and other subdivisions refer to the
corresponding Exhibits, Schedules, Articles, Sections, subsections and other
subdivisions of or to this Agreement unless expressly provided otherwise.
Titles appearing at the beginning of any Articles, Sections, subsections or
other subdivisions of this Agreement are for convenience only, do not constitute
any part of this Agreement, and shall be disregarded in construing the language
hereof. The words "THIS AGREEMENT," "HEREIN," "HEREBY," "HEREUNDER" and
"HEREOF," and words of similar import, refer to this Agreement as a whole and
not to any particular subdivision unless expressly so limited. The words "THIS
ARTICLE," "THIS SECTION" and "THIS SUBSECTION," and words of similar import,
refer only to the Article, Section or subsection hereof in which such words
occur. The word "OR" is not exclusive, and the word "INCLUDING" (in its various
forms) means "INCLUDING WITHOUT LIMITATION." Pronouns in masculine, feminine or
neuter genders shall be construed to state and include any other gender, and
words, terms and titles (including terms defined herein) in the singular form
shall be construed to include the plural and vice versa, unless the context
otherwise requires.
As used in the representations and warranties contained in this Agreement, the
phrase "TO THE KNOWLEDGE" of the representing party shall mean that Responsible
Officers of such representing party, individually or collectively, either (a)
know that the matter being represented and warranted is true and accurate or (b)
have no reason, after reasonable inquiry, to believe that the matter being
represented and warranted is not true and accurate.
ARTICLE 2
THE MERGER
2.1 THE MERGER. Subject to the terms and conditions set forth in this
Agreement, at the Effective Time, Tide West shall be merged with and into Merger
Sub in accordance with the provisions of this Agreement. Such merger is
referred to herein as the "MERGER."
2.2 EFFECT OF THE MERGER. Upon the effectiveness of the Merger, the separate
existence of Tide West shall cease and Merger Sub, as the surviving corporation
in the Merger (the "SURVIVING CORPORATION"), shall continue its corporate
existence under the laws of the State of Delaware. The Merger shall have the
effects specified in this Agreement and the DGCL.
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2.3 GOVERNING INSTRUMENTS, DIRECTORS AND OFFICERS OF THE SURVIVING
CORPORATION.
(a) The certificate of incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation of the Surviving Corporation until duly amended in accordance with
its terms and applicable law; provided, however, that Article I thereof shall be
amended and restated to read in its entirety as follows: "Article I: The name of
the corporation is HSRTW, Inc."
(b) The by-laws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the by-laws of the Surviving Corporation until duly
amended in accordance with their terms and applicable law.
(c) The directors and officers of Merger Sub at the Effective Time shall
be the directors and officers, respectively, of the Surviving Corporation from
the Effective Time until their respective successors have been duly elected or
appointed in accordance with the certificate of incorporation and by-laws of the
Surviving Corporation and applicable law.
2.4 EFFECT ON SECURITIES.
(a) MERGER SUB STOCK. At the Effective Time, by virtue of the Merger and
without any action on the part of any holder thereof, each share of Merger Sub
Common Stock outstanding immediately prior to the Effective Time shall remain
outstanding and continue as one share of capital stock of the Surviving
Corporation and each certificate evidencing ownership of any such shares shall
continue to evidence ownership of the same number of shares of the capital stock
of the Surviving Corporation.
(b) TIDE WEST SECURITIES.
(i) TIDE WEST COMMON STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of any holder thereof (but
subject to the provisions of Section 2.5(e)), each share of Tide West
Common Stock that is issued and outstanding immediately prior to the
Effective Time (other than shares of Tide West Common Stock held by
Dissenting Stockholders) shall be converted into the right to receive (A)
shares of validly issued, fully paid and nonassessable Parent Common Stock,
with each such share of Tide West Common Stock being converted into the
fraction of a share of Parent Common Stock equal to the Conversion Number;
and (B) cash in the amount of the Cash Consideration. Each share of Tide
West Common Stock, when so converted, shall automatically be cancelled and
retired, shall cease to exist and shall no longer be outstanding; and the
holder of any certificate representing any such shares shall cease to have
any rights with respect thereto, except the right to receive the shares of
Parent Common Stock to be issued in exchange therefor and the Cash
Consideration (along with any cash in lieu of fractional shares of Parent
Common Stock as provided in Section 2.5(e) and any unpaid dividends and
distributions with respect to such shares of Parent Common Stock as
provided in Section 2.5(c)), without interest, upon the surrender of such
certificate in accordance with Section 2.5. The Cash Consideration shall be
decreased in increments of $.01 and the Conversion Number shall be
correspondingly increased for each such increment by an amount equal to
$.01 divided by the
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Share Price (with the aggregate increase in the Conversion Number rounded
to the fourth decimal point) to the extent necessary to cause "(A)" to be
equal to or greater than 40 percent of "(B)" where (A) is the product of
the Share Price and the number of shares of Parent Common Stock issued in
the Merger (excluding those shares issued to any 5 percent shareholder of
Tide West Common Stock as of the Closing Date that has not represented that
as of such date it has no intention, plan or arrangement to dispose of any
Parent Common Stock received in the Merger), and (B) is the sum of (i) the
product determined in clause (A) (without applying the parenthetical
exclusion in clause (A)), (ii) the amount of cash to be paid to holders of
Tide West Common Stock pursuant to Section 2.4(b)(i) as Cash Consideration,
and (iii) the amount of cash or other property to be paid to holders of
Tide West Common Stock that exercise dissenter's rights as contemplated
under Section 2.4(b)(v) which shall be assumed to be (on a per share basis)
the greater of (I) the sum of the value of the Parent Common Stock (valued
at the Share Price) and the Cash Consideration given per share of Tide West
Common Stock and (II) the sum of $8.75 and the product of .6295 and the
Share Price determined as if the date of this Agreement were the Closing
Date; provided, however, if the adjustments to the Cash Consideration and
-------- -------
the Conversation Number pursuant to the foregoing formulas would result in
the issuance of more than 7,161,312 shares of Parent Common Stock under
this Section 2.4(b)(i), then (i) adjustments to the Cash Consideration and
the Conversion Number pursuant to the foregoing formulas shall first be
determined so as to result in an issuance of 7,161,312 shares of Parent
Common Stock, and (ii) based on the Conversion Number so determined, the
Cash Consideration shall thereafter be reduced to the extent necessary so
as to cause "(A)" to be equal to 40 percent of "(B)" using the actual Share
Price.
(ii) TIDE WEST TREASURY STOCK. At the Effective Time, by virtue
of the Merger, all shares of Tide West Common Stock that are issued and
held as treasury stock shall be cancelled and retired and shall cease to
exist, and no shares of Parent Common Stock, Cash Consideration or other
consideration shall be paid or payable in exchange therefor.
(iii) TIDE WEST STOCK OPTIONS. Each Tide West Stock Option shall be
or become fully vested prior to the Effective Time and, at the option of
the holder thereof, either (A) shall be exercised immediately prior to the
Effective Time; or (b) at the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof, shall be cancelled
and converted into the right to receive, for each share of Tide West Common
Stock with respect to which such Tide West Stock Option is exercisable,
cash in an amount equal to the amount by which the Merger Consideration
exceeds the per share exercise price of such Tide West Stock Option. The
amounts so determined shall be paid to the holders of the Tide West Stock
Options not later than three business days after the Effective Time.
(iv) TIDE WEST WARRANTS. All Tide West Warrants shall remain
outstanding following the Effective Time. At the Effective Time, by virtue
of the Merger and without any action on the part of Tide West or any holder
thereof, each Tide West Warrant shall be assumed by Parent and shall be
exercisable on the same terms and conditions as apply immediately prior to
the Effective Time, except as follows:
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(A) Each Tide West Common Stock Warrant shall be exercisable
for that number of shares of Parent Common Stock and the amount of
Cash Consideration into which the number of shares of Tide West Common
Stock subject to such Tide West Common Stock Warrant immediately prior
to the Effective Time would be converted under Section 2.4(b)(i); and
(B) Each Tide West Unit Warrant shall be exercisable for (1)
that number of shares of Parent Common Stock and the amount of Cash
Consideration into which the number of shares of Tide West Common
Stock subject to such Tide West Unit Warrant immediately prior to the
Effective Time would be converted under Section 2.4(b)(i), plus (2)
two Tide West Common Stock Warrants (with each such Tide West Common
Stock Warrant representing the right to purchase that number of shares
of Parent Common Stock and to receive that amount of Cash
Consideration into which the number of shares of Tide West Common
Stock subject to such Tide West Common Stock Warrant immediately prior
to the Effective Time would be converted under Section 2.4(b)(i)).
(v) Except as provided in this Section 2.4(b) or as otherwise
agreed to by the parties, (A) the provisions of any other plan, program or
arrangement providing for the issuance or grant of any other interest in
respect of the capital stock of the Tide West Companies shall become null
and void, and (B) the Tide West Companies shall use all reasonable efforts
to ensure that, following the Effective Time, no holder of options or
rights or any participant in any plan, program or arrangement shall have
any right thereunder to acquire any equity securities of the Tide West
Companies, Merger Sub, Parent or any direct or indirect subsidiary thereof.
(vi) SHARES OF DISSENTING STOCKHOLDERS. Any issued and outstanding
shares of Tide West Common Stock held by a Dissenting Stockholder shall be
converted into the right to receive such consideration as may be determined
to be due to such Dissenting Stockholder pursuant to the DGCL; provided,
--------
however, shares of Tide West Common Stock outstanding at the Effective Time
-------
and held by a Dissenting Stockholder who shall, after the Effective Time,
withdraw his demand for appraisal or lose his right of appraisal as
provided in the DGCL, shall be deemed to be converted, as of the Effective
Time, into the right to receive the shares of Parent Common Stock and the
amount of cash (without interest) specified in Section 2.4(b)(i) in
accordance with the procedures specified in Section 2.5(b). Tide West shall
give Parent (A) prompt notice of any written demands for appraisal,
withdrawals of demands for appraisal and any other instruments served
pursuant to the DGCL received by Tide West, and (B) the opportunity to
direct all negotiations and proceedings with respect to demands for
appraisal under the DGCL. Tide West will not voluntarily make any payment
with respect to any demands for appraisal and will not, except with the
prior written consent of Parent, settle or offer to settle any such
demands.
2.5 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE FUND. Immediately after the Effective Time, Parent shall
deposit with the Exchange Agent, for the benefit of the holders of shares of
Tide West Common Stock and
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for exchange in accordance with this Agreement, certificates representing the
shares of Parent Common Stock to be issued, and funds necessary to pay the Cash
Consideration, in exchange for shares of Tide West Common Stock pursuant to
Section 2.4(b)(i). Such shares of Parent Common Stock, together with any
dividends or distributions with respect thereto (as provided in Section 2.5(c))
and such funds, are referred to herein as the "EXCHANGE FUND." The Exchange
Agent, pursuant to irrevocable instructions consistent with the terms of this
Agreement, shall deliver the Parent Common Stock and the Cash Consideration to
be issued or paid pursuant to Section 2.4(b)(i) out of the Exchange Fund, and
the Exchange Fund shall not be used for any other purpose whatsoever. The
Exchange Agent shall not be entitled to vote or exercise any rights of ownership
with respect to the Parent Common Stock held by it from time to time hereunder,
except that it shall receive and hold all dividends or other distributions paid
or distributed with respect thereto for the account of Persons entitled thereto.
(b) EXCHANGE PROCEDURES.
(i) As soon as reasonably practicable after the Effective Time,
Parent shall cause the Exchange Agent to mail to each holder of record of a
Tide West Certificate that, immediately prior to the Effective Time,
represented shares of Tide West Common Stock, which was converted into the
right to receive Parent Common Stock and Cash Consideration pursuant to
Section 2.4(b)(i), a letter of transmittal to be used to effect the
exchange of such Tide West Certificate for a Parent Certificate (and cash
in lieu of fractional shares) and the Cash Consideration, along with
instructions for using such letter of transmittal to effect such exchange.
The letter of transmittal (or the instructions thereto) shall specify that
delivery of any Tide West Certificate shall be effected, and risk of loss
and title thereto shall pass, only upon delivery of such Tide West
Certificate to the Exchange Agent and shall be in such form and have such
other provisions as Parent may reasonably specify.
(ii) Upon surrender to the Exchange Agent of a Tide West Certificate
for cancellation, together with a duly completed and executed letter of
transmittal and any other required documents (including, in the case of any
Person constituting an "affiliate" of Tide West for purposes of Rule 145(c)
and (d) under the Securities Act, a written agreement from such Person as
described in Section 5.10, if not theretofore delivered to Parent), (A) the
holder of such Tide West Certificate shall be entitled to receive in
exchange therefor a Parent Certificate representing the number of whole
shares of Parent Common Stock and Cash Consideration that such holder has
the right to receive pursuant to Section 2.4(b)(i), any cash in lieu of
fractional shares of Parent Common Stock as provided in Section 2.5(e), and
any unpaid dividends and distributions that such holder has the right to
receive pursuant to Section 2.5(c) (after giving effect to any required
withholding of taxes); and (B) the Tide West Certificate so surrendered
shall forthwith be cancelled. No interest shall be paid or accrued on the
Cash Consideration, cash in lieu of fractional shares and unpaid dividends
and distributions, if any, payable to holders of Tide West Certificates.
(iii) In the event of a transfer of ownership of Tide West
Common Stock that is not registered in the transfer records of Tide West, a
Parent Certificate representing the appropriate number of shares of Parent
Common Stock and the appropriate Cash Consideration (along with any cash in
lieu of fractional shares and any unpaid dividends and
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distributions that such holder has the right to receive) may be issued or
paid to a transferee if the Tide West Certificate representing such shares
of Tide West Common Stock is presented to the Exchange Agent accompanied by
all documents required to evidence and effect such transfer and to evidence
that any applicable stock transfer taxes have been paid.
(iv) Until surrendered as contemplated by this Section 2.5(b), each
Tide West Certificate shall be deemed at any time after the Effective Time
to represent only the right to receive upon such surrender a Parent
Certificate representing shares of Parent Common Stock and Cash
Consideration as provided in Section 2.4(b)(i) (along with any cash in lieu
of fractional shares and any unpaid dividends and distributions).
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions with respect to Parent Common Stock declared or made after
the Effective Time with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Tide West Certificate. Subject to the effect of
applicable laws, (i) at the time of the surrender of a Tide West Certificate for
exchange in accordance with the provisions of this Section 2.5, there shall be
paid to the surrendering holder, without interest, the amount of dividends or
other distributions (having a record date after the Effective Time but on or
prior to surrender and a payment date on or prior to surrender) theretofore paid
with respect to the number of whole shares of Parent Common Stock that such
holder is entitled to receive (less the amount of any withholding taxes that may
be required with respect thereto); and (ii) at the appropriate payment date,
there shall be paid to the surrendering holder, without interest, the amount of
dividends or other distributions (having a record date after the Effective Time
but on or prior to surrender and a payment date subsequent to surrender) payable
with respect to the number of whole shares of Parent Common Stock that such
holder receives (less the amount of any withholding taxes that may be required
with respect thereto).
(d) NO FURTHER OWNERSHIP RIGHTS IN TIDE WEST COMMON STOCK. All shares
of Parent Common Stock issued, and the Cash Consideration paid, upon the
surrender for exchange of shares of Tide West Common Stock in accordance with
the terms hereof (including any cash paid pursuant to Section 2.5(c) or (e))
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Tide West Common Stock. After the Effective Time,
there shall be no further registration of transfers on the Surviving
Corporation's stock transfer books of the shares of Tide West Common Stock that
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, a Tide West Certificate is presented to the Surviving
Corporation for any reason, it shall be cancelled and exchanged as provided in
this Section 2.5.
(e) TREATMENT OF FRACTIONAL SHARES. No Parent Certificates or scrip
representing fractional shares of Parent Common Stock shall be issued in the
Merger and, except as provided in this Section 2.5(e), no dividend or other
distribution, stock split or interest shall relate to any such fractional share,
and such fractional share shall not entitle the owner thereof to vote or to any
other rights of a stockholder of Parent. In lieu of any fractional share of
Parent Common Stock to which a holder of Tide West Common Stock would otherwise
be entitled, such holder, upon surrender of a Tide West Certificate as described
in this Section, shall be paid an amount in cash (without interest) determined
by multiplying (i) the Market Price by (ii) the fraction of a share of Parent
Common Stock to which such holder would otherwise be entitled, in which case
Parent shall make available to the
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Exchange Agent, without regard to any other cash being provided to the Exchange
Agent, the amount of cash necessary to make such payments.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund
and cash held by the Exchange Agent in accordance with the terms of this Section
2.5 that remains unclaimed by the former stockholders of Tide West for a period
of one year following the Effective Time shall be delivered to Parent, upon
demand. Thereafter, any former stockholders of Tide West who have not
theretofore complied with the provisions of this Section 2.5 shall look only to
Parent for payment of their claim for Parent Common Stock, the Cash
Consideration, any cash in lieu of fractional shares of Parent Common Stock and
any dividends or distributions with respect to Parent Common Stock (all without
interest).
(g) NO LIABILITY. Neither Parent, Tide West, the Surviving Corporation,
the Exchange Agent nor any other Person shall be liable to any former holder of
shares of Tide West Common Stock for any amount properly delivered to any public
official pursuant to any applicable abandoned property, escheat or similar law.
Any amounts remaining unclaimed by former holders of Tide West Common Stock for
a period of three years following the Effective Time (or such earlier date
immediately prior to the time at which such amounts would otherwise escheat to
or become property of any governmental entity) shall, to the extent permitted by
applicable law, become the property of Parent, free and clear of any claims or
interest of any such holders or their successors, assigns or personal
representatives previously entitled thereto.
(h) LOST, STOLEN, OR DESTROYED TIDE WEST CERTIFICATES. If any Tide West
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Tide West Certificate to be
lost, stolen or destroyed and, if required by Parent, the posting by such Person
of a bond, in such reasonable amount as Parent may direct, as indemnity against
any claim that may be made against it with respect to such Tide West
Certificate, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Tide West Certificate the shares of Parent Common Stock and the Cash
Consideration (along with any cash in lieu of fractional shares pursuant to
Section 2.5(e) and any unpaid dividends and distributions pursuant to Section
2.5(c)) deliverable with respect thereto pursuant to this Agreement.
2.6 CLOSING. The Closing shall take place on the Closing Date at such time and
place as is agreed upon by Parent and Tide West.
2.7 EFFECTIVE TIME OF THE MERGER. The Merger shall become effective
immediately when the Certificate of Merger is accepted for filing by the
Secretary of State of Delaware or at such time thereafter as is provided in the
Certificate of Merger (the "EFFECTIVE TIME"). As soon as practicable after the
Closing, the Certificate of Merger shall be filed, and the Effective Time shall
occur, on the Closing Date; provided, however, that the Certificate of Merger
may be filed prior to the Closing Date or prior to the Closing so long as it
provides for an effective time that occurs on the Closing Date immediately after
the Closing.
2.8 TAKING OF NECESSARY ACTION; FURTHER ACTION. Each of Parent, Merger Sub,
and Tide West shall use all reasonable efforts to take all such actions as may
be necessary or appropriate in order to effectuate the Merger under the DGCL as
promptly as commercially practicable. If, at
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any time after the Effective Time, any further action is necessary or desirable
to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of either of Merger Sub or Tide West,
the officers and directors of the Surviving Corporation are fully authorized, in
the name of the Surviving Corporation or otherwise to take, and shall take, all
such lawful and necessary action.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF TIDE WEST
Tide West hereby represents and warrants to Parent and Merger Sub as follows:
3.1 ORGANIZATION. Each of the Tide West Companies (a) is a corporation
duly organized, validly existing and in good standing under the laws of its
state of incorporation, (b) has the requisite power and authority to own, lease
and operate its properties and to conduct its business as it is presently being
conducted, and (c) is duly qualified to do business as a foreign corporation,
and is in good standing, in each jurisdiction where the character of the
properties owned or leased by it or the nature of its activities makes such
qualification necessary (except where any failure to be so qualified as a
foreign corporation or to be in good standing would not, individually or in the
aggregate, have a Material Adverse Effect on Tide West). Copies of the
certificate or articles of incorporation and by-laws of each of the Tide West
Companies have heretofore been delivered to Parent, and such copies are accurate
and complete as of the date hereof. Tide West has no corporate subsidiaries
other than TWTT and Draco.
3.2 PARTNERSHIPS. Tide West owns a limited partner interest in Horizon,
such limited partner interest representing a "pre-payout" interest in the
capital of Horizon of 95% and a "pre-payout" interest in the distributions,
profits and losses of Horizon of 93%. Draco owns a limited partner interest in
Roden, such limited partner interest representing a "pre-payout" interest in the
capital and in the profits and losses of Roden of 17.93%. None of the Tide West
Companies owns any general or limited partner interest in any general or limited
partnership other than Horizon or Roden (other than joint venture, joint
operating or ownership arrangements or tax partnerships entered into in the
ordinary course of business or other partnerships that, individually or in the
aggregate, are not material to the operations or business of the Tide West
Companies, taken as a whole).
3.3 AUTHORITY AND ENFORCEABILITY. Tide West has the requisite corporate power
and authority to enter into and deliver this Agreement and (with respect to
consummation of the Merger, subject to the valid approval of the Tide West
Proposal by the stockholders of Tide West) to consummate the transactions
contemplated hereby. The Board of Directors of Tide West has taken all necessary
action to approve the transactions contemplated by the Agreement to Vote and
Proxy of even date between Parent and the Major Tide West Stockholder pursuant
to Section 203(a) of the DGCL. The execution and delivery of this Agreement and
(with respect to consummation of the Merger, subject to the valid approval of
the Tide West Proposal by the stockholders of Tide West) the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of Tide West, including approval by the
board of directors of Tide West, and no other corporate proceedings on the part
of Tide West are necessary to authorize
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the execution or delivery of this Agreement or (with respect to consummation of
the Merger, subject to the valid approval of the Tide West Proposal by the
stockholders of Tide West) to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by Tide West and
(with respect to the Merger, subject to the valid approval of the Tide West
Proposal by the stockholders of Tide West and assuming that this Agreement
constitutes a valid and binding obligation of Parent and Merger Sub) constitutes
a valid and binding obligation of Tide West enforceable against Tide West in
accordance with its terms.
3.4 NO VIOLATIONS. The execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated hereby and compliance by
Tide West with the provisions hereof will not, conflict with, result in any
violation of or default (with or without notice or lapse of time or both) under,
give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the creation
of any Lien on any of the properties or assets of any of the Tide West Companies
under, any provision of (a) the certificate or articles of incorporation or by-
laws of any of the Tide West Companies, (b) any loan or credit agreement, note,
bond, mortgage, indenture, lease, permit, concession, franchise, license or
other agreement or instrument applicable to any of the Tide West Companies, or
(c) assuming the consents, approvals, authorizations or permits and filings or
notifications referred to in Section 3.5 are duly and timely obtained or made,
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to any of the Tide West Companies or any of their respective
properties or assets, other than (y) in the case of clause (b) above, any such
conflict, violation, default, right, loss or Lien that may arise under either
Bank Credit Agreement or any Tide West Guaranty disclosed on the DISCLOSURE
SCHEDULE, and (z) in the case of clause (b) or (c) above, any such conflict,
violation, default, right, loss or Lien that, individually or in the aggregate,
would not have a Material Adverse Effect on Tide West.
3.5 CONSENTS AND APPROVALS. No consent, approval, order or authorization of,
registration, declaration or filing with, or permit from, any Governmental
Authority is required by or with respect to any of the Tide West Companies in
connection with the execution and delivery of this Agreement by Tide West or the
consummation by Tide West of the transactions contemplated hereby, except for
the following: (a) any such consent, approval, order, authorization,
registration, declaration, filing or permit which the failure to obtain or make
would not, individually or in the aggregate, have a Material Adverse Effect on
Tide West; (b) the filing of the Certificate of Merger with the Secretary of
State of Delaware pursuant to the provisions of the DGCL; (c) the filing of a
pre-merger notification report by Tide West under the HSR Act and the expiration
or termination of the applicable waiting period; (d) the filing with the SEC of
the Proxy Statement/Prospectus and such reports under Section 13(a) of the
Exchange Act and such other compliance with the Exchange Act and the Securities
Act and the rules and regulations of the SEC thereunder as may be required in
connection with this Agreement and the transactions contemplated hereby and the
obtaining from the SEC of such orders as may be so required; (e) such filings
and approvals as may be required by any applicable state securities, "blue sky"
or takeover laws or Environmental Laws; and (f) such filings and approvals as
may be required by any foreign pre-merger notification, securities, corporate or
other law, rule or regulation. No Third-Party Consent is required by or with
respect to any of the Tide West Companies in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (w) any such Third-Party Consent which the failure to obtain
would not, individually or in the aggregate, have a Material Adverse Effect
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on Tide West, (x) the valid approval of the Tide West Proposal by the
stockholders of Tide West, (y) any consent, approval or waiver required by the
terms of either Bank Credit Agreement, and (z) any consent, approval or waiver
required by the terms of any Tide West Guaranty disclosed on the DISCLOSURE
SCHEDULE.
3.6 SEC DOCUMENTS. Tide West has made available to Parent a true and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by Tide West with the SEC since December 31, 1993, and
prior to the date of this Agreement (the "TIDE WEST SEC DOCUMENTS"), which are
all the documents (other than preliminary material) that Tide West was required
to file with the SEC since such date. As of their respective dates, the Tide
West SEC Documents complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Tide West SEC Documents,
and none of the Tide West SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
3.7 FINANCIAL STATEMENTS. The Tide West Financial Statements were
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited statements, as permitted by Rule 10-01 of Regulation S-X of
the SEC) and fairly present, in accordance with applicable requirements of GAAP
(in the case of the unaudited statements, subject to normal, recurring
adjustments), the consolidated financial position of Tide West and its
subsidiaries as of their respective dates and the consolidated results of
operations and the consolidated cash flows of Tide West and its subsidiaries for
the periods presented therein.
3.8 CAPITAL STRUCTURE.
(a) The authorized capital stock of Tide West consists of 20,000,000
shares of Tide West Common Stock and 20,000,000 shares of preferred stock, par
value $.01 per share.
(b) There are issued and outstanding (i) 9,787,628 shares of Tide
West Common Stock, (ii) Tide West Stock Options relating to 937,840 shares of
Tide West Common Stock, (iii) 2,796,600 Tide West Common Stock Warrants relating
to 279,660 shares of Tide West Common Stock, and (iv) 140,000 Tide West Unit
Warrants relating to 28,000 shares of Tide West Common Stock and 280,000 Tide
West Common Stock Warrants (which, in turn, relate to 28,000 shares of Tide West
Common Stock). No shares of Tide West Common Stock are held by Tide West as
treasury stock.
(c) Except as set forth in Section 3.8(b), there are outstanding (i)
no shares of capital stock or other voting securities of Tide West, (ii) no
securities of Tide West or any other Person convertible into or exchangeable or
exercisable for shares of capital stock or other voting securities of Tide West,
and (iii) no subscriptions, options, warrants, calls, rights (including
preemptive rights), commitments, understandings or agreements to which Tide West
is a party or by which it is bound obligating Tide West to issue, deliver, sell,
purchase, redeem or acquire shares of capital stock or other voting securities
of Tide West (or securities convertible into or
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exchangeable or exercisable for shares of capital stock or other voting
securities of Tide West) or obligating Tide West to grant, extend or enter into
any such subscription, option, warrant, call, right, commitment, understanding
or agreement.
(d) All outstanding shares of Tide West capital stock are validly
issued, fully paid and nonassessable and not subject to any preemptive right.
(e) All outstanding shares of capital stock and other voting
securities of each of TWTT and Draco are owned by Tide West, free and clear of
all Liens, claims and options of any nature (except for Permitted Encumbrances).
There are outstanding (i) no securities of TWTT, Draco or any other Person
convertible into or exchangeable or exercisable for shares of capital stock or
other voting securities of TWTT or Draco, and (ii) no subscriptions, options,
warrants, calls, rights (including preemptive rights), commitments,
understandings or agreements to which either TWTT or Draco is a party or by
which it is bound obligating TWTT or Draco to issue, deliver, sell, purchase,
redeem or acquire shares of capital stock or other voting securities of TWTT or
Draco (or securities convertible into or exchangeable or exercisable for shares
of capital stock or other voting securities of TWTT or Draco) or obligating TWTT
or Draco to grant, extend or enter into any such subscription, option, warrant,
call, right, commitment, understanding or agreement.
(f) Except as otherwise set forth in the DISCLOSURE SCHEDULE, there
is no stockholder agreement, voting trust or other agreement or understanding to
which Tide West is a party or by which it is bound relating to the voting of any
shares of the capital stock of any of the Tide West Companies.
3.9 NO UNDISCLOSED LIABILITIES. There are no liabilities of any of the
Tide West Companies of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, that are reasonably likely to
have a Material Adverse Effect on Tide West, other than (a) liabilities
adequately provided for in the Tide West Financial Statements, (b) liabilities
incurred in the ordinary course of business subsequent to September 30, 1995,
and (c) liabilities under this Agreement.
3.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as otherwise set forth
in the DISCLOSURE SCHEDULE or as contemplated by this Agreement, to the
knowledge of Tide West, since September 30, 1995, none of the Tide West
Companies has done any of the following:
(a) Discharged or satisfied any Lien or paid any obligation or
liability, absolute or contingent, other than current liabilities incurred and
paid in the ordinary course of business and consistent with past practices;
(b) Paid or declared any dividends or distributions, purchased,
redeemed, acquired or retired any indebtedness, stock or other securities from
its stockholders or other securityholders, made any loans or advances or
guaranteed any loans or advances to any Person (other than loans, advances or
guaranties made in the ordinary course of business and consistent with past
practices), or otherwise incurred or suffered to exist any liabilities (other
than current liabilities incurred in the ordinary course of business and
consistent with past practices);
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(c) Except for Permitted Encumbrances, suffered or permitted any Lien
to arise or be granted or created against or upon any of its assets;
(d) Cancelled, waived or released any rights or claims against, or
indebtedness owed by, third parties;
(e) Amended its certificate or articles of incorporation or by-laws;
(f) Made or permitted any amendment, supplement, modification or
termination of any Tide West Material Agreement;
(g) Sold, leased, transferred, assigned or otherwise disposed of (i)
any Oil and Gas Interests of Tide West that, individually or in the aggregate,
were assigned a value in the Reserve Data Value of $100,000 or more, or (ii) any
other assets that, individually or in the aggregate, had a value at the time of
such lease, transfer, assignment or disposition of $50,000 or more (and, in each
case where a sale, lease, transfer, assignment or other disposition was made, it
was made for fair consideration in the ordinary course of business); provided,
however, that this Section 3.10(g) shall not apply to Hydrocarbons sold in the
ordinary course of business and consistent with past practices;
(h) Made any investment in or contribution, payment, advance or loan
to any Person (other than investments, contributions, payments or advances, or
commitments with respect thereto, less than $100,000 in the aggregate, made in
the ordinary course of business and consistent with past practices);
(i) Paid, loaned or advanced (other than the payment, advance or
reimbursement of expenses in the ordinary course of business) any amounts to, or
sold, transferred or leased any of its assets to, or entered into any other
transactions with, any of its Affiliates;
(j) Made any material change in any of the accounting principles
followed by it or the method of applying such principles;
(k) Entered into any material transactions (other than this
Agreement) except in the ordinary course of business and consistent with past
practices;
(l) Increased benefits or benefit plan costs or changed bonus,
insurance, pension, compensation or other benefit plans or arrangements or
granted any bonus or increase in wages, salary or other compensation or made any
other change in employment terms to any officers, directors or employees of the
Tide West Companies (except in the ordinary course of business and consistent
with past practices);
(m) Accelerated, terminated, modified, or cancelled any agreement,
contract, lease, or license (or series of related agreements, contracts, leases,
and licenses) involving more than $100,000 to which any of the Tide West
Companies is a party or by which any of them is bound;
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(n) Issued any note, bond, or other debt security or created,
incurred, assumed, or guaranteed any indebtedness for borrowed money or
capitalized lease obligations involving more than $100,000 in the aggregate
(other than pursuant to the Bank Credit Agreement);
(o) Delayed or postponed the payment of accounts payable and other
liabilities outside the ordinary course of business;
(p) Cancelled, compromised, waived, or released any right or claim
(or series of related rights and claims) either involving more than $100,000 or
outside the ordinary course of business;
(q) Issued, sold, or otherwise disposed of any of its capital stock
or granted any options, warrants, or other rights to purchase or obtain
(including upon conversion, exchange, or exercise) any of its capital stock;
(r) Made any loan to, or entered into any other transaction with, any
of its directors, officers, or employees outside the ordinary course of
business;
(s) Made or pledged to make any charitable or other capital
contribution outside the ordinary course of business;
(t) Expended or committed to expend capital in excess of $9,000,000;
(u) Made any change in tax elections or the manner taxes are
reported;
(v) Entered into any Hydrocarbon sales or call arrangements not
cancelable on 60 days' notice;
(w) Entered into any swap, hedging or similar arrangements which
remain open on the date hereof except as disclosed on the DISCLOSURE SCHEDULE;
(x) Accelerated the vesting period of any option or warrant;
(y) Otherwise been involved in any other material occurrence, event,
incident, action, failure to act, or transaction outside the ordinary course of
business involving any of the Tide West Companies;
(z) Agreed, whether in writing or otherwise, to do any of the
foregoing; or
(aa) Suffered any Material Adverse Effect (other than changes or
trends, including changes or trends in commodity prices, generally prevalent in
or affecting the oil and gas industry).
3.11 COMPLIANCE WITH LAWS, MATERIAL AGREEMENTS AND PERMITS. None of the
Tide West Companies is in violation of, or in default in any material respect
under, and no event has occurred that (with notice or the lapse of time or both)
would constitute a violation of or default
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under, (a) its certificate or articles of incorporation or by-laws, (b) any
applicable law, rule, regulation, order, writ, decree or judgment of any
Governmental Authority, or (c) any Tide West Material Agreement, except (in the
case of clause (b) or (c) above) for any violation or default that would not,
individually or in the aggregate, have a Material Adverse Effect on Tide West.
Each of the Tide West Companies has obtained and holds all permits, licenses,
variances, exemptions, orders, franchises, approvals and authorizations of all
Governmental Authorities necessary for the lawful conduct of its business or the
lawful ownership, use and operation of its assets ("TIDE WEST PERMITS"), except
for Tide West Permits which the failure to obtain or hold would not,
individually or in the aggregate, have a Material Adverse Effect on Tide West.
Each of the Tide West Companies is in compliance with the terms of its Tide West
Permits, except where the failure to comply would not, individually or in the
aggregate, have a Material Adverse Effect on Tide West. No investigation or
review by any Governmental Authority with respect to any of the Tide West
Companies is pending or, to the knowledge of Tide West, threatened, other than
those the outcome of which would not, individually or in the aggregate, have a
Material Adverse Effect on Tide West. To the knowledge of Tide West, no party to
any Tide West Material Agreement is in material breach of the terms, provisions
and conditions of such Tide West Material Agreement.
3.12 GOVERNMENTAL REGULATION. Neither Tide West nor any subsidiary of Tide
West is subject to regulation under the Public Utility Holding Company Act of
1935, the Federal Power Act, the Interstate Commerce Act, the Investment Company
Act of 1940 or any state public utilities laws.
3.13 LITIGATION. Except as otherwise set forth in the DISCLOSURE SCHEDULE,
(a) no litigation, arbitration, investigation or other proceeding of any
Governmental Authority is pending or, to the knowledge of Tide West, threatened
against any of the Tide West Companies or their respective assets which, if
adversely determined, could reasonably be expected to have a Material Adverse
Effect on Tide West; (b) Tide West has no knowledge of any facts that are likely
to give rise to any litigation, arbitration, investigation or other proceeding
of any Governmental Authority which, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on Tide West; and (c) no
Tide West Company is subject to any outstanding injunction, judgment, order,
decree or ruling (other than routine oil and gas field regulatory orders).
There is no litigation, proceeding or investigation pending or, to the knowledge
of Tide West, threatened against or affecting any of the Tide West Companies
that questions the validity or enforceability of this Agreement or any other
document, instrument or agreement to be executed and delivered by Tide West in
connection with the transactions contemplated hereby.
3.14 NO RESTRICTIONS. Except as otherwise set forth in the DISCLOSURE
SCHEDULE, none of the Tide West Companies is a party to (a) any agreement,
indenture or other instrument that contains restrictions with respect to the
payment of dividends or other distributions with respect to its capital, (b) any
financial arrangement with respect to or creating any indebtedness to any Person
(other than indebtedness reflected in the Tide West Financial Statements or
indebtedness incurred in the ordinary course of business), (c) any agreement,
contract or commitment relating to the making of any advance to, or investment
in, any Person (other than advances in the ordinary course of business), (d) any
guaranty or other contingent liability with respect to any indebtedness or
obligation of any Person (other than guaranties undertaken in the ordinary
course of business and other than the endorsement of negotiable instruments for
collection in the ordinary course of business), or (e) any agreement,
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contract or commitment limiting in any respect its ability to compete with any
Person or otherwise conduct business of any line or nature.
3.15 TAX AUDITS AND SETTLEMENTS. Except as otherwise set forth in the
DISCLOSURE SCHEDULE, none of the Tide West Companies is a party or subject to
any unresolved or incomplete tax audit settlement.
3.16 TAXES.
(a) Each of the Tide West Companies and any affiliated, combined or
unitary group of which any such corporation is or was a member has (i) timely
filed all federal and all state, local and foreign returns, declarations,
reports, estimates, information returns and statements ("TAX RETURNS") required
to be filed by it with respect to any Taxes, (ii) timely paid all Taxes that are
due and payable (except for Taxes that are being contested in good faith by
appropriate proceedings and for which sufficient reserves have been established)
for which any of the Tide West Companies may be liable, and (iii) complied with
all applicable laws, rules and regulations relating to the payment and
withholding of Taxes, and has timely withheld from employee wages and paid over
to the proper governmental authorities all amounts required to be so withheld
and paid over.
(b) Except as otherwise set forth in the DISCLOSURE SCHEDULE, (i) no
audits or other administrative or court proceedings are presently pending with
regard to any federal, state or local income or franchise Taxes for which any of
the Tide West Companies would be liable, and (ii) there are no pending requests
for rulings from any taxing authority, no outstanding subpoenas or requests for
information by any taxing authority with respect to any Taxes, no proposed
reassessments by any taxing authority of any property owned or leased, and no
agreements in effect to extend the time to file any material Tax Return or the
period of limitations for the assessment or collection of any material Taxes for
which any of the Tide West Companies, as the case may be, would be liable.
(c) Except as otherwise set forth in the DISCLOSURE SCHEDULE, (i)
there are no liens on any of the assets of the Tide West Companies for unpaid
taxes, other than liens for Taxes not yet due and payable, (ii) no Tide West
Company has any liability under Treasury Regulation (S) 1.1502-6 or any
analogous state, local or foreign law by reason of having been a member of any
consolidated, combined or unitary group, other than the affiliated group of
which Tide West is the common parent corporation, (iii) no Tide West Company has
ever been included in an affiliated group of corporations within the meaning of
Section 1504 of the Code other than the current affiliated group of which Tide
West is the common parent corporation, and (iv) no Tide West Company is or has
been a party to any tax sharing agreement between related corporations.
(d) The amount of liability for unpaid Taxes of the Tide West
Companies does not, in the aggregate, materially exceed the amount of the
liability accruals for Taxes reflected on the Tide West Financial Statements.
The deferred tax accounts are properly reflected in the Tide West Financial
Statements.
(e) Tide West has made available to Parent complete copies of all Tax
Returns filed by the Tide West Companies with respect to any Taxes and all tax
audit reports, work
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papers, statements of deficiencies, and closing or other agreements with respect
thereto with respect to tax years 1993 and 1994.
(f) Except as otherwise set forth in the DISCLOSURE SCHEDULE, (i) no
Tide West Company is required to treat any of its assets as owned by another
person for federal income tax purposes or as tax-exempt bond financed property
or tax-exempt use property within the meaning of Section 168 of the Code, (ii)
no Tide West Company has entered into any compensatory agreements which would
result in a nondeductible expense pursuant to Section 280G of the Code, (iii) no
election has been made under Section 338 of the Code and no events have occurred
which would result in a deemed election under Section 338 of the Code with
respect to any Tide West Company, (iv) no election has been made under Section
341(f) of the Code with respect to any Tide West Company, (v) no Tide West
Company has participated in any international boycott as defined in Code
Section 999, (vi) there are no outstanding balances of deferred gain or loss
accounts with respect to any Tide West Company under Treas. Reg. (S)(S) 1.1502-
13 or 1.1502-13T, (vii) no Tide West Company has made or will make any election
under Treas. Reg. (S)1.502-20(g)(1) with respect to the reattribution of net
operating losses, (viii) no Tide West Company is subject to any arrangement
treated as a partnership for federal income tax purposes, and (ix) no Tide West
Company has or has ever conducted branch operations in any foreign country
within the meaning of Treas. Reg.(S) 1.367(a)-6T.
(g) The books and records of Tide West, including the Tax Returns
made available to Parent, contain accurate and complete information with respect
to: (i) all material tax elections in effect with respect to the Tide West
Companies, (ii) the current tax basis of the assets of the Tide West Companies,
(iii) any excess loss accounts of any Tide West Company (iv) the current and
accumulated earnings and profits of Tide West, (v) the net operating losses and
net capital losses of the Tide West Companies, the years that such net operating
and net capital losses expire, and any restrictions to which such net operating
and net capital losses are subject under any provision of the Code or
consolidated return regulations, (vi) tax credit carryovers of the Tide West
Companies, and (vii) any overall foreign losses to the Tide West Companies under
Section 904(f) of the Code.
(h) The management of the Tide West Companies is unaware of any
intention, plan or arrangement on behalf of any holder of Tide West Common Stock
to make any disposition of the Parent Common Stock following the Effective Time.
(i) No shareholder of Tide West that is a foreign corporation or a
nonresident alien individual has owned as much as 5% of the outstanding stock of
Tide West at any time during the five year period ending on the date hereof.
3.17 EMPLOYEE BENEFIT PLANS.
(a) The DISCLOSURE SCHEDULE sets forth a complete and accurate list
of all "employee benefit plans," as defined in Section 3(3) of ERISA, including
severance pay, sick leave, vacation pay, salary continuation for disability,
compensation agreements, retirement, deferred compensation, bonus, long-term
incentive, stock option, stock purchase, hospitalization, medical insurance,
life insurance and scholarship programs maintained by any of the Tide West
Companies or to which any of the Tide West Companies contributed or is obligated
to contribute (the "TIDE
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WEST EMPLOYEE BENEFIT PLANS"). Except for the Tide West Employee Benefit Plans,
none of the Tide West Companies maintains, or has any fixed or contingent
liability with respect to, any employee benefit, pension or other plan that is
subject to ERISA.
(b) There is no material violation of ERISA with respect to the
filing of applicable reports, documents and notices regarding any Tide West
Employee Benefit Plan with any Governmental Authority or the furnishing of such
documents to the participants or beneficiaries of the Tide West Employee Benefit
Plans. With respect to the Tide West Employee Benefit Plans, there exists no
condition or set of circumstances in connection with the Tide West Companies
that could be expected to result in liability reasonably likely to have a
Material Adverse Effect on the Tide West Companies under ERISA, the Code or any
applicable law. With respect to the Tide West Employee Benefit Plans,
individually and in the aggregate, there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly footnoted
in accordance with GAAP, on the financial statements of the Tide West Companies,
which obligations are reasonably likely to have a Material Adverse Effect on the
Tide West Companies.
(c) The Tide West Employee Benefit Plans have been maintained, in all
material respects, in accordance with their terms and in accordance with all
applicable federal and state laws, and neither Tide West, TWTT, Draco, nor any
"party in interest" or "disqualified person" with respect to the Tide West
Employee Benefit Plans, has engaged in any "prohibited transaction" within the
meaning of Section 4975 of the Code.
(d) Except as otherwise set forth in the DISCLOSURE SCHEDULE, neither
the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in any payment becoming due to any
employee or group of employees of any of the Tide West Companies.
3.18 EMPLOYMENT CONTRACTS AND BENEFITS. Except as otherwise set forth in
the DISCLOSURE SCHEDULE or otherwise provided for in any Tide West Employee
Benefit Plan, (a) none of the Tide West Companies is subject to or obligated
under any consulting, employment, severance, termination or similar arrangement,
any employee benefit, incentive or deferred compensation plan with respect to
any Person, or any bonus, profit sharing, pension, stock option, stock purchase
or similar plan or other arrangement or other fringe benefit plan entered into
or maintained for the benefit of employees or any other Person, and (b) no
employee of any of the Tide West Companies or any other Person owns, or has any
right granted by any of the Tide West Companies to acquire, any interest in any
of the assets or business of any of the Tide West Companies.
3.19 LABOR MATTERS.
(a) No employees of any of the Tide West Companies are represented by
any labor organization. No labor organization or group of employees of any of
the Tide West Companies has made a demand for recognition or certification as a
union or other labor organization, and there are no representation or
certification proceedings or petitions seeking a representation proceeding
presently pending or threatened in writing to be brought or filed with the
National Labor Relations Board or any other labor relations tribunal or
authority. There are no organizing activities involving
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any of the Tide West Companies pending with any labor organization or group of
employees of any of the Tide West Companies.
(b) Each of the Tide West Companies is in material compliance with
all laws, rules, regulations and orders relating to the employment of labor,
including all such laws, rules, regulations and orders relating to wages, hours,
collective bargaining, discrimination, civil rights, safety and health, workers'
compensation and the collection and payment of withholding or Social Security
Taxes and similar Taxes, except where the failure to comply would not,
individually or in the aggregate, have a Material Adverse Effect on Tide West.
3.20 ACCOUNTS RECEIVABLE. Except as otherwise set forth in the DISCLOSURE
SCHEDULE, (a) all of the accounts, notes and loans receivable that have been
recorded on the books of the Tide West Companies are bona fide and represent
accounts, notes and loans receivable validly due for goods sold or services
rendered and are reasonably expected to be collected in full within 90 days
after the applicable invoice or note maturity date (other than such accounts,
notes and loans receivable that, individually or in the aggregate, do not have a
book value as of the date hereof in excess of $500,000); (b) except for
Permitted Encumbrances, all of such accounts, notes and loans receivable are
free and clear of any and all Liens and other adverse claims and charges, and
none of such accounts, notes or loans receivable is subject to any offsets or
claims of offset; and (c) none of the obligors on such accounts, notes or loans
receivable has given notice to any of the Tide West Companies that it will or
may refuse to pay the full amount or any portion thereof.
3.21 INSURANCE. Each of the Tide West Companies maintains, and through the
Closing Date will maintain, insurance with reputable insurers (or pursuant to
prudent self-insurance programs) in such amounts and covering such risks as are
in accordance with normal industry practice for companies engaged in businesses
similar to those of the Tide West Companies and owning properties in the same
general area in which the Tide West Companies conduct their businesses. Each of
the Tide West Companies may terminate each of its insurance policies or binders
at or after the Closing and will incur no penalties or other material costs in
doing so. None of such policies or binders was obtained through the use of false
or misleading information or the failure to provide the insurer with all
information requested in order to evaluate the liabilities and risks insured.
There is no material default with respect to any provision contained in any such
policy or binder, nor has any of the Tide West Companies failed to give any
notice or present any claim under any such policy or binder in due and timely
fashion. There are no billed but unpaid premiums past due under any such policy
or binder. Except as otherwise set forth in the DISCLOSURE SCHEDULE, (a) there
are no outstanding claims under any such policies or binders and, to the
knowledge of Tide West, there has not occurred any event that might reasonably
form the basis of any claim against or relating to any of the Tide West
Companies that is not covered by any of such policies or binders; (b) no notice
of cancellation or non-renewal of any such policies or binders has been
received; and (c) there are no performance bonds outstanding with respect to any
of the Tide West Companies.
3.22 INTANGIBLE PROPERTY. There are no material trademarks, trade names,
patents, service marks, brand names, computer programs, databases, industrial
designs, copyrights or other intangible property that are necessary for the
operation, or continued operation, of the business of any of the Tide West
Companies or for the ownership and operation, or continued ownership and
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operation, of any of their assets, for which the Tide West Companies do not hold
valid and continuing authority in connection with the use thereof.
3.23 TITLE TO ASSETS. The Tide West Companies (individually or
collectively) have Defensible Title to all Oil and Gas Interests of Tide West
included or reflected in the Ownership Interests and all of their other assets.
Each Oil and Gas Interest included or reflected in the Ownership Interests
entitles the Tide West Companies (individually or collectively) to receive not
less than the undivided interest set forth in (or derived from) the Ownership
Interests of all Hydrocarbons produced, saved and sold from or attributable to
such Oil and Gas Interest, and the portion of the costs and expenses of
operation and development of such Oil and Gas Interest that is borne or to be
borne by the Tide West Companies (individually or collectively) is not greater
than the undivided interest set forth in (or derived from) the Ownership
Interests.
3.24 OIL AND GAS OPERATIONS. Except as otherwise set forth in the
DISCLOSURE SCHEDULE:
(a) All wells included in the Oil and Gas Interests of Tide West have
been drilled and (if completed) completed, operated and produced in accordance
with generally accepted oil and gas field practices and in compliance in all
material respects with applicable oil and gas leases and applicable laws, rules
and regulations, except where any failure or violation could not reasonably be
expected to have a Material Adverse Effect on Tide West; and
(b) Proceeds from the sale of Hydrocarbons produced from Tide West's
Oil and Gas Interests are being received by the Tide West Companies in a timely
manner and are not being held in suspense for any reason (except for amounts,
individually or in the aggregate, not in excess of $100,000 and held in suspense
in the ordinary course of business).
3.25 HYDROCARBON SALES AND PURCHASE AGREEMENTS. The DISCLOSURE SCHEDULE
contains a complete list of the Hydrocarbon Agreements to which any of the Tide
West Companies is a party involving total value or consideration in excess of
$500,000. Except as otherwise set forth in the DISCLOSURE SCHEDULE, to the
knowledge of Tide West, each of the Hydrocarbon Agreements is valid, binding and
in full force and effect, and no party is in material breach or default of any
Hydrocarbon Agreement, and no event has occurred that with notice or lapse of
time (or both) would constitute a material breach or default or permit
termination, modification or acceleration under any Hydrocarbon Agreement.
3.26 FINANCIAL AND COMMODITY HEDGING. The DISCLOSURE SCHEDULE accurately
summarizes the outstanding Hydrocarbon and financial hedging positions of the
Tide West Companies (including fixed price controls, collars, swaps, caps,
hedges and puts) as of the date reflected on the DISCLOSURE SCHEDULE.
3.27 ENVIRONMENTAL MATTERS. Except as set forth in the DISCLOSURE
SCHEDULE, to the knowledge of Tide West:
(a) Each of the Tide West Companies has conducted its business and
operated its assets, and is conducting its business and operating its assets, in
material compliance with all Environmental Laws;
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(b) None of the Tide West Companies has been notified by any
Governmental Authority or other third party that any of the operations or assets
of any of the Tide West Companies is the subject of any investigation or inquiry
by any Governmental Authority or other third party evaluating whether any
material remedial action is needed to respond to a release or threatened release
of any Hazardous Material or to the improper storage or disposal (including
storage or disposal at offsite locations) of any Hazardous Material;
(c) None of the Tide West Companies and no other Person has filed any
notice under any federal, state or local law indicating that (i) any of the Tide
West Companies is responsible for the improper release into the environment, or
the improper storage or disposal, of any Hazardous Material, or (ii) any
Hazardous Material is improperly stored or disposed of upon any property of any
of the Tide West Companies;
(d) None of the Tide West Companies has any material contingent
liability in connection with (i) the release or threatened release into the
environment at, beneath or on any property now or previously owned or leased by
any of the Tide West Companies, or (ii) the storage or disposal of any Hazardous
Material;
(e) None of the Tide West Companies has received any claim,
complaint, notice, inquiry or request for information involving any matter which
remains unresolved as of the date hereof with respect to any alleged violation
of any Environmental Law or regarding potential liability under any
Environmental Law relating to operations or conditions of any facilities or
property (including off-site storage or disposal of any Hazardous Material from
such facilities or property) currently or formerly owned, leased or operated by
any of the Tide West Companies;
(f) No property now or previously owned, leased or operated by any of
the Tide West Companies is listed on the National Priorities List pursuant to
CERCLA or on the CERCLIS or on any other federal or state list as sites
requiring investigation or cleanup;
(g) None of the Tide West Companies is directly transporting, has
directly transported, is directly arranging for the transportation of, or has
directly transported, any Hazardous Material to any location which is listed on
the National Priorities List pursuant to CERCLA, on the CERCLIS, or on any
similar federal or state list or which is the subject of federal, state or local
enforcement actions or other investigations that may lead to material claims
against such company for remedial work, damage to natural resources or personal
injury, including claims under CERCLA;
(h) There are no sites, locations or operations at which any of the
Tide West Companies is currently undertaking, or has completed, any remedial or
response action relating to any such disposal or release, as required by
Environmental Laws; and
(i) All underground storage tanks and solid waste disposal facilities
owned or operated by the Tide West Companies are used and operated in material
compliance with Environmental Laws.
3.28 BOOKS AND RECORDS. All books, records and files of the Tide West
Companies (including those pertaining to Tide West's Oil and Gas Interests,
wells and other assets, those
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pertaining to the production, gathering, transportation and sale of
Hydrocarbons, and corporate, accounting, financial and employee records) (a)
have been prepared, assembled and maintained in accordance with usual and
customary policies and procedures and (b) fairly and accurately reflect the
ownership, use, enjoyment and operation by the Tide West Companies of their
respective assets.
3.29 BROKERS. Except as set forth on the DISCLOSURE SCHEDULE, no broker,
finder, investment banker or other Person is or will be, in connection with the
transactions contemplated by this Agreement, entitled to any brokerage, finder's
or other fee or compensation based on any arrangement or agreement made by or on
behalf of Tide West and for which Parent, or any of the Tide West Companies will
have any obligation or liability.
3.30 VOTE REQUIRED. The affirmative vote of the holders of a majority of
the outstanding shares of Tide West Common Stock is the only vote of the holders
of any class or series of Tide West capital stock or other voting securities
necessary to approve this Agreement, the Merger and the transactions
contemplated hereby.
3.31 MAINTENANCE OF MACHINERY. All equipment and machinery owned by any of the
Tide West Companies has had reasonable and prudent maintenance, upkeep and
repair since the date it was acquired by the Tide West Companies.
3.32 GAS IMBALANCES. To the knowledge of Tide West, except as is reflected
on the DISCLOSURE SCHEDULE, Tide West has received no deficiency payments under
gas contracts for which any party has a right to take deficiency gas from Tide
West, nor has Tide West received any payments for production which are subject
to refund or recoupment out of future production.
3.33 CALLS ON PRODUCTION. Except as reflected on the DISCLOSURE SCHEDULE,
no party has a call or preferential right to purchase production from any of
Tide West's Oil and Gas Interests.
3.34 SECTION 29 CREDITS. Tide West is entitled to tax credits under
Section 29 of the Code. The approximate amount of such credits is accurately
reflected in the materials and information provided by Tide West to Parent.
3.35 ROYALTIES. To the knowledge of Tide West as to wells not operated by
Tide West, and without qualification as to knowledge as to all wells operated by
Tide West, all royalties, overriding royalties, compensatory royalties and other
payments due from or in respect of production with respect to the Tide West's
Oil and Gas Interests, have been or will be, prior to the Effective Time,
properly and correctly paid or provided for in all material respects, except for
those for which Tide West has a valid right to suspend.
3.36 PAYOUT BALANCES. To the knowledge of Tide West, and based on
information given to Tide West by third-party operators for all wells not
operated by Tide West, the Payout Balance for any well owned by Tide West is
properly reflected in the DISCLOSURE SCHEDULE as of the respective dates shown
thereon. "PAYOUT BALANCE(S)" means the status, as of the dates of Tide West's
calculations, of the recovery by Tide West or a third party of a cost amount
specified in the contract
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relating to a well out of the revenue from such well where the net revenue
interest of Tide West therein will be reduced when such amount has been
recovered.
3.37 PLUGGING AND ABANDONMENT LIABILITIES. Except to the extent expressly
set forth in the DISCLOSURE SCHEDULE, Tide West has no obligation as of the date
of this Agreement under applicable statutes and regulations to plug and abandon
any well.
3.38 PREPAYMENTS. Except as reflected in the DISCLOSURE SCHEDULE, no
prepayment for Hydrocarbon sales has been received by Tide West for Hydrocarbons
which have not been delivered as of the date hereof.
3.39 DISCLOSURE AND INVESTIGATION. No representation or warranty of Tide
West set forth in this Agreement contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby jointly and severally represent and warrant to
Tide West as follows:
4.1 ORGANIZATION. Each of Parent and Merger Sub (a) is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation, (b) has the requisite power and authority to own, lease and
operate its properties and to conduct its business as it is presently being
conducted, and (c) is duly qualified to do business as a foreign corporation,
and is in good standing, in each jurisdiction where the character of the
properties owned or leased by it or the nature of its activities makes such
qualification necessary (except where any failure to be so qualified as a
foreign corporation or to be in good standing would not, individually or in the
aggregate, have a Material Adverse Effect on Parent). Copies of the certificate
of incorporation and by-laws of each of Parent and Merger Sub have heretofore
been delivered to Tide West, and such copies are accurate and complete as of the
date hereof.
4.2 AUTHORITY AND ENFORCEABILITY. Each of Parent and Merger Sub has the
requisite corporate power and authority to enter into and deliver this Agreement
and (with respect to consummation of the Tide West Proposal, subject to the
approval by the stockholders of Parent) to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and (with
respect to consummation of the Tide West Proposal, subject to the approval by
the stockholders of Parent) the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on the part of Parent and Merger Sub, including approval by the board of
directors of Parent and the board of directors and stockholders of Merger Sub,
and no other corporate proceedings on the part of Parent or Merger Sub are
necessary to authorize the execution or delivery of this Agreement or (with
respect to consummation of the Tide West Proposal, subject to the approval by
the stockholders of Parent) to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered
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by Parent and Merger Sub and (with respect to consummation of the Tide West
Proposal, subject to the approval by the stockholders of Parent, and assuming
that this Agreement constitutes a valid and binding obligation of Tide West)
constitutes a valid and binding obligation of each of Parent and Merger Sub
enforceable against each of them in accordance with its terms.
4.3 NO VIOLATIONS. The execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated hereby and compliance by
Parent and Merger Sub with the provisions hereof will not, conflict with, result
in any violation of or default (with or without notice or lapse of time or both)
under, give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the creation
of any Lien on any of the properties or assets of Parent or any Parent Material
Subsidiary under, any provision of (a) the certificate of incorporation or by-
laws of Parent or Merger Sub or any provision of the comparable charter or
organizational documents of any Parent Material Subsidiary, (b) any loan or
credit agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license or other agreement or instrument applicable to Parent, Merger
Sub or any Parent Material Subsidiary, or (c) assuming the consents, approvals,
authorizations or permits and filings or notifications referred to in Section
4.4 are duly and timely obtained or made, any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Parent, Merger Sub or any
Parent Material Subsidiary or any of their respective properties or assets,
other than, in the case of clause (b) or (c) above, any such conflict,
violation, default, right, loss or Lien that, individually or in the aggregate,
would not have a Material Adverse Effect on Parent.
4.4 CONSENTS AND APPROVALS. No consent, approval, order or authorization
of, registration, declaration or filing with, or permit from, any Governmental
Authority is required by or with respect to Parent or Merger Sub in connection
with the execution and delivery of this Agreement by Parent and Merger Sub or
the consummation by Parent and Merger Sub of the transactions contemplated
hereby, except for the following: (a) any such consent, approval, order,
authorization, registration, declaration, filing or permit which the failure to
obtain or make would not, individually or in the aggregate, have a Material
Adverse Effect on Parent; (b) the filing of the Certificate of Merger with the
Secretary of State of Delaware pursuant to the provisions of the DGCL; (c) the
filing of a pre-merger notification report by Parent under the HSR Act and the
expiration or termination of the applicable waiting period; (d) the filing with
the SEC of the Registration Statement and such reports under Section 13(a) of
the Exchange Act and such other compliance with the Exchange Act and the
Securities Act and the rules and regulations of the SEC thereunder as may be
required in connection with this Agreement and the transactions contemplated
hereby and the obtaining from the SEC of such orders as may be so required; (e)
the filing with the NYSE of a listing application relating to the shares of
Parent Common Stock to be issued pursuant to the Merger and the obtaining from
the NYSE of its approvals thereof; (f) such filings and approvals as may be
required by any applicable state securities, "blue sky" or takeover laws or
Environmental Laws; and (g) such filings and approvals as may be required by any
foreign pre-merger notification, securities, corporate or other law, rule or
regulation. No Third-Party Consent is required by or with respect to Parent,
Merger Sub or any Parent Material Subsidiary in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (x) any such Third-Party Consent which the
failure to obtain would not, individually or in the aggregate, have a Material
Adverse Effect on Parent, and (y) the valid approval of the Tide West Proposal
by the stockholders of Parent.
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4.5 SEC DOCUMENTS. Parent has made available to Tide West a true and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by Parent with the SEC since December 31, 1994, and prior
to the date of this Agreement (the "PARENT SEC DOCUMENTS"), which are all the
documents (other than preliminary material) that Parent was required to file
with the SEC since such date. As of their respective dates, the Parent SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Parent SEC Documents, and
none of the Parent SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
4.6 FINANCIAL STATEMENTS. The Parent Financial Statements were prepared
in accordance with GAAP applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited statements, as permitted by Rule 10-01 of Regulation S-X of the SEC)
and fairly present, in accordance with applicable requirements of GAAP (in the
case of the unaudited statements, subject to normal, recurring adjustments), the
consolidated financial position of Parent and its subsidiaries as of their
respective dates and the consolidated results of operations and the consolidated
cash flows of Parent and its subsidiaries for the periods presented therein.
4.7 CAPITAL STRUCTURE.
(a) The authorized capital stock of Parent consists of 30,000,000
shares of Parent Common Stock and 15,000,000 shares of Parent Preferred Stock.
The authorized capital stock of Merger Sub consists of 1,000 shares of Merger
Sub Common Stock.
(b) There are issued and outstanding 10,948,513 shares of Parent
Common Stock and no shares of Parent Preferred Stock. 1,490,699 shares of
Parent Common Stock are issuable upon exercise of outstanding stock options and
warrants. 22,718 shares of Parent Common Stock and no shares of Parent
Preferred Stock are held by Parent as treasury stock.
(c) Except as set forth in Section 4.7(b), there are outstanding (i)
no shares of capital stock or other voting securities of Parent, (ii) no
securities of Parent or any other Person convertible into or exchangeable or
exercisable for shares of capital stock or other voting securities of Parent,
and (iii) no subscriptions, options, warrants, calls, rights (including
*preemptive rights, commitments, understandings or agreements to which Parent is
a party or by which it is bound) obligating Parent to issue, deliver, sell,
purchase, redeem or acquire shares of capital stock or other voting securities
of Parent (or securities convertible into or exchangeable or exercisable for
shares of capital stock or other voting securities of Parent) or obligating
Parent to grant, extend or enter into any such subscription, option, warrant,
call, right, commitment, understanding or agreement.
(d) All outstanding shares of Parent capital stock are, and (when
issued) the shares of Parent Common Stock to be issued pursuant to the Merger
and upon exercise of the Tide West Stock Options or Tide West Warrants will be,
validly issued, fully paid and nonassessable and not subject to any preemptive
right.
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(e) 1,000 shares of Merger Sub Common Stock are issued and
outstanding, all of which are owned by Parent. All outstanding shares of Merger
Sub Common Stock are validly issued, fully paid and nonassessable and not
subject to any preemptive right.
(f) As of the date hereof there is no, and at the Effective Time
there will not be any, stockholder agreement, voting trust or other agreement or
understanding to which Parent is a party or by which it is bound relating to the
voting of any shares of the capital stock of Parent.
4.8 GOVERNMENTAL REGULATION. Neither Parent nor any of its subsidiaries
is subject to regulation under the Public Utility Holding Company Act of 1935,
the Federal Power Act, the Interstate Commerce Act, the Investment Company Act
of 1940 or any state public utilities laws.
4.9 LITIGATION. There is no litigation, proceeding or investigation
pending or, to the knowledge of Parent, threatened against or affecting Parent
or Merger Sub that questions the validity or enforceability of this Agreement or
any other document, instrument or agreement to be executed and delivered by
Parent or Merger Sub in connection with the transactions contemplated hereby.
4.10 INTERIM OPERATIONS OF MERGER SUB. Merger Sub was formed solely for
the purpose of engaging in the transactions contemplated by this Agreement and
has not engaged in any business or activity (or conducted any operations) of any
kind, entered into any agreement or arrangement with any person or entity, or
incurred, directly or indirectly, any material liabilities or obligations,
except in connection with its incorporation, the negotiation of this Agreement,
the Merger and the transactions contemplated hereby.
4.11 FUNDING. Parent has available adequate funds in an aggregate amount
sufficient to pay (a) all amounts required to be paid to the stockholders of
Tide West upon consummation of the Merger, (b) all amounts required to be paid
in respect of all Tide West Stock Options and Tide West Warrants upon exercise
thereof, and (c) all expenses incurred by Parent and Merger Sub in connection
with this Agreement and the transactions contemplated hereby.
4.12 BROKERS. Except as has been disclosed in writing to Tide West concerning
Parent's arrangement with Lehman Brothers, no broker, finder, investment banker
or other Person is or will be, in connection with the transactions contemplated
by this Agreement, entitled to any brokerage, finder's or other fee or
compensation based on any arrangement or agreement made by or on behalf of
Parent or Merger Sub and for which Parent, Merger Sub or any of the Tide West
Companies will have any obligation or liability.
4.13 DISCLOSURE AND INVESTIGATION. No representation or warranty of Parent
or Merger Sub set forth in this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein not misleading.
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ARTICLE 5
COVENANTS
5.1 CONDUCT OF BUSINESS BY TIDE WEST PENDING CLOSING. Tide West covenants
and agrees with Parent and Merger Sub that, from the date of this Agreement
until the Effective Time, each of the Tide West Companies will conduct its
business only in the ordinary and usual course consistent with past practices.
Notwithstanding the preceding sentence, Tide West covenants and agrees with
Parent and Merger Sub that, except as specifically contemplated in this
Agreement, from the date of this Agreement until the Effective Time, without the
prior written consent of Parent:
(a) None of the Tide West Companies will (i) amend its certificate or
articles of incorporation or by-laws; (ii) split, combine or reclassify any of
its outstanding capital stock; (iii) declare, set aside or pay any dividends or
other distributions (whether payable in cash, property or securities) with
respect to its capital stock; (iv) issue, sell or agree to issue or sell any
securities, including its capital stock, any rights, options or warrants to
acquire its capital stock, or securities convertible into or exchangeable or
exercisable for its capital stock (other than shares of Tide West Common Stock
issued pursuant to the exercise of any Tide West Stock Option, shares of Tide
West Common Stock issued pursuant to the exercise of any Tide West Common Stock
Warrant or shares of Tide West Common Stock and Tide West Common Stock Warrants
issued pursuant to the exercise of any Tide West Unit Warrant, each as
outstanding on the date of this Agreement); (v) purchase, cancel, retire, redeem
or otherwise acquire any of its outstanding capital stock or other securities;
(vi) merge or consolidate with, or transfer all or substantially all of its
assets to, another corporation or other business entity; (vii) liquidate, wind-
up or dissolve (or suffer any liquidation or dissolution); or (viii) enter into
any contract, agreement, commitment or arrangement with respect to any of the
foregoing.
(b) None of the Tide West Companies will (i) acquire any corporation,
partnership or other business entity or any interest therein (other than
interests in joint ventures, joint operation or ownership arrangements or tax
partnerships acquired in the ordinary course of business); (ii) sell, lease or
sublease, transfer or otherwise dispose of or mortgage, pledge or otherwise
encumber any Oil and Gas Interests of Tide West that were assigned a value in
the Reserve Data Value in excess of $50,000, individually, or $250,000, in the
aggregate, or any other assets that have a value at the time of such sale,
lease, sublease, transfer or disposition in excess of $50,000, individually, or
$250,000, in the aggregate, (except that this clause shall not apply to the sale
of Hydrocarbons in the ordinary course of business or to encumbrances under
either of the Bank Credit Agreements); (iii) farm-out any Oil and Gas Interest
of Tide West or interest therein; (iv) sell, transfer or otherwise dispose of or
mortgage, pledge or otherwise encumber any securities of any other Person
(including any capital stock or other securities in TWTT or Draco or any
partnership interest in Horizon or Roden); (v) make any material loans, advances
or capital contributions to, or investments in, any Person (other than loans or
advances in the ordinary course of business and consistent with past practices
or capital contributions to either Horizon or Roden required by the terms of its
partnership agreement); (vi) enter into any Tide West Material Agreement or any
other agreement not terminable by any of the Tide West Companies upon notice of
30 days or less and without penalty or other obligation (other than Hydrocarbon
Agreements entered into in the ordinary course of business and
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consistent with past practices); or (vii) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing.
(c) None of the Tide West Companies will (i) permit to be outstanding
at any time under the Bank Credit Agreement indebtedness for borrowed money in
excess of $45,000,000; (ii) incur any indebtedness for borrowed money other than
under the Bank Credit Agreement; (iii) incur any other obligation or liability
(other than liabilities incurred in the ordinary course of business and
consistent with past practices); (iv) assume, endorse (other than endorsements
of negotiable instruments in the ordinary course of business), guarantee or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the liabilities or obligations of any Person (other than Parent
Guaranties entered into in the ordinary course of business and consistent with
past practices); or (v) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing.
(d) The Tide West Companies will operate, maintain and otherwise deal
with the Oil and Gas Interests of Tide West in accordance with good and prudent
oil and gas field practices and in accordance with all applicable oil and gas
leases and other contracts or agreements and all applicable laws, rules and
regulations.
(e) None of the Tide West Companies shall resign, transfer or
otherwise voluntarily relinquish any right it has as of the date of this
Agreement, as operator of any Oil and Gas Interest of Tide West.
(f) None of the Tide West Companies will (i) enter into, or otherwise
become liable or obligated under or pursuant to, (1) any employee benefit,
pension or other plan (whether or nor subject to ERISA), (2) any other stock
option, stock purchase, incentive or deferred compensation plans or arrangements
or other fringe benefit plan, or (3) any consulting, employment, severance,
termination or similar agreement with any Person, or amend or extend any such
plan, arrangement or agreement; (ii) except for payments made pursuant to any
Tide West Employee Benefit Plan or any plan, agreement or arrangement described
in the DISCLOSURE SCHEDULE, grant, or otherwise become liable for or obligated
to pay, any severance or termination payments, bonuses or increases in
compensation or benefits (other than payments, bonuses or increases that are
mandated by the terms of agreements existing as of the date hereof or that are
paid in the ordinary course of business, consistent with past practices, and not
individually or in the aggregate material in amount) to, or forgive any
indebtedness of, any employee or consultant; or (iii) enter into any contract,
agreement, commitment or arrangement to do any of the foregoing.
(g) The Tide West Companies will keep and maintain accurate books,
records and accounts in accordance with GAAP.
(h) None of the Tide West Companies will create, incur, assume or
permit to exist any Lien on any of its assets, except for Permitted
Encumbrances.
(i) The Tide West Companies will (i) pay all Taxes, assessments and
other governmental charges imposed upon any of their assets or with respect to
their franchises, business, income or assets before any penalty or interest
accrues thereon; (ii) pay all claims (including claims
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for labor, services, materials and supplies) that have become due and payable
and which by law have or may become a Lien upon any of their assets prior to the
time when any penalty or fine shall be incurred with respect thereto or any such
Lien shall be imposed thereon; and (iii) comply in all material respects with
the requirements of all applicable laws, rules, regulations and orders of any
Governmental Authority, obtain or take all Governmental Actions necessary in the
operation of their businesses, and comply with and enforce the provisions of all
Tide West Material Agreements, including paying when due all rentals, royalties,
expenses and other liabilities relating to their businesses or assets; provided,
however, Tide West will not be in violation of this Section 5.1(i) if any of the
Tide West Companies incur obligations for penalties and interest in connection
with gross production tax reporting in the ordinary course of business; and
provided further, that the Tide West Companies may contest the imposition of any
such Taxes, assessments and other governmental charges, any such claim, or the
requirements of any applicable law, rule, regulation or order or any Tide West
Material Agreement if done so in good faith by appropriate proceedings and if
adequate reserves are established in accordance with GAAP or as may be
determined as sufficient by Tide West's board of directors.
(j) The Tide West Companies will maintain in full force and effect
the policies or binders of insurance described in Section 3.21.
(k) The Tide West Companies will at all times preserve and keep in
full force and effect their corporate existence and rights and franchises
material to their performance under this Agreement.
(l) Tide West will not engage in any practice, take any action or
permit by inaction any of the representations and warranties contained in
Section 3.1, 3.2, 3.4, 3.5, 3.8, 3.11, 3.12, 3.14, 3.17, 3.18, 3.19, 3.27, 3.28,
3.29, 3.31, 3.33, 3.35 or 3.39 to become untrue.
(m) Tide West will not engage in any practice, take any action, or
permit by inaction any of the representations and warranties contained in
Section 3.10 (other than clause (n) thereof) to become untrue, except (i) Tide
West may pay successful deal bonuses to its employees as disclosed in the
DISCLOSURE SCHEDULE, (ii) all currently outstanding Tide West Stock Options will
become fully vested prior to the Effective Time, (iii) Tide West may make or
commit to make capital expenditures as described in the DISCLOSURE SCHEDULE, not
to exceed $3,000,000 in the aggregate, (iv) the Tide West Companies may enter
into fully covered commodity swap, hedging and similar arrangements; and (v)
Tide West may pay, to marketers and executives, bonuses relating to marketing
during the first quarter, consistent with past practices.
5.2 CONDUCT OF BUSINESS BY PARENT PENDING CLOSING. Parent covenants and
agrees with Tide West that, from the date of this Agreement until the Effective
Time, except for transactions disclosed by Parent to Tide West prior to the date
hereof, Parent will conduct its business only in the ordinary and usual course
consistent with past practices. Notwithstanding the preceding sentence, Parent
covenants and agrees with Tide West that, from the date of this Agreement until
the Effective Time, without the prior written consent of Tide West:
(a) Parent will not (i) split, combine or reclassify any of its
outstanding capital stock; (ii) declare, set aside or pay any dividends or other
distributions (whether payable in cash,
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property or securities) with respect to its capital stock other than a dividend
of rights to holders of Parent Common Stock in connection with the adoption and
implementation of a shareholder rights plan; (iii) merge or consolidate with, or
transfer all or substantially all of its assets to, another corporation or other
business entity; (iv) liquidate, wind-up or dissolve (or suffer any liquidation
or dissolution); or (v) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing.
(b) Parent will at all times preserve and keep in full force and
effect its corporate existence and rights and franchises material to its
performance under this Agreement.
(c) Parent will not engage in any practice, take any action or permit
by inaction, any of the representations and warranties contained in Section 4.1,
4.3, 4.4, 4.7, 4.8, 4.10, 4.11, 4.12 or 4.13 to become untrue.
5.3 ACCESS TO ASSETS, PERSONNEL AND INFORMATION.
(a) From the date hereof until the Effective Time, Tide West shall
afford to Parent and the Parent Representatives, at Parent's sole risk and
expense, reasonable access to any of the assets, books and records, contracts,
employees, representatives, agents and facilities of the Tide West Companies and
shall, upon request, furnish promptly to Parent (at Parent's expense) a copy of
any file, book, record, contract, permit, correspondence, or other written
information, document or data concerning any of the Tide West Companies (or any
of their respective assets) that is within the possession or control of Tide
West. During such period, Tide West will make available to a reasonable number
of Parent Representatives adequate office space and facilities at the principal
office facility of Tide West in Tulsa, Oklahoma, and will permit a reasonable
number of Parent Representatives to observe, but not participate in, staff
meetings at those facilities and other facilities of any of the Tide West
Companies.
(b) Parent and the Parent Representatives shall have the right to
make an environmental and physical assessment of the assets of the Tide West
Companies and, in connection therewith, shall have the right to enter and
inspect such assets and all buildings and improvements thereon, conduct soil and
water tests and borings and generally conduct such tests, examinations,
investigations and studies as Parent deems necessary, desirable or appropriate
for the preparation of engineering or other reports relating to such assets,
their condition and the presence of Hazardous Materials. Tide West shall be
provided 24 hours prior notice of such activities, and Tide West Representatives
shall have the right to witness all such tests and investigations. Parent shall
(and shall cause the Parent Representatives to) keep any data or information
acquired by any such examinations and the results of any analyses of such data
and information strictly confidential and will not (and will cause the Parent
Representatives not to) disclose any of such data, information or results to any
Person unless otherwise required by law or regulation and then only after
written notice to Tide West of the determination of the need for disclosure.
Parent shall indemnify, defend and hold the Tide West Companies and the Tide
West Representatives harmless from and against any and all claims to the extent
arising out of or as a result of the activities of Parent and the Parent
Representatives on the assets of the Tide West Companies in connection with
conducting such environmental and physical assessment, except to the extent of
and limited by the negligence or willful misconduct of any of the Tide West
Companies or any Tide West Representative.
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(c) From the date hereof until the Effective Time, Parent shall
afford to Tide West and the Tide West Representatives, at Tide West's sole risk
and expense, reasonable access to any of the assets, books and records,
contracts, employees, representatives, agents and facilities of Parent and the
Parent Material Subsidiaries and shall, upon request, furnish promptly to Tide
West (at Tide West's expense) a copy of any file, book, record, contract,
permit, correspondence, or other written information, document or data
concerning Parent or any of the Parent Material Subsidiaries (or any of their
respective assets) that is within the possession or control of Parent.
(d) From the date hereof until the Effective Time, Tide West will
fully and accurately disclose, and will cause each of TWTT and Draco to fully
and accurately disclose, to Parent and the Parent Representatives all
information that is (i) reasonably requested by Parent or any of the Parent
Representatives, (ii) known to any of the Tide West Companies, and (iii)
relevant in any manner or degree to the value, ownership, use, operation,
development or transferability of the assets of any of the Tide West Companies.
(e) From the date hereof until the Effective Time, Parent will fully
and accurately disclose, and will cause each of the Parent Material Subsidiaries
to fully and accurately disclose, to Tide West and the Tide West Representatives
all information that is (i) reasonably requested by Tide West or any of the Tide
West Representatives, (ii) known to Parent or any Parent Material Subsidiary,
and (iii) relevant in any manner or degree to the value, ownership, use,
operation, development or transferability of the assets of Parent or any Parent
Material Subsidiary.
(f) From the date hereof until the Effective Time, each of Parent and
Tide West shall (i) furnish to the other, promptly upon receipt or filing (as
the case may be), a copy of each communication between such party and the SEC
after the date hereof relating to the Merger or the Registration Statement and
each report, schedule, registration statement or other document filed by such
party with the SEC after the date hereof relating to the Merger, and (ii)
promptly advise the other of the substance of any oral communications between
such party and the SEC relating to the Merger or the Registration Statement.
(g) Tide West will (and will cause TWTT, Draco and the Tide West
Representatives to) fully cooperate in all reasonable respects with Parent and
the Parent Representatives in connection with Parent's examinations, evaluations
and investigations described in this Section 5.3, and Parent will (and will
cause the Parent Representatives to) fully cooperate in all reasonable respects
with Tide West and the Tide West Representatives in connection with Tide West's
examinations, evaluations and investigations described in this Section 5.3.
(h) Tide West agrees that it will not (and will cause the Tide West
Representatives not to), and Parent agrees that it will not (and will cause the
Parent Representatives not to), use any information obtained pursuant to this
Section 5.3 for any purpose unrelated to the consummation of the transactions
contemplated by this Agreement.
(i) Notwithstanding anything in this Section 5.3 to the contrary, (i)
Tide West shall not be obligated under the terms of this Section 5.3 to disclose
to Parent or the Parent Representatives, or grant Parent or the Parent
Representatives access to, information that is within Tide West's possession or
control but subject to a valid and binding confidentiality agreement with
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a third party without first obtaining the consent of such third party, and Tide
West, to the extent reasonably requested by Parent, will use its best efforts to
obtain any such consent; and (ii) Parent shall not be obligated under the terms
of this Section 5.3 to disclose to Tide West or the Tide West Representatives,
or grant Tide West or the Tide West Representatives access to, information that
is within Parent's possession or control but subject to a valid and binding
confidentiality agreement with a third party without first obtaining the consent
of such third party, and Parent, to the extent reasonably requested by Tide
West, will use its best efforts to obtain any such consent.
5.4 NO SOLICITATION.
(a) Immediately following the execution of this Agreement, Tide West
will (and will use its best efforts to cause each of the Tide West
Representatives to) terminate any and all existing activities, discussions and
negotiations with third parties (other than Parent) with respect to any possible
transaction involving the acquisition of the Tide West Common Stock or the
merger or other business combination of Tide West with or into any such third
party.
(b) Tide West will not (and will use its best efforts to cause the
Tide West Representatives not to) solicit, initiate or knowingly encourage the
submission of, any offer or proposal to acquire all or any part of the Tide West
Common Stock or all or any material portion of the assets or business of Tide
West (other than the transactions contemplated by this Agreement), whether by
merger, purchase of assets, tender offer, exchange offer or otherwise (an
"ALTERNATIVE PROPOSAL"); provided, however, that, if Tide West or any Tide West
Representative shall receive an Alternative Proposal, then Tide West
Representatives may discuss such Alternative Proposal with the Person presenting
such Alternative Proposal and provide information to such Person if the board of
directors of Tide West determines in good faith, after considering the advice of
its legal counsel, that it is required to do so in order to discharge properly
its fiduciary duty to Tide West's stockholders.
(c) Tide West will promptly communicate to Parent the terms and
conditions of any Alternative Proposal that it may receive and will keep Parent
informed as to the status of any actions, including any discussions, taken
pursuant to such Alternative Proposal.
(d) If Tide West or any Tide West Representative receives an
Alternative Proposal and the board of directors of Tide West determines in good
faith, after considering the advice of its legal counsel, that it is required to
do so in order to discharge properly its fiduciary duty to Tide West's
stockholders, then Tide West Representatives may negotiate the terms of such
Alternative Proposal and a binding definitive agreement with such Person with
respect thereto (an "ALTERNATIVE TRANSACTION").
(e) Nothing in this Section 5.4 shall permit Tide West to terminate
this Agreement except as specifically provided in Section 7.1.
5.5 TIDE WEST STOCKHOLDERS MEETING. Tide West shall take all action
necessary in accordance with applicable law and its certificate of incorporation
and by-laws to convene a meeting of its stockholders as promptly as practicable
after the date hereof for the purpose of voting on the Tide West Proposal. The
board of directors of Tide West shall recommend approval of the Tide West
Proposal and shall take all lawful action to solicit such approval, including
timely mailing the
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Proxy Statement/Prospectus to the stockholders of Tide West. Notwithstanding the
above, however, the following shall be conditions to the mailing of the Proxy
Statement/Prospectus:
(a) Tide West shall have received an opinion from Merrill Lynch or
another firm of investment bankers or financial advisors selected by Tide West
(which opinion shall be acceptable in form and substance to Tide West) to the
effect that the consideration to be received in the Merger by the holders of
shares of Tide West Common Stock is fair to such holders from a financial point
of view, and such opinion shall not have been withdrawn, revoked or modified.
(b) Tide West shall have received an opinion (reasonably acceptable
in form and substance to Tide West) from Conner & Winters, A Professional
Corporation (or such other firm as is reasonably acceptable to Tide West) to the
effect that (i) the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, (ii) each of
Parent, Tide West and Merger Sub will be a party to such reorganization within
the meaning of Section 368(b) of the Code, (iii) no gain or loss will be
recognized by Parent, Tide West or Merger Sub as a result of the Merger, and
(iv) no gain or loss, except with respect to the amount of Cash Consideration
received, will be recognized by a stockholder of Tide West as a result of the
Merger with respect to the shares of Tide West Common Stock converted into
shares of Parent Common Stock by such stockholder, and such opinion shall not
have been withdrawn, revoked or modified. Such opinion may be based upon
representations of the parties and shareholders of the parties.
(c) Tide West shall have received a letter from Arthur Andersen &
Co., independent public accountants, addressed to Parent and Tide West, dated as
of the date the Proxy Statement/Prospectus is first mailed to Tide West's
stockholders, in form and substance reasonably satisfactory to Tide West, in
connection with such accountants' review of certain financial and accounting
matters contained in the Proxy Statement/Prospectus and the Registration
Statement.
5.6 PARENT STOCKHOLDERS MEETING. Parent shall take all action necessary
in accordance with applicable law and its certificate of incorporation and
bylaws to convene a meeting of its stockholders as promptly as practicable after
the date hereof for the purpose of voting on the Tide West Proposal. The Board
of Directors of Parent shall recommend approval of the Tide West Proposal and
shall take all lawful action to solicit such approval, including timely mailing
the Proxy Statement/Prospectus to the stockholders of Parent. Notwithstanding
the above, however, the following shall be conditions to the mailing of the
Proxy Statement/Prospectus:
(a) Parent shall have received an opinion from Lehman Brothers or
another firm of investment bankers or financial advisors selected by Parent
(which opinion shall be acceptable in form and substance to Parent) to the
effect that the Merger is fair to the Parent from a financial point of view, and
such opinion shall not have been withdrawn, revoked or modified.
(b) Parent shall have received an opinion of the type described in
Section 5.5(b), from counsel as is reasonably acceptable to Parent and such
opinion shall not have been withdrawn, revoked or modified.
(c) Parent shall have received a letter from Arthur Andersen & Co.,
independent public accountants, addressed to Parent and Tide West, dated as of
the date the Proxy
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Statement/Prospectus is first mailed to Parent's stockholders, in form and
substance reasonably satisfactory to Parent, in connection with such
accountants' review of certain financial and accounting matters contained in the
Proxy Statement/Prospectus and the Registration Statement.
5.7 REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS.
(a) Parent and Tide West shall cooperate and promptly prepare the
Registration Statement, and Parent shall file the Registration Statement with
the SEC as soon as practicable after the date hereof and in any event not later
than 45 days after the date hereof. Parent shall use its best efforts, and Tide
West shall cooperate with Parent (including furnishing all information
concerning Tide West and the holders of Tide West Common Stock as may be
reasonably requested by Parent), to have the Registration Statement declared
effective under the Securities Act as promptly as practicable after such filing.
Parent shall use its best efforts, and Tide West shall cooperate with Parent, to
obtain all necessary state securities laws or "blue sky" permits, approvals and
registrations in connection with the issuance of Parent Common Stock pursuant to
the Merger.
(b) Parent and Tide West will cause the Registration Statement
(including the Proxy Statement/Prospectus), at the time it becomes effective
under the Securities Act, to comply as to form in all material respects with the
applicable provisions of the Securities Act, the Exchange Act and the rules and
regulations of the SEC thereunder.
(c) Tide West hereby covenants and agrees with Parent that (i) the
Registration Statement (at the time it becomes effective under the Securities
Act and at the Effective Time) will 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 (provided, however, that
this clause (i) shall apply only to information contained in the Registration
Statement that was supplied by Tide West specifically for inclusion therein);
and (ii) the Proxy Statement/Prospectus (at the time it is first mailed to
stockholders of Tide West and Parent, at the time of the Tide West Meeting and
the Parent Meeting, and at the Effective Time) will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading (provided, however,
that this clause (ii) shall not apply to any information contained in the Proxy
Statement/Prospectus that was supplied by Parent specifically for inclusion
therein). If, at any time prior to the Effective Time, any event with respect to
Tide West, or with respect to other information supplied by Tide West
specifically for inclusion in the Registration Statement, occurs and such event
is required to be described in an amendment to the Registration Statement, Tide
West shall promptly notify Parent of such occurrence and shall cooperate with
Parent in the preparation and filing of such amendment. If, at any time prior to
the Effective Time, any event with respect to Tide West, or with respect to
other information included in the Proxy Statement/Prospectus, occurs and such
event is required to be described in a supplement to the Proxy
Statement/Prospectus, such event shall be so described and such supplement shall
be promptly prepared, filed and disseminated.
(d) Parent hereby covenants and agrees with Tide West that (i) the
Registration Statement (at the time it becomes effective under the Securities
Act and at the Effective Time) will 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 (provided, however, that
this
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clause (i) shall not apply to any information contained in the Registration
Statement that was supplied by Tide West specifically for inclusion therein);
and (ii) the Proxy Statement/Prospectus (at the time it is first mailed to
stockholders of Tide West and Parent, at the time of the Tide West Meeting and
the Parent Meeting, and at the Effective Time) will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading (provided, however,
that this clause (ii) shall apply only to information contained in the Proxy
Statement/Prospectus that was supplied by Parent specifically for inclusion
therein). If, at any time prior to the Effective Time, any event with respect to
Parent, or with respect to other information included in the Registration
Statement, occurs and such event is required to be described in an amendment to
the Registration Statement, such event shall be so described and such amendment
shall be promptly prepared and filed. If, at any time prior to the Effective
Time, any event with respect to Parent, or with respect to other information
supplied by Parent specifically for inclusion in the Proxy Statement/Prospectus,
occurs and such event is required to be described in a supplement to the Proxy
Statement/Prospectus, Parent shall promptly notify Tide West of such occurrence
and shall cooperate with Tide West in the preparation, filing and dissemination
of such supplement.
(e) Neither the Registration Statement nor the Proxy
Statement/Prospectus nor any amendment or supplement thereto will be filed or
disseminated to the stockholders of Tide West or Parent without the approval of
both Parent and Tide West. Parent shall advise Tide West, promptly after it
receives notice thereof, of the time when the Registration Statement has become
effective under the Securities Act, the issuance of any stop order with respect
to the Registration Statement, the suspension of the qualification of the Parent
Common Stock issuable in connection with the Merger for offering or sale in any
jurisdiction, or any comments or requests for additional information by the SEC
with respect to the Registration Statement.
5.8 STOCK EXCHANGE LISTING. Parent shall cause the shares of Parent
Common Stock to be issued in the Merger to be approved for listing on the NYSE,
subject to official notice of issuance, prior to the Closing Date.
5.9 ADDITIONAL ARRANGEMENTS. Subject to the terms and conditions herein
provided, each of Tide West and Parent shall take, or cause to be taken, all
action and shall do, or cause to be done, all things necessary, appropriate or
desirable under the HSR Act and any other applicable laws and regulations or
under applicable governing agreements to consummate and make effective the
transactions contemplated by this Agreement, including using its best efforts to
obtain all necessary waivers, consents and approvals and effecting all necessary
registrations and filings. Each of Tide West and Parent shall take, or cause to
be taken, all action or shall do, or cause to be done, all things necessary,
appropriate or desirable to cause the covenants and conditions applicable to the
transactions contemplated hereby to be performed or satisfied as soon as
practicable. In addition, if any Governmental Authority shall have issued any
order, decree, ruling or injunction, or taken any other action that would have
the effect of restraining, enjoining or otherwise prohibiting or preventing the
consummation of the transactions contemplated hereby, each of Tide West and
Parent shall use its reasonable efforts to have such order, decree, ruling or
injunction or other action declared ineffective as soon as practicable.
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5.10 AGREEMENTS OF AFFILIATES. At least 30 days prior to the Effective
Time, Tide West shall cause to be prepared and delivered to Parent a list
identifying all Persons who, at the time of the Tide West Meeting, may be deemed
to be "affiliates" of Tide West as that term is used in paragraphs (c) and (d)
of Rule 145 under the Securities Act. Tide West shall use its best efforts to
cause each Person who is identified as an affiliate of Tide West in such list to
execute and deliver to Parent, on or prior to the Closing Date, a written
agreement, in the form attached hereto as EXHIBIT 5.10 (if such Person has not
executed and delivered an agreement substantially to the same effect
contemporaneously with the execution of this Agreement). Parent shall be
entitled to place legends as specified in such agreements on the Parent
Certificates representing any Parent Common Stock to be issued to such Persons
in the Merger.
5.11 PUBLIC ANNOUNCEMENTS. Prior to the Closing, Tide West and Parent will
consult with each other before issuing any press release or otherwise making any
public statements with respect to the transactions contemplated by this
Agreement and shall not issue any press release or make any such public
statement prior to obtaining the approval of the other party; provided, however,
that such approval shall not be required where such release or announcement is
required by applicable law; and provided further, that either Tide West or
Parent may respond to inquiries by the press or others regarding the
transactions contemplated by this Agreement, so long as such responses are
consistent with such party's previously issued press releases.
5.12 NOTIFICATION OF CERTAIN MATTERS. Tide West shall give prompt notice
to Parent of (a) any representation or warranty contained in Article 3 being
untrue or inaccurate when made, (b) the occurrence of any event or development
that would cause (or could reasonably be expected to cause) any representation
or warranty contained in Article 3 to be untrue or inaccurate on the Closing
Date, or (c) any failure of Tide West to comply with or satisfy any covenant,
condition, or agreement to be complied with or satisfied by it hereunder.
Parent shall give prompt notice to Tide West of (x) any representation or
warranty contained in Article 4 being untrue or inaccurate when made, (y) the
occurrence of any event or development that would cause (or could reasonably be
expected to cause) any representation or warranty contained in Article 4 to be
untrue or inaccurate on the Closing Date, or (z) any failure of Parent to comply
with or satisfy any covenant, condition, or agreement to be complied with or
satisfied by it hereunder.
5.13 PAYMENT OF EXPENSES. Each party hereto shall pay its own expenses
incident to preparing for, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby, whether or not the Merger
shall be consummated, except that (a) the fee for filing the Registration
Statement with the SEC shall be borne by Parent; (b) the costs and expenses
associated with printing the Proxy Statement/Prospectus shall be borne equally
by Parent and Tide West; and (c) the costs and expenses associated with mailing
the Proxy Statement/Prospectus to the stockholders of (i) Tide West, and
soliciting the votes of the stockholders of Tide West, shall be borne by Tide
West, and (ii) Parent, and soliciting the votes of the stockholders of Parent,
shall be borne by Parent.
5.14 REGISTRATION RIGHTS. Parent and the Major Tide West Stockholder shall
enter into a Registration Rights Agreement, in the form attached hereto as
EXHIBIT 5.14, at the Closing.
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5.15 INSURANCE; INDEMNIFICATION. The Parent shall cause the Director and
Officer Liability Insurance coverage currently maintained by Tide West to
continue in effect for a period of not less than one year following the
Effective Time. From and after the Effective Time, Parent shall indemnify and
hold harmless each person who is, has been at any time prior to the date hereof,
or becomes prior to the Effective Time, an officer or director of any of the
Tide West Companies (collectively, the "INDEMNIFIED PARTIES") against all
losses, claims, damages, liabilities, costs or expenses (including attorneys'
fees), judgments and amounts paid in settlement in connection with any claim,
action, suit, proceeding or investigation arising out of or pertaining to acts
or omissions, or alleged acts or omissions, by him in his capacity as an officer
or director of any of the Tide West Companies, which acts or omissions occurred
prior to the Effective Time; provided, however, that Parent shall be under no
obligation to indemnify any Indemnified Party pursuant to this Section 5.15
except to the extent that such Indemnified Party was entitled to indemnification
from any of the Tide West Companies (pursuant to applicable law or contract)
immediately prior to the Effective Time. The procedures associated with such
indemnification shall be the same as those associated with the Indemnified
Parties' indemnification from any of the Tide West Companies, as the case may
be, immediately prior to the Effective Time (provided, however, that Parent
shall be under no obligation to deposit trust funds pursuant to any "change-in-
control" or similar provisions). Tide West hereby agrees that, from and after
the date hereof until the Effective Time, it will not (and it will cause each of
TWTT and Draco not to) amend, modify or otherwise alter any contractual
provision under which any Indemnified Party is entitled to indemnification from
any of the Tide West Companies at the time of the execution of this Agreement.
The provisions of this Section 5.15 are intended to be for the benefit of, and
shall be enforceable by, the parties hereto and each Indemnified Party and their
respective heirs and representatives.
5.16 TIDE WEST EMPLOYEES. After the Effective Time, it is expected that
Parent may, in its sole discretion, offer employment to, or cause the Tide West
Companies to continue the employment of, certain employees of the Tide West
Companies (the "RETAINED EMPLOYEES"). Parent shall provide the Retained
Employees with the same benefits that accrue to employees of Parent and its
subsidiaries. In addition, for a period of 12 months following the Effective
Time, Parent shall, or shall cause the Surviving Corporation to, either (a)
maintain the effectiveness of the Tide West Employee Benefit Plans for the
benefit of the Retained Employees or (b) provide the Retained Employees with the
rights and benefits of Parent's employee benefit plans. With respect to
employees of the Tide West Companies who are not Retained Employees, Parent
shall, for a period of 18 months following the Effective Time, either (a)
maintain the Tide West health benefit plans for the benefit of such persons, or
(b) provide such persons with the rights and benefits of Parent's employee
health benefit plans; provided, that Parent shall not be required to pay the
premiums for coverage under such plans for any such persons, except to the
extent provided in any severance agreement agreed to by the Tide West Companies
and Parent. Parent further agrees that the Retained Employees shall be credited
for their service with the Tide West Companies, and their respective predecessor
entities, for purposes of eligibility and vesting in the employee plans provided
by Parent. The Retained Employees' benefits under Parent's medical benefit plan
shall not be subject to any exclusions for any pre-existing conditions, and
credit shall be received for any deductibles or out-of-pocket amounts previously
paid. Parent shall, or shall cause the Surviving Corporation to, fulfill all
coverage continuation obligations imposed by Section 4980B of the Code and
Section 601 of ERISA for those employees of the Tide West Companies who are not
Retained Employees. The provisions of this Section 5.16 are intended to be for
the benefit of, and shall be enforceable by, the
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parties hereto and the employees of the Tide West Companies covered by the Tide
West Employee Benefit Plans at the Effective Time and their respective heirs and
representatives.
5.17 RESTRUCTURING OF MERGER. If the condition to Closing set forth in Section
6.3(g) is not either satisfied or waived by Tide West, upon written notice from
Tide West delivered to Parent within 15 days after the approval of the Tide West
Proposal at both the Tide West Meeting and the Parent Meeting, the Merger shall
be restructured under Section 351 of the Code as a "Horizontal Double Dummy"
transaction whereby (a) the holders of Parent Common Stock would receive one
share of common stock ("Newco Common Stock") of a newly created holding company
("Newco") in exchange for each share of Parent Common Stock as a result of a
merger of a newly created subsidiary of Newco with and into Parent, and (b) the
holders of Tide West Common Stock would receive $8.75 and .6295 of a share of
Newco Common Stock for each share of Tide West Common Stock as a result of a
merger of another newly created subsidiary of Newco with and into Tide West. In
such event, this Agreement shall be deemed to be appropriately modified to
reflect such restructuring and the parties hereto shall use their reasonable
best efforts to effect such restructured transaction.
ARTICLE 6
CONDITIONS
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction, at or prior to the Closing Date, of the following conditions:
(a) STOCKHOLDER APPROVAL. The Tide West Proposal shall have been duly
and validly approved and adopted by the stockholders of Tide West and Parent,
all as required by the DGCL and the charter and bylaws of Tide West and Parent.
(b) OTHER APPROVALS. The waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated and all filings required to be made prior to the Effective Time with,
and all consents, approvals, permits and authorizations required to be obtained
prior to the Effective Time from, any Governmental Authority or other person in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by Tide West, Parent and
Merger Sub shall have been made or obtained (as the case may be), except where
the failure to obtain such consents, approvals, permits and authorizations would
not be reasonably likely to result in a Material Adverse Effect on Parent
(assuming the Merger has taken place) or to materially adversely affect the
consummation of the Merger.
(c) SECURITIES LAW MATTERS. The Registration Statement shall have
been declared effective by the SEC under the Securities Act and shall be
effective at the Effective Time, and no stop order suspending such effectiveness
shall have been issued, no action, suit, proceeding or investigation by the SEC
to suspend such effectiveness shall have been initiated and be continuing,
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and all necessary approvals under state securities laws relating to the issuance
or trading of the Parent Common Stock to be issued in the Merger shall have been
received.
(d) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that prior to
invoking this condition, each party shall have complied fully with its
obligations under Section 5.9 and, in addition, shall use all reasonable efforts
to have any such decree, ruling, injunction or order vacated, except as
otherwise contemplated by this Agreement.
(e) ACCOUNTANTS' LETTER. Parent and Tide West shall have received a
letter from Arthur Andersen & Co., immediately prior to the Effective Date, in
form and substance reasonably satisfactory to each of Parent and Tide West,
dated as of the Effective Date, which letter shall address matters as are
customary for transactions similar to those contemplated in this Agreement.
(f) NYSE LISTING. The shares of Parent Common Stock issuable pursuant
to the Merger shall have been authorized for listing on the NYSE, subject to
official notice of issuance.
6.2 CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB. The obligations
of Parent and Merger Sub to effect the Merger are subject to the satisfaction of
the following conditions, any or all of which may be waived in whole or in part
by Parent and Merger Sub:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Tide West set forth in Article 3 shall be true and correct in all
material respects as of the Closing Date as though made on and as of that time,
and Parent shall have received a certificate signed by the chief executive
officer of Tide West to such effect; provided, however, that the condition set
forth in this Section 6.2(a) shall be deemed to be satisfied even if one or more
of such representations and warranties (without giving effect to the individual
materiality thresholds otherwise included as a part of such representations and
warranties) are not true and correct, so long as the failure of such
representations and warranties (without giving effect to the individual
materiality thresholds otherwise included as a part of such representations and
warranties) to be true and correct (in the aggregate) does not result in (i)
damages or losses to Parent, (ii) a net reduction in the aggregate value of the
assets of the Tide West Companies (with respect to Ownership Interests, as
determined by reference to the Allocated Values) or (iii) reduction in the
aggregate net value of the assets of the Tide West Companies resulting from the
items and matters set forth in Section 3.13 of the DISCLOSURE SCHEDULE, in an
aggregate amount for clauses (i), (ii) and (iii) (the "FAILURE AMOUNT") that
exceeds $10,000,000; provided, that to the extent the Failure Amount exceeds
$5,000,000, the aggregate cash portion of the consideration to be paid to the
holders of shares of Tide West Common Stock in connection with the Merger shall
be reduced by an amount (not to exceed $5,000,000) by which the Failure Amount
exceeds $5,000,000 (and the Cash Consideration per share of Tide West Common
Stock shall be proportionately reduced); provided further, that to the extent
the Failure Amount exceeds $10,000,000, Parent may elect to close the Merger
after effecting the reduction contained in the immediately preceding proviso.
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(b) PERFORMANCE OF COVENANTS AND AGREEMENTS BY TIDE WEST. Tide West
shall have performed in all material respects all covenants and agreements
required to be performed by it under this Agreement at or prior to the Closing
Date, and Parent shall have received a certificate signed by the chief executive
officer of Tide West to such effect.
(c) LETTERS FROM TIDE WEST AFFILIATES. Parent shall have received
from each Person named in the list referred to in Section 5.10 an executed copy
of the agreement described in Section 5.10.
(d) NO ADVERSE CHANGE. From the date of this Agreement through the
Closing, there shall not have occurred any change in the condition (financial or
otherwise), operations or business of any of the Tide West Companies that would
have or would be reasonably likely to have a Material Adverse Effect on Tide
West (other than changes, including changes in commodity prices, generally
affecting the oil and gas industry).
(e) FAIRNESS OPINION. The fairness opinion described in Section
5.6(a) shall not have been withdrawn, revoked, or modified.
(f) TAX OPINION. The tax opinion described in Section 5.6(b) shall
not have been withdrawn, revoked or modified.
(g) DISSENTING STOCKHOLDERS. The holders of no more than three
percent of the Tide West Common Stock shall have exercised their right to
dissent from the Merger under the DGCL.
(h) LEGAL OPINION. Parent and Merger Sub shall have received an
opinion of Conner & Winters, a Professional Corporation, counsel for Tide West,
dated the Closing Date,
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in form and substance reasonably acceptable to Parent, covering the subjects set
forth in Sections 3.1, 3.2, 3.3, 3.4 and 3.5.
6.3 CONDITIONS TO OBLIGATION OF TIDE WEST. The obligation of Tide West to
effect the Merger is subject to the satisfaction of the following conditions,
any or all of which may be waived in whole or in part by Tide West:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent and Merger Sub set forth in Article 4 shall be true and
correct in all material respects as of the Closing Date as though made on and as
of that time, and Tide West shall have received a certificate signed by the
chief executive officer or the chief financial officer of Parent to such effect.
(b) PERFORMANCE OF COVENANTS AND AGREEMENTS BY PARENT AND MERGER SUB.
Parent and Merger Sub shall have performed in all material respects all
covenants and agreements required to be performed by them under this Agreement
at or prior to the Closing Date, and Tide West shall have received a certificate
signed by the chief executive officer or the chief financial officer of Parent
to such effect.
(c) FAIRNESS OPINION. The fairness opinion described in Section
5.5(a) shall not have been withdrawn, revoked, or modified.
(d) TAX OPINION. The tax opinion described in Section 5.5(b) shall
not have been withdrawn, revoked, or modified.
(e) NO ADVERSE CHANGE. From the date of this Agreement through the
Closing, there shall not have occurred any change in the condition (financial or
otherwise), operations or business of Parent and its subsidiaries that would
have or would be reasonably likely to have a Material Adverse Effect on Parent
(other than changes, including changes in commodity prices, generally affecting
the oil and gas industry).
(f) LEGAL OPINION. Tide West shall have received an opinion of the
general counsel of Parent, dated the Closing Date, in form and substance
reasonably acceptable to Tide West, covering the subjects set forth in Sections
4.1, 4.2, 4.3 and 4.4.
(g) MAXIMUM NUMBER OF SHARES. The adjustments to the Cash
Consideration and the Conversion Number pursuant to the formulas set forth in
Section 2.4(b)(i) (other than the last proviso thereof) would result in the
issuance of not more than 7,161,312 shares of Parent Common Stock in connection
with the Merger.
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ARTICLE 7
TERMINATION
7.1 TERMINATION RIGHTS. This Agreement may be terminated and the Merger may
be abandoned at any time prior to the Effective Time, whether before or after
approval of the Tide West Proposal by the stockholders of Tide West:
(a) By mutual written consent of Parent and Tide West;
(b) By either Tide West or Parent if (i) the Merger has not been
consummated by July 31, 1996 (provided, however, that the right to terminate
this Agreement pursuant to this clause (i) shall not be available to any party
whose breach of any representation or warranty or failure to perform any
covenant or agreement under this Agreement has been the cause of or resulted in
the failure of the Merger to occur on or before such date); (ii) any
Governmental Authority shall have issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have become final
and nonappealable (provided, however, that the right to terminate this Agreement
pursuant to this clause (ii) shall not be available to any party until such
party has used all reasonable efforts to remove such injunction, order or
decree); or (iii) the Tide West Proposal shall not have been approved by the
required vote of (A) the Tide West stockholders at the Tide West Meeting or at
any adjournment thereof, or (B) the Parent stockholders at the Parent Meeting or
at any adjournment thereof;
(c) By Parent if (i) there has been a breach of the representations
and warranties made by Tide West in Article 3 of this Agreement (provided,
however, that Parent shall not be entitled to terminate this Agreement pursuant
to this clause (i) unless Parent has given Tide West at least 30 days prior
notice of such breach, Tide West has failed to cure such breach within such 30-
day period, and the condition described in Section 6.2(a), other than the
provision thereof relating to the certificate signed by the chief executive
officer of Tide West, would not be satisfied if the Closing were to occur on the
day on which Parent gives Tide West notice of such termination); or (ii) Tide
West has failed to comply in any material respect with any of its covenants or
agreements contained in this Agreement and such failure has not been, or cannot
be, cured within a reasonable time after notice and demand for cure thereof;
(d) By Tide West if (i) there has been a breach of the representations
and warranties made by Parent and Merger Sub in Article 4 of this Agreement
(provided, however, that Tide West shall not be entitled to terminate this
Agreement pursuant to this clause (i) unless Tide West has given Parent at least
30 days prior notice of such breach, Parent has failed to cure such breach
within such 30-day period, and the condition described in Section 6.3(a), other
than the provision thereof relating to the certificate signed by the chief
executive officer of Parent, would not be satisfied if the Closing were to occur
on the day on which Tide West gives Parent notice of such termination); or (ii)
Parent or Merger Sub has failed to comply in any material respect with any of
its respective covenants or agreements contained in this Agreement, and, in
either such case, such breach or failure has not been, or cannot be, cured
within a reasonable time after notice and a demand for cure thereof;
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(e) By Tide West if (i) Tide West is prepared to enter into a binding
definitive agreement to effect an Alternative Transaction; and (ii) Tide West
has given Parent at least three business days' prior notice of its intention to
terminate this Agreement pursuant to this Section 7.1(e) (along with a
description of all relevant terms and conditions of such Alternative
Transaction), during which period Parent shall have the opportunity to propose
amendments or modifications to the terms of the Merger; or
(f) By Parent if the board of directors of Tide West shall have failed
to recommend adoption of the Tide West Proposal at the time the Proxy
Statement/Prospectus is first mailed to stockholders of Tide West or shall have
amended or withdrawn any such recommendation and such recommendation is not
reinstated in its prior form within five business days after such amendment or
withdrawal.
7.2 EFFECT OF TERMINATION. If this Agreement is terminated by either
Tide West or Parent pursuant to the provisions of Section 7.1, this Agreement
shall forthwith become void except for, and there shall be no further obligation
on the part of any party hereto or its respective Affiliates, directors,
officers, or stockholders except pursuant to, the provisions of Sections 5.3(c)
(but only to the extent of the confidentiality and indemnification provisions
contained therein), 5.7(c), 5.7(d), 5.13 and 7.3, Article 8 and the
Confidentiality Agreement (which shall continue pursuant to their terms);
provided, however, that a termination of this Agreement shall not relieve any
party hereto from any liability for damages incurred as a result of a breach by
such party of its representations, warranties, covenants, agreements or other
obligations hereunder occurring prior to such termination.
7.3 FEES AND EXPENSES. If this Agreement is terminated pursuant to
Section 7.1(e) or (f), Tide West shall promptly, but in no event later than one
business day after termination of this Agreement, pay to Parent a fee equal to
$5,000,000 in same day funds, plus interest on such amount from the date payable
until paid at a rate of eight percent per annum.
ARTICLE 8
MISCELLANEOUS
8.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations or warranties contained in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the consummation of the
Merger.
8.2 AMENDMENT. This Agreement may be amended by the parties hereto
at any time before or after approval of the Tide West Proposal by the
stockholders of Tide West; provided, however, that after any such approval, no
amendment shall be made that by law requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by a written instrument signed on behalf of each of the parties hereto.
8.3 NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and either delivered personally, by facsimile
transmission or by registered or certified mail (postage prepaid and return
receipt requested) and shall be deemed given when received (or, if mailed, five
business days after the date of mailing) at the following addresses
51
<PAGE>
or facsimile transmission numbers (or at such other address or facsimile
transmission number for a party as shall be specified by like notice):
(a) If to Parent or Merger Sub: HS Resources, Inc., One Maritime
Plaza, 15th Floor, San Francisco, CA 94111, Attention: Chief Executive Officer
(facsimile transmission number: 415-433-5811), with a copy (which shall not
constitute notice) to HS Resources, Inc., 1999 Broadway, Suite 3600, Denver, CO
80202, Attention: General Counsel (facsimile transmission number: 303-296-3601.
(b) If to Tide West: Tide West Oil Company, 6666 South Sheridan,
Suite 250, Tulsa, Oklahoma 74133-1750, Attention: Philip B. Smith, President
(facsimile transmission number: 918-481-0992), with a copy (which shall not
constitute notice) to Robert A. Curry, Conner & Winters, 2400 First Place Tower,
15 East 5th Street, Tulsa, Oklahoma 74103 (facsimile transmission number: 918-
586-8548).
8.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.5 SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
8.6 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
(together with the Confidentiality Agreement and the documents and instruments
delivered by the parties in connection with this Agreement) (a) constitutes the
entire agreement and supersedes all other prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof; and (b) except as provided in Article 2 or Section 5.3(c), 5.15 or 5.16,
is solely for the benefit of the parties hereto and their respective successors,
legal representatives and assigns and does not confer on any other person any
rights or remedies hereunder.
8.7 APPLICABLE LAW. This Agreement shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of Delaware regardless of the laws that might otherwise govern under
applicable principles of conflicts of laws thereof.
8.8 NO REMEDY IN CERTAIN CIRCUMSTANCES. Each party agrees that,
should any court or other competent authority hold any provision of this
Agreement or part hereof to be null, void or unenforceable, or order any party
to take any action inconsistent herewith or not to take an action consistent
herewith or required hereby, the validity, legality and enforceability of the
remaining provisions and obligations contained or set forth herein shall not in
any way be affected or impaired thereby, unless the foregoing inconsistent
action or the failure to take an action constitutes a material breach of this
Agreement or makes this Agreement impossible to
52
<PAGE>
perform, in which case this Agreement shall terminate pursuant to Article 7.
Except as otherwise contemplated by this Agreement, to the extent that a party
hereto took an action inconsistent herewith or failed to take action consistent
herewith or required hereby pursuant to an order or judgment of a court or other
competent Governmental Authority, such party shall not incur any liability or
obligation unless such party breached its obligations under Section 5.9 or did
not in good faith seek to resist or object to the imposition or entering of such
order or judgment.
8.9 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Merger Sub may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to any
newly-formed direct or indirect wholly-owned corporate subsidiary of Parent.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of and be enforceable by the parties and their respective successors
and assigns.
8.10 WAIVERS. At any time prior to the Effective Time, the parties
hereto may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto, and (c) waive performance
of any of the covenants or agreements, or satisfaction of any of the conditions,
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in a written instrument
signed on behalf of such party. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including any investigation by or on behalf of
any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereof shall not operate or be construed as a waiver of
any prior or subsequent breach of the same or any other provisions hereof.
8.11 CONFIDENTIALITY AGREEMENT. Parent agrees to be bound by the
terms of the Confidentiality Agreement as if it were a party thereto. The
Confidentiality Agreement shall remain in full force and effect following the
execution of this Agreement until terminated as described in Section 7.2, is
hereby incorporated herein by reference and shall constitute a part of this
Agreement for all purposes; provided, however, that any standstill provisions
contained therein will, effective as of the Closing, be deemed to have been
waived to the extent necessary for the parties to consummate the Merger in
accordance with the terms of this Agreement. Any and all information received
by Parent pursuant to the terms and provisions of this Agreement shall be
governed by the applicable terms and provisions of the Confidentiality
Agreement.
8.12 INCORPORATION. Exhibits and Schedules referred to herein are
attached to and by this reference incorporated herein for all purposes.
53
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives, on the date first written
above.
"Tide West" "Parent"
TIDE WEST OIL COMPANY HS RESOURCES, INC.
By: /s/ Robert H. Mase By: /s/ P. Michael Highum
------------------ ---------------------
Robert H. Mase P. Michael Highum
Vice President President
"Merger Sub"
HSR ACQUISITION, INC.
By: /s/ P. Michael Highum
---------------------
P. Michael Highum
President
54
<PAGE>
The following exhibits and schedules to the Agreement and Plan of Merger
have been omitted, and the Registrant agrees to furnish supplementally a copy of
any such omitted exhibits and schedules to the Securities and Exchange
Commission upon its request:
Exhibit 5.10 Form of Affiliate Letter
Exhibit 5.14 Registration Rights Agreement
Schedule 1.1(A) Allocated Values
Schedule 1.1(B) Ownership Interests
Disclosure Schedule (including Annexes A-P thereto)
55
<PAGE>
Exhibit 10.2
FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
---------------------------------------------------------------
This First Amendment to Second Amended and Restated Credit Agreement
("Amendment") is entered into as of December 21, 1995, among TIDE WEST OIL
COMPANY, a Delaware corporation ("Borrower"); UNION BANK ("Union Bank"), DEN
-------- ----------
NORSKE BANK AS ("Den norske"), COLORADO NATIONAL BANK ("Colorado National"),
---------- -----------------
TEXAS COMMERCE BANK, NATIONAL ASSOCIATION ("TCB") (each in its capacity as a
---
lender hereunder, together with each and every future holder of any Note,
hereinafter collectively referred to as "Lenders" and individually referred to
-------
as a "Lender"); and UNION BANK, as Agent ("Agent").
------ -----
W I T N E S S E T H:
-------------------
WHEREAS, Borrower, Lenders and Agent entered into that certain Second
Amended and Restated Credit Agreement dated as of June 15, 1995 (as the same may
be amended, restated, modified, ratified and/or supplemented from time to time,
the "Loan Agreement"); and
--------------
WHEREAS, Borrower has requested that Lenders consent to an amendment to the
Loan Agreement for the purpose set forth herein; and
WHEREAS, Lenders are willing to so amend the Loan Agreement upon the
satisfaction of the conditions precedent set forth herein.
NOW, THEREFORE, in consideration of the mutual promises herein contained
and for other valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
1. Terms. Unless otherwise defined herein, capitalized terms used in this
-----
Amendment shall have the meanings assigned to such terms in the Loan Agreement.
2. Amendments.
----------
(a) Definitions.
(i) The definition of "Base Rate" in Section 1.1 of the Loan Agreement is
hereby amended in its entirety to read as follows:
"`Base Rate' means the per annum rate of interest equal to the
---------
variable rate of interest per annum established from time to time by Agent
as its `reference rate' (which rate of interest may not be the lowest rate
charged on similar loans). The Base Rate shall in no event, however, exceed
<PAGE>
the Highest Lawful Rate."
(ii) The definition of "Commitment Period" in Section 1.1 of the Loan
-----------------
Agreement is hereby amended in its entirety to read as follows:
"`Commitment Period' means the period from and including the date
-----------------
hereof until and including April 30,1997 (or, if earlier, the day on which
the Notes first became due and payable in full); provided that Lenders may,
at their sole discretion, extend the Commitment Period as set forth in
Section 2.4."
(iii) The definition of "Fixed Rate" in Section 1.1 of the Loan Agreement
is hereby amended in its entirety to read as follows:
"`Fixed Rate' means, with respect to each particular Fixed Rate
----------
Portion and the associated Eurodollar Rate and Reserve Percentage, the rate
per annum calculated by Agent (rounded upwards, if necessary, to the next
higher 0.01%) determined on a daily basis pursuant to the following
formula:
Fixed Rate =
Eurodollar Rate + A
---------------------------
100.0% - Reserve Percentage
where A means (a) 0.78% for each day on which the Borrowing Base Ratio is
less than 40%, (b) 1.13% for each day on which the Borrowing Base Ratio is
equal to or greater than 40% but less than or equal to 70%, and (c) 1.38%
for each day on which the Borrowing Base Ratio is equal to or greater than
70%. The Fixed Rate for any Fixed Rate Portion shall change whenever A
changes, but if the Reserve Percentage changes during the Interest Period
for a Fixed Rate Portion, Agent may, at its option, either change the Fixed
Rate for such Fixed Rate Portion or leave it unchanged for the duration of
such Interest Period. The Fixed Rate shall in no event, however, exceed
the Highest Lawful Rate."
(b) Fees. Section 2.7(e) of the Loan Agreement is hereby amended in its
entirety to read as follows:
2
<PAGE>
"(e) Facility Fees. Borrower shall pay to Agent for the account of
-------------
each Lender, a fee equal to one-eighth of one percent (.125%) of the
incremental increase, if any, in the Borrowing Base established on any
Evaluation Date over the Borrowing Base in effect immediately prior
thereto."
(c) Covenant. Section 5.1(b)(vi) of the Loan Agreement is hereby amended
in its entirety to read as follows:
"(vi) Within forty-five (45) days following the end of each
Fiscal Quarter, a report describing by lease or unit the gross volume
of production and sales attributable to production during such periods
as specified by Agent from the properties described in subsection
(b)(iv) above and describing the related severance taxes, other taxes,
leasehold operating expenses and capital costs attributable thereto
and incurred during such Fiscal Quarter."
(d) Events of Default. Section 7.1 of the Loan Agreement is hereby amended
by adding the following clause "(i)" immediately following clause ("h") thereto:
"(i) the occurrence of any of the following: (i) a change in the
majority ownership of Borrower, or (ii) termination or replacement of a
majority of the directors of Borrower, or (iii) Natural Gas Partners, L.P.
divests of more than five percent (5%) of its stock ownership in Borrower,
which ownership is reflected in the certificate of stock ownership
delivered in connection with the First Amendment to Second Amended and
Restated Credit Agreement."
(e) No Additional Collateral. The following Section 9.12 is hereby added
to the Loan Agreement immediately following Section 9.11 thereof:
"Section 9.12. No Additional Collateral. Notwithstanding the
------------------------
provisions of Sections 5.1(p) and 6.2 of this Agreement, Lenders agree
not to request or require Borrower to execute any deeds of trust,
mortgages, chattel mortgages, security agreements or financing
statements covering any oil and gas properties not specifically
described in the Security Documents in existence on December 21,
1995."
(f) Exhibits. Exhibit A to the Loan Agreement is hereby amended in its
entirety to read as set forth on Exhibit A attached hereto.
3. Effective Date. This Amendment shall be effective as of the date
--------------
first above written (the "Effective Date") when all of the following shall have
--------------
occurred:
A. This Amendment shall have been executed and delivered by
Borrower, Lenders and Agent.
3
<PAGE>
B. Borrower shall have issued and delivered to Agent, for subsequent
delivery to each Lender, a Note with appropriate insertions in the form attached
hereto as Exhibit A payable to the order of such Lender on or before April 30,
1997 (such Notes herein called the "Renewal Notes").
C. A signed certificate of the secretary or an assistant secretary
of Borrower dated the date of this Amendment
4
<PAGE>
certifying that the resolutions adopted by the Board of Directors of Borrower,
as attached as Exhibit B to the Omnibus Certificate of Borrower dated June 15,
1995 have not been amended, modified or revoked in any respect and are in full
force and effect on the date hereof and certifying such other matters as
reasonably requested by Agent and Lenders.
D. A signed certificate of the President of Borrower dated the date
of this Amendment certifying the names and percentage of ownership of the
stockholders of Borrower.
4. Representations and Warranties. Borrower, without limiting the
------------------------------
representations and warranties provided in the Loan Agreement, hereby represents
and warrants, with respect to and as they shall be applied to this Amendment,
such representations and warranties as are contained in Article IV of the Loan
----------
Agreement as of the Effective Date and after giving effect to the transactions
contemplated hereby. All other factual information heretofore or
contemporaneously furnished by or on behalf of Borrower to Agent for purposes of
or in connection with this Amendment does not contain any untrue statement of a
material fact or omit to state any material fact necessary to keep the
statements contained herein or therein from being misleading.
Each of the foregoing representations and warranties shall constitute
a representation and warranty of Borrower made under the Loan Agreement, and it
shall be a Default if any such representation and warranty shall prove to have
been incorrect or false in any material respect at the time made. Each of the
representations and warranties made under the Loan Agreement (including those
made herein) shall survive and not be waived by the execution and delivery of
this Amendment or any investigation by Agent or any Lender.
5. Expenses. Borrower agrees to pay on demand all reasonable costs and
--------
expenses in connection with the preparation, reproduction, execution and
delivery of this Amendment and the Renewal Notes, including reasonable fees and
out-of-pocket expenses of counsel for Agent.
6. General. Except as amended by this Amendment, all terms and
-------
provisions of the Loan Agreement, all rights of Agent and the Lenders and all
obligations of Borrower shall remain in full force and effect and are hereby
ratified, adopted and confirmed in all respects. All references to the Loan
Agreement and any other agreement or document shall hereafter be deemed to refer
to such agreement as amended.
7. Multiple Counterparts. This Amendment may be executed in any number
---------------------
of counterparts, all of which taken together shall constitute one and the same
agreement, and any of the parties hereto may execute this Amendment by signing
any such counterpart.
8. Facsimile Execution. A facsimile, telecopy or other reproduction of
-------------------
this Amendment may be executed by one or more parties hereto, and an executed
copy of this Amendment may be delivered by one or more parties hereto by
facsimile or similar
5
<PAGE>
instantaneous electronic transmission device pursuant to which the signature of
or on behalf of such party can be seen, and such execution and delivery shall be
considered valid, binding and effective for all purposes. At the request of any
party hereto, all parties hereto agree to execute an original of this Agreement
as well as any facsimile, telecopy or other reproduction thereof.
9. WRITTEN LOAN AGREEMENT. THE LOAN AGREEMENT, AS AMENDED BY THIS
----------------------
AMENDMENT AND THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN
AND AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN AND AMONG THE PARTIES.
6
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
day and year first above written.
BORROWER
TIDE WEST OIL COMPANY
By: /S/ PHILIP B. SMITH
----------------------------------
Philip B. Smith
President
LENDERS
UNION BANK
By: /S/ MICHAEL E. TREGONING
----------------------------------
Michael E. Tregoning,
Senior Vice President
By: /S/ TONY R. WEBER
----------------------------------
Tony R. Weber,
Vice President
DEN NORSKE BANK AS
By: /S/ CHARLES E. HALL
----------------------------------
By: /S/ NILS FYKSE
----------------------------------
COLORADO NATIONAL BANK
By: /S/ KATHRYN A. GAITER
----------------------------------
Name: Kathryn A. Gaiter
---------------------------
Title: Vice President
--------------------------
7
<PAGE>
TEXAS COMMERCE BANK, NATIONAL
ASSOCIATION
By: /s/ TIMOTHY B. PERRY
----------------------------------
Name: Timothy B. Perry
---------------------------
Title: Senior Vice President
--------------------------
AGENT
UNION BANK
By: /S/ MICHAEL E. TREGONING
----------------------------------
Michael E. Tregoning,
Senior Vice President
By: /S/ TONY R. WEBER
----------------------------------
Tony R. Weber,
Vice President
8
<PAGE>
The following exhibit to the First Amendment to Second Amended and Restated
Credit Agreement has been omitted, and the Registrant agrees to furnish
supplementally a copy of such omitted exhibit to the Securities and Exchange
Commission upon its request:
Exhibit A Form of Promissory Note
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
State of Percentage Ownership
Name Organization of the Registrant
- ---- ------------ -----------------
<S> <C> <C>
Draco Petroleum, Inc. Oklahoma 100 % of common stock
Tide West Trading &
Transport Company Oklahoma 100 % of common stock
Horizon Gas Partners, L.P. Delaware 95% limited partnership
interest
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-57868 and No. 33-60883 on Form S-3 and No. 33-73020 on Form S-8 of Tide West
Oil Company, of our report dated February 26, 1996 (which report expresses an
unqualified opinion and includes an explanatory paragraph referring to the 1993
change in the method of accounting for income taxes) appearing in this Annual
Report on Form 10-K of Tide West Oil Company for the year ended December 31,
1995.
DELOITTE & TOUCHE LLP
Tulsa, Oklahoma
March 25,1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
------------------------------------------
We hereby consent to the references to our firm in the form and context in
which they appear in the Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, being filed by Tide West Oil Company and to the use of
information from our reports dated March 4, 1994, and March 1, 1995, setting
forth our estimates for a portion of the oil and gas reserves and revenue of
Tide West Oil Company, as of December 31, 1993, and December 31, 1994,
respectively. We hereby further consent to the incorporation by reference in
Registration Statements No. 33-57868 and No. 33-60883 on Form S-3 and No. 33-
73020 on Form S-8 of Tide West Oil Company of such information with respect to
the Tide West Oil Company oil and gas reserves and revenue, as of December 31,
1993, and December 31, 1994, respectively.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By:/s/ Frederic D. Sewell
----------------------
Frederic D. Sewell
President
Dallas, Texas
March 25, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,744
<SECURITIES> 0
<RECEIVABLES> 19,455
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,708
<PP&E> 151,536
<DEPRECIATION> 33,090
<TOTAL-ASSETS> 144,397
<CURRENT-LIABILITIES> 20,338
<BONDS> 0
0
0
<COMMON> 98
<OTHER-SE> 74,408
<TOTAL-LIABILITY-AND-EQUITY> 144,397
<SALES> 119,435
<TOTAL-REVENUES> 119,435
<CGS> 0
<TOTAL-COSTS> 106,828
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,186
<INCOME-PRETAX> 10,687
<INCOME-TAX> 4,016
<INCOME-CONTINUING> 6,671
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,671
<EPS-PRIMARY> .67
<EPS-DILUTED> .65
</TABLE>
