SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: (Date of earliest event reported): October 28, 1996
WRT ENERGY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 1-10753
(STATE OF INCORPORATION) (COMMISSION FILE NUMBER)
72-1133320
(IRS EMPLOYER IDENTIFICATION NO.)
5718 WESTHEIMER, SUITE 1201
HOUSTON, TEXAS 77057
(ADDRESS OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
713/706-3295
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(NOT APPLICABLE)
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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ITEM 5. OTHER EVENTS
GENERAL
On October 28, 1996, WRT Energy Corporation ("WRT" or the "Company")
entered into a preliminary letter agreement with DLB Oil & Gas, Inc. ("DLB") and
Wexford Management LLC, on behalf of its affiliated investment funds ("Wexford")
pursuant to which the Company accepted a proposal by DLB and Wexford for DLB and
Wexford to sponsor and fund a plan of reorganization (the "DLBW Proposal") in
the Company's Chapter 11 bankruptcy case pending before the United States
Bankruptcy Court for the Western District of Louisiana, Lafayette-Opelousas
Division (the "Court"). Wexford and DLB, and the joint venture that they propose
to form for purposes of the transactions described below, are collectively
referred to as the "DLBW Proponent." The preliminary letter agreement entered
into by the Company, DLB and Wexford is referred to as the "Letter Agreement."
The Letter Agreement was reached after an extensive search undertaken by
Jefferies & Company, Inc. and the Company's management, for, and negotiations
with, other qualified parties which had expressed an interest in or made an
offer to buy or reorganize the Company. The Company has been advised by DLB and
Wexford that they collectively own a substantial portion of the Company's
13-7/8% Senior Notes (the "Senior Notes").
Approval of the DLBW Proposal is not assured. The DLBW Proposal is
subject to a number of significant conditions and uncertainties including the
approval of the Court for the payment by the Company to the DLBW Proponent of
certain expense reimbursements and "break-up" fees, the negotiation between the
Company and the DLBW Proponent of definitive agreements embodying the terms of
the DLBW Proposal (the "Definitive Agreements"), and to confirmation by the
Court of a final plan of reorganization in accordance with the DLBW Proposal.
Because of the many conditions and uncertainties surrounding the DLBW Proposal
and the Company's financial condition, it is likely that the DLBW Proposal
summarized herein will be amended or supplemented from time-to-time as events
develop. There can be no assurance whatsoever that negotiations critical to
implementation of the DLBW Proposal will yield Definitive Agreements
satisfactory to the Company or the DLBW Proponent, or that if Definitive
Agreements are reached, that the resulting plan of reorganization will be
approved by the Court on the terms set forth in the DLBW Proposal described
herein, or at all.
The Letter Agreement provides that only certain portions of it are to be
construed as legally binding on the parties; all other terms are expressly
stated to be non-binding. The portions of the Letter Agreement intended to be
legally binding are generally described below under the captions "Interim
Obligations," "Covenants of the Company," "Post-Petition Financing," "Expenses
and Break-Up Fee," "Confidentiality," and "Termination." The summary of the
Letter Agreement set forth herein is qualified in its entirety by the complete
Letter Agreement, a copy of which is included as Exhibit 10.1 to this Current
Report on Form 8-K.
INTERIM OBLIGATIONS
The DLBW Proponent and WRT have agreed to proceed promptly (i) to seek
approval from the Court for the incurrence of the obligations of the Company
summarized under the captions "Covenants of the Company" and "Expenses and
Break-Up Fee," (ii) to negotiate in good faith and
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seek approval from the Court of, and authorization for the Company to enter
into, definitive agreements embodying the post-petition financing described
under the caption "Post-Petition Financing," below, and (iii) to negotiate in
good faith with each other as to one or more Definitive Agreements and, as joint
proponents, to negotiate with other interested parties a consensual plan of
reorganization for WRT embodying the terms described under the caption "Summary
of Proposed Plan of Reorganization."
SUMMARY OF PROPOSED PLAN OF REORGANIZATION
The Letter Agreement states that the proposed plan of reorganization
must be on terms and conditions reasonably satisfactory to the DLBW Proponent,
and must contain the provisions summarized below:
STRUCTURE. The proposed plan of reorganization will be structured either
as a reorganization of the Company as it presently exists, or as an asset
purchase or stock acquisition by a company to be formed. In either case, the
post-reorganization entity is referred to herein as "New WRT." The Letter
Agreement states that the exact structure of the reorganization will be
determined in such a fashion as to maximize initial asset and operational
values. New WRT would continue to be a "public company." New WRT's
organizational documents would be amended to provide for appropriate board
representation and other protections for minority shareholders.
PROPOSED INVESTMENT. The DLBW Proponent would commit to make a
significant cash/equity investment of up to $21.0 million on the date on which
the Company's plan of reorganization (the "Plan") is consummated (the
"Consummation Date"), which would be used to purchase new common stock of New
WRT. The DLBW Proponent's commitment is proposed to be made in connection with a
rights offering pursuant to which additional new common stock of New WRT will be
issued and sold. The DLBW Proponent and the holders of the Company's 13-7/8%
Senior Notes (the "Bondholders") and its other unsecured creditors holding
allowed claims would be entitled to participate in the rights offering. The DLBW
Proponent would commit to (i) exercise its rights as a Bondholder to purchase
the new common stock of New WRT and (ii) purchase all such new common stock not
purchased by the Bondholders and other unsecured creditors of WRT. The proceeds
from the sale of all such new common stock would be used to fund the payments
required to be made pursuant to the Plan, as well as for the general corporate
purposes of New WRT.
ADMINISTRATIVE AND PRIORITY CLAIMS. All Administrative and Priority
Claims allowed by the Court under bankruptcy law would be paid in cash in full
on the effective date of the Plan, including certain claims for unpaid royalty
payments, if such claims are not classified as unsecured claims by the Court.
The Company has obtained Court approval of an employee bonus plan to offer
incentives for its employees to remain in the employ of the Company through its
bankruptcy proceeding and the Letter Agreement states that such bonus payments
will be treated as priority claims.
INCC SECURED CLAIM. The claim of Internationale Nederlanden (U.S.)
Capital Corporation ("INCC") would be restructured on terms to be negotiated
with INCC or as permitted by the Court. INCC contends that the funds that it
lent to the Company (approximately $15.0 million of unpaid principal and accrued
interest of $2.0 million) are secured claims against the Company. Unless
otherwise permitted by the Court, INCC would retain its existing security
interests as security for
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repayment of the restructured loan. In the Letter Agreement, however, the DLBW
Proponent has specifically reserved its right to contest the existence,
validity, perfection and priority of INCC's asserted liens on the Company's
interest in the West Cote Blanche Bay Field in St. Mary Parish, Louisiana.
OTHER SECURED CLAIMS. All other allowed claims that are determined to be
secured by valid, enforceable and non-avoidable liens on assets of the Company
would be paid in full in cash under the Plan. These claims would include the
claims of all holders of liens other than INCC and Texaco, Inc.
("Texaco").
UNSECURED CLAIMS. Each Bondholder and each other holder of an allowed
unsecured claim would receive such holder's PRO RATA share of 10.0 million
shares of New WRT's new common stock and the right to purchase, at a price of
$3.50 per share, such holder's PRO RATA share of between 4.3 and 6.0 million
additional shares of New WRT's new common stock (for a minimum aggregate
purchase price of $15,050,000 and a maximum aggregate purchase price of
$21,000,000). As described above, the DLBW Proponent would commit to exercise
its rights as a Bondholder to purchase the new common stock of New WRT pursuant
to this rights offering, and would be entitled, and commit, to purchase all new
common stock offered pursuant to the rights offering but not purchased by the
Bondholders or other unsecured creditors.
LITIGATION CLAIMS. The holders of claims in the class action lawsuits
pending against the Company would be given the option to contribute their claims
(other than claims against current or former directors and/or officers of WRT)
to New WRT. New WRT may fund the further prosecution of the lawsuits, and the
proceeds from the lawsuits, if any, would be divided among New WRT, the current
or former Bondholders who have contributed their claims and the current or
former stockholders who have contributed their claims. In addition, the current
or former Bondholders and stockholders who have contributed their claims would
receive warrants, exercisable within five years of the Consummation Date, to
purchase 1% of the new common stock of New WRT at an exercise price of $10.00
per share, and would also receive any New WRT warrants described under the
caption "--Pre-Petition Stockholders," below but not distributed to the
pre-petition stockholders as set forth therein. The holders of claims in the
class action who have NOT contributed their claims would receive the treatment
described under the caption "--Pre-Petition Stockholders."
PRE-PETITION STOCKHOLDERS. All rights and interests of the Company's
pre-petition holders of the Company's Common Stock and its Series A 9%
Convertible Preferred Stock will be terminated under the Plan; such stockholders
would, therefore, have no further interest in New WRT. If, however, all classes
of unsecured creditors and pre-petition stockholders vote to accept the Plan,
the holders of claims in the class action who have not contributed their claims
and the Company's pre-petition common and preferred stockholders would receive
warrants, exercisable within five years of the Consummation Date, to purchase an
aggregate of 4% of New WRT's new common stock, at an exercise price of $10.00
per share. The Board of Directors of the Company would determine the allocation
of such warrants between the holders of pre-petition Common Stock, par value
$.01 per share, of the Company and the holders of pre-petition Series A 9%
Convertible Preferred Stock of the Company. If any class of unsecured creditors
rejects the Plan, the pre-petition common and preferred stockholders would
receive no distributions, and the warrants would be distributed as described
under "--Litigation Claims," above.
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TEXACO AND WEST COTE BLANCHE BAY. The Plan would be conditioned on,
among other things, either (i) the entry, on or before the date on which the
Court confirms the Plan, by the Court of an order permitting (A) the rejection
by the Company of the Contract Area Operating Agreement (the "CAOA") with Texaco
without the loss by the Company of its leasehold interest in both the shallow
and deep rights with respect to the West Cote Blanche Bay field ("WCBB"), (B)
the termination by the Company of the CAOA without the loss by the Company of
its leasehold interest in WCBB, or (C) the sale, pursuant to 11 U.S.C. ss.
363(h), of all interests in the WCBB shallow rights held by the parties to the
CAOA, or (ii) a consensual arrangement with Texaco as to the CAOA and the
Company's leasehold interest in WCBB satisfactory to the DLBW Proponent in its
sole discretion.
DLB SPECIAL SERVICES AGREEMENT. The Company would enter into a
three-year agreement with DLB pursuant to which DLB will provide certain
services (including accounting and geophysical services) to the Company for a
fee to be agreed. The terms of the services agreement will be negotiated on an
arm's length basis, and must be satisfactory to the Company, DLB and the DLBW
Proponent or otherwise approved by the Court as reasonable.
MANAGEMENT OF REORGANIZED COMPANY. The Board of Directors of New WRT
would, for at least three years following the Consummation Date, consist of five
members. Regardless of the initial percentage ownership of the new common stock
of New WRT, the DLBW Proponent would have the right, for three years following
the Consummation Date, to designate three members of New WRT's Board of
Directors; the remaining two members would be designated by the Company's
Official Committee of Unsecured Creditors, but must be reasonably acceptable to
the DLBW Proponent. As a result, the Letter Agreement states, it is expected
that senior management will include designees of the DLBW Proponent, and that it
is likely to include some members of the current senior management of the
Company. Prior to the filing of the Plan and the disclosure statement with
respect thereto, the parties to the Letter Agreement plan to finalize the basic
terms and conditions of any proposed arrangement regarding senior management,
which is likely to be memorialized in one or more employment agreements, the
terms of which would be disclosed and/or approved as required by applicable law.
EMPLOYEE STOCK OPTION PLAN. The Letter Agreement states that the DLBW
Proponent will consider the creation of an employee stock option plan for New
WRT. If such a plan is created, there would be, as of the effective date of the
Plan, 300,000 shares of common stock of New WRT that will be authorized to be
issued pursuant to such plan at a price of $3.50 per share. The date of issuance
of such shares, and the vesting period under the employee stock option plan,
would be determined by the Board of Directors of New WRT at any time after the
effective date of the Plan.
FUNDING FOR PLAN DISTRIBUTIONS. The distributions to be made under the
Plan and the amount of available working capital as of the effective date of the
Plan is proposed to be funded from the amounts raised through the rights
offering, the amount invested by the DLBW Proponent's commitment to purchase the
balance of the common stock not purchased in the proposed rights offering, and
WRT's unencumbered cash.
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COVENANTS OF THE COMPANY
Under the Letter Agreement, the Company has agreed that until the
earlier of the termination of the Letter Agreement or the Consummation Date:
(a) the Company will conduct its business only, and will not take
any action except in the ordinary course of business and in a manner
consistent with past practice and, subject to the applicable provisions
of the Bankruptcy Code and the orders of the Court, the Company will use
its reasonable efforts to preserve substantially intact its assets and
business organization;
(b) the Company will not amend its Certificate of Incorporation
or Bylaws or change its authorized or outstanding capital stock;
(c) except as set forth in the motion seeking approval of certain
employee bonuses previously filed with the Court, and except in amounts
that individually or in the aggregate are not material, the Company will
not (i) grant to any director or officer or to any employee or
consultant any increase in compensation in any form, (ii) grant to any
such person any severance or termination pay or benefit, or (iii) make
any loan or advance to, or enter into, amend, modify, terminate or renew
any compensation benefit or employment agreement or arrangement with,
any such person;
(d) the Company will promptly notify the DLBW Proponent of (i)
the occurrence of any change, event or condition that has had, or could
reasonably be expected to have, an effect that is materially adverse to
the business, results of operation, properties, assets, liabilities or
prospects of the Company, (ii) the commencement or threat of
commencement of any litigation that might reasonably be expected to have
such an effect or (iii) any change in the management of the Company; and
(e) the Company will not take any action inconsistent with the
terms of the DLBW Proposal or this letter agreement without the prior
written consent of, and without giving prior written notice to, the DLBW
Proponent.
It should be noted that a possible effect of the Company's agreements
under clause (e) above and its agreement to pay expense reimbursement and
break-up fees (as described below) could be to discourage other potential
parties from submitting competing plans of reorganization to the Company that
require the cooperation of the Company.
CONDITIONS TO THE DLBW PROPOSAL
The obligation of the DLBW Proponent to effect the DLBW Proposal is
subject to the satisfaction or waiver by the DLBW Proponent of each of the
following conditions:
(a) the execution and delivery on or before March 31, 1997, of
Definitive Agreements containing the terms and conditions set forth in
the Letter Agreement and such other indemnities, covenants,
representations and warranties and such other terms and
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conditions (including customary "non-solicitation" provisions and the
expense reimbursement, and "break-up fee" provisions described below) as
shall be reasonably satisfactory to the DLBW Proponent; the
representations and warranties of the Company set forth in the
Definitive Agreements shall be true and correct in all material respects
on the Consummation Date and have performed all of its obligations
required to have been performed on or before the Consummation Date;
(b) there shall have occurred no change, condition or event
(including, without limitation, the institution of litigation) that has
had or, in the judgment of the DLBW Proponent, would reasonably be
expected to have, an effect that is materially adverse to the business,
results of operation, properties, assets, liabilities or prospects of
the Company or to the value to the DLBW Proponent of the investment to
be made pursuant to the DLBW Proposal. The DLBW Proponent would have no
obligation to consummate the DLBW Proposal if any information furnished
to it by the Company including, without limitation, the information
contained in the Annual Report on Form 10-K for the year ended December
31, 1995, or on the Quarterly Report on Form 10-Q for the three months
ended September 30, 1995, or in monthly financial reports of the periods
subsequent to September 30, 1995, contains an untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading; and
(c) the Plan shall be consistent with the provisions discussed
above in "Summary of Proposed Plan of Reorganization," a disclosure
statement relating to the Plan shall have been filed with the Court on
or prior to December 15, 1996; the Plan shall have been confirmed by the
Court pursuant to a confirmation order entered on or prior to March 31,
1997; the order approving the disclosure statement and order confirming
the Plan shall be in form and substance reasonably satisfactory to the
DLBW Proponent; and the Consummation Date shall have occurred on or
prior to April 30, 1997.
POST-PETITION FINANCING
The offer of the DLBW Proponent to provide the Company with
post-petition financing, should the Company pursue said financing, pursuant to
the terms of a draft Revolving Credit Agreement (the "Credit Proposal")
distributed on September 9, 1996 to INCC, Texaco and the Company's Official
Committee of Unsecured Creditors is extended by the Letter Agreement until
December 15, 1996. The post-petition financing under the Credit Proposal would
be repaid by crediting the loans outstanding against the amount paid by the DLBW
Proponent for the new common stock of New WRT purchased by it in the rights
offering. If the Plan is not confirmed or consummated the post-petition
financing would be repaid in cash.
EXPENSES AND BREAK-UP FEE
The reasonable out-of-pocket expenses (including, without limitation,
the reasonable fees and expenses of counsel and other advisors to the DLBW
Proponent) incurred in connection with the preparation, negotiation and
consummation of the DLBW Proposal, the Definitive Agreements and the Plan would
be for the Company's account under the DLBW Proposal and, upon approval by the
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Court, would be an allowed administrative expense claim under section
503(b)(1)(A) of the Bankruptcy Code, whether or not the transactions
contemplated by the DLBW Proposal are consummated. If such transactions are not
consummated as a result of the material breach by the DLBW Proponent of its
obligations under the Definitive Agreements, the Company would have no
obligation to pay the fees and expenses of the DLBW Proponent. Payment of costs
and expenses would be made from time to time promptly, and in no event later
than 15 days, following written demand therefor by the DLBW Proponent
accompanied by appropriate invoices. Any costs and expenses paid to the DLBW
Proponent for which it is not eligible because of its breach of the Definitive
Agreements would be promptly returned to the Company. The obligation of the
Company to reimburse the DLBW Proponent for its costs and expenses are not to
exceed $500,000; PROVIDED, HOWEVER, that the DLBW Proponent and the Company each
reserve their rights to seek to increase the maximum permitted amount of the
expense reimbursement.
If (i) the Company breaches any of its material obligations under the
Definitive Agreements, (ii) the Company reaches an agreement in principle with
respect to, accepts a commitment for the purchase of, contracts to sell or sells
the Company or a material portion of its assets or operations, or debt or equity
securities of the Company, to any person other than the DLBW Proponent or
persons approved by the DLBW Proponent, or terminates the Definitive Agreements
for any reason other than as a result of a material breach thereof by the DLBW
Proponent, or (iii) a plan of reorganization for the Company other than the Plan
is confirmed (collectively, a "Break-Up Event"), the Company shall pay to the
DLBW Proponent, in addition to the reimbursement of out-of-pocket expenses
described above, a fee (the "Break-Up Fee") in the amount of $1,000,000, payable
promptly, and in no event later than 15 days, following written demand therefor
by the DLBW Proponent. The Break-Up Fee is agreed to be an administrative
expense claim under section 503(b)(1)(A) of the Bankruptcy Code. The Break-Up
Fee would be payable to the DLBW Proponent if, and only if, at the occurrence of
the Break-Up Event, the DLBW Proponent shall have not theretofore exercised any
right or stated its intent to terminate or not perform its obligations under the
Definitive Agreements, except as a consequence of the failure of the Company to
perform its material obligations under the Definitive Agreements.
The obligations of the Company to pay the Break-Up Fee and expenses to
the DLBW Proponent are subject to and conditioned upon approval by the Court of
such provisions. The DLBW Proposal (whether or not previously accepted by the
Company) and the obligations of the DLBW Proponent hereunder and under the
Definitive Agreements shall terminate if such approval has not been obtained
from the Court on or prior to November 12, 1996. The Company has agreed to use
its best efforts to obtain such approval and has agreed to submit motion papers
for such approval to the Court on October 30, 1996.
CONFIDENTIALITY
The Letter Agreement states that no information concerning the DLBW
Proposal or the Letter Agreement, or any discussions in connection therewith,
may be disclosed by the Company without the prior written approval of the DLBW
Proponent, except disclosure pursuant to an order of the Court or disclosure
reasonably required in connection with motions or other pleadings required to be
filed by the Company by the others of the Letter Agreement or in connection with
the DLBW Proposal. Similarly , the Letter Agreement provides that neither the
Company nor the DLBW
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Proponent will issue any press releases or similar statement without the prior
approval of the other party, which approval is not to be unreasonably withheld.
TERMINATION
The DLBW Proposal and the Letter Agreement may be terminated by mutual
consent of the Company and the DLBW Proponent at any time prior to the execution
of Definitive Agreements. In addition, the DLBW Proposal and the Letter
Agreement may be terminated by the DLBW Proponent by written notice to the
Company in the event (i) the Definitive Agreements have not been executed and
delivered by the Company on or before March 31, 1997, (ii) any of the conditions
to the obligations of the DLBW Proponent to consummate the DLBW Proposal cannot
be satisfied (unless such condition has previously been waived in writing by the
DLBW Proponent) or (iii) a Break-Up Event occurs. The provisions of expense
reimbursement and Break-Up Fee Provisions of the Letter Agreement and certain
confidentiality agreements are to survive any such terminations.
SIGNATURE
Pursuant to the requirements 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.
Date: November 5, 1996
WRT ENERGY CORPORATION
By: /s/ RAYMOND P. LANDRY
Raymond P. Landry
Chairman and Chief Executive Officer
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EXHIBITS TO
CURRENT REPORT ON
FORM 8-K
OF
WRT ENERGY CORPORATION
EXHIBIT NO. DESCRIPTION
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Letter agreement by and among WRT Energy Corporation,
DLB Oil & Gas, Inc. and Wexford Management, LLC dated
10.1 October 22, 1996 and amended October 28, 1996.
10
EXHIBIT 10.1
DLB OIL & GAS, INC.
1601 N.W. Expressway, Suite 700
Oklahoma City, Oklahoma 73118-1401
October 16, 1996
STRICTLY CONFIDENTIAL
The Board of Directors
WRT Energy Corporation
5718 Westheimer, Suite 1201
Houston, Texas 77057
Attention: Raymond P. Landry
Chairman of the Board
Gentlemen:
DLB Oil & Gas, Inc. ("DLB") and Wexford Management LLC, on behalf of its
affiliated investment funds ("Wexford"; Wexford and DLB, and the joint venture
that they may form for the purposes hereof, being collectively the "DLBW
Proponent") are pleased to submit the following proposal (the "DLBW" Proposal")
to sponsor and fund a plan of reorganization for WRT Energy Corporation ("WRT"
or the "Company") to be proposed in WRT's chapter 11 case.
The DLBW Proposal is premised on the use of a significant equity
investment to allow the Company to develop and operate its assets in a manner so
as to maximize their value as compared to a sale of those assets in the near
term on an as is basis. The DLBW Proposal contemplates an equity investment by
the DLBW Proponent of up to $21 million (inclusive of the post-petition
financing set forth in section 5 below). The DLBW Proposal contemplates that the
DLBW Proponent's investment would be used to provide the Company with funds
sufficient to provide for the distributions to be made under the Plan (as
defined below) and to meet its working capital and
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The Board of Directors
October 16, 1996
Page 2
capital expenditure needs in accordance with a new business plan developed
jointly by the DLBW Proponent and the Company.
The DLBW Proposal will terminate automatically unless it is accepted by
WRT by delivery to the DLBW Proponent of an executed counterpart to this letter
by 5:00 p.m., Houston time, on October 22, 1996. If the DLBW Proponent is
accepted, the DLBW Proponent and WRT will proceed promptly (i) to seek approval
from the Court (as defined below) for the incurrence of the obligations of WRT
set forth in sections 3 and 6 hereof, (ii) to negotiate in good faith and seek
approval from the Court of, and authorization for WRT to enter into, definitive
agreements embodying the post-petition financing set forth in paragraph 5
hereof, and (iii) to negotiate in good faith with each other one or more
definitive agreements embodying the terms of the DLBW Proposal (the "Definitive
Agreements") and, as joint proponents, to negotiate with other interested
parties a consensual plan of reorganization for WRT embodying the terms of the
plan described herein.
The terms of the DLBW Proposal are as follows:
1. THE PROPOSAL INVESTMENT. The DLBW Proponent will commit to make a
significant investment of up to $21 million in WRT on the date on which WRT's
plan of reorganization (the "Plan") is consummated (the "Consummation Date"),
which will be used to purchase new common stock of reorganized WRT ("New WRT").
The DLBW Proponent's commitment will be in connection with a rights offering
pursuant to which, as set forth in section 2(e) below, additional new common
stock of New WRT will be issued and sold. The DLBW Proponent and, as set forth
in
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The Board of Directors
October 16, 1996
Page 3
section 2(e) below, the holders of WRT's 13-7/8% Senior Notes (the
"Bondholders") and its own unsecured creditors (each holding allowed claims)
will be entitled to participate in the rights offering. The proceeds from the
sale of all such new common stock will be used to fund the payments required to
be made pursuant to the Plan, as described in section 2, as well as for the
general corporate purposes of New WRT.
The DLBW Proponent commits to (i) exercise its rights as a Bondholder to
purchase the new common stock of New WRT as set forth in section 2(e) and (ii)
purchase all such new common stock not purchased by the Bondholders and other
unsecured creditors of WRT.
2. THE PLAN OF REORGANIZATION. The Plan shall be on terms and conditions
reasonably satisfactory to the DLBW Proponent, and shall include the following
provisions:
(a) STRUCTURE. The Plan will be structured either as a
reorganization of the existing company, or as an asset or stock acquisition by a
company to be formed under the Plan. The exact structure will be determined in
such a fashion as to maximize the initial asset and operational values.
(b) ADMINISTRATIVE AND PRIORITY CLAIMS. All allowed
Administrative and Priority Claims will be paid in cash in full on the effective
date of the Plan.(1)
(c) INCC SECURED CLAIM. The claim of Internationale Nederlanden
(U.S.) Capital Corporation ("INCC") (which claim consists of unpaid principal of
approximately $15 million and accrued interest of approximately $2 million that
will be capitalized) will be restructured on terms to
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(1) Administrative claims are assumed to include royalty cure payments
that would be due if WRT loses its pending motion seeking to have these payments
classified as unsecured claims. Priority claims will include employee bonuses,
assuming that the Court approves WRT's proposed employee bonus plan.
<PAGE>
The Board of Directors
October 16, 1996
Page 4
be negotiated with INCC or as permitted by the Court. Unless otherwise permitted
by the Court, INCC will retain its existing security interests(2) as security
for repayment of the restructured loan.
(d) OTHER SECURED CLAIMS. All other allowed claims that are
determined to be secured by valid, enforceable and non-avoidable liens on assets
of WRT will be paid in full in cash. These claims include the claims of all
holders of liens other than INCC and Texaco, Inc. ("Texaco"), and are assumed to
include the claim of Tri-Core.
(e) UNSECURED CLAIMS. Each Bondholder and each other holder of an
allowed unsecured claim will receive such holder's PRO RATA share of 10 million
shares of New WRT's new common stock and the right to purchase, at a price of
$3.50 per share, such holder's PRO RATA share of between 4.3 and 6 million
additional shares of New WRT's new common stock (for a minimum aggregate
purchase price of $15,050,000 and a maximum aggregate purchase price of
$21,000,000). As set forth in section 1, the DLBW Proponent commits to exercise
its rights as a Bondholder to purchase the new common stock of New WRT pursuant
to this rights offering, and shall be entitled, and commits, to purchase all new
common stock offered pursuant to the rights offering but not purchased by the
Bondholders or other unsecured creditors.
(f) LITIGATION CLAIMS. The holders of claims in the class action
lawsuits will be given the option to contribute their claims (other than claims
against current or former directors and/or officers of WRT) to New WRT. New WRT
will fund the further prosecution of the lawsuits, and the proceeds from the
lawsuits will be divided among New WRT, the current or former Bondholders who
have contributed their claims and the current or former stockholders who have
contributed their claims. In addition, the current or former Bondholders and
stockholders who have contributed their claims will receive warrants,
exercisable within five years of the Consummation Date, to purchase 1% of the
new common stock of New WRT at an exercise price of $10.00 per share, and will
also receive any warrants provided for in section 2(g) but not distributed to
the pre- petition stockholders as set forth therein. The holders of claims in
the class action who have not contributed their claims will receive the
treatment described in section 2(g).
(g) PRE-PETITION STOCKHOLDERS. If all classes of unsecured
creditors and pre-petition stockholders vote to accept the Plan, the holders of
claims in the class action who have not contributed their claims and the
pre-petition common and preferred stockholders will receive warrants,
exercisable within five years of the Consummation Date, to purchase 4% of New
WRT's new common stock, at an exercise price of $10.00 per share. The board of
directors of WRT shall
- --------
(2) The DLBW Proponent reserves its right to challenge the existence,
validity, perfection and priority of INCC's asserted lien on WCBB (as defined
below).
<PAGE>
The Board of Directors
October 16, 1996
Page 5
determine in its discretion, the allocation of such warrants between the holders
of pre-petition common stock of WRT and the holders of pre-petition preferred
stock of WRT. If any class of unsecured creditors rejects the Plan, pre-petition
common and preferred stockholders will receive no distributions, and the
warrants will instead be distributed as set forth in section 2(f).
(h) TEXACO AND WEST COTE BLANCHE BAY. The Plan will be
conditioned on either (i) the entry, on or before the date on which the Court
confirms the Plan, by the Bankruptcy Court for the Western District of
Louisiana, Lafayette-Opelousas Division (the "Court") of an order permitting (A)
the rejection by WRT of the Contract Area Operating Agreement (the "CAOA") with
Texaco without the loss by WRT of its leasehold interest in both the shallow and
deep rights with respect to the West Cote Blanche Bay oil field ("WCBB"), (B)
the termination by WRT of the CAOA without the loss by WRT of its leasehold
interest in WCBB or (C) the sale, pursuant to 11 U.S.C. ss. 363(h), of all
interests in the WCBB shallow rights held by the parties to the CAOA, or (ii) a
consensual arrangement with Texaco as to the CAOA and WRT's leasehold interest
in WCBB satisfactory to the DLBW Proponent in its sole discretion.
(i) STRUCTURE OF REORGANIZED COMPANY. The Company, as
reorganized, will be a public company. In addition, the Company's organizational
documents will provide for appropriate board representation and other
protections for minority shareholders.
(j) DLB SPECIAL SERVICES AGREEMENT. In recognition of potential
cost savings and available expertise at DLB for certain services (such as
accounting and geophysical services), the Company will enter into a three-year
agreement with DLB pursuant to which DLB will provide such services to the
Company for a fee to be agreed. The terms of this agreement will be negotiated
on an arm's length basis, and must be satisfactory to WRT, DLB and the DLBW
Proponent or otherwise approved by the Court as reasonable.
(k) MANAGEMENT OF REORGANIZED COMPANY. The board of directors of
New WRT shall, at least three years following the Consummation Date, consist of
five members. Regardless of the initial percentage ownership of the new common
stock of New WRT, the DLBW Proponent shall have the right, for three years
following the Consummation Date, to designate three of the members of New WRT's
board of directors; the remaining two members shall be designated by WRT's
Official Committee of Unsecured Creditors, but must be reasonably acceptable to
the DLBW Proponent. As a result, it is expected that senior management will
include designees of the DLBW Proponent, and that it is likely to include some
members of the current senior management of New WRT. The parties hereto intend,
prior to the filing of the Plan and the disclosure statement with respect
thereto, to finalize the basic terms and conditions of any proposed arrangement
regarding senior management,
<PAGE>
The Board of Directors
October 16, 1996
Page 6
which is likely to be memorialized in one or more employment agreements, the
terms of which will be disclosed and/or approved as required by applicable law.
(l) EMPLOYEE STOCK OPTION PLAN. The DLBW Proponent will consider
the creation of an employee stock option plan for New WRT. If such a plan is
created, there shall be, as of the effective date of the Plan, 300,000 shares of
common stock of New WRT that will be authorized to be issued pursuant to such
plan at a price of $3.50 per share. The date of issuance of such shares, and the
vesting period under the employee stock option plan, shall be determined by the
board of directors of New WRT at any time after the effective date of the Plan.
(m) FUNDING FOR PLAN DISTRIBUTIONS. The distributions to be made
under the Plan and the amount of available working capital as of the effective
date of the Plan shall be funded from the amounts raised through the rights
offering, the amount invested by the DLBW Proponent's commitment pursuant to
section 1 and WRT's unencumbered cash.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees that until
the earlier of the termination of this letter agreement and the Consummation
Date:
(a) the Company will conduct its business only, and will not take
any action except in the ordinary course of business and in a manner consistent
with past practice with past practice and, subject to the applicable provisions
of the Bankruptcy Code and the orders of the Court, shall use its reasonable
efforts to preserve substantially intact its assets and business organization;
(b) the Company will not amend its Certificate of Incorporation
or By-Laws or change its authorized or outstanding capital stock;
(c) except as set forth in the motion seeking approval of certain
employee bonuses previously filed with the Court, and except in amounts that
individually or in the aggregate are not material, the Company will not (i)
grant to any director or officer or to any employee or consultant any increase
in compensation in any form, (ii) grant to any such person any severance or
termination pay or benefit, or (iii) make any loan or advance to, or enter into,
amend, modify, terminate or renew any compensation benefit or employment
agreement or arrangement with, any such person;
(d) the Company shall promptly notify the DLBW Proponent of (i)
the occurrence of any change, event or condition that has had, or could
reasonably be expected to have, an effect that is materially adverse to the
business, results of operation, properties, assets, liabilities or prospects of
the Company, (ii) the commencement or threat of commencement of any litigation
that might
<PAGE>
The Board of Directors
October 16, 1996
Page 7
reasonably be expected to have such an effect or (iii) any change in the
management of the Company; and
(e) the Company will not take any action inconsistent with the
terms of the DLBW Proposal or this letter agreement without the prior written
consent of, and without giving prior written notice to, the DLBW Proponent.
4. CONDITIONS TO THE DLBW PROPOSAL. The obligation of the DLBW Proponent
to effect the DLBW Proposal shall be subject to the satisfaction or waiver by
the DLBW Proponent of each of the following conditions:
(a) the execution and delivery on or before March 31, 1997 of
Definitive Agreements containing the terms and conditions set forth in this
letter agreement and such other indemnities, covenants, representations and
warranties and such other terms and conditions (including customary
"non-solicitation" provisions and the expense reimbursement, and break-up fee
provisions set forth in section 6 below) as shall be reasonably satisfactory to
the DLBW Proponent; the representations and warranties of WRT set forth therein
shall be true and correct in all material respects on the Consummation Date and
WRT shall have performed all of its obligations required to have been performed
on or before the Consummation Date;
(b) there shall have occurred no change, condition or event
(including, without limitation, the institution of litigation) that has had or,
in the judgment of the DLBW Proponent, would reasonably be expected to have, an
effect that is materially adverse to the business, results of operation,
properties, assets, liabilities or prospects of the Company or to the value to
the DLBW Proponent of the investment to be made pursuant to the DLBW Proposal.
The DLBW Proponent shall have no obligation to consummate the DLBW Proposal if
any information furnished to it by WRT including, without limitation, the
information contained in the Annual Report on Form 10-KSB for the year ended
December 31, 1995, or on the Quarterly Report on Form 10-Q for the three months
ended September 30, 1995, or in monthly financial reports for the periods
subsequent to September 30, 1995, contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and
(c) the Plan shall be consistent with the provisions of section 2
hereof; a disclosure statement relating to the Plan shall have been filed with
the Court on or prior to December 15, 1996; the Plan shall have been confirmed
by the Court pursuant to a confirmation order entered on or prior
<PAGE>
The Board of Directors
October 16, 1996
Page 8
to March 31, 1997; the order approving the disclosure statement and order
confirming the Plan shall be in form and substance reasonably satisfactory to
the DLBW Proponent; and the Consummation Date shall have occurred on or prior to
April 30, 1997.
5. POST-PETITION FINANCING. The offer of the DLBW Proponent to provide
the Company with post-petition financing pursuant to the terms of the draft
Credit Agreement distributed on September 9, 1996 to INCC, Texaco and the
Company's Official Committee of Unsecured Creditors shall be extended until
December 15, 1996. The post-petition financing will be repaid by crediting the
amount outstanding against the amount paid by the DLBW Proponent pursuant to
section 1 for the new common stock of New WRT. If the Plan is not confirmed or
consummated the post-petition financing will be repaid in cash.
6. EXPENSES AND BREAK-UP FEE. (i) The reasonable out-of-pocket expenses
(including, without limitation, the reasonable fees and expenses of counsel and
other advisors to the DLBW Proponent) incurred in connection with the
preparation, negotiation and consummation of the DLBW Proposal, the Definitive
Agreements and the Plan shall be for WRT's account and, upon approval by the
Court, shall be an allowed administrative expense claim under section
503(b)(1)(A) of the Bankruptcy Code, whether or not the transactions
contemplated by the DLBW Proposal are consummated; PROVIDED, THAT, if such
transactions are not consummated as a result of the material breach by the DLBW
Proponent of its obligations under the Definitive Agreements, WRT shall have no
obligation to pay the fees and expenses of the DLBW Proponent. Payment of costs
and expenses shall be made from time to time promptly, and in no event later
than 15 days, following written
<PAGE>
The Board of Directors
October 16, 1996
Page 9
demand therefor by the DLBW Proponent accompanied by appropriate invoices. Any
costs and expenses paid to the DLBW Proponent for which it is not eligible
pursuant to the proviso in the first sentence of this section 6(i) shall be
promptly returned to WRT. The obligation of WRT to reimburse the DLBW Proponent
for its costs and expenses shall not exceed $500,000; PROVIDED, HOWEVER, that
the DLBW Proponent and WRT shall each reserve their rights to seek to increase
the maximum permitted amount of the expense reimbursement pursuant to this
section 6(i).
(ii) If (x) WRT breaches any of its material obligations under
the Definitive Agreements, (y) WRT reaches an agreement in principle with
respect to, accepts a commitment for the purchase of, contracts to sell or sells
WRT or a material portion of its assets or operations, or debt or equity
securities of WRT, to any person other than the DLBW Proponent or persons
approved by the DLBW Proponent, or terminates the Definitive Agreements for any
reason other than as a result of a material breach thereof by the DLBW Proponent
or (z) a plan of reorganization for WRT other than the Plan is confirmed
(collectively, a "Break-Up Event"), WRT shall pay to the DLBW Proponent, in
addition to the reimbursement of out-of-pocket expenses set forth in section
6(i), a fee (the "Break-Up Fee") in the amount of $1,000,000, payable promptly,
and in no event later than 15 days, following written demand therefor by the
DLBW Proponent. The Break-Up Fee shall be an administrative expense claim under
section 503(b)(1)(A) of the Bankruptcy Code. The Break-Up Fee shall be payable
to the DLBW Proponent if, and only if, at the occurrence of the Break-Up Event,
the DLBW Proponent shall have not theretofore exercised any right or stated its
<PAGE>
The Board of Directors
October 16, 1996
Page 10
intent to terminate or not perform its obligations under the Definitive
Agreements, except as a consequence of the failure of WRT to perform its
material obligations under the Definitive Agreements.
(iii) The obligations of WRT under clauses (i) and (ii) of this
section 6 are subject to and conditioned upon approval by the Court of such
provisions; provided that the DLBW Proposal (whether or not previously accepted
by the Company) and the obligations of the DLBW Proponent hereunder and under
the Definitive Agreements shall terminate if such approval has not been obtained
from the Court on or prior to November 12, 1996. WRT will use its best efforts
to obtain such approval and will submit motion papers for such approval to the
Court no later than the close of business on October 30, 1996.
7. CONFIDENTIALITY. No information concerning the DLBW Proposal or this
letter agreement, or any discussions in connection therewith, shall be disclosed
without the prior written approval of the DLBW Proponent, except for disclosure
pursuant to an order of the Court or disclosure reasonably required in
connection with motions or other pleadings required to be filed by the Company
by the terms of this letter agreement or in connection with the DLBW Proposal.
Neither the DLBW Proponent nor WRT will issue any press release or similar
statement without the prior approval of the other party, which approval shall
not be unreasonably withheld.
8. TERMINATION. The DLBW Proposal and this letter agreement may be
terminated by mutual consent of WRT and the DLBW Proponent at any time prior to
the execution of Definitive
<PAGE>
The Board of Directors
October 16, 1996
Page 11
Agreements. In addition, the DLBW Proposal and this letter agreement may be
terminated by the DLBW Proponent by written notice to WRT in the event (i) the
Definitive Agreements have not been executed and delivered by WRT on or before
March 31, 1997, (ii) any of the conditions to the obligations of the DLBW
Proponent to consummate the DLBW Proposal cannot be satisfied (unless such
condition has previously been waived in writing by the DLBW Proponent) or (iii)
a Break-Up Event occurs. The provisions of sections 6 and 7 of this letter
agreement shall survive any such termination.
9. BINDING EFFECT. Upon execution of this letter by WRT, the provisions
of the third paragraph of this letter and sections 3, 5, 6, 7 and 8 of this
letter agreement shall be binding upon the parties. Except as provided in the
foregoing sentence, this letter is not intended to be binding upon the parties
hereto or to create any legal or equitable obligations or rights, including,
without limitation, an agreement to enter into an agreement.
10. MISCELLANEOUS. This letter may be executed in counterparts, which
taken together shall constitute one and the same instrument. This letter may be
amended, supplemented or otherwise modified only by a writing duly signed by
each of the parties hereto. This letter shall be governed and construed in
accordance with the laws of the State of Oklahoma.
<PAGE>
The Board of Directors
October 16, 1996
Page 12
If this letter accurately reflects our understanding, please so indicate
by signing and returning to the undersigned the enclosed duplicate of this
letter.
Very truly yours,
DLB OIL & GAS, INC.
By:/s/ SIGNATURE ILLEGIBLE
WEXFORD MANAGEMENT LLC on behalf
of its affiliated investment funds
By:/s/ SIGNATURE ILLEGIBLE
Accepted and agreed to this
22nd day of October, 1996
Amended October 28, 1996
WRT ENERGY CORPORATION
By:/s/ RAYMOND P. LANDRY
