<PAGE> 1
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) August 30, 1996
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SOUTHERN MINERAL CORPORATION
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(Exact name of registrant as specified in charter)
Nevada
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(State or other jurisdiction of incorporation)
0-8043 36-2068676
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(Commission File Number) (IRS Employer Identification No.)
500 Dallas Street, Suite 2800, Houston, Texas 77002-4708
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 658-9444
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(Former name or former address, if changed since last report.)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On August 30, 1996, Southern Mineral Corporation (the "Company" or
"Registrant") purchased from an affiliate of Torch Energy Finance Company
("Torch"), the limited partnership interest in SMC Development, L. P., a Texas
limited partnership, for $3,000,000 cash. SMC Development, L. P. was dissolved
and its oil and gas properties distributed to the Company and its co-venturer,
Diasu Oil & Gas Co., Inc. ("Diasu"). Upon the dissolution, the Company and Diasu
acquired an undivided 93% and 7% interest in the properties, respectively,
except that the Company's interest in certain of the properties will decrease
to 81.5% after the Company has recovered its costs of acquiring Torch's limited
partnership interest.
The Company financed the purchase price with internally generated funds
and an increase in the Company's borrowing base under its credit facility with
Compass Bank-Houston to $11,700,000 as of August 30, 1996, from $10,300,000.
Commencing on October 1, 1996, the amount of the borrowing base reduces by
$175,000 per month.
This summary is qualified in its entirety by the August 30, 1996, Purchase
and Sale Agreement and Assignment of Partnership Interest between the Company
and Torch, the Agreement Regarding Dissolution of Partnerships between the
Company and Diasu, and the Amendment to Credit Agreements between the Company
and Compass Bank-Houston filed herewith as exhibits. The September 3, 1996,
News Release of the Company concerning the subject transactions is attached
hereto as an exhibit and incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PROFORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
SMC Development, L. P. was formed on January 5, 1996, to acquire minority
non-operated working interests in nineteen oil and gas properties and to drill
four development wells. Three of the four development wells were successfully
completed and are expected to commence production in September of 1996.
Financial statements of the acquired operations are not included, since
historical results of operations are not material.
(b) Pro Forma Financial Information.
On August 30, 1996, the Company acquired the limited partnership interest
in SMC Development, L. P. for $3,000,000. The Company previously owned a 7%
general partnership interest in the partnership. The partnership's assets
consisted of proved producing and proved undeveloped oil and gas properties,
with most of the value related to the proved undeveloped properties that were
drilled in 1996.
2
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The pro forma condensed combined balance sheet as of June 30, 1996,
presents the acquisition of the SMC Development, L. P. properties as if it had
occurred at June 30, 1996, while the condensed combined statements of earnings
for the twelve months ended December 31, 1995, and six months ended June 30,
1996, present the transaction as if it had occurred at January 1, 1995.
(c) Exhibits.
2.1 Purchase and Sale Agreement and Assignment of Partnership
Interest, dated August 30, 1996, by and between Torch Energy
Finance Fund Limited Partnership I and Southern Mineral
Corporation (filed herewith).
2.2 Agreement Regarding Dissolution of Partnerships, dated August
30, 1996, between Southern Mineral Corporation and Diasu Oil
& Gas Co., Inc. (filed herewith without Annexes indexed
therein, which will be furnished upon the Commission's
request).
10.1 Amendment to Credit Agreements between Southern Mineral
Corporation et al and Compass Bank-Houston dated August 30,
1996 (filed herewith).
99 News Release of Southern Mineral Corporation dated September
3, 1996 (filed herewith).
3
<PAGE> 4
INDEX TO PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page Number
<S> <C>
Pro Forma Condensed Consolidated Balance Sheet as of
June 30, 1996 (Unaudited) 5
Pro Forma Condensed Consolidated Statement of
Operations for the Twelve Months Ended
December 31, 1995 (Unaudited) 6
Pro Forma Condensed Consolidated Statement of
Operations for the Six Months Ended
June 30, 1996 (Unaudited) 7
Notes to Pro Forma Condensed Consolidated Financial 8
Statements for the Balance Sheet as of June 30, 1996,
the Statement of Earnings for the Twelve Months Ended December 31,
1995, and the Statement of Earnings for the Six Months Ended June
30, 1996 (Unaudited)
</TABLE>
4
<PAGE> 5
SOUTHERN MINERAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
As of June 30, 1996
(Unaudited)
(000's Omitted)
<TABLE>
<CAPTION>
SOUTHERN SMC PRO FORMA ADJUSTMENTS
MINERAL DEVELOPMENT, NOTE PRO FORMA
CORPORATION L.P. AMOUNT REFERENCE CONSOLIDATED
---------------- ------------ --------------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 200 -- -- $ 200
Receivables 1,562 120 -- 1,682
Other 108 28 (28) (2) 108
-------- -------- -------- --------
Total Current Assets 1,870 148 (28) 1,990
-------- -------- -------- --------
Property and Equipment, Net 17,397 2,486 422 (3) 20,305
Other Assets 1,954 -- -- 1,954
-------- -------- -------- --------
$ 21,221 $ 2,634 $ 394 $ 24,249
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 419 $ 28 -- $ 447
Accrued Taxes 226 -- -- 226
-------- -------- -------- --------
Total Current Liabilities 645 28 0 673
-------- -------- -------- --------
Deferred Income Taxes 774 -- -- 774
Long-term debt 12,900 -- 3,000 (2) 15,900
Stockholders' Equity
Partnership Capital Contribution -- 2,530 (2,530) (2) 0
Common Stock 66 -- -- 66
Additional Paid in Capital 3,313 -- -- 3,313
Retained Earnings 3,576 76 (76) 3,576
-------- -------- -------- --------
6,955 2,606 (2,606) (2) 6,955
Treasury stock (53) -- -- (53)
-------- -------- -------- --------
Total Stockholders' Equity 6,902 2,606 (2,606) 6,902
-------- -------- -------- --------
$ 21,221 $ 2,634 $ 394 $ 24,249
======== ======== ======== ========
</TABLE>
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SOUTHERN MINERAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
For the Twelve Months Ended December 31, 1995
(Unaudited)
(000's Omitted, except for Share and Per Share Amounts)
<TABLE>
<CAPTION>
SOUTHERN SMC PRO FORMA ADJUSTMENTS
MINERAL DEVELOPMENT, NOTE PRO FORMA
CORPORATION L.P. AMOUNT REFERENCE CONSOLIDATED
---------------- ------------ --------------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues
Oil and Gas $ 2,044 $ 313 -- $ 2,357
------- ------- ------- -------
Expenses
Production 656 110 -- 766
Exploration 221 -- -- 221
Depletion and depreciation 792 -- 87 (5) 879
General and administrative 702 -- 2 (2) 704
Interest -- -- 248 (4) 248
Other 117 -- -- 117
------- ------- ------- -------
2,488 110 337 2,935
------- ------- ------- -------
Other income (expense) 316 -- -- 316
------- ------- ------- -------
Net income (loss) before
income taxes (128) 203 (337) (262)
Income tax 9 -- -- 9
------- ------- ------- -------
Net income (loss) $ (137) $ 203 $ (337) $ (271)
======= ======= ======= =======
Net income per share $ (0.02) $ (0.05)
======= =======
Weighted average shares
outstanding 5,507 5,507
======= =======
</TABLE>
6
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SOUTHERN MINERAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996
(Unaudited)
(000's Omitted, except for Share and Per Share Amounts)
<TABLE>
<CAPTION>
SOUTHERN SMC PRO FORMA ADJUSTMENTS
MINERAL DEVELOPMENT, NOTE PRO FORMA
CORPORATION L.P. AMOUNT REFERENCE CONSOLIDATED
---------------- ------------ --------------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues
Oil and Gas $ 5,210 $ 121 -- $ 5,331
------- ------- ------- -------
Expenses
Production 1,163 68 -- 1,231
Exploration 83 -- -- 83
Depletion and depreciation 1,181 5 28 (5) 1,214
General and administrative 822 1 -- 823
Interest 619 -- 124 (4) 743
Other 189 -- -- 189
------- ------- ------- -------
4,057 74 152 4,283
------- ------- ------- -------
Other income (expense) 812 29 -- 841
------- ------- ------- -------
Net income (loss) before
income taxes 1,965 76 (152) 1,889
Income tax 521 -- (26) 495
------- ------- ------- -------
Net income (loss) $ 1,444 $ 76 $ (126) $ 1,394
======= ======= ======= =======
Net income per share $ 0.22 $ 0.22
======= =======
Weighted average shares
outstanding 6,465 6,465
======= =======
</TABLE>
7
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SOUTHERN MINERAL CORPORATION
NOTES TO PRO FORMA FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
Note 1: On August 30, 1996 Southern Mineral Corporation (Southern Mineral)
acquired the limited partnership interest in SMC Development, L.P.
for $3,000,000. Southern Mineral previously owned a 7% general
partnership interest in the partnership. The partnership's assets
consisted of proved producing and proved undeveloped oil and gas
properties, with most of the value related to proved undeveloped
properties and wells drilled in 1996, but not yet producing.
The pro forma balance sheet presents the acquisition of the SMC
Development, L. P. limited partnership interest as if it had occurred
at June 30, 1996, while the pro forma statement of operations for the
six months ended June 30, 1996 and the year ended December 31, 1995
present the transaction as if it had occurred at January 1, 1995.
These statements should be read in conjunction with the separate
financial statements and notes thereto of Southern Mineral's
previously filed statements. The pro forma statement of operations is
not necessarily indicative of the results of operations of the
Company as it may be in the future or as if it might have been had
the acquisition been effective at January 1, 1995.
Historical amounts for the 1995 statement of operations were
obtained from Diasu Oil & Gas Co., Inc., the owners of the properties
prior to their purchase by SMC Development, L. P. The amounts for
the six months ended June 30, 1996 are from the partnership records.
Note 2: Reflects purchase of the limited partnership interest. Financing
was obtained through additional long-term debt.
Note 3: Reflects adjustment of the Partnership's historical cost basis in
assets to fair value.
Note 4: Reflects additional interest expense as a result of debt financing of
the acquisition.
Note 5: Reflects depreciation, depletion and amortization, including amount
related to the increase in oil and gas property bases.
Note 6: Reflects reduction in income tax expense caused by reduction in pro
forma earnings.
8
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SIGNATURES
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.
SOUTHERN MINERAL CORPORATION
Date September 16, 1996 By /s/ James H Price
------------------ -------------------------------
James H Price
Vice President-Finance
(Chief Accounting Officer)
9
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INDEX TO EXHIBITS
2.1 Purchase and Sale Agreement and Assignment of Partnership
Interest, dated August 30, 1996, by and between Torch Energy
Finance Fund Limited Partnership I and Southern Mineral
Corporation (filed herewith).
2.2 Agreement Regarding Dissolution of Partnerships, dated August
30, 1996, between Southern Mineral Corporation and Diasu Oil
& Gas Co., Inc. (filed herewith without Annexes indexed
therein, which will be furnished upon the Commission's
request).
10.1 Amendment to Credit Agreements between Southern Mineral
Corporation et al and Compass Bank-Houston dated August 30,
1996 (filed herewith).
99 News Release of Southern Mineral Corporation dated September
3, 1996 (filed herewith).
<PAGE> 1
EXHIBIT 2.1
PURCHASE AND SALE AGREEMENT
AND ASSIGNMENT OF PARTNERSHIP INTEREST
This Purchase and Sale Agreement and Assignment of Partnership
Interest (this "AGREEMENT") dated August 30, 1996, by and between TORCH ENERGY
FINANCE FUND LIMITED PARTNERSHIP I, a Texas limited partnership ("SELLER") and
SOUTHERN MINERAL CORPORATION, a Nevada corporation ("PURCHASER").
W I T N E S S E T H:
WHEREAS, Seller is the sole limited partner and Purchaser is the sole
general partner of SMC Development L.P., a Texas limited partnership (the
"PARTNERSHIP"), formed pursuant to that certain Agreement of Limited
Partnership (the "PARTNERSHIP AGREEMENT") dated January 5, 1996, by and between
Purchaser and Seller; and
WHEREAS, Seller desires to sell to Purchaser and Purchaser desires to
purchase from Seller all of Seller's right, title and interest in and to the
Partnership; and
WHEREAS, it is the intention of Purchaser to wind up and dissolve the
Partnership subsequent to its purchase of Seller's interest in the Partnership.
NOW, THEREFORE, in consideration of the premises, the considerations
enumerated herein and the respective representations, warranties, and mutual
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
ARTICLE 1
PURCHASE AND SALE
1.1 Conveyance and Transfer of Seller's Partnership Interests. Seller
does hereby grant, sell, convey, transfer and assign to Purchaser, and
Purchaser does hereby purchase all of Seller's right, title and interest in and
to the Partnership ("SELLER'S PARTNERSHIP INTEREST"), upon the terms and
subject to the conditions set forth in this Agreement.
1.2 Purchase Price. The purchase price which Purchaser shall pay for
the Seller's Partnership Interest is THREE MILLION DOLLARS ($3,000,000) (the
"PURCHASE PRICE"). The Purchase Price shall be paid in immediately available
funds no later than 5:00 p.m., Houston, Texas time, on August 30, 1996, by wire
transfer to Texas Commerce Bank, ABA No. 113000609, Account No. 00101767227,
Torch Energy Advisors, Inc., Ref. SMC Development Sale. If Purchaser fails to
timely pay the Purchase Price, this Agreement shall become null and void and be
of no further force or effect.
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ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser that as of the date
hereof:
2.1 Organization and Good Standing. Seller is a limited partnership
duly organized, validly existing and in good standing under the laws of the
State of Texas, and has all requisite partnership power and authority to
execute and enter into this Agreement, to grant, sell, convey, assign and
transfer Seller's Partnership Interest unto Purchaser and to consummate the
transactions contemplated hereby and to perform all the terms and conditions
hereof to be performed by it. This Agreement has been duly executed and
delivered by Seller and constitutes the valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency or other laws relating
to or affecting the enforcement of creditors' rights generally and general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
2.2 No Violations. This Agreement and the execution and delivery
hereof by Seller do not, and the fulfillment and compliance with the terms and
conditions hereof and the consummation of the transactions contemplated hereby
will not conflict with, or require the consent of any person under, any of the
terms or conditions of the governing documents of Seller, or any material
agreement or other written obligation by which Seller is bound or to which any
material portion of its assets is subject.
2.3 No Default. Seller is not in default under any material agreement
or other written obligation by which it is bound or to which any material
portion of its assets or the Seller's Partnership Interest is subject.
2.4 No Encumbrances. The Seller's Partnership Interest is free and
clear of all Encumbrances.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller that as of the date
hereof:
3.1 Organization, Good Standing, Authority and Authorization.
Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of Nevada. Purchaser has all requisite corporate power
and authority to execute and deliver this Agreement, to consummate the
transactions contemplated hereby and to perform all the terms and conditions
hereof to be performed by it. The execution and delivery of this Agreement by
Purchaser, the performance by Purchaser of all the terms and conditions herein
to be performed by it and the consummation of the transactions contemplated
hereby have been duly authorized and approved by the Board of Directors of
Purchaser. This Agreement has been duly executed and delivered by Purchaser and
constitutes the
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valid and binding obligation of Purchaser, enforceable against it in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency or other laws relating to or affecting the enforcement of creditors'
rights generally and general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at Law).
3.2 No Violations. This Agreement and the execution and delivery
hereof by Purchaser do not, and the fulfillment and compliance with the terms
and conditions hereof and the consummation of the transactions contemplated
hereby will not conflict with, or require the consent of any person under, any
of the terms or conditions of the certificate of incorporation, or bylaws of
Purchaser, or any material agreement or other written obligation by which
Purchaser is bound or to which any material portion of its assets is subject.
3.3 No Default. Purchaser is not in default under any material
agreement or other written obligation by which it is bound or to which any
material portion of its assets is subject.
3.4 No Undisclosed Benefits. To Purchaser's knowledge, there is
nothing in respect of the Partnership or its properties that is of material
benefit to the value of Seller's Partnership Interest which has not been
disclosed previously to Seller in writing.
ARTICLE 4
MUTUAL RELEASES
4.1 RELEASE OF PURCHASER BY SELLER. SELLER HEREBY RELEASES AND FOREVER
DISCHARGES PURCHASER FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES, DAMAGES,
COSTS, EXPENSES, CAUSES OF ACTION AND JUDGMENTS OF ANY KIND OR CHARACTER WITH
RESPECT TO, ARISING OUT OF OR IN CONNECTION WITH THE PARTNERSHIP, INCLUDING BUT
NOT LIMITED TO THOSE WITH RESPECT TO, ARISING OUT OF OR IN CONNECTION WITH ANY
AND ALL ACTS OR OMISSIONS OF PURCHASER OR ANY OF THE ASSETS, LIABILITIES, OR
OBLIGATIONS OF THE PARTNERSHIP AND INCLUDING BUT NOT LIMITED TO THOSE ARISING
OUT OF CONTRACT, TORT OR THE SOLE OR CONCURRENT NEGLIGENCE OF PURCHASER, STRICT
LIABILITY OR ANY OTHER LEGAL THEORY, EXCLUDING, HOWEVER, ANY CLAIMS ARISING OUT
OF PURCHASER'S BREACH OF ANY OF ITS REPRESENTATIONS OR WARRANTIES IN ARTICLE
III ABOVE OR OUT OF PURCHASER'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
4.2 RELEASE OF SELLER BY PURCHASER. PURCHASER HEREBY RELEASES AND
FOREVER DISCHARGES SELLER FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES, DAMAGES,
COSTS, EXPENSES, CAUSES OF ACTION AND JUDGMENTS OF ANY KIND OR CHARACTER WITH
RESPECT TO, ARISING OUT OF OR IN CONNECTION WITH THE PARTNERSHIP, INCLUDING BUT
NOT LIMITED TO THOSE WITH RESPECT TO, ARISING OUT OF OR IN CONNECTION WITH ANY
AND ALL ACTS OR OMISSIONS OF SELLER OR ANY OF THE ASSETS, LIABILITIES, OR
OBLIGATIONS OF THE
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PARTNERSHIP AND INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF CONTRACT,
TORT OR THE SOLE OR CONCURRENT NEGLIGENCE OF SELLER, STRICT LIABILITY OR ANY
OTHER LEGAL THEORY, EXCLUDING, HOWEVER, ANY CLAIMS ARISING OUT OF SELLER'S
BREACH OF ANY OF ITS REPRESENTATIONS OR WARRANTIES IN ARTICLE II ABOVE OR OUT
OF SELLER'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
ARTICLE 5
MISCELLANEOUS
5.1 Survival. This Agreement and the representations, warranties and
covenants contained herein shall survive consummation of the transactions
contemplated hereby.
5.2 Exclusive Agreement. This Agreement supersedes all prior written
or oral agreements between the parties with respect to the transactions
contemplated herein, and is intended as a complete and exclusive statement of
the terms of the agreement between the Purchaser and Seller with respect to the
transactions contemplated herein.
5.3 Choice of Law; Choice of Forum; Amendments; Headings. This
Agreement shall be governed by the internal laws of the State of Texas, without
giving effect to principles of conflicts of laws. This Agreement may not be
changed or terminated orally. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Terms such a "herein," "hereby," "hereto,"
and "hereof" refer to this Agreement as a whole. The term "include" and
derivatives thereof are used in an illustrative sense and not a limitative
sense.
5.4 Assignments and Third Parties. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. No such assignment shall release any party of any of
its obligations under this Agreement. Nothing in this Agreement shall entitle
any person other than the parties hereto or their respective successors and
assigns to any claim, cause of action, remedy or right of any kind.
5.5 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon any binding determination that any term
or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely possible in an acceptable
and legally enforceable manner, to the end that the transactions contemplated
hereby may be completed to the extent possible.
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5.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute but one and the same agreement.
5.7 Further Assurances. Seller shall, and shall cause its affiliates
to, execute, acknowledge and deliver all such further conveyances, transfer
orders, division orders, notices, assumptions, releases and acquittances, and
such other instruments, and shall take such further actions as may be necessary
or appropriate to assure fully to Purchaser, its successors or assigns, all of
the Seller's Partnership Interest intended to be conveyed to Purchaser by this
Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
--SELLER--
TORCH ENERGY FINANCE FUND LIMITED
PARTNERSHIP I
By: TORCH ENERGY FINANCE COMPANY,
GENERAL PARTNER
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
--PURCHASER--
SOUTHERN MINERAL CORPORATION
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
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EXHIBIT 2.2
AGREEMENT REGARDING DISSOLUTION OF PARTNERSHIPS
This Agreement Regarding Dissolution of Partnerships (this
"AGREEMENT") dated August 30, 1996, by and between SOUTHERN MINERAL
CORPORATION, a Nevada corporation ("SMC") and DIASU OIL & GAS CO., INC., a
Texas corporation ("DIASU").
W I T N E S S E T H:
WHEREAS, SMC and Diasu are the sole partners of the SMC/Diasu
Partnership (the "SMC/DIASU PARTNERSHIP"), a Texas general partnership, which
was formed and is governed under the terms and provisions of that certain
SMC/Diasu Partnership Agreement (the "PARTNERSHIP AGREEMENT") dated January 5,
1996, by and between SMC and Diasu; and
WHEREAS, SMC, acting for itself and as nominee for Diasu in accordance
with the terms of the SMC/Diasu Partnership Agreement, entered into that
certain Agreement of Limited Partnership with Torch Energy Finance Fund Limited
Partnership I ("TORCH") also dated January 5, 1996, whereby SMC Development,
L.P., a Texas limited partnership (the "SMC/TORCH PARTNERSHIP"), was created
with SMC being the sole general partner and Torch being the sole limited
partner; and
WHEREAS, pursuant to that certain Purchase and Sale Agreement dated
January 5, 1996, the SMC/Torch Partnership acquired from Diasu various oil and
gas properties, more particularly described therein; and
WHEREAS, pursuant to the terms of the certain Purchase and Sale
Agreement (the "TORCH AGREEMENT") dated of even dated herewith, SMC has
acquired the limited partnership interest of Torch in and to the SMC/Torch
Partnership; and
WHEREAS, SMC and Diasu desire that the SMC/Torch Partnership and the
SMC/Diasu Partnership be wound up and dissolved and that all of the assets of
the SMC/Diasu Partnership and the SMC/Diasu Partnership be distributed in
accordance with the terms and provisions of this Agreement.
NOW, THEREFORE, in consideration of SMC having advanced and paid the
sum of THREE MILLION DOLLARS ($3,000,000) to purchase the limited partnership
interest of Torch in the SMC/Torch Partnership, the premises contained herein,
the considerations enumerated herein and the respective representations,
warranties and mutual covenants and agreements contained herein, the parties
hereto hereby agree as follows:
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<PAGE> 2
ARTICLE 1
AGREEMENT OF DISSOLUTION
1.1 Agreement of Dissolution. SMC and Diasu agree that the
SMC/Torch Partnership and the SMC/Diasu Partnership are hereby dissolved. SMC
will cause the appropriate documents to be filed with the Texas Secretary of
State evidencing the dissolution of the SMC/Torch Partnership.
1.2 Wind-Up and Allocation of Liabilities. SMC and Diasu agree
that the business of the SMC/Torch Partnership and the SMC/Diasu Partnership
shall be wound up as soon as possible. Any outstanding debts and obligations
of such partnerships, including but not limited to those relating to the Oil
and Gas Properties (as defined below), shall be paid by 7% by Diasu and 93% by
SMC.
1.3 Distribution of Oil and Gas Properties. SMC and Diasu agree
that assets of the SMC/Torch Partnership and the SMC/Diasu Partnership shall be
distributed to SMC and Diasu as follows:
1.3.1 To Diasu, there shall be distributed, simultaneously
with the execution of this Agreement pursuant to the Conveyance, the
undivided interests in and to the Oil and Gas Properties prescribed to
be assigned to Diasu pursuant to the Conveyance (the "DIASU OIL AND
GAS PROPERTIES"). As used herein, the term "CONVEYANCE" shall mean a
conveyance in the form attached hereto as ANNEX 1 fully executed and
acknowledged with all blanks appropriately completed. Notwithstanding
the foregoing, the Conveyance may be comprised of various counterparts
to facilitate ease of execution and recordation. As used herein, the
term "OIL AND GAS PROPERTIES" shall mean those oil and gas leases and
wells more particularly described in EXHIBIT A to the form of
Conveyance which is attached; and
1.3.2 To SMC, there shall be distributed, simultaneously
with the execution of this Agreement pursuant to the Conveyance, the
undivided interests in and to the Oil and Gas Properties prescribed to
be assigned to SMC pursuant to the Conveyance (the "SMC OIL AND GAS
PROPERTIES").
1.4 Distribution of Other Assets. In the event that the SMC/Torch
Partnership or the SMC/Diasu Partnership own any assets other than the Oil and
Gas Properties, SMC shall cause the applicable partnership to distribute such
assets in the proportions of 93% to SMC and 7% to Diasu.
1.5 Consents to Assign. In the event that any consents of any oil
and gas lessors or sublessors or any other persons (including governmental
authorities) are required to be obtained prior to the distribution of any of
the Oil and Gas Properties by the SMC/Torch Partnership to SMC and Diasu and
such consents have not yet been obtained, the Conveyance shall not be effective
with respect to such properties and counterparts of the Conveyance describing
such properties shall not be placed of record, until the applicable consents
have been obtained. In the event that consents are
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<PAGE> 3
not obtained within 30 days of the date hereof, representatives of Diasu and
SMC shall meet to determine what course of action to pursue with respect to the
applicable properties.
1.6 Subsequent Operations of Oil and Gas Properties. From and
after the effective time of the Conveyance, the relationship of the parties in
respect to the Oil and Gas Properties shall be that of tenants-in-common and
operations thereon shall be governed by the terms and conditions of the
Conveyance and the various operating agreements presently governing such
properties, including but not limited to those operating agreements listed on
ANNEX 2. In the event that any of the Oil and Gas Properties are not presently
covered by an operating agreement, the relationship of Diasu and SMC shall be
that of tenants-in-common and subject to the terms of any operating agreement
which such parties may execute and enter into subsequently. Notwithstanding
any provisions of any of the operating agreements presently in existence or
hereinafter executed by the parties with respect to the Oil and Gas Properties,
Diasu agrees that, if Diasu is the operator under any such agreement, it will,
upon 30 days written notice from SMC, resign as operator and vote its interest
for SMC's designee as successor operator.
1.7 Effect on Other Agreements of the Parties. The parties agree
that this Agreement shall have no effect with respect to their relationship,
rights and obligations arising under that certain Option Agreement dated
January 5, 1996, by and between Diasu and SMC, which agreement shall remain in
force and effect, except that the exercisability of the Second Warrant (as
defined in such Option Agreement) shall be accelerated to even date herewith
pursuant to the terms of that certain First Amendment to Option Agreement which
has been executed of even date herewith such that such Second Warrant is 100%
vested and exercisable during the remainder of its term.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SMC
SMC hereby represents and warrants to Diasu that as of the date hereof:
2.1 Organization and Good Standing. SMC is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada, and has all requisite corporate power and authority to execute and
enter into this Agreement and to consummate the transactions contemplated
hereby and to perform all the terms and conditions hereof to be performed by
it. The execution and delivery of this Agreement by SMC, the performance by SMC
of all the terms and conditions herein to be performed by it and the
consummation of the transactions contemplated hereby have been duly authorized
and approved by the Board of Directors of SMC. This Agreement has been duly
executed and delivered by SMC and constitutes the valid and binding obligation
of SMC, enforceable against SMC in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency or other laws relating
to or affecting the enforcement of creditors' rights generally and general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
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<PAGE> 4
2.2 No Violations. This Agreement and the execution and delivery
hereof by SMC does not, and the fulfillment and compliance with the terms and
conditions hereof and the consummation of the transactions contemplated hereby
will not:
(i) conflict with or require the consent of any person
under the terms of the certificate of incorporation or bylaws of SMC
or any material agreement or other written obligation by which SMC is
bound or to which any material portion of its assets is subject, or
(ii) result in the creation or imposition of any
Encumbrance upon the Diasu Oil and Gas Properties. As used herein,
the term "ENCUMBRANCE" shall mean any mortgage, lien, security
interest, pledge, charge, encumbrance, claim, limitation, preferential
right to purchase, consent to assignment, or other burden or defect.
2.3 No Default. SMC is not in default under any material agreement
or other written obligation by which it is bound or to which any material
portion of its assets is subject.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF DIASU
Diasu hereby represents and warrants to SMC that as of the date hereof:
3.1 Organization, Good Standing, Authority and Authorization.
Diasu is a corporation duly organized, validly existing and in good standing
under the laws of Texas and has all requisite corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby and to perform all the terms and conditions hereto to be
performed by it. The execution and delivery of this Agreement by Diasu, the
performance by Diasu of all the terms and conditions herein to be performed by
it and the consummation of the transactions contemplated hereby have been duly
authorized and approved by the Board of Directors of Diasu. This Agreement has
been duly executed and delivered by Diasu and constitutes the valid and binding
obligation of Diasu, enforceable against Diasu in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency or other
laws relating to or affecting the enforcement of creditors' rights generally
and general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
3.2 No Violations. This Agreement and the execution and delivery
hereof by Diasu does not, and the fulfillment and compliance with the terms and
conditions hereof and the consummation of the transactions contemplated hereby
will not:
(i) conflict with or require the consent of any person
under the terms of the certificate of incorporation or bylaws of Diasu
or any material agreement by which Diasu is bound or to which any
material portion of its assets is subject.
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<PAGE> 5
(ii) result in the creation or imposition of any
Encumbrance upon the SMC Oil and Gas Properties. As used herein, the
term "ENCUMBRANCE" shall mean any mortgage, lien, security interest,
pledge, charge, encumbrance, claim, limitation, preferential right to
purchase, consent to assignment, or other burden or defect.
3.3 No Default. Diasu is not in default under any material
agreement or other written obligation by which it is bound or to which any
material portion of its assets is subject.
ARTICLE 4
MISCELLANEOUS
4.1 Survival. This Agreement and the representations, warranties
and covenants contained herein shall survive consummation of the transactions
contemplated hereby.
4.2 Exclusive Agreement. This Agreement supersedes all prior
written or oral agreements between the parties with respect to the transactions
contemplated herein, and is intended as a complete and exclusive statement of
the terms of the agreement between SMC and Diasu with respect to the
transactions contemplated herein.
4.3 Choice of Law; Choice of Forum; Amendments; Headings. This
Agreement shall be governed by the internal laws of the State of Texas, without
giving effect to principles of conflicts of laws. This Agreement may not be
changed or terminated orally. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Terms such as "herein," "hereby," "hereto,"
and "hereof" refer to this Agreement as a whole. The term "include" and
derivatives thereof are used in an illustrative sense and not a limitative
sense.
4.4 Assignments and Third Parties. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. No such assignment shall release any party
of any of its obligations under this Agreement. Nothing in this Agreement
shall entitle any person other than the parties hereto or their respective
permitted successors and assigns to any claim, cause of action, remedy or right
of any kind.
4.5 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon any binding determination that any term
or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely possible in an acceptable
and legally enforceable manner, to the end that the transactions contemplated
hereby may be completed to the extent possible.
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<PAGE> 6
4.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute but one and the same agreement.
4.7 Further Assurances. Each party shall, and shall cause its
affiliates to, execute, acknowledge and deliver all such further conveyances,
transfer orders, division orders, notices, assumptions, releases and
acquittances, and such other instruments, and shall take such further actions
as may be necessary or appropriate to assure fully to the other party, its
successors or assigns, all of the assets intended to be conveyed to such other
party by this Agreement and the Conveyance.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
SOUTHERN MINERAL CORPORATION
By:_____________________________________
Name:___________________________________
Title:__________________________________
DIASU OIL & GAS CO., INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
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<PAGE> 7
The following Annexes are attached to this Agreement Regarding
Dissolution of Partnerships:
ANNEX 1: containing a form of Assignment, Bill of Sale and
Conveyance distributing the subject oil and gas
properties of SMC Development, L.P. to Southern
Mineral Corporation and Diasu Oil & Gas Co., Inc. in
proportion to the agreed percentages. This form of
contains the following Exhibits:
EXHIBIT A: containing descriptions of leases
and wells in Lafourche, Terrebone,
Calcasieu and Jefferson Davis
Parishes, Louisiana and Jefferson
Davis and Marion Counties,
Mississippi and Billings County,
North Dakota and Garfield and Love
Counties, Oklahoma and Aransas,
Refugio, Fayette, Ochiltree and
Panola Counties, Texas and Campbell
County, Wyoming; and
EXHIBIT B: containing a description of certain
agreements affecting the subject oil
and gas leases.
ANNEX 2: containing a list of the Joint Operating Agreements
affecting the subject oil and gas leases and wells.
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<PAGE> 1
EXHIBIT 10.1
August 30, 1996
Mr. James H. Price
Vice President - Finance
Southern Mineral Corporation
500 Dallas, Suite 2800
Houston, Texas 77002-4708
RE: Amendment to Credit Agreements between Southern Mineral
Corporation et al and Compass Bank dated as of December 20, 1995,
covering the Term Loan of $4,000,000 and the Reducing Revolving Line
of Credit of up to $25,000,000
Dear Jim,
Effective as of August 30, 1996, Section 2.7 (a) of the Credit Agreement for
the Reducing Revolving Line of Credit shall be amended to read as follows:
"The Borrowing Base as of August 30, 1996, is acknowledged by the
Borrower, the Co-Borrowers and the Lender to be $11,700,000.
Commencing on October 1, 1996, and continuing thereafter on the first
day of each calendar month until the earlier of the date such amount
is redetermined or the Commitment Termination Date, the amount of the
Borrowing Base shall be reduced by $175,000."
Also, effective as of August 30, 1996, Section 6.7 (b) of both above-referenced
Credit Agreements shall be amended to read as follows:
"an aggregate of up to $1,500,000 in Southern Links Group,"
Please acknowledge your agreement by signing below.
Sincerely,
Dorothy Marchand Wilson
Vice President
<PAGE> 2
Mr. James H. Price
August 30, 1996
Acknowledged and Agreed:
SOUTHERN MINERAL CORPORATION
By: ____________________________________________________
Name: ____________________________________________________
Title: ____________________________________________________
Date: ____________________________________________________
<PAGE> 1
EXHIBIT 99
SOUTHERN MINERAL CORPORATION
- -------------------------------------------------------------------------------
NEWS RELEASE
Contact:
Steven H. Mikel
President and CEO
(713) 658-9444
September 3, 1996
SOUTHERN MINERAL REPORTS ACQUISITION OF OIL AND GAS PROPERTIES
HOUSTON -- Southern Mineral Corporation (NASDAQ:SMIN) today announced the
acquisition of the limited partner interest in SMC Development, L.P., a Texas
Limited Partnership for $3,000,000. The Company acquired the interest from an
affiliate of Torch Energy Finance Company, the sole limited partner in the
partnership. Upon the acquisition of the limited partner's interest, the
partnership was dissolved, resulting in the Company obtaining a direct working
interest in sixteen oil and gas properties with proved reserves estimated to be
4.2 billion cubic feet of gas and 149,000 barrels of liquids. Three of the
sixteen wells acquired were drilled in 1996 and are expected to commence
production in September, 1996.
The Company's President, Steven Mikel, stated, "This acquisition should result
in a 20% increase in the Company's daily oil production, and a 36% increase in
the Company's daily gas production during the fourth quarter."
Southern Mineral Corporation is an oil and gas acquisition, exploration and
production company that owns interest in oil and gas properties located along
the Texas Gulf Coast, the Mid-continent and in Canada. The Company is listed on
the NASDAQ SmallCap Market under the symbol SMIN.
