<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 30, 1995
REGISTRATION NO. 33-58631
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT
NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GOODRICH PETROLEUM CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1311 76-0466913
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
WALTER G. GOODRICH
5847 SAN FELIPE, SUITE 700 5847 SAN FELIPE, SUITE 700
HOUSTON, TEXAS 77057 HOUSTON, TEXAS 77057
(713) 780-9494 (713) 780-9494
(Address, including zip code, and telephone (Name, address, including zip code,
number, including area code, of Registrant's and telephone number including
principal telephone number, area code, of agent for service)
executive offices)
Copies to:
JOHN R. THOMAS SCOTT C. SINCLAIR KEITH R. FULLENWEIDER
EMENS, KEGLER, BROWN, HARGROVE, PESNELL & WYATT VINSON & ELKINS L.L.P.
HILL & RITTER CO., L.P.A. A PROFESSIONAL LAW CORPORATION 1001 FANNIN STREET, SUITE 2300
65 EAST STATE STREET, SUITE 1800 PREMIER BANK TOWER HOUSTON, TEXAS 77002
COLUMBUS, OHIO 43215 400 TEXAS STREET, SUITE 1102
SHREVEPORT, LOUISIANA 71101
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Common Stock, par value
$0.20 per share................. 46,436,554 $0.75(1) $27,111,880(1) $ 9,349(1)
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Series A Convertible Preferred
Stock, par value $1.00 per
share........................... 1,175,000 $6.00(2) $ 7,050,000(2) $ 2,431(2)
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee. The
Registrant paid a registration fee of $8,334 at the time of its initial
filing as to 22,746,828 shares estimated pursuant to Rule 457(f)(1) based on
the average of the high and low prices of Patrick Petroleum Company's Common
Stock reported on the New York Stock Exchange on April 11, 1995; and as to
19,765,226 shares estimated pursuant to Rule 457(f)(2) based upon the book
value of the La/Cal Interests to be contributed to the registrant as of
December 31, 1994. The Registrant has included with this filing an
additional fee of $1,015 as to 3,924,500 shares of Common Stock in exchange
for shares of Patrick Petroleum Company Common Stock which may be issued
prior to the Effective Time upon conversion of shares of Patrick Petroleum
Company's Series B Preferred Stock. This portion of the registration fee is
based upon the average of the high and low prices of Patrick Petroleum
Company's Common Stock reported on the New York Stock Exchange on May 22,
1995.
(2) Estimated pursuant to Rule 457(f)(1) solely for the purpose of calculating
the registration fee. The Registrant paid this fee at the time of its
initial filing based on the average of the high and low prices of Patrick
Petroleum Company's Series B Preferred Stock reported on the Nasdaq
Small-Cap Market on April 11, 1995.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
GOODRICH PETROLEUM CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
JOINT PROXY STATEMENT/PROSPECTUS
ITEM NUMBER AND HEADING IN FORM S-4 CAPTION
---------------------------------------------------- ---------------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus.......................... Facing Page of Registration
Statement; Outside Front Cover
Page of Joint Proxy
Statement/Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus..................................... Inside Front Cover Page of Joint
Proxy Statement/Prospectus;
Available Information
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information................................. Summary; Risk Factors
4. Terms of the Transaction............................ Summary; Description of the
Transactions, Certain Federal
Income Tax Consequences;
Comparative Rights of
Stockholders/Partners
5. Pro Forma Financial Information..................... Summary; Unaudited Pro Forma
Condensed Financial Statements;
Pro Forma Combined
Capitalization
6. Material Contracts with the Company Being
Acquired.......................................... *
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters..... *
8. Interests of Named Experts and Counsel.............. Experts; Legal Matters
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.................... *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants......... *
11. Incorporation of Certain Information by Reference... *
12. Incorporation with Respect to S-2 or S-3
Registrants....................................... *
13. Incorporation of Certain Information by Reference... *
14. Information with Respect to Registrants Other than
S-3 or S-2 Registrants............................ Summary; Risk Factors; Unaudited
Pro Forma Condensed Financial
Information; Pro Forma Combined
Capitalization; Business and
Properties of the Company;
Management of the Company After
the Effective Time; Ownership
of Capital Stock; Description
of Company Capital Stock;
Shares Eligible for Future Sale
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
JOINT PROXY STATEMENT/PROSPECTUS
ITEM NUMBER AND HEADING IN FORM S-4 CAPTION
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<C> <S> <C>
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies........... *
16. Information with Respect to S-2 or S-3 Companies.... *
17. Information with Respect to Companies Other than S-2
or S-3 Companies.................................. Summary; Risk Factors;
Description of the Transactions;
Selected Historical
Consolidated Financial Data of
Patrick; Patrick Management's
Discussion and Analysis of
Financial Condition and Results
of Operations; Selected
Historical Financial Data of
La/Cal; La/Cal Management's
Discussion and Analysis of
Financial Condition and Results
of Operations; Market Price of
Patrick Capital Stock; Business
and Properties of Patrick;
Business and Properties of
La/Cal; Ownership of Capital
Stock; Financial Statements
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
are to be Solicited............................... Summary; The Meetings;
Description of the
Transactions; Proposal to
Approve the Goodrich Petroleum
Corporation 1995 Stock Option
Plan; Management of the Company
after the Effective Time;
Ownership of Capital Stock
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange Offer... *
</TABLE>
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* Item is omitted from the Joint Proxy Statement/Prospectus because it is not
applicable or the answer thereto is in the negative.
<PAGE> 4
PATRICK PETROLEUM COMPANY
301 WEST MICHIGAN AVENUE
JACKSON, MICHIGAN 49201
, 1995
Dear Stockholder:
On behalf of your Board of Directors, we are pleased to invite you to
attend a Special Meeting of Stockholders of Patrick Petroleum Company
("Patrick"), which will be held at the , at
, local time, on , 1995.
At this Special Meeting, you will be asked to approve and adopt the
Agreement and Plan of Merger, dated March 10, 1995, a copy of which is attached
as Appendix I to the accompanying Joint Proxy Statement/Prospectus (the
"Agreement") which provides for a business combination as a result of which
Goodrich Petroleum Corporation ("Goodrich"), a recently formed corporation, will
carry on the business currently conducted by Patrick and La/Cal Energy Partners,
a Louisiana partnership, ("La/Cal"). The accompanying Joint Proxy
Statement/Prospectus provides a detailed description of the proposed transaction
and the business of Patrick and La/Cal. Please give this information your
careful attention.
Your Board of Directors, after careful consideration of many factors,
including the opinion of Patrick's financial advisor, Petrie Parkman & Co.,
determined that the business combination is fair to, and in the best interests
of, the stockholders of Patrick. Accordingly, the Board has unanimously approved
the Agreement and unanimously recommends that you vote in favor of the approval
and adoption of the Agreement at the Special Meeting.
Pursuant to the transactions contemplated by the Agreement, Patrick
stockholders would receive one share of Goodrich Common Stock for each share of
Patrick Common Stock owned or a total of 19,765,226 shares of Goodrich Common
Stock and one share of Goodrich Series A Convertible Preferred Stock for each
share of Patrick Series B Preferred Stock owned ("Patrick Preferred Stock") or a
total of 1,175,000 shares of Goodrich Series A Convertible Preferred Stock
("Goodrich Preferred Stock"). The Goodrich Preferred Stock has substantially the
same rights, preferences, qualifications and restrictions as the Patrick
Preferred Stock and is convertible into shares of Goodrich Common Stock. An
additional 2,981,602 shares of Goodrich Common Stock will be reserved for
issuance upon exercise of Patrick options and warrants which, if not exercised
prior to closing, will be assumed by Goodrich. The Agreement further provides
that La/Cal will transfer all of its assets and liabilities (other than cash and
accounts receivable accrued prior to March 1, 1995, and interest thereon) to
Goodrich in exchange for 19,765,226 shares of the Goodrich Common Stock. It is
anticipated that the transaction will qualify as a tax free transaction to
Patrick's stockholders pursuant to the Internal Revenue Code. It is also
anticipated that the Goodrich Common Stock will be traded on the New York Stock
Exchange and the Goodrich Preferred Stock will be traded on the Nasdaq Small-Cap
Market.
The Board of Directors of Goodrich immediately following the transaction
will consist of twelve persons, six of whom are anticipated to be the present
directors of Patrick and six of whom will be designated by La/Cal. The
accompanying Joint Proxy Statement/Prospectus includes detailed information
about the proposed management of Goodrich.
Patrick stockholders will not be required to exchange their certificates
representing shares of Patrick Common Stock or Patrick Preferred Stock if the
Merger is consummated. After the effective time of the Merger, such certificates
will represent for all purposes the shares of capital stock of Goodrich into
which the Patrick Shares will have been converted in the Merger.
At the Special Meeting, you will also be asked to approve the Goodrich
Petroleum Corporation 1995 Stock Option Plan (the "Goodrich Plan"), which
provides for the issuance of options, stock appreciation rights or restricted
stock awards to purchase up to 3,000,000 shares of Goodrich Common Stock. Your
Board of Directors believes that the Goodrich Plan is in the best interests of
Goodrich and its stockholders because it will assist Goodrich in attracting and
retaining key employees. Approval of the Goodrich Plan requires the affirmative
vote of the holders of a majority of the outstanding shares of Patrick Common
Stock present and entitled to vote thereon at the Special Meeting. Approval of
the Goodrich Plan is not a condition to the consummation of the Merger.
Your participation in this meeting, in person or by proxy, is important.
The Agreement requires the approval of a majority of the outstanding shares of
Patrick Common Stock, and therefore it is important that your shares be voted.
We urge you to complete, date and sign your proxy and return it promptly in the
enclosed envelope.
We look forward to seeing you at the Special Meeting.
Sincerely,
U.E. PATRICK
Chairman of the Board and Chief
Executive Officer
<PAGE> 5
LA/CAL ENERGY PARTNERS
333 TEXAS STREET, SUITE 1350
SHREVEPORT, LOUISIANA 71101
, 1995
To the Partners:
You are invited to attend a Special Meeting of the Partners of La/Cal
Energy Partners ("La/Cal") to be held on , , 1995 at
a.m., local time, at , notice of which is attached. At
this meeting, you will be asked to approve and adopt the Agreement and Plan of
Merger, dated March 10, 1995, a copy of which is attached as Appendix I to the
accompanying Joint Proxy Statement/Prospectus (the "Agreement") which provides
for a business combination as a result of which Goodrich Petroleum Corporation
(the "Company"), a recently formed corporation, will own the businesses
currently conducted by La/Cal and by Patrick Petroleum Company ("Patrick"), a
publicly owned corporation. The accompanying Joint Proxy Statement/Prospectus
provides a detailed description of the proposed transaction and the business of
Patrick. Please give this information your careful attention.
The Agreement provides that La/Cal will transfer all of its assets and
liabilities (other than cash and accounts receivable accrued prior to March 1,
1995, and interest thereon) to the Company in exchange for 19,765,226 shares of
the Company's Common Stock ("Common Stock"). After subtracting a finder's fee
payable in connection with the transaction, each holder of a 1% equity interest
in La/Cal shall be entitled to receive approximately 192,710 shares of Common
Stock. The Agreement further provides that Patrick stockholders would receive
19,765,226 shares of the Company's Common Stock and 1,175,000 shares of the
Company's Series A Convertible Preferred Stock ("Preferred Stock") in exchange
for all of the currently outstanding shares of Patrick capital stock. An
additional 2,981,602 shares of the Company's Common Stock will be reserved for
issuance upon exercise of Patrick options and warrants which, if not exercised
prior to closing, will be assumed by the Company. The Preferred Stock has
substantially the same rights, preferences, qualifications and restrictions as
the Patrick Preferred Stock and is convertible into Common Stock. The shares of
Common Stock to be issued pursuant to the transactions contemplated by the
Agreement have been approved for listing on the New York Stock Exchange, subject
to official notice of issuance. The Board of Directors of the Company
immediately following the transaction will consist of twelve persons, six of
whom will be designated by La/Cal and six of whom are anticipated to be
continuing directors of Patrick. The accompanying Joint Proxy
Statement/Prospectus includes detailed information about the proposed management
of the Company.
It is anticipated that no gain or loss will be recognized by La/Cal on the
transfer of La/Cal's assets to the Company for United States federal income tax
purposes except to the extent that the amount of La/Cal's liabilities assumed by
the Company plus the liabilities to which the La/Cal interests are subject
exceeds La/Cal's tax basis in the partnership interests. The aggregate amount of
gain to be recognized by La/Cal is estimated to be $6.4 million.
Your Management Committee believes that the proposed business combination
is in the best interests of the Partners of La/Cal. As described more fully in
the accompanying Joint/Proxy Statement Prospectus, the combination will result
in a combined entity with greater financial flexibility and will result in
greater liquidity for your investment. The proposed transaction has been
unanimously approved by the Management Committee after careful consideration of
relevant financial, legal and market considerations. Accordingly, the Management
Committee unanimously recommends that you vote in favor of and consent to the
proposed transaction. Approval of the transactions requires the consent of
Partners holding at least 51% of the partnership interests in La/Cal. The three
members of the Management Committee who collectively hold or direct the voting
of approximately 60% of the partnership interests intend to vote in favor of the
proposed transaction.
You will also be asked at the meeting to vote upon the approval of the
Agreement and vote upon and consent to, subject to approval of the Agreement and
the consummation of the transactions contemplated thereby, a proposal to
dissolve La/Cal and distribute its assets to the Partners. Whether or not the
proposal to dissolve La/Cal is approved, the Management Committee intends to
distribute the shares of Common Stock received by La/Cal pursuant to the
Agreement to the Partners promptly after the Effective Time. The Management
Committee unanimously recommends a vote in favor of such proposal.
At the Special Meeting, you will also be asked to approve the Goodrich
Petroleum Corporation 1995 Stock Option Plan (the "Goodrich Plan"), which
provides for the issuance of options, stock appreciation rights or restricted
stock awards to purchase up to 3,000,000 shares of Goodrich Common Stock. Your
Management Committee believes that the Goodrich Plan is in the best interests of
Goodrich and its stockholders because it will assist Goodrich in attracting and
retaining key employees. Approval of the Goodrich Plan requires the consent of
51% of the partnership interests in La/Cal. Approval of the Goodrich Plan is not
a condition to the consummation of the Merger.
Since the approval and adoption of the Agreement requires the consent of
51% of the equity interests in La/Cal and the dissolution requires the approval
of at least a majority of the Partners, it is important that your interests be
voted. We urge you to complete, date and sign your proxy and return it promptly
in the enclosed envelope. If you attend the Special Meeting, you may withdraw
your proxy and vote in person. Proxies are revocable at any time prior to the
time they are voted at the Special Meeting by written notice to the Management
Committee.
We look forward to seeing you at the Special Meeting.
Sincerely,
WALTER G. GOODRICH,
General Partner and
Management Committee Member
<PAGE> 6
PATRICK PETROLEUM COMPANY
301 WEST MICHIGAN AVENUE
JACKSON, MICHIGAN 49201
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Patrick
Petroleum Company, a Delaware corporation ("Patrick"), will be held at
, , , on , , 1995,
at :00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of March 10, 1995, a copy of which is attached as
Appendix I to the accompanying Joint Proxy Statement/Prospectus, as it may be
amended, supplemented or otherwise modified from time to time (the "Agreement"),
by and among La/Cal Energy Partners ("La/Cal"), Goodrich Petroleum Corporation
("Goodrich"), Goodrich Acquisition, Inc. ("Goodrich Acquisition") and Patrick,
and the transactions contemplated by the Agreement, pursuant to which and
subject to the terms and conditions thereof, at the effective time (the
"Effective Time"), (i) Goodrich Acquisition will be merged with and into
Patrick, with Patrick continuing as the surviving corporation and becoming a
wholly-owned subsidiary of Goodrich, (ii) each share of common stock, par value
$.20 per share, of Patrick ("Patrick Common Stock") issued and outstanding
immediately prior to the Effective Time will be converted into and exchanged for
the right to receive one share of common stock, par value $0.20 per share, of
Goodrich ("Goodrich Common Stock"), (iii) each share of Goodrich Preferred
Stock, par value $1.00 per share, of Patrick issued and outstanding immediately
prior to the Effective Time (other than shares for which dissenters' rights are
perfected) will be converted into and exchanged for the right to receive one
share of Series A Convertible Preferred Stock, par value $1.00 per share, of
Goodrich, and (iv) La/Cal will contribute all of its assets and liabilities
(other than cash and accounts receivable accrued prior to March 1, 1995, and
interest thereon) to the Company in exchange for 19,765,226 shares of Goodrich
Common Stock.
2. To consider and vote on a proposal to approve and adopt the Goodrich
Petroleum Corporation 1995 Stock Option Plan, which provides for the grant of
options, stock appreciation rights or restricted stock awards for up to
3,000,000 shares of Goodrich Common Stock.
3. To transact such other business as may properly come before the Patrick
Special Meeting or at any adjournments or postponements thereof.
The Board of Directors of Patrick has fixed the close of business on
, 1995 as the record date for the determination of stockholders
entitled to receive notice of, and to vote at, the Patrick Special Meeting. Only
stockholders of record at such time are entitled to receive notice of the
Patrick Special Meeting, and only holders of record of Patrick Common Stock at
such time are entitled to vote at the Patrick Special Meeting. Each holder of
outstanding shares of Patrick Common Stock entitled to vote at the Patrick
Special Meeting is entitled to one vote for each share held. Approval of the
proposal to adopt and approve the Agreement requires the affirmative vote of the
holders of a majority of the shares of Patrick Common Stock outstanding as of
the record date.
While holders of Patrick Common Stock are not entitled to appraisal rights
in connection with the Merger, holders of Patrick Preferred Stock are entitled
to appraisal rights under Section 262 of the Delaware General Corporation Law.
See Appendix VI to the accompanying Joint Proxy Statement/Prospectus.
The Joint Proxy Statement/Prospectus and the Appendices thereto form a part
of this Notice.
By Order of the Board of Directors,
U. E. PATRICK
President
Jackson, Michigan
, 1995
IMPORTANT
PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN
THE ENCLOSED POSTAGE-PAID, SELF-ADDRESSED ENVELOPE WHETHER OR NOT YOU PLAN TO
ATTEND THE PATRICK SPECIAL MEETING. IF YOU ATTEND THE PATRICK SPECIAL MEETING
AND SO DESIRE, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON. DO NOT SEND ANY
STOCK CERTIFICATES WITH YOUR PROXY CARDS.
<PAGE> 7
LA/CAL ENERGY PARTNERS
333 TEXAS STREET, SUITE 1300
SHREVEPORT, LOUISIANA 71101
NOTICE OF SPECIAL MEETING OF PARTNERS
OF LA/CAL ENERGY PARTNERS
Notice is hereby given that a Special Meeting of the Partners of La/Cal
Energy Partners ("La/Cal") will be held at , on
, , 1995, at a.m., local
time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of March 10, 1995 (the "Agreement"),
among La/Cal, Goodrich Petroleum Corporation, Patrick Petroleum Company
("Patrick") and Goodrich Acquisition, Inc., providing for a business
combination as a result of which Goodrich Petroleum Corporation, a recently
formed corporation, will own the businesses currently conducted by Patrick
and La/Cal, and the consummation of the transactions contemplated thereby,
all as more fully described in the accompanying Joint Proxy
Statement/Prospectus;
2. To consider and vote on a proposal, conditioned on approval of
Proposal 1 above and the consummation of the transactions contemplated by
the Agreement, to dissolve La/Cal and distribute the Goodrich Petroleum
common stock received by La/Cal in the business combination, and La/Cal's
other assets, to La/Cal's Partners; and
3. To consider and vote on the Goodrich Petroleum Corporation 1995
Stock Option Plan, which provides for the grant of options, stock
appreciation rights or restricted stock awards for up to 3,000,000 shares
of Goodrich Common Stock.
4. To transact such other business as may properly come before the
meeting and any adjournment or postponement thereof.
Your vote is important. Approval of Proposal 1 requires the written consent
of the Partners owning 51% of the equity interest in La/Cal and approval of
Proposal 2 requires approval of at least a majority of the La/Cal Partners.
Whether or not you plan to attend the Special Meeting, please complete, date and
sign the enclosed form of proxy and consent and return it promptly in the
stamped return envelope in order to be sure that your interests are voted. If
you attend the Special Meeting, you may revoke your proxy and vote in person.
Approval of Proposal 1 is not conditioned upon approval of Proposal 2.
By Order of the Management
Committee,
WALTER G. GOODRICH,
Management Committee Member
Shreveport, Louisiana
, 1995
<PAGE> 8
***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************
SUBJECT TO COMPLETION, DATED MAY 30, 1995
PROSPECTUS OF GOODRICH PETROLEUM CORPORATION
------------------------
PATRICK PETROLEUM COMPANY AND LA/CAL ENERGY PARTNERS JOINT PROXY STATEMENT
This Joint Proxy Statement/Prospectus is being furnished to the stockholders
of Patrick Petroleum Company, a Delaware
corporation ("Patrick") and to the partners (the "Partners") of La/Cal Energy
Partners, a Louisiana general partnership ("La/Cal"), in connection with the
solicitation of proxies by the Board of Directors of Patrick and the management
committee of La/Cal (the "Management Committee") for use at special meetings of
the stockholders of Patrick (the "Patrick Special Meeting") and of the Partners
(the "La/Cal Special Meeting"), each of which has been called to vote on a
proposal to approve and adopt an Agreement and Plan of Merger (the "Agreement"),
dated as of March 10, 1995, among Patrick, La/Cal, Goodrich Petroleum
Corporation and Goodrich Acquisition, Inc. ("Goodrich Acquisition").
The Agreement provides for a combination of Patrick and La/Cal, as a result
of which the businesses conducted by Patrick (and its subsidiaries and
partnerships) and La/Cal will be conducted by Goodrich Petroleum Corporation, a
Delaware corporation (the "Company") recently formed for the purpose of
consummating the transactions described in the Agreement. The combination of
Patrick and La/Cal will be effected primarily by two concurrent transactions:
(a) the contribution by La/Cal (the "Asset Transfer") of all of its assets and
liabilities (excluding cash and accounts receivable accrued prior to March 1,
1995, and interest thereon) to the Company in exchange for 19,765,226 shares of
the Company's common stock (the "Common Stock"); and (b) the merger of Goodrich
Acquisition with and into Patrick (the "Merger") whereby (i) each outstanding
share of Patrick common stock ("Patrick Common Stock") will be converted into
one share of the Common Stock, (ii) each outstanding share of Patrick Series B
Convertible Preferred Stock ("Patrick Preferred Stock") will be converted into
one share of the Company's Series A Convertible Preferred Stock (the "Preferred
Stock"); and (iii) Patrick, the surviving corporation in the Merger, will become
a wholly-owned subsidiary of the Company. As a result of the Asset Transfer and
after the payment of a finder's fee in connection with the transactions, each
holder of a 1% equity interest in La/Cal shall be entitled to receive
approximately 192,710 shares of Common Stock. The Preferred Stock has
substantially the same rights, preferences, qualifications and restrictions as
the Patrick Preferred Stock and is convertible into shares of Common Stock. The
Merger and the Asset Transfer are collectively referred to herein as the
"Transactions." In addition, the stockholders of Patrick and the La/Cal Partners
will be asked to approve the 1995 Goodrich Petroleum Corporation Stock Option
Plan (the "Goodrich Plan"). Approval of the Goodrich Plan requires (i) the
affirmative vote of the holders of a majority of the outstanding shares of
Patrick Common Stock present and entitled to vote thereon at the Special Meeting
and (ii) the consent of 51% of the equity interests in La/Cal. The approval of
the Goodrich Plan is not a condition to the consummation of the Merger.
The Partners will also vote on a proposal, subject to approval and adoption
of the Agreement by the Partners and the consummation of the transactions
contemplated thereby, to dissolve La/Cal and to distribute all of its asset to
the Partners. Whether or not such proposal is approved, the Management Committee
intends to distribute the Common Stock received in the Asset Transfer by La/Cal
to the Partners.
THE INFORMATION UNDER THE CAPTION "RISK FACTORS" SHOULD BE CONSIDERED BY
BOTH THE PATRICK STOCKHOLDERS AND THE PARTNERS.
The most significant risks of the Transactions to both the Patrick
stockholders and Partners include: (i) there can be no assurance as to future
trading prices for the Company's capital stock; (ii) after the Effective Time
approximately 25.2% of the outstanding shares of Common Stock will be owned by
members of the Goodrich family; (iii) the Patrick Preferred stockholders will
have special conversion rights in connection with the Transactions; (iv) the
Company does not expect to pay dividends on Common Stock after the Effective
Time; and (v) the Company's operations will be substantially dependent on oil
and gas prices and the economic and operating risks associated with the oil and
gas business.
In addition, the Partners should consider that: (i) the Management Committee
has not obtained the opinion of an outside financial advisor regarding the
fairness of the proposed Transactions; (ii) the Company will be subject to
corporate income tax; and (iii) Patrick has a history of significant operating
losses and there can be no assurance as to the Company's future profitability.
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of the
Company with respect to (i) 19,765,226 shares of Common Stock to be issued
pursuant to the Asset Transfer for the assets of La/Cal, (ii) 19,765,226 shares
of Common Stock to be issued pursuant to the Merger in exchange for all of the
outstanding shares of Patrick Common Stock, (iii) 1,175,000 shares of Preferred
Stock issuable pursuant to the Merger in exchange for all of the outstanding
shares of Patrick Preferred Stock, and (iv) up to 6,906,102 shares of Common
Stock issuable as a result of the conversion of the Patrick Preferred Stock or
the exercise of Patrick options or warrants prior to the Merger. The Preferred
Stock will be convertible into Common Stock at an initial rate of 3 1/3 shares
for each share of Preferred Stock, subject to customary anti-dilution
adjustments. If the Preferred Stock is converted prior to September 15, 1997,
upon conversion holders will receive one warrant to purchase a share of Common
Stock for $5 per share for each share of Preferred Stock converted. The
Transactions will constitute a Corporate Change with respect to the Patrick
Preferred Stock entitling holders of Preferred Stock to convert all, but not
less than all, of such holder's shares into Common Stock at a special conversion
rate of approximately 6.25 shares for each share of Preferred Stock for 45 days
after the closing of the Transactions.
Under Delaware law, holders of Patrick Preferred Stock have certain rights
of appraisal in connection with the Merger. See Appendix VI.
The Patrick Common Stock is currently traded on the New York Stock Exchange
and the Patrick Preferred Stock is currently traded on the Nasdaq Small-Cap
Market. The Common Stock has been approved for listing on the New York Stock
Exchange, and the Preferred Stock has been approved for quotation on the Nasdaq
Small-Cap Market, in each case upon official notice of issuance. On May 24,
1995, the last sales prices of the Patrick Common Stock and the Patrick Series B
Preferred Stock, on the New York Stock Exchange ("NYSE") and as reported on the
Nasdaq Small-Cap Market, respectively, were $.8125 and $6.75 per share.
THE SECURITIES TO WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS RELATES HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS , 1995.
<PAGE> 9
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE THE
SECURITIES OFFERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION
OF A PROXY, BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH AN OFFER, OR SOLICITATION OF AN OFFER, OR PROXY SOLICITATION.
NEITHER DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION
OF THE SECURITIES BEING OFFERED PURSUANT TO THIS JOINT PROXY
STATEMENT/PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN SINCE THE DATE OF
THIS JOINT PROXY STATEMENT/PROSPECTUS.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with the Securities and Exchange Commission (the
"Commission") covering the shares of Common Stock and Preferred Stock to be
issued pursuant to the Transactions. As permitted by the rules and regulations
of the Commission, this Joint Proxy Statement/Prospectus omits certain
information contained in the Registration Statement. For further information
pertaining to the securities offered hereby, reference is made to the
Registration Statement, including the exhibits filed as part thereof. Statements
contained herein concerning the provisions of documents are necessarily
summaries of such documents, and each statement is qualified in its entirety by
reference to the copy of the applicable document filed with the Commission or
attached as appendices hereto.
All information concerning Patrick contained in this Joint Proxy
Statement/Prospectus has been supplied by Patrick, and all information
concerning La/Cal has been supplied by La/Cal.
Patrick is, and after the Effective Time the Company will be, subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith Patrick files, and the
Company will file, reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information are available
for inspection and copying at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and at the regional offices of the Commission located at 7 World
Trade Center, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials can also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549 at the prescribed rates. The Patrick Common Stock
is traded on the NYSE and the Patrick Preferred Stock is traded on the Nasdaq
Small-Cap Market and, as a result, the periodic reports, proxy statements and
other information filed by Patrick with the Commission can be inspected at the
offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005 or at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
ii
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION............................ ii
SUMMARY.......................................... 1
Parties to the Transactions.................. 1
Description of Meetings...................... 1
Security Ownership of Directors, Executive
Officers and Affiliates.................... 2
Description of the Transactions.............. 3
Background of the Transactions............... 4
Patrick's Reasons for the Transactions....... 5
La/Cal's Reasons for the Transactions........ 5
Recommendation of the Patrick Board.......... 5
Recommendation of the La/Cal Management
Committee.................................. 6
Recommendations with Respect to the Goodrich
Plan....................................... 6
Interests of Certain Persons in the
Transactions............................... 6
List of La/Cal Partners...................... 6
Opinion of Financial Advisor to Patrick...... 7
Joint Participation Agreement with Goodrich
Oil Company................................ 7
Consulting Agreement with Henry Goodrich..... 8
Patrick Consulting Agreement................. 8
La/Cal Finder's Fee.......................... 9
Risk Factors to be Considered in Connection
with the Transactions...................... 9
No Solicitation.............................. 10
Conditions to the Consummation of the
Transactions............................... 10
Termination of Agreement..................... 10
Liabilities Upon Termination................. 11
Certain Federal Income Tax Consequences...... 12
Accounting Treatment......................... 12
Regulatory Requirements...................... 12
Appraisal Rights............................. 12
Comparative Rights of Stockholders and
Partners Before and After the
Transactions............................... 12
Stockholder Lawsuit.......................... 13
Market Prices and Listings of Patrick Capital
Stock...................................... 13
Directors' and Officers' Indemnification..... 13
The Goodrich Plan............................ 14
Summary Historical Consolidated Financial
Data of Patrick............................ 15
Summary Historical Financial Data of
La/Cal..................................... 17
Summary Unaudited Pro Forma Condensed
Financial Information...................... 19
Summary Reserve Report Information........... 20
Comparative Per Share Data................... 21
RISK FACTORS..................................... 22
Risk Factors Related to the Transactions
Applicable to Patrick Stockholders and
La/Cal Partners............................ 22
Additional Risk Factors Related to the
Transactions Applicable to the Patrick
Stockholders............................... 24
Additional Risk Factors Related to the
Transactions Applicable to the La/Cal
Partners................................... 24
Risk Factors Related to the Company's Oil and
Gas Operations After the Effective Time.... 27
THE MEETINGS..................................... 30
General...................................... 30
Patrick Special Meeting...................... 30
La/Cal Special Meeting....................... 31
Expenses..................................... 32
DESCRIPTION OF THE TRANSACTIONS.................. 33
Patrick Merger............................... 33
La/Cal Asset Transfer........................ 34
La/Cal Dissolution........................... 35
Background of the Transactions............... 35
Reasons for the Transactions; Recommendations
of the Patrick Board and La/Cal Management
Committee.................................. 39
Opinion of Patrick's Financial Advisor....... 43
Certain Information Provided................. 48
Purchase Price Adjustment.................... 49
Joint Participation Agreement with Goodrich
Oil Company................................ 49
Consulting Agreement with Henry Goodrich..... 50
Patrick Consulting Agreements................ 51
La/Cal Finder's Fee.......................... 51
Comparison of Interests of Management
Committee Members Before and After
Completion of the Merger................... 52
Accounting Treatment......................... 53
Repurchase of Penske Stock................... 53
Governmental and Regulatory Approvals........ 53
Interests of Certain Persons in the
Transactions............................... 53
Restrictions on Resale by Affiliates......... 54
Registration Rights.......................... 55
No Solicitation.............................. 55
Patrick Rights Agreement..................... 56
Indemnification of Certain Persons........... 56
Representations and Warranties............... 57
Conduct of Business Prior to Effective
Time....................................... 57
Conditions to Consummation of the
Transactions............................... 57
Termination of Agreement..................... 58
Liabilities Upon Termination................. 59
Expenses..................................... 59
Stockholder Lawsuit.......................... 60
Rights of Dissenting Stockholders............ 61
Availability of Partner List................. 63
PROPOSAL TO APPROVE THE GOODRICH PETROLEUM
CORPORATION 1995 STOCK OPTION PLAN............. 64
General...................................... 64
Description of the Plan -- Goodrich Petroleum
Corporation 1995 Stock Option Plan......... 64
Amendment and Termination.................... 66
Federal Income Tax Consequences.............. 66
Recommendation and Required Affirmative
Vote....................................... 68
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.......... 69
Characterization of the Transactions......... 69
Holders of Patrick Common Stock and Patrick
Preferred Stock............................ 69
Patrick and the Company...................... 70
La/Cal and the Partners...................... 70
UNAUDITED PRO FORMA CONDENSED FINANCIAL
INFORMATION.................................... 71
PRO FORMA COMBINED CAPITALIZATION................ 82
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
OF PATRICK..................................... 83
PATRICK MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..................................... 85
Overview and Analysis of Known Trends........ 85
Background................................... 85
Results of Operations for the Three Months
Ended March 31, 1995 Compared to the Three
Months Ended March 31, 1994................ 88
Results of Operations for the Year Ended
December 31, 1994 Compared to the Year
Ended December 31, 1993.................... 89
Results of Operations for the Year Ended
December 31, 1993 compared to the Year
Ended December 31, 1992.................... 90
Capital Resources and Liquidity.............. 91
Long Term Obligations........................ 91
Capital Expenditures......................... 92
Accounting Standards......................... 92
SELECTED HISTORICAL FINANCIAL DATA OF LA/CAL..... 93
</TABLE>
iii
<PAGE> 11
<TABLE>
<S> <C>
LA/CAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..................................... 95
General...................................... 95
Comparison of Results of Operations for the
Three Months Ended March 31, 1995 and
1994....................................... 95
Comparison of Results of Operations for the
Years Ended December 31, 1994 and December
31, 1993................................... 96
Liquidity and Capital Resources.............. 97
Other Matters................................ 98
MARKET PRICE OF PATRICK CAPITAL STOCK............ 99
BUSINESS AND PROPERTIES OF PATRICK............... 100
Financial Information about Industry
Segments................................... 100
Nature and Area of Operations................ 101
Exploration Activities....................... 101
Reserve Acquisition Matters.................. 102
Investment in Penske Corporation............. 102
Investment in Marcum Natural Gas Services,
Inc. ...................................... 103
Undeveloped Oil and Gas Acreage.............. 104
Drilling Activity............................ 105
Productive Acreage and Producing Wells....... 106
Title to Developed and Undeveloped Acreage... 106
Production Summary........................... 106
Pipeline System.............................. 107
Competition and Markets...................... 107
Regulatory and Environmental Matters......... 108
Legal Proceedings............................ 108
BUSINESS AND PROPERTIES OF LA/CAL................ 109
Overview..................................... 109
Description of the Southern Louisiana
Producing Region........................... 109
Properties................................... 109
Oil and Natural Gas Reserves................. 111
Productive Wells............................. 112
Acreage...................................... 112
Well Completions and Interests Owned by
La/Cal in the Pecan Lake and Lake Charles
Fields..................................... 113
Operator Activities.......................... 113
Drilling Activities.......................... 114
Net Production, Unit Prices and Costs........ 115
Marketing.................................... 115
Title to Properties.......................... 116
Operational Risks and Insurance.............. 116
Regulatory and Environmental Matters......... 117
Legal Proceedings............................ 117
Employees.................................... 117
Offices...................................... 117
BUSINESS AND PROPERTIES OF THE
COMPANY........................................ 118
The Company.................................. 118
Goodrich Acquisition......................... 118
Strategy..................................... 118
Relationship with Goodrich Oil Company....... 118
Pro Forma Reserve Information................ 119
Drilling Activities.......................... 119
Operator Activities.......................... 120
Anticipated Asset Dispositions............... 120
Marketing.................................... 120
Competition.................................. 121
Regulation................................... 121
Environmental Matters........................ 124
Operational Risks and Insurance.............. 126
Employees.................................... 126
Offices...................................... 126
MANAGEMENT OF THE COMPANY AFTER THE EFFECTIVE
TIME........................................... 127
Committees of the Board of Directors......... 129
Compensation of Directors.................... 129
Executive Compensation....................... 130
Patrick Employment Agreement................. 131
Employment and Consulting Agreements......... 132
Certain Relationships and Related
Transactions............................... 132
OWNERSHIP OF CAPITAL STOCK....................... 133
Ownership of the Capital Stock of the Company
After the Effective Time................... 133
Ownership of Patrick Capital Stock........... 135
Ownership of La/Cal Partnership Interests.... 136
COMPARATIVE RIGHTS OF STOCKHOLDERS/
PARTNERS....................................... 137
Patrick Capital Stock and Company Capital
Stock...................................... 137
La/Cal Partnership Interests and Company
Common Stock............................... 137
Summary of Significant Differences........... 140
DESCRIPTION OF COMPANY CAPITAL STOCK............. 141
General...................................... 141
Common Stock................................. 141
Preferred Stock.............................. 141
Certain Provisions of the Company's
Certificate of Incorporation and Bylaws.... 144
Delaware Business Combination Statute........ 145
Transfer Agent............................... 145
SHARES ELIGIBLE FOR FUTURE SALE.................. 146
EXPERTS.......................................... 146
LEGAL MATTERS.................................... 147
STOCKHOLDERS' PROPOSALS.......................... 147
INDEX TO FINANCIAL STATEMENTS.................... F-i
Appendix I Agreement and Plan of Merger dated
March 10, 1995
Appendix II Opinion of Petrie Parkman & Co.
Appendix III Report Summary of H. J. Gruy and
Associates, Inc.
Appendix IV Report Summary of Coutret &
Associates, Inc.
Appendix V Report Summary of Lee Keeling &
Associates
Appendix VI Section 262 of the Delaware General
Corporation Law (Appraisal Rights)
</TABLE>
iv
<PAGE> 12
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Joint Proxy Statement/Prospectus and the appendices hereto. This summary
does not contain a complete statement of all material information relating to
the Agreement and the transactions contemplated thereby, and is subject to and
qualified in its entirety by reference to the more detailed information and
financial statements contained elsewhere in this Joint Proxy
Statement/Prospectus, including the appendices. Certain capitalized terms used
in this summary are defined elsewhere in this Joint Proxy Statement/Prospectus.
PARTIES TO THE TRANSACTIONS
Patrick. Patrick, a Delaware corporation, is an independent oil and gas
company engaged in the acquisition of producing properties and the exploration,
development and production of oil and gas in the continental United States. In
addition to its oil and gas activities, Patrick has an equity interest in Penske
Corporation, a privately held diversified transportation services company, and
Marcum Natural Gas Services, Inc., a publicly held diversified provider of
products and services to the natural gas industry. The principal executive
offices of Patrick are located at 301 West Michigan Avenue, Jackson, Michigan
49201 and its telephone number is (517) 787-6633.
La/Cal. La/Cal is a privately owned Louisiana general partnership formed in
1993 that engages in the domestic exploration for oil and natural gas reserves
primarily in the states of Louisiana and Texas, and in the development,
production and sale of any commercial accumulations of oil and natural gas
discovered. The principal executive offices of La/Cal are located at 333 Texas
Street, Suite 1350, Shreveport, Louisiana 71101, and its telephone number is
(318) 429-2300.
The Company. The Company is a Delaware corporation that was recently
organized to become the parent company for the businesses presently conducted by
Patrick and La/Cal. The Company is currently a wholly-owned subsidiary of
Patrick and conducts no business, having only nominal assets. The Company's
address is 5847 San Felipe, Suite 700, Houston, Texas 77057, and its telephone
number is (713) 780-9494.
Goodrich Acquisition. Goodrich Acquisition is a Delaware corporation which
was recently organized for the sole purpose of facilitating the transactions
contemplated by the Agreement. It is currently a wholly-owned subsidiary of the
Company that conducts no business and has only nominal assets. Upon the
Effective Date, Goodrich Acquisition will be merged with and into Patrick and
the separate existence of Goodrich Acquisition will cease.
DESCRIPTION OF MEETINGS
Patrick. The Patrick Special Meeting will be held at a.m., local time,
on , 1995, at to consider and vote upon the approval
and adoption of the Agreement and the transactions contemplated thereby and the
Goodrich Plan. Only stockholders of record of Patrick at the close of business
on , 1995 are entitled to receive notice of the Patrick Special
Meeting, and only holders of record of the Patrick Common Stock are entitled to
vote at the Patrick Special Meeting. On such date, there were 19,765,226 shares
of Patrick Common Stock outstanding, each of which is entitled to one vote on
each matter to be properly presented at the Patrick Special Meeting. The
presence, in person or by proxy, of the holders of a majority of the shares of
Patrick Common Stock outstanding and entitled to vote at the Patrick Special
Meeting is necessary to constitute a quorum at such meeting. The affirmative
vote of the holders of the majority of the outstanding shares of Patrick Common
Stock is required to approve and adopt the Agreement and the transactions
contemplated thereby, while the approval of the Goodrich Plan requires the
affirmative vote of the holders of a majority of the outstanding shares of
Patrick Common Stock present and entitled to vote thereon at the meeting.
Holders of Patrick Preferred Stock are not entitled to vote on the approval and
adoption of the Agreement. See "The Meetings -- Patrick Special Meeting."
La/Cal. The La/Cal Special Meeting will be held at a.m., local time,
on , 1995, at to consider and vote upon the proposal
to approve and adopt the Agreement and the transactions contemplated thereby and
a proposal, conditioned on approval of the Agreement by the Partners
1
<PAGE> 13
and the consummation of the Transactions, to dissolve La/Cal and to distribute
its assets to the Partners. Whether or not such proposed is approved, the
Management Committee intends to distribute the Common Stock received by La/Cal
in the Asset Transfer to the Partners. Accordingly, approval of the proposal to
dissolve La/Cal is not a condition of the proposal to approve and adopt the
Agreement or a condition to the consummation of the transactions contemplated
thereby and the vote on such proposal will not affect the distribution of the
shares received by La/Cal pursuant to the Asset Transfers to the Partners.
The La/Cal partnership agreement requires the written consent of Partners
owning at least 51% of the equity interest in La/Cal to approve the Agreement
and the written consent of a majority of the Partners to approve dissolution of
La/Cal. The La/Cal partnership agreement does not provide for meetings of
partners. Accordingly, there are no quorum requirements for such a meeting. The
Management Committee has determined that action by written consent to be taken
at a specified place and time would be the most appropriate method of
coordinating the Patrick and La/Cal approval process in connection with the
Transactions. The enclosed proxy provides that, if it is executed and voted for
a proposal at the La/Cal Special Meeting, such proxy shall constitute the
written consent of the Partner executing the proxy with respect to such
proposal. If Partners submit their written consent in the form of a proxy, such
proxy may be revoked at any time prior to the vote at the La/Cal Special Meeting
by written notice to the Management Committee. The approval of the Goodrich Plan
requires the consent of 51% of the equity interests in La/Cal. See "The
Meetings -- La/Cal Special Meeting."
SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATES
Patrick. As of the record date for the Patrick Special Meeting, the
directors and executive officers of Patrick and their affiliates were entitled
to vote 202,588 shares of Patrick Common Stock, approximately 1.0% of the
outstanding shares of Patrick Common Stock on the record date. Such number does
not include options to purchase 1,222,679 shares of Patrick Common Stock which
are held by such officers and directors and are presently exercisable. Each of
the directors and executive officers of Patrick has advised Patrick that he
intends to vote or to direct the vote of all shares of Patrick Common Stock over
which he has voting control in favor of the adoption and approval of the
Agreement and the transactions contemplated thereby and the Goodrich Plan.
La/Cal. The members of the Management Committee and their affiliates own
approximately 60% of the equity interests in La/Cal and include or have voting
control over six of the 26 Partners in La/Cal. Each member of the Management
Committee intends to vote or to direct the vote of such partnership interests in
favor of the approval and adoption of the Agreement and the transactions
contemplated thereby and, subject to the approval of the Agreement by the
Partners and the consummation of the transactions contemplated thereby, in favor
of the proposal to dissolve La/Cal and distribute its assets to the Partners. In
addition, each member of the Management Committee intends to vote or direct the
vote of such partnership interests for approval of the Goodrich Plan.
2
<PAGE> 14
DESCRIPTION OF THE TRANSACTIONS
Patrick is currently the sole stockholder of the Company, and the Company
is the sole stockholder of Goodrich Acquisition. At the Effective Time, the
combination of Patrick and the La/Cal Interests will be effected by two
concurrent transactions: (i) the Merger of Patrick with and into Goodrich
Acquisition pursuant to which shares held by Patrick's stockholders will be
converted into shares of the Company on a one-for-one basis; and (ii) the
contribution of the La/Cal Interests to the Company in exchange for 19,765,226
shares of Common Stock.
(GRAPH)
Patrick Merger. As of the date of this Joint Proxy Statement/Prospectus,
Patrick owns all of the outstanding capital stock of the Company, which in turn
owns all of the outstanding capital stock of Goodrich Acquisition. Both the
Company and Goodrich Acquisition were recently organized for the sole purpose of
facilitating the transactions contemplated by the Agreement. At the Effective
Time, Goodrich Acquisition will be merged with and into Patrick, the separate
existence of Goodrich Acquisition will cease, and Patrick will become a
wholly-owned subsidiary of the Company. Each share of Patrick Common Stock and
Patrick Preferred Stock (other than shares of Patrick Preferred Stock for which
appraisal rights are perfected) issued and outstanding immediately prior to the
Effective Time will, by virtue of the Merger and without any action on the part
of the holder thereof, be automatically converted into and exchanged for the
right to receive, respectively, one share of Common Stock or one share of
Preferred Stock. The Preferred Stock has substantially the same rights,
preferences, qualifications and limitations and restrictions as the Patrick
Preferred Stock except that the Preferred Stock will be convertible into shares
of Common Stock rather than Patrick Common Stock. At the Effective Time,
Patrick's obligations with respect to each outstanding option or warrant to
purchase shares of Patrick Common Stock, as amended in the manner described in
the Agreement, will be assumed by the Company and become exercisable for shares
of Common Stock.
At and after the Effective Time, all of the outstanding certificates which
immediately prior to the Effective Time represented shares of Patrick capital
stock shall be deemed for all purposes to evidence ownership of, and to
represent, shares of capital stock of the Company into which the shares of
capital stock of Patrick formerly represented by such certificates have been
converted as provided in the Agreement. PATRICK STOCKHOLDERS WILL NOT BE
REQUIRED TO EXCHANGE THEIR CERTIFICATES REPRESENTING SHARES OF PATRICK CAPITAL
STOCK AS A RESULT OF THE MERGER. AFTER THE EFFECTIVE TIME SUCH CERTIFICATES WILL
REPRESENT THE SHARES OF CAPITAL STOCK OF THE COMPANY INTO WHICH THEY WILL HAVE
BEEN CONVERTED IN THE MERGER.
La/Cal Asset Transfer. The Agreement provides that, concurrently with the
Effective Time of the Merger, but effective as of March 1, 1995, La/Cal shall
contribute the La/Cal Interests to the Company in exchange for 19,765,226 shares
of Common Stock. The La/Cal Interests consist of all of the assets and
liabilities of La/Cal other than cash and accounts receivable accrued prior to
March 1, 1995, and interest thereon. The shares of Common Stock received by
La/Cal will be distributed among the general partners of
3
<PAGE> 15
La/Cal on the basis of their sharing ratios in La/Cal. See "Description of the
Transactions -- La/Cal Asset Transfer."
La/Cal Dissolution. In the event the Transactions are completed and the
Partners shall have approved the proposal to dissolve La/Cal, then as soon as
practicable after the Effective Time, La/Cal will be dissolved and all of its
assets will be distributed to the Partners. Whether or not the Partners vote to
dissolve La/Cal, the Management Committee intends to distribute, promptly after
the Effective Time, the shares of Common Stock received by La/Cal as a result of
the Asset Transfer to the Partners in accordance with their sharing ratios. It
is anticipated that on or before December 31, 1995, the winding up of La/Cal
will be completed and its remaining assets distributed to the Partners. Pursuant
to the La/Cal partnership agreement, the Management Committee will act as the
liquidating trustee of La/Cal for purposes of dissolution and winding up.
BACKGROUND OF THE TRANSACTIONS
In March 1994, Patrick engaged an investment banking firm to act as its
financial advisor in connection with a review of Patrick's strategic
alternatives and a possible sale of Patrick. In June 1994, Patrick, with the
assistance of its financial advisor solicited indications of interest from a
number of companies regarding a potential business combination transaction with
Patrick or asset sale by Patrick. As a result of the marketing activities of its
financial advisor, 137 companies were initially contacted, 72 companies executed
confidentiality agreements and received preliminary information about Patrick
and 21 companies visited Patrick's data room in the summer of 1994. In early
September 1994, Patrick's financial advisor distributed proposed guidelines for
making bids with respect to a transaction with Patrick or the acquisition of
Patrick's assets to interested parties. Patrick received six asset purchase
proposals and two merger proposals in response to such guidelines. During the
remainder of 1994, Patrick engaged in negotiations with several interested
parties, including La/Cal, regarding a business combination transaction. The
highest asset sale proposal received by Patrick was from Unit Petroleum Company.
Patrick completed a sale of certain of its assets to Unit in December 1994 for
net proceeds of $13.2 million.
Representatives of the Management Committee initially contacted Patrick
regarding their interest in a business combination transaction in April 1994.
Representatives met with officers of Patrick and its financial advisor on
numerous occasions during 1994, entered into a confidentiality agreement with
Patrick, visited the Patrick data room in Houston as well as Patrick's offices
in Jackson, Michigan, and Midland, Texas, and submitted one of the two merger
proposals received by Patrick in response to its marketing activities.
Negotiations between Patrick and La/Cal continued during the fourth quarter of
1994 and the first two months of 1995. In connection with these negotiations,
La/Cal provided Patrick with copies of its reserve reports and supporting oil
and gas operating information.
On March 7, 1995, the Patrick Board approved the transaction with La/Cal.
At this meeting Patrick's financial advisor made a detailed presentation to the
Board regarding its valuation of Patrick and La/Cal and expressed its opinion
that the proposed exchange ratios were fair, from a financial point of view, to
Patrick's stockholders. The Management Committee approved the transaction on
March 8, 1995, and the Agreement was executed between the parties on March 10,
1995. The consideration to be received by the Patrick stockholders and the
Partners as a result of the proposed Transactions was arrived at as a result of
arms length negotiations between the Management Committee and Patrick's
executive officers. The Management Committee did not engage an independent
financial advisor in connection with its valuation of La/Cal and Patrick. The
Management Committee's analysis of Patrick was based largely upon Patrick's
reserve reports and an analysis of the value of Patrick's other assets and
liabilities. For further description of the valuation analysis undertaken by
Patrick and the Management Committee, see "Description of the Transactions --
Reasons for the Transactions; Recommendations of the Patrick Board and La/Cal
Management Committee" and "-- Opinion of Patrick's Financial Advisor."
4
<PAGE> 16
PATRICK'S REASONS FOR THE TRANSACTIONS
The Board of Directors of Patrick believes that the Transactions will
provide Patrick's stockholders with equity ownership in a combined entity
characterized by stronger oil and gas assets, improved cash flow prospects, an
improved ability to finance the drilling of Patrick's current prospects, proven
and efficient oil and gas development skills and exposure to high quality
drilling prospects. The material factors considered by the Patrick Board of
Directors in determining to enter into the Agreement are set forth under
"Descriptions of the Transactions -- Reasons for the Transactions;
Recommendations of the Patrick Board and La/Cal Management
Committee -- Patrick's Reasons for the Transactions" and include, the extensive
process undertaken by Patrick with the assistance of Petrie Parkman in an
attempt to maximize stockholder value, the relative prospects of Patrick and
La/Cal on a combined basis compared to Patrick's prospects on a stand alone
basis, the Company's rights to participate in future prospects developed by
Goodrich Oil Company as a result of the Joint Participation Agreement,
historical market prices and trading information for Patrick's securities, the
percentage of equity in the Company that would be received by Patrick
stockholders, the opinion of Petrie Parkman, the absence of lockup or other
provisions in the Agreement which would impede a competing bid or restrict the
Board's ability to consider competing bids if one were to emerge, the tax-free
nature of the transaction to the Patrick stockholders and the composition of the
Board of Directors of the Company after the Effective Time.
RECOMMENDATION OF THE PATRICK BOARD
THE BOARD OF DIRECTORS OF PATRICK HAS UNANIMOUSLY APPROVED AND ADOPTED THE
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND UNANIMOUSLY RECOMMENDS
THAT THE HOLDERS OF PATRICK COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. SEE "DESCRIPTION OF THE
TRANSACTIONS -- REASONS FOR THE TRANSACTIONS; RECOMMENDATIONS OF THE PATRICK
BOARD AND LA/CAL MANAGEMENT COMMITTEE."
LA/CAL'S REASONS FOR THE TRANSACTIONS
The Management Committee believes that the Transactions represent a
substantial opportunity to enhance La/Cal's financial and operational resources
and to pursue its business strategy of reserve growth through the acquisition
and efficient development and exploitation of acreage and reserves on a broader
scale. Specifically, the Management Committee believes that the Company will
have greater reserves, revenues and cash flows than either Patrick or La/Cal on
a stand alone basis, which should enhance its financial flexibility, improve its
access to capital and enable the Company to obtain financing on more favorable
terms than are currently available to either Patrick or La/Cal; the transactions
will convert the Partners' interest from interest in a finite-life entity into
shares of stock in a perpetual-life entity in which management expects to
reinvest earnings as part of a strategy designed to develop and acquire
additional reserves and increase long term value; the Transactions will enhance
the liquidity of the Partners' investment and limit their potential exposure to
personal liability by converting their general partnership interests into stock
in a corporation whose shares are traded on the New York Stock Exchange; the
development and exploration opportunities of the combined entity will be more
diversified both geographically and by reserve mix; and the Transaction will
enable La/Cal to retire its outstanding debt on favorable terms to all of the
Partners. In reaching its conclusions, the Management Committee considered the
material factors which are described under "Description of the
Transactions -- Reasons for the Transactions; Recommendations of the Patrick
Board and La/Cal Management Committee -- La/Cal's Reasons for the Transactions,"
including the relative reserve values of La/Cal and Patrick, the terms of
La/Cal's existing debt instruments and its prospects as a stand alone,
finite-life entity; the expected operating and financing characteristics of the
combined entity; the percentage of equity in the combined entity which would be
received by the Partners in relation to the contribution of reserves by La/Cal
to the entity; Patrick's capital structure and recent financial performance and
the historical market prices for Patrick Common Stock; the tax impact of the
transactions on the Partners; the composition of the Board of Directors of the
Company; and Patrick's net operating loss carry forwards.
5
<PAGE> 17
RECOMMENDATION OF THE LA/CAL MANAGEMENT COMMITTEE
FOR THE REASONS STATED ABOVE, THE MANAGEMENT COMMITTEE BELIEVES THAT THE
TERMS OF THE TRANSACTIONS ARE FAIR TO AND IN THE BEST INTEREST OF, THE PARTNERS
OF LA/CAL. THE MANAGEMENT COMMITTEE OF LA/CAL HAS UNANIMOUSLY APPROVED AND
ADOPTED THE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND, SUBJECT TO
PARTNER APPROVAL OF THE SAME AND CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED
BY THE AGREEMENT, HAS UNANIMOUSLY VOTED TO APPROVE THE DISSOLUTION OF LA/CAL
AFTER THE EFFECTIVE TIME AND THE DISTRIBUTION OF LA/CAL'S ASSETS, INCLUDING
SHARES OF COMMON STOCK RECEIVED PURSUANT TO THE ASSET TRANSFER, TO THE PARTNERS.
THE MANAGEMENT COMMITTEE UNANIMOUSLY RECOMMENDS THAT THE PARTNERS CONSENT TO
BOTH PROPOSALS. SEE "DESCRIPTION OF THE TRANSACTIONS -- REASONS FOR THE
TRANSACTIONS; RECOMMENDATIONS OF THE PATRICK BOARD AND LA/CAL MANAGEMENT
COMMITTEE."
RECOMMENDATIONS WITH RESPECT TO THE GOODRICH PLAN
The Board of Directors of Patrick and the Management Committee of La/Cal
unanimously recommend that the Patrick stockholders and La/Cal Partners vote FOR
the approval of the Goodrich Plan. The approval of the Goodrich Plan is not a
condition to the consummation of the Merger.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
In considering the recommendations of the Patrick Board and the La/Cal
Management Committee with respect to the Transactions, you should be aware that
(i) each of the Patrick directors and two members of the Management Committee
will be directors of the Company at the Effective Time, (ii) a member of the
Management Committee will receive a finder's fee in connection with the
consummation of the Transactions equal to 2.5% of the shares of Common Stock to
be issued to La/Cal pursuant to the Asset Transfer, (iii) Mr. U. E. "Pat"
Patrick is the Chairman of the Board of the Company and will receive
compensation of approximately $317,000 per year for three years pursuant to the
Patrick Consulting Agreement, (iv) Mr. Walter G. "Gil" Goodrich, a member of the
Management Committee, is the President and Chief Executive Officer of the
Company pursuant to a five-year employment contract and in such capacity shall
be entitled to an initial base salary of $150,000 per year and certain other
bonus and incentive compensation, including a stock option grant, (v) certain
Partners, including each member of the Management Committee and certain of their
affiliates, and Mr. U. E. Patrick will enter into a Registration Rights
Agreement with the Company at the Effective Time, (vi) the Company will be party
to a Joint Participation Agreement with Goodrich Oil Company, a privately held
oil and gas company which is affiliated with Mr. Henry Goodrich, who will be a
director of the Company, providing the Company with the right to participate in
oil and gas prospects developed by Goodrich Oil Company and providing the
Goodrich Oil Company participants with right to invest in prospects generated by
the Company after the Effective Time; (vii) Henry Goodrich will be entitled to
annual compensation of $150,000 and a stock option grant in connection with
providing consulting services to the Company, (viii) the Agreement provides
certain rights to indemnification and insurance to the members of the Board of
Directors of Patrick and the Management Committee in connection with the
Transactions and other matters, and (ix) Patrick Stock Options, including
options held by Mr. U. E. Patrick and certain other members of the Board of
Directors of Patrick, will be assumed by the Company pursuant to the terms of
such options. See "Description of Transactions -- Patrick Merger," "-- Interests
of Certain Persons in the Transactions," "-- La/Cal Finder's Fee," "-- Patrick
Consulting Agreements," "-- Registration Rights," "-- Joint Participation
Agreement with Goodrich Oil Company," "Consulting Agreement with Henry
Goodrich," "-- Indemnification of Certain Persons" and "Management of the
Company after the Effective Time."
LIST OF LA/CAL PARTNERS
Any Partner who wishes to obtain a list of the names and addresses of each
Partner of La/Cal can obtain such a list by written request to Walter G.
Goodrich directed to his attention at 333 Texas Street, Suite 1350, Shreveport,
Louisiana 71101.
6
<PAGE> 18
OPINION OF FINANCIAL ADVISOR TO PATRICK
Petrie Parkman & Co. ("Petrie Parkman") has delivered its written opinion
dated March 10, 1995, to the Board of Directors of Patrick that, as of the date
thereof, the proposed exchange ratio for the Patrick Common Stock and the
proposed exchange ratio for the Patrick Preferred Stock in the Merger were fair,
from a financial point of view, to the holders of Patrick Common Stock and
Patrick Preferred Stock, respectively. Petrie Parkman has confirmed such opinion
as of the date of this Proxy Statement/Prospectus. For information regarding the
opinion of Petrie Parkman, including the assumptions made, matters considered
and limits of such opinion, see "Description of Transactions -- Opinion of
Patrick's Financial Advisor." The full text of the Petrie Parkman opinion is
included as Appendix II to this Joint Proxy Statement/Prospectus.
JOINT PARTICIPATION AGREEMENT WITH GOODRICH OIL COMPANY
At the Effective Time, the Company will enter into a Joint Participation
Agreement with Goodrich Oil Company pursuant to which the Company and Goodrich
Oil Company will each agree to offer to the other a 50% participation interest
in such company's share of all drilling prospects and acquisitions of producing
properties identified after the Effective Time by either company. Goodrich Oil
Company is owned by Henry Goodrich, who is the father of the Company's Chief
Executive Officer and will become a director of the Company at the Effective
Time, and is engaged in developing oil and gas drilling programs for its
participants, primarily in South Louisiana and East Texas. Goodrich Oil Company
is a party to participation agreements, with certain industry partners and
individual investors pursuant to which such persons invest in drilling programs
developed by Goodrich Oil Company. Pursuant to the Joint Participation
Agreement, such participants will have the opportunity to invest, through
Goodrich Oil Company, in prospects or acquisitions identified after the
Effective Time by the Company, and the Company will have the opportunity to
participate in future Goodrich Oil Company drilling prospects or acquisitions.
Goodrich Oil Company will not receive any compensation or management fees from
the Company. Goodrich Oil Company does not retain working interests in its oil
and gas drilling programs. The Joint Participation Agreement will terminate on
the earlier of (i) December 31, 2000, or (ii) at such time as neither Gil
Goodrich or Henry Goodrich is an employee, director or consultant of the
Company.
Since prior to the formation of La/Cal, Henry Goodrich, Gil Goodrich,
Michael Watts and Roland Frautschi, each of whom is or will become a director or
executive officer of the Company, have personally participated in Goodrich Oil
Company's drilling programs. Such persons have paid their pro rata share of all
expenses associated with their interests in each prospect. It is anticipated
that such persons will continue to participate in future Goodrich Oil Company
drilling programs and that the sum of such persons' participation interests will
not exceed 10% of the aggregate interest of the GOC participants.
7
<PAGE> 19
The following organizational chart describes the relationships that will
exist between the Company, Goodrich Oil Company, Henry Goodrich and Gil Goodrich
after the Effective Time.
<TABLE>
<S> <C>
Walter G. "Gil" Goodrich Henry Goodrich
1. Chairman, Chief Executive Officer
1. President, Chief Executive and sole stockholder of Goodrich Oil
Officer and Director of the Company; Company;
2. Participant in Goodrich Oil 2. Director of and Consultant to the
Company drilling programs. Company;
3. Options to purchase Common Stock 3. Participant in Goodrich Oil
Company drilling programs;
4. Father of Walter G. Goodrich.
5. Options to purchase Common Stock
Goodrich Petroleum Corporation
</TABLE>
1. Joint Participation Agreement
with
<TABLE>
<S> <C>
Goodrich Oil Company
Goodrich Oil Company
1. Wholly-owned by Henry Goodrich;
2. Participation Agreements with
Industry Partners and Other
Investors;
3. Joint Participation Agreement
with the Company.
</TABLE>
CONSULTING AGREEMENT WITH HENRY GOODRICH
At the Effective Time, the Company will enter into a five-year Consulting
Agreement (the "Goodrich Consulting Agreement") with Henry Goodrich, pursuant to
which Mr. Goodrich will provide consulting services to the Company with regard
to the evaluation of acquisition and drilling opportunities, financing
transactions, investor relations and other matters. Mr. Goodrich will receive
annual consulting fees from the Company of $150,000 for such services and will
be granted options to purchase 250,000 shares of Common Stock at the closing
price on the Closing Date, subject to pro rata vesting over five years.
PATRICK CONSULTING AGREEMENT
Mr. U.E. Patrick, the president and chief executive officer of Patrick, has
an employment agreement (the "Patrick Employment Agreement") with Patrick which
extends through December 31, 1998. Such agreement provides for annual
compensation of $450,000 to Mr. Patrick through 1998, plus certain employee
benefits, and for additional compensation for four years after the end of the
initial term or any extension of the agreement for consulting services at 50% of
Mr. Patrick's salary as of the date the employment agreement is terminated.
Based on Mr. Patrick's current salary, he is entitled to aggregate cash
compensation of $2.7 million from 1995-2002 pursuant to the Patrick Employment
Agreement. See "Management of the Company After the Effective Time -- Patrick
Employment Agreement." Pursuant to the Agreement, the Company and Mr. Patrick
have agreed to terminate the Patrick Employment Agreement as of the Effective
Time and to enter into a consulting agreement pursuant to which the Company will
pay Mr. Patrick approximately $317,000 per year for three years after the
Effective Time, or an aggregate of $950,000. See "Description of the
Transactions -- Patrick Consulting Agreements."
8
<PAGE> 20
LA/CAL FINDER'S FEE
La/Cal has agreed to pay Mr. Leo E. Bromberg, a Partner and member of the
Management Committee of La/Cal, a finder's fee with respect to the transactions
contemplated by the Agreement. Pursuant to such arrangement, Mr. Bromberg will
be entitled to receive 494,131 shares of Common Stock at the Effective Time,
which is approximately 2.5% of the 19,765,226 shares of Common Stock to be
received by La/Cal pursuant to the Asset Transfer.
RISK FACTORS TO BE CONSIDERED IN CONNECTION WITH THE TRANSACTIONS
The information set forth under "Risk Factors" should be considered by
Patrick's stockholders and the Partners with respect to the proposed
Transactions. Specifically, such persons should be aware of the following risks:
Investment-Specific Risks.
- There has been no prior trading market for the Company's capital stock
and there can be no assurance as to future trading prices of such shares
or that the NYSE listing will be maintained for the Common Stock or that
the Nasdaq Small-Cap Market listing will be maintained for the Preferred
Stock;
- after the Effective Time approximately 25.2% of the outstanding shares of
Common Stock will be owned by members of the Goodrich family, which will
enable the family to exercise substantial influence over the Company's
affairs;
- a substantial Patrick stockholder has commenced litigation seeking to
enjoin the Transactions;
- the Patrick Preferred stockholders will have special conversion rights in
connection with the Transactions;
- the Company does not expect to pay dividends on its Common Stock after
the Effective Time and;
- the Company's organizational documents and the laws of its jurisdiction
of incorporation may have the effect of discouraging unsolicited takeover
proposals for the Company.
Industry-Specific Risks.
- The Company's operations will be substantially dependent on natural gas
and oil prices and the economic and operating risks associated with the
oil and gas business;
- the Company's future results of operation will depend upon its ability to
develop additional reserves;
- the reserve information included in the Joint Proxy Statement/Prospectus
is based upon engineering estimates and the rules of the Commission and
should not be construed as necessarily indicative of the current market
value of such reserves;
- the Company's business is subject to certain local, state and federal
regulations; and
- the Company operates in a highly competitive industry.
In addition to the considerations described above, the Patrick stockholders
should consider the following additional risk factors in connection with the
proposed Transactions each of which are also set forth in greater detail under
"Risk Factors":
- the Transactions will result in limitations on the use of Patrick's
existing NOLs; and
- Petrie Parkman relied upon information provided to it by Patrick and
La/Cal without making independent evaluation or appraisal of the assets or
liabilities of either entity in connection with rendering its fairness
opinion.
In addition to the considerations described above, the Partners should
consider the following additional risk factors in connection with the proposed
Transactions each of which are also set forth in greater detail under "Risk
Factors":
9
<PAGE> 21
- The Management Committee has approved the Agreement and recommended its
adoption to the Partners based upon its own business and financial
analysis and the Management Committee has not obtained the opinion of an
outside financial advisor in connection with such analysis (for a
description of the Management Committee's analysis, see "Description of
the Transactions -- Reasons for the Transactions; Recommendations of the
Patrick Board and La/Cal Management Committee");
- La/Cal has made substantial distributions to the Partners since its
inception, but the Company does not expect to pay dividends on the Common
Stock;
- the management, fiduciary duties and voting rights with respect to the
Company and its Board of Directors will vary substantially from La/Cal;
- the Company will be subject to corporate income tax, resulting in "double
taxation" of distributions to stockholders of the Company;
- there can be no assurance as to the future trading prices of the Common
Stock and such shares may trade below the historical trading prices for
Patrick Common Stock, below the value of such shares as estimated by the
Management Committee and below the Company's net asset value; and
- Patrick has a history of significant operating losses and there can be no
assurance as to the Company's future profitability.
For a description of the background and reasons for the Transactions, see
"Description of the Transactions -- Background of the Transactions" and
"-- Reasons for the Transactions; Recommendations of the Patrick Board and
La/Cal Management Committee."
NO SOLICITATION
Each of Patrick and La/Cal have agreed that they will not directly or
indirectly solicit, initiate or knowingly encourage any proposals or offers from
any person relating to an acquisition of their respective businesses or material
amounts of their assets, subject to the fiduciary duties of the Board of
Directors of Patrick and the Management Committee, respectively. See
"Description of the Transactions -- No Solicitation."
CONDITIONS TO THE CONSUMMATION OF THE TRANSACTIONS
The obligations of Patrick and La/Cal to consummate the Transactions are
subject to certain conditions, including: (i) approval of the Agreement by the
requisite votes of the stockholders of Patrick and the Partners, and (ii) the
absence of any decision, ruling or proceeding prohibiting, restricting or
delaying the consummation of the Transactions. Patrick's obligation to
consummate the Transactions is subject to certain further conditions, including:
(i) the opinion of Patrick's financial advisor shall not have been materially
changed or withdrawn, (ii) since the date of the Agreement, there shall have
been no material adverse change in La/Cal and (iii) there shall be no
undisclosed pending or threatened legal or environmental proceedings with
respect to La/Cal which would have a material adverse effect on La/Cal, and (iv)
the receipt of certain legal and tax opinions. La/Cal's obligation to consummate
the Transactions is subject to certain further conditions, including (i) since
the date of the Agreement, there shall have been no material adverse change in
Patrick, and there shall be no undisclosed legal or environmental proceedings
with respect to Patrick which would have a material adverse effect on Patrick,
(ii) as of the quarter end preceding the closing, the net amount of Patrick's
total current liabilities (excluding principal amounts due on bank debt and
certain subordinated notes), accounts receivable and cash and cash equivalents
shall be equal to or greater than ($1,662,333) and Patrick shall have cash and
cash equivalents of $9,000 or more, and (iii) the receipt of certain legal and
tax opinions. See "Description of the Transactions -- Conditions to Consummation
of the Transactions."
TERMINATION OF AGREEMENT
The Agreement may be terminated in the following instances: (a) by either
Patrick or La/Cal if any mutual closing conditions are not be satisfied or
waived on or before October 1, 1995, and such failure has a
10
<PAGE> 22
material adverse effect on the Transactions, taken as a whole; (b) by Patrick if
any conditions set forth under "Description of the Transactions -- Conditions to
Consummation of the Transactions -- Patrick" shall not be satisfied or waived on
or before October 1, 1995, and such failure has a material adverse effect on
La/Cal or the Transactions, taken as a whole; provided, however, that failure to
satisfy item (a) under such subcaption with respect to good and defensible title
shall be grounds for termination only if such failure involves 25% or more of
the total value of the La/Cal Interests; (c) by La/Cal if any conditions set
forth under "Description of the Transactions -- Conditions to Consummation of
the Transactions -- La/Cal" shall not be satisfied or waived on or before
October 1, 1995, and such failure has a material adverse effect on Patrick or
the Transactions, taken as a whole; provided, however, that failure to satisfy
item (a) under such subcaption with respect to good and defensible title shall
be grounds for termination only if such failure involves 25% or more of the
total value of the Patrick Interests; (d) by the mutual written agreement of
Patrick and La/Cal; (e) by Patrick if, prior to the Effective Time, (i) Patrick
or its stockholders receive an offer from any person other than La/Cal with
respect to an Acquisition Proposal and (ii) the Board of Directors of Patrick
determines, upon advice of counsel to such effect, that the fulfillment of the
fiduciary duties of Patrick's Board of Directors requires that the Board of
Directors approve or recommend such Acquisition Proposal; (f) by La/Cal if,
prior to the Effective time, (i) La/Cal or its Partners receive an offer from
any person other than Patrick with respect to any Acquisition Proposal, and (ii)
the Management Committee determines, upon advice of counsel to such effect, that
the fulfillment of the fiduciary duties of the Management Committee requires
that the Management Committee approve or recommend such Acquisition Proposal;
(g) by La/Cal or Patrick, if the Effective Time shall not have occurred on or
before October 1, 1995; provided, however, that the right to terminate the
Agreement under this clause (g) shall not be available to any party whose
failure to fulfill any obligation under the Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such time;
(h) by La/Cal if the stockholders of Patrick vote against approval of the
Agreement; or (i) by Patrick if the Partners of La/Cal fail to approve the
Agreement.
LIABILITIES UPON TERMINATION
If La/Cal or Patrick is entitled to and elects to terminate the Agreement
by reason of the failure of any of the conditions set forth in items (b), (c),
(d), (f) or (g) under "Description of the Transactions -- Conditions to
Consummation of the Transactions -- La/Cal" or items (b), (c), (d), (g) or (i)
under "Description of the Transactions -- Conditions to Consummation of the
Transactions -- Patrick," or in items (a) or (c) under "Description of the
Transactions -- Conditions to Consummation of the Transactions -- La/Cal and
Patrick", neither party shall have any liability or obligation hereunder to the
other party. If La/Cal is entitled to and elects to terminate the Agreement by
reason of the failure of any of the conditions set forth in items (a), (e) (h)
or (i) under "Description of the Transactions -- Conditions to Consummation of
the Transactions -- La/Cal", or Patrick is entitled to and elects to terminate
this Agreement by reason of the failure of the condition set forth in item (e)
under "Description of the Transactions -- Conditions to Consummation of the
Transactions -- Patrick" or by reason of the failure of the stockholders of
Patrick to consent to the consummation of the transactions contemplated by the
Agreement, Patrick shall pay to La/Cal $500,000, inclusive of all costs and
expenses. If the Agreement is terminated by reason of action taken by Patrick or
its board of directors or stockholders pursuant to item (e) under
"-- Termination of Agreement", Patrick shall pay to La/Cal $1,000,000, inclusive
of all costs and expenses. If Patrick is entitled to and elects to terminate the
Agreement by reason of the failure of any of the conditions set forth in items
(a), (f), (h) or (j) under "Description of the Transactions -- Conditions to
Consummation of the Transactions -- Patrick" or by reason of the failure of the
Partners to consent to the consummation of the transactions contemplated by the
Agreement, La/Cal shall pay to Patrick $500,000, inclusive of all costs and
expenses. If the Agreement is terminated by reason of action taken by La/Cal or
its Partners pursuant to item (f) under "-- Termination of Agreement" above,
La/Cal shall pay to Patrick $1,000,000, inclusive of all costs and expenses.
If the Agreement is terminated for reasons other than those set forth in
the preceding paragraph, the terminating party shall pay to the nonterminating
party $1,000,000, inclusive of all costs and expenses.
11
<PAGE> 23
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, it is intended that the Transactions will
constitute a transfer to a controlled corporation within the meaning of section
351 of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly,
holders of Patrick Common Stock and Patrick Preferred Stock will not recognize
any gain or loss as a result of the exchange of shares of Patrick Stock for
shares of Company Stock in the Merger. No gain or loss will be recognized to
La/Cal upon the Asset Transfer except to the extent that the amount of the
liabilities of La/Cal assumed by the Company plus the liabilities to which the
La/Cal Interests are subject exceeds La/Cal's tax basis in the La/Cal Interests.
It is estimated that the aggregate amount of gain that will be recognized by
La/Cal in connection with the Transactions is $6.4 million. See "Certain Federal
Income Tax Consequences."
ACCOUNTING TREATMENT
For accounting and financial reporting purposes, the Transactions will be
accounted for as a purchase of Patrick by La/Cal. Consequently, the Company's
consolidated financial statements after the Effective Time will reflect the
assets and liabilities of La/Cal at book value and the assets and liabilities of
Patrick at fair value.
REGULATORY REQUIREMENTS
Patrick and La/Cal are not aware of any federal or state regulatory
requirements which must be complied with or any federal or state regulatory
approval which must be obtained in connection with the Transactions, other than
the registration and proxy solicitation requirements under federal and state
securities laws.
APPRAISAL RIGHTS
Holders of Patrick Common Stock do not have appraisal rights in connection
with the Merger under Section 262 of the Delaware General Corporation Law (the
"DGCL"). Holders of Patrick Preferred Stock, however, will have the right upon
consummation of the Merger, to seek an appraisal of their shares under Section
262 of the DGCL and to obtain a cash payment for the "fair value" of their
shares (exclusive of any element of value arising from the Transactions). In
order to exercise appraisal rights, holders of Patrick Preferred Stock must
comply with the procedural requirements of Section 262 of the DGCL, a
description of which is provided in "Rights of Dissenting Stockholders," and the
full text of which is attached to this Joint Proxy Statement/Prospectus as
Appendix VI.
Under Louisiana law, Partners of La/Cal are not entitled to dissenters'
rights with respect to the Asset Transfer.
COMPARATIVE RIGHTS OF STOCKHOLDERS AND PARTNERS BEFORE AND AFTER THE
TRANSACTIONS
Patrick and the Company are incorporated in Delaware. Stockholders of
Patrick, whose rights as stockholders are currently governed by the DGCL and by
Patrick's restated Certificate of Incorporation and Bylaws will, upon
consummation of the Merger, become stockholders of the Company and their rights
as such will be governed by the DGCL and the Company's Certificate of
Incorporation and Bylaws. See "Comparative Rights of Stockholders/Partners."
La/Cal is a Louisiana general partnership and the rights of its Partners
are governed by the Louisiana Civil Code (the "Civil Code") and the La/Cal
Partnership Agreement. Upon the Effective Date, the Partners will become
stockholders of the Company, and their rights as such will be governed by the
DGCL and the Company's Certificate of Incorporation and Bylaws. There are
significant differences between the rights of the Partners and the rights of the
stockholders of the Company, including (i) term of existence: La/Cal has a ten
year term, while the Company's existence is perpetual, (ii) distributions:
La/Cal periodically distributes its net income to the Partners, while the
Company plans to reinvest, rather than distribute, its net income, (iii)
management: La/Cal is managed by the Management Committee, while the business
and affairs of the Company will be managed under the direction of the Board of
Directors of the Company, (iv) personal
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<PAGE> 24
liability: each La/Cal Partner is jointly and severally liable for debts and
obligations of La/Cal (except for La/Cal's secured debt which is generally
non-recourse to the Partners), while a stockholder of the Company has no
personal liability for any debts or obligations of the Company, and (v)tax
consequences: items of income, gain, loss and deduction are passed through
La/Cal to the Partners, while such items are retained by the Company, with
distributions, if any, subject to another level of taxation. See "Comparative
Rights of Stockholders/Partners" and "Certain Federal Income Tax Consequences."
STOCKHOLDER LAWSUIT
On March 15, 1995, B.A.R.D. Industries, Inc. ("B.A.R.D.") filed suit
against Patrick and U. E. Patrick and Petrie Parkman in the District Court of
Harris County, Texas, 269th Judicial District. In its petition and pursuant to a
Schedule 13D dated February 6, 1995, B.A.R.D. claims to be beneficial owner of
3,107,741 shares of Patrick Common Stock. B.A.R.D.'s claims include, breach of
fiduciary duty in connection with approval of the Transactions, breach of
contractual duties by Patrick under a registration rights agreement, conspiracy
and a claim for actual and punitive damages in an unspecified amount, including
attorneys' fees. In addition, B.A.R.D. sought a temporary and permanent
injunction blocking the consummation of the Transactions. Defendants removed the
state court proceeding to the United States District Court for the Southern
District of Texas, Houston Division, Civil Action No. H-95-829 by notice filed
March 20, 1995. In addition, by order, signed on April 5, 1995, B.A.R.D.'s
claims against Petrie Parkman were voluntarily dismissed, without prejudice.
Patrick denies the allegations set forth in the action by B.A.R.D. and intends
to vigorously defend its actions in connection with the Agreement. Patrick does
not believe that the B.A.R.D. action will delay or prevent the consummation of
the Transactions. B.A.R.D. has agreed in principle to dismiss the litigation
against Patrick provided (i) Patrick pays B.A.R.D.'s attorney fees related to
the suit and (ii) Patrick nominates a designee of B.A.R.D. to the Company's
Board of Directors if the shares of Patrick Common Stock beneficially owned by
B.A.R.D. are voted in favor of the adoption and approval of the Agreement at the
Patrick Special Meeting. B.A.R.D. has asserted that it is the assignee of
certain rights with respect to a single seat on the Patrick Board of Directors
pursuant to an agreement between Patrick and certain former stockholders in
American Natural Petroleum Corporation. In the event B.A.R.D.'s designee is to
be added to the Board pursuant to such settlement agreement, Patrick and La/Cal
have agreed to increase the size of the Company's Board of Directors to 14
persons and to elect an additional La/Cal designee to the Board immediately
prior to the Effective Time. See "Management of the Company After the Effective
Time."
MARKET PRICES AND LISTINGS OF PATRICK CAPITAL STOCK
Patrick Common Stock is traded on the NYSE under the symbol "PPC." Patrick
Preferred Stock is traded on the Nasdaq Small-Cap Market under the symbol
"PPCB." The Common Stock will be traded on the NYSE after the Effective Time
under the symbol "GDP," and the Preferred Stock will be traded in the Nasdaq
Small-Cap Market after the Effective Time under the symbol "GDPA."
The following table sets forth the closing sales price per share of Patrick
Common Stock as reported on the NYSE and Patrick Preferred Stock as reported on
the Nasdaq Small-Cap Market on March 9, 1995, the last business day before
announcement of the Agreement, and on May 24, 1995, the last trading day for
which prices were available prior to the date of this Joint Proxy
Statement/Prospectus:
<TABLE>
<CAPTION>
MARKET PRICE PER SHARE
--------------------------------
PATRICK PATRICK
DATE COMMON STOCK PREFERRED STOCK
---------------------------------------------- ------------ ---------------
<S> <C> <C>
March 9, 1995................................. $ 0.875 $6.25
May 24, 1995.................................. $ 0.8125 $6.75
</TABLE>
DIRECTORS' AND OFFICERS' INDEMNIFICATION
In the Agreement, the Company has agreed that all rights to indemnification
and waivers of liability in favor of (i) the members of the Management Committee
now existing and in effect at the Effective Time as provided in the La/Cal
Partnership Agreement; and (ii) the directors or officers of Patrick now
existing and in
13
<PAGE> 25
effect at the Effective Time as provided in its charter documents as in effect
on the date hereof, shall survive the Merger and shall continue in full force
and effect.
In addition, Patrick has agreed that it shall, regardless of whether the
Merger becomes effective, indemnify and hold harmless (and, after the Effective
Time, the Company and Patrick as the surviving corporation in the Merger (the
"Surviving Corporation") have agreed that they shall indemnify and hold
harmless), to the fullest extent permitted under applicable law and under the
Company's Certificate of Incorporation and Bylaws as in effect on the date of
the Agreement, each present and former director and officer of Patrick and each
member of the Management Committee (collectively, the "Indemnified Parties")
against any costs or expenses (including attorneys' fees), judgments, fines,
losses, claims, damages, liabilities and amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to any action or omission occurring prior to the Effective Time with respect to
the transactions contemplated by the Agreement (provided, however, that any
Indemnified Parties shall be advanced any legal costs and expenses until a final
determination of such action, and such indemnified person shall reimburse the
Company for any such costs and expenses if the final decision is against the
Indemnified Party) for a period of five years after the date hereof; provided,
that, in the event any claim or claims are asserted or made within such
five-year period, all rights to indemnification in respect to any such claim or
claims shall continue until final disposition of any and all such claims. After
the Effective Time, the Surviving Corporation and the Company shall also advance
expenses as incurred to the fullest extent permitted under applicable law
provided the person to whom expenses are advanced provides an undertaking to
repay such advances if it is ultimately determined that such person is not
entitled to indemnification.
The Indemnified Parties shall not be entitled to the indemnification
described above in connection with any claim initiated by an Indemnified Party
against the Company or the Surviving Corporation or any officer or director
thereof unless the Company or the Surviving Corporation has joined in or
consented to the initiation of such claim.
The Company has agreed to make all reasonable efforts to cause to be
maintained in effect for a period of five years after the Effective Time the
current policies of directors and officers liability insurance of Patrick or a
comparable substitute policy.
THE GOODRICH PLAN
At the Special Meetings, the holders of Patrick Common Stock and the La/Cal
Partners will also be asked to approve the Goodrich Petroleum Corporation 1995
Stock Option Plan (the "Goodrich Plan"), which allows for the issuance of up to
3,000,000 shares of Goodrich Common Stock to certain Goodrich employees and
consultants. The Board of Directors of Patrick and the Management Committee of
La/Cal have determined that the Goodrich Plan is in the best interests of
Goodrich and its stockholders because they will assist Goodrich in attracting
and retaining key employees. See "Description of the Transactions -- Proposal to
Approve the Goodrich Plan." Approval of the Goodrich Plan is not a condition to
consummation of the Merger.
14
<PAGE> 26
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF PATRICK
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------------- --------------------------------------------------
1995(F) 1994 1994 1993 1992 1991 1990
------------ ------ -------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and gas sales................ $ 919 $2,850 $ 11,071 $ 9,330 $ 9,561 $10,550 $ 13,267
Investment income................ 2 -- 147 692 749 773 972
Other............................ 634 6,802 7,771 6,252 241 115 777
------- ------ -------- ------- -------- ------- --------
$ 1,555 $9,652 $ 18,989 $16,274 $ 10,551 $11,438 $ 15,016
Expenses:
Cost of oil and gas sales........ $ 305 $1,080 $ 4,921 $ 3,698 $ 2,986 $ 2,841 $ 3,387
Depletion, depreciation and
amortization................... 581 1,476 6,492 5,732 5,567 6,194 5,414
General and administrative
and interest................... 868 1,350 5,482 6,013 6,497 5,763 5,839
Other(a)......................... -- -- 15,344 10,129 17,396 3,126 12,800
------- ------ -------- ------- -------- ------- --------
$ 1,754 $3,906 $ 32,239 $25,572 $ 32,446 $17,924 $ 27,440
------- ------ -------- ------- -------- ------- --------
Earnings (loss) before
extraordinary item............... $ (199) $5,746 $(13,250) $(9,298) $(21,895) $(6,486) $(12,424)
Extraordinary item -- loss on early
extinguishment of debt........... -- 1,232 1,232 -- -- -- --
------- ------ -------- ------- -------- ------- --------
Net earnings (loss)................ $ (199) $4,514 $(14,482) $(9,298) $(21,895) $(6,486) $(12,424)
======= ====== ======== ======= ======== ======= ========
Net earnings (loss) per common
share............................ $ (.02) $ .21 $ (.78) $ (.63) $ (1.79) $ (.53) $ (1.02)
======= ====== ======== ======= ======== ======= ========
OTHER OPERATING DATA:
Ratio of earnings to fixed charges
and preferred stock
dividends(b)..................... -- 5.8 -- -- -- -- --
Increase (decrease) in cash and
cash equivalents................. 338 (155) 63 434 (814) 631 (394)
Net cash provided by operating
activities....................... 93 1,058 4,190 1,617 1,473 3,095 2,751
BALANCE SHEET DATA (END OF
PERIOD)(C)(D):
Working capital (deficit)........ $ (1,889) $ (4,185) $(1,464) $ 1,581 $ 2,412 $ 6,692
Total assets..................... 29,184 29,403 69,482 62,777 73,171 78,416
Long-term debt and other
long-term liabilities.......... 8,000 5,000 31,000 32,074 34,000 32,058
Stockholders' equity(e).......... 15,140 15,912 30,481 25,375 36,158 42,579
</TABLE>
- ---------------
(a) During 1994, 1993, 1992, 1991 and 1990 Patrick recorded writedowns of
$12,301,000, $9,419,000, $15,640,000, $3,000,000 and $12,800,000,
respectively, of its oil and gas properties to adjust its capitalized costs
in accordance with the full-cost center accounting method as described in
Note D of the Notes to Consolidated Financial Statements of Patrick. Also,
during 1994 Patrick recorded a loss on sale of oil and gas properties of
$2,786,841. In addition, during 1993, 1992 and 1991, Patrick recorded a
loss of $419,694, $407,620 and $126,604, respectively, from its equity
investment in an affiliate. Also, during 1994, 1993 and 1992, Patrick
recorded an allowance of $256,652, $290,000 and $1,347,859, respectively,
for the decline in value of its investments in a joint venture and certain
other long-term investments.
(b) For purposes of computing this ratio, "earnings" represent earnings (loss)
from continuing operations before income taxes plus fixed charges and
equity loss in affiliates. "Fixed charges" consist of all interest
(Notes continued on following page)
15
<PAGE> 27
charges, amortization of debt issue costs, and that portion of rental
expense representing interest costs. No preferred dividends were paid
during 1991 and 1990. As a result of the losses incurred for the three
month period and years ended March 31, 1995 and December 31, 1994, 1993,
1992, 1991 and 1990, earnings did not cover combined fixed charges and
preferred stock dividends by $434,000, $14,180,000, $10,238,000,
$22,157,000, $6,456,000, and $12,425,000, respectively.
(c) In December 1994, Patrick completed the sale of its interests in certain oil
and gas wells and related leasehold acreage, personal property, and
contract rights. In a related transaction Patrick sold certain other
interest in accordance with a preferential right agreement. The
transactions resulted in a loss of $2.8 million. Revenues and expenses
associated with the interest sold represent a significant portion of
Patrick's operations. See "Unaudited Pro Forma Condensed Financial
Information," "Patrick Management Discussion and Analysis of Financial
Condition and Results of Operations," and Patrick Consolidated Financial
Statements all included elsewhere in this Joint Proxy Statement/Prospectus.
(d) During 1993 Patrick acquired ANPC, an independent oil and gas company,
through a merger. The purchase price consisted of 7,188,040 shares of
Patrick common stock valued at $15,344,000 and cash of $21,295,000 of which
$10,619,000 was cash on hand at ANPC at the date of acquisition. In
connection with the acquisition certain of the interests owned by ANPC was
sold to Whiting Petroleum Corporation for approximately $7,000,000. See
"Patrick Management Discussion and Analysis of Financial Condition and
Results of Operations," and Patrick Consolidated Financial Statements
included elsewhere in this Joint Proxy Statement/Prospectus.
(e) No cash dividends were paid on Patrick Common Stock during these periods.
(f) In December 1994, Patrick sold substantially all of its producing and
nonproducing oil and gas properties in Alabama, Louisiana, Mississippi, New
Mexico, Oklahoma and Texas (excluding West Texas) to Unit Petroleum.
16
<PAGE> 28
SUMMARY HISTORICAL FINANCIAL DATA OF LA/CAL
<TABLE>
<CAPTION>
THREE MONTHS
JULY 15,
ENDED MARCH 31, YEAR ENDED 1993 TO JANUARY 1, YEAR ENDED DECEMBER 31,
--------------- DECEMBER 31, DECEMBER 31, TO JULY 14, -------------------------------------
1995 1994 1994 1993 1993 1993(A) 1992(A) 1991(A) 1990(A)
------ ------ ------------ ------------ ----------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Oil and gas sales..... $1,127 $ 878 $4,996 1,060 947 2,007 896 244 194
Other................. 6 4 17 8
------ ------ ------ ------
Total revenues.... 1,133 882 5,013 1,068
Expenses:
Lease operating
expenses and
production taxes.... 150 93 684 194 137 331 173 55 52
Depletion,
depreciation and
amortization........ 228 223 1,156 179
Interest expense...... 275 203 1,072 199
Other expenses........ 22 20 86 2
------ ------ ------ ------
Total expenses.... 675 539 2,998 574
------ ------ ------ ------
Income before income tax
expense(b)............ 458 343 2,015 494
Pro forma income tax
expense(b)............ 179 134 786 193
------ ------ ------ ------
Net income as adjusted
for income taxes(b)... $ 279 $ 209 $1,229 301
====== ====== ====== ======
Net income as adjusted
for income taxes per
unit(b)(c)............ $ .01 $ .01 $ .06 .02
====== ====== ====== ======
OTHER OPERATING DATA:
Ratio of earnings to
fixed charges......... 2.7 2.7 2.9 3.4
Increase (decrease) in
cash and cash
equivalents........... $ -- $ (312) $ (41) $ 752
Net cash provided by
operating
activities............ 1,012 539 2,823 479
Distributions to
partners.............. 357 1,765 3,107 4,073
Distributions to
partners per
unit(c)............... .02 .09 .16 .21
Distributions to
partners per unit --
return of
capital(c)............ -- -- .06 .18
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
MARCH 31, ---------------------
1995 1994 1993
--------- ------- -------
(IN THOUSANDS EXCEPT PER UNIT
AMOUNTS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................................. $ 711 $ 711 $ 752
Working capital (deficit).................................................. (683) (416) (427)
Total assets............................................................... 7,953 8,230 5,371
Long-term debt, excluding current portion.................................. 7,800 8,250 4,700
Total liabilities.......................................................... 9,933 10,311 6,360
Partners' capital (deficit)................................................ (1,980) (2,081) (989)
Partners' capital (deficit) per unit(c).................................... (.10) (.11) (.05)
</TABLE>
- ---------------
(a) La/Cal was organized on July 15, 1993. Statement of operations data and
other operating data, other than revenues from oil and gas sales and lease
operating expenses and production taxes for the years ended December 31,
1992, 1991 and 1990 and for the period from January 1, 1993 through July 14,
1993, is not presented as the properties for which such revenues and
expenses relate were not maintained as a separate business unit and assets,
liabilities or indirect operating costs applicable to the properties were
not segregated by the owners prior to the formation of La/Cal. See "La/Cal
Management's Discussion and Analysis of Financial Condition and Results of
Operations," and La/Cal financial statements included elsewhere in this
Joint Proxy Statement/Prospectus.
17
<PAGE> 29
(b) La/Cal has operated as a partnership since formation and accordingly has not
directly paid income taxes. Such taxes were the responsibility of the
individual Partners. Pro forma income tax expense and net income as adjusted
for income taxes is shown above in order to reflect the impact of income
taxes as if La/Cal had been organized as a corporation.
(c) Per unit information presented for La/Cal is calculated using an assumed
19,765,226 units outstanding for the periods presented which is equal to the
number of shares of Common Stock the Partners will receive as a result of
the Asset Transfer.
18
<PAGE> 30
SUMMARY UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following summary unaudited pro forma condensed financial information
gives effect to the Transactions under the purchase method of accounting as if
they had occurred on January 1, 1994 with respect to the operating data, and on
March 31, 1995 with respect to the balance sheet data. The pro forma information
also gives effect to Patrick's disposition of its interests in certain oil and
gas wells and related acreage, personal property and contract rights on December
15, 1994. For further information on the manner in which the following summary
pro forma financial information was derived, see "Unaudited Pro Forma Condensed
Financial Information."
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED DECEMBER 31,
MARCH 31, 1995 1994
--------------- ---------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
OPERATING DATA:
Revenues:
Oil and gas sales............................................ $ 2,046 $ 8,203
Interest and dividend income................................. 8 26
Net gain on sale of investments.............................. 7 6,447
Revenue from pipeline system................................. 570 1,112
Other income................................................. 57 49
----------- ----------
2,688 15,837
Expenses:
Lease operating costs and production taxes................... 455 2,457
Depletion, depreciation, and amortization.................... 1,026 3,440
Exploration expenses......................................... 90 2,837
General and administrative................................... 676 2,354
Interest..................................................... 275 1,396
Impairment of other assets................................... -- 257
----------- ----------
2,522 12,741
----------- ----------
Income before income tax expense............................... 166 3,096
Income tax expense............................................. -- --
----------- ----------
Income before extraordinary item............................... 166 3,096
Preferred stock dividend requirement........................... (235) (940)
----------- ----------
Income before extraordinary item applicable to common stock.... $ (69) $ 2,156
=========== ==========
Income before extraordinary item per common share.............. $ -- $ .05
=========== ==========
Pro forma ratio of earnings to combined fixed charges and
preferred stock dividends(a)................................. -- 1.9
=========== ==========
Weighted average common shares outstanding..................... 39,530,452 39,530,452
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31,
1995
-------
<S> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital................................................................ $ 126
Total assets................................................................... 31,831
Long-term debt, excluding current portion...................................... 10,000
Stockholders' equity........................................................... 17,361
</TABLE>
- ---------------
(a) On a pro forma basis for the three months ended March 31, 1995 earnings did
not cover combined fixed charges and preferred stock dividends by $69,000.
19
<PAGE> 31
SUMMARY RESERVE REPORT INFORMATION
The following tables set forth summary information with respect to
estimates of Patrick's, La/Cal's, and the Company's pro forma proved oil and
natural gas reserves as of January 1, 1995. For additional information relating
to the Company's oil and natural gas reserves, see "Investment
Considerations -- Reserves and Future Net Cash Flows," "Business and Properties
of Patrick -- Oil and Natural Gas Reserves," "Business and Properties of
La/Cal -- Oil and Natural Gas Reserves" and "Business and Properties of the
Company -- Oil and Natural Gas Reserves."
PATRICK(1)
<TABLE>
<CAPTION>
JANUARY 1, 1995 PRE-TAX
NET PROVED RESERVES PRESENT
----------------------------------- VALUE OF
OIL GAS FUTURE NET
CATEGORY (MBBLS) (BCF) BCFE(3) REVENUES(2)(4)
- --------------------------------------------- --------- ------ ---------- --------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Proved Developed Producing................... 762.920 1.457 6.035 $ 7.35
Proved Developed Non-Producing............... 133.900 1.979 2.782 2.57
Proved Undeveloped........................... 248.051 3.291 4.779 2.94
--------- ------ -------- ------
Total Proved....................... 1,144.871 6.727 13.596 $12.86
========= ====== ======== ======
</TABLE>
LA/CAL(5)
<TABLE>
<CAPTION>
JANUARY 1, 1995 PRE-TAX
NET PROVED RESERVES PRESENT
----------------------------------- VALUE OF
OIL GAS FUTURE NET
CATEGORY (MBBLS) (BCF) BCFE(3) REVENUES(4)(6)
- --------------------------------------------- --------- ------ ---------- --------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Proved Developed Producing................... 230.871 17.32 18.70 $22.11
Proved Developed Non-Producing............... 274.037 1.52 3.16 2.43
Proved Undeveloped........................... 18.814 3.14 3.25 2.98
-------- ------ -------- -------
Total Proved....................... 523.722 21.98 25.11 $27.52
======== ====== ======== =======
</TABLE>
COMPANY -- COMBINED
<TABLE>
<CAPTION>
JANUARY 1, 1995 PRE-TAX
NET PROVED RESERVES PRESENT
----------------------------------- VALUE OF
OIL GAS FUTURE NET
CATEGORY (MBBLS) (BCF) BCFE(3) REVENUES(4)(7)
- --------------------------------------------- --------- ------ ---------- --------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Proved Developed Producing................... 993.791 18.777 24.740 $29.46
Proved Developed Non-Producing............... 407.937 3.499 5.947 5.00
Proved Undeveloped........................... 266.865 6.431 8.032 5.92
--------- ------ ------- ------
Total Proved....................... 1,668.593 28.707 38.719 $40.38
========= ====== ======= ======
</TABLE>
- ---------------
(1) As estimated by Lee Keeling & Associates.
(2) Based on a weighted average price of $16.50 per Bbl and $1.70 per Mcf.
(3) Based upon the ratio of 1.0 Bbl/6.0 Mcf, which was calculated by the
Company.
(4) Discounted at 10%, in accordance with Commission guidelines.
(5) As estimated by H. J. Gruy and Associates, Inc., Coutret & Associates, Inc.
and La/Cal.
(6) Based on a weighted average price of $16.81 per Bbl and $1.78 per Mcf.
(7) Based on a weighted average of the prices used in the Patrick and La/Cal
reserve estimates.
20
<PAGE> 32
COMPARATIVE PER SHARE DATA
The following table sets forth historical and pro forma per unit data for
La/Cal and historical and equivalent pro forma per common share data for Patrick
assuming the Transactions had been in effect for the period presented. The
information set forth below should be read in conjunction with the financial
statements of La/Cal and Patrick and the "Unaudited Pro Forma Condensed
Financial Information," all included elsewhere in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH DECEMBER 31,
31, 1995 1994
-------------- ------------
<S> <C> <C>
LA/CAL(A)
Book value (period end)
Historical.................................... $ (.10) $ (.11)
Pro forma..................................... .14 --
Net income (loss) as adjusted for income taxes(b)
Historical.................................... .01 .06
Pro forma..................................... -- .05
Cash distributions(c)
Historical.................................... .02 .16
Pro forma..................................... .02 .16
PATRICK
Book value per common share (period end)
Historical.................................... .17 .21
Pro forma equivalent.......................... .14 --
Loss before extraordinary item
Historical.................................... (.02) (.72)
Pro forma equivalent.......................... -- .05
Cash dividends per common share(c)
Historical.................................... -- --
Pro forma equivalent.......................... .02 .16
</TABLE>
- ---------------
(a) Historical information presented for La/Cal is calculated using an assumed
19,765,226 units outstanding which is equal to the number of shares of
Common Stock the Partners will receive as a result of the Asset Transfer.
(b) La/Cal has operated as a partnership since formation and accordingly has not
directly paid income taxes. Net income (loss) as adjusted for income taxes
is shown in order to reflect the impact of income taxes as if La/Cal had
been organized as a corporation.
(c) La/Cal cash distributions per unit are based on actual cash distributions to
the Partners, a portion of which represents return of capital. See "Selected
Historical Financial Data of La/Cal." The Company does not expect to pay
dividends on the Common Stock. Accordingly, Patrick stockholders and
Partners should not expect to receive dividends or other distributions after
the Effective Time.
21
<PAGE> 33
RISK FACTORS
RISK FACTORS RELATED TO THE TRANSACTIONS APPLICABLE TO PATRICK STOCKHOLDERS AND
LA/CAL PARTNERS
Both the Patrick stockholders and La/Cal Partners should consider the
following risk factors regarding the Transactions and the structure of their
investment in the Company after the Effective Time.
UNCERTAINTY WITH RESPECT TO TRADING VALUE OF MARKET FOR COMPANY CAPITAL STOCK
Although the Patrick Common Stock is listed and traded on the NYSE and the
Patrick Preferred Stock is traded on the Nasdaq Small-Cap Market, there has been
no prior trading market for the securities of La/Cal or the Company.
Accordingly, there can be no assurance as to the market value or trading volume
of the Common Stock or Preferred Stock following the Effective Time. Pursuant to
the Agreement, the holders of at least 99% of the 19,765,226 shares of Common
Stock issued to La/Cal in the Asset Transfer and each member of the Patrick
Board, who collectively will beneficially own 1,259,587 shares of Common Stock
(including options to purchase Common Stock) after the Effective Time, have
agreed not to sell, or otherwise
dispose of, shares of Common Stock for six months after the Effective Time.
During this period, less than 50% of the outstanding shares of Common Stock will
be freely tradeable. Thereafter, substantially all shares of Common Stock will
be freely tradeable, although shares held by affiliates of Patrick and La/Cal as
of the date of their respective special meetings, as well as shares held by
affiliates of the Company, shall be subject to volume and manner of sale
limitations under Rules 144 and 145 of the Securities Act. See "Shares Eligible
for Future Sale." At the Effective Time, the Company will enter into a
Registration Rights Agreement with certain affiliates of La/Cal and Patrick. See
"Description of the Transactions -- Registration Rights." Although the Company
intends to use reasonable efforts to maintain the NYSE listing for the Common
Stock and the Nasdaq listing for the Preferred Stock, there can be no assurance
that the listings will be maintained. Patrick has been advised by the staff of
the NYSE and Nasdaq that they view the issuance of shares of the Common Stock
and Preferred Stock pursuant to the Transactions as a continuous listing of such
capital stock. Nevertheless, the NYSE and Nasdaq Small-Cap Market have certain
minimum listing criteria and there can be no assurance that the NYSE or Nasdaq
will not delist the capital stock of the Company if such criteria are not
maintained. If the shares of Company capital stock were delisted, holders of
such capital stock could find their shares less marketable and any such decrease
in liquidity could adversely affect the market value of such shares.
CONCENTRATION OF OWNERSHIP IN THE GOODRICH FAMILY; ABILITY TO INFLUENCE ELECTION
OF DIRECTORS AND OTHER MATTERS SUBMITTED TO STOCKHOLDERS
After the Effective Time, Mr. Henry Goodrich, Mr. Gil Goodrich and their
affiliates and family members collectively will own an aggregate of 9,944,659
shares of Common Stock, representing 25.2% of the outstanding shares (not
including options or warrants). Accordingly, such persons will be able to
exercise substantial influence over the business and affairs of the Company,
including the election of directors and other matters submitted to a vote of
stockholders. There are no voting or similar agreements among such persons. See
"Ownership of Capital Stock."
OBLIGATION UNDER THE JOINT PARTICIPATION AGREEMENT TO SHARE CERTAIN DRILLING
OPPORTUNITIES WITH GOODRICH OIL COMPANY PARTICIPANTS; TERMS OF CONSULTING
AGREEMENT WITH HENRY GOODRICH
At the Effective Time, the Company will enter into a Joint Participation
Agreement with Goodrich Oil Company pursuant to which the Company and Goodrich
Oil Company will each agree to offer to the other a 50% participation interest
in all drilling prospects and acquisitions of producing properties identified
after the Effective Time by either company. Goodrich Oil Company is owned by
Henry Goodrich, who is the father of the Company's chief executive officer and
will become a director of the Company at the Effective Time, and is engaged in
developing oil and gas drilling programs for its participants, primarily in
South Louisiana and East Texas. Goodrich Oil Company is a party to participation
agreements, with certain industry partners and individual investors (the "GOC
Participants") pursuant to which such persons invest in drilling programs
developed by Goodrich Oil Company. Goodrich Oil Company receives management fees
from the GOC
22
<PAGE> 34
Participants but does not retain any working interest in its drilling programs.
Pursuant to the Joint Participation Agreement, the GOC Participants will have
the opportunity to invest, through Goodrich Oil Company, in prospects identified
after the Effective Time by the Company, and the Company will have the
opportunity to participate in future Goodrich Oil Company drilling programs.
Both Henry Goodrich and Gil Goodrich are GOC Participants and will continue to
invest in Goodrich Oil Company drilling programs after the Effective Time. The
Company has adopted a policy pursuant to which each drilling program presented
to the Company by Goodrich Oil Company will be reviewed by a committee of
disinterested directors for approval prior to acceptance of the program.
Goodrich Oil Company will not receive any compensation or management fees from
the Company. The Company believes that the Joint Participation Agreement will be
beneficial to the Company by enabling it to participate in future Goodrich Oil
Company drilling programs thereby increasing its drilling opportunities, and
providing it with access to investment capital through the GOC Participants;
however, the Joint Participation Agreement will limit the Company's initial
working interests in newly developed prospects to 50% and there can be no
assurance that the GOC Participants will agree to invest in the Company's
programs.
Mr. Goodrich will also be a party to a Consulting Agreement with the
Company pursuant to which he will provide consulting services to the Company.
Pursuant to this agreement, Mr. Goodrich will receive consulting fees of
$150,000 per year for five years and will be granted options to purchase 250,000
shares of Common Stock at the closing price as of the Closing Date and subject
to pro rata vesting over five years.
See "Description of the Transactions -- Joint Participation Agreement with
Goodrich Oil Company" and "-- Consulting Agreement with Henry Goodrich."
RISKS ASSOCIATED WITH PATRICK STOCKHOLDER LITIGATION
As described below in "Description of the Transactions -- Stockholder
Lawsuit," a substantial holder of Patrick Common Stock has filed suit to enjoin
the consummation of the Transactions and is seeking damages in connection
therewith. The holder's suit alleges (i) breach of fiduciary duties in
connection with the approval of the Transactions, (ii) breach of contractual
duties by Patrick under a registration rights agreement and (iii) conspiracy. In
addition, the holder is seeking actual and punitive damages, attorneys' fees,
and a temporary and permanent injunction blocking the consummation of the
Transactions. Patrick has preliminary reached agreement with the plaintiff in
this suit regarding a settlement which will not effect the terms of the proposed
Transactions and does not believe that the action will delay or otherwise
interfere with the consummation of the Transactions. See "Description of the
Transactions -- Stockholder Litigation."
TRANSACTIONS WILL TRIGGER SPECIAL CONVERSION RIGHTS UNDER CERTIFICATE OF
DESIGNATION RELATING TO PATRICK PREFERRED STOCK; RISK OF DILUTION TO HOLDERS OF
PATRICK COMMON STOCK AND LA/CAL PARTNERS
The Transactions will represent a "Corporate Change" as such term is
defined in the certificate of designations relating to the Patrick Preferred
Stock. Pursuant to the terms of such certificate of designation, the Patrick
Preferred Stockholders will have the right for 45 days after notification to
convert each share of Preferred Stock which they receive pursuant to the Merger
into approximately 6.25 shares of Common Stock. See "Description of Company
Capital Stock -- Preferred Stock." If all the Preferred holders exercise this
special conversion right, approximately 7,343,750 additional shares of Common
Stock (compared to 39,530,452 shares which are expected to be outstanding
immediately after the Effective Time) would be issued resulting in dilution to
holders of Common Stock after the Effective Time.
NO DIVIDENDS TO BE PAID BY COMPANY; RESTRICTIONS ON DIVIDENDS BY LENDER
Patrick has never paid a cash dividend on Patrick Common Stock, and the
Company has no current plan to pay cash dividends on its Common Stock. The
Company currently intends to retain its cash for the expansion of its business,
including development, exploration and acquisition activities, but may consider
paying cash dividends at a later date. Patrick's existing bank credit agreement
prohibits the payment of dividends on the Patrick Common Stock and would
prohibit the payment of dividends on the Common Stock after the Effective Time.
The Company expects to replace the Patrick credit facility with a facility which
does
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<PAGE> 35
not prohibit dividends on Common Stock, however, subsequent borrowings by the
Company may contain similar dividend restrictions. See "La/Cal Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources for a description of the
commitment letter relating to the Company's new credit facility.
CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S CERTIFICATE OF
INCORPORATION AND BYLAWS MAY DISCOURAGE AN UNSOLICITED BID TO ACQUIRE THE
COMPANY
The Company's Certificate of Incorporation and Bylaws and the DGCL contain
provisions that may have the effect of discouraging unsolicited takeover
proposals for the Company. These provisions, among other things, restrict the
ability of stockholders to take action by written consent, provide for a
classified Board of Directors, authorize the Board of Directors to designate the
terms of and issue new series of preferred stock and impose restrictions on
business combinations with certain interested parties. See "Description of
Company Capital Stock -- Certain Provisions of the Company's Certificate of
Incorporation and Bylaws" and "-- Delaware Business Combination Statute."
ADDITIONAL RISK FACTORS RELATED TO THE TRANSACTIONS APPLICABLE TO THE PATRICK
STOCKHOLDERS
In addition to those considerations described above, the Patrick
Stockholders should consider the following additional risk factors in
considering the Transactions:
LIMITATIONS ON FAIRNESS OPINION
In rendering its opinion to Patrick, Petrie Parkman relied on the accuracy
and completeness of the information provided to it by Patrick and La/Cal,
assumed the financial and operating forecasts were reasonably prepared, and did
not make an independent evaluation or appraisal of the assets or liabilities of
Patrick or La/Cal. The opinion is not based on any appraisal or evaluation of
the assets or liabilities of Patrick or La/Cal except for the reserve reports.
Therefore the reference values arrived at by Petrie Parkman are dependent in
part upon the accuracy of the information provided to it.
TRANSACTIONS WILL RESULT IN LIMITATIONS ON USE OF NET OPERATING LOSS
CARRY-FORWARDS AFTER THE EFFECTIVE TIME
Patrick had NOLs totalling approximately $37.8 million as of December 31,
1994, which expire in taxable years ending December 31, 2001 through 2009. The
Transactions will result in a more than 50% cumulative ownership change with
respect to Patrick, thereby causing the use of Patrick's NOLs as of the
Effective Time to be limited by section 382 of the Code. It is expected that the
Company's ability to use such NOLs will be significantly limited on an annual
basis, and there can be no assurance that the Company will be able to utilize
all of its available NOLs prior to their expiration to offset taxable income.
ADDITIONAL RISK FACTORS RELATED TO THE TRANSACTIONS APPLICABLE TO THE LA/CAL
PARTNERS
In addition to those considerations described above, the Partners of La/Cal
should consider the following additional risk factors in considering the
Transactions:
ABSENCE OF FAIRNESS OPINION FROM OUTSIDE FINANCIAL ADVISOR
The Management Committee has approved the Agreement and the Transactions
contemplated thereby and believes that such Transactions are fair to and in the
best interests of the Partners from a financial point of view. The reasons for
the Management Committee's recommendation to the Partners and the basis of its
analysis of the fairness of the consideration to be received by the Partners is
set forth under "Description of the Transactions -- Reasons for the
Transactions; Recommendations of the Patrick Board and La/Cal Management
Committee." The Management Committee's recommendation is not based upon, and the
Management Committee did not receive any opinion, report or appraisal regarding
the Transactions from any independent financial advisor or other third party
other than reserve estimates of Patrick prepared by independent reserve
24
<PAGE> 36
engineers. There can be no assurance that an independent financial advisor would
agree with the Management Committee's analysis of the relative valuations of
Patrick and La/Cal.
COMPANY WILL NOT PAY COMMON STOCK DIVIDENDS AND WILL HAVE PERPETUAL EXISTENCE
UNLIKE PARTNERSHIP WHICH MAKES PERIODIC DISTRIBUTIONS AND HAS 10-YEAR FIXED TERM
La/Cal was organized in 1993 as a finite-life entity with a 10-year term.
La/Cal's assets consist of various oil and gas interests and the cash receipts
attributable to such assets are periodically distributed to the Partners, rather
than being reinvested in additional drilling opportunities. During 1994 and
1993, the Partners received cash distributions from La/Cal aggregating
$3,107,000 and $4,073,000, respectively. Pursuant to the Transactions, the
La/Cal Interests will be contributed to the Company in exchange for shares of
Common Stock. The Company will have perpetual existence. Further, the Company is
expected to retain any cash produced from operations for reinvestment in oil and
gas exploration and development and related activities and does not expect to
pay dividends on the Common Stock. As a result, Partners should not expect to
receive dividends or other distributions after the Effective Time.
PARTNERS ABILITY TO INFLUENCE MANAGEMENT AND AFFAIRS OF COMPANY AND DUTIES OWED
TO PARTNERS ALTERED BY TRANSACTIONS
The La/Cal partnership agreement provides that except as otherwise
expressly provided, the management and control of the day-to-day operations of
La/Cal shall rest exclusively in the Management Committee. The Management
Committee is given broad powers under the La/Cal partnership agreement; however,
the consent of (i) all Partners is required to extend the term of existence of
La/Cal, (ii) Partners owning 51% of the equity interest is required to sell or
exchange all or substantially all of La/Cal's properties, (iii) a majority in
interest of the Partners is required to remove a member of the Management
Committee or to select a successor member, (iv) a majority in interest is
required to make certain decisions if a Partner defaults in making his capital
contributions, and (v) a majority of the Partners is required to dissolve the
partnership. The La/Cal partnership agreement provides that the Management
Committee shall not be liable to La/Cal or to any other Partner for any actions
taken in good faith and reasonably believed to be in the best interests of
La/Cal, or for errors of judgment, neglect, omission, or wrongdoing; provided
that a member of the Management Committee may be liable for willful misconduct,
gross negligence, or other breach of his fiduciary duties.
The business and affairs of the Company will be managed under the direction
of its Board of Directors. Holders of Common Stock have no right as such to
participate in the management of the Company except pursuant to their right to
vote in the election of directors of the Company. Directors have a fiduciary
duty to the Company and its stockholders. The fiduciary duty includes the legal
responsibilities of care, loyalty and good faith. As permitted by Delaware law,
the Company's Certificate of Incorporation provides for indemnification of
directors under certain circumstances and limits their liability to the Company
and its stockholders under certain circumstances.
The Civil Code does not contain any voting rights provisions, and the
voting rights of the Partners are limited to the consent requirements referred
to above. Holders of Common Stock are entitled to vote on the election of
directors of the Company and are also entitled to vote on various other matters,
including (i) amendments of the Certificate of Incorporation, (ii) the sale of
substantially all of the assets of the Company, (iii) the voluntary dissolution
of the Company and (iv) a merger or share exchange.
COMPANY'S OPERATIONS SUBJECT TO CORPORATE INCOME TAX
La/Cal is currently treated as a partnership and not as an association
taxable as a corporation for federal income tax purposes. Under present law, a
partnership is not a taxable entity and incurs no federal income tax liability.
Instead, each item of partnership income, gain, loss, deduction or credit "flows
through" to the partners. A distribution by a partnership to a partner is
generally not taxable to the partner unless the distribution is money in excess
of the partner's adjusted basis in his partnership interest or the amount such
partner has "at risk" in the partnership.
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<PAGE> 37
Since the Company will be classified as a corporation for federal income
tax purposes, any income of the Company and its subsidiaries will be subject to
tax at the corporate rate, and any dividends by the Company to its stockholders
will incur a second level of tax in the hands of the stockholders. In other
words, any income of the Company distributed to the stockholders as a dividend
will be subject to "double taxation." The Company does not expect to pay
dividends on its Common Stock for the foreseeable future. See "Certain Federal
Income Tax Consequences."
RISK THAT COMMON STOCK WILL TRADE BELOW RANGE OF VALUE ESTIMATED BY MANAGEMENT
COMMITTEE
As described above under "-- Uncertainty with Respect to Market for Company
Common Stock," there has been no prior trading market for the Company's
securities. Accordingly, there can be no assurance that the shares of Common
Stock to be received by the Partners as a result of the Transactions will trade
in the public market at any particular price and such shares could trade at a
price below the historical trading prices of Patrick Common Stock, below the
value estimated for such securities by the Management Committee in analyzing the
fairness of the Transactions or below a price which reflects the Company's net
asset value. The trading price for such shares will be affected by a number of
factors, including the Company's earnings and cash flow, drilling record,
reserve growth, financing activities and operating expenses, as well as a number
of factors beyond the Company's control, including natural gas and oil prices,
general economic conditions, governmental regulations and environmental policies
and the continued listing of the Company's shares by the NYSE. The Management
Committee cannot estimate the likelihood that shares of Common Stock will trade
at any particular price level or quantify such risks on any reasonable basis.
The Management Committee believes, however, that the relative values assigned to
Patrick and La/Cal in its analysis of the terms of the Transactions is fair to
the Partners. See "Description of the Transactions -- Reasons for the
Transactions; Recommendations of the Patrick Board and the La/Cal Management
Committee."
HISTORY OF PATRICK OPERATING LOSSES; NO ASSURANCE OF FUTURE PROFITABILITY
The historical financial statements of Patrick reflect net losses of
$14,482,000, $9,298,000 and $21,895,000 for the years ended December 31, 1994,
1993 and 1992, respectively (reflecting asset writedowns of $12,301,000,
$9,419,000 and $15,640,000 during 1994, 1993 and 1992, respectively). Patrick's
losses during 1994 and 1993 exceeded La/Cal's net income for such periods.
Patrick has also had an unsuccessful exploration program in recent years.
In 1992 Patrick experienced a lack of success on a major project in Michigan,
Garfield #1-7, which caused a significant loss of proved undeveloped reserves
associated with the well. Furthermore, dry holes in its North Dakota play
resulted in Patrick's decision to shut down the Billings, Montana operations and
refocus its exploration efforts principally in West Texas, and on a few deep gas
prospects in Michigan. In 1993, Patrick was not able to interest participants in
the deep gas prospects in Michigan and therefore concentrated all exploration
efforts in West Texas, where Patrick has had only marginal success.
Patrick's writedowns in 1994, 1993 and 1992, attributable to unsuccessful
exploratory activities (exclusive of pricing adjustments), are as follows:
<TABLE>
<CAPTION>
UNSUCCESSFUL
YEAR DEVELOPMENT DRY HOLES TOTAL
- ----- ----------- ---------- -----------
<S> <C> <C> <C>
1994 $ 2,560,000 $ 365,000 $ 2,925,000
1993 2,837,000 642,000 3,479,000
1992 10,936,000 1,784,000 12,720,000
</TABLE>
Although management of the Company believes that it will be able to achieve
profitability on a combined basis after the Effective Time, the Company's
results of operations will depend on the various factors described herein, many
of which are beyond the Company's control, and there can be no assurance of
future profitability.
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<PAGE> 38
COMPENSATION PAYABLE BY THE COMPANY TO MEMBERS OF THE MANAGEMENT COMMITTEE AFTER
THE EFFECTIVE TIME AND IN CONNECTION WITH THE TRANSACTIONS
Currently, members of the Management Committee are not compensated for
their activities on behalf of La/Cal, except for reimbursement out-of-pocket
expenses incurred on behalf of La/Cal. Upon completion of the Merger, (i) Walter
G. "Gil" Goodrich will receive an initial base salary of $150,000, an option to
purchase 250,000 shares of Goodrich Common Stock and certain other bonus
compensation as determined by the Compensation Committee of the Board of
Directors of the Company, (ii) Henry Goodrich will receive an annual consulting
fee of $150,000 for five years and an option to purchase 250,000 shares of
Goodrich Common Stock and (iii) Leo Bromberg will receive a finder's fee in
connection with the Transactions of 494,131 shares of Common Stock. See
"Management of the Company after the Effective Time -- Employment and Consulting
Agreements."
RISK FACTORS RELATED TO THE COMPANY'S OIL AND GAS OPERATIONS AFTER THE EFFECTIVE
TIME
Both the Patrick stockholders and La/Cal Partners should consider the
following additional risk factors related to the Company's oil and gas
operations.
DEPENDENCE OF THE COMPANY'S FINANCIAL RESULTS ON OIL AND GAS PRICES
Revenues generated from La/Cal's and Patrick's operations are, and revenues
generated from the Company's operations after the Effective Time will be, highly
dependent upon the sales price of, and demand for, natural gas and oil.
Historically, the markets for natural gas and oil have been volatile and are
likely to continue to be volatile in the future. Prices for natural gas and oil
are subject to wide fluctuation in response to relatively minor changes in the
supply of and demand for natural gas and oil, market uncertainty and a variety
of additional factors that are beyond the control of the Company. These factors
include the level of consumer product demand, weather conditions, domestic and
foreign governmental regulations, the price and availability of alternative
fuels, political conditions in the Middle East, the foreign supply of natural
gas and oil, the price of foreign imports and overall economic conditions. It is
impossible to predict future natural gas and oil price movements with any
certainty. Declines in natural gas and oil prices may adversely affect the
Company's financial condition, liquidity and results of operations. Lower
natural gas and oil prices also may reduce the amount of the Company's natural
gas and oil that can be produced economically.
ECONOMIC RISKS INVOLVED IN OIL AND GAS DRILLING AND OPERATIONS
The Company's natural gas and oil operations are subject to the economic
risks typically associated with development, production and exploration
activities, including the necessity of significant expenditures to locate and
acquire producing properties and to drill exploratory wells. In conducting
development and exploration activities, the Company may drill unsuccessful wells
and experience losses. In the event that natural gas or oil is discovered, there
is no assurance that such natural gas or oil can be economically produced or
satisfactorily marketed. The presence of unanticipated pressure or
irregularities in formations, miscalculations or accidents may cause the
Company's development, production and exploration activities to be unsuccessful,
resulting in a total loss of the Company's investment in such activities. In
addition, the Company's producing properties will be subject to production
limitations imposed by state regulatory authorities. Consequently, the Company's
actual future production may be substantially affected by factors beyond the
Company's control.
DECLINING OIL AND GAS RESERVES; RISKS OF RESERVE REPLACEMENT
In general, the volume of production from natural gas and oil properties
declines as reserves are depleted. Except to the extent the Company acquires
properties containing proved reserves or conducts successful development and
exploration activities, or both, the proved reserves of the Company will decline
as reserves are produced. The Company's future natural gas and oil production
is, therefore, highly dependent upon its level of success in finding or
acquiring additional reserves. The business of exploring for, developing or
acquiring reserves is capital intensive. To the extent cash flow from operations
is reduced and external sources of capital become limited or unavailable, the
Company's ability to make the necessary capital investment to
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<PAGE> 39
maintain or expand its asset base of natural gas and oil reserves would be
impaired. In addition, there can be no assurance that the Company's future
development, acquisition and exploration activities will result in additional
proved reserves or that the Company will be able to drill productive wells at
acceptable costs.
OPERATING RISKS OF OIL AND GAS OPERATIONS
The natural gas and oil business involves certain operating hazards such as
well blowouts, cratering, explosions, uncontrollable flows of oil, natural gas
or well fluids, fires, formations with abnormal pressures, pollution, releases
of toxic gas and other environmental hazards and risks, any of which could
result in substantial losses to the Company. In addition, the Company may be
liable for environmental damages caused by previous owners of property purchased
and leased by the Company. As a result, substantial liabilities to third parties
or governmental entities may be incurred, the payment of which could reduce or
eliminate the funds available for development, acquisitions or exploration, or
result in the loss of the Company's properties. In accordance with customary
industry practices, Patrick and La/Cal maintain, and the Company will maintain,
insurance against some, but not all, of such risks and losses. The occurrence of
such an event not fully covered by insurance could have a material adverse
effect on the financial condition and results of operations of the Company.
UNCERTAINTY OF RESERVE INFORMATION AND ESTIMATES OF FUTURE NET CASH FLOWS
Petroleum engineering is not an exact science. Information relating to
Patrick's and La/Cal's proved oil and gas reserves is based upon engineering
estimates. Estimates of economically recoverable oil and gas reserves and of
future net cash flows necessarily depend upon a number of variable factors and
assumptions, such as historical production from the area compared with
production from other producing areas, the assumed effects of regulations by
governmental agencies and assumptions concerning future oil and gas prices,
future operating costs, severance and excise taxes, development costs and
workover and remedial costs, all of which may in fact vary considerably from
actual results. For these reasons, estimates of the economically recoverable
quantities of oil and gas attributable to any particular group of properties,
classifications of such reserves based on risk of recovery, and estimates of the
future net cash flows expected therefrom prepared by different engineers or by
the same engineers at different times may vary substantially. Actual production,
revenues and expenditures with respect to Patrick's and La/Cal's (and therefore
the Company's) reserves will likely vary from estimates, and such variances may
be material.
The present values of estimated future net cash flows referred to in this
Joint Proxy Statement/Prospectus should not be construed as the current market
value of the estimated oil and gas reserves attributable to Patrick's and
La/Cal's properties. In accordance with applicable requirements of the
Commission, the estimated discounted future net cash flows from proved reserves
are generally based on prices and costs as of the date of the estimate, whereas
actual future prices and costs may be materially higher or lower. Actual future
net cash flows also will be affected by factors such as the amount and timing of
actual production, supply and demand for oil and gas, curtailments or increases
in consumption by gas purchasers and changes in governmental regulations or
taxation. The timing of actual future net cash flows from proved reserves, and
their actual present value, will be affected by the timing of both the
production and the incurrence of expenses in connection with development and
production of oil and gas properties. In addition, the 10% discount factor,
which is required by the Commission to be used to calculate discounted future
net cash flows for reporting purposes, is not necessarily the most appropriate
discount factor based on interest rates in effect from time to time and risks
associated with Patrick's or La/Cal's reserves or the oil and gas industry in
general.
COMPANY'S OIL AND GAS OPERATIONS SUBJECT TO SUBSTANTIAL GOVERNMENT REGULATION
The Company's business is regulated by certain local, state and federal
laws and regulations relating to the exploration for, and the development,
production, marketing, pricing, transportation and storage of, natural gas and
oil. The Company's business is also subject to extensive and changing
environmental and safety laws and regulations governing the discharge of
materials into the environment or otherwise relating to environmental
protection. In addition, the Company is subject to changing and extensive tax
laws, and the effect of newly
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<PAGE> 40
enacted tax laws, such as the increased excise tax on transportation fuels
enacted in August 1993 as part of the Revenue Reconciliation Act of 1993, cannot
be predicted. There can be no assurance that present or future regulation will
not adversely affect the operations of the Company. See "Business and Properties
of the Company -- Regulation" and "-- Environmental Matters."
COMPETITION IN THE OIL AND GAS INDUSTRY
The oil and gas industry is highly competitive. Major oil and gas
companies, independent concerns, drilling and production purchase programs and
individual producers and operators are active bidders for desirable oil and gas
properties, as well as the equipment and labor required to operate those
properties. Many competitors have financial resources substantially greater than
those the Company would have following the Effective Time, and staffs and
facilities substantially larger than those of the Company. The availability of a
ready market for the oil and gas production of the Company will depend in part
on the cost and availability of alternative fuels, the level of consumer demand,
the extent of other domestic production of oil and gas, the extent of
importation of foreign oil and gas, the cost of and proximity to pipelines and
other transportation facilities, regulations by state and federal authorities
and the cost of complying with applicable environmental regulations.
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<PAGE> 41
THE MEETINGS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished in connection with
the solicitation by (i) the Board of Directors of Patrick of proxies to be used
at the Patrick Special Meeting to be held at
, on , 1995, at a.m. local time, and at any adjournment
or postponement thereof; and (ii) the Management Committee of proxies to be used
at the La/Cal Special Meeting to be held at , on
, 1995, at a.m. local time, and at any adjournment or
postponement thereof. This Joint Proxy Statement/Prospectus will be mailed to
the Patrick stockholders and the Partners on or about , 1995.
PATRICK SPECIAL MEETING
Matters to Be Considered at the Meeting. At the Patrick Special Meeting,
holders of Patrick Common Stock will consider and vote upon the approval and
adoption of the Agreement, the transactions contemplated thereby and the
Goodrich Plan, and will transact such other business as may properly come before
the meeting.
Recommendation of the Patrick Board of Directors. THE BOARD OF DIRECTORS OF
PATRICK HAS UNANIMOUSLY APPROVED AND ADOPTED THE AGREEMENT, THE TRANSACTIONS
CONTEMPLATED THEREBY AND THE GOODRICH PLAN AND UNANIMOUSLY RECOMMENDS THAT
HOLDERS OF PATRICK COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE AGREEMENT,
THE TRANSACTIONS CONTEMPLATED THEREBY AND THE GOODRICH PLAN.
Voting at the Patrick Special Meeting. Only stockholders of record of
Patrick as of the close of business on , 1995 are entitled to
receive notice of the Patrick Special Meeting, and only holders of record of the
Patrick Common Stock are entitled to vote at the Patrick Special Meeting. As of
the close of business on such date, there were 19,765,226 shares of Patrick
Common Stock outstanding and entitled to vote at the Patrick Special Meeting.
The presence, in person or by proxy, of the holders of a majority of the shares
of Patrick Common Stock outstanding as of the record date and entitled to vote
thereat is necessary to constitute a quorum for the purpose of transacting
business at the Patrick Special Meeting.
Each share of Patrick Common Stock outstanding as of the record date
entitles the holder thereof to one vote upon each matter properly presented at
the Patrick Special Meeting. The affirmative vote of the holders of the majority
of outstanding shares of Patrick Common Stock is required to approve and adopt
the Agreement and the transactions contemplated thereby. Approval of the
Goodrich Plan requires the affirmative vote of the holders of a majority of the
outstanding shares of Patrick Common Stock present and entitled to vote thereon
at the meeting. However, approval of the Goodrich Plan is not a condition of the
consummation of the Merger. Abstentions will be counted as present for purposes
of determining whether a quorum is present at the Patrick Special Meeting.
Broker non-votes will not be counted as present for purposes of determining
whether a quorum is present at the Patrick Special Meeting. Because approval and
adoption of the Agreement requires the affirmative vote of the holders of the
majority of the outstanding shares of Patrick Common Stock, abstentions,
failures to vote and broker non-votes will have the same effect as votes against
the Agreement.
Holders of Patrick Preferred Stock are not entitled to vote on the approval
and adoption of the Agreement.
Security Ownership of Management and Certain Other Persons. As of the
record date for the Patrick Special Meeting, the directors and executive
officers of Patrick and their affiliates beneficially own, and exercise voting
control over, an aggregate of 202,558 shares (not including 1,222,679 shares of
which may be acquired upon the exercise of outstanding stock options and
warrants) of Patrick Common Stock, constituting approximately 1.0% of the shares
of Patrick Common Stock outstanding as of such date. Each of the directors and
executive officers of Patrick has informed Patrick that he intends to vote his
shares of Patrick Common Stock in favor of the proposal to approve and adopt the
Agreement, the transactions contemplated thereby and the Goodrich Plan.
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<PAGE> 42
Voting and Revocation of Proxies. Shares of Patrick Common Stock that are
entitled to vote at the Patrick Special Meeting and that are represented by a
properly signed proxy received at or prior to the Patrick Special Meeting,
unless subsequently revoked, will be voted at the Patrick Special Meeting in
accordance with the instructions indicated thereon. If a proxy is properly
signed and returned without indicating any voting instructions, the shares of
Patrick Common Stock represented by such proxy will be voted FOR the adoption
and approval of the Agreement, the transactions contemplated thereby and the
Goodrich Plan. The Board of Directors of Patrick is not currently aware of any
matter to be brought before the Patrick Special Meeting other than as referred
to herein. If, however, other matters are properly brought before the Patrick
Special Meeting, or any adjournments or postponements thereof, the persons
appointed as proxies will have the discretion to vote or act thereon in
accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the shares represented by such proxy are voted by
filing with the Secretary of Patrick a duly-executed written notice of
revocation or a properly signed proxy bearing a later date, or by voting in
person at the Patrick Special Meeting. All written notices of revocation and
other communication with respect to revocation of Patrick proxies should be
addressed to Patrick Petroleum Company, 301 West Michigan Avenue, Jackson,
Michigan, 49201, Attention: Secretary. Attendance at the Patrick Special Meeting
will not in and of itself constitute revocation of a proxy.
Solicitation of Proxies. In addition to solicitation by mail, the
directors, officers and employees of Patrick may solicit proxies from the
holders of Patrick Common Stock in person or by telephone, telegram, facsimile
or other forms of communication for no additional or special compensation.
Patrick has also retained W. F. Doring & Co. to aid in the solicitation of
proxies for an estimated fee of $7,000. Brokerage houses, banks, nominees,
trustees, custodians and other fiduciaries will be requested to forward
soliciting material to beneficial owners and will be reimbursed upon request for
their reasonable out-of-pocket expenses incurred in connection therewith.
Appraisal Rights of Dissenting Stockholders. While holders of Patrick
Common Stock are not entitled to appraisal rights in connection with the Merger,
holders of Patrick Preferred Stock are entitled to appraisal rights under
Section 262 of the Delaware General Corporation Law. See "Description of the
Transactions -- Rights of Dissenting Stockholders" and Appendix VI.
PATRICK STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
LA/CAL SPECIAL MEETING
Matters to be Considered at the Meeting. The La/Cal Partners will vote on
(i) a proposal to approve and adopt the Agreement and the transactions
contemplated thereby, (ii) a proposal, subject to approval and adoption of the
Agreement and the consummation of the Transactions contemplated thereby, to
dissolve La/Cal and distribute all of its assets to the Partners, and (iii) to
approve the Goodrich Plan. Whether or not the proposal to dissolve La/Cal is
approved, the Management Committee intends to distribute the shares of Common
Stock received in the Asset Transfer by La/Cal to the Partners. Neither the
approval of the proposal to dissolve La/Cal nor to adopt the Goodrich Plan is a
condition to the proposal to approve and adopt the Agreement or a condition to
the consummation of the transactions contemplated thereby and the vote on the
proposal to dissolve La/Cal will not affect the distribution of the shares
received by La/Cal pursuant to the Asset Transfer to the Partners. Since the
La/Cal partnership agreement requires the written consent to such proposals, the
form of proxy accompanying this Joint Proxy Statement/Prospectus also
constitutes a written consent of the Partner. Any Partner desiring to vote in
favor of a proposal in person rather than by proxy at the La/Cal Special Meeting
will be asked to sign a written consent at the meeting.
Recommendations of the Management Committee. THE MANAGEMENT COMMITTEE HAS
UNANIMOUSLY APPROVED THE AGREEMENT, THE TRANSACTIONS CONTEMPLATED THEREBY, THE
SUBSEQUENT DISSOLUTION OF LA/CAL AND DISTRIBUTION OF LA/CAL'S ASSETS TO THE
PARTNERS AND THE GOODRICH PLAN AND UNANIMOUSLY RECOMMENDS THAT THE PARTNERS
CONSENT TO SUCH PROPOSALS.
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<PAGE> 43
Voting at the La/Cal Special Meeting. Approval of the Agreement by the
La/Cal Partners requires the written consent of Partners owning 51% of the
equity interest in La/Cal, and approval of the proposal to dissolve requires the
approval of at least a majority of the La/Cal Partners.
The La/Cal partnership agreement does not provide for meetings of partners.
Accordingly, there are no quorum requirements for such a meeting. The Management
Committee has determined that action by written consent to be taken at a
specified place and time would be the most appropriate method of coordinating
the Patrick and La/Cal approval process in connection with the Transactions.
Security Ownership of Management and Certain Other Persons. The members of
the Management Committee and their affiliates own 60% of the equity interests in
La/Cal and include or have voting control over six of the 26 Partners in La/Cal.
Each member of the Management Committee intends to vote or direct the vote of
such partnership interests in favor of the approval and adoption of the
Agreement and the transactions contemplated thereby and, if such matter is
approved by the requisite Partner vote and the transactions contemplated by the
Agreement are consummated, in favor of the proposal to dissolve La/Cal and
distribute its assets to the Partners. Each member of the Management Committee
intends to vote or direct the vote of their partnership interests in favor of
the approval of the Goodrich Plan.
Solicitation of Proxies and Voting. The members of the Management Committee
and any other Partners of La/Cal (who will not be additionally compensated for
solicitation efforts made) may solicit proxies from Partners of La/Cal by
telephone, telegraph, facsimile, oral communication or special letter.
A proxy relating to the La/Cal Special Meeting, even though executed and
returned, may be revoked at any time prior to the voting of the proxy; however,
mere attendance at the La/Cal Special Meeting will not itself have the effect of
revoking the proxy. A Partner may revoke his proxy by delivering to the
Management Committee an executed written revocation thereof, by giving a later
dated proxy, or by attending the La/Cal Special Meeting, withdrawing his proxy
and voting in person.
A proxy in the accompanying form when properly executed and returned, will
be voted in accordance with the instructions therein. A proxy relating to the
La/Cal Special Meeting on which no specification of vote has been indicated will
be voted in favor of the approval and adoption of the Agreement, the proposal to
dissolve La/Cal and distribute the Common Stock and other assets of La/Cal to
the Partners and the Goodrich Plan.
No Dissenters' Rights. Partners do not have any statutory appraisal rights
under Louisiana law or any similar rights under the partnership agreement in
connection with the Transactions. When such appraisal rights exist, they
generally give security holders the option to surrender their securities for
cash instead of participating in the transaction by filing an action in court to
have the "fair value" of such securities determined. In the absence of such
rights the vote of Partners holding 51% of the equity interests of La/Cal will
be binding on all Partners.
EXPENSES
If the Agreement is terminated prior to the Effective Time, all expenses
associated with soliciting proxies incurred by Patrick or La/Cal shall be paid
by the party incurring such expenses. If the Merger is completed, then all such
solicitation expenses will be paid or reimbursed by the Company.
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DESCRIPTION OF THE TRANSACTIONS
The following is a summary of the Agreement and the transactions
contemplated thereby. The Agreement is attached to this Joint Proxy
Statement/Prospectus as Appendix I and incorporated herein by reference. The
following discussion is subject to and qualified in its entirety by reference to
the full text of the Agreement.
The Agreement provides for a combination of Patrick and La/Cal, as a result
of which the businesses conducted by Patrick (and its subsidiaries and
partnerships) and La/Cal will be conducted by the Company, a Delaware
corporation recently organized to become the parent company for such businesses.
The Company is currently a wholly-owned subsidiary of Patrick and conducts no
business and has only nominal assets. The combination of Patrick and La/Cal will
be effected primarily by two concurrent transactions: (a) the contribution by
La/Cal of all of its assets (excluding cash and accounts receivable accrued
prior to March 1, 1995 and interest thereon) to the Company in exchange for
Common Stock; and (b) the Merger of Goodrich Acquisition with and into Patrick
whereby the outstanding shares of Patrick Common Stock and Patrick Preferred
Stock will be converted into shares of Common Stock and Preferred Stock,
respectively, and Patrick, the surviving corporation in the Merger, will become
a wholly-owned subsidiary of the Company. The Agreement also contemplates that,
if the business combination is completed (and subject to approval by the
Partners), La/Cal will be dissolved, and the Common Stock received by La/Cal in
the Asset Transfer, and La/Cal's other non-transferred assets, will be
distributed to the Partners. See "Ownership of Capital Stock" for information
setting forth the anticipated ownership of the Company after the Transactions by
the former stockholders of Patrick and the former partners of La/Cal.
PATRICK MERGER
As of the date of this Joint Proxy Statement/Prospectus, Patrick owns all
of the outstanding capital stock of the Company, which in turn owns all of the
outstanding capital stock of Goodrich Acquisition, a corporation recently
organized for the sole purpose of facilitating the transactions contemplated by
the Agreement. At the Effective Time, Goodrich Acquisition shall be merged into
Patrick and the separate existence of Goodrich Acquisition shall cease.
Patrick Common Stock. Each share of Patrick Common Stock issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be
automatically converted into and exchanged for the right to receive one share of
Common Stock.
Patrick Preferred Stock. Each share of Patrick Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than shares for which
appraisal rights are perfected) shall, by virtue of the Merger and without any
action on the part of the holder thereof, be automatically converted into and
exchanged for the right to receive one share of the Preferred Stock. The
Preferred Stock has substantially the same rights, preferences, qualifications
and limitations and restrictions as the Patrick Preferred Stock except that the
Preferred Stock shall be convertible into shares of Common Stock. See
"Description of Company Capital Stock."
Patrick Options and Warrants. At the Effective Time, Patrick's obligations
with respect to each outstanding warrant to purchase Patrick Common Stock
("Patrick Warrant") or option to purchase Patrick Common Stock ("Patrick Stock
Option"), as amended in the manner described in the following sentence, shall be
assumed by the Company. The Patrick Warrants and Patrick Stock Options so
assumed by the Company shall continue to have, and be subject to, substantially
similar terms and conditions as set forth in the plans and agreements pursuant
to which such warrants and options were issued as in effect immediately prior to
the Effective Time, except that (i) each such Patrick Warrant and Patrick Stock
Option shall be exercisable for one share of Common Stock for each share of
Patrick Common Stock for which such warrant or option was exercisable prior to
the Effective Time and (ii) the term of Patrick Stock Options will not be
shortened as a result of a termination of the holder's employment with Patrick.
The Company shall (i) reserve for issuance the number of shares of Common Stock
that will become issuable upon the exercise of such Patrick Warrants and Patrick
Stock Options and (ii) promptly after the Effective Time issue to each holder of
an outstanding Patrick Warrant and Patrick Stock Option a document evidencing
the assumption by the
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Company of Patrick's obligations with respect thereto. All unvested Patrick
Stock Options will become fully vested at the Effective Time. In addition,
effective as of the Effective Time, the terms of each outstanding Patrick Stock
Option shall be amended to provide that it shall not expire prior to the end of
its term; provided that in no event shall the maximum term of such Patrick Stock
Option be extended.
Completion of Merger. If the Agreement is approved and adopted, and if the
other conditions precedent to the consummation of the Merger have been
satisfied, and if the Merger is not thereafter abandoned as permitted by the
provisions of the Agreement, a Certificate of Merger shall be filed within five
banking days after the later of the Patrick Special Meeting or the satisfaction
of the conditions precedent thereto or as soon thereafter as practicable with
the Secretary of State of the State of Delaware. The "Effective Time" of the
Merger shall mean such time as the Certificate of Merger is duly filed with the
Secretary of State of Delaware or such later time (not to exceed 90 days from
the date such Certificate of Merger is filed) as is specified in the Certificate
of Merger. The date on which the Effective Time and the Asset Transfer occurs is
herein referred to as the "Effective Date".
Stock Certificates. At and after the Effective Time, all of the outstanding
certificates which immediately prior to the Effective Time represented shares of
Patrick capital stock shall be deemed for all purposes to evidence ownership of,
and to represent, shares of capital stock of the Company into which the shares
of capital stock of Patrick formerly represented by such certificates have been
converted as provided in the Agreement. The registered owner on the books and
records of Patrick or its transfer agent of any such outstanding stock
certificate shall, until such certificate shall have been surrendered for
transfer or otherwise accounted for to the Company or its transfer agent, have
and be able to exercise any voting and other rights with respect to and receive
any dividend or other distributions upon the capital stock of the Company
evidenced by such outstanding certificate as provided.
LA/CAL ASSET TRANSFER
The Agreement provides that, concurrently with the Effective Time of the
Merger, but effective as of March 1, 1995, La/Cal shall contribute the La/Cal
Interests to the Company in exchange for 19,765,226 shares of Common Stock. As a
result of the Asset Transfer and after the payment of a finder's fee in
connection with the Transactions, each holder of a 1% equity interest in La/Cal
shall be entitled to receive approximately 192,710 shares of Common Stock. The
La/Cal Interests consist of all of La/Cal's assets and liabilities, other than
cash and accounts receivable accrued prior to March 1, 1995, and interest
thereon. The La/Cal Interests include:
(a) all of La/Cal's right, title and interest in and to producing and
non-producing oil and gas leases, licenses, permits, and similar
arrangements, overriding royalty interests, mineral interests, and other
interests in producing and non-producing oil and gas properties ("La/Cal
Oil and Gas Interests");
(b) all of La/Cal's right, title and interest in and to all personal
property (except for cash and accounts receivable accrued prior to March 1,
1995, and interest thereon), equipment, inventory and supplies of
whatsoever kind or nature, wheresoever situated, which are used or useful
in connection with the La/Cal Oil and Gas Interests;
(c) all interests and other rights created by all equipment and other
property leases, licenses, permits, employment contracts, security
agreements, joint venture agreements and any other contracts or agreements,
whether written or verbal which directly affect or relate to the La/Cal Oil
and Gas Interests or by which the La/Cal Oil and Gas Interests are bound,
together with all of the property and rights incident thereto; and
(d) all obligations and liabilities associated with, accompanying and
generally relating to the ownership or use of items (a) through (c) above,
including without limitation, (i) plugging and abandonment obligations,
(ii) the removal of all abandoned personal property, equipment and
facilities, (iii) restoring affected surface areas or waterbottoms, (iv)
paying its pro rata share of the costs associated with items (i) through
(iv) above, (v) assuming the repayment of all sums owed to La/Cal's
institutional
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lenders, and (vi) the assumption of all oil and gas leases, operating and
unit agreements and other contracts to which La/Cal is a party.
See "Business and Properties of La/Cal" for additional information with respect
to the La/Cal Interests.
LA/CAL DISSOLUTION
In the event the Transactions are completed and the Partners shall have
approved the proposal to dissolve La/Cal, then as soon as practicable after the
Effective Date, La/Cal will be dissolved and the shares of Common Stock received
by La/Cal as a result of the Asset Transfer will be distributed to the Partners.
It is anticipated that on or before December 31, 1995, the winding up of La/Cal
will be completed, and its remaining assets distributed to the Partners.
Pursuant to the La/Cal partnership agreement, the Management Committee will act
as the liquidating trustee of La/Cal for purposes of dissolution and winding up.
BACKGROUND OF THE TRANSACTIONS
On March 15, 1994, the Patrick Board of Directors engaged the investment
banking firm of Petrie Parkman & Co. ("Petrie Parkman") to act as Patrick's
financial advisor in connection with a review of Patrick's strategic
alternatives. The recent drop in oil prices, lack of drilling success at such
time, a series of substantial write downs of oil and gas properties were the
major factors prompting Patrick to take this action. In addition, Patrick had
encountered difficulty in acquiring oil and gas reserves at what it believed
were reasonable prices. The Patrick Board requested Petrie Parkman to meet with
management to develop an understanding of Patrick's strategic objectives, to
develop an analysis of Patrick's options to maximize stockholder value and to
develop a preliminary analysis indicating the likely values to be achieved from
a variety of possible transactions, including a merger or sale of Patrick, a
sale of all or certain of its assets, a distribution of assets or stock in
Patrick's subsidiaries to its stockholders and other restructuring alternatives.
Petrie Parkman was then to deliver a report to the Patrick Board recommending
courses of action designed to investigate potential transaction alternatives and
maximize stockholder value.
La/Cal was formed as a Louisiana general partnership in July 1993 to engage
in the development and production of oil and natural gas properties when certain
investors in Goodrich Oil Company drilling programs contributed their interests
in producing wells and acreage in the Pecan Lake and Lake Charles fields in
Calcasieu and Cameron Parish, Louisiana. The historical cost basis of these
interests was approximately $2.3 million. The investment objectives of La/Cal at
the time of its formation were to increase reserves and maximize cash flow by
obtaining debt financing secured by producing properties to undertake drilling
activities to fully develop the Pecan Lake and Lake Charles fields. After La/Cal
had substantially developed the Pecan Lake and Lake Charles fields, the
Management Committee adopted a strategy designed to improve the long-term value
of La/Cal to the Partners by acquiring and developing additional oil and gas
properties and reducing La/Cal's debt service obligations. Since La/Cal's
initial capitalization, the Partners have not made any additional contributions
of cash or properties.
Shortly after Patrick engaged Petrie Parkman, U.E. "Pat" Patrick, the
Chairman and Chief Executive Officer of Patrick, informed Leo E. Bromberg, a
member of La/Cal's Management Committee, that Patrick had engaged Petrie
Parkman. Leo E. Bromberg then contacted Walter G. "Gil" Goodrich, also a member
of the Management Committee, to inform Mr. Goodrich of Patrick's plans to
consider merger or asset sale alternatives. The Management Committee of La/Cal
decided to make inquiries of Patrick to determine if a business combination with
Patrick might be an alternative consistent with La/Cal's strategy of additional
investment in oil and gas properties and long-term growth.
In the first six months of 1994, a trust of which Leo E. Bromberg is the
sole trustee and First Australian Resources, each of which are Partners,
participated in two wells drilled by Patrick in West Texas. Both wells were dry
holes.
On April 13, 1994, Gil Goodrich contacted Pat Patrick by telephone to
discuss Patrick's interest in an asset sale or other business combination. Mr.
Goodrich indicated that La/Cal would be interested in discussing a transaction
which would combine the privately-held assets of La/Cal with Patrick. Mr.
Patrick
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informed Mr. Goodrich that Patrick had engaged Petrie Parkman in connection with
such matters and suggested that Mr. Goodrich contact Petrie Parkman. Shortly
thereafter, on April 19, 1994, Mr. Goodrich spoke to representatives of Petrie
Parkman regarding their plans for establishing a data room and soliciting
parties interested in a business combination with Patrick. After these initial
contacts between Patrick and La/Cal, the La/Cal Management Committee determined
that a business combination transaction with Patrick was consistent with
La/Cal's long-term goals, and accordingly, the La/Cal Management Committee did
not contact other entities interested in merging or disposing of assets.
On April 20, 1994, Petrie Parkman made a presentation to the Patrick Board
regarding the current market environment for selling oil and gas assets and for
mergers and other alternatives for maximizing stockholder value. Petrie Parkman
also provided an initial valuation analysis of Patrick's assets and the
Company's strengths and weaknesses with respect to potential transactions. The
Patrick Board authorized Petrie Parkman to design and implement a process to
maximize value to stockholders and stated the process should fully explore the
potential sale of Patrick's assets or a merger transaction involving Patrick.
Patrick issued a press release announcing its engagement of Petrie Parkman for
such purpose on April 25, 1994.
On April 23, 1994, Gil Goodrich and Leo E. Bromberg, another member of the
La/Cal Management Committee, met with Pat Patrick and a representative of Petrie
Parkman in Houston. Mr. Goodrich again expressed interest in a transaction which
would combine La/Cal's assets with Patrick and stated his desire to begin the
due diligence process. Pat Patrick indicated that Patrick intended to explore a
full range of alternatives, including a sale of part or substantially all of
Patrick's assets, and invited La/Cal's representatives to visit the data room
which Petrie Parkman was preparing in Houston.
On June 14, 1994, Patrick opened its data room in Houston. Each party to
visit the data room had previously executed a confidentiality agreement and had
access to detailed information regarding Patrick's assets, supplemental oil and
gas information, including production and land files, and access to Patrick's
personnel. On June 22, 1994, representatives of La/Cal entered into a
confidentiality agreement with Patrick and Petrie Parkman relating to
information about Patrick and its properties. On June 30, 1994, La/Cal's
representatives visited the Patrick data room in Houston in order to review
reserve and financial data. Throughout the remainder of June and July, La/Cal
evaluated the Patrick information and began structuring its merger proposal.
On July 27, 1994, Gil Goodrich, on behalf of La/Cal, contacted Pat Patrick
to express La/Cal's continued interest in negotiating a transaction between the
two entities based upon La/Cal's review of Patrick's due diligence materials.
Gil Goodrich and Henry Goodrich, the third member of La/Cal's Management
Committee, visited Patrick's offices in Jackson, Michigan on July 28, 1994 to
discuss the mutual advantages and potential synergies of a business combination.
At this meeting, Henry Goodrich and Gil Goodrich discussed La/Cal's financial
and operating performance, including La/Cal's drilling record and operating cost
history. They also described La/Cal's interests in the Pecan Lake and Lake
Charles fields in detail. See "Business and Properties of La/Cal -- Properties."
During August 1994, representatives of La/Cal and Patrick continued to exchange
reserve and financial information. On August 24, representatives from La/Cal,
Patrick and Petrie Parkman met in Houston, where the parties continued to
discuss the possible terms of a business combination. As a result of the
meeting, representatives of Patrick and Petrie Parkman requested updated
financial and reserve information from La/Cal, which La/Cal subsequently
provided. On August 30, 1994, representatives from La/Cal and Petrie Parkman met
in Houston to review La/Cal's financial and reserve information.
At the August 30, 1994 meeting of the Patrick Board, Petrie Parkman
reviewed the results of its marketing efforts and the data room process. Petrie
Parkman also reviewed certain factors that had altered Patrick's valuation,
including asset write downs and lower natural gas prices. As a result of Petrie
Parkman's activities, 137 companies were contacted on Patrick's behalf, 72
companies executed confidentiality agreements and received preliminary
information about Patrick and 21 companies visited Patrick's data room. The
Patrick Board authorized Petrie Parkman to proceed with securing proposals from
interested parties. Later that day, Petrie Parkman distributed its proposed
guidelines for making bids with respect to a business combination with Patrick
or the acquisition of Patrick assets to La/Cal and other parties who continued
to
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express interest in a transaction with Patrick. Petrie Parkman's letter set
forth certain bidding procedures and stated that written proposals should be
submitted in writing by September 9, 1994. The letter further stated that, while
Patrick intended to pursue a merger or asset sale transaction with the party
whose proposal best addressed Patrick's objectives, Patrick reserved the right
to reject all proposals and to withdraw the company and its assets from the
proposal process at any time. The letter also stated that the acceptance of any
proposal would be conditioned upon the execution of definitive agreements.
During the first week of September, La/Cal finalized its formal merger
proposal and forwarded letters to each Partner requesting their support of the
proposal to Patrick. By September 9, 1994, La/Cal had received consents from
each Partner approving the merger proposal and on September 9, 1994, La/Cal
forwarded a proposal to Petrie Parkman.
On September 13, 1994, the Patrick Board met to evaluate the proposals
received in response to the solicitations of interest distributed by Petrie
Parkman. Petrie Parkman advised the Board that Patrick had received six asset
purchase proposals and two merger proposals. The Board instructed management and
Petrie Parkman to pursue negotiations with the parties submitting the highest
merger proposal and the highest asset purchase proposal simultaneously.
The material terms of the six asset purchase proposals included differing
combinations of Patrick's assets with cash purchase prices ranging from $10.9
million to $26.3 million. Five of the proposals were for cash only, while one
included cash, note and net profits interests for certain properties. The six
respective proposals were analyzed by Patrick's management with regard to the
indicated purchase prices for the three primary components of the Patrick
assets, i.e. oil and gas properties (reserves), exploration assets (including
undeveloped acreage, 3-D seismic data and computer work stations) and the Pecos
Pipeline System. The oil and gas properties comprised the largest component, as
well as the largest variation in value among the proposals.
The highest asset sale proposal was received from Unit Petroleum Company
("Unit"). The initial Unit proposal was for all of Patrick's oil and gas
properties at a value of $26.3 million and excluded other Patrick assets. The
Patrick Board concluded that the initial Unit offer provided insufficient value
for Patrick's proved undeveloped reserves, which were primarily located in Texas
and Michigan. The initial Unit proposal excluded Patrick's exploration assets.
The Patrick Board instructed management and Petrie Parkman to pursue
negotiations based upon Unit resubmitting a proposal for the oil and gas
properties in the states of Alabama, Louisiana, Mississippi, New Mexico,
Oklahoma and Texas, excluding certain properties. Unit's offer in response to
this request was for $17 million and was agreed upon in principal by letter of
intent dated October 21, 1994. Subsequent due diligence and negotiations
resulted in an executed agreement on November 18, 1994 for $16.1 million,
subject to preferential purchase rights and adjustments as described below.
In the view of the Patrick Board, both merger proposals received on
September 13, 1994 were inadequate as submitted. The Board initially determined
that the proposal received from a privately-held oil and gas company (not
La/Cal) appeared to be the most favorable. The private company's written
proposal lacked details regarding valuation, price and other material terms. The
initial La/Cal proposal suggested an ownership of the merged company of 58% for
La/Cal and 42% for Patrick, respectively. The Patrick Board concluded that the
La/Cal proposal was insufficient.
On September 14, Petrie Parkman advised La/Cal that it did not have the
highest bid and that Patrick was pursuing negotiations with other parties.
Petrie Parkman indicated that the Patrick Board would consider an amended
proposal from La/Cal, if La/Cal was interested in making such a proposal.
The proposal received from the party other than La/Cal was subsequently
withdrawn as a result of further discussions and analysis between the parties.
The private company indicated that it believed Patrick's oil and gas property
assets and associated producing cash flow were low in relation to Patrick's
total assets, and additionally indicated that it was not interested in acquiring
Patrick's non-oil and gas assets.
On September 26, 1994, representatives from La/Cal presented an amended
proposal to representatives from Petrie Parkman. During the first half of
October 1994, Petrie Parkman reviewed La/Cal reserve
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information. On October 19, representatives from La/Cal, Patrick and Petrie
Parkman jointly agreed that La/Cal would hire the engineering firm of H. J. Gruy
and Associates, Inc. ("Gruy") to prepare a reserve report for the proved
developed producing reserves at La/Cal's Pecan Lake and Lake Charles properties.
On October 21, La/Cal engaged Gruy to prepare the reserve report.
At the October 28, 1994 meeting of the Patrick Board, Petrie Parkman
updated the Board on the status of negotiations with Unit and La/Cal and the
then currently less favorable market for the sale of oil and gas assets. The
Board of Directors authorized a non-binding letter of intent with Unit which was
executed by the Company on October 28, 1994.
On November 10, 1994, Gruy delivered its reserve report on the Pecan Lake
and Lake Charles properties and La/Cal promptly forwarded copies to Patrick and
Petrie Parkman. On November 20, 1994, representatives from La/Cal and Patrick
met in Los Angeles to review the Gruy reserve report and continue merger
discussions. For a description of the Gruy report, see "-- Certain Information
Provided."
On November 28, 1994, Patrick entered into an agreement to sell to Unit,
Patrick's interests in 605 oil and gas wells and related leasehold acreage,
personal property and contract rights in Alabama, Louisiana, Mississippi, New
Mexico, Oklahoma and Texas. The sale of assets to Unit (the "Unit Sale") closed
on December 15, 1994 and resulted in proceeds of $13.2 million to Patrick. LLOG
Exploration Company exercised its preferential purchase right with respect to
certain of Patrick's interests in the Bayou Pigeon Field in Iberia Parish,
Louisiana which were proposed to be included in the Unit Sale. The sale of such
interests to LLOG Exploration Company (the "LLOG Exploration Sale") closed on
December 16, 1994 and resulted in proceeds to Patrick of $1.6 million. The
purchase price for the Unit Sale remains subject to adjustment until May 15,
1995, to reflect production after the effective date of the sale (May 1, 1994),
gas imbalances and certain other matters. Patrick used substantially all of the
proceeds from the Unit Sale and the LLOG Exploration Sale to repay $13.7 million
of bank debt and to pay certain fees and expenses incurred in connection with
the sales and for general corporate purposes.
On December 1, 1994, representatives from La/Cal, Patrick and Petrie
Parkman, including Pat Patrick and Gil Goodrich, met in Houston to continue
merger discussions. Gil Goodrich also met with Rick Clark, the Executive Vice
President of Patrick, in Houston on December 5 to discuss aspects of Patrick's
operations and meet additional Patrick operating personnel. Gil Goodrich and
other La/Cal representatives visited Patrick's offices in Jackson on December
15-16 to review updated due diligence materials relating to financial
performance, the Unit Sale and remaining reserves. Gil Goodrich and other La/Cal
representatives visited Patrick's Midland, Texas office on January 5-6 to review
information concerning Patrick's West Texas properties and prospects.
On January 10, 1995, Pat Patrick, Henry Goodrich, Gil Goodrich, Leo E.
Bromberg and other representatives from La/Cal, Patrick and Petrie Parkman met
in Houston to review the status of negotiations and open issues relating to the
merger proposal and due diligence.
The Patrick Board of Directors met by telephone on January 23, 1995 and
discussed the status of negotiations with La/Cal.
During the last two weeks of January, La/Cal prepared additional
information regarding La/Cal and its strategy for the combined companies which
had been requested by Petrie Parkman on January 10. On January 31, 1995, Gil
Goodrich met with Robert Swistock, Patrick's Chief Financial Officer, and Rick
Clark along with representatives of Petrie Parkman in Houston to review and
discuss the additional materials prepared by La/Cal and the status of the merger
negotiations.
On February 7, 1995, Patrick held a Board of Directors meeting in Houston
during which Petrie Parkman made a detailed presentation concerning the business
and prospects of Patrick and the potential combination with La/Cal. In addition,
Henry Goodrich, Gil Goodrich and other representatives of La/Cal made a
presentation regarding La/Cal's merger proposal and their view of the prospects
for the combined companies and answered questions from the Patrick Directors.
During the remainder of February, representatives of La/Cal and Patrick
negotiated the terms of a definitive merger agreement and completed their due
diligence activities.
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On March 7, 1995, the Patrick Board met to consider the approval of the
transaction with La/Cal. At this meeting, Patrick management made presentations
concerning the business and prospects of Patrick and the potential combination
of Patrick and La/Cal. Representatives of Petrie Parkman made a detailed
presentation to the Board regarding its valuation of Patrick and La/Cal and
expressed Petrie Parkman's opinion that the proposed exchange ratios were fair,
from a financial point of view, to Patrick's stockholders. The Patrick Board
also received a presentation concerning, and reviewed the terms of, the
Agreement and its fiduciary duties under Delaware law, with members of Patrick
management and its legal advisors. After review of Petrie Parkman's analysis and
the terms of the Agreement and consideration of numerous other factors, the
Patrick Board approved a merger with La/Cal, subject to requisite stockholder
approval, on substantially the terms set forth in the Agreement. See "-- Opinion
of Patrick's Financial Advisor" for a description of Petrie Parkman's analysis
and presentation to the Board.
On March 8, 1995, the Management Committee approved the Agreement, subject
to the requisite approval of La/Cal's Partners. The Agreement was executed on
March 10, 1995.
The Board of Directors of Patrick and the Management Committee agreed,
after arms-length negotiations, to equal ownership of the Company for the
holders of Patrick Common Stock and Partners because (i) the net value of
Patrick's assets and the net value of La/Cal oil and gas reserves, less
outstanding debt attributable to such reserves, are comparable (although both
sides have acknowledged that the oil and gas reserves of La/Cal, after
subtracting La/Cal's debt, have a higher value than Patrick's net assets), (ii)
the Management Committee believes that the benefits to the Partners from
increased liquidity arising from ownership of publicly traded common stock and
the opportunity to repay La/Cal's outstanding indebtedness justify the premium,
from a reserve and other asset valuation standpoint, paid by La/Cal, and (iii)
Patrick believes that the premium offered by La/Cal represents the best
available alternative to maximize Patrick stockholder value.
The structure of the proposed Transactions which combines a Merger of
Patrick with its newly created subsidiary, the Company, and the transfer of
assets from La/Cal to the Company was arrived at by the parties because such a
structure allows (i) both the Merger and the Assets Transfer to be accomplished
in a tax-free transaction under section 351 of the Code (except with respect to
the difference in the debt assumed by the Company and the tax basis in La/Cal's
assets which will be taxable to La/Cal), (ii) Patrick to maintain in place its
existing contractual commitments, approvals, permits and other rights as a
wholly-owned subsidiary of the Company without requiring substantial consents or
approvals from third parties, and (iii) the Company to utilize Patrick's NOLs,
subject to applicable limitations under section 382 of the Code.
REASONS FOR THE TRANSACTIONS; RECOMMENDATIONS OF THE PATRICK BOARD
AND LA/CAL MANAGEMENT COMMITTEE
Patrick's Reasons for the Transactions. The Patrick Board believes that the
Transactions provide an opportunity for Patrick stockholders to be equity
holders in a Company with stronger oil and gas assets and improved cash flow, an
improved ability to internally finance the drilling of valuable prospects
developed by Patrick, proven and efficient oil and gas development skills and
exposure to high quality drilling prospects in the Gulf Coast. The Patrick Board
also believes that the combined company will realize cost savings in the
consolidation of operations and administration.
In addition to the foregoing, in making its determination with respect to
the advisability of the Transactions, the Patrick Board considered the following
material factors: (i) the extensive process engaged in by Patrick, with the
assistance of Petrie Parkman, to try to maximize stockholder value, (ii) the
terms of the proposed transaction, including the consideration to be received by
Patrick's stockholders, (iii) information relating to the business, assets,
management and prospects of Patrick and La/Cal on a combined basis, as well as
the prospects of Patrick if it were to continue on a stand alone basis, (iv) the
financial condition, cash flows and results of operation, oil and gas production
and reserves of Patrick and La/Cal, both on an historical and on a prospective
basis, as well as revenues of each, individually and on a combined basis (see
"-- Certain Information Provided"), (v) the right of the Company through the
Joint Participation Agreement to participate in future prospects developed by
Goodrich Oil Company, (vi) the long-term business plan of
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Patrick, (vii) historical market prices and trading information with respect to
Patrick Common Stock and Patrick Preferred Stock, (viii) the percentage of
equity in the Company that would be received by Patrick stockholders in relation
to the contribution to reserves and revenues of the combined company by Patrick
and La/Cal, (ix) the opinion, detailed analyses and presentations of Petrie
Parkman described under "-- Opinion of Patrick's Financial Advisors to Patrick"
(in this respect, while the Patrick Board did not explicitly adopt Petrie
Parkman's financial analyses, the Patrick Board took such analyses into account
in its overall evaluation of the Merger) including the opinion of Petrie Parkman
that the proposed exchange ratios were fair to holders of Patrick Common Stock
and Patrick Preferred Stock from a financial point of view, (x) the absence of
substantial "lockup" provisions in the Agreement which would impede a competing
bid or restrict the Patrick Board's ability to consider a competing bid, if one
were to emerge, and the Patrick Board's right to terminate the Agreement in
order to accept a higher bid as required by their fiduciary duties, (xi) the
structure of the Merger which will enable Patrick stockholders to have all of
their shares of Patrick Capital Stock converted into shares of Company capital
stock on a tax-free basis, (xii) representation on the Company's Board by
current Patrick directors which is expected to contribute to the realization of
the anticipated benefits of the Transactions.
The Patrick Board also considered several potentially negative factors in
its deliberations concerning the Merger, including: (i) the risk that the
anticipated benefits of the Merger might not be fully realized, including as a
result of difficulties in integrating the operations of Patrick and La/Cal, (ii)
the possibility that Patrick may be required, to pay up to $1 million to La/Cal
in the event the Agreement is terminated under certain circumstances, and (iii)
the risk that the Company capital stock would trade at a lower price than the
Patrick capital stock. In the Patrick Board's view, these considerations were
not sufficient, either individually or collectively, to outweigh the advantages
of the proposed combination of the businesses of La/Cal and Patrick.
Because of the variety of positive and negative factors it considered, the
Patrick Board did not quantify or otherwise attempt to assign specific or
relative weights to the foregoing factors considered in making its
determination. As a result, the Patrick Board did not quantify the assumptions
and results of its analysis in reaching its determination that the Merger is
fair to, in the best interests of, and represents the best reasonably available
value for the stockholders of Patrick. However, the Patrick Board believed that
the positive factors set forth above when considered in total supported its
decision to approve the Merger and outweighed the potentially negative factors
described in the preceding paragraph.
Recommendation of the Patrick Board of Directors. For the foregoing
reasons, the Board of Directors of Patrick has unanimously approved the
Agreement and the transactions contemplated thereby and unanimously recommends
that Patrick common stockholders vote FOR approval and adoption of such matters
submitted to them in connection with the Transactions.
La/Cal's Reasons for the Transactions. The La/Cal Management Committee
believes that the terms of the Transactions are fair to, and in the best
interests of, the Partners of La/Cal. Subject to the requisite vote of the
Partners, the Management Committee has approved the Agreement and the
transactions contemplated thereby, including the Asset Transfer, and recommends
that the Partners vote FOR approval of such matters to be voted on at the La/Cal
Special Meeting as described in this Joint Proxy Statement/Prospectus.
As an independent oil and gas partnership, La/Cal's business strategy has
been to achieve reserve growth through the acquisition and efficient development
and exploitation of acreage and reserves. La/Cal has been successful in
implementing this strategy and La/Cal has grown by a series of acquisitions of
producing properties and a development program that focuses on low-risk
prospects with multiple pay zones in South Louisiana. The La/Cal Management
Committee believes that the Transactions represent a substantial opportunity to
enhance La/Cal's financial and operational resources and to pursue this strategy
on a broader scale. Specifically, the Management Committee believes that:
- the combined entity will have greater reserves, revenues and cash flows
than either Patrick or La/Cal on a stand-alone basis, which should
enhance the combined entity's financial flexibility, improve its access
to capital for additional drilling and selective property acquisitions
and enable the combined company to obtain financing on more favorable
terms than is currently available to either Patrick or La/Cal on a
stand-alone basis;
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- the Transactions will result in the conversion of the Partner's interests
from interests in a finite-life partnership, in which cash flow is
distributed to the Partners rather than reinvested in additional drilling
opportunities, into shares of stock in a perpetual-life entity in which
management expects to reinvest earnings and cash flow as part of a
strategy designed to develop and acquire additional reserves and increase
the stockholders' value over the long-term;
- the Transactions will enhance the liquidity of the Partners' investment
and limit their potential exposure to personal liability by converting
their general partnership interests into stock in a Delaware corporation
which is traded on the NYSE;
- the development and exploration opportunities of the combined entity will
be more diversified both geographically and by reserve mix; the combined
entity will continue to have predominately natural gas reserves and to
focus on development opportunities along the Gulf Coast of Texas and
Louisiana; the combined entity will also have expanded operations and
opportunities in the historic producing areas of West Texas, which are
primarily oil related (see "Business and Properties of Patrick"); and
- the Merger will enable La/Cal to retire its outstanding debt on favorable
terms to all of the Partners.
In reaching these conclusions, the Management Committee considered the
following material factors, (i) the terms of the proposed Transactions and the
consideration to be received by the Partners and the Patrick stockholders, which
were viewed as favorable because while the value of the entities is comparable,
the Partners will receive a more liquid investment in exchange for their
partnership interests; (ii) information relating to the business, financial
condition, reserves, other assets and liabilities of La/Cal and Patrick,
including reserve reports for La/Cal and Patrick and certain projected financial
information for Patrick and the combined entity, (see "-- Certain Information
Provided"); (iii) La/Cal's prospects as a stand-alone, finite-life entity and
the terms of La/Cal's debt instruments, which require a substantial percentage
of La/Cal's cash flow to be dedicated to servicing indebtedness; (iv) the
expected operating and financing characteristics of the combined entity,
including potential cost savings and operational synergies from the combination;
(v) the percentage of equity in the combined entity that would be received by
the Partners in relation to the contribution of reserves by La/Cal, which was
viewed as favorable for the same reasons stated in (i) above; (vi) the capital
structure and recent financial performance of Patrick and the historical market
prices for Patrick Common Stock; (vii) the tax impact of the Transactions to the
Partners; (viii) the representation on the Board of Directors and in management
of the combined entity of La/Cal designees, which was viewed as favorable
because the Partners will, through certain former Management Committee members,
have equal representation on the Company's Board of Directors and will assume
management of the Company; (ix) the current conditions in the acquisition market
for oil and gas properties and companies, which was viewed as favorable because
the Company will be more competitive in making oil and gas acquisitions because
of its greater financial and structural resources as a public company; and (x)
Patrick's net operating loss carryforwards. The Management Committee believes
that the cost savings expected to result from the Transactions, including
savings associated with closing Patrick's offices in Jackson, Michigan and
Midland, Texas and disposing of selected non-core properties, will substantially
outweigh the costs of the proposed Transactions. See "-- Expenses," "Unaudited
Pro Forma Condensed Financial Information" and "Business and Properties of the
Company -- Anticipated Asset Dispositions."
Because of the multiplicity of factors considered, the Management Committee
considered the matters referred to above as a whole and did not assign any
particular weight to one factor over another. As a result the Management
Committee cannot quantify the importance of particular factors. When considered
as a whole, the Management Committee has concluded that such factors justify its
conclusion that the proposed Transactions are fair to and in the best interest
of the Partners.
As part of its consideration of the fairness of the Transactions to the
Partners, from a financial point of view, the Management Committee performed
certain analyses of the relative values of the equity of Patrick and La/Cal. The
Management Committee's analysis of Patrick's reserves was based upon the reserve
report of Lee Keeling & Associates dated January 1, 1994, updated reserve
information included in the Patrick data room dated May 1, 1994, the Management
Committee's internal analysis and adjustment of such reserve data
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and a preliminary estimate of Patrick reserves as of January 1, 1995 by Lee
Keeling & Associates. The Management Committee's analysis of Patrick's other
assets and liabilities was based upon certain publicly available information
included in the data room or provided to La/Cal by Patrick. The Management
Committee based its analysis of La/Cal's reserves on its internally generated
reserve estimates, the reserve reports of H.J. Gruy & Associates on the proved
developed producing reserves in the Pecan Lake and Lake Charles fields dated
August 1, 1994 and the reserve report of Courtret & Associates, Inc. dated
January 1, 1994. All of the reserve information for La/Cal was brought forward
to a January 1, 1995 date through internal analysis by the Management Committee.
Based upon the analysis of relative values, the Management Committee arrived at
a range of equity value for Patrick Common Stock of $9.1 million to $17.25
million and a range of equity values for La/Cal of $17.75 million to $23.25
million. In reaching its conclusion regarding the fairness of the proposed
Transactions, the Management Committee also considered additional intangible
factors including the liquidity of the shares to be received as a result of the
Transactions, the enhanced access to capital of the combined entity, the ability
of the combined entity to compete for property acquisitions and the ability of
La/Cal to have its $9.75 million of outstanding debt repaid on favorable terms
as a result of the Transactions.
The Management Committee did not consider the alternative of either the
liquidation of La/Cal or the continuation of La/Cal as a stand alone entity with
its existing asset base during its negotiations with Patrick. As required by the
regulations promulgated by the Commission which apply to this Proxy
Statement/Prospectus, the Management Committee has performed such analysis in
connection with the preparation of this Proxy Statement/Prospectus. On the basis
of such analysis the Management Committee believes the Transactions represent a
superior value to the Partners in relation to each of La/Cal's (i) book value of
$(2,081,217), (ii) going concern value (approximately $18,500,000 by applying
standard Commission present value of future net revenue analysis less the
discounted value of outstanding indebtedness) and (iii) liquidation value
(approximately $15 million based on liquidation-evaluation parameters set forth
in the April 1994 survey conducted by the Society of Petroleum Evaluation
Engineers).
Other alternatives available to La/Cal include (i) the continuation of
La/Cal as a general partnership (ii) the liquidation of La/Cal and (iii) another
(non-Patrick) merger or acquisition. The La/Cal Management Committee believes
that the prospective merger with Patrick is superior to each of these
alternatives. The continuation of La/Cal as a going concern has little growth
potential because the properties in which La/Cal maintains an ownership interest
are substantially developed and a substantial portion of the current cash flow
from La/Cal's properties are used to service outstanding debt obligations. The
liquidation of La/Cal is not viewed by the Management Committee as an acceptable
alternative because (i) it does not believe that the value which could be
obtained for oil and gas properties in a liquidation would be equal to the value
of holding such properties and (ii) liquidation would violate the terms of
La/Cal's outstanding debt instruments and would compel La/Cal to retire such
indebtedness on unfavorable terms to the Partners. Liquidation would require the
consent of Partners holding a majority of the partnership interests in La/Cal.
Finally, the Management Committee believes that the current market for acquiring
oil and gas properties and merging with oil and gas companies is highly
competitive, and the Management Committee has not identified any alternative
transaction which represents an equivalent or superior value to the Partners.
The financial analyses undertaken by the Management Committee is an
inherently subjective process. Although the Management Committee undertook
extensive due diligence with regard to the Patrick reserves and other assets and
liabilities, the Management Committee relied upon the accuracy of the
information and data provided to it throughout this process. The Management
Committee did not engage an independent financial advisor in connection with the
Transactions, and there can be no assurance that an independent financial
advisor would have concluded that the consideration to be received by the
Partners as a result of the Transactions was fair, from a financial point of
view, to the Partners. The Management Committee did not retain an unaffiliated
financial advisor to act on behalf of the Partners and did not consider the
absence of an unaffiliated representative to be detrimental to the Partners
because (i) the partnership agreement executed by each of the Partners provides
broad powers to members of the Management Committee to manage the affairs of
La/Cal, however, a sale of La/Cal's assets requires Partner approval, (ii) the
Management Committee did not believe that the benefits from such an unaffiliated
representative would justify its cost,
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(iii) the interests of the Management Committee members are substantially
similar to those of the remaining Partners, especially in light of the
Management Committee's significant ownership position in La/Cal, and (iv) the
Management Committee obtained consents from each Partner in December 1994
authorizing the Management Committee to negotiate the Transactions. The risks to
the Partners associated with the failure to engage an unaffiliated
representative include, the possibility that (i) the benefits derived from an
unaffiliated representative would have outweighed its costs from the Partners'
perspective and (ii) the Partners would have received more favorable terms in
the Merger if such an unaffiliated representative had been retained by the
Partners. The Management Committee's analysis places significant value upon the
enhanced liquidity and debt repayment issues described above, neither of which
can be quantified in a meaningful manner and the value of which will vary among
the Partners. The Partners are urged to consider the matters set forth in this
Joint Proxy Statement/Prospectus fully and to consider the value of the
Transactions to them in light of their particular situations and investment
goals. See "-- Interest of Certain Persons in the Transactions."
The 19,765,226 shares of Common Stock to be received by La/Cal pursuant to
the Transactions will, pending the expected dissolution of La/Cal, become assets
of La/Cal. Accordingly, such consideration will be allocated among the Partners
in accordance with their respective sharing ratios pursuant to the partnership
agreement. Except for the finder's fee of 494,131 shares of Common Stock payable
to Leo E. Bromberg in connection with the Transactions, no other Partner is
entitled to, or will receive, any disproportionate share of the consideration
received by La/Cal pursuant to the Asset Transfer or any other compensation as a
result of the Transactions. As described below under "-- Interests of Certain
Persons in the Transactions" and "Management of the Company After the Effective
Time," certain Partners will be executive officers, consultants and directors of
the Company after the consummation of the Transactions and will receive
compensation from the Company in connection with such services.
Recommendation of the La/Cal Management Committee. For the foregoing
reasons, the Management
Committee has unanimously approved the Agreement and the transactions
contemplated thereby, including the Asset Transfer, and unanimously recommends
that the Partners consent to such matters. The Management Committee also has
unanimously approved, subject to consummation of the Transactions, the
dissolution of La/Cal and the distribution of all of its assets to the Partners,
and the Management Committee unanimously recommends that the Partners consent to
such matters.
OPINION OF PATRICK'S FINANCIAL ADVISOR
The Patrick Board engaged Petrie Parkman to act as its financial advisor in
connection with the Transactions. The Patrick Board instructed Petrie Parkman,
in its role as financial advisor, to evaluate the fairness, from a financial
point of view, to the holders of shares of Patrick Common Stock of the exchange
ratio of one share of Common Stock per share of Patrick Common Stock (the
"Common Stock Exchange Ratio") and to the holders of Patrick Preferred Stock of
the exchange ratio of one share of Preferred Stock per share of Patrick
Preferred Stock (the "Preferred Stock Exchange Ratio") in connection with the
Transactions and, in such regard, to conduct such investigations as Petrie
Parkman deemed appropriate for such purpose. Patrick did not impose any
limitations on the scope of the investigation by Petrie Parkman. Petrie Parkman
has advised the Patrick Board, in its written opinion dated March 10, 1995, that
the Common Stock Exchange Ratio and the Preferred Stock Exchange Ratio as
determined by arms-length negotiations between Patrick and La/Cal in connection
with the Transactions are fair, from a financial point of view, to the holders
of Patrick Common Stock and Patrick Preferred Stock, respectively.
The full text of Petrie Parkman's written opinion, which contains a
description of the assumptions made, the matters considered by Petrie Parkman,
and the limits of its review is attached hereto as Appendix II, and is
incorporated herein by reference. Stockholders are encouraged to read the
opinion carefully in its entirety. In rendering its opinion, Petrie Parkman
relied upon the accuracy and completeness of the financial, operating and other
information provided to it and assumed that such information had been reasonably
prepared on bases reflecting the best currently available estimates and
judgments. Petrie Parkman did not independently verify such information or make
an independent evaluation or appraisal of the assets or liabilities of Patrick
or La/Cal nor, except for the reserve reports referred to in its opinion, was
Petrie Parkman furnished with such an evaluation or appraisal. On the basis of
the Agreement, Petrie Parkman assumed that the Preferred Stock
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will have substantially the same rights, preferences, qualifications,
limitations, restrictions and other terms as the Patrick Preferred Stock and
will be convertible into Common Stock. Petrie Parkman's opinion relates only to
the Common Stock Exchange Ratio and the Preferred Stock Exchange Ratio in
connection with the Transactions and does not constitute a recommendation to any
Patrick stockholder as to how such stockholder should vote at the Patrick
Special Meeting.
In connection with its opinion, Petrie Parkman, among other things, (i)
reviewed certain available business and financial information relating to
Patrick, including unaudited financial statements as of December 31, 1994,
Annual Reports to Stockholders and Annual Reports on Form 10-K for the five
years ended December 31, 1993, and La/Cal, including audited financial
statements as of December 31, 1994 (prepared on an income-tax basis) and
historical performance data; (ii) analyzed certain internal financial and
operating data and certain financial and operating forecasts concerning Patrick
and La/Cal, all of which were prepared or provided by the senior management of
Patrick and La/Cal (see "-- Certain Information Provided"); (iii) held
discussions with members of the senior management and operating staff of Patrick
and La/Cal regarding the current operations and prospects of their respective
companies and of the combined company, giving proforma effect to the
Transactions, including the operational efficiencies expected by Patrick and
La/Cal to be realized from the Transactions and the benefits to the Company
expected from the Participation Agreement with Goodrich Oil Company; (iv)
reviewed certain reserve reports prepared by Lee Keeling & Associates, Inc.
relating to Patrick's properties and certain reserve reports prepared by H. J.
Gruy and Associates, Inc. and Courtret & Associates, Inc. relating to La/Cal's
properties as well as certain internal reserve projections prepared by the
management of La/Cal (see "-- Certain Information Provided"); (v) reviewed
certain provisions of the Agreement; (vi) reviewed the historical trading prices
of the Patrick Common Stock; (vii) compared the financial terms of the
Transactions with the financial terms of certain other recent business
combinations and transactions which they deemed to be relevant; and (viii) made
such other analyses and examinations as they deemed necessary or appropriate.
In rendering its opinion, Petrie Parkman conducted several analyses
including (i) discounted cash flow analyses of each of Patrick and La/Cal
("Discounted Cash Flow Analyses"); (ii) comparisons with selected
publicly-traded comparable companies ("Common Stock Comparisons"); (iii)
analyses of selected comparable industry transactions ("Comparable Transactions
Analyses"); (iv) an analysis of potential future performance of Patrick without
giving effect to the Transactions ("Going Concern Analysis"); and (v) an
analysis of the potential financial effects of the Transactions ("Pro Forma
Merger Analysis"). These analyses are described below. Based upon the reference
value ranges resulting from these various analyses and subject to the
assumptions and limitations set forth in its opinion, Petrie Parkman came to
composite ranges of asset reference values for Patrick and La/Cal of $37.0
million to $41.0 million and $22.7 million to $26.0 million, respectively. After
deducting liabilities (including long-term debt, preferred stock, and certain
other liabilities) for Patrick of approximately $30 million from the Patrick
composite asset reference value range and dividing by the number of shares of
Patrick Common Stock outstanding, Petrie Parkman came to a composite equity
reference value range per share of Patrick Common Stock on a primary basis of
$0.37 to $0.61. After deducting liabilities (long-term debt) for La/Cal of $10
million from the La/Cal composite asset reference value range, Petrie Parkman
came to a composite equity reference value range for La/Cal of $12.7 million to
$16.0 million.
Discounted Cash Flow Analysis -- Patrick. Under the discounted cash flow
method, Petrie Parkman calculated estimates of future cash flows for Patrick's
reserve assets based on the reserve reports and for Patrick's non-reserve assets
utilizing information and projections provided by Patrick. Three scenarios were
evaluated in which the principal variables were oil and gas prices. The three
pricing scenarios used by Petrie Parkman were based on benchmarks for posted
prices for West Texas Intermediate equivalent crude oil and for spot sales of
Louisiana offshore gas delivered to an interstate pipeline ("Pricing Case I",
"Pricing Case II", "Pricing Case III"). To these benchmarks Petrie Parkman
applied appropriate quality and transportation adjustments. For Pricing Cases I,
II and III, benchmark oil prices were projected to be $16.00, $17.50, and $19.00
per barrel, respectively, for 1995 and to escalate annually thereafter at the
rates of 4.0%, 5.0%, and 6.0%, respectively; oil prices in all three cases were
capped at $50.00 per barrel. For Pricing Cases I, II, and III, benchmark gas
prices were projected to be $1.65, $1.85, and $2.00 per Mmbtu, respectively, for
1995 and
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to escalate annually thereafter at the rates of 5.0%, 5.0%, and 6.0%,
respectively; gas prices in all three cases were capped at $6.00 per Mmbtu.
Other factors involved in this analysis included the use of discount rates
ranging from 10.0% to 30.0%, a carry-over of Patrick's existing tax positions,
and utilization of Patrick's net operating loss carry-forwards ("NOLs") to
offset projected taxable income. The Discounted Cash Flow Analysis did not
reflect transaction costs or potential operational efficiencies associated with
the Transactions. This methodology resulted in ranges of reference values per
share of Patrick Common Stock on a primary basis of $0.36 to $0.60 for Pricing
Case I, $0.48 to $0.73 for Pricing Case II, and $0.59 to $0.86 for Pricing Case
III.
Common Stock Comparisons -- Patrick. Using publicly-available information,
Petrie Parkman calculated adjusted capitalization multiples of standardized
measure of discounted future net cash flows ("SEC Value") and equivalent proved
reserves for 20 publicly-traded, U.S.-based independent oil and gas companies
with adjusted capitalizations of less than $100 million. The adjusted
capitalization of each company was obtained by adding its long-term and
short-term debt to the sum of the market value of its common equity, the market
value of its preferred stock (if publicly-traded or liquidation value or book
value if not), and the book value of its minority interest in other companies
minus its cash balance. Ten of these companies -- Abraxas Petroleum Corporation,
Arch Petroleum Inc., Clayton Williams Energy, Inc., Comstock Resources, Inc.,
Convest Energy Corporation, Hampton Resources Corporation, Key Production
Company, Inc., Maynard Oil Company, Reunion Resources Company, and Unit
Corporation -- which in Petrie Parkman's judgment were more relevant to an
evaluation of Patrick, were examined in greater detail. For these ten companies,
the highest, average, and lowest multiples of SEC Value were 2.7x, 1.3x, and
0.5x, respectively. The highest, average, and lowest multiples of equivalent
proved reserves were $2.15, $0.88, and $0.39 per thousand cubic feet of gas
equivalent using a six Mcf of gas to one barrel of oil conversion ratio
("Mcfe6"), respectively. The highest, average, and lowest multiples of
equivalent proved reserves were $1.54, $0.71, and $0.28 per thousand cubic feet
of gas equivalent using a ten Mcf of gas to one barrel of oil conversion ratio
("Mcfe10"), respectively. Petrie Parkman determined that, with respect to
Patrick, the appropriate benchmark multiples for SEC Value and equivalent proved
reserves were in the ranges of 1.1 to 1.5x, $0.85 to $1.00 per Mcfe6, and $0.60
to $0.80 per Mcfe10, respectively. These benchmark multiples were applied by
Petrie Parkman to Patrick's estimated January 1, 1995 SEC Value and equivalent
proved reserves based on the reserve reports to yield asset reference value
ranges for Patrick's reserves. Following adjustment for non-reserve assets,
Petrie Parkman determined an asset reference value range under this method for
Patrick of $33.0 million to $37.0 million.
Comparable Transactions Analysis -- Patrick. Petrie Parkman reviewed
certain publicly-available information on 29 oil and gas property acquisition
transactions involving U.S. assets with purchase prices less than $50 million
which took place between January 1994 and March 1995. Using publicly-available
information for 27 of the 29 transactions and proprietary information for the
two of these transactions in which Petrie Parkman was involved, Petrie Parkman
calculated purchase price multiples of equivalent proved reserves for the
acquired assets in each transaction. Ten of these transactions, which in Petrie
Parkman's judgement were more relevant for an evaluation of Patrick, were
examined in greater detail. For these ten transactions, the highest, average,
and lowest multiples of Mcfe6 were $0.97, $0.70, and $0.51, respectively. The
highest, average, and lowest multiples of Mcfe10 were $0.77, $0.55, and $0.37,
respectively. Petrie Parkman determined that, with respect to Patrick, the
appropriate benchmark multiples for equivalent proved reserves were in the
ranges of $0.65 to $0.85 per Mcfe6 and $0.55 to $0.65 per Mcfe10, respectively.
These benchmarks were applied by Petrie Parkman to Patrick's corresponding
equivalent proved reserve figures based on the reserve reports to yield asset
reference value ranges for Patrick's reserves. Following adjustment for
non-reserve assets, Petrie Parkman determined an asset reference value range
under this method for Patrick of $34.0 million to $39.3 million.
In addition, Petrie Parkman reviewed certain publicly-available information
on 13 company acquisition transactions or proposed transactions in the oil and
gas industry which took place between June 1993 and September 1994. Using
publicly-available information, Petrie Parkman calculated implied purchase price
(purchase price plus obligations assumed less estimated values of non-reserve
assets) multiples of SEC Value and equivalent proved reserves for the target
company in each transaction. Seven of these transactions, which
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in Petrie Parkman's judgement were more relevant for an evaluation of Patrick,
were examined in greater detail. For these seven transactions, the highest,
average, and lowest multiples of SEC Value were 1.9x, 1.2x, and 0.7x,
respectively. The highest, average, and lowest multiples of equivalent proved
reserves were $1.43, $0.71, and $0.33 per Mcfe6, respectively. The highest,
average, and lowest multiples of equivalent proved reserves were $1.17, $0.62,
and $0.22 per Mcfe10, respectively. Petrie Parkman determined that, with respect
to Patrick, the appropriate benchmark multiples for SEC Value and equivalent
proved reserves were in the ranges of 0.8 to 1.2x, $0.50 to $0.60 per Mcfe6, and
$0.45 to $0.55 per Mcfe10, respectively. These benchmark multiples were applied
by Petrie Parkman to Patrick's estimated January 1, 1995 SEC Value and
equivalent proved reserves based on the Reserve Reports to yield asset reference
value ranges for Patrick's reserves. Following adjustment for non-reserve
assets, Petrie Parkman determined an asset reference value range under this
method for Patrick of $32.5 million to $37.8 million.
Going Concern Analysis. Under this method, Petrie Parkman projected cash
flows for Patrick without giving effect to the Transactions for the five year
period 1995 through 1999 using the three oil and gas price scenarios described
above. These projections were prepared utilizing certain information and
projections prepared or provided by Patrick management as well as numerous
assumptions and reserve finding cost cases of $0.90 per Mcfe6 (the "$0.90 Case")
and $0.60 per Mcfe6 (the "$0.60 Case"). The $0.90 Case was based on Patrick's
1993 finding cost of $0.88 per Mcfe6 as calculated from publicly-available
information. The $0.60 Case was designed to assess the financial impact of
substantially better finding cost performance. Other factors included terminal
multiples ranging from 4.0 to 6.0x projected 1999 discretionary cash flow, and
discount rates of 12.5% to 15.0%. This methodology resulted in ranges of equity
reference values per share of Patrick Common Stock (on a primary basis) under
the $0.90 Case of $0.50 to $0.73 using Pricing Case I, $0.68 to $0.97 using
Pricing Case II, and $0.87 to $1.23 using Pricing Case III and under the $0.60
Case of $0.66 to $0.96 using Pricing Case I, $0.87 to $1.24 using Pricing Case
II, and $1.08 to $1.53 using Pricing Case III. From these equity reference value
ranges, Petrie Parkman determined composite equity reference value ranges per
primary share of Patrick Common Stock under this method for the $0.90 Case and
the $0.60 Case of $0.60 to $0.80 and $0.75 to $1.00, respectively.
Pro Forma Merger Analysis. Petrie Parkman analyzed certain pro forma
financial effects of the Transactions projected for the periods 1995 through
1999 after considering the information described above. In connection with such
analysis, Petrie Parkman assessed the past performance of the management of
Patrick and La/Cal, reviewed the estimates and projections prepared or provided
by, and had discussions with, members of the management of Patrick and La/Cal
relating to the future financial and operating performances of Patrick and the
Company for the years 1995 through 1997, but relied only to a limited degree on
these estimates and projections in conducting its pro forma merger analysis.
This analysis indicated that the contemplated transaction would, for the periods
1995 through 1999, be anti-dilutive to projected Patrick discretionary cash flow
per primary share. Petrie Parkman concluded that, based on these projections,
the contemplated transaction would not be dilutive over the period analyzed and
would not result in higher financial leverage, thus supporting its opinion.
Discounted Cash Flow Analysis -- La/Cal. Under this method, Petrie Parkman
calculated estimates of future cash flows for the La/Cal reserve assets giving
effect to the Transactions based on the reserve reports and certain projections
provided by La/Cal. Three scenarios were evaluated in which the principal
variables were the oil and gas price scenarios described above. Other factors
involved in this analysis included the use of discount rates ranging from 10.0%
to 40.0%, and the assumption that a portion of La/Cal's future taxable income
would be offset by that portion of Patrick's NOLs remaining after consideration
of all of Patrick's estimated future taxable income. Otherwise, the analysis did
not reflect any transaction costs or operational efficiencies associated with
the Transactions. This methodology resulted in ranges of equity reference values
for La/Cal of $13.3 million to $15.6 million for Pricing Case I, $15.9 million
to $18.4 million for Pricing Case II, and $18.6 million to $21.6 million for
Pricing Case III.
Common Stock Comparisons -- La/Cal. Using publicly-available information,
Petrie Parkman calculated market value (stock price times the total number of
common shares outstanding) multiples of discretionary cash flow and adjusted
capitalization multiples of certain historical financial criteria (such as gross
pretax cash flow and operating cash flow), SEC Value, and equivalent proved
reserves for seven publicly
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traded, U.S.-based independent oil and gas companies which in Petrie Parkman's
judgment were relevant to an evaluation of La/Cal. The seven companies were
Alexander Energy Corporation, Clayton Williams Energy, Inc., Comstock Resources,
Inc., Crystal Oil Company, Hampton Resources Corporation, Patrick Petroleum
Company, and Swift Energy Company. For these seven companies, the highest,
average, and lowest multiples of discretionary cash flow were 18.5x, 6.9x, and
1.0x, respectively. The highest, average, and lowest multiples of gross pretax
cash flow were 11.3x, 7.4x, and 2.7x, respectively. The highest, average, and
lowest multiples of operating cash flow were 7.4x, 5.3x, and 2.2x, respectively.
The highest, average, and lowest multiples of SEC Value were 1.5x, 1.1x, and
0.8x, respectively. The highest, average, and lowest multiples of equivalent
proved reserves were $1.28, $0.91, and $0.64 per Mcfe6, respectively. Petrie
Parkman determined that, with respect to La/Cal, the appropriate benchmark
multiples for discretionary cash flow, gross pretax cash flow, operating cash
flow, SEC Value, and equivalent proved reserves were in the ranges of 5.0 to
10.0x, 4.6 to 8.5x, 3.6 to 7.0x, 1.0 to 1.5x, and $0.70 to $0.90 per Mcfe6,
respectively. These benchmark multiples were applied by Petrie Parkman to
La/Cal's estimated 1994 discretionary cash flow, gross pretax cash flow,
operating cash flow, SEC Value, and equivalent proved reserves based on the
reserve reports and certain projections provided by La/Cal. From the asset
reference value ranges implied by these multiples, Petrie Parkman determined an
equity reference value range under this method for La/Cal of $8.7 million to
$19.0 million.
Comparable Transactions Analysis -- La/Cal. Petrie Parkman reviewed certain
publicly-available information on 23 oil and gas property acquisition
transactions involving Gulf of Mexico and Gulf Coast assets which took place
between February 1993 and February 1995. Using publicly available information,
Petrie Parkman calculated purchase price multiples of equivalent proved reserves
for the acquired assets in each transaction. The highest, average, and lowest
multiples of Mcfe6 were $1.39, $0.64, and $0.12, respectively. Petrie Parkman
determined that, with respect to La/Cal, the appropriate benchmark multiples for
equivalent proved reserves were in the range of $0.70 to $0.98 per Mcfe6. This
benchmark was applied by Petrie Parkman to La/Cal's corresponding equivalent
proved reserve figures based on the reserve reports and certain projections
provided by La/Cal. From the asset reference value range implied by these
multiples, Petrie Parkman determined an equity reference value range under this
method for La/Cal of $9.7 million to $17.0 million.
In addition, Petrie Parkman reviewed certain publicly available information
on 16 company acquisition transactions or proposed transactions in the oil and
gas industry which took place between February 1992 and September 1994. Using
publicly available information, Petrie Parkman calculated total investment
(purchase price plus obligations assumed) multiples of gross pretax cash flow
for the target company in each transaction. For these 16 transactions, the
highest, average, and lowest multiples of gross pretax cash flow were 15.1x,
6.9x, and -14.0x, respectively. Petrie Parkman also calculated implied purchase
price multiples of SEC Value and equivalent proved reserves. The highest,
average, and lowest multiples of SEC Value were 1.9x, 1.3x, and 0.5x,
respectively. The highest, average, and lowest values of Mcfe6 were $1.64,
$0.90, and $0.33, respectively. Petrie Parkman determined that, with respect to
La/Cal, the appropriate benchmark multiples for gross pretax cash flow, SEC
Value, and equivalent proved reserves were in the ranges of 4.7 to 7.0x, 0.8 to
1.2x, and $0.70 to $0.97 per Mcfe6, respectively. From the asset reference value
ranges implied by these multiples, Petrie Parkman determined an equity reference
value range under this method for La/Cal of $9.7 million to $18.0 million.
The description set forth above constitutes a summary of the material
analyses and assumptions employed by Petrie Parkman in rendering its opinion to
the Patrick Board of Directors. Petrie Parkman believes that its analyses must
be considered as a whole and that selecting portions of its analyses or the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the process underlying its opinion. The preparation
of a fairness opinion is a complex process, judgmental in nature, and not
necessarily susceptible to partial analysis or summary description. In its
analyses, Petrie Parkman made numerous assumptions with respect to industry
performance, capital market conditions, general business and economic
conditions, and other matters, many of which are beyond La/Cal's and Patrick's
control. Any estimates contained therein are not necessarily indicative of
actual values, which may be significantly more or less favorable than as set
forth therein. Estimates of reference values of companies do not purport to be
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<PAGE> 59
appraisals or necessarily reflect the prices at which companies may actually be
sold. Because such estimates are inherently subject to uncertainty, no
assurances can be given that such estimates will prove to be accurate.
Petrie Parkman confirmed, as of the date of this Joint Proxy
Statement/Prospectus, its opinion of March 10, 1995 that the Common Stock
Exchange Ratio and the Preferred Stock Exchange Ratio in connection with the
Transactions are fair, from a financial point of view, to the holders of Patrick
Common Stock and Patrick Preferred Stock, respectively. In rendering such
confirmation, Petrie Parkman performed procedures to update certain of its
analyses made in connection with its March 10, 1995 opinion and reviewed the
assumptions on which such analyses were based and the factors considered in
connection therewith. Petrie Parkman considered, among other things, Patrick's
and La/Cal's recent financial performance and recent market conditions and
developments based on the foregoing.
As described above, Petrie Parkman's opinion and presentation to the
Patrick Board of Directors was one of many factors taken into consideration by
the Patrick Board of Directors in making its determination to approve the
transaction contemplated in the Merger Agreement.
Petrie Parkman, as part of its investment banking business, is continually
engaged in the valuation of energy-related businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements, and
valuations for corporate and other purposes. Patrick selected Petrie Parkman as
its financial advisor because it is a nationally recognized investment banking
firm that has substantial experience in transactions similar to the
Transactions.
Pursuant to the terms of the engagement letter dated March 14, 1994,
Patrick has paid Petrie Parkman $100,000 in general financial advisory fees and
$281,750 in connection with the Unit Sale and the LLOG Exploration Sale. In
addition, pursuant to the terms of that letter Patrick agreed to pay Petrie
Parkman upon the successful completion of transactions such as the Transactions
a fee equal to 1.5% of the consideration received by the holders of Patrick
Stock pursuant to the Transactions. Whether or not the Transactions are
consummated, Patrick has also agreed to reimburse Petrie Parkman for its
reasonable out-of-pocket expenses, including fees and disbursements of counsel,
not to exceed $15,000, and to indemnify Petrie Parkman and certain related
persons against certain liabilities relating to or arising out of its
engagement, including certain liabilities under the federal securities laws.
Patrick agreed to pay a contingent fee to Petrie Parkman because it did not want
to obligate itself to a significant expense for financial advisory services
absent the closing of a transaction intended to improve stockholder value.
Patrick believes the terms of such fee are ordinary, customary and reasonable
under the circumstances.
CERTAIN INFORMATION PROVIDED
In connection with the discussions between La/Cal and Patrick described
above, and in connection with Petrie Parkman's analysis of the proposed
Transactions, La/Cal provided Patrick and Petrie Parkman with certain data
concerning La/Cal's estimated oil and gas reserves and discounted reserve
values. La/Cal provided Patrick with a reserve report covering its oil and gas
properties prepared by Coutret & Associates, Inc. ("Coutret") as of January 1,
1994. The January 1, 1994 Coutret report showed estimated proved oil and gas
reserves for La/Cal of 210 Mbbls of oil and 17.55 Bcf of gas with an estimated
pre-tax present value of future net revenues (discounted at 10%) of $21.4
million. At Patrick's request, La/Cal engaged H. J. Gruy and Associates ("Gruy")
to evaluate La/Cal's proved developed producing reserves in its two primary
fields, Pecan Lake and Lake Charles, as of August 1, 1994. The August 1, 1994
Gruy report showed proved developed producing reserves for La/Cal in the Pecan
Lake and Lake Charles fields of 270 MBbls of oil and 18.75 Bcf of gas with an
estimated pre-tax present value of future net revenues (discounted at 10%) of
$28.1 million.
In connection with the discussions between La/Cal and Patrick described
above, and in connection with Petrie Parkman's analysis of the proposed
transactions, Patrick provided La/Cal and Petrie Parkman certain preliminary
financial forecasts with respect to Patrick's operating results, cash flows,
capitalization and capital expenditures for 1995-1997, and the assumptions on
which such preliminary forecasts were based. Such preliminary financial
forecasts assumed Patrick's continued operation as a stand-alone entity. Such
forecasts were developed for internal use only, were not prepared with the
intent that they would be publicly distributed,
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<PAGE> 60
were based on numerous assumptions and are not necessarily indicative of future
results. The assumptions in the preliminary forecast include (i) seven
successful wells in the Sean Andrew field at maximum allowable production of 340
Bbls/day and 175 Mcf/day with a 27% net revenue interest to Patrick; (ii) eight
additional wells drilled in each of 1996 and 1997 at a 50% success rate, each
providing 250 Bbls/day with a 27% net revenue interest to Patrick; (iii) a
reduction of general and administrative expenses to $2,000,000 per year; (iv)
capital expenditures of $1,831,000, $2,124,000 and $2,124,000 in 1995, 1996 and
1997, respectively; (v) an increase in the value of the remaining Penske
investment by 20% each year; and (vi) interest rates of 8.5%. The preliminary
forecasts set forth cash flow of $4,372,000, $6,182,000 and $8,724,000; and net
income of $2,358,000, $4,030,000 and $5,499,000, for 1995, 1996 and 1997,
respectively.
Based upon Patrick's preliminary financial forecasts, the expected
contribution of the La/Cal Interests and their expectations for operating and
other expense reductions and the future operating results which could be
achieved by a combination of Patrick and La/Cal, representatives of La/Cal
prepared a three year preliminary financial forecast for the Company on a
combined basis, which was shared with Patrick and Petrie Parkman. The financial
forecast was developed for internal use only, was not prepared with the intent
that it would be publicly distributed, was based on numerous assumptions
(including certain assumptions related to exploratory drilling, including an
average gross working interest per well of 50%, an average net revenue interest
per well of 37.5%, average gas reserves per well of 7.0 Bcf and an average gas
flow rate per well of 2,500 Mcf/d based upon dual completion of each well and a
drilling success rate of 75%) and is not necessarily indicative of future
results. La/Cal based certain of its assumptions and estimates on the historical
finding costs and drilling record of Goodrich Oil Company. As described in the
forecast materials, Goodrich Oil Company had a gas and gas equivalents finding
cost from 1990-1994 of approximately $.2801 per Mcfe. Since 1977, Goodrich Oil
Company has drilled or participated in approximately 243 wells, approximately
71% of which were completed as successful producers. In preparing the forecast,
La/Cal also assumed average gas prices per Mcf of $1.55, $1.75 and $2.00, and
exploration and development drilling budgets of approximately $4.3 million, $5.6
million and $10 million for 1995, 1996 and 1997, respectively. There can be no
assurance that these price assumptions will reflect actual market conditions or
that the Company will have funds available or will identify sufficient prospects
to meet the assumed drilling budgets. The combined Company forecasts indicate
net earnings available to common shares of $12.2 million, $8.8 million and $11.7
million and cash flow from operations of $15.6 million, $13.7 million and $18.0
million for 1995, 1996 and 1997, respectively.
PURCHASE PRICE ADJUSTMENT
The Agreement contains a provision whereby the number of shares of Common
Stock issuable to La/Cal pursuant to the Agreement could have been increased or
decreased to adjust for significant title defects in the properties of either
La/Cal or Patrick and certain other matters. Under the Agreement the period for
making claims regarding title defects expired on April 10, 1995. No such claims
were made by either party and no purchase price adjustment was made pursuant to
this provision in the Agreement.
JOINT PARTICIPATION AGREEMENT WITH GOODRICH OIL COMPANY
During the negotiations between Patrick and La/Cal, representatives of
Patrick requested that the Company have participation rights in prospects
generated and drilled by Goodrich Oil Company after the Effective Time. Goodrich
Oil Company is owned by Henry Goodrich, who is the father of the Company's Chief
Executive Officer and will become a director of the Company at the Effective
Time, and is engaged in developing oil and gas drilling programs for its
participants, primarily in South Louisiana and East Texas. Goodrich Oil Company
is a party to participation agreements, with certain industry partners and
individual investors pursuant to which such persons (the "GOC Participants")
invest in drilling programs developed by Goodrich Oil Company. Goodrich Oil
Company does not retain any working interest in its drilling programs. After the
Effective Time, Goodrich Oil Company will continue to operate with separate
geologists and other professional personnel from the Company.
At the Effective Time, the Company will enter into a Joint Participation
Agreement with Goodrich Oil Company pursuant to which the Company and Goodrich
Oil Company will each agree to offer to the other a 50% participation interest
in such company's share of all drilling prospects and acquisitions of producing
properties identified after the Effective Time by either company. Accordingly,
the GOC Participants will have
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the opportunity to invest, through Goodrich Oil Company, in prospects identified
after the Effective Time by the Company, and the Company will have the
opportunity to participate in future Goodrich Oil Company drilling programs.
Goodrich Oil Company will not receive any compensation or management fees from
the Company, and the Company will not receive any such fees from Goodrich Oil
Company, in connection with such arrangements. The Joint Participation Agreement
will terminate on the earlier of (i) December 31, 2000, or (ii) at such time as
neither Gil Goodrich or Henry Goodrich is an employee, director or consultant of
the Company.
Pursuant to the Joint Participation Agreement, the Company will have the
right to approve each drilling prospect or acquisition. Management of the
Company intends to present each Goodrich Oil Company drilling prospect or
acquisition to a committee of disinterested directors for approval prior to
acceptance of such program. The Company will not forfeit its participation
rights on future programs if the Company elects not to participate in a proposed
prospect or acquisition, and Goodrich Oil Company will not lose its
participation rights on future prospects or acquisitions by electing not to
participate in a prospect or acquisition proposed by the Company.
The Company believes that its association as a participant with Goodrich
Oil Company will increase the number of drilling prospects to which the Company
is exposed and will permit the Company to pursue valuable drilling opportunities
which will contribute to the Company's growth. In addition, Mr. Goodrich will
provide valuable geological and business advice to the Company regarding its
participation in Goodrich Oil Company programs and the Company's
internally-generated prospects. See "-- Consulting Agreement with Henry
Goodrich."
Pursuant to the participation agreements between Goodrich Oil Company and
the GOC Participants, each of, Henry Goodrich, Gil Goodrich, Roland Frautschi
and Michael Watts are entitled to certain back-in or carried participating
interests upon the recoupment of costs associated with wells in which Goodrich
Oil Company participates. All such interests owned by Henry Goodrich, Gil
Goodrich, Roland Frautschi and Michael Watts will be assigned to the Company
with respect to wells approved during the period when such person has an
employment or consulting relationship with, or is a member of the Board of
Directors of, the Company. Generally, participation accounting in individual
exploration programs is conducted on a per-well basis. After the payout of an
individual program well, the Company's working interest in the individual well
(assuming that the Company and Goodrich Oil Company collectively hold a 100%
combined working interest in the well) will increase to approximately 53-55% as
a result of the assignment of the back-in and/or carried working interests from
such persons.
Since prior to the formation of La/Cal, Henry Goodrich, Gil Goodrich,
Roland Frautschi and Michael Watts have personally participated in Goodrich Oil
Company's drilling programs. Such persons have paid their pro rata share of all
expenses associated with their interests in each prospect. It is anticipated
that such persons will continue to participate in future Goodrich Oil Company
drilling programs after the Effective Time. It is anticipated that the sum of
such persons' participation interests in future Goodrich Oil Company drilling
programs should not exceed 10% of the aggregate interests of the GOC
Participants.
After the Effective Time, Goodrich Oil Company will provide office space in
Shreveport to the Company and the Company will reimburse Goodrich Oil Company
for such facilities at Goodrich's Oil Company's cost.
A significant percentage of the gas sold by La/Cal is, and after the
Effective Time a significant percentage of the gas sold by the Company will be,
marketed through Natural Gas Ventures, L.L.C. ("NGV") which was organized by
affiliates of Goodrich Oil Company. Participants in NGV marketing activities
participate in any profits or other benefits to NGV on a pro rata basis based
upon gas sold through the venture. See "Business and Properties of
La/Cal -- Marketing" and "Business and Properties of the Company -- Marketing."
CONSULTING AGREEMENT WITH HENRY GOODRICH
At the Effective Time, the Company will enter into a five-year consulting
agreement (the "Goodrich Consulting Agreement") with Mr. Henry Goodrich. Mr.
Goodrich will provide consulting services to the Company with regard to the
identification and evaluation of acquisition and drilling opportunities,
financing
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transactions, investor relations and other matters. Mr. Goodrich will receive
annual consulting fees from the Company of $150,000 for such services over the
five-year term of the agreement. Mr. Goodrich will also receive a grant of
options to purchase 250,000 shares of Common Stock at the closing price for such
shares on the Closing Date.
PATRICK CONSULTING AGREEMENTS
Mr. U.E. Patrick, the president and chief executive officer of Patrick, has
an employment agreement (the "Patrick Employment Agreement") with Patrick which
extends through December 31, 1998. Such agreement provides for annual
compensation of $450,000 to Mr. Patrick through 1998 and for additional
compensation for four years after the end of the initial term or any extension
of the agreement for consulting services at 50% of Mr. Patrick's salary as of
the date the employment agreement is terminated. Based on Mr. Patrick's current
salary, he is entitled to aggregate cash compensation of $2.7 million from
1995-2002 pursuant to the Patrick Employment Agreement. See "Management of the
Company After the Effective Time -- Patrick Employment Agreement." Pursuant to
the Agreement, the Company and Mr. Patrick have agreed to terminate the Patrick
Employment Agreement as of the Effective Time and to enter into a consulting
agreement (the "Patrick Consulting Agreement") pursuant to which the Company
will pay Mr. Patrick approximately $317,000 per year for three years after the
Effective Time, or an aggregate of $950,000. The Company has also agreed to
enter into a consulting agreement with Mark Patrick, who is currently Patrick's
division manager in West Texas and is U.E. Patrick's son, pursuant to which the
Company will pay Mark Patrick $130,000 over two years and maintain his health
benefits for such period. The Company's obligations with respect to the
consulting fees payable to U.E. Patrick and Mark Patrick are absolute and will
not be terminated by their death or disability. In addition, the Company will
indemnify both U.E. Patrick and Mark Patrick against all liabilities or costs
resulting from any activities performed by them pursuant to such agreements.
LA/CAL FINDER'S FEE
La/Cal has agreed to pay Mr. Leo E. Bromberg, a Partner and member of the
Management Committee of La/Cal, a finder's fee with respect to the transactions
contemplated by the Agreement. Pursuant to such arrangement, Mr. Bromberg will
be entitled to receive 494,131 shares of Common Stock at the Effective Time,
which is approximately 2.5% of the 19,765,226 shares of Common Stock to be
received by La/Cal pursuant to the Asset Transfer. The finder's fee payable to
Mr. Bromberg is intended to compensate him for his services in identifying to
La/Cal the opportunity to pursue a business combination with Patrick and for his
efforts in connection with the consummation of the proposed Transactions.
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COMPARISONS OF INTERESTS OF MANAGEMENT COMMITTEE MEMBERS BEFORE AND AFTER
COMPLETION OF THE MERGER
The following table sets forth a comparison of compensation, ownership, and
related party transactions before and after the Effective Time, involving
Management Committee members and their affiliates.
<TABLE>
<CAPTION>
MEMBER/AFFILIATE INTERESTS BEFORE MERGER AFTER MERGER
- ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
1. Gil Goodrich Compensation None, except $150,000 salary,
reimbursement for out- discretionary bonus to
of-pocket expenses be determined by
Compensation Committee
and 250,000 stock
options
Ownership 42.5% partnership 20.7% of the
interest in La/Cal(1) outstanding Common
Stock(2)
$60,000 annual salary
from Goodrich Oil
Company
Related Party NGV Marketing NGV Marketing
Transactions Arrangements(3) Arrangements(3)
Participant in Participant in
Goodrich Oil Company Goodrich Oil Company
Drilling Programs Drilling Programs
Recipient of Promoted
Interests in Goodrich
Oil Company Drilling
Programs
La/Cal Partnership
Distributions
2. Henry Goodrich Compensation None, except Consulting Agreement
reimbursement of out- $150,000 annual fees
of-pocket expenses and 250,000 stock
options
Joint Participation
Agreement(5)
Ownership 26.3% partnership 12.8% of the
interest in La/Cal(1) outstanding Common
Stock(2)
Related Party NGV Marketing NGV Marketing
Transactions Arrangements(3) Arrangements(3)
Participation in Participation in
Goodrich Oil Company Goodrich Oil Company
Drilling Programs Drilling Programs
Recipient of Promoted
Interests in Goodrich
Oil Company Drilling
Programs
La/Cal Partnership
Distributions
3. Leo E. Bromberg(2) Compensation None Finder's Fee 494,131
shares as a "finder's
fee"
Ownership 14.1% partnership 8.1% of the
interest in La/Cal(4) outstanding Common
Stock(4)
Related Party La/Cal Partnership
Transactions Distributions
</TABLE>
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- ---------------
(1) See Note (1) to "Ownership of Capital Stock -- Ownership of La/Cal
Partnership Interests."
(2) See Note (1) to "Ownership of Capital Stock -- Ownership of the Capital
Stock of the Company after the Effective Time."
(3) Includes certain marketing arrangements between Natural Gas Ventures, L.L.C.
and the Company. See "Business and Properties of the Company -- Marketing."
(4) Includes partnership interests held, and shares of Common Stock to be held,
by Mr. Bromberg as trustee. See "Ownership of Capital Stock".
(5) Mr. Henry Goodrich's affiliate, Goodrich Oil Company has a right to
participate in all of the Company's new prospects and acquisitions after the
Effective Time pursuant to the terms of a Joint Participation Agreement
between the Company and Goodrich Oil Company. See "Description of the
Transactions -- Joint Participation Agreement with Goodrich Oil Company".
ACCOUNTING TREATMENT
For accounting and financial reporting purposes, the Transactions will be
accounted for as a purchase of Patrick by La/Cal. Consequently, the Company's
consolidated financial statements after the Effective Time will reflect the
assets and liabilities of La/Cal at book value and the assets and liabilities of
Patrick at fair value. For presentations of certain anticipated effects of the
accounting treatment on the consolidated financial position and the results of
operations of the Company after the Effective Time, see the Unaudited Pro Forma
Financial Information included herein.
REPURCHASE OF PENSKE STOCK
If the Merger is consummated, a change of control as defined in the sale
agreement with Penske Corporation will occur. Penske has advised Patrick that it
intends to exercise its right to purchase all of the remaining Penske shares
owned by Patrick under such circumstances. If the Merger occurs and Penske
exercises its purchase right, the Company anticipates receiving approximately
$9.6 million in cash which will be used to reduce bank debt.
GOVERNMENTAL AND REGULATORY APPROVALS
Patrick and La/Cal are not aware of any federal or state regulatory
requirements which must be complied with or any federal or state regulatory
approval which must be obtained in connection with the Transactions, other than
registration and proxy solicitation requirements under federal and state
securities laws.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
At the Effective Time, the Board of Directors of the Company will consist
of twelve persons, six of whom are designated by Patrick and six of whom are
designated by La/Cal. Messrs. U.E. Patrick, Basil M. Briggs, Benjamin F.
Edwards, II, Wayne G. Kees, James R. Jenkins and John C. Napley, each of whom is
currently a director of Patrick, have been designated by Patrick. Messrs. Henry
Goodrich, Gil Goodrich, Sheldon Appel, Jeff H. Benhard and Michael Watts have
been designated by La/Cal. Henry Goodrich and Gil Goodrich are Partners and
members of the Management Committee of La/Cal. Michael Watts and an affiliate of
Sheldon Appel are Partners of La/Cal. Mr. Patrick will serve as Chairman of the
Board of the Company and Gil Goodrich will serve as President and Chief
Executive Officer and will enter into a five-year employment contract with the
Company pursuant to which he will receive salary and bonus compensation and
stock options. See "Management of the Company After the Effective Time" for a
description of the compensation to be paid to such individuals in connection
with their service to the Company.
At the Effective Time, Mr. U.E. Patrick and each member of the Management
Committee and certain of their affiliates will enter into a Registration Rights
Agreement with the Company pursuant to which such persons shall have certain
demand registration rights with respect to their shares. See "-- Registration
Rights."
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<PAGE> 65
All Patrick Stock Options outstanding immediately prior to the Effective
Time will be assumed by the Company and will become options to purchase Common
Stock. The number of shares of Common Stock subject to such options will be
equal to the number of shares of Patrick Common Stock subject to such options
immediately prior to the Effective Time and the per share exercise price under
such options shall remain unchanged. As of the date of this Joint Proxy
Statement/Prospectus, the directors of Patrick held the following number of
Patrick Stock Options: Mr. Patrick (1,005,602 options), Mr. Briggs (53,000
options), Mr. Edwards (54,000 options), Mr. Kees (56,665 options), Mr. Jenkins
(60,105 options) and Mr. Napley (95,072 options). The exercise prices are $1.75
per share for 50,000 of the Patrick Stock Options held by Patrick directors and
$2.25 for the remainder. Pursuant to the Agreement, all Patrick Stock Options
will remain exercisable for the full initial term of such options without regard
to the earlier resignation of a director from the Company's Board. See
"-- Patrick Merger."
Patrick entered into the Patrick Employment Agreement with Pat Patrick
effective November 1, 1993 which extends through December 31, 1998 and is
automatically renewed for one year periods thereafter. See "Management of the
Company After the Effective Time -- Executive Compensation." At the Effective
Time such employment agreement will be cancelled and replaced by a consulting
agreement with the Company pursuant to which Mr. Patrick will be entitled to
compensation of approximately $317,000 per year over three years and certain
other benefits. See "-- Patrick Consulting Agreements."
La/Cal has agreed to pay Mr. Leo E. Bromberg, a Partner and member of the
Management Committee, a finder's fee of 494,131 shares of Common Stock upon
consummation of the Transactions. See "-- La/Cal Finder's Fee."
At the Effective Time, the Company will enter into the Joint Participation
Agreement with Goodrich Oil Company, an affiliate of Henry Goodrich. Henry
Goodrich will also enter into a consulting agreement with the Company pursuant
to which he will receive compensation and a stock option grant. For a
description of such agreements, see "-- Joint Participation Agreement with
Goodrich Oil Company" and "Management of the Company after the Effective
Time -- Employment and Consulting Agreements."
For a description of certain indemnification rights to which members of the
Patrick Board and the La/Cal Management Committee are entitled in connection
with the Transactions, see "-- Indemnification of Certain Persons."
RESTRICTIONS ON RESALE BY AFFILIATES
The offering and sale of the shares of Common Stock and Preferred Stock to
be issued in connection with the Agreement has been registered under the
Securities Act pursuant to the Registration Statement. Therefore, subject to the
six month contractual restrictions described below, shares of Common Stock and
Preferred Stock issued in connection with the Transactions may be traded freely
and without restriction by those former stockholders of Patrick or Partners of
La/Cal not deemed to be "affiliates" (as that term is defined in Rule 144 under
the Securities Act) of Patrick, La/Cal or the Company.
Any public reoffering or resale of shares of Common Stock or Preferred
Stock by any person who is an affiliate of Patrick at the time the Agreement is
submitted to a vote at the Patrick Special Meeting, by any person who is an
affiliate of La/Cal at the time the Agreement is submitted to a vote at the
La/Cal Special Meeting, or by any person who is an affiliate of the Company
will, under current law, require either (i) the further registration under the
Securities Act of the shares to be sold, (ii) compliance with Rules 144 and 145
promulgated under the Securities Act or (iii) the availability of another
exemption from registration. See "-- Registration Rights."
Generally, Rules 144 and 145 would permit an affiliate to sell in ordinary
brokerage transactions within any three-month period a number of shares of
Common Stock or a number of shares of Preferred Stock that does not exceed the
greater of (i) one percent (1%) of the then outstanding shares of Common Stock
or then outstanding shares of Preferred Stock, as the case may be, or (ii) the
average weekly volume of trading in such shares during the four calendar weeks
preceding such sale; provided that the Company has filed certain periodic
reports with the Commission and provided that such sale is made in accordance
with other conditions
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<PAGE> 66
of the Securities Act and the rules promulgated thereunder. The Company's
securities will not qualify for sale pursuant to Rule 144 until the Company has
been a reporting company under the Exchange Act for 90 days, which will occur 90
days after the Effective Date.
Patrick and La/Cal have agreed to use their reasonable efforts to cause all
persons who, immediately prior to the Effective Time, may be deemed to be
affiliates of Patrick or La/Cal, respectively, and who will become beneficial
owners of Common Stock pursuant to the Merger, to execute "affiliates letters"
prior to the Effective Time pursuant to which such affiliates will agree to
dispose of Common Stock only in compliance with applicable securities laws.
Patrick has also agreed to enter into an agreement with each member of the Board
of Directors of Patrick pursuant to which such directors agree not to sell any
Common Stock or other securities of the Company for a period of six months after
the Effective Time (the "Stock Sale Agreements"). La/Cal has agreed to cause
Partners owning at least 99% of the partnership interests in La/Cal to enter
into similar Stock Sale Agreements.
REGISTRATION RIGHTS
At the Effective Time, the Company will enter into a Registration Rights
Agreement with Mr. U.E. Patrick, Mr. Henry Goodrich, Mr. Gil Goodrich, Mr. Leo
E. Bromberg, a partnership affiliated with Mr. Sheldon Appel and certain other
Partners, including entities affiliated with Mr. Henry Goodrich and Mr. Gil
Goodrich. Pursuant to the Registration Rights Agreement, such persons will be
entitled to require the Company to register for sale under the Securities Act
shares of the Common Stock received by them in connection with the Transactions.
The Registration Rights Agreement will have a three-year term, and, subject to
certain limitations, will entitle the holders of registration rights to three
"demand" registrations as described above. Expenses incurred in connection with
such registrations will be paid by the Company, other than underwriting
discounts or commissions.
NO SOLICITATION
Patrick has agreed that it will not, directly or indirectly, through any of
its officers, directors, employees, agents or advisors or other representatives
or consultants, solicit or initiate or knowingly encourage, including by means
of furnishing information, any proposals or offers from any person (other than
La/Cal) relating to any acquisition or purchase of all or a material amount of
the assets of, or any securities of, or any merger, tender offer, consolidation
or business combination with, Patrick (an "Acquisition Proposal"); provided,
however, that Patrick may furnish information and may consider, evaluate and
engage in discussions or negotiations with any person if outside counsel advises
Patrick's directors that failure to furnish such information or engage in such
discussions or negotiations could involve Patrick's directors in a breach of
their fiduciary duties. If the Board of Directors of Patrick receives a request
for confidential information from a potential bidder for Patrick and the Board
of Directors determines, after consultation with outside counsel, that the Board
of Directors has a fiduciary obligation to provide such information to a
potential bidder, then Patrick may, subject to a confidentiality agreement
substantially similar to that previously executed with La/Cal, provide such
potential bidder with access to information regarding Patrick. Patrick shall
promptly notify La/Cal, orally and in writing, if any such proposal or offer is
made and shall, in any such notice, indicate the identity and terms and
conditions of any proposal or offer, or any such inquiry or contact. Patrick
shall keep La/Cal advised of the progress and status of any such proposals or
offers. The obligation of the Board of Directors of Patrick to convene a meeting
of its stockholders and to recommend the adoption and approval of the Agreement
to the stockholders of Patrick shall be subject to the fiduciary duties of the
Directors, as determined by the Directors after consultation with their outside
counsel, and nothing contained in the Agreement shall prevent the Board of
Directors of Patrick from approving or recommending to the stockholders of
Patrick any unsolicited offer or proposal by a third party if required in the
exercise of their fiduciary duties, as determined by the Directors after
consultation with outside counsel. See "-- Liabilities upon Termination."
La/Cal has agreed to provisions in the Agreement to the same effect, except
that the provisions apply to the Management Committee and the Partners,
respectively, instead of the Board of Directors and stockholders. See
"-- Liabilities upon Termination."
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PATRICK RIGHTS AGREEMENT
The Rights Agreement relating to Patrick's stockholder rights plan ("Rights
Agreement"), has been amended to provide that no "Distribution Date" or "Shares
Acquisition Date" (as such terms are defined in the Rights Agreement) shall have
occurred, neither the Company nor La/Cal nor any affiliate or associate of the
Company or La/Cal shall be deemed to be an "Acquiring Person" (as such term is
defined in the Rights Agreement), and no holder of "Rights" (as such term is
defined in the Rights Agreement), shall be entitled to exercise such Rights
under or be entitled to any rights pursuant to Section 7(a), 11(a) or 13 of the
Rights Agreement, by reason of (i) the adoption, approval, execution, delivery
or effectiveness of the Agreement, or (ii) the consummation of the transactions
contemplated by the Agreement in accordance with the terms thereof including,
without limitation, the consummation of the Merger. The Rights Agreement and any
Rights thereunder shall terminate as a result of the Merger at the Effective
Time.
The Agreement provides that prior to the Effective Date the Board of
Directors of the Company shall consider the adoption of a stockholder rights
plan substantially similar to the plan set forth in the Rights Agreement.
INDEMNIFICATION OF CERTAIN PERSONS
In the Agreement, the Company has agreed that all rights to indemnification
and waivers of liability in favor of (i) the members of the Management Committee
now existing and in effect at the Effective Time as provided in the La/Cal
partnership agreement; and (ii) the directors or officers of Patrick now
existing and in effect at the Effective Time as provided in its charter
documents as in effect on the date of the Agreement, shall survive the Merger
and shall continue in full force and effect.
In addition, Patrick has agreed that it shall, regardless of whether the
Merger becomes effective, indemnify and hold harmless, and, after the Effective
Time, Patrick (which shall then be a wholly-owned subsidiary of the Company and
is sometimes referred to as the "Surviving Corporation") and the Company have
agreed that they shall indemnify and hold harmless for a period of five years,
to the fullest extent permitted under applicable law and under the Company's
Certificate of Incorporation or Bylaws as in effect on the date of the
Agreement, each present and former director and officer of Patrick and each
member of the Management Committee (collectively, the "Indemnified Parties")
against any costs or expenses (including attorneys' fees), judgments, fines,
losses, claims, damages, liabilities and amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to any action or omission occurring prior to the Effective Time with respect to
the transactions contemplated by the Agreement, provided that for a period of
five years any Indemnified Parties shall be advanced any legal costs and
expenses until a final determination of such action, and such indemnified person
shall reimburse the Company for any such costs and expenses if the final
decision is against the Indemnified Party after the date of the Agreement;
provided, that, in the event any claims or claims are asserted or made within
such five-year period, all rights to indemnification in respect to any such
claim or claims shall continue until final disposition of any and all such
claims. After the Effective Time, the Surviving Corporation and the Company
shall also advance expenses as incurred to the fullest extent permitted under
applicable law provided the person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification.
The Indemnified Parties shall not be entitled to the indemnification
described above in connection with any claim initiated by the Indemnified Party
against the Company or the Surviving Corporation or any officer or director
thereof unless the Company or the Surviving Corporation has joined in or
consented to the initiation of such claim.
The Company has agreed to make all reasonable efforts to cause to be
maintained in effect for a period of five years after the Effective Time the
current policies of director and officers liability insurance of Patrick or a
comparable substitue policy.
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REPRESENTATIONS AND WARRANTIES
In the Agreement, Patrick and La/Cal have made various representations and
warranties relating to, among other things, their respective businesses and
financial condition, the accuracy of information provided by one party to the
other, the satisfaction of certain legal requirements for the transactions
contemplated by the Agreement, and the absence of certain material liabilities
and litigation. Except for certain covenants and agreements which by their terms
contemplate performance after the Effective Time (relating to confidential
information, indemnification and certain miscellaneous matters), all
representations, warranties, covenants and agreements included in or provided in
the Agreement, or in any exhibit, document, certificate or other instrument
delivered pursuant thereto, shall not survive the Effective Time.
CONDUCT OF BUSINESS PRIOR TO EFFECTIVE TIME
Patrick. In addition to various covenants and agreement described elsewhere
in this Joint Proxy Statement/Prospectus, the Agreement contains a number of
covenants, both affirmative and restrictive, of Patrick relating to the conduct
of its business prior to the Effective Time. Without limitation, among the
restrictive covenants are covenants relating to (i) entering into new agreements
or disposing of assets, (ii) compensation and employee benefits, (iii) common
dividends, (iv) acquiring its own securities or effecting any changes in its
capital stock, (v) issuance of or other transactions relating to its securities,
and (vi) indebtedness.
La/Cal. In addition to various covenants and agreements described elsewhere
in this Joint Proxy Statement/Prospectus, the Agreement contains a number of
covenants, both affirmative and restrictive, of La/Cal relating to the conduct
of its business prior to the Effective Time. Without limitation, among the
restrictive covenants are covenants relating to (i) entering into new agreements
or disposing of assets, and (ii) indebtedness.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS
La/Cal and Patrick. The obligations of La/Cal and Patrick to consummate the
transactions contemplated by the Agreement are subject, at the option of each
party, to the satisfaction or waiver by both parties of the following
conditions: (a) no state or federal statute, rule, regulation or action shall
exist or shall have been adopted or taken, and no judicial or administrative
decision shall have been entered (whether on a preliminary or final basis), and
no action or proceeding by any governmental, regulatory or administrative agency
shall be pending that if adversely decided would prohibit, restrict or
unreasonably delay the consummation of the transactions contemplated by the
Agreement or make illegal the consideration due thereunder; (b) Patrick and
La/Cal shall have obtained the necessary consent of their respective
stockholders and Partners to the consummation of the transactions contemplated
by the Agreement; and, (c) the Registration Statement shall have become
effective under the Securities Act; no stop order suspending the effectiveness
of the Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the Commission; and such
Registration Statement, at the time the Merger becomes effective, shall not
contain any untrue statement of a material fact and shall not omit to state any
material fact required to be stated therein or necessary to make any statement
therein, in light of the circumstances under which the statements were made, not
misleading.
La/Cal. The obligations of La/Cal to consummate the transactions
contemplated by the Agreement are subject, at the option of La/Cal, to the
satisfaction or waiver of the following additional conditions: (a) all
representations and warranties of Patrick contained in the Agreement shall be
true and correct in all material respects at and as of the Closing, as if such
representations and warranties were made at and as of the Closing, and Patrick
shall have performed and satisfied in all material respects all covenants,
agreements and obligations required by the Agreement to be performed and
satisfied by Patrick at or prior to the Closing; (b) the receipt of a legal
opinion dated as of the Closing from Patrick's counsel; (c) all necessary
consents, permissions, novations and approvals by third parties or governmental
authorities in connection with the Transactions, and all permits and licenses
necessary or appropriate for the operation of Patrick's business shall have been
obtained, if the failure to obtain such consent or permit would have a material
adverse effect on the
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Transactions; (d) there shall be no legal proceedings or environmental
proceedings with respect to Patrick outstanding or threatened, other than those
that have been disclosed, which, either separately or in the aggregate, would
materially and adversely affect the business, operations or financial condition
of Patrick taken as a whole; (e) the receipt of a balance sheet as of the
quarter end preceding the Closing certified by the President and Chief Financial
Officer of Patrick showing (i) net amount of Patrick's total current liabilities
(excluding principal amounts due on bank debt and Patrick's 10.75% Subordinated
Collateralized Notes (the "Senior Notes"), accounts receivable and cash and cash
equivalents equal to or greater than ($1,662,333) and (ii) cash and cash
equivalents equal to or in excess of $9,000; (f) the receipt of an opinion of
KPMG Peat Marwick LLP in form and substance reasonably satisfactory to La/Cal to
the effect that the Transactions will qualify as a tax free exchange within the
meaning of section 351(a) of the Code and such opinion shall not have been
withdrawn; (g) since the date of the Agreement, no material adverse change shall
have occurred in the business, operations or financial conditions, taken as a
whole, of Patrick; (h) the Company shall have entered into the Registration
Rights Agreement; and (i) the Stock Sale Agreements shall have been executed.
Patrick. The obligations of Patrick to consummate the transactions
contemplated by the Agreement are subject, at the option of Patrick, to the
satisfaction or waiver of the following additional conditions: (a) all
representations and warranties of La/Cal contained in the Agreement shall be
true and correct in all material respects at and as of the Closing, as if such
representations and warranties were made at and as of the Closing, and La/Cal
shall have performed and satisfied in all material respects all covenants,
agreements and obligations required by the Agreement to be performed and
satisfied by La/Cal at or prior to the Closing; (b) the receipt of a legal
opinion from La/Cal's counsel; (c) all necessary consents, permissions,
novations and approvals by third parties or governmental authorities in
connection with the Transactions, and all permits and licenses necessary or
appropriate for the operation of the La/Cal Interests shall have been obtained,
except that Patrick shall take all La/Cal Interests subject to preferential and
similar rights of third parties to purchase any portion of La/Cal Interests;
this condition shall be applicable only to the extent that the failure to obtain
such consent or permit would have a material adverse effect on the Transactions;
(d) there shall be no legal proceedings or environmental proceedings with
respect to La/Cal, outstanding or threatened, other than those that have been
disclosed which, either separately or in the aggregate, would materially and
adversely affect the business, operations or financial condition of La/Cal taken
as a whole; (e) the opinion of Petrie Parkman shall not have been materially
changed or withdrawn or Patrick shall not have obtained a substantially
identical replacement opinion; (f) the completion of the La/Cal Asset Transfer;
(g) since the date of the Agreement, no material adverse change shall have
occurred in the business, operations or financial conditions, taken as a whole,
of La/Cal; (h) the Stock Sale Agreements shall have been executed; (i) Patrick
shall have received a written opinion of Deloitte & Touche LLP in form and
substance reasonably satisfactory to it, to the effect that the Merger will
constitute a tax free exchange within the meaning of section 351(a) of the Code,
and such opinion shall not have been withdrawn; and (j) the Company and Goodrich
Oil Company shall have entered into the Participation Agreement and
Administrative Services and Consulting Agreement.
TERMINATION OF AGREEMENT
The Agreement may be terminated in the following instances: (a) by either
Patrick or La/Cal if any condition to Closing set forth under "-- Conditions to
Consummation of the Transactions -- La/Cal and Patrick" shall not be satisfied
or waived on or before October 1, 1995, and such failure has a material adverse
effect on the Transactions, taken as a whole; (b) by Patrick if any conditions
set forth under "-- Conditions to Consummation of the Transactions -- Patrick"
shall not be satisfied or waived on or before October 1, 1995, and such failure
has a material adverse effect on La/Cal or the Transactions, taken as a whole;
provided, however, that failure to satisfy item (a) under such subcaption with
respect to good and defensible title shall be grounds for termination only if
such failure involves 25% or more of the total value of the La/Cal Interests;
(c) by La/Cal if any conditions set forth under "-- Conditions to Consummation
of the Transactions -- La/Cal" shall not be satisfied or waived on or before
October 1, 1995, and such failure has a material adverse effect on Patrick or
the Transactions, taken as a whole; provided, however, that failure to satisfy
item (a) under such subcaption with respect to good and defensible title shall
be grounds for termination only if such failure involves 25% or more of the
total value of the Patrick Interests; (d) by the mutual written agreement of
Patrick and La/Cal; (e) by Patrick if, prior to the Effective Time, (i) Patrick
or its stockholders
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receive an offer from any person other than La/Cal with respect to an
Acquisition Proposal and (ii) the Board of Directors of Patrick determines, upon
advice of counsel to such effect, that the fulfillment of the fiduciary duties
of Patrick's Board of Directors requires that the Board of Directors approve or
recommend such Acquisition Proposal; (f) by La/Cal if, prior to the Effective
time, (i) La/Cal or its Partners receive an offer from any person other than
Patrick with respect to any Acquisition Proposal, and (ii) the Management
Committee determines, upon advice of counsel to such effect, that the
fulfillment of the fiduciary duties of the Management Committee requires that
the Management Committee approve or recommend such Acquisition Proposal; (g) by
La/Cal or Patrick, if the Effective Time shall not have occurred on or before
October 1, 1995; provided, however, that the right to terminate the Agreement
under this clause (g) shall not be available to any party whose failure to
fulfill any obligation under the Agreement has been the cause of, or resulted
in, the failure of the Effective Time to occur on or before such time; (h) by
La/Cal if the stockholders of Patrick vote against approval of the Agreement; or
(i) by Patrick if the Partners of La/Cal fail to approve the Agreement.
LIABILITIES UPON TERMINATION
If La/Cal or Patrick is entitled to and elects to terminate the Agreement
by reason of the failure of any of the conditions set forth in items (b), (c),
(d), (f) or (g) under "-- Conditions to Consummation of the
Transactions -- La/Cal" or items (b), (c), (d), (g) or (i) under "-- Conditions
to Consummation of the Transactions -- Patrick," or in items (a) or (c) under
"-- Conditions to Consummation of the Transactions -- La/Cal and Patrick,"
neither Patrick or La/Cal shall have any liability or obligation under the
Agreement to the other party. If La/Cal is entitled to and elects to terminate
the Agreement by reason of the failure of any of the conditions set forth in
items (a), (e) (h) or (i) under "-- Conditions to Consummation of the
Transactions -- La/Cal," or Patrick is entitled to and elects to terminate this
Agreement by reason of the failure of the condition set forth in item (e) under
"-- Conditions to Consummation of the Transactions -- Patrick" or by reason of
the failure of the stockholders of Patrick to consent to the consummation of the
transactions contemplated by the Agreement, Patrick shall pay to La/Cal
$500,000, inclusive of all costs and expenses. If the Agreement is terminated by
reason of action taken by Patrick or its board of directors or stockholders
pursuant to item (e) under "-- Termination of Agreement," Patrick shall pay to
La/Cal $1,000,000 inclusive of all costs and expenses. If Patrick is entitled to
and elects to terminate the Agreement by reason of the failure of any of the
conditions set forth in items (a), (f), (h) or (j) under "-- Conditions to
Consummation of the Transactions -- Patrick" or by reason of the failure of the
Partners to consent to the consummation of the transactions contemplated by the
Agreement, La/Cal shall pay to Patrick $500,000, inclusive of all costs and
expenses. If the Agreement is terminated by reason of action taken by La/Cal or
its Partners pursuant to item (f) under "-- Termination of Agreement" above,
La/Cal shall pay to Patrick $1,000,000, inclusive of all costs and expenses.
If the Agreement is terminated for reasons other than those set forth in
the preceding paragraph, the terminating party shall pay to the nonterminating
party the sum of $1,000,000, inclusive of all costs and expenses, and nothing
contained in the Agreement shall be construed to limit either party's legal or
equitable remedies, including the right to enforce specific performance of this
Agreement.
EXPENSES
Subject to the termination provisions described under "-- Termination of
Agreement," in the event the Agreement is terminated before the Effective Time,
all fees, costs and expenses incurred by La/Cal or Patrick in negotiating the
Agreement or in consummating the transactions contemplated by the Agreement
shall be paid by the party incurring the same, including, without limitation,
proxy solicitation, legal and accounting fees, costs and expenses, except that
Patrick and La/Cal have agreed to share equally the cost of printing this Joint
Proxy Statement/Prospectus. If the Merger is completed then all reasonable fees,
costs and expenses incurred by La/Cal or Patrick including, without limitation,
legal and accounting fees, costs and expenses will be paid or reimbursed by the
Company out of the Company's working capital or revolving credit facility, which
is expected to be in place at the Effective Time. For a description of the
commitment letter relating to the
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Company's proposed bank credit facility, see "La/Cal Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
The expenses incurred or expected to be incurred in connection with the
Transactions are estimated to be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.............. $ 12,500
Stock Exchange Listing Fees...................................... 75,000
Patrick's Financial Advisor Fees and Expenses.................... 315,000
Reserve Engineers Fees........................................... 35,000
Legal Fees and Expenses.......................................... 400,000
Accounting Fees and Expenses..................................... 175,000
Blue Sky Fees and Expenses....................................... 5,000
Printing Costs................................................... 120,000
Proxy Solicitation............................................... 20,000
Miscellaneous.................................................... 20,000
----------
Total.................................................. $1,177,500
==========
</TABLE>
STOCKHOLDER LAWSUIT
On March 15, 1995, B.A.R.D. Industries, Inc. ("B.A.R.D.") filed suit
against Patrick, U.E. Patrick and Petrie Parkman in the District Court of Harris
County, Texas, 269th Judicial District. In its petition and pursuant to a
Schedule 13-D dated February 6, 1995, B.A.R.D. claims to be beneficial owner of
3,107,741 shares of Patrick Common Stock. B.A.R.D.'s claims include breach of
fiduciary duty in connection with approval of the Transactions, breach of
contract duties by Patrick under a registration rights agreement, conspiracy and
a claim for actual and punitive damages in an unspecified amount, including
attorneys' fees. In addition, B.A.R.D. seeks a temporary and permanent
injunction requiring the production of various information from the defendants
and blocking the consummation of the Transactions. Plaintiff claims that unless
defendants are immediately restrained from taking any action concerning the
proposed Transactions, plaintiff will suffer irreparable injury including the
loss of a right to a board seat, dilution from an ownership of 15.7% of the
Patrick Common Stock to approximately 7.875% of the Common Stock to be
outstanding after the Effective Time, and the loss of assets for less than fair
value. Defendants removed the state court proceeding to the United States
District Court for the Southern District of Texas, Houston Division, Civil
Action No. H-95-829 by notice filed March 20, 1995. In addition, by order signed
on April 5, 1995, B.A.R.D.'s claims against Petrie Parkman were voluntarily
dismissed, without prejudice. Patrick denies the allegations set forth in the
action by B.A.R.D. and does not believe that the B.A.R.D. action will delay or
prevent the consummation of the Transactions. B.A.R.D. has agreed in principle
to dismiss the litigation against Patrick provided (i) Patrick pays B.A.R.D.'s
attorney fees related to the suit and (ii) Patrick nominates a designee of
B.A.R.D. to the Company's Board of Directors immediately prior to the Effective
Time if B.A.R.D. votes in favor of the Agreement at the Patrick Special Meeting.
See "Management of the Company After the Effective Time."
In its Schedule 13D filing dated February 6, 1995, B.A.R.D. states:
"B.A.R.D. believes that it will advance proposals to management and
the Board of Directors of the Issuer suggesting the refocusing of
management's attention on the enhancement of shareholder value or proposals
to add or replace current management of the Issuer. Although B.A.R.D. has
no plan at present to seek control of the Issuer, B.A.R.D. does consider it
reasonably likely that its activities in the future could include seeking
control of the Issuer, the acquisition of additional shares of the Issuer,
or seeking a change in the present Board of Directors or management of the
Issuer. In determining whether to purchase additional shares of the Issuer
and in formulating any plan or proposal to acquire control of the Issuer,
B.A.R.D. intends to consider various factors, including the Issuer's
financial condition, business and prospects, other developments concerning
the Issuer, reaction of the Issuer to B.A.R.D.'s ownership of the Shares,
price levels of the [Patrick] Common Stock, other opportunities available
to B.A.R.D.,
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developments with respect to B.A.R.D.'s business and general economic,
money and stock market conditions."
RIGHTS OF DISSENTING STOCKHOLDERS
Neither holders of Patrick Common Stock nor Partners of La/Cal will be
entitled to appraisal or dissenters' rights in connection with the Transactions.
A holder of shares of Patrick Preferred Stock who makes the demand described
below with respect to such shares, who continuously is the holder of record of
such shares through the Effective Date, and who otherwise complies with the
statutory requirements of Section 262 of the DGCL ("Section 262") will be
entitled to have his shares of Patrick Preferred Stock appraised by the Delaware
Court of Chancery (the "Delaware Court") and to receive payment of the "fair
value" of such shares upon consummation of the Merger. In order to exercise
appraisal rights, holders of shares of Patrick Preferred Stock must demand and
perfect their rights in strict accordance with the conditions established by
Section 262. All references in this summary of appraisal rights to a "holder" or
"holders of shares of Patrick Preferred Stock" are to the holder of record of
shares of Patrick Preferred Stock. Holders of shares of Patrick Preferred Stock
who wish to seek appraisal are advised to consult with their legal counsel
regarding how to demand and perfect such appraisal rights.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW RELATING TO
APPRAISAL RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SECTION 262,
WHICH IS REPRINTED IN ITS ENTIRETY AS APPENDIX VI TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. THIS DISCUSSION SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER
OF PATRICK PREFERRED STOCK WHO WISHES TO EXERCISE STATUTORY APPRAISAL RIGHTS, OR
WHO WISHES TO PRESERVE THE RIGHT TO DO SO, BECAUSE FAILURE TO TIMELY AND
STRICTLY COMPLY WITH THE PROCEDURES SET FORTH HEREIN OR THEREIN WILL RESULT IN
THE LOSS OF APPRAISAL RIGHTS.
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the case of the Patrick Special Meeting, not less
than 20 days prior to the meeting, each constituent corporation must notify each
of the holders of its stock for which appraisal rights are available that such
appraisal rights are available and include in each such notice a copy of Section
262. This Joint Proxy Statement/Prospectus shall constitute such notice to
holders of shares of Patrick Preferred Stock.
Each holder of shares of Patrick Preferred Stock electing to exercise
appraisal rights must deliver to Patrick written demand for appraisal before the
vote on the adoption and approval of the Agreement. In general, stockholders
electing to exercise their appraisal rights (if available) must satisfy all of
the conditions of Section 262 and must not vote for adoption and approval of the
Agreement. Although holders of shares of Patrick Preferred Stock are not
entitled to vote on the Agreement, any such persons who are also holders of
Patrick Common Stock are entitled to vote on the Agreement in their capacity as
holders of Patrick Common Stock. However, it is unsettled under Delaware law
whether a stockholder (other than a record owner of shares held by multiple
beneficial owners, as discussed below) can split its holdings (whether by class
or by shares within the same class) and vote some shares in favor of the
Agreement while abstaining or voting against the Agreement with respect to other
shares in an effort to preserve appraisal rights with respect to the shares not
voted in favor of the Agreement. Accordingly, a stockholder who signs and
returns a proxy without expressly specifying that his shares be voted against
the proposal or that an abstention be registered with respect to his or shares
in connection with the proposal will effectively have thereby waived his
appraisal rights because, in the absence of express contrary instructions, such
shares will be voted in favor of the proposal. See "The Meetings."
Only a holder of record of shares of Patrick Preferred Stock is entitled to
exercise appraisal rights for the shares of Patrick Preferred Stock registered
in that holder's name. A demand for appraisal must be executed by or on behalf
of the holder of record fully and correctly, as his name appears on his stock
certificates, and must reasonably inform Patrick of the identity of the holder
of record and that such holder intends thereby to demand appraisal of the shares
of Patrick Preferred Stock. A person having a beneficial interest in shares of
Patrick Preferred Stock that are held of record in the name of another person,
such as a broker, fiduciary or other nominee, must act promptly to cause the
record holder to follow the steps summarized herein properly and in a timely
manner to perfect such person's appraisal rights. If the shares of Patrick
Preferred Stock are
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owned of record by a person other than the beneficial owner, including a broker,
fiduciary (such as a trustee, guardian or custodian) or other nominee, such
demand must be executed by or on behalf of the record owner. If the shares of
Patrick Preferred Stock are owned of record by more than one person, as in a
joint tenancy or tenancy in common, such demand must be executed by or on behalf
of all joint owners. An authorized agent, including an agent for two or more
joint owners, may execute the demand for appraisal for a holder of record;
however, the agent must identify the record owner or owners and expressly
disclose the fact that, in exercising the demand, such person is acting as agent
for the record owner. A record owner, such as a broker, fiduciary or other
nominee, who holds shares of Patrick Preferred Stock as a nominee for others,
may exercise appraisal rights with respect to the shares held for all or less
than all beneficial owners of shares as to which such person is the record
owner. In such case, the written demand must set forth the number of shares
covered by such demand. Where the number of shares is not expressly stated, the
demand will be presumed to cover all shares of Patrick Preferred Stock
outstanding in the name of such record owner.
A holder of Patrick Preferred Stock who elects to exercise appraisal rights
should mail or deliver his written demand to Patrick Petroleum Company, 301 West
Michigan Avenue, Jackson, Michigan 49204-0747, Attention: Corporate Secretary.
The written demand for appraisal should specify the holder's name and mailing
address, the number of shares of Patrick Preferred Stock owned, and that the
stockholder is thereby demanding appraisal of his shares.
Within ten days after the Effective Date, Patrick, as the Surviving
Corporation, must provide notice to all holders who have complied with Section
262 that the Merger has become effective. Within 120 days after the Effective
Date, either Patrick, as the Surviving Corporation, or any holder of shares of
Patrick Preferred Stock who has complied with the required conditions of Section
262, may file a petition in the Delaware Court demanding a determination of the
fair value of the shares of all holders. There is no present intent on the part
of Patrick to file an appraisal petition, and holders of shares of Patrick
Preferred Stock seeking to exercise appraisal rights should not assume that
Patrick will file such a petition. Holders of shares of Patrick Preferred Stock
who desire to have their shares appraised should initiate any petitions
necessary for the perfection of their appraisal rights within the time periods
and in the manner prescribed in Section 262. Within 120 days after the Effective
Date, any holder of shares of Patrick Preferred Stock who has theretofore
complied with the applicable provisions of Section 262 will be entitled, upon
written request, to receive from Patrick a statement setting forth the aggregate
number of shares of Patrick Preferred Stock with respect to which demands for
appraisal were received by Patrick and the aggregate number of holders of such
shares. Such statement must be mailed within ten days after the written request
therefor has been received by Patrick. If no petition for appraisal is filed
with the Delaware Court within 120 days after the Effective Date, the rights of
holders of shares of Patrick Preferred Stock to appraisal shall cease.
If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court will determine the holders of shares of Patrick
Common Stock, if any, entitled to appraisal rights. The Delaware Court may
require the holders who have demanded an appraisal for their shares of Patrick
Preferred Stock and who had stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any holder of shares of Patrick
Preferred Stock fails to comply with such direction, the Delaware Court may
dismiss the proceedings as to such holder. After determining the holders of
shares of Patrick Preferred Stock entitled to appraisal, the Delaware Court will
appraise the shares of Partrick Preferred Stock owned by such holders,
determining the fair value of such shares exclusive of any element of value
arising from the accomplishment or expectation of the Merger, together with a
fair rate of interest, if any, to be paid upon the amount determined to be the
fair value. In determining fair value, the Delaware Court is to take into
account all relevant factors. In Weinberger v. UOP Inc., the Delaware Court
discussed the factors that could be considered in determining fair value in an
appraisal proceeding, stating that "proof of value by any techniques or methods
which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered, and that "fair price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court stated that in making this determination
of fair value the court must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts which could
be ascertained as of the date of the merger which throw light on future
prospects of the merged corporation. In
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Weinberger, the Delaware Supreme Court stated that "elements of future value,
including the nature of the enterprise, which are known or susceptible of proof
as of the date of the merger and not the product of speculation, may be
considered." Section 262, however, provides that fair value is to be "exclusive
of any element of value arising from the accomplishment or expectation of the
merger."
Holders of shares of Patrick Preferred Stock considering seeking appraisal
should recognize that the fair value of their shares determined under Section
262 could be more than, the same as or less than the consideration they are
entitled to receive pursuant to the Agreement if they do not seek appraisal of
their shares. The cost of the appraisal proceeding may be determined by the
Delaware Court and taxed against the parties as the Delaware Court deems
equitable in the circumstances. Upon application of the holder of shares of
Patrick Preferred Stock, the Delaware Court may order that all or a portion of
the expenses incurred by any holder of Partrick Preferred Stock in connection
with the appraisal proceeding, including, without limitation, reasonable
attorney's fees and the fees and expenses of experts, be charged pro rata
against the value of all shares of Patrick Preferred Stock entitled to
appraisal.
Any holder of shares of Patrick Preferred Stock who has duly demanded
appraisal in compliance with Section 262 will not, after the Effective Date, be
entitled to vote for any purpose any shares subject to such demand for any
purpose or to receive payment of dividends or other distributions on such
shares, except for dividends or distributions payable to holders of record of
shares of Patrick Preferred Stock at a date prior to the Effective Date.
Any holder of shares of Patrick Preferred Stock may withdraw such holder's
demand for appraisal by delivering to Patrick a written withdrawal of his or her
demand for appraisal and acceptance of the Merger, except (i) that any such
attempt to withdraw made more than 60 days after the Effective Date will require
written approval of Patrick, and (ii) that no appraisal proceeding in the
Delaware Court shall be dismissed as to any holder of shares of Patrick
Preferred Stock without the approval of the Delaware Court, and such approval
may be conditioned upon such terms as the Delaware Court deems just.
AVAILABILITY OF PARTNER LIST
While each of the 26 Partners have access to a list of the other Partners
because a Partners list is provided in the La/Cal Agreement of Partnership, any
Partner may obtain a list of Partners upon written request to the attention of
Gil Goodrich at the Company's address on page 1 of this Joint Proxy
Statement/Prospectus.
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PROPOSAL TO APPROVE
THE GOODRICH PETROLEUM CORPORATION
1995 STOCK OPTION PLAN
GENERAL
The Goodrich Petroleum Corporation 1995 Stock Option Plan (the "Goodrich
Plan") was adopted by the Board of Directors of the Company on May 26, 1995 and
approved by the Board of Directors of Patrick and the Management Committee,
subject to approval by the Patrick stockholders and Partners. The Board of
Directors of Patrick and the Management Committee of La/Cal believe the Goodrich
Plan will provide key employees and consultants with an opportunity to acquire a
proprietary interest in the Company and additional incentive and reward
opportunities based on the growth of the Company. The Goodrich Plan should also
aid the Company in attracting and retaining outstanding personnel.
DESCRIPTION OF THE GOODRICH PETROLEUM CORPORATION 1995 STOCK OPTION PLAN
The Goodrich Plan provides for the granting of options (either incentive
stock options within the meaning of Section 422(b) of the Code, or options that
do not constitute incentive stock options ("nonqualified stock options")),
restricted stock awards, stock appreciation rights, long-term incentive awards,
and phantom stock awards, or any combination thereof. The Goodrich Plan covers
an aggregate of 3,000,000 shares of Common Stock (subject to certain adjustments
in the event of stock dividends, stock splits and certain other events). No more
than 500,000 shares of Common Stock, subject to adjustments, may be issued
pursuant to grants made under the Goodrich Plan to any one employee in any one
year. The limitation set forth in the preceding sentence will be applied in a
manner which permits compensation generated in connection with the exercise of
options, stock appreciation rights and, if determined by the Compensation
Committee, restricted stock awards to constitute "performance-based"
compensation for purposes of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code").
Administration. The Goodrich Plan will be administered by the Compensation
Committee which shall consist of two or more persons who are outside and
disinterested directors for purposes of the Code and the Exchange Act. The
Compensation Committee has the power to determine which employees will receive
an award, the time or times when such award will be made, the type of the award
and the number of shares of Common Stock to be issued under the award or the
value of the award. Only persons who at the time of the grant are employees or
consultants of the Company or of any subsidiary of the Company are eligible to
receive grants under the Goodrich Plan.
Options. The Goodrich Plan provides for two types of options: incentive
stock options and nonqualified stock options. The Compensation Committee will
designate the employees to receive the options, the number of shares subject to
the options, and the terms and conditions of each option granted under the
Goodrich Plan. The term of any option granted under the Goodrich Plan shall be
determined by the Compensation Committee; provided, however, that the term of
any incentive stock option cannot exceed ten years from the date of the grant
and any incentive stock option granted to an employee who possesses more than
10% of the total combined voting power of all classes of stock of the Company or
of its subsidiary within the meaning of Section 422(b)(6) of the Code must not
be exercisable after the expiration of five years from the date of grant. The
exercise price per share of Common Stock of options granted under the Goodrich
Plan will be determined by the Compensation Committee; provided, however, that
such exercise price cannot be less than the fair market value of a share of
Common Stock on the date the option is granted (subject to adjustments).
Further, the exercise price of any incentive stock option granted to an employee
who possesses more than 10% of the total combined voting power of all classes of
stock of the Company or of its subsidiaries within the meaning of Section
422(b)(6) of the Code must be at least 110% of the fair market value of the
share at the time such option is granted. The exercise price of options granted
under the Goodrich Plan will be paid in full in a manner prescribed by the
Compensation Committee.
Restricted Stock Awards. Pursuant to a restricted stock award, shares of
Common Stock will be issued or delivered to the employee at any time the award
is made without any cash payment to the Company, except
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to the extent otherwise provided by the Compensation Committee or required by
law; provided, however, that such shares will be subject to certain restrictions
on the disposition thereof and certain obligations to forfeit such shares to the
Company as may be determined in the discretion of the Compensation Committee.
The restrictions on disposition may lapse based upon (a) the Company's
attainment of specific performance targets established by the Committee that are
based on (i) the price of a share of Common Stock, (ii) the Company's earnings
per share, (iii) the Company's revenue, (iv) the revenue of a business unit of
the Company designated by the Committee, (v) the return on stockholders' equity
achieved by the Company, or (vi) the Company's pre-tax cash flow from
operations, (b) the grantee's tenure with the Company, or (c) a combination of
both factors. The Company retains custody of the shares of Common Stock issued
pursuant to a restricted stock award until the disposition restrictions lapse.
An employee may not sell, transfer, pledge, exchange, hypothecate, or otherwise
dispose of such shares until the expiration of the restriction period. However,
upon the issuance to the employee of shares of Common Stock pursuant to a
restricted stock award, except for the foregoing restrictions, such employee
will have all the rights of a stockholder of the Company with respect to such
shares, including the right to vote such shares and to receive all dividends and
other distributions paid with respect to such shares.
Stock Appreciation Rights. A stock appreciation right permits the holder
thereof to receive an amount (in cash, Common Stock, or a combination thereof)
equal to the number of stock appreciation rights exercised by the holder
multiplied by the excess of the fair market value of Common Stock on the
exercise date over the stock appreciation rights' exercise price. Stock
appreciation rights may or may not be granted in connection with the grant of an
option and no stock appreciation right may be exercised earlier than six months
from the date of grant. A stock appreciation right may be exercised in whole or
in such installments and at such times as determined by the Compensation
Committee.
Long-Term Incentive and Phantom Stock Awards. The Goodrich Plan permits
grants of long-term incentive awards ("performance awards") and phantom stock
awards, which may be paid in cash, Common Stock, or a combination thereof as
determined by the Compensation Committee. Performance awards granted under the
Goodrich Plan shall have a maximum value established by the Compensation
Committee at the time of the grant. A grantee's receipt of such amount will be
contingent upon satisfaction by the Company, or any subsidiary, division or
department thereof, of future performance conditions established by the
Compensation Committee prior to the beginning of the performance period. Such
performance awards, however, shall be subject to later revisions as the
Compensation Committee shall deem appropriate to reflect significant unforeseen
events or changes. A performance award will terminate if the grantee's
employment with the Company terminates during the applicable performance period.
Phantom stock awards granted under the Goodrich Plan are awards of Common Stock
or rights to receive amounts equal to share appreciation over a specific period
of time. Such awards vest over a period of time or upon the occurrence of a
specific event(s) (including, without limitation, a change of control)
established by the Compensation Committee, without payment of any amounts by the
holder thereof (except to the extent required by law) or satisfaction of any
performance criteria or objectives. A phantom stock award will terminate if the
grantee's employment with the Company terminates during the applicable vesting
period or, if applicable, the occurrence of a specific event(s), except as
otherwise provided by the Compensation Committee at the time of grant. In
determining the value of performance awards or phantom stock awards, the
Compensation Committee shall take into account the employee's responsibility
level, performance, potential, other awards under the Goodrich Plan, and other
such consideration as it deems appropriate. Such payment may be made in a lump
sum or in installments as prescribed by the Compensation Committee. Any payment
made in Common Stock will be based upon the fair market value of the Common
Stock on the payment date.
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Grants. As of the date of this Joint Proxy Statement/Prospectus, the
Company has determined to make the following grants of stock options under the
Goodrich Plan. All of these grants will be made on the Closing Date. All of the
options granted on the Closing Date will be subject to pro rata vesting over
five years and have a ten year term from the date of grant, except the options
granted to Gil Goodrich which will have a five-year term and will be subject to
pro rata vesting over four years from the date of grant.
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
NAME AND POSITION UNITS PRICE
--------------------------------------------------------------- --------- --------
<S> <C> <C>
Gil Goodrich, President and CEO................................ 250,000 (1)
Roland Frautschi, Vice President and CFO....................... 150,000 (2)
Robert Turnham, Vice President and Chief Operating Officer..... 100,000 (2)
Henry Goodrich, Director and Consultant........................ 250,000 (2)
Executive Group (3 persons).................................... 500,000
Non-Executive Director Group (1 person)........................ 250,000
Non-Executive Officer Employee Group........................... -0-
</TABLE>
- ---------------
(1) 110% of the closing price for shares of Common Stock on the Closing Date.
(2) The closing price for shares of Common Stock on the Closing Date.
AMENDMENT AND TERMINATION
The Board may amend or terminate the Goodrich Plan at any time, except that
it may not make any change to a previously granted option which would impair the
employee's rights without the employee's consent and it must obtain shareholder
approval for any amendment which would increase the total number of shares
reserved for issuance (subject to adjustments), modify eligibility requirements,
change the minimum option price or plan term, or materially increase the
benefits accruing to employees. The Goodrich Plan is effective upon the date
adopted by the Board, provided the Goodrich Plan is timely approved by the
holders of Goodrich Common Stock, and will remain in effect until all awards
granted under the Goodrich Plan have been satisfied or expired, unless earlier
terminated; provided, however, that no options or awards may be granted under
the Goodrich Plan after the expiration of ten years from the adoption date by
the Board.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. Options that constitute incentive stock options
within the meaning of Section 422(b) of the Code are subject to special federal
income tax treatment. An employee who has been granted an incentive stock option
will not realize taxable income at the time of the grant or exercise of such
option, and the Company will not be entitled to a deduction at either such time,
if the employee makes no disposition of shares acquired pursuant to such
incentive stock option (a) within two years from the option's date of the grant
or (b) within one year after exercising such option (collectively, the "Holding
Periods"). However, the employee must include the difference between the
exercise price and the fair market value of the Common Stock on the date of
exercise in alternative minimum taxable income. If the employee exercises an
incentive stock option and disposes of the stock in the same year and the amount
realized is less than the fair market value on the exercise date, only the
difference between the amount realized and the adjusted basis of the stock will
be included in alternative minimum taxable income. Upon disposition of the
shares of Goodrich Common Stock received upon exercise of an incentive stock
option after the Holding Periods, the difference between the amount realized and
the exercise price should constitute a long-term capital gain or loss. Under
such circumstances, however, the Company will not be entitled to any deduction
for federal income tax purposes.
If an employee disposes of shares acquired pursuant to the exercise of an
incentive stock option prior to the end of the Holding Periods, the disposition
would be treated as a disqualifying disposition. The employee will be treated as
having received, at the time of disposition, compensation taxable as ordinary
income equal to the excess of the fair market value of the shares at the time of
exercise (or in the case of a sale in which a loss would be recognized, the
amount realized on the sale, if less) over the exercise price and any amount
realized in excess of the fair market value of shares at the time of exercise
would be treated as a short-term or long-
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term capital gain, depending on the holding period of the shares of Goodrich
Common Stock. In the event of a disqualifying disposition, the Company may claim
a deduction for compensation paid at the same time and in the same amount as
taxable compensation is treated as received by the employee. However, the
Company will not be entitled to any deduction in connection with any loss to the
employee or a portion of any gain that is taxable to the employee as short-term
or long-term capital gain.
Nonqualified Stock Options. Nonqualified stock options (options which are
not incentive stock options within the meaning of Section 422(b) of the Code)
will not qualify for special federal income tax treatment. As a general rule, no
federal income tax is imposed on the individual upon the grant of a nonqualified
stock option and the Company is not entitled to a tax deduction by reason of
such grant. Upon exercise of a nonqualified stock option, the individual will
realize ordinary income in an amount measured by the excess, if any, of the fair
market value of the shares on the date of exercise over the option exercise
price, with the Company entitled to a corresponding deduction. Ordinary income
realized upon the exercise of a nonqualified stock option is not an adjustment
for alternative minimum tax purposes. In the case of an option holder subject to
Section 16(b) of the Exchange Act, subject to certain exceptions, ordinary
income will be recognized by the individual (and a deduction by the Company)
upon the exercise of the nonqualified stock option if the exercise occurs more
than six months after the date of grant of the nonqualified stock option. Upon a
subsequent disposition of such shares, the individual will realize a short-term
or long-term capital gain or loss to the extent of any intervening appreciation
or depreciation. However, the Company will not be entitled to any further
deduction at that time.
Restricted Stock Awards. An individual who has been granted a restricted
stock award will not realize taxable income at the time of grant, and the
Company will not be entitled to a deduction at that time, assuming that the
restrictions constitute a substantial risk of forfeiture for federal income tax
purposes. Upon lapse of the disposition restrictions (as shares become vested)
the holder will realize ordinary income in an amount equal to the fair market
value of the shares at such time, with the Company entitled to a corresponding
deduction. Dividends paid to the holder during the restriction period will also
be compensation income to the individual and deductible as such by the Company.
The holder of a restricted stock award may elect to be taxed at the time of
grant of the restricted stock award on the fair market value of the shares, in
which case (a) the Company will be entitled to a deduction at the same time and
in the same amount, (b) dividends paid to him during the restriction period will
be taxable as dividends to the holder and not deductible by the Company, and (c)
there will be no further federal income tax consequences when the restrictions
lapse.
Stock Appreciation Rights. An individual who has been granted a stock
appreciation right will not realize taxable income at the time of the grant, and
the Company will not be entitled to a deduction at that time. However, shares or
cash delivered upon exercise of a stock appreciation right will be taxable as
ordinary income to the individual, with the Company entitled to a corresponding
deduction. Ordinary income realized on such an exercise is not an adjustment for
alternative minimum tax purposes. In the case of a holder subject to Section
16(b) of the Exchange Act who receives shares, subject to certain exceptions,
ordinary income will be recognized by the individual (and a deduction by the
Company) upon the exercise of the stock appreciation right if the exercise
occurs more than six months after the date of grant of the stock appreciation
right.
Long-Term Incentive Phantom Stock Awards. An individual who has been
granted a long-term incentive award ("performance award") or a phantom stock
award generally will not realize taxable income at the time of grant, and the
Company will not be entitled to a deduction at that time. Whether a performance
award or a phantom stock award is paid in cash or shares of Common Stock, the
individual will have taxable compensation and the Company will have a
corresponding deduction. The measure of such income and deduction will be the
fair market value of the shares either at the time the performance award or
phantom stock award is paid or at the time any restrictions (including
restrictions under Section 16(b) of the Exchange Act) subsequently lapse,
depending on the nature, if any, of the restrictions imposed on the shares and
whether the individual elects to be taxed without regard to any such
restrictions. Any dividend equivalents paid with respect to a performance award
or phantom stock award prior to the actual issuance of shares under the award
will be compensation income to the individual and deductible as such by the
Company.
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Withholding. The Company has the right to deduct from any or all awards any
taxes required by law to be withheld and to require any payments necessary to
enable it to satisfy its withholding obligations.
RECOMMENDATION AND REQUIRED AFFIRMATIVE VOTE
The affirmative (i) vote of the holders of record of a majority of the
outstanding shares of Patrick Common Stock present and entitled to vote thereon
at the Patrick Special Meeting and (ii) consent of 51% of the equity interests
in La/Cal are required to approve the Goodrich Plan. Approval of the Goodrich
Plan is required for listing of the shares for trading on the New York Stock
Exchange and as a condition to the effectiveness of the Goodrich Plan. In
addition, approval of the Goodrich Plan is required so that certain transactions
under the Goodrich Plan qualify for the applicable exemptions pursuant to Rule
16b-3 under the Exchange Act. Rule 16b-3 provides an exemption from the
operation of the "short-swing profit" recovery provisions of Section 16(b) of
the Exchange Act with respect to acquisitions of stock options, transactions
relating to certain stock appreciation rights, restricted stock awards, and the
use of already owned shares as payment for the exercise price of stock options.
Approval is also required so that certain awards under the Goodrich Plan will
qualify as performance-based compensation under Section 162(m) of the Code. The
Board of Directors of Patrick and the Management Committee of La/Cal believe
that such approval is essential to enable the Company to continue to attract and
retain key employees and consultants in an extremely competitive industry. The
Board of Directors of Patrick and the Management Committee of La/Cal unanimously
recommend that Patrick's stockholders and the La/Cal Partners vote FOR the
approval of the Goodrich Plan.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the Transactions to Patrick and its stockholders and to La/Cal and the
Partners, and reflects the opinions of Deloitte & Touche LLP, tax advisor to
Patrick, and KPMG Peat Marwick LLP, tax advisor to La/Cal. This summary does not
address all federal income tax aspects of the Transactions, nor does it address
the tax consequences to taxpayers which are subject to special treatment under
the federal income tax laws (such as financial institutions, dealers in
securities, tax-exempt entities and foreign persons). This discussion is based
upon current provisions of the Code, the Treasury Regulations promulgated
thereunder, judicial decisions and Internal Revenue Service ("IRS") rulings.
Neither Patrick nor La/Cal intends to seek a ruling from the IRS that the IRS
agrees with the tax consequences described below. Moreover, the Transactions
raise tax issues which have not been addressed by the courts or publicly ruled
on by the IRS. As a result, there can be no assurance that the IRS will agree
with the conclusions expressed below. Unless otherwise indicated, the discussion
below is directed at taxpayers who hold Patrick Common Stock, Patrick Preferred
Stock and partnership interests in La/Cal as capital assets (generally property
held for investment). Neither the Deloitte & Touche LLP or KPMG Peat Marwick LLP
opinions are included as an appendix to the Joint Proxy Statement/Prospectus.
Upon receipt of a written request by a stockholder of Patrick, a Partner or one
of their designated representatives, a copy of either opinion will be
transmitted promptly, without charge by the Management Committee or the Board of
Directors of Patrick. Such correspondence should be directed to either Patrick
or La/Cal at their respective addresses as set forth on page 1 of this Joint
Proxy Statement/Prospectus.
HOLDERS OF PATRICK COMMON STOCK AND PATRICK PREFERRED STOCK AND PARTNERS
ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE UNITED STATES OR OTHER
TAX CONSEQUENCES OF THE TRANSACTIONS WHICH MAY BE SPECIFIC TO THEIR SITUATIONS,
INCLUDING THE EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
CHARACTERIZATION OF THE TRANSACTIONS
In the opinion of Deloitte & Touche LLP, the Transactions will constitute a
transfer to a controlled corporation within the meaning of section 351 of the
Code, with the consequences to Patrick, the Company and the holders of Patrick
Common Stock and Patrick Preferred Stock described below. In the opinion of KPMG
Peat Marwick LLP, the Transactions will constitute a transfer to a controlled
corporation within the meaning of section 351 of the Code, with the consequences
to La/Cal, the Company and the Partners described below.
HOLDERS OF PATRICK COMMON STOCK AND PATRICK PREFERRED STOCK
No gain or loss will be recognized to the holders of Patrick Common Stock
and Patrick Preferred Stock upon the exchange of Patrick Common Stock or Patrick
Preferred Stock solely for Common Stock or Preferred Stock pursuant to the
Merger. The tax basis of the shares of Common Stock or Preferred Stock received
in the Merger will be the same as the tax basis of the shares of Patrick Common
Stock or Patrick Preferred Stock exchanged therefor, and the holding period of
such Common Stock or Preferred Stock will include the holding period of the
Patrick Common Stock or Patrick Preferred Stock exchanged therefor (provided
such Patrick Common Stock or Patrick Preferred Stock is held as a capital asset
at the Effective Time).
Cash received by a holder of Patrick Preferred Stock who perfects his
dissenter's rights will be treated as having been received as a distribution in
redemption of such Patrick Preferred Stock. Such holder will recognize capital
gain or loss equal to the difference between the cash received and the tax basis
of the Patrick Preferred Stock.
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PATRICK AND THE COMPANY
No gain or loss will be recognized by Patrick or the Company as a result of
the Transactions. The tax basis and holding period of the assets of Patrick will
be unaffected by the Merger. The Company's tax basis in the La/Cal Interests
will be the same as La/Cal's tax basis in the La/Cal Interests, increased by the
amount of any gain recognized to La/Cal on the Asset Transfer (see below). The
Company's holding period for the La/Cal Interests will include La/Cal's holding
period for the La/Cal Interests.
LA/CAL AND THE PARTNERS
No gain or loss will be recognized to La/Cal upon the Asset Transfer except
to the extent that the amount of the liabilities of La/Cal assumed by the
Company plus the liabilities to which the La/Cal Interests are subject exceeds
La/Cal's tax basis in the La/Cal Interests. The amount of gain expected to be
recognized by La/Cal in connection with the Transactions is approximately $6.4
million. The basis of the Common Stock received by La/Cal in the Asset Transfer
will be the same as La/Cal's tax basis in the La/Cal Interests transferred to
the Company, decreased by the amount of the liabilities of La/Cal assumed by the
Company plus the liabilities to which the La/Cal Interests are subject, and
increased by the gain recognized to La/Cal on the Asset Transfer. La/Cal's
holding period for the Common Stock received in the Asset Transfer in exchange
for La/Cal Interests which constitute capital assets or property used in the
trade or business (as defined in section 1231 of the Code) will include the
period for which it held such capital assets or property. To the extent La/Cal
receives Common Stock in the Asset Transfer in exchange for property which is
neither a capital asset nor property used in the trade or business, La/Cal's
holding period for such Common Stock will begin on the day following the date of
the Asset Transfer.
Each Partner will be required to take into account separately, in
determining his income tax, his distributive share of any gain recognized to
La/Cal on the Asset Transfer. Each Partner's tax basis for his partnership
interest in La/Cal will be increased by his distributive share of such gain, and
decreased by his share of the liabilities of La/Cal which are assumed by the
Company in the Asset Transfer plus his share of the liabilities to which the
La/Cal Interests are subject. To the extent a Partner's share of such
liabilities exceeds that Partner's tax basis for his partnership interest in
La/Cal, that Partner will recognize gain as if he had sold his partnership
interest in La/Cal.
No gain or loss will be recognized to La/Cal or the Partners upon the
dissolution of La/Cal and the distribution of all of its assets (including the
Common Stock received in the Asset Transfer) to the Partners, except that a
Partner would recognize gain to the extent that any money distributed to that
Partner exceeds his tax basis in his partnership interest in La/Cal immediately
before the distribution. Each Partner's tax basis for the property received upon
such distribution (including shares of Common Stock) will be the same as that
Partner's tax basis for his partnership interest in La/Cal, reduced by any money
distributed to that Partner. A Partner's holding period for the property
(including shares of Common Stock) received upon such distribution generally
will include La/Cal's holding period for such property.
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UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma condensed financial information (the "pro
forma information") separately reflects the effects under the purchase method of
accounting of the (i) Transactions and (ii) Patrick's disposition of its
interests in certain oil and gas wells and related acreage, personal property
and contract rights on December 15 and 16, 1994 to Unit and LLOG Exploration.
Pro forma adjustments applicable to the Transactions and the Patrick oil and gas
properties' disposition and the assumptions on which they are based, are
described under "-- Notes to Unaudited Pro Forma Condensed Financial
Information."
The pro forma information is presented for illustration purposes only and
is not necessarily indicative of the financial position, operating results or
cash flows that would have occurred if the Transactions and the Unit Sale and
the LLOG Exploration Sale had been consummated in accordance with the
assumptions set forth below, nor is it necessarily indicative of future
financial position or operating results. The pro forma information is prepared
on the assumptions that the Transactions and the Patrick oil and gas properties'
disposition took place as of the dates indicated below; however, the Company's
and Patrick's actual financial statements reflect or will ultimately reflect the
Unit Sale and the LLOG Exploration Sale and the Transactions from and after the
respective closing dates of such transactions.
The pro forma information should be read in conjunction with the financial
statements and notes thereto of La/Cal and Patrick which are included elsewhere
herein.
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UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1995
<TABLE>
<CAPTION>
(NOTE B)
-----------
HISTORICAL HISTORICAL PRO FORMA COMBINED
PATRICK LA/CAL ADJUSTMENTS PRO FORMA
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 1,086,468 $ 710,835 $ (1,037,983)(1) $ 927,070
412,750(3)
(1,115,000)(5)
12,000,000(7)
(11,130,000)(7)
Marketable securities.................................. 1,097,200 -- 1,097,200
Accounts receivable:
Trade and other...................................... 233,542 -- 233,542
Accrued oil and gas revenue.......................... 842,319 739,213 1,581,532
Prepaid expenses....................................... 58,596 -- 58,596
Assets held for sale................................... 836,238 -- 1,563,762(4) --
(2,400,000)(7)
----------- ----------- -----------
Total current assets............................. 4,154,363 1,450,048 3,897,940
Other assets:
Investments in Penske entities......................... 3,344,954 -- 6,255,046(4) --
(9,600,000)(7)
Investment in Pecos pipeline........................... 2,010,040 -- 3,540,616(4) 5,550,656
Other investments and deferred
charges.............................................. 170,662 764,899 (530,735)(3) 404,826
Net property and equipment............................... 19,504,079 5,737,935 (3,264,725)(4) 21,977,289
----------- ----------- ------------ -----------
Total assets..................................... $29,184,098 $ 7,952,882 $ (5,306,269) $31,830,711
=========== =========== ============ ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank................................... $ 1,000,000 $ -- $ (1,000,000)(7) $ --
Current portion of long-term debt...................... 2,000,000 1,787,250 (1,787,250)(3) $ --
(2,000,000)(7)
Accounts payable....................................... 1,320,428 281,116 1,601,544
Accrued liabilities.................................... 689,864 64,765 382,000(6) 1,136,629
Reserve for contingent liabilities..................... 1,033,496 -- 1,033,496
----------- ----------- -----------
Total current liabilities........................ 6,043,788 2,133,131 3,771,669
Long-term debt........................................... -- 7,800,000 2,200,000(3) 10,000,000
Subordinated collateralized notes........................ 8,000,000 -- (8,000,000)(7) --
Other noncurrent liabilities............................. -- -- 698,000(6) 698,000
Stockholders' equity:
Partner's capital (deficit)............................ -- (1,980,249) (1,037,983)(1) --
3,018,232(2)
Preferred stock........................................ 1,175,000 -- 1,175,000
Common stock........................................... 3,996,215 -- 3,953,045(2) 7,906,090
(3,996,215)(4)
3,953,045(4)
Additional paid-in capital............................. 82,088,679 -- (6,971,277)(2) 8,940,687
(82,088,679)(4)
18,106,964(4)
(1,115,000)(5)
(1,080,000)(6)
Retained earnings (deficit)............................ (71,928,594) -- (530,735)(3) (660,735)
71,928,594(4)
(130,000)(7)
Unrealized gain on marketable securities............... 516,150 -- (516,150)(4) --
Less treasury stock.................................... (707,140) -- 707,140(4) --
----------- ----------- -----------
Total stockholders' equity....................... 15,140,310 (1,980,249) 17,361,042
----------- ----------- ------------ -----------
Total liabilities and stockholders' equity....... $29,184,098 $ 7,952,882 $ (5,306,269) $31,830,711
=========== =========== ============ ===========
Book value applicable to common stock or partners'
deficit................................................ $ 3,390,310 $(1,980,249) $ 5,611,042
=========== =========== ===========
Book value per share or unit............................. $ .17 $ (.10) $ .14
=========== =========== ===========
Common shares or units outstanding....................... 19,765,226 19,765,226 39,530,452
=========== =========== ===========
</TABLE>
72
<PAGE> 84
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
(NOTE C) (NOTE D)
----------- ------------
HISTORICAL PRO FORMA PRO FORMA HISTORICAL PRO FORMA COMBINED
PATRICK ADJUSTMENTS PATRICK LA/CAL ADJUSTMENTS PRO FORMA
------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales............ $ 11,071,486 $(7,864,155) $ 3,207,331 $ 4,995,663 $ $ 8,202,994
Interest and dividend
income..................... 147,210 147,210 17,783 (139,000)(3) 25,993
Net gain on sale of
investments................ 6,447,102 6,447,102 -- 6,447,102
Revenue from pipeline
system..................... 1,111,525 1,111,525 -- 1,111,525
Other income................. 212,084 (162,710 ) 49,374 -- 49,374
------------ ------------ ---------- -----------
18,989,407 10,962,542 5,013,446 15,836,988
Expenses:
Lease operating costs and
production taxes........... 4,921,345 (3,148,671 ) 1,772,674 684,131 2,456,805
Depletion, depreciation, and
amortization............... 6,491,645 (4,089,360 ) 2,402,285 1,156,624 (118,285)(1) 3,440,624
Exploration expenses......... -- -- 4,240 1,133,000(1) 2,837,240
1,700,000(4)
General and administrative... 3,311,240 (1,242,000 ) 2,069,240 81,535 203,000(4) 2,353,775
Interest..................... 2,170,478 (771,728 ) 1,398,750 1,072,098 (1,075,000)(2) 1,395,848
Impairment of oil and gas
properties and other
assets..................... 12,557,652 12,557,652 -- (12,301,000)(1) 256,652
Income (loss) on sale of oil
and
gas properties............. 2,786,841 (2,786,841 ) -- -- --
------------ ----------- ------------ ---------- ------------ -----------
32,239,201 20,200,601 2,998,628 12,740,944
------------ ------------ ---------- -----------
Income (loss) before income tax
expense...................... (13,249,794) (9,238,059) 2,014,818 3,096,044
Pro forma income tax expense... -- -- 785,779 (785,779)(5) --
------------ ----------- ------------ ---------- ------------ -----------
Income (loss) before
extraordinary
item......................... (13,249,794) (9,238,059) 1,229,039 3,096,044
Preferred stock dividend
requirement.................. (940,000) (940,000) -- (940,000)
------------ ------------ -----------
Income (loss) before
extraordinary item
applicable to common stock... $(14,189,794) $4,011,735 $(10,178,059) $ 1,229,039 $ 11,105,064 $ 2,156,044
============ =========== ============ ========== ============ ===========
Income (loss) before
extraordinary
item per common share or
unit......................... $ (.72) $ (.51) $ .06 $ .05
============ ============ ========== ===========
Weighted average common
share or units outstanding... 19,765,226 19,765,226 19,765,226 39,530,452
============ ============ ========== ===========
</TABLE>
73
<PAGE> 85
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
(NOTE D)
-----------
HISTORICAL HISTORICAL PRO FORMA COMBINED
PATRICK LA/CAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales........................... $ 918,549 $ 1,127,089 $ $ 2,045,638
Interest and dividend income................ 1,750 6,331 8,081
Net gain on sale of investments............. 7,260 -- 7,260
Revenue from pipeline system................ 570,000 -- 570,000
Other income................................ 57,106 -- 57,106
----------- ----------- -----------
1,554,665 1,133,420 2,688,085
Expenses:
Lease operating costs and production
taxes.................................... 304,827 149,949 454,776
Depletion, depreciation, and amortization... 581,105 228,245 216,905(1) 1,026,255
Exploration expenses........................ -- -- 90,000(4) 90,000
General and administrative.................. 603,102 22,329 50,368(4) 675,799
Interest.................................... 265,049 274,845 (265,049)(2) 274,845
----------- ----------- -----------
1,754,083 675,368 2,521,675
----------- ----------- -----------
Income (loss) before income tax expense....... (199,418) 458,052 166,410
----------- ----------- -----------
Pro forma income tax expense.................. -- 178,640 (178,640)(5) --
----------- ----------- -----------
Income (loss) before extraordinary item....... (199,418) 279,412 166,410
Preferred stock dividend
requirement................................. (235,000) -- (235,000)
----------- ----------- -----------
Income (loss) before extraordinary item
applicable to common stock.................. $ (434,418) $ 279,412 $ 86,416 $ (68,590)
=========== =========== =========== ===========
Income (loss) before extraordinary
item per common share or unit............... $ (.02) $ .01 $ --
=========== =========== ===========
Weighted average common
shares or units outstanding................. 19,765,226 19,765,226 39,530,452
=========== =========== ===========
</TABLE>
74
<PAGE> 86
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
(NOTE F) (NOTE G)
----------- -----------
HISTORICAL PRO FORMA PRO FORMA HISTORICAL PRO FORMA COMBINED
PATRICK ADJUSTMENTS PATRICK LA/CAL ADJUSTMENTS PRO FORMA
----------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED
BY) OPERATING
ACTIVITIES............... $ 4,190,513 $(2,864,466)(1) $1,326,047 $2,822,587 $(967,000)(1) $ 3,181,634
CASH FLOWS FROM INVESTING
ACTIVITIES:
Maturities and sales of
investments -- net....... 11,745,000 11,745,000 -- 11,745,000
Proceeds from disposition
of properties -- net..... 13,637,700 (13,637,700)(2) -- -- --
Acquisition of ANPC (note
c)....................... 747,201 747,201 -- 747,201
Capital expenditures....... (5,168,066) (5,168,066) (3,719,782) 1,903,000(1) (6,984,848)
----------- ---------- ---------- -----------
Net Cash Provided by
(Used In) Investing
Activities........... 20,961,835 7,324,135 (3,719,782) 5,507,353
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from bank
borrowings............... 1,850,600 1,850,600 5,719,933 7,570,533
Principal payments on bank
borrowings and notes..... (24,960,251) 13,637,700(2) (8,458,085) (1,756,856) (936,000)(1) (11,150,941)
2,864,466(1)
Charge for early
extinguishment of debt... (1,039,540) (1,039,540) -- (1,039,540)
Preferred stock dividend... (940,000) (940,000) -- (940,000)
Capital distributions...... -- -- (3,107,258) (3,107,258)
----------- ---------- ---------- -----------
Net Cash (Used In)
Provided By Financing
Activities........... (25,089,191) (8,587,025) 855,819 (8,667,206)
----------- ---------- ---------- -----------
Net increase (decrease)
in cash and cash
equivalents.......... 63,157 63,157 (41,376) 21,781
Cash and cash equivalents
at beginning of year..... 685,654 685,654 752,138 1,437,792
----------- ----------- ---------- ---------- ----------- -----------
Cash and cash equivalents
at end of year........... $ 748,811 $ -- $ 748,811 $ 710,762 $ -- $ 1,459,573
=========== =========== ========== ========== ========== ===========
</TABLE>
75
<PAGE> 87
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
(NOTE G)
HISTORICAL HISTORICAL PRO FORMA COMBINED
PATRICK LA/CAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net cash provided by (used by) operating
activities............................ $ 93,351 $1,011,582 $ 124,681(1) $1,229,614
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposition of
properties -- net..................... 25,778 -- 25,778
Capital expenditures.................... (546,472) -- 140,368(1) (406,104)
---------- ----------
Net Cash Provided By (Used In)
Investing Activities........ (520,694) -- (380,326)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings........... 1,000,000 -- 1,000,000
Principal payments on bank borrowings
and notes............................. -- (479,473) (265,049)(1) (744,522)
Deferred costs.......................... -- (174,952) (174,952)
Preferred stock dividend................ (235,000) -- (235,000)
Capital distributions................... -- (357,084) (357,084)
---------- ---------- ----------
Net Cash (Used In) Provided By
Financing Activities........ 765,000 (1,011,509) (511,558)
---------- ---------- ----------
Net Increase (decrease) in
cash and cash equivalents... 337,657 73 337,730
Cash and cash equivalents at beginning
of period............................. 748,811 710,762 1,459,573
---------- ---------- ----------- ----------
Cash and cash equivalents at end of
period................................ $1,086,468 $ 710,835 $ -- $1,797,303
========== ========== ========= ==========
</TABLE>
76
<PAGE> 88
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
(A) BASIS OF PRESENTATION. The unaudited pro forma condensed financial
information reflects the contribution by La/Cal of the La/Cal Interests to the
Company and the subsequent acquisition by the Company of Patrick using the
purchase method of accounting. The accounting policies of the Company will be
the same as that of La/Cal and accordingly pro forma adjustments are also
included related to Patrick's pro forma historical statement of operations to
present such operations utilizing the same accounting policies as La/Cal.
(B) MARCH 31, 1995 BALANCE SHEET PRO FORMA ADJUSTMENTS. The pro forma
adjustments applicable to the March 31, 1995 balance sheet assume the
Transactions took place as of March 31, 1995 and reflect a preliminary purchase
price allocation that will be refined subsequent to the closing of the
Transactions.
(1) The Agreement provides that cash and accounts receivable accrued
prior to March 1, 1995, with interest thereon will not be transferred to
the Company by La/Cal. This adjustment reflects the distribution of such
amount to the La/Cal Partners.
(2) This adjustment reflects the exchange of La/Cal Partners' net
interest in La/Cal for 17,765,226 shares of common stock ($.20 par value).
(3) The Company plans to enter into a new debt agreement with a bank
at the Effective Time. It is anticipated that initially $10,000,000 will be
borrowed under this agreement. The agreement provides for two interest rate
options with interest payable at least quarterly. The debt matures on June
1, 1997. Proceeds will be used to pay off La/Cal's outstanding debt
($9,587,250) and the remainder ($412,750) to provide working capital.
Deferred financing costs of $530,735 related to the paid-off debt will be
charged to expense as an extraordinary item, however it is reflected as a
charge to equity as of March 31, 1995 for pro forma purposes.
(4) In order to determine the purchase price of Patrick, La/Cal valued
all assets and liabilities of Patrick at fair value as follows:
<TABLE>
<CAPTION>
PATRICK
CARRYING FAIR PRO FORMA
VALUE VALUE ADJUSTMENT
------------ ------------ ------------
<S> <C> <C> <C>
Current assets (excluding assets held for
sale), at carrying value.................. $ 3,318,125 $ 3,318,125 $ --
Assets held for sale, at call price......... 836,238 2,400,000 1,563,762
Investment in Penske entities, at call
price..................................... 3,344,954 9,600,000 6,255,046
Investment in Pecos pipeline, based on
discounted cash flow...................... 2,010,040 5,550,656 3,540,616
Other assets, at carrying value............. 170,662 170,662 --
Net property and equipment, based on
discounted cash flow analyses and
estimated values.......................... 19,504,079 16,239,354 (3,264,725)
All liabilities, at carrying value.......... (14,043,788) (14,043,788) --
------------
$ 23,235,009
============
</TABLE>
This adjustment adjusts the assets acquired and liabilities assumed to
equal fair value as indicated above. This adjustment also reflects the
exchange of 19,765,226 shares of Common Stock ($.20 par value) and
1,175,000 shares of Preferred Stock ($1.00 par value) for same number of
shares of Patrick Common Stock and Patrick Preferred Stock and eliminates
Patrick stockholders' equity.
(5) To reflect the expenses of the Transactions including Petrie
Parkman fees and expenses estimated to be $315,000 and various other
expenses estimated to be $800,000. For pro forma purposes these purchase
costs are an adjustment to the amount of additional paid-in capital
recorded in pro forma adjustment (B)(4).
(6) To accrue costs related to Patrick Consulting Agreements as a cost
of the Transactions since such amounts are payable regardless of whether
services are performed. For pro forma purposes these
77
<PAGE> 89
costs are an adjustment to the amount of additional paid-in capital
recorded in pro forma adjustment (B) (4).
(7) Reflect call by Penske of Patrick's investment in Penske as a
result of the Transactions. The Penske investment is valued at $12,000,000,
which is equal to the call price. Penske has informed Patrick that it
intends to exercise its call on Penske shares held by Patrick as a result
of the Transactions. Additionally, Patrick's Senior Notes and note payable
to bank, which are secured by the Penske investment are assumed to be paid
off from proceeds of Penske call. Prepayment penalty of $130,000 is
incurred in connection with the prepayment of the Senior Notes which will
be charged to expense as an extraordinary item, however it is reflected as
a charge to equity as of March 31, 1995 for pro forma purposes.
(8) Deferred income tax liabilities have not been reflected for the
differences between the amounts certain assets have been recorded in excess
of their tax basis due to the availability of Patrick net operating loss
carryforwards to offset such deferred tax liabilities. It is expected that
such net operating loss carryforwards will be used in the short term or
available tax planning strategies exist such that the potential taxes will
be offset by the net operating loss carryforwards at a future date and it
is anticipated that such strategies will be used if necessary. To the
extent that net operating loss carryforwards and tax credit carryforwards
are realized in the future in excess of amounts utilized to offset deferred
tax liabilities at date of acquisition such excess amounts realized will be
recorded as a reduction of income tax expense in the period realized.
(C) YEAR ENDED DECEMBER 31, 1994 STATEMENT OF OPERATIONS PRO FORMA
ADJUSTMENTS -- SALE OF PROPERTY TO UNIT PRODUCTION COMPANY AND LLOG EXPLORATION
COMPANY. On December 15, 1994, Patrick sold to Unit Petroleum Company, its
interests in certain oil and gas wells and related acreage, personal property,
and contract rights. In connection with the Unit Sale, LLOG Exploration Company
exercised preferential purchase rights with respect to certain properties
Patrick had agreed to sell to Unit. The LLOG Exploration Sale closed on December
16, 1994. Adjustments reflect the decrease in revenues, other income, production
tax and lease operating expenses and depletion related to the properties sold.
The decrease in interest expense reflects elimination of interest on bank debt
paid from proceeds of the sales and the decrease in general and administrative
expense reflects a reduction in personnel and other general and administrative
expenses directly related to the assets sold. In addition for purposes of this
pro forma presentation, the loss to Patrick on the sale of the assets is also
eliminated.
(D) YEAR ENDED DECEMBER 31, 1994 AND MARCH 31, 1995 STATEMENT OF OPERATIONS
PRO FORMA ADJUSTMENTS -- PATRICK ACQUISITION. The pro forma adjustments
applicable to the statements of operations assume the Transactions took place as
of January 1, 1994. Per unit information presented for La/Cal is calculated
using an assumed 19,765,226 units outstanding for the period which is equal to
the number of shares of Common Stock La/Cal will receive as a result of the
Asset Transfer.
(1) Adjusts Patrick's depletion, depreciation, and amortization and
impairment of oil and gas properties to an amount based on fair value of
oil and gas properties acquired assuming successful efforts method of
accounting for oil and gas properties and transactions. Record certain
exploration costs of Patrick which should be charged to expense in
accordance with successful efforts method of accounting. Such amounts were
$1,133,000 for the year 1994 and -0- for the three months ended March 31,
1995.
(2) Reflects adjustment for the reduction in interest expense due to
the repayment of the $10,000,000 of Patrick's 10.75% Senior Notes and note
payable to bank as applicable.
(3) Reflects elimination of Penske dividends received for the year
ended December 31, 1994. No dividends were received for the three months
ended March 31, 1995.
(4) To reflect increase in exploration expenses by $1,700,000 and
$90,000 for the year 1994 and three months ended March 31, 1995,
respectively, and increase in general and administrative expenses by
$203,000 and $50,368 for the year 1994 and three months ended March 31,
1995, respectively, for such costs capitalized by Patrick under its full
cost accounting method. Under La/Cal's successful efforts method of
accounting such costs are charged to operations.
78
<PAGE> 90
To date Goodrich Oil Company has provided general and administrative
services for La/Cal at no cost. It is anticipated that the Company will
provide its own general and administrative services subsequent to the
transactions. However, based on the Company's anticipated level of
operations on a merged basis such expenses are anticipated to be less than
the current combined general and administrative expense of La/Cal and
Patrick. The Company anticipates that it will initially employ
approximately 13 people. During 1994 Patrick employed a higher number of
employees at a higher average cost per employee. For pro forma purposes
reductions in general and administrative expenses that may occur have not
been reflected.
(5) Pro forma income tax expense represents pro forma income taxes of
La/Cal's results of operations had La/Cal been treated as a corporation.
Such taxes are currently the responsibility of the individual Partners. On
a pro forma basis, no income tax expense is reflected due to the
availability of net operating loss carryforwards of Patrick which can be
used to offset income taxes otherwise payable.
(6) New debt of Company will be at a variable interest rate which
initially is estimated to be 9.0%. For pro forma purposes no adjustment to
interest expense is reflected due to the minor difference in interest
rates. However, for each one-eighth percentage point change in the interest
rate, interest expense would change by $12,583 per year.
(7) Combined pro forma income (loss) before extraordinary item per
common share is computed by dividing combined pro forma income before
extraordinary item applicable to Common Stock by the combined pro forma
weighted average shares of Common Stock outstanding of 39,530,452.
Outstanding warrants and options considered common stock equivalents are
not included in the calculation because their effect would be antidilutive.
(8) Nonrecurring charges related to the early retirement of certain
long-term debt of Patrick and La/Cal, respectively, totalling $661,000
which will be charged to expense as an extraordinary item subsequent to the
Transactions are not reflected in the pro forma statement of operations.
(E) IMPACT OF UNUSUAL ITEM. During 1994, Patrick sold a portion of its
investment in Penske and realized a gain of $6,754,000 on the sale which is
included in net gain on sale of investments in the historical statement of
operations of Patrick. If this unusual item were eliminated from the unaudited
pro forma condensed statement of operations for the year ended December 31, 1994
the following pro forma amounts would have resulted:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
------------
<S> <C>
Total revenues......................................................... $9,082,360
Income (loss) before extraordinary item................................ (3,657,956)
Income (loss) before extraordinary item applicable to common stock..... (4,597,956)
Income (loss) before extraordinary item per common share............... (.12)
</TABLE>
(F) YEAR ENDED DECEMBER 31, 1994 STATEMENT OF CASH FLOWS PRO FORMA
ADJUSTMENTS -- SALE OF PROPERTY TO UNIT PRODUCTION COMPANY AND LLOG EXPLORATION
COMPANY.
(1) Adjustments to cash provided by operation activities related to the
operations of the properties sold to Unit and LLOG are as follows:
<TABLE>
<S> <C>
Oil and gas sales....................................................... $(7,864,155)
Other income............................................................ (162,710)
Lease operating costs and production taxes.............................. 3,148,671
General and administrative expense...................................... 1,242,000
Interest................................................................ 771,728
-----------
$(2,864,466)
===========
</TABLE>
To the extent that cash flow from operations is reduced, it is assumed that
less cash would be available for principal payments on bank borrowings and
notes.
79
<PAGE> 91
(2) Proceeds from the sales to Unit and LLOG were used principally to pay
bank borrowings, accordingly for pro forma purposes such proceeds and related
debt service are eliminated.
(G) YEAR ENDED DECEMBER 31, 1994 AND THREE MONTHS ENDED MARCH 31, 1995
STATEMENTS OF CASH FLOWS PRO FORMA ADJUSTMENTS -- PATRICK ACQUISITION.
(1) Adjustments to cash provided by operation activities related to the
Transactions are as follows:
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
1995 1994
--------------- ------------
<S> <C> <C>
Interest and dividend income.................... $ -- $ (139,000)
General and administrative expense.............. (140,368) (1,903,000)
Interest........................................ 265,049 1,075,000
--------- -----------
$ 124,681 $ (967,000)
========= ===========
</TABLE>
To the extent that cash flow from operations is increased due to less
interest expense partially offset by less interest and dividend income for the
year ended December 31, 1994 more cash would have been available for debt
service. Accordingly, the net amounts of $936,000 for the year ended December
31, 1994 and $265,049 for the three months ended March 31, 1995 is reflected as
an adjustment to principal payments of debt. The general and administrative
expense adjustment reduces capital expenditures and is charged to operations for
statement of cash flow purposes.
(H) PRO FORMA RESERVE INFORMATION
The following tables set forth an analysis of the Company's pro forma
estimated quantities of proved developed reserves and proved undeveloped
reserves, all of which are located onshore in the continental United States.
Such pro forma information has been prepared assuming the Transactions had
occurred on January 1, 1994.
<TABLE>
<CAPTION>
NATURAL
OIL GAS
----- -------
(MBBL) (MMCF)
<S> <C> <C>
Proved reserves as of January 1, 1994............................ 1,997 49,323
Revisions of previous estimates................................ (446) (6,255)
Purchase of minerals in place.................................. 47 4,380
Sales of minerals in place..................................... (319) (17,076)
Extensions and discoveries..................................... 812 3,352
Production..................................................... (423) (5,017)
----- -------
Proved reserves as of December 31, 1994.......................... 1,668 28,707
===== =======
Proved developed reserves
as of January 1, 1994.......................................... 1,431 33,267
as of December 31, 1994........................................ 1,402 22,276
</TABLE>
80
<PAGE> 92
The following table presents the pro forma standardized measure of future
net cash flows related to proved oil and gas reserves together with changes
therein. The oil, condensate and gas price structure utilized to project future
net cash flows reflects current prices as of the date specified. Future
production and development costs are based on current costs with no escalations.
Estimated future cash flows have been discounted to their present values based
on a 10% annual discount rate.
<TABLE>
<CAPTION>
STANDARDIZED MEASURE
DECEMBER 31, 1994
--------------------
(IN THOUSANDS)
<S> <C>
Future cash flows................................................. $ 75,233
Future production, development and abandonment costs.............. (15,365)
Income tax provision.............................................. --
--------
Future net cash flows............................................. 59,868
--------
10% annual discount............................................... (19,493)
--------
Standardized measure of discounted future net cash flows.......... $ 40,375
========
</TABLE>
<TABLE>
<CAPTION>
CHANGES IN
STANDARDIZED MEASURE
TWELVE MONTHS ENDED
DECEMBER 31, 1994
--------------------
<S> <C>
Standardized measure at beginning of period....................... $ 62,949
Revisions, extensions and discoveries............................. (3,568)
Sales and transfers of oil and gas produced, net of production
costs........................................................... (10,462)
Changes in price, net of future production costs.................. (4,188)
Development costs incurred during the period...................... 846
Net sales of minerals in place.................................... (11,769)
Accretion of discount............................................. 6,295
Changes in production rates (timing) and other.................... 272
--------
Standardized measure at end of year............................... $ 40,375
========
</TABLE>
(I) PRO FORMA BOOK VALUE PER SHARE.
Pro forma book value applicable to Common Stock per share is computed by
reducing total stockholders' equity by $11,750,000, which is the liquidation
preference applicable to the Preferred Stock, divided by common shares
outstanding.
81
<PAGE> 93
PRO FORMA COMBINED CAPITALIZATION
The following table sets forth the capitalization of La/Cal as of March 31,
1995, and of the Company as adjusted to give effect, as of that date, to the
consummation of the Transactions. The information presented below should be read
in conjunction with the financial statements of La/Cal and notes thereto,
"Unaudited Pro Forma Condensed Financial Information," "Selected Historical
Consolidated Financial Data of Patrick," "Patrick Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Selected Historical
Financial Data of La/Cal" and "La/Cal Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this Joint
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1995
-------------------------
AS
ACTUAL(2) ADJUSTED(2)
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt(1).................. $ 1,787 $ --
Long-term debt, excluding current portion............. 7,800 10,000
Stockholders' equity:
Series A Preferred Stock, $1.00 par value, 1,175,000
shares issued and outstanding(3)................. -- 1,175
Common Stock, $.20 par value, 100,000,000 shares
authorized, 39,530,452 shares issued and
outstanding...................................... -- 7,906
Additional paid-in capital............................ -- 8,941
Retained earnings (deficit)........................... -- (661)
Partners' deficit..................................... (1,980) --
------- -------
Total stockholders' equity (deficit)........ (1,980) 17,361
------- -------
Total capitalization........................ $ 7,607 $27,361
======= =======
</TABLE>
- ---------------
(1) La/Cal's long-term debt consisting of the 10% Senior General Obligation
Notes will be replaced by long-term bank debt in connection with the
Transactions. See "La/Cal Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
(2) The Actual amounts reflect the outstanding long-term debt and deficit
Partners' equity of La/Cal prior to the Transactions. The As Adjusted
amounts reflect the Preferred Stock and Common Stock and long-term debt of
the Company that will be outstanding after the Transactions.
(3) The Company has 10,000,000 shares of Preferred Stock authorized, of which
only 1,175,000 shares (liquidation preference of $10 per share), designated
as Series A Preferred Stock would be issued and outstanding after the
Effective Time.
82
<PAGE> 94
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF PATRICK
<TABLE>
<CAPTION>
THREE MONTH
PERIOD ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------- --------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and gas sales....... $ 919 $2,850 $ 11,071 $ 9,330 $ 9,561 $10,550 $ 13,267
Investment income....... 2 -- 147 692 749 773 972
Other................... 634 6,802 7,771 6,252 241 115 777
------- ------- -------- ------- -------- ------- --------
$ 1,555 $9,652 $ 18,989 $16,274 $ 10,551 $11,438 $ 15,016
Expenses:
Cost of oil and gas
sales................. $ 305 $1,080 $ 4,921 $ 3,698 $ 2,986 $ 2,841 $ 3,387
Depletion, depreciation
and amortization...... 581 1,476 6,492 5,732 5,567 6,194 5,414
General and
administrative
and interest.......... 868 1,350 5,482 6,013 6,497 5,763 5,839
Other(a)................ -- 15,344 10,129 17,396 3,126 12,800
------- ------- -------- ------- -------- ------- --------
$ 1,754 $3,906 $ 32,239 $25,572 $ 32,446 $17,924 $ 27,440
------- ------- -------- ------- -------- ------- --------
Earnings (loss) before
extraordinary item...... $ (199) $5,746 $(13,250) $(9,298) $(21,895) $(6,486) $(12,424)
Extraordinary item -- loss
on early extinguishment
of debt................. -- 1,232 1,232 -- -- -- --
------- ------- -------- ------- -------- ------- --------
Net earnings (loss)........ $ (199) $4,514 $(14,482) $(9,298) $(21,895) $(6,486) $(12,424)
======= ======= ======== ======= ======== ======= ========
Net earnings (loss) per
common share............ $ (.02) $ .21 $ (.78) $ (.63) $ (1.79) $ (.53) $ (1.02)
======= ======= ======== ======= ======== ======= ========
OTHER OPERATING DATA:
Ratio of earnings to
combined fixed charges
and preferred stock
dividends(b)............ -- 5.8 -- -- -- -- --
Increase (decrease) in cash
and cash equivalents.... 338 (155 ) 63 434 (814) 631 (394)
Net cash provided by
operating activities.... 93 1,058 4,190 1,617 1,473 3,095 2,751
BALANCE SHEET DATA (END OF
PERIOD)(C)(D):
Working capital
(deficit)............... $(1,889) $ (4,185) $(1,464) $ 1,581 $ 2,412 $ 6,692
Total assets............... 29,184 29,403 69,482 62,777 73,171 78,416
Long-term debt and other
long-term liabilities... 8,000 5,000 31,000 32,074 34,000 32,058
Stockholders' equity(e).... 15,140 15,912 30,481 25,375 36,158 42,579
</TABLE>
- ---------------
(a) During 1994, 1993, 1992, 1991 and 1990 Patrick recorded writedowns of
$12,301,000, $9,419,000, $15,640,000, $3,000,000 and $12,800,000,
respectively, of its oil and gas properties to adjust its capitalized costs
in accordance with full-cost center ceiling calculations as described in
Note D of the Notes to Consolidated Financial Statements of Patrick. Also,
during 1994 Patrick recorded a loss on sale of oil and gas properties of
$2,786,841. In addition, during 1993, 1992 and 1991, Patrick recorded a loss
of $419,694, $407,620 and $126,604, respectively, from its equity investment
in an affiliate. Also, during 1994, 1993 and 1992, Patrick recorded an
allowance of $256,652, $290,000 and $1,347,859, respectively, for the
decline in value of its investments in a joint venture and certain other
long-term investments.
(b) For purposes of computing this ratio, "earnings" represent earnings (loss)
from continuing operations before income taxes plus fixed charges and equity
loss in affiliates. "Fixed charges" consist of all interest charges,
amortization of debt issue costs, and that portion of rental expense
representing interest costs. No preferred dividends were paid during 1991.
As a result of the losses incurred for the three month period and years
ended March 31, 1995 and December 31, 1994, 1993, 1992, 1991 and 1990,
earnings did not cover combined fixed charges and preferred stock dividends
by $434,000, $14,180,000, $10,238,000, $22,157,000, $6,456,000, and
$12,425,000, respectively.
(c) In December 1994, Patrick completed the sale of its interests in certain oil
and gas wells and related leasehold acreage, personal property, and contract
rights. In a related transaction Patrick sold certain other interest in
accordance with a
(Notes continued on following page)
83
<PAGE> 95
preferential right agreement. The transactions resulted in a loss of $2.8
million. Revenues and expenses associated with the interest sold represent a
significant portion of Patrick's operations. See "Unaudited Pro Forma
Condensed Financial Information," "Patrick Management Discussion and
Analysis of Financial Condition and Results of Operations," and Patrick
Consolidated Financial Statements all included elsewhere in this Joint Proxy
Statement/Prospectus.
(d) During 1993 Patrick acquired ANPC, an independent oil and gas company,
through a merger. The purchase price consisted of 7,188,040 shares of
Patrick common stock valued at $15,344,000 and cash of $21,295,000 of which
$10,619,000 was cash on hand at ANPC at the date of acquisition. In
connection with the acquisition certain of the interests owned by ANPC was
sold to Whiting Petroleum Corporation for approximately $7,000,000. See
"Patrick Management Discussion and Analysis of Financial Condition and
Results of Operations," and Patrick Consolidated Financial Statements
included elsewhere in this Joint Proxy Statement/Prospectus.
(e) No cash dividends were paid on Patrick Common Stock during these periods.
84
<PAGE> 96
PATRICK MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW AND ANALYSIS OF KNOWN TRENDS
On March 10, 1995 Patrick entered into the Agreement with La/Cal. The
proposed Transactions have been approved by the Board of Directors of Patrick
and the Management Committee of La/Cal and are subject to approval by their
respective stockholders and partners as well as other customary conditions and
approvals.
Under terms of the Agreement, U. E. Patrick, presently President and CEO of
Patrick, will be Chairman and Gil Goodrich, presently a managing partner of
La/Cal, will be President and CEO of the Company. In addition, La/Cal and
Patrick will each nominate six directors to the Board of Directors of the
Company.
The Transaction will take the form of a tax-free exchange of common stock
for Patrick's Common Stockholders. To effect the Transactions, Patrick formed
the Company as a holding company. La/Cal will contribute its oil and gas assets
to the Company for 19,765,226 shares of Goodrich Common Stock. Through a merger,
Patrick Common Stockholders will be entitled to receive one share of Goodrich
Common Stock for each of the 19,765,226 outstanding shares of Patrick Common
Stock. Patrick Preferred Stock will be converted into shares of Preferred Stock
with substantially identical terms. Patrick will continue as a wholly-owned
subsidiary of the Company. See "Description of the Transactions -- Background of
the Transactions."
On November 28, 1994, Patrick entered into an Asset Purchase Agreement to
sell Unit its interests in 605 oil and gas wells and related leasehold acreage,
personal property, and contract rights in the States of Alabama, Louisiana,
Mississippi, New Mexico, Oklahoma, and Texas, effective as of May 1, 1994. The
Asset Purchase Agreement provides for adjustments to the purchase price within
150 days following the closing. The closing of the Unit Sale occurred on
December 15, 1994 and Patrick received $16.1 million less revenues and expenses
relating to the properties sold from the period May 1, 1994 to December 15,
1994, which resulted in net proceeds received of $13.3 million after such
adjustments. In a related transaction, LLOG Exploration Company exercised its
preferential right to purchase Patrick's interests in the Bayou Pigeon Field,
Iberia Parish, Louisiana. Patrick entered into a Purchase and Sale Agreement
dated December 14, 1994, and closed the transaction December 16, 1994, receiving
$1.56 million. The combined $14.86 million in proceeds were used to repay all of
Patrick's bank debt, approximately $13.7 million, with the remaining $1.1
million used for interest, fees and general corporate purposes, including
Patrick's exploration efforts in West Texas. The sale transactions resulted in a
loss on sale of oil and gas assets of $2.8 million. Revenues, net of expenses,
on the books from May 1 to December 15, 1994, accounted for $2.58 million of the
loss. Revenue (net of production taxes) generated by the properties sold was
approximately $7.1 million in 1994, $6.5 million in 1993, and $5.3 million in
1992. Lease operating expenses attributed to such properties were approximately
$2.6 million in 1994, $1.7 million in 1993, and $1.2 million in 1992.
Patrick's remaining oil and gas assets are primarily located in West Texas
and Michigan with additional properties in certain western states. Because the
properties sold to Unit were principally in the Gulf Coast area, primarily
Louisiana and Texas (other than West Texas), and also adjacent states,
Mississippi, Alabama, Oklahoma and New Mexico, land and exploration activities
conducted by the Houston office were eliminated and the engineering function was
downsized. The Company expects to ultimately reduce the cost of overhead in the
Houston office by approximately $800,000, on an annual basis, after one-time
costs for severance and restructuring.
BACKGROUND
Since 1987, Patrick has focused on the expansion of its oil and gas
properties both through exploration and development and through the acquisition
of producing reserves. Substantially all of Patrick's capital resources, with
the exception of the cash used for investment in Penske, MNG, and the purchase
of an interest in a pipeline system which was subsequently sold to a partnership
formed by a subsidiary of MNG, have been used for this purpose. Revenues from
oil and gas sales increased from 1987 through 1990 based upon continued growth
in production and growth in Patrick's reserve base through 1989. Revenues from
oil and gas
85
<PAGE> 97
declined in 1991 as a result of decreasing prices and, to a lesser extent,
decreasing production, while the reserve base increased. Revenues from oil and
gas declined in 1992 as a result of decreasing production, decreased reserve
base and, to a lesser extent, decreasing prices. Revenues from oil and gas
declined in 1993 as a result of decreasing prices and decreasing production
while the reserve base increased, primarily from the acquisition of ANPC.
Revenues from oil and gas sales increased in 1994 as a result of primarily a
full years production from the ANPC acquisition made during the last half of
1993. Patrick incurred losses in 1990, 1991, 1992, 1993, and 1994 and depended
upon interest and dividend revenue for its profits in 1987 through 1989.
Significant exploration projects since 1987 have included projects in the
Williston Basin (Winnipegosis Reef) and Michigan (Prairie du Chien). As a part
of its Winnipegosis Reef project, Patrick invested significant capital during
this period on seismic surveys, acreage and drilling to attempt to establish the
first commercial United States production in these reef formations that are an
extension of the prolific Devonian Keg River reef production in Canada.
Following Patrick's second unsuccessful drilling attempt to establish
Winnipegosis production late in 1990, Patrick elected to refocus its exploration
efforts in the Williston Basin on lower risk projects.
In 1992, Patrick experienced a lack of success on a major project in
Michigan, Garfield #1-7, which caused a significant loss of proved undeveloped
reserves associated with the well. Furthermore, the dry holes and marginal
economic success in lower risk projects in the North Dakota play resulted in
Patrick's decision to close the Billings, Montana operations and refocus its
exploration efforts principally in West Texas and on a few deep gas prospects in
Michigan.
In 1993, Patrick was not able to interest participants in the deep gas
prospects it held in Michigan and therefore concentrated the majority of its
exploration efforts in West Texas. Patrick also experienced a decline in late
1992 and 1993 on production acquired in previous years. On July 29, 1993,
Patrick acquired ANPC through a merger. ANPC is a Houston-based, independent oil
and gas company, having assets primarily in Louisiana, Texas, Oklahoma and New
Mexico. The merger provided for the conversion of each outstanding share of ANPC
stock into the right to receive $3.40 in cash and $2.60 of Patrick Common Stock.
A total of 7,188,040 shares of Patrick Common Stock were issued to the holders
of ANPC common stock.
In connection with the ANPC merger and pursuant to a Purchase and Sale
Agreement dated May 10, 1993 (the "Sale Agreement"), an undivided one-third
interest in all of the oil and gas wells, developed and undeveloped leases
associated with the wells and the equipment related to the wells owned by ANPC
was sold to Whiting Petroleum Corporation. The one-third interest in the assets
was sold for approximately $7,000,000 and the closing occurred on August 3,
1993.
During 1994, the ANPC properties contributed approximately $4.5 million in
oil and gas revenues, and incurred approximately $451,000 of production taxes
and $1.7 million of lease operating expenses. For 1993, the ANPC properties
contributed approximately $2.2 million in oil and gas sales, and incurred
approximately $155,000 of production taxes and $767,000 of lease operating
expenses.
Following the ANPC acquisition with gas prices on the rise, and an
excellent pipeline system obtained in the acquisition, Patrick appeared to be
positioned for future growth. However, marginal success in West Texas and the
lock of deep gas activity in Michigan forced Patrick in early 1994 to seek the
assistance of Petrie Parkman to develop alternative business strategies for its
oil and gas operations.
86
<PAGE> 98
Patrick's exploration and development drilling programs during the last
three years have been unsatisfactory and is illustrated by the summary presented
in the following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1994 1993 1992
---------- ---------- -----------
<S> <C> <C> <C>
Net exploratory and development wells drilled:(1)
Oil................................................... 1.47 2.26 1.90
Gas................................................... .30 .95 .53
Dry................................................... 2.32 3.29 3.38
Total................................................. 4.09 6.50 5.81
Drilling and completion Success Rate(%)............... 43.3 49.4 41.8
Total oil and gas capital expenditures:(2)............ $5,145,374 $4,492,604 $10,642,658
Changes in Proved Reserves -- Extensions, Discoveries
and Other Additions:(3)
Oil (Mbbls)......................................... 486.300 40.418 147.400
Gas (Bcf)........................................... .21 .03 7.84
Equivalent Gas (Bcfe)(4)............................ 3.13 .27 8.73
Findings costs ($/Mcfe):.............................. 1.64 16.49 1.22
Production:(5)
Oil (Mbbls)......................................... 282.974 237.637 230.700
Gas (Bcf)........................................... 2.63 2.52 2.76
Equivalent Gas (Bcfe)(4)............................ 4.33 3.95 4.14
Replacement Ratio of Production by Extensions,
Discoveries and Other Additions(%).................. 37.9 6.8 210.9
</TABLE>
- ---------------
(1) Additional drilling activity detail and definition of gross and net wells.
See "Business and Properties of Partrick -- Drilling Activity."
(2) Includes Property Acquisition (predrilling), Development and Exploration
Costs. See Note P of the notes to the consolidated financial statements of
Patrick.
(3) Changes in Proved Reserves -- Extensions, Discoveries and Other Additions
are consistent with tabulation. See Note P of the notes to the consolidated
financial statements of Patrick. The category includes proved developed and
undeveloped reserves and is not adjusted for Revisions of Previous
Estimates.
(4) Based upon the ratio of 1.0 Bbl/6.0 Mcf, which was calculated by Patrick.
(5) See Note P of the notes to the consolidated financial statements of Patrick.
During 1994, declines in prices, revisions of previous estimates and normal
production declines resulted in a reduction in the present value of Patrick's
future net revenue from estimated production. In accordance with the full cost
accounting method, Patrick recorded a write-down of $12,301,000 in 1994 in the
value of its oil and gas properties.
87
<PAGE> 99
Patrick has recorded writedowns in accordance with the full-cost ceiling
calculations as presented in the table below:
<TABLE>
<CAPTION>
REVISIONS
AND
PRICING ABANDONMENTS TOTAL
----------- ------------ -----------
<S> <C> <C> <C>
1994.............................. $ 2,001,000 $10,300,000 $12,301,000
1993.............................. 4,150,000 5,269,000 9,419,000
1992.............................. 2,700,000 12,940,000 15,640,000
1991.............................. 3,000,000 -- 3,000,000
1990.............................. -- 12,800,000 12,800,000
1985.............................. 8,100,000 -- 8,100,000
----------- ----------- -----------
$19,951,000 $41,309,000 $61,260,000
=========== =========== ===========
</TABLE>
In 1987, 1988 and 1990 Patrick invested $9.4 million for its ownership in
the Penske entities, aggregating to 9.4% of Penske Corporation and 1.69% of
Penske Transportation, Inc. Although outside of its primary oil and gas
businesses, Patrick's management elected to pursue this investment opportunity
for its income and capital appreciation potential. Patrick has no plans at this
time to pursue other non-energy related investments or acquisitions.
Since acquiring an interest in Penske, Patrick has received approximately
$2.8 million in dividends from its investments distributed as follows: $70,000
in 1987, $900,000 in 1988, $212,246 in 1989, $0 in 1990, $195,600 in 1991,
$628,115 in 1992, $646,895 in 1993, and $139,628 in 1994. The Penske entities'
dividend policy is not formal, and dividends are declared and paid at the
discretion of the applicable board of directors.
On March 30, 1994, Patrick entered into an agreement with Penske to sell
37% of its interest in Penske Corporation and all of its interest in Penske
Transportation, Inc. for $12 million with the right to sell (put) the remaining
interest to Penske equally over the next five years. Terms call for Penske to
pay Patrick, upon presentation of each put, an annual amount equal to the
greater of $2.4 million or 1.5 times book value of the shares presented. The
minimum value if all puts are presented will be an additional $12 million.
Penske has the right to call and accelerate the options in the event there is a
change in control of Patrick during the term of the agreement.
On April 12, 1994, Patrick utilized the proceeds from such sale to prepay
$10,000,000 of Patrick's 10.75% Subordinated Collateralized Notes (the "Senior
Notes") secured by the Penske stock. As a result of such transaction, Patrick
recognized a gain of $6,754,000 on the sale of the stock and incurred penalties
of $1,040,000 associated with the prepayment.
In June 1991, Patrick participated in the initial capitalization of MNG, an
entity that has subsequently evolved into a publicly traded company which
encompasses several natural gas-related businesses and services. Patrick
currently owns approximately 5.8% of MNG. Many of MNG's activities are of a
start-up nature and are involved with the development and market acceptance of
new technology. MNG has incurred losses in 1992, 1993, and 1994, and there is no
guarantee of MNG's future profitability. On July 9, 1993, Patrick received
50,000 shares of MNG stock from EMCO, valued at $9 per share, in consideration
of Patrick's waiver of its right of first refusal on the remaining MNG shares
owned by EMCO (250,000 shares). These shares along with 700,000 shares of MNG
stock already owned by Patrick were sold on September 30, 1993. Patrick received
$6,000,000 (750,000 shares at $8 per share) which resulted in a net gain on sale
of $4,887,000. Additionally, two members of Patrick's Board of Directors,
Messrs. U. E. Patrick and Basil M. Briggs, also currently serve on the MNG Board
of Directors.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1995
COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1994
During the three months ended March 31, 1995, Patrick lost $199,418
compared to net earnings of $4,514,320 for the same period of the previous year.
88
<PAGE> 100
Revenues decreased $8,097,621 to $1,554,665 during 1995, compared to
$9,652,286 for 1994 primarily the result of decreased gains on sales of
investments of $6,491,232 and the loss of revenue from the wells sold to Unit in
December 1994. Oil and gas sales decreased $1,931,321, revenue from pipeline
systems increased $305,500 and the other components of revenue increased $19,432
in 1995 compared to 1994.
A comparison of production volumes and average sales prices of oil and gas
produced and sold by Patrick for the periods presented is as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
PRODUCTION VOLUMES
Crude Oil and Condensate(Bbls)......................... 37,572 72,620
Natural gas (Mcf)...................................... 106,676 706,661
AVERAGE SALES PRICE
Crude Oil and Condensate (per Bbls).................... $ 17.24 $ 13.95
Natural gas (per Mcf).................................. $ 1.58 $ 2.37
</TABLE>
Expenses decreased $3,383,883 during the three months ended March 31, 1995,
compared to the same period of the previous year principally due to a prepayment
penalty recorded in 1994 and due to the reduced number of wells in 1995.
Production taxes decreased $156,764, lease operating costs and depletion,
depreciation and amortization decreased $1,513,471, general and administrative
costs decreased $39,404, and interest expense decreased $441,412, principally
due to a reduction in outstanding debt. Under the full cost accounting method,
Patrick capitalized $90,000 of exploration overhead in 1995, compared to
$450,000 in 1994. Patrick recorded a prepayment penalty expense in 1994 of
approximately $1,233,000 as a result of the early extinguishment of Senior Note
debt.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994 COMPARED
TO THE YEAR ENDED DECEMBER 31, 1993
During 1994 and 1993, Patrick lost $14,482,150 and $9,297,893,
respectively. During the year ended December 31, 1994, Patrick recorded a
writedown of $12,301,000 to reflect the capitalized costs of its oil and gas
properties in excess of the full-cost pool ceiling as prescribed by the
Commission, as compared to a $9,419,000 writedown during 1993. In 1994, Patrick
recorded a loss on the sale of certain oil and gas properties of $2,786,841 and
$1,232,357 of expenses principally the result of a prepayment penalty of
$1,040,000 incurred as a result of the early extinguishment of the Senior Notes.
Patrick also recorded a $256,652 writeoff of the remaining basis of its
investment in Landover Holding, Inc., a joint venture in Phoenix, Arizona.
During 1993, Patrick recorded a loss in equity of an affiliate of $419,694.
Oil and gas sales increased 18.67% to $11,071,486 during 1994 compared to
$9,330,048 for 1993. Production volumes were 282,974 Bbls and 2,631,707 Mcf for
1994 compared to 237,637 Bbls and 2,524,528 Mcf for 1993. Oil prices received by
Patrick for 1994 production averaged $16.36 per Bbl and $2.05 per Mcf compared
to $14.64 per Bbl and $2.20 per Mcf for 1993. Revenues for 1994 reflect a full
year of production activity for the wells obtained in the 1993 ANPC merger. In
addition, Patrick recorded $1,111,525 in revenue from pipeline systems during
1994 compared to $665,949 during 1993. The 1994 pipeline revenue reflects a full
year of activity compared to five months in 1993.
Lease operating expenses and production taxes for 1994 were $4,921,344, up
33.1% from $3,697,975 in 1993, primarily due to a full year of activity during
1994 for the wells obtained in the ANPC merger and due to workover activity in
1994. General and administrative expenses increased 8.8% to $3,311,240 in 1994
from $3,041,014 in 1993, primarily due to severance liabilities recorded for
terminated employees as a result of Patrick's downsizing efforts. Depletion,
depreciation and amortization increased by $759,155 in 1994 to $6,491,645 from
$5,732,490 in 1993, primarily as a result of the full year activity associated
with the ANPC wells. Interest expense decreased in 1994 to $2,170,478 compared
to $2,972,116 in 1993 as a result of reduction in debt in 1994.
89
<PAGE> 101
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1993 COMPARED
TO THE YEAR ENDED DECEMBER 31, 1992
During 1993 and 1992, Patrick lost $9,297,893 and $21,895,119,
respectively. The 1993 loss is the result of declines in oil pricing, gas
production, and increased production costs, primarily from the acquisition of
ANPC. In addition, Patrick recorded a writedown of $9,419,000 to reflect the
capitalized costs of its oil and gas properties in excess of the full-cost
ceiling as prescribed by the Commission. During the fourth quarter of 1993,
prices used by Patrick to value its reserves decreased approximately $5.40, from
$18.65 to $13.25 per barrel for oil. The impact of this decline in prices
resulted in a significant decrease in the value of Patrick's oil and gas
reserves during the fourth quarter of 1993 of approximately $3.6 million.
Additionally, during the fourth quarter of 1993, Patrick received certain data
regarding a decline in the production rate and surface tubing pressure in a well
in which Patrick holds a small interest. This well, which is operated by another
oil company, offsets significant proved undeveloped reserves of Patrick.
Accordingly, Patrick's engineering department reduced its estimate of the
reserves for this property which resulted in an additional writedown of
$5,269,000 of its oil and gas properties during the fourth quarter of 1993.
These writedowns are in addition to a writedown of $550,000 recorded during the
second quarter of 1993. The 1992 loss is the result of declines in oil pricing,
production, reserves and increase workover costs and general and administrative
costs. In addition, Patrick recorded a writedown of $15,640,000 to reflect the
capitalized costs of its oil and gas properties in excess of the full-cost
ceiling as prescribed by the Commission. During the fourth quarter of 1992,
prices used by Patrick to value its reserves decreased approximately $3.50, from
$21.56 to $18.05 per barrel for oil and $.20, from $2.22 to $2.02 per Mcf for
gas. The impact of this decline in prices resulted in a significant decrease in
the value of Patrick's oil and gas reserves during the fourth quarter of 1992.
Oil and gas sales decreased 2% to $9,330,048 in 1993 compared to $9,561,068
for the previous year. Production volumes were 237,637 barrels and 2,524,528 Mcf
for 1993 compared to 230,700 barrels and 2,759,100 Mcf for the previous year.
Oil prices received by Patrick in 1993 averaged $14.64/Bbl ($14.99/Bbl when
including the results from Patrick's hedging program) compared to $19.82/Bbl
($20.64/Bbl when including the results of Patrick's hedging program) for the
previous year. Gas prices averaged $2.20/Mcf ($2.15/Mcf when including the
results of Patrick's hedging program) for 1993 compared to $1.72/Mcf ($1.60/Mcf
when including the results of Patrick's hedging program) for the previous year.
The declines in gas production and oil pricing resulted in reduced revenues of
$473,277 from decreased volumes and increased revenue of $129,342 from higher
average gas prices. In addition, Patrick also had reduced revenues of $43,090
from its hedging activity. Patrick had increased revenues of $156,005 associated
with plant products from its two primary gas processing plants.
Investment income decreased $57,271, $40,000 from the sale of Marcum stock,
and $36,051 from other miscellaneous investments. These declines were partially
offset by increased dividends from Penske of $18,780. Pipeline revenues and
other income increased $1,006,826 principally due to the receipt of $450,000
worth of MNG stock from EMCO in consideration of Patrick's waiver of its right
of first refusal on the remaining MNG shares owned by EMCO (250,000 shares) and
revenues received on Patrick's investments in two pipelines of $665,949. In
addition, Patrick recorded increased gains on the sale of assets of $5,093,254
principally due to gain on sale of MNG shares of $4,887,000, gain on sale of
airplane of $284,282 and miscellaneous of $42,711 in 1993 compared to 1992.
Expenses excluding the writedowns in 1993 and 1992 of $9,419,000 and
$15,640,000, respectively, decreased $576,511. Production taxes decreased
$99,109, primarily the result of reduced pricing of oil. Lease operating costs
increased $795,911, primarily the result of increased taxes and the addition of
ANPC. Depletion, depreciation and amortization increased $165,605, principally
from the depreciation expense associated with the investment in the Pecos
pipeline of $156,250. General and administrative costs decreased $335,806,
primarily because 1992 included settlements of $350,000 for franchise tax audits
conducted by two states. Interest expense decreased $45,253, primarily from
lower interest rates.
Patrick also recorded a writedown of certain long term investments of
$290,000 during 1993 compared to $1,347,858 in 1992, primarily its investment in
Landover Holding, Inc., a joint venture in Phoenix, Arizona. In addition,
Patrick recorded a loss of $419,694 during 1993 compared to a loss of $407,620
during 1992 for its' equity ownership in MNG.
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<PAGE> 102
CAPITAL RESOURCES AND LIQUIDITY
At March 31, 1995, Patrick had $1,086,468 in cash and cash equivalents,
negative working capital of $1.9 million, a current ratio of .69 to 1.0 and
stockholders' equity of $15.1 million. At December 31, 1994, Patrick had
$748,811 in cash and cash equivalents, negative working capital of $4,184,663, a
current ratio of .51 to 1.00 and stockholders' equity of $15.9 million.
In 1995, Patrick will require funds in addition to its forecasted cash flow
from operations in order to complete the development of its Sean Andrew Field
and certain additional prospects to be drilled in West Texas. Patrick has
entered into a new Credit Agreement with a Bank which provides for a maximum
credit facility of $30,200,000, consisting of a $5,200,000 term loan, and a
$25,000,000 revolving line of credit with an initial borrowing base of
$6,000,000 (collectively the "Bank Loan"). Interest rates are at prime with a
LIBOR plus 2.00% option. Substantially all of Patrick's assets are pledged for
this credit facility. If the Transactions are not consummated by September 30,
1995 Patrick's interest rate will increase to prime plus 1/2% or LIBOR plus
3.00% on borrowings outstanding. It is anticipated that the credit facility will
be sufficient to satisfy capital expenditure commitments and provide sufficient
liquidity for operations.
The Bank Loan requires a minimum consolidated tangible net worth of
$15,000,000 plus 50% of positive consolidated net income for all quarters
subsequent to December 31, 1994, with up to a $1,000,000 allowance for writedown
of oil and gas properties under the full cost accounting method. Common stock
dividends are prohibited. A current ratio (as defined in the Credit Agreement)
of 1.0:1.0 must be maintained and a maximum expenditure for general and
administrative expenses has been established.
Cash provided by operating activities in 1992 and 1993 was $1,423,000 and
$1,617,000, respectively. As the Company began its West Texas exploration
activity in 1992, a Preferred Stock offering raised approximately $10,500,000
primarily for this activity, with excess proceeds used to pay down bank debt.
During 1993, capital expenditures for West Texas and other exploration
activities were paid from cash provided from operating activities and the sale
of approximately one-half of the Company's investment in Marcum Natural Gas
Services, Inc. In 1994, cash provided from operating activities of $4,191,000
and proceeds from bank borrowings of $1,850,000 provided for 1994 capital
expenditures. Also in 1994, the Company sold approximately one-half of its
investment in Penske for $12,000,000 and a majority of its oil and gas
properties to Unit for $16,100,000. All of those proceeds were used to retire
the bank debt and pay off $10,000,000 of the outstanding Senior Notes.
Patrick will continue to consider other sources of financing, including the
public or private sale of debt or equity securities, as it has done in the past.
The instability of hydrocarbon pricing could have a material effect on
Patrick's revenues, cash flows and borrowing capacity. Patrick continually
evaluates its proved and unproved oil and gas properties. Any long term
continuation of depressed price levels may impair the value of the oil and gas
properties.
LONG TERM OBLIGATIONS
Patrick's non-equity capitalization at March 31, 1995 consisted of $10.0
million of indebtedness from Patrick's subordinated collateralized notes.
In 1990, Patrick sold $20,000,000 in 10.75% Subordinated Collateralized
Notes with Warrants to acquire 800,000 shares of Patrick Common Stock at $6.16
per share to three institutional investors. Patrick's equity ownership in Penske
Corporation and Penske Transportation Inc. served as the collateral for the
notes, and the Note Purchase Agreement contains financial covenants consistent
with those contained in the Revised Bank Loan.
On March 30, 1994, Patrick entered into an agreement with Penske to sell
37% of its interest in Penske Corporation and all of its interest in Penske
Transportation, Inc. for $12 million with the right to sell (put) the remaining
interest to Penske equally over the next five years. Terms call for Penske to
pay Patrick, upon presentation of each put, an annual amount to the greater of
$2.4 million or 1.5 times book value of the shares presented. The minimum value
if all puts are presented will be an additional $12 million. Penske has the
right
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<PAGE> 103
to call and accelerate the options in the event there is a change in control of
Patrick during the term of the agreement.
On April 12, 1994, Patrick utilized the proceeds from such sale to prepay
$10,000,000 of the Senior Notes secured by the Penske stock. As a result of such
transaction, Patrick recognized a gain of $6,754,000 on the sale of the stock
and incurred penalties of $1,040,000 associated with the prepayment.
On May 2, 1995 Patrick retired all of the $10,000,000 10.75% Senior
Subordinated Notes outstanding. A portion of the debt was retired with the
$2,400,000 in proceeds from the exercise of the first put of Penske stock. The
remaining Senior Note indebtedness was retired with proceeds from Patrick's new
credit facility. The rate of interest on such borrowing was 8.125% at May 8,
1995. The prepayment penalty incurred was $60,250. The Penske stock was
transferred as collateral to the lender as part of the credit agreement.
If the merger with La/Cal occurs, a change of control as defined in the
sale agreement with Penske Corporation will transpire. Penske intends to
exercise a call on the remaining 151,584 shares held by Patrick. If the merger
occurs, and Penske exercises its call, Patrick anticipates receiving
approximately $9.6 million.
CAPITAL EXPENDITURES
During the period ended March 31, 1995, Patrick's capital expenditures were
$546,472. The expenditures were for development costs of $440,287, exploration
expenditures of $100,039, and acquisition of leasehold interest of $6,146. In
addition, Patrick received proceeds from the sale of interests in oil and gas
assets of $25,778.
In order to preserve current available cash, Patrick intends to fund its
portion of certain on-going drilling expenditures by selling a portion of its
interest in seismic and acreage cost or borrowing on its working capital credit
facility. This method of funding has been used by Patrick in previous
exploration efforts. Patrick will still be responsible for its share of
completion costs and any future project development or seismic expenditures.
Patrick has no material commitments for capital expenditures at March 31,
1995. However, Patrick anticipates significant capital expenditures primarily to
develop its Sean Andrew Field and other West Texas properties.
During the year ended December 31, 1994, Patrick's capital expenditures
were $5,168,066. The expenditures were for development costs of $2,046,919,
exploration expenditures of $2,767,258, acquisition of leasehold interest of
$331,197, and furniture, fixtures, and equipment of $22,695. In addition,
Patrick received net proceeds totalling $13,637,700 from the sale of various
assets, principally due to the sale of assets to Unit Petroleum and LLOG.
ACCOUNTING STANDARDS
Effective January 1, 1994, Patrick adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which requires certain accounting
and reporting for investments in debt and equity securities based on the intent
and ability of entities to hold to maturity or trade such investments.
The Financial Accounting Standards Board has issued SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." SFAS No. 107 extends
existing fair value disclosure practices for some instruments by requiring all
entities to disclose the fair value of financial instruments for which it is
practicable to estimate fair value. Management has determined that the effects
on the financial statements from the adoption of this statement, which is
required to be adopted by Patrick in 1995, will not be material.
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The standard
established guidance for recognizing and measuring impairment losses and
requires that the carrying value of an impaired asset be reduced to fair value.
Patrick has not fully determined the impact that adoption of the standard will
have on its financial statements. The standard must be adopted no later than
1996 for Patrick.
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<PAGE> 104
SELECTED HISTORICAL FINANCIAL DATA OF LA/CAL
The selected financial data set forth below for the year ended December 31,
1994. The period from July 15, 1993 (inception) through December 31, 1994 and
for the period from January 1, 1993 through July 14, 1993, for La/Cal and the
assets contributed to La/Cal prior to formation have been derived from audited
financial statements contained elsewhere in this Joint Proxy
Statement/Prospectus. The financial data for the years ended December 31, 1992,
1991, and 1990 have been derived from the unaudited financial records of the
assets contributed to La/Cal. The selected financial data are not necessarily
indications of the results of future operations and are qualified in their
entirety by, and should be read in conjunction with "La/Cal Management's
Discussion and Analysis of Financial Condition and Results of Operations" as
well as the La/Cal financial statements and the notes thereto included elsewhere
in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JULY 15,
MARCH 31, YEAR ENDED 1993 TO JANUARY 1, YEAR ENDED DECEMBER 31,
---------------- DECEMBER 31, DECEMBER 31, TO JULY 14, ---------------------------------------
1995 1994 1994 1993 1993(A) 1993(A) 1992(A) 1991(A) 1990(A)
------ ------ ------------ ------------ ----------- --------- ------ ------ ------
(IN THOUSANDS EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues:
Oil and gas
sales............ $1,127 $ 878 $4,996 $1,060 $ 947 $ 2,007 $896 $244 $194
Other.............. 6 4 17 8
------ ------ ------
Total
revenues..... 1,133 882 5,013 1,068
Expenses:
Lease operating
expenses and
production
taxes............ 150 93 684 194 137 331 173 55 52
Depletion,
depreciation and
amortization..... 228 223 1,156 179
Interest expense... 275 203 1,072 199
Other expenses..... 22 20 86 2
------ ------ ------
Total expenses 675 539 2,998 574
------ ------ ------
Income before income
tax expense(b)..... 458 343 2,015 494
Pro forma income tax
expense(b)......... 179 134 786 193
------ ------ ------
Net income as
adjusted for income
taxes(b)........... $ 279 $ 209 $1,229 $ 301
======= ====== ======
Net income as
adjusted for income
taxes per
unit(b)(c) $ .01 $ .01 $ .06 $ .02
======= ====== ======
OTHER OPERATING DATA:
Ratio of earnings to
fixed charges...... 2.7 2.7 2.9 3.4
Increase (decrease)
in cash and cash
equivalents........ $ -- $ (312) $ (41) $ 752
Net cash provided by
operating
activities......... 1,012 539 2,823 479
Distributions to
partners........... 357 1,765 3,107 4,073
Distributions to
partners per
unit(c)............ .01 .07 .16 .21
Distributions to
partners per unit
-- return of
capital(c)......... -- .07 .06 .18
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
MARCH 31, -------------------------
1995 1993 1994
--------- --------- ---------
(IN THOUSANDS EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................................... $ 711 $ 752 $ 711
Working capital (deficit).................................................... (683) (427) (416)
Total assets................................................................. 7,953 5,371 8,230
Long-term debt, excluding current portion.................................... 7,800 4,700 8,250
Total liabilities............................................................ 9,933 6,360 10,312
Partners' capital (deficit).................................................. (1,980) (989) (2,081)
Partners' capital (deficit) per unit(c)...................................... (.10) (.05) (.11)
</TABLE>
(See notes on following page)
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<PAGE> 105
- ---------------
(a) La/Cal was organized on July 15, 1993. Statement of operations data and
other operating data, other than revenues from oil and gas sales and lease
operating expenses and production taxes for the years ended December 31,
1992, 1991 and 1990 and for the period from January 1, 1993 through July 14,
1993, is not presented as the properties for which such revenues and
expenses related were not maintained as a separate business unit and assets,
liabilities or indirect operating costs applicable to the properties were
not segregated by the owners prior to the formation of La/Cal.
(b) La/Cal has operated as a partnership since formation and accordingly has not
directly paid income taxes. Such taxes were the responsibility of the
individual Partners. Pro forma income tax expense and net income as adjusted
for income taxes is shown above in order to reflect the impact of income
taxes as if La/Cal had been organized as a corporation.
(c) Per unit information presented for La/Cal is calculated using an assumed
19,765,226 units outstanding for the periods presented which is equal to the
number of shares of Common Stock the Partners of La/Cal will receive as a
result of the Asset Transfer.
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<PAGE> 106
LA/CAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion is intended to assist in an understanding of
La/Cal's historical financial position and results of operations. La/Cal is an
independent oil and gas partnership engaged in the development, production and
acquisition of, and the exploration for, natural gas and oil. La/Cal owns
working and overriding royalty interests in 24 wells in eight fields in South
Louisiana and Texas. La/Cal was formed in July 1993 when certain participants in
drilling programs operated by Goodrich Oil Company contributed their interests
to form La/Cal. Prior to the formation of La/Cal, the properties contributed to
La/Cal were owned individually by the Partners. La/Cal has no employees and its
interests are overseen and managed by Goodrich Oil Company. La/Cal's business
strategy has been to achieve reserve growth and profitable returns on its oil
and gas investments by acquiring and developing oil and gas properties in a cost
effective manner. Cash generated from La/Cal's operations has been distributed
to the Partners from time to time, rather then being reinvested in additional
drilling opportunities. See "Business and Properties of La/Cal."
The Selected Historical Financial Data for the periods presented represent
the revenues and direct operating expenses of the properties contributed to
La/Cal prior to its formation and the results of operations of La/Cal subsequent
to its formation. For purposes of this discussion references to La/Cal's
operations also include the operations of the properties contributed prior to
La/Cal's formation.
La/Cal has experienced rapid growth during the three year period ending
December 31, 1994. The majority of this growth has been accomplished through
participation in acquisitions and farm-ins in two fields, Pecan Lake and Lake
Charles, and the further development of these two fields. Because of the
significant growth of La/Cal, La/Cal's historical results of operations and
period-to-period comparisons of such results and certain financial data may not
be meaningful or indicative of future results. The future results of La/Cal will
depend on its ability to locate and develop additional natural gas and oil
properties. Due to the nature of La/Cal's business activities and the general
risks relating to exploration for and production of natural gas and oil,
including the volatility of prices for natural gas and oil products, there can
be no assurance that these efforts will be successful.
Historically, the markets for natural gas and oil have been volatile and
are likely to continue to be volatile in the future. Although the price of
natural gas has recently declined, such decline has not had a material adverse
effect on La/Cal's liquidity. However, lower oil and natural gas prices in the
future may reduce the amount of La/Cal's natural gas and oil reserves that are
economical to produce and accordingly negatively impact La/Cal's cash flow.
On March 10, 1995, La/Cal entered into the Agreement with Patrick. Under
the terms of the Agreement La/Cal would contribute its assets and liabilities
(excluding cash and accounts receivable accrued prior to March 1, 1995, and
interest thereon) to the Company for 19,765,226 shares of Common Stock.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1995
AND 1994
Revenues -- During the three months ended March 31, 1995, La/Cal's oil and
gas sales increased to $1,127,089 compared to $878,457 during the same period of
1994. The following comparison of volumes and
95
<PAGE> 107
prices shows that this increase is due to increased production levels which was
partially offset by a decrease in the price received for gas production.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Production Volumes
Crude Oil and Condensate (Bbls)................................ 9,830 4,914
Natural Gas (Mcf).............................................. 611,387 382,764
Average Sales Price
Crude Oil and Condensate (per Bbl)............................. $15.85 $12.85
Natural Gas.................................................... 1.59 2.13
</TABLE>
The increase in production is primarily due to production from the Mobil
acquisition which occurred in the first quarter of 1994 and from additional
development drilling during 1994 at Pecan Lake and Lake Charles fields located
in South Louisiana.
Lease operating expenses and production taxes -- Lease operating expenses
and production taxes increased to $149,949 during the three months ended March
31, 1995, compared to $93,238 during the same period in 1994. This increase is
largely the result of increased production.
Depreciation, depletion, and amortization -- Depreciation, depletion, and
amortization increased only slightly during the three months ended March 31,
1995, compared to the same period in 1994. Although significantly higher volumes
were produced, reserve levels also increased which reduced depreciation,
depletion, and amortization rates particularly at Pecan Lake.
General and administrative -- La/Cal's general and administrative services
are provided by Goodrich Oil Company at no cost, accordingly La/Cal's historical
general and administrative expenses are not significant.
Interest -- Increase in interest expense is due to increased average debt
outstanding used to finance development drilling and to fund certain
distributions to Partners during 1994.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND
DECEMBER 31, 1993
Revenues. La/Cal's oil and gas sales increased to $4,995,000 in 1994
compared to $2,007,000 in 1993 and $896,000 in 1992. Production levels for 1994
increased to 2,605,000 Mcfe from 977,000 Mcfe in 1993 and 444,000 in 1992.
La/Cal's average sales prices for oil and gas in 1994 were $15.99 per Bbl and
$1.85 per Mcf for 1994, $16.65 per Bbl and $2.02 per Mcf for 1993 and $19.80 per
Bbl and $1.94 per Mcf in 1992, respectively.
The increase in La/Cal's oil and gas sales was impacted by the acquisition
of producing properties in the Pecan Lake and Lake Charles fields in South
Louisiana in December 1993 and February 1994, respectively, and development
activity in the Pecan Lake field throughout 1994. Oil and gas sales increased
$970,000 and production levels increased 498,000 Mcf in 1994 versus 1993 as a
result of the property acquisitions. Oil and gas sales increased $2,185,000 as a
result of drilling and completion of four developmental wells in the Pecan Lake
and Lake Charles fields.
Lease operating expenses and production taxes. Lease operating expenses and
production taxes increased to $684,000 in 1994 compared to $331,000 in 1993 and
$173,000 in 1992. This increase is largely the result of increased production
and the acquisition of producing properties and development activity in the
Pecan Lake and Lake Charles fields.
The effective severance tax rate was 6.1% and 5.3% during 1994 and 1993,
respectively. The increased effective rate is primarily attributable to an
increase in the tax rate collected on gas produced in Louisiana.
Depreciation, depletion, and amortization. Depreciation, depletion and
amortization expense was substantially higher for the year 1994 compared to the
period from July 15, 1993 through December 31, 1993 due
96
<PAGE> 108
to the significant increase in capitalized costs and production volumes. The
depreciation, depletion and amortization rate increased to $.40 per Mcfe in 1994
from $.33 per Mcfe in 1993.
Interest expense. Interest expense of $1,072,000 in 1994 was significantly
higher than the $199,000 incurred for the period from July 15, 1993 through
December 31, 1993 due to the financing of substantially all property
acquisitions and development activity with advances under La/Cal's loan
agreement with an institutional lender. Such acquisitions and development
activity took place in late 1993 and throughout 1994.
Pro forma income tax expense. La/Cal has operated as a partnership since
formation and accordingly has not directly paid income taxes. The pro forma
income tax expense is shown in order to reflect the impact of income taxes as if
La/Cal had been organized as a corporation. The amount shown represents an
estimated combined federal and state tax rate of 39% on income before income
taxes.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $1,011,582 in the last three
months of 1995, $2,823,000 in 1994 and $479,000 for the period from July 15,
1993 through December 31, 1993. The increase is due to the significant increase
in oil and gas revenues net of operating expenses brought about by the Pecan
Lake and Lake Charles fields acquisitions and subsequent development activity.
During 1994 and the period from July 15, 1993 through December 31, 1993
La/Cal incurred capital expenditures of $3,720,000 and $1,968,000 respectively.
Of these amounts $1,250,000 and $2,112,000 related to the acquisition of proved
oil and gas properties from Foster-Brown Company (Lake Charles field) and Mobil
Corporation (Pecan Lake field) in late 1993 and early 1994 respectively. The
remainder represents development activity primarily in the Pecan Lake and Lake
Charles fields. La/Cal did not incur any capital expenditures during the three
months ended March 31, 1995. Financing activities for the three months ended
March 31, 1995 consisted of normal debt payments and capital distributions. In
addition, costs were incurred in connection with La/Cal's proposed merger with
Patrick.
Shortly after inception La/Cal entered into a Note Purchase Agreement with
an institutional lender. Proceeds from the borrowings were used to fund capital
distributions to the Partners and for working capital. Subsequent advances under
the agreement have been used for property acquisitions, development drilling and
capital distributions. All advances under the agreement bear interest at 10%. As
security for the payment of the notes, La/Cal has pledged as collateral
substantially all oil, gas or mineral leases; present and future buildings,
improvements and tangible property situated upon the mortgaged property; all
oil, gas and other minerals produced from the mortgaged property and two demand
deposit and checking accounts maintained by La/Cal at a bank. Principal and
interest is payable in monthly installments dependent upon the principal balance
outstanding. In addition, the lender receives a 4% overriding royalty interest
in each of the mortgaged oil and gas properties. Based upon La/Cal's proved
producing reserves as of January 1, 1995, La/Cal estimates that the maximum
amount available under the Note Purchase Agreement is approximately $15.8
million. On December 31, 1994, $10.1 million was outstanding under the loan
agreement. Before additional advances can be funded, the lender must agree with
La/Cal reserve estimates. La/Cal has limited capital expenditure requirements
for 1995 and beyond and expects to fund such expenditures out of cash generated
from operations or borrowings under its loan agreement. See Note 3 to the Notes
to Financial Statements of La/Cal.
In anticipation of the Transactions, the Company has obtained a commitment
from Compass Bank of Houston, Texas to provide a credit facility with an initial
borrowing base of $22,000,000 unless the call for the Penske investment occurs,
which is expected, in which case the initial borrowing base will be $15,000,000.
If the Penske call does not occur, the $22,000,000 borrowing base is reduced by
$275,000 per month.
The Company's proposed credit facility is expected to have a floating
interest rate with interest payable at least quarterly depending on the interest
rate option selected by the Company. The Company may choose from the following
interest rate options: (i) the bank's index rate, or (ii) LIBOR plus 2%,
available for periods of one through six months.
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<PAGE> 109
The bank will review the value of Goodrich's oil and gas reserves
semi-annually for purposes of determining the borrowing base. No principal
reductions or payments will be required between borrowing base redeterminations
if the initial borrowing base is $15,000,000. The credit facility will mature on
June 1, 1997.
The credit facility contains restrictive covenants which require among
other things the Company to maintain a tangible net worth of not less than
$15,000,000, plus 50% of positive net income and 100% of additional equity
capital raised after December 31, 1994 and, effective March 31, 1996, quarterly
cash flow to debt service ratio of not less than 1.25x. The proposed credit
facility will allow dividends to be paid by the Company provided no event of
default exists or would exist as the result of such payments.
The Company intends to continue drilling activities on properties
previously held by Patrick, specifically its properties in the Sean Andrew Field
in Dawson County, Texas. The Company anticipates costs related to these
activities of approximately $614,000 during 1995. The Company also intends to
further develop the oil and gas properties previously held by La/Cal with
anticipated costs estimated to be $930,000 during 1995. Additionally, the
Company expects to actively seek and develop exploratory drilling prospects and
has budgeted exploration expenses of $1,800,000 for the twelve month period
after the Effective Time. While the Company intends to pursue acquisitions of
producing properties, no properties have yet been identified.
The Management Committee believes that significant costs savings will be
obtained for the Company (compared with Patrick and La/Cal on a stand alone
basis) by reductions in Patrick general and administrative expenses that will
occur after the Effective Time. The Company plans to employ 13 persons, which is
less than previously employed by Patrick. Additionally, the amount of
compensation received by the executive officers of the Company and pursuant to
the Goodrich Consulting Agreement will be significantly less than those received
by Patrick management. Finally, the Company will close the Jackson, Michigan and
Midland, Texas Patrick offices, while establishing a Shreveport office.
The Company's annual dividend obligation for the Preferred Stock will be
$940,000 based on the currently outstanding number of shares of Patrick
Preferred Stock.
OTHER MATTERS
La/Cal has certain obligations based on federal, state and local laws
relating to the protection of the environment. Costs of compliance through 1994
have not been material and currently La/Cal does not anticipate that such costs
will become material in the near term.
Inflation has not had a significant effect on La/Cal's financial condition
or earnings since inception.
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The standard
established guidance for recognizing and measuring impairment losses and
requires that the carrying value of an impaired asset be reduced to fair value.
La/Cal has not fully determined the impact that adoption of the standard will
have on its financial statements although management of La/Cal feels that any
such impact would not be material to its financial condition or results of
operations. The standard must be adopted no later than 1996 for La/Cal.
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<PAGE> 110
MARKET PRICE OF PATRICK CAPITAL STOCK
Patrick Common Stock is traded on the NYSE under the symbol "PPC." The
Patrick Preferred Stock is traded Nasdaq Small-Cap Market under the symbol
"PPCB." After the Effective Time, the Common Stock will be traded on the NYSE
under the symbol "GDP," and the Preferred Stock will be traded on the Nasdaq
Small-Cap Market under the symbol "GDPA."
The following table sets forth, for the periods indicated, the range of
high and low sales prices of the Patrick Common Stock, as reported on the NYSE
Composite Tape:
<TABLE>
<CAPTION>
PATRICK COMMON
STOCK
-------------------
HIGH LOW
----- -----
<S> <C> <C>
1993:
First Quarter................................................... $3.38 $1.75
Second Quarter.................................................. 3.00 2.00
Third Quarter................................................... 3.00 1.88
Fourth Quarter.................................................. 3.25 2.00
1994:
First Quarter................................................... $2.88 $1.88
Second Quarter.................................................. 2.25 1.75
Third Quarter................................................... 2.00 1.38
Fourth Quarter.................................................. 1.75 .75
1995:
First Quarter................................................... $1.38 $ .69
Second Quarter (through May 24)................................. 1.13 .69
</TABLE>
On March 9, 1995, the last trading date prior to the public announcement by
Patrick of the signing of the Agreement, the last reported sale price of the
Patrick Common Stock as reported on the NYSE Composite Tape was $.875 per share.
On May 24, 1995, the last reported sale price of the Patrick Common Stock as
reported on the NYSE Composite Tape was $.8125 per share.
On March 24, 1995, there were approximately 4,000 holders of record of
Patrick Common Stock.
Patrick did not declare or pay any cash dividends on the Patrick Common
Stock during the periods indicated. Payment of cash dividends by Patrick on the
Patrick Common Stock is currently restricted by the terms of a bank credit
facility. See "Patrick Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
The prices at which the Patrick Common Stock has traded in the past are not
necessarily indicative of the prices at which the Common Stock will trade after
the Effective Time.
99
<PAGE> 111
BUSINESS AND PROPERTIES OF PATRICK
Patrick is an independent oil and gas company engaged in the acquisition of
producing properties and the exploration, development and production of oil and
gas in the continental United States. In addition to its oil and gas activities,
Patrick has an equity interest in Penske Corporation ("Penske"), a privately
held diversified transportation services company and Marcum Natural Gas
Services, Inc. ("MNG") a publicly held diversified provider of products and
services to the natural gas industry. The principal executive offices of Patrick
Petroleum Company and its wholly-owned subsidiaries are in leased office space
located at 301 West Michigan Avenue, Jackson, Michigan 49201. Additionally,
Patrick leases office space for its division offices located in Midland and
Houston, Texas. At March 27, 1995, Patrick had 15 employees.
Patrick Petroleum Corporation of Michigan ("PPCM"), the principal operating
subsidiary of Patrick, was formed in 1963 by Mr. U. E. Patrick. Patrick operated
as a private independent oil and gas exploration enterprise, merging twice
(became a public company in 1970 and was reorganized in 1979) with various other
business entities and certain of its Patrick public partnerships.
Patrick's oil and gas operations were primarily financed by the sale of
public partnership programs between 1968 and 1981, when Patrick initiated a
major joint venture program with an industry partner which was terminated on
June 30, 1984. During 1984, Patrick sold substantially all of its oil and gas
related assets to Ladd Petroleum Corporation and sold substantially all of its
interests in its public limited partnerships to May Energy Partners Ltd. and
Ladd Petroleum Corporation. In addition, Patrick sold its coal subsidiary and no
longer conducts coal related activities. Since these sales, Patrick's stated
objective has been to remain in the oil and gas business by acquiring producing
and nonproducing oil and gas leases and by purchasing companies holding such
leases.
From 1987 through 1993, Patrick's acquisitions of producing properties and
its exploration activities were financed through the issuance of common stock,
convertible subordinated debentures with warrants to purchase shares of its
common stock, through its own operating capital, through bank borrowings, the
sale of $20 million of Senior Notes with warrants and through the sale of the
$11.8 million of Patrick Preferred Stock with warrants to purchase shares of
Patrick Common Stock.
In July 1993 Patrick acquired American National Petroleum Company ("ANPC"),
retaining ANPC as an operating subsidiary of Patrick. ANPC is engaged in (i) the
exploration for and development and production of oil, natural gas and other
hydrocarbons in the United States, concentrating primarily in the onshore Gulf
Coast area of Texas and Louisiana and New Mexico, (ii) the acquisition of oil
and natural gas producing properties and other energy related transactions and
(iii) a partial ownership of an intrastate gas pipeline in Texas.
References to "Patrick" herein include Patrick Petroleum Company and its
subsidiaries unless the context otherwise requires.
As a result of the Unit Sale and the LLOG Exploration Sale, Patrick's
remaining oil and gas assets are primarily located in West Texas and Michigan
with additional properties in certain western states. The sales allowed Patrick
to significantly downsize its Houston division and consolidate certain
administrative functions.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Patrick is principally involved in the business of oil and gas exploration
and production.
Unaffiliated customers which are oil and gas purchasers that represent more
than 10% of oil and gas revenues are presented in the following table:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Nomeco Oil and Gas...................................... 13% 36% 38%
</TABLE>
100
<PAGE> 112
Due to the relative uniformity of price, combined with ease of market
accessibility and deliverability of Patrick's product (crude oil and natural gas
sold at the wellhead), Patrick believes that the loss of any major customer
could be offset by one or more comparable customers without significant impact
to the company.
NATURE AND AREA OF OPERATIONS
Patrick's oil and gas operations are conducted primarily onshore in the
continental United States through its principal wholly-owned subsidiaries, PPCM
and ANPC. Patrick does not own any drilling or completion rigs, and all drilling
and completion activities are performed through independent contractors. Patrick
acts through its subsidiaries as operator of certain properties but also allows
qualified industry partners to act as operators in order to minimize additional
staffing requirements.
Patrick operates by acquiring oil and gas producing and non-producing
leases, and by participating in certain exploration and development drilling
activities generated through its internal activities or by industry partners.
If the Transactions are not completed, Patrick intends to continue to
concentrate its exploration efforts on lower risk prospects, the majority of
which are based upon three-dimensional seismic technology and to a limited
extent on prospects which develop and/or extend productive areas. Patrick is
continually evaluating its exploration and development drilling plans and
budgets. Each new prospect is evaluated in relation to current and projected
prices, drilling economics and existing markets. Patrick applies rigorous
economic criteria to both its own prospects and those offered by other
companies.
Hazards such as unusual formations, pressures, or other unforeseen
conditions are sometimes encountered in drilling wells, posing risks which could
result in substantial losses or liability to third parties. Patrick may also be
subject to liability for pollution or other damages arising from drilling
operations. In the event of a serious accident such as a well blowout, oil
spill, fire or explosion, the operator may be required to cease operations until
the resulting damage has been repaired. The entire assets of Patrick could be
subject to the satisfaction of any claims arising from such operations. Patrick
carries well control insurance, comprehensive general liability insurance,
comprehensive pollution insurance and other insurance which it believes prudent
and adequate. However, Patrick may elect not to insure against hazards because
of the high cost of premiums or other reasons, and may not be able to obtain
insurance against certain risks of loss. Uninsured liabilities could result in
the loss of Patrick assets.
See "Business and Properties of the Company" for a description of the
expected activities of the Company after the Effective Time.
EXPLORATION ACTIVITIES
Patrick is presently concentrating its selective exploration activities
primarily in the Permian Basin of West Texas and Michigan. Patrick believes that
these areas offer the potential for substantial contributions to Patrick's
reserves and cash flow in 1995 and beyond.
Michigan Activities. Patrick has continued efforts to initiate drilling of
a north offset well (Boundary Prospect) to the Marathon #1-32 Huff well which is
producing from the Prairie du Chien sandstone. Because of the current low gas
price and high cost of drilling this deep test, Patrick has elected to seek an
industry partner to join in the drilling of the well on a promoted basis. To
date, Patrick has been unable to secure a partner. Patrick has numerous other
prospects and a substantial data base within the Prairie du Chien deep gas play.
However, due to the significant cost of drilling Prairie du Chien wells, and the
volatile gas pricing climate, no further immediate exploration work is planned
until promoted partners can be secured.
West Texas Activities. Patrick's primary exploration focus continues to be
toward the development of economic drilling targets using 3-D seismic
technology. Recent industry advances in high-resolution 3-D seismic technology
have facilitated an improvement in the success rate for exploration of smaller
but prolific reefs. This has been accomplished by 3-D imaging the optimum
drilling locations on these prospects, therefore minimizing edge and marginal
well completions and improving the overall recoveries per well. Patrick has
participated in over 375 square miles of 3-D seismic acquisition in West Texas
to date, and is currently drilling
101
<PAGE> 113
Pennsylvanian ("Penn") Reef and Fusselman prospects generated by this
technology. Patrick owns two Geoquest work stations, which are being utilized to
interpret and map its 3-D data.
During 1994 and early 1995, Patrick drilled twelve Penn Reef and Fusselman
wells, six of which were cased for completion. A significant discovery was made
in Patrick's West Lamesa project (Sean Andrew Field) with the drilling of the
Patrick Petroleum Chevron 123 #1 well. The well encountered a 370 foot
Pennsylvanian reef section and was completed in October, 1994. Patrick holds
approximately a 37.5% working interest in the discovery well and the offset
locations.
As of May 26, 1995 three offsets to the discovery well in the Sean Andrew
Field have been drilled and completed, a fourth is currently completing and a
fifth is currently drilling. Additional offsets are also anticipated. Patrick is
also currently drilling two wildcat wells on 3-D prospects located within its
West Lamesa project.
The three completed wells in the Sean Andrews Field have established these
production rates as represented in the following tabulation:
<TABLE>
<CAPTION>
FLOWING
OIL GAS WATER PRESSURE
(BOPD) (MCFD) (BWPD) (PSIG) CHOKE
------ ------ ------ -------- -----
<S> <C> <C> <C> <C> <C>
Chevron 123 #1................................. 350 145 0 215 21/64
Chevron 122 #1................................. 125 50 20 100 20/64
Chevron 123A #1(1)............................. 190 80 40 15 32/64
</TABLE>
- ---------------
(1) Potential test on April 27, 1995
RESERVE ACQUISITION MATTERS
Regardless of whether the Transactions are completed, it is anticipated
that Patrick or its successor will continue to seek and evaluate opportunities
to acquire producing and non-producing leases, or companies that hold such
interests.
In determining the appropriate price to be paid for such acquisitions,
Patrick applies certain criteria, including oil and gas prices per equivalent
barrel or Mcf, average rate of return and the overall return on investment. All
criteria are subject to review as industry changes dictate, and any particular
acquisition may not necessarily meet all of the criteria.
In evaluating potential acquisitions, Patrick uses its staff and, when
appropriate, engage independent oil and gas consultants to assist them in the
valuation of proposed purchases.
INVESTMENT IN PENSKE CORPORATION
During 1987 and 1988, Patrick acquired approximately 7% of the common stock
of Penske. The purchase price of $6,620,000 approximated the net book value of
the shares. Additionally, Patrick purchased an interest in Penske
Transportation, Inc., one of Penske's major units for $2,807,700 resulting in a
total investment in Penske and Penske Transportation, Inc. of $9,427,700 at
December 31, 1993. This investment is carried at cost.
Penske is a privately held diversified transportation services company that
is involved in, among other things, truck leasing and rental, heavy duty diesel
engine manufacturing and automotive retailing.
On March 30, 1994, Patrick entered into an agreement with Penske to sell
37% of its interest in Penske and all of its interest in Penske Transportation,
Inc. for $12 million with the right to sell (put) the remaining interest to
Penske equally over the next five years. Terms call for Penske to pay Patrick,
upon presentation of each put, an annual amount equal to the greater of $2.4
million or 1.5 times book value of the shares presented. The minimum value if
all puts are presented will be an additional $12 million. Penske has the right
to call and accelerate the options in the event there is a change in control of
Patrick during the term of the agreement.
102
<PAGE> 114
On April 12, 1994 Patrick utilized the proceeds from such sale to prepay
$10 million of the Senior Notes secured by the Penske stock. As a result of such
transaction, Patrick recognized a gain of $6,754,000 on the sale of the stock
and incurred penalties of $1,040,000 associated with the prepayment.
If the Transactions are consummated, a change of control as defined in the
sale agreement with Penske Corporation will transpire. Penske has indicated that
it intends to exercise a call on the remaining shares held by Patrick and
pledged to secure the Senior Notes. Patrick intends to exercise its initial put
of 37,896 shares on or about April 15, 1995, and use the proceeds to pay a
portion of the $5 million Senior Note payment due May 10, 1995. The remaining
151,584 shares will be subject to the call. If the Merger occurs, and Penske
exercises its call, Patrick anticipates receiving approximately $9.6 million and
will pay off the remaining note balance of $5 million.
INVESTMENT IN MARCUM NATURAL GAS SERVICES, INC.
In June and October 1991, Patrick, made investments in then privately-held
MNG of Denver, Colorado. MNG is a natural gas services company which is
involved, among other things, in providing natural gas measurements services;
developing, manufacturing, marketing and selling compressed natural gas
refueling stations and related products; developing, manufacturing and
distributing electronic data systems that provide remote measurement, monitoring
and control functions; and acquiring natural gas transportation and gathering
facilities.
MNG commenced its initial public offering in February 1992. MNG's common
stock is currently listed and trades on the Nasdaq National Market. The closing
sales price of the MNG common stock on May 24, 1995 was $1 1/2.
Through a series of equity investments commencing in June 1991 and totaling
approximately $1.9 million, and subsequent to PPCM's sale of MNG common stock
described below, PPCM presently owns 675,200 shares of MNG common stock, or 5.8%
of the MNG common stock outstanding as of March 27, 1995. PPCM also owns
1,260,000 MNG common stock purchase warrants exercisable until February 13, 1996
at a price of $4.00 per share. In addition, Patrick has certain rights of first
refusal and purchase option rights with respect to approximately 89,200 shares
of outstanding MNG common stock. As determined in accordance with the rules of
the Commission, PPCM is deemed to beneficially own 15% of MNG's common stock.
On July 9, 1993, PPCM acquired 50,000 shares of MNG stock from Engineering
Measurements Company ("EMCO"), valued at $9 share (the fair market value on such
date), in consideration of PPCM's waiver of its right of first refusal on the
remaining MNG common stock owned by EMCO (250,000 shares). These shares, along
with 700,000 shares of MNG common stock already owned by PPCM, were sold on
September 30, 1993. PPCM received $6 million (750,000 shares at $8.00 per share)
which resulted in a net gain on sale of $4,887,000.
Patrick, was a party to a joint venture with a wholly-owned subsidiary of
MNG until December 31, 1994, when the joint venture was terminated. In October,
1992, in connection with this joint venture, PPCM acquired for approximately $2
million a 20% membership interest in Bayou South Gas Gathering Company, L.C., a
Louisiana limited liability company ("LLC"), which contemporaneously acquired
certain natural gas gathering systems and related assets in North Louisiana and
East Texas. In July, 1993, the LLC sold a portion of the gathering system which
resulted in a distribution to PPCM of approximately $588,000. The proceeds were
applied to the value of PPCM's investment in the LLC and no gain or loss was
recognized. Contemporaneously with PPCM acquisition, MNG also purchased a
13.333% membership interest in the LLC. Both PPCM and MNG sold their membership
interests in the LLC on March 2, 1994 to a limited partnership formed by them
for $1,427,987, net of its 6% limited partnership interest of $160,463. The
proceeds were applied to the value of the assets sold and no gain or loss was
recognized. Both Patrick and MNG, through their respective subsidiaries, remain
the co-managing general partners, and also limited partners, of the limited
partnership.
103
<PAGE> 115
UNDEVELOPED OIL AND GAS ACREAGE
Terms of oil and gas leases differ from area to area and typically vary in
length from one to ten years. The cost of acreage is dependent upon its location
and other factors. Patrick presently owns a working interest in 107,197 gross
undeveloped acres (49,958 net acres) in the United States.
Additionally, Patrick's acreage position in the West Texas Pennsylvanian
Reef play includes numerous seismic lease options. A seismic lease option is a
contract that allows Patrick to option acreage for a minimal cost per acre
($10-$15/acre) for a specific period of time (6-9 months) to conduct Patrick's
seismic analysis during the option period with the right to lease any portion of
the optioned acreage at a predetermined price ($75-$100/acre), lease term (3
years) and royalty ( 3/16ths royalty). Currently, Patrick controls, by seismic
lease options or to a minor degree, farm-ins, various interests under 155
Sections of land within 12 projects located in Scurry, Howard, Borden, Dawson,
Gaines, Terry and Lynn Counties, Texas. The acreage controlled by seismic lease
options is not included in the table shown below.
Sales of undeveloped acreage interests helps Patrick participate in, test
and develop its inventory acreage. Such sales also reduce Patrick's risk while
increasing its exposure by allowing it to participate in a greater number of
wells than it could using its own cash flow or other means of financing. Patrick
intends to continue to selectively build its inventory of undeveloped acreage in
its primary areas of interest.
Based on Patrick's exploration evaluation process and the lease terms
associated with its inventory of undeveloped acreage, it is anticipated that the
capitalized costs currently being excluded from the calculation of depletion
will be included in such calculation at the rate of approximately 33% over each
of the next three years. If these costs are not offset by increases in the value
or quantity of Patrick's oil and gas reserves in these years, a writedown of the
aggregate value of Patrick's oil and gas properties may be required.
The gross and net undeveloped acreage of Patrick as of December 31, 1994 is
set forth in the following table.
Undeveloped Acreage:
<TABLE>
<CAPTION>
GROSS NET
STATE ACRES(1) ACRES(2)
--------------------------------------------------- ---------- ---------
<S> <C> <C>
Colorado........................................... 20,341.41 13,275.90
Louisiana.......................................... 760.21 324.99
Michigan........................................... 16,042.01 8,543.95
Montana............................................ 11,413.78 3,429.93
North Dakota....................................... 12,746.80 3,397.28
Texas(3)........................................... 45,277.62 20,632.50
Wyoming............................................ 614.67 353.82
---------- ---------
Total Undeveloped Acreage........................ 107,196.50 49,958.37
========== =========
</TABLE>
- ---------------
(1) A "gross acre" is an acre in which a working interest is owned.
(2) A "net acre" is deemed to exist when the sum of fractional ownership working
interests in gross acres equals one. The number of net acres is the sum of
the fractional ownership working interests owned in gross acres, expressed
in whole numbers and fractions thereof.
(3) Does not include seismic lease options associated with Patrick's activities
in West Texas.
104
<PAGE> 116
DRILLING ACTIVITY
The drilling activity of Patrick is illustrated by the summary presented in
the following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1994(3) 1993 1992
------- ----- -----
<S> <C> <C> <C>
Gross wells drilled:(1)
Exploratory:
Oil.................................................... 6 3 4
Gas.................................................... 0 3 1
Dry.................................................... 9 11 5
------ ----- -----
Total............................................. 15 17 10
------ ----- -----
Development:
Oil.................................................... 3 11 11
Gas.................................................... 3 3 2
Dry.................................................... 0 1 2
------ ----- -----
Total............................................. 6 15 15
------ ----- -----
Total Gross Wells Drilled......................... 21 32 25
====== ===== =====
Net wells drilled:(2)
Exploratory:
Oil.................................................... .98 .84 1.47
Gas.................................................... .00 .51 .01
Dry.................................................... 2.32 3.27 2.03
------ ----- -----
Total............................................. 3.30 4.62 3.51
------ ----- -----
Development:
Oil.................................................... .49 1.42 .43
Gas.................................................... .30 .44 .52
Dry.................................................... .00 .02 1.35
------ ----- -----
Total............................................. .79 1.88 2.30
------ ----- -----
Total Net Wells Drilled........................... 4.09 6.50 5.81
====== ===== =====
Average Depth in feet of Wells Drilled...................... 8,365 9,280 8,146
====== ===== =====
</TABLE>
- ---------------
(1) A "gross well" is a well in which a working interest is held. The number of
gross wells is the total number of wells in which a working interest is
owned.
(2) A "net well" is deemed to exist when the sum of fractional ownership working
interests in gross wells equals one. The number of net wells is the sum of
the fractional working owned in gross wells expressed as whole numbers and
fractions thereof.
(3) At December 31, 1994, Patrick was participating in the completion of two
gross development wells which are represented in this table.
105
<PAGE> 117
PRODUCTIVE ACREAGE AND PRODUCING WELLS
The following table sets forth the location and amount of Patrick's gross
and net productive acreage and the number of gross and net producing oil and gas
wells as of December 31, 1994.
<TABLE>
<CAPTION>
GROSS
WELLS NET WELLS
GROSS NET ---------- ------------
STATE ACRES ACRES OIL GAS OIL GAS
------------ ---------- --------- --- --- ---- ----
<S> <C> <C> <C> <C> <C> <C>
California............................... 781.98 343.00 0 5 .00 2.30
Colorado................................. 1,560.00 493.18 2 6 .81 2.12
Louisiana................................ 466.67 186.67 0 2 .00 .80
Michigan................................. 3,670.00 824.44 5 24 1.03 1.47
Montana.................................. 3,435.66 494.45 13 1 1.92 .01
New Mexico............................... 560.00 13.84 0 2 .00 .05
North Dakota............................. 2,578.88 479.62 5 4 2.04 .22
Texas.................................... 2,764.67 625.05 12 0 3.13 .00
Wyoming.................................. 1,869.11 404.98 4 0 .39 .00
---------- --------- --- --- ---- ----
TOTAL.......................... 17,686.97 3,865.43 41 44 9.32 6.97
========= ======== == === ==== ====
</TABLE>
In addition to the interests set forth above, Patrick has royalty and
overriding royalty interests in 17 gross oil wells (.19 net oil wells) and 17
gross gas wells (.27 net gas wells), resulting in combined interest of 58 gross
oil wells (9.51 net oil wells) and 61 gross gas wells (7.24 net gas wells).
The gross well count includes wells which are in the South Stoney Point
Unit. The table does not include 9 gross wells used as service or disposal
wells.
As of December 31, 1994, Patrick owned an interest in one natural gas
processing plant.
TITLE TO DEVELOPED AND UNDEVELOPED ACREAGE
At the time of acquisition of undeveloped acreage a cursory title
investigation is conducted. A title opinion from a qualified law firm is
obtained prior to drilling any given prospect. In some cases drilling may be
delayed or cancelled until such time as title problems are resolved. Prior to
the purchase of producing properties, title to such properties is thoroughly
investigated in accordance with standard legal and industry practices. Certain
of Patrick's producing properties may also be subject to liens, minor
encumbrances, easements and other restrictions. Patrick does not believe title
issues present any material risk to its operations.
PRODUCTION SUMMARY
The annual net production of Patrick's working and overriding royalty
interests in oil and gas wells for the past three years is illustrated by the
following summary:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Crude Oil, Condensate and Gas Liquids (Bbls)(1)
Total Production................................ 282,974 237,637 230,700
Average Daily Production........................ 775 651 632
Natural Gas (Mcf)(2)
Total Production................................ 2,631,707 2,524,528 2,759,100
Average Daily Production........................ 7,210 6,917 7,559
</TABLE>
- ---------------
(1) Expressed in stock tank barrels, each equivalent to 42 U.S. gallons.
(2) Mcf represents 1,000 cubic feet. Expressed, where gas sales contracts are in
effect, in terms of contractual temperature and pressure bases and, where
contracts are nonexistent, at 60 degrees and 14.65 psia. Includes only
natural gas produced and sold. Additional natural gas was produced and
reinjected into various fields to increase total ultimate recovery.
106
<PAGE> 118
The price of oil and gas may vary from region to region. The average
weighted prices and the lifting costs per gross units of revenue for the past
three years are as illustrated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Crude Oil Average Weighted Price per Bbl............. $16.36 $14.64 $19.82
Natural Gas Average Weighted Price per Mcf........... $ 2.05 $ 2.20 $ 1.72
Average Lifting Cost per Gross Units of Revenue...... $ 0.44 $ 0.40 $ 0.31
</TABLE>
Patrick sells its crude oil and natural gas at the wellhead and does not
refine petroleum products. Other than for normal production facilities, Patrick
does not own any bulk storage facilities. As is customary in the industry,
Patrick sells its production in any one area to relatively few purchasers,
including transmission companies that have pipelines near its producing
properties.
Some of Patrick's natural gas properties are subject to purchase contracts,
which are generally on a long-term basis. Due to current supply-demand
conditions, certain contract provisions, such as "market out" or "force majeure"
clauses, have been cited by gas purchasers as justification for reducing the
price paid for gas under existing contracts to market levels. Patrick has
generally accepted short-term releases from the long-term contracts and sells on
the spot market.
PIPELINE SYSTEM
Pecos Pipeline & Producing Company ("Pecos"), a subsidiary of Patrick, has
a 20% interest in a joint venture with Southwestern Gas Gathering, Inc.
("Southwestern"), a subsidiary of Mitchell Energy and Development Company,
relating to an intrastate pipeline and related facilities in Leon and Madison
Counties, Texas. The pipeline and related facilities are referred to as the
"Pecos Pipeline Systems." Southwestern acts as the manager of the joint venture
and the net proceeds are distributed to the venturers on a monthly basis,
subject to the retention of one month of working capital.
In September 1993, the same parties created another joint venture for the
purpose of separating the gas contracts from the physical pipeline. The joint
venture participants are National Marketing Company, a subsidiary of Patrick,
and Mitchell Marketing Company. This joint venture is known as Madison Gas
Marketing Services ("Madison Gas").
The joint ventures were established for the purposes of buying and/or
transporting gas from producers and other pipelines under various contracts at
various receipt points and delivering or reselling the gas to Lone Star Gas
Company ("Lone Star") under the terms and conditions of a premium priced/fixed
volume 20-year contract dated October 1, 1981. On August 31, 1994, effective
November 1, 1994, Madison Gas entered into a settlement agreement for the
remaining term of the contract providing for (i) a total fixed contract quantity
of 23,826,560 Mmbtu, (ii) a monthly average daily contract quantity not to
exceed 18,000 Mmbtu during the months of November through March, (iii) a monthly
average daily contract quantity not to exceed 7,000 Mmbtu during the months of
April through October, (iv) an average annual gross profit margin of $1.74 per
Mmbtu less operating expenses and (v) six additional delivery points. The Lone
Star contract terminates at some time between May and October, 2001 depending
upon the monthly average daily contract quantities taken under the settlement
agreement.
COMPETITION AND MARKETS
The oil and gas business is highly competitive in all of its phases.
Patrick's competitors include the major oil companies, independent oil and gas
concerns and individual producers or operators, as well as major pipelines. Some
of these entities have greater financial and other resources than Patrick.
Patrick is unable to determine precisely its comparative competitive position in
the oil and gas industry. Competition in the acquisition of oil and gas
prospects and properties continues to be intense. Patrick's ability to develop
reserves in the future will depend on the effective use of capital, its ability
to develop current leasehold interests and its ability to select and acquire
suitable exploratory and development prospects.
107
<PAGE> 119
The availability of a ready market for oil and gas discovered and produced
by Patrick depends on numerous factors, including the extent of domestic
production of oil and gas by other producers, the regulations of the U.S.
Department of Energy concerning the production, sale and transportation of oil
and gas, as well as other governmental mandates, crude oil imports, actions by
the Organization of Petroleum Exporting Countries, the marketing of competitive
fuels, and the proximity, availability and capacity of oil and gas pipelines or
other transportation facilities. Over the past several years, the fluctuation of
oil and gas prices and oil and gas surpluses have resulted in reduced drilling
activity in the United States. This creates an industry environment with reduced
costs of drilling and a greater availability of drilling rigs. Patrick cannot
predict how long this situation will continue, but it is anticipated that as the
economics of oil and gas production improve, the price of oil field goods and
services will continue to escalate.
REGULATORY AND ENVIRONMENTAL MATTERS
Patrick's business and properties are subject to substantial governmental
regulation, including regulations affecting production, transportation and
environmental matters. For a further description of the regulatory and
environmental matters affecting the oil and gas industry and the Company, see
"Business and Properties of the Company -- Regulation" and "-- Environmental
Matters."
LEGAL PROCEEDINGS
The U.S. Environmental Protection Agency ("EPA") has identified Patrick as
a potentially responsible party ("PRP") for the cost of clean-up of "hazardous
substances" at an oil field waste disposal site in Vermillion Parish, Louisiana.
The EPA has estimated that the total cost of long-term cleanup of the site will
be approximately $13.5 million, with Patrick's percentage of responsibility to
be approximately 3.09%. As of December 31, 1994, Patrick has accrued
approximately $500,000 for this liability. The EPA and the PRPs will continue to
evaluate the site and revise estimates for the long-term cleanup of the site.
There can be no assurance that the cost of cleanup and Patrick's percentage
responsibility will not be higher than currently estimated by the EPA. In
addition, under the federal environmental laws, the liability costs for the
cleanup of the site is joint and several among all PRPs. Therefore, the ultimate
cost of the cleanup to Patrick could be significantly higher than the amount
presently accrued for this liability.
Patrick is party to additional lawsuits arising out of the normal course of
business. However, Patrick has defended and intends to continue to defend these
actions vigorously and believes, based on currently available information, that
adverse settlements, if any, in excess of insurance coverage or amounts already
provided, will not be material to the financial position or results of
operations of Patrick and its consolidated subsidiaries.
For a description of litigation filed by B.A.R.D. Industries against
Patrick and Mr. U.E. Patrick in connection with the proposed Transactions, see
"Description of the Transactions -- Stockholder Litigation."
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<PAGE> 120
BUSINESS AND PROPERTIES OF LA/CAL
OVERVIEW
La/Cal is an independent oil and gas partnership engaged in the
development, production and acquisition of, and the exploration for, natural gas
and oil primarily in Southern Louisiana. As of December 31, 1994, La/Cal had
estimated proved reserves of approximately 523.7 Mbbls of oil and condensate and
21.98 Bcf of natural gas, or an aggregate of 25.11 Bcfe with a present value of
future net revenues (10% discount) of $27.52 million, of which approximately
89.2% are classified as proved developed. If the Transactions are completed, at
the Effective Time, La/Cal will contribute all of its oil and gas assets and
liabilities to the Company. As used herein, "La/Cal" refers to the pre-Merger
business activities conducted by La/Cal or its predecessor, while "the Company"
refers to those activities the Company will pursue after the Effective Time.
La/Cal owns working and overriding royalty interests in 24 wells in eight
fields in Southern Louisiana and Texas. La/Cal was formed in July 1993 when
certain participants in drilling programs operated by Goodrich Oil Company, a
privately-held independent oil and gas company, contributed their interests to
form La/Cal. La/Cal has 26 general partners and is managed by a three person
management committee consisting of Messrs. Henry Goodrich, Gil Goodrich and Leo
E. Bromberg. La/Cal does not have any employees, and Goodrich Oil Company
oversees and manages the interests of La/Cal, as it does for other
joint-interest owners. La/Cal's business strategy has been to achieve reserve
growth and profitable returns on its oil and gas investments by acquiring and
developing oil and gas properties in a cost effective manner. Cash generated
from La/Cal's oil and gas operations is distributed to the Partners from time to
time, rather than being reinvested in additional drilling opportunties. See
"La/Cal Management's Discussion and Analysis of Financial Condition and Results
of Operations."
DESCRIPTION OF THE SOUTHERN LOUISIANA PRODUCING REGION
Substantially all of La/Cal's proved reserves are in the Southern Louisiana
producing region. The Southern Louisiana producing region as referred to in this
Joint Proxy Statement/Prospectus refers to the geographic area which covers the
onshore and in-land waters of South Louisiana lying in the southern one-half of
the state of Louisiana.
The South Louisiana producing region is one of the world's most prolific
oil and natural gas producing sedimentary basins. The region generally contains
sedimentary sandstones which are of high qualities of porosity and
permeabilities. There are a myriad of types of reservoir traps found in the
region. These traps are generally formed by faulting, folding and subsurface
salt movement or a combination of one or more of these. Salt movement has
resulted in a large number of shallow piercement salt domes as well as deeper
movements, which have resulted in both large and small anticlinal structures.
The formations found in the South Louisiana producing region range in depth
from 1,000 feet to 20,000 feet below the surface. These formations range from
the Sparta and Frio formations in the Northern part of the region to Miocene and
Pleistocene in the southern part of the region. La/Cal's production comes
predominately from Miocene and Frio age formations.
PROPERTIES
Pecan Lake Field. The Pecan Lake field was discovered in 1944 by the
Superior Oil Company. Geologically, the field is comprised of a relatively low
relief four-way closure and multiple stacked pay sands. The Pecan Lake field
comprises approximately 900 gross leased acres in Cameron Parish, Louisiana,
approximately 42 miles southeast of Lake Charles, Louisiana. The field was
produced from over 15 Miocene sands ranging in depths from 7,500 to 11,800 feet,
which have been predominately gas and gas condensate reservoirs. These sand
reservoirs are characterized by generally widespread development and strong
waterdrive production mechanisms. To date, the field has produced in excess of
340 Bcf of gas and 550,000 barrels of condensate from 14 wells. All the field
production to date has come from reservoirs which are of normal pressure. The
Pecan Lake Field is separated from the South Pecan Lake Field by an East-West
trending down
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<PAGE> 121
to the South fault. The South Pecan Lake Field has produced from formations of
similar depth and age as Pecan Lake and to date has produced over 632 Bcf of gas
and 1,900,000 barrels of condensate.
In May 1992, La/Cal entered the Pecan Lake field under a farmout
arrangement with Mobil, whereby Mobil retains a one-eighth overriding interest
in the prospectively developed wells subject to the farmout. In April 1993,
La/Cal leased an additional 133.24 gross acres in the Pecan Lake field from
Miami Corp. for approximately $62,000. In March 1994, La/Cal acquired (i) all of
Mobil's interest in La/Cal's actual and prospectively drilled wells, (ii) a
43.10% working interest in Mobil's Miami Corp. S13, B15 and B16 wells, and (iii)
the 2.26% overriding royalty interest in Mobil's Cutler #1 well for
approximately $2.11 million. Pecan Lake consists of nine well completions
through six well bores. Currently, La/Cal's working interests in eight of the
well completions in the Pecan Lake field range from approximately 43.11% to
43.63% with La/Cal's working interest increasing in five of the well completions
to approximately 47.38% over the next 6 months. For the quarter ended December
31, 1994, La/Cal's average daily production at Pecan Lake were 41.00 Bbls of oil
and/or condensate and 3.86 Mmcf of natural gas. As of January 1, 1995, La/Cal's
interests in the Pecan Lake field had proved developed producing reserves of
129.885 Mbbls of oil and condensate and 12.49 Bcf of natural gas.
La/Cal also maintains an ownership interest in various oil and gas
equipment in the Pecan Lake field including 12 separators, eight line heaters,
15 meter and meter runs, flowlines and platforms. Based on excess gas pipeline
production capacity, La/Cal is able to accept increased production from internal
and external sources.
Lake Charles Field. The Lake Charles field was discovered by the California
Company (Chevron) in 1959. Geologically, the field consists of an upthrown
structural closure that is bounded to the South by an East-West trending down to
the South fault. The Lake Charles field currently consists of five producing
wells located on approximately 443 gross leased acres in Calcasieu Parish,
Louisiana, and adjacent to the City of Lake Charles, Louisiana. The field has
produced from five different formations which are all Frio age sandstones. These
formations range in depth from 7500 feet to 9100 feet. The field has produced
from reservoirs which have had both waterdrive and pressure depletion
mechanisms. The Lake Charles field has produced, to date, in excess of 14.9 Bcf
of gas and 325,000 barrels of condensate from seven different wells. All of the
production to date has come from normally pressured reservoirs.
La/Cal acquired a working interest in the Glasscock-Chapman #1 well and
leased additional acreage outside the Glasscock-Chapman #1 unit from Chevron and
two smaller working interest owners for $105,483 in February 1992. Since then,
La/Cal has leased an additional 206 gross acres from several smaller landowners
for approximately $155,000. On December 1, 1993, La/Cal acquired a 50% working
interest from Foster-Brown Company in the Nickerson Fee well and an additional
2.73% working interest in the City of Lake Charles #1 well for $1,250,000.
Currently, La/Cal owns working interests that range from 29.24% to 50.00% in the
five producing wells in the Lake Charles field. For the quarter ended December
31, 1994, La/Cal's average total daily production at the Lake Charles field were
83.00 Bbls of oil and condensate and 3.83 Mmcf of natural gas. As of January 1,
1995, La/Cal's interest in the Lake Charles field had proved developed reserves
of 99.86 Mbbls of oil and 4.56 Bcf of natural gas.
La/Cal also maintains an ownership interest in various oil and gas
equipment in the Lake Charles field including four separators, two line heaters,
three meter runs, seven 700 barrel tanks, two dehydrators, and flowlines. Based
on excess gas pipeline capacity, La/Cal is able to accept increased production
from internal and external sources.
Other. In addition to the Pecan Lake and Lake Charles fields, which
comprise approximately 97.6% of La/Cal's existing proved developed reserves and
approximately 99.1% of La/Cal's proved developed producing reserves, La/Cal
maintains ownership interests in acreage and wells in several additional fields,
including the (i) Opelousas field, located in St. Landry Parish, Louisiana, (ii)
ADA field, located in Bienville Parish, Louisiana, (iii) Calhoun field, located
in Ouachita Parish, Louisiana, (iv) North Rich Ranch field, located in Liberty
County, Texas, (v) North Bammel field, located in Harris County, Texas, (vi)
Carthage (Bethany) field, located in Panola County, Texas, and (vii) Oakhurst
field, located in San Jacinto County,
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<PAGE> 122
Texas. La/Cal's working interest in wells and acreage in these fields range from
7.01% to 47.15%. Currently, less than 2.0% of La/Cal's average daily production
is attributable to interests owned in these fields.
OIL AND NATURAL GAS RESERVES
The following table sets forth summary information with respect to La/Cal's
pro forma proved reserves in all fields as of January 1, 1995, as estimated by
La/Cal by compiling the reserve information prepared by (i) H.J. Gruy and
Associates, Inc. relating to the Pecan Lake and Lake Charles fields, (ii)
Coutret & Associates, Inc., independent petroleum engineers and (iii) La/Cal
internally.
<TABLE>
<CAPTION>
PRE-TAX
PRESENT
VALUE
NET RESERVES OF
-------------------------- FUTURE
OIL GAS NET
CATEGORY (MBBLS) (BCF) BCFE(1) REVENUES
- ------------------------------------------------------- ------ ----- ----- -------
<S> <C> <C> <C> <C>
(IN
MILLIONS)
Proved Developed Producing............................. 230.87 17.32 18.70 $ 22.11
Proved Developed Non-Producing......................... 274.04 1.52 3.15 2.43
Proved Undeveloped..................................... 18.81 3.14 3.26 2.98
------ ----- ----- -------
Total Proved......................................... 523.72 21.98 25.11 $ 27.52
====== ===== ===== =======
</TABLE>
- ---------------
(1) Estimated by the Company using a conversion ratio of 1.0 Bbl/6.0 Mcf.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control of La/Cal.
Reserve engineering is a subjective process of estimating underground
accumulations of crude oil, condensate and natural gas that cannot be measured
in an exact manner, and the accuracy of any reserve estimate is a function of
the quality of available data and of engineering and geological interpretation
and judgment. The quantities of oil and natural gas that are ultimately
recovered, production and operating costs, the amount and timing of future
development expenditures and future oil and natural gas sales prices may all
differ from those assumed in these estimates. Therefore, the Present Value of
Future Net Revenues amounts shown above should not be construed as the current
market value of the estimate oil and natural gas reserves attributable to
La/Cal's properties.
In accordance with the Commission's guidelines, the engineers' estimates of
future net revenues from La/Cal's properties and the Present Value of Future Net
Revenues thereof are made using oil and natural gas sales prices in effect as of
the dates of such estimates and are held constant throughout the life of the
properties except where such guidelines permit alternate treatment, including
the use of fixed and determinable contractual price escalations. The average
prices as of December 31, 1994 were $16.81 per Bbl of crude oil/condensate and
$1.78 per Mcf of natural gas, for the combined production of the Pecan Lake and
Lake Charles fields. Prices for natural gas and, to a lesser extent, oil and
condensate are subject to substantial seasonal fluctuations and prices for each
are subject to substantial fluctuations as a result of numerous other factors.
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<PAGE> 123
PRODUCTIVE WELLS
The following table sets forth the number of well bores in which La/Cal
maintains ownership interests as of December 31, 1994:
<TABLE>
<CAPTION>
GROSS(1) NET
----- -----
<S> <C> <C>
Pecan Lake
Gas............................................... 6.00 3.90
Lake Charles
Gas............................................... 5.00 2.00
Other
Gas............................................... 12.00 2.20
----- -----
Total Productive Wells.................... 23.00 8.10
===== =====
</TABLE>
- ---------------
(1) Does not include the 2.26% royalty interest in the Cutler #1 well.
Currently, all of the wells in which La/Cal maintains an ownership interest
produce only natural gas and condensate. Productive wells consist of producing
wells and wells capable of production, including gas wells awaiting pipeline
connections. A gross well is a well in which La/Cal maintains an ownership
interest, while a net well is deemed to exist when the sum of the fractional
working interests owned by La/Cal equals one. Wells that are completed in more
than one producing horizon are counted as one well. Of the gross wells reported
above in the Pecan Lake and Lake Charles fields, three have multiple
completions.
ACREAGE
The following table summarizes La/Cal's gross and net developed and
undeveloped natural gas and oil acreage under lease as of December 31, 1994 in
the Pecan Lake and Lake Charles fields. Acreage in which the La/Cal's interest
is limited to royalty or overriding royalty interests is excluded from the
table.
<TABLE>
<CAPTION>
GROSS NET
-------- ------
<S> <C> <C>
Developed acreage
Pecan Lake Field...................................... 900.00 413.60
Lake Charles Field.................................... 443.00 182.70
Undeveloped acreage..................................... 0.00 0.00
-------- ------
Total.............................................. 1,343.00 596.30
======= ======
</TABLE>
La/Cal also has approximately 3,400 gross acres and a substantially lower
number of net acres under lease in fields other than Pecan Lake and Lake
Charles, which represent less than three percent of La/Cal's pre-tax present
value of future net revenues of January 1, 1995.
Undeveloped acreage is considered to be those lease acres on which wells
have not been drilled or completed to a point that would permit the production
of commercial quantities of natural gas and oil, regardless of whether or not
such acreage contains proved reserves. Although La/Cal currently does not have
an ownership interest in any undeveloped acreage, the Company may in the future.
As is customary in the oil and gas industry, the Company can retain its
interests in undeveloped acreage by drilling activity that establishes
commercial production sufficient to maintain the leases, or by payment of delay
rentals during the remaining primary term of such a lease. The natural gas and
oil leases in which La/Cal has an interest are for varying primary terms;
however, most of La/Cal's lease acreage is beyond the primary term and is held
by producing natural gas and/or oil wells.
La/Cal also participated in several farmout agreements with other owners of
natural gas and oil leases and is actively leasing acreage in the Southern
Louisiana producing region. A farmout agreement is a customary industry
agreement that provides that the assignee drill a well or wells on farmout
properties, and if
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<PAGE> 124
the well is completed as a commercial producer of natural gas and/or oil, the
assignee earns an assignment of some or all of the assignor's natural gas and
oil lease interests. Rights to earn the interest in the farmout acreage can be
surrendered by Goodrich Oil Company, the manager of the programs in which La/Cal
participates at any time by giving notice to the assignor, or they can be lost
through nonperformance by Goodrich Oil Company.
WELL COMPLETIONS AND INTERESTS OWNED BY LA/CAL IN THE PECAN LAKE AND LAKE
CHARLES FIELDS
The following table sets forth La/Cal's approximate working interest, net
revenue interests and overriding royalty interests in the wells and well
completions in the Pecan Lake and Lake Charles:
Pecan Lake
<TABLE>
<CAPTION>
NET OVERRIDING
YEAR WORKING REVENUE ROYALTY
WELL NAME DRILLED INTEREST INTEREST INTEREST
----------------------------------------------- ---- ------- ------- ------
<S> <C> <C> <C> <C>
Miami Corp. #1 and #1D......................... 1993 43.63% 34.12%(1) n/a
Miami Corp. #2 and #2D......................... 1993 43.63% 34.12%(1) n/a
Miami Corp. #S13............................... 1982 43.11% 34.49%(1) n/a
Miami Corp. #B15(2)............................ 1969 43.11% 36.21% n/a
Miami Corp. #B16............................... 1984 43.11% 36.21% n/a
Miami Corp. #3 and #3D......................... 1994 43.11% 33.66%(1) n/a
Cutler #1...................................... 1985 n/a n/a 2.26%
</TABLE>
Lake Charles
<TABLE>
<CAPTION>
NET OVERRIDING
YEAR WORKING REVENUE ROYALTY
WELL NAME DRILLED INTEREST INTEREST INTEREST
----------------------------------------------- ---- ------- ------- ------
<S> <C> <C> <C> <C>
J.C. Nickerson #1(3)........................... 1992 44.77% 32.24% n/a
Ursla Bracey #1(3)............................. 1992 44.77% 30.09% n/a
City of Lake Charles #1........................ 1992 29.24% 24.69%(1) n/a
Nickerson Fee.................................. 1977 50.00% 56.00%(4) n/a
Glasscock-Chapman #1........................... 1962 31.50% 23.65% n/a
</TABLE>
- ---------------
(1) Includes overriding royalty interests acquired by La/Cal that have been
converted into net revenue interest equivalents.
(2) Currently shut-in.
(3) Estimated subject to unitization, which is not anticipated to have a
material impact on the working and net revenue interest percentages.
(4) Includes a royalty interest acquired by La/Cal.
In the foregoing tables, wells that are completed in more than one producing
horizon, which include the Pecan Lake field wells Miami Corp. #1, #1D, #2, #2D,
#3, and #3D, are each counted as one well. The information in the foregoing
tables is rounded off to the nearest one-hundredth of one percent.
OPERATOR ACTIVITIES
La/Cal does not operate any wells in which it maintains an ownership
interest. Currently, Goodrich Oil Company is the operator of record of every
producing well in the Pecan Lake field except the Cutler #1 well. Goodrich Oil
Company is the operator of the J. C. Nickerson #1 and Ursla Bracey #1 wells,
while Samson Resources Company operates the remainder of the wells in the Lake
Charles field. Goodrich Oil Company also operates all of the other wells in
which La/Cal maintains an ownership interest, except the Brooks Fee #1 well,
which is operated by Sue Ann Production Company and the Marshall #1 well, which
is operated by Brammer Engineering, Inc.
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<PAGE> 125
DRILLING ACTIVITIES
La/Cal. La/Cal participates in an active drilling program conducted by
Goodrich Oil Company on the natural gas and oil properties in which La/Cal
maintains ownership interests. Since its inception, La/Cal's average finding
cost has been approximately $.2822/Mcfe. The following table sets forth the
drilling activity of Goodrich Oil Company in the Pecan Lake, Lake Charles and
other fields since 1992.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1992(1) 1993(1) 1994
------------- ------------- -------------
GROSS NET GROSS NET GROSS NET
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Development Wells:
Productive............................. 8.0 2.6 2.0 .87 1.0 .43
Non-Productive......................... 0.0 0.0 1.0 .08 1.0 .43
---- ---- ---- ---- ---- ----
Total.......................... 8.0 2.6 3.0 .95 2.0 .86
==== ==== ==== ==== ==== ====
Exploratory Wells:
Productive............................. 0.0 0.0 0.0 0.0 0.0 0.0
Non-Productive......................... 0.0 0.0 0.0 0.0 0.0 0.0
---- ---- ---- ---- ---- ----
Total.......................... 0.0 0.0 0.0 0.0 0.0 0.0
==== ==== ==== ==== ==== ====
Total Wells:
Productive............................. 8.0 2.6 2.0 .87 1.0 .43
Non-Productive......................... 0.0 0.0 1.0 0.8 1.0 .43
---- ---- ---- ---- ---- ----
Total............................... 8.0 2.6 3.0 .95 2.0 .86
==== ==== ==== ==== ==== ====
</TABLE>
- ---------------
(1) La/Cal was formed in July 1993.
As denoted in the foregoing table, "Gross" wells refers to wells in which a
working interest is owned, while a "net" well is deemed to exist when the sum of
fractional ownership working interests in gross wells equals one.
As of the date of this Proxy Statement/Prospectus La/Cal is not engaged in
any drilling activities. La/Cal did not drill any exploratory wells during the
periods set forth above.
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<PAGE> 126
NET PRODUCTION, UNIT PRICES AND COSTS
The following table presents certain information with respect to oil, gas
and condensate production attributable to La/Cal's interests in all of its
fields, the revenue derived from the sale of such production, average sales
prices received and average production costs during each of the years ended
December 31, 1994, 1993 and 1992.
<TABLE>
<CAPTION>
1994 1993 1992(1)
--------- ------- -------
<S> <C> <C> <C>
Net Production:
Natural gas (Mcf)......................................... 2,386,130 933,435 417,482
Oil (bbls)................................................ 36,487 7,319 4,347
Natural gas equivalents (Mcfe)............................ 2,605,050 977,348 443,564
Average Net Daily Production:
Natural gas (Mcf)......................................... 6,537 2,557 1,144
Oil (Bbls)................................................ 100 20 12
Natural gas equivalents (Mcfe)............................ 7,137 2,678 1,215
Average Sales Price Per Unit:
Natural Gas (per Mcf)..................................... $ 1.85 $ 2.02 $ 1.94
Oil (per Bbl)............................................. 15.00 16.65 19.80
Other Data:
Lease operating expense (per Mcfe)........................ $ .15 $ .23 $ .25
Depreciation, depletion and amortization (per Mcfe)....... .40 .33 .65
</TABLE>
- ---------------
(1) La/Cal ownership interest applied to pre-La/Cal formation production.
MARKETING
La/Cal does not determine the marketing activities relating to its
production because La/Cal does not operate its existing properties. The current
operators of properties in which La/Cal maintains an ownership interest normally
sell La/Cal's production as provided for in the applicable operating agreement
for each property. The operator or its agent sells La/Cal's production, as well
as other interest owners' production from each property on the spot market and
by entering into marketing arrangements, processing agreements, transportation
agreements and oil and natural gas condensate agreements, which are discussed
below. Goodrich Oil Company, as an operator of certain La/Cal properties, does
not charge La/Cal for its marketing activities and the benefits of the
marketing, processing, and transportation arrangements provided by the operator
are passed directly to La/Cal. For a discussion of the marketing activities of
the Company after the Effective Time, see "Business and Properties of the
Company -- Marketing."
Pecan Lake Field. La/Cal's natural gas production is transported through
various field gathering lines to a central facility in the field. The gathering
lines, and the central facility, are owned proportionately by the working
interest owners in the Pecan Lake field wells, which include La/Cal. From the
central facility, La/Cal's gas production is delivered into a gas transmission
line owned by Superior Offshore Pipeline Company ("SOPCO"). the gas production
is then transported under a transportation agreement, between the operator and
SOPCO, to the Trident N.G.L. Inc. plant ("Trident"). The gas production is then
either processed by Trident, or bypassed to the Trident distribution point. This
activity is covered by a processing agreement between the plant and the
operator. This agreement provides, in-part, that the plant can elect to process
the operator's gas, but is required to deliver a volume of gas to the plant's
distribution point, which is equal to the volume delivered by SOPCO at the plant
inlet. This is referred to as a "keep-whole" agreement. At the plant tailgate,
La/Cal's gas is delivered to one of the several pipeline interconnects available
at the plant distribution point. These spot sales, or market-sensitive sales,
are arranged by Seaber Corporation of Louisiana, a Louisiana corporation
("Seaber"). See "Business and Properties of the Company -- Marketing."
In addition to the transmission lines available at the plant tailgate,
there is also a line owned by SOPCO that provides access to Columbia Gulf
Pipeline Company ("Columbia Gulf") and Texas Gas Transmission
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<PAGE> 127
Company ("Texas Gas"). If the operator elects to access these pipelines, the
transportation is covered under agreement(s) between the operator and SOPCO for
transportation to either Columbia Gulf or Texas Gas.
In addition to the sales arranged by Seaber, the operator also has a
contract with Tenneco Gas Marketing Company ("Tenneco Gas"), which provides for
a daily volume from the Pecan Lake field of up to 1,050 Mmbtu a day. The
transportation and processing agreements for this volume of gas are identical to
those identified above. The agreement with Tenneco Gas provides for
market-sensitive pricing and will expire on July 31, 1995.
From the central facility in Pecan Lake, La/Cal's gas condensate is
delivered into a low pressure pipeline which is owned by Grand Lake Liquids
Company ("Grand Lake"). The gas condensate is transported to the Grand Lake tank
farm under an agreement between the operator of the Pecan Lake field and Grand
Lake Liquids. La/Cal's gas condensate is sold to Mobil Oil Trading &
Transportation Company at the Grand Lake tank farm by the operator. Pricing for
the condensate is based on current market prices referred to as posted prices.
The operators' contract with Mobil is a 30-day rollover agreement.
Lake Charles Field. La/Cal's natural gas production is transported through
a gathering line of approximately 2 miles in length to an interconnect with Koch
Gateway Pipeline ("Koch"). This gathering line is owned proportionately by the
working interest owners in the Lake Charles wells, which includes La/Cal. The
gas is sold by the operators, at the Koch pipeline interconnect, to various
markets arranged by Seaber. Transportation on the Koch pipeline is arranged by
the individual markets. La/Cal's gas condensate from the Lake Charles wells is
sold to Falco S&D, Inc. ("Falco") by the operators. Pricing for the condensate
is based on current market prices referred to as posted price. The operators'
contract with Falco is a 30-day, rollover agreement.
Remaining Fields. La/Cal's natural gas production in its remaining fields
is sold under spot or market-sensitive contracts and to various gas purchasers
on short-term contracts. La/Cal's natural gas condensate in its remaining fields
is sold under short-term rollover agreements based on current market prices.
Customers
From July 15, 1993 through December 31, 1993 and during the year ended
December 31, 1994, Tenneco Gas purchased 70% and 41%, respectively, of La/Cal's
oil and gas sales. During 1994, Seaber purchased 48% of La/Cal's oil and gas
sales. Based on the current demand for natural gas, La/Cal does not believe the
loss of these purchasers would have a material adverse effect on La/Cal. See
Note 8 of Notes to the La/Cal Energy Partners Financial Statements.
TITLE TO PROPERTIES
As is customary in the natural gas and oil industry, La/Cal makes only a
cursory review of title to farmout acreage and to undeveloped natural gas and
oil leases upon execution of the contracts. Prior to the commencement of
drilling operations, a thorough title examination is conducted and curative work
is performed with respect to significant defects at prospective drilling
locations and unitized tracts. To the extent title opinions or other
investigations reflect title defects, La/Cal, rather than the seller of the
undeveloped property, is typically responsible to cure any such title defects at
its expense. If La/Cal were unable to remedy or cure any title defect of a
nature such that it would not be prudent to commence drilling operations on the
property, La/Cal could suffer a loss of its entire investment in the property.
La/Cal or its operator has obtained title opinions on substantially all of its
producing properties and believes that it has satisfactory title to such
properties in accordance with standards generally accepted in the oil and gas
industry. La/Cal's natural gas and oil properties are subject to customary
royalty interests, liens for current taxes and other burdens that La/Cal
believes do not materially interfere with the use of or affect the value of such
properties.
OPERATIONAL RISKS AND INSURANCE
La/Cal's operations are subject to the usual hazards incident to the
drilling and production of oil and natural gas, such as blowouts, cratering,
explosions, uncontrollable flows of oil, natural gas or well fluids, fires,
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<PAGE> 128
formations with abnormal pressures, pollution, releases of toxic gas and other
environmental hazards and risks. These hazards can cause personal injury and
loss of life, severe damage to and destruction of property and equipment,
pollution or environmental damages and suspension of operations. As a result,
La/Cal could incur substantial liabilities to third parties or governmental
entities, the payment of which could reduce or eliminate the funds available for
development, acquisitions or exploration, or result in the loss of the La/Cal's
properties.
La/Cal is covered under various types of insurance policies with the
minimum being a $1 million general liability policy and a $5 million umbrella
policy. La/Cal is also covered under additional insurance, including policies
covering commercial property, workers' compensation policies, a business auto
policy and an electronic equipment protection policy.
La/Cal's insurance coverage does not cover every potential risk associated
with the drilling and production of oil and natural gas. Among other things,
coverage is not obtainable for certain types of environmental hazards. The
occurrence of a significant adverse event, the risks of which are not fully
covered by insurance, could have a material adverse effect on La/Cal's financial
condition and results of operation. Moreover, there can be no assurance that
La/Cal's insurance coverage will be adequate to cover any losses or exposure to
liability or that La/Cal will be able to maintain adequate insurance coverage in
the future at rates it considers reasonable.
REGULATORY AND ENVIRONMENTAL MATTERS
La/Cal's business and properties are subject to substantial governmental
regulation, including regulations affecting production, transportation and
environmental matters. For further description, see "Business and Properties of
the Company -- Regulation" and "-- Environmental Matters."
LEGAL PROCEEDINGS
La/Cal is not a party to any legal proceedings, and the Management
Committee is not aware of any threatened proceedings that can reasonably be
expected to have a material adverse effect on La/Cal's properties or financial
condition.
EMPLOYEES
La/Cal does not have any employees because substantially all of its oil and
gas operations and administrative functions are provided by Goodrich Oil
Company.
OFFICES
La/Cal currently does not own or lease any office facilities.
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BUSINESS AND PROPERTIES OF THE COMPANY
THE COMPANY
The Company is a Delaware corporation which was recently organized to
become the parent company for the businesses presently conducted by Patrick and
La/Cal. The Company is currently a wholly-owned subsidiary of Patrick which
conducts no business and has only nominal assets. The Company's address is 5847
San Felipe, Suite 700, Houston, Texas 77057, and its telephone number is (713)
780-9494.
GOODRICH ACQUISITION
Goodrich Acquisition is a Delaware corporation that was recently organized
for the sole purpose of facilitating the transactions contemplated by the
Agreement. It is currently a wholly-owned subsidiary of the Company which
conducts no business and has only nominal assets. At the Effective Time,
Goodrich Acquisition will be merged with and into Patrick and the separate
existence of Goodrich Acquisition will cease and Patrick will become a wholly
owned subsidiary of the Company.
STRATEGY
The Company's business strategy will be to increase its reserves and
maximize earnings and cash flow, through oil and gas development, acquisition
and exploration activities. In implementing this strategy, the Company intends
to:
- maintain an active development and exploration drilling program on its
acreage held by production;
- seek new acreage positions in Southern Louisiana, South and East Texas
and certain properties in West Texas that the Company believes offer
exceptional development opportunities, through farmouts and leasing;
- pursue reserve growth through strategic acquisitions of oil and gas
properties that offer additional development drilling opportunities,
which if successful would significantly increase the reserve value of the
acquired property;
- maintain low finding costs by utilizing in-house geological and technical
expertise to select drilling locations, including locations with multiple
pay horizons;
- become the operator of record of a majority of its properties; and
- retain and attract key employees through stock options and other
incentive programs.
RELATIONSHIP WITH GOODRICH OIL COMPANY
At the Effective time, the Company will enter into a Joint Participation
Agreement with Goodrich Oil Company pursuant to which the Company and Goodrich
Oil Company will each agree to offer to the other a 50% participation interest
in such Company's share of all drilling prospects and acquisitions of producing
properties identified after the Effective Time by either company. Goodrich Oil
Company is owned by Henry Goodrich, who is the father of the Company's Chief
Executive Officer and will become a director of the Company at the Effective
Time, and is engaged in developing oil and gas drilling programs for its
participants, primarily in South Louisiana and East Texas. Goodrich Oil Company
is a party to participation agreements, with certain industry partners and
individual investors pursuant to which such persons invest in drilling programs
developed by Goodrich Oil Company. Pursuant to the Joint Participation
Agreement, the GOC Participants will have the opportunity to invest, through
Goodrich Oil Company, in prospects and acquisitions of producing properties
identified after the Effective Time by the Company, and the Company will have
the opportunity to participate in future Goodrich Oil Company drilling prospects
or acquisitions. Goodrich Oil Company will not receive any compensation or
management fees from the Company, and the Company will not receive any such fees
from Goodrich Oil Company in connection with such arrangements. The Joint
Participation Agreement will terminate on the earlier of (i) December 31, 2000,
or (ii) at such time as neither Gil Goodrich or Henry Goodrich is an employee,
director or consultant of the Company.
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PRO FORMA RESERVE INFORMATION
The following pro forma estimated proved oil and natural gas information
for the Company is based upon the estimated pro forma oil and natural gas
reserve information of Patrick and La/Cal.
<TABLE>
<CAPTION>
AS OF JANUARY 1, 1995
------------------------------------------
PATRICK LA/CAL COMPANY
PRO FORMA PRO FORMA PRO FORMA
---------- --------- ----------
<S> <C> <C> <C>
Proved Oil and Gas Reserves
Crude Oil and Liquids (Mbbls)................... 1,144.87 523.72 1,668.59
Natural Gas (Bcf)............................... 6.73 21.98 28.71
Natural Gas Equivalents (Bcfe)(3)............... 13.60 25.11 38.72
Present Value of Estimated Future Net Revenue
Before Income Taxes (discounted at 10%)(in
millions)....................................... 12.86 27.52 40.38
Estimated Net Production for the year 1995
Crude Oil and Liquids (Mbbls)................... 205.19 47.86 253.05
Natural Gas(Bcf)................................ .54 3.32 3.86
Natural Gas Equivalents (Bcfe)(1)............... 1.77 3.60 5.37
Average Sales Price
Crude Oil and Liquids ($/bbl)................... 16.50 16.81 16.60
Natural Gas ($/Mcf)............................. 1.70 1.78(2) 1.76
Lease Operating Expense ($/Mcfe)(2)............... .44 .10 .22
Net Developed Oil and Gas Acreage................. 3,865 596 4,461
</TABLE>
- ------------
(1) Based upon the ratio of 1.0 bbl/6.0 Mcf, which was calculated by the
Company.
(2) Costs incurred to operate and maintain wells and related equipment,
excluding and valorem and production taxes.
DRILLING ACTIVITIES
After the Effective Time, the Company expects to pursue several drilling
opportunities that have been developed by La/Cal and Patrick. The Company
anticipates retaining gross working interests in its prospects of approximately
50%. Larger or smaller working interests may also be retained by the Company in
certain prospects depending upon interest availability, drilling and completion
costs, capital available to the Company and other factors that may exist
regarding each prospect. In addition, pursuant to the terms of the Joint
Participation Agreement between the Company and Goodrich Oil Company, the
Company will have the option to participate in all of Goodrich Oil Company's new
prospects and new acquisitions, and the Company will be obligated to offer its
new prospects and new acquisitions to the GOC Participants through Goodrich Oil
Company. See "-- Relationship with Goodrich Oil Company."
Development Infill Drilling. Upon completion of the Transactions, the
Company will have an inventory of nine developmental infill drilling locations,
which present the Company with the opportunity to drill lower risk wells because
the target reservoirs have been penetrated by producing wells in close proximity
with the proposed infill locations. These locations are primarily in the
Southern Louisiana producing region and West Texas. When drilling infill
locations, the Company will evaluate each infill well for the potential to
encounter other producing formations which may lie either above or below the
target reservoir and, when warranted, the depth of the well may be extended. The
Company plans to drill two gross (1.85 net wells) in the Southern Louisiana
producing region during the remainder of 1995. In addition, the Company plans to
develop the Sean Andrew (Penn Reef) Field, currently held by Patrick. See
"Business and Properties of Patrick." As of May 26, 1995, Patrick is drilling
its sixth well in the Sean Andrew (Penn Reef) field. The Company plans to drill
an additional two gross (.75 net) wells in the Sean Andrew (Penn Reef) field
during the remainder of 1995. The Company plans to actively seek additional
development opportunities for the remainder of 1995, but currently has not
developed a capital expenditures budget for such development activity.
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Development Drilling. The Company will seek to acquire properties with
development drilling prospects when it determines that additional wells could be
drilled on such properties or when multiple pay horizons may be present on such
properties but have not been fully developed. After the acquisition of such
properties, the Company will undertake to drill additional wells as necessary to
more fully develop the production potential of the acquired leases. The Company
believes that this type of property is typically low risk as the prospects are
drilled near or in close proximity to the boundaries of existing producing pools
and may be identified prior to acquisition with a reasonable degree of
certainty. The Company plans to actively seek development drilling opportunities
for the remainder of 1995, but currently has not developed a capital
expenditures budget for such development activities.
Exploratory Drilling. The Company's exploration program will be intended to
balance its relatively low-risk infill and development drilling program with
higher-risk exploratory drilling activities that have the potential for high
rates of return. The Company will seek to drill exploratory wells that generally
have multiple pay objectives and are commonly located in close proximity to
existing producing fields. The Company plans to actively seek exploratory
drilling opportunities for the remainder of 1995, but currently has not
developed a capital expenditures budget for such drilling activity.
OPERATOR ACTIVITIES
Upon completion of the Transactions, Goodrich Oil Company will operate a
majority of the value of the Company's producing properties. However, the
Company will seek to become the operator of record concerning properties it
drills or acquires in the future. While Goodrich Oil Company will become the
operator of record on the majority of the value of the Company's properties,
Goodrich Oil Company currently subcontracts all operating activities to Brammer
Engineering, Inc. ("Brammer"), a party unrelated to the Company, Goodrich Oil
Company or any of their affiliates. In addition, the Company plans to
subcontract the actual operating activities of those properties in which it
becomes the operator of record. The Company does not believe that the loss of
Brammer or any other subcontracting operator would have a material adverse
effect on the Company's operating activities and properties because of the
availability of qualified replacement operators under similar terms.
ANTICIPATED ASSET DISPOSITIONS
It is anticipated that after the Effective Time, management of the Company
will undertake to dispose of selected non-core oil and gas properties currently
owned by Patrick, as part of the Company's efforts to reduce operating costs.
The properties targeted for sale generally include those with an SEC value of
$20,000 or less based upon Patrick's January 1, 1995 reserve report and in the
aggregate represent an SEC value of approximately $100,000. As described above
under "Business and Properties of Patrick -- Investment in Penske Corporation,"
it is anticipated that Patrick's investment in Penske will be sold to Penske as
a result of the consummation of the Transactions. The Company expects to make
other asset acquisitions and dispositions in the ordinary course of its
business, but has not identified any other specific assets for sale. The Company
does not expect to sell any of the La/Cal Interests in the foreseeable future.
MARKETING
Upon completion of the Merger, the Company will not determine the marketing
activities relating to a majority of its production because of its status as a
non-operator with regards to such production. The current operators of
properties in which the Company maintains an ownership interest normally sell
the Company's production as provided for in the applicable operating agreement
for each property. The operator or its agent sells the Company's production, as
well as other interest owners' production from each property on the spot market
and by entering into marketing arrangements, processing agreements,
transportation agreements and oil and natural gas condensate agreements, which
are discussed below.
At the Effective Time, the Company will enter into an agreement with
Natural Gas Ventures, L.L.C. ("NGV"), a Louisiana limited liability company,
that affiliates of Goodrich Oil Company formed in August, 1994, to operate as an
agent for the purpose of marketing Goodrich Oil Company and its contracting
parties'
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natural gas. The Company and other contracting parties contribute natural gas to
NGV, which NGV then markets to gas purchasers, pursuant to the Joint Venture
Agreement between NGV and Seaber (described below). The Company can terminate
this agreement on 60-days advance notice. The Company and the other contracting
parties are entitled to participate, on a pro rata basis, in any net profits or
equity benefits received by NGV under its Joint Venture Agreement with Seaber,
provided the Company and the other contracting parties have not terminated the
agreement and are delivering gas under the agreement at the time the net profits
and equity interest are earned. The Company believes its contract with NGV
allows it to realize higher prices for its contributed gas because of the
greater market power associated with larger volumes of gas than the Company
would have for sale on a stand-alone basis.
NGV has entered into a natural gas marketing joint venture agreement (the
"Joint Venture Agreement") with Seaber whereby Seaber acts as agent for NGV in
its gas marketing efforts. Pursuant to the Joint Venture Agreement, Seaber
arranges short-term gas sales contracts on behalf of NGV with gas purchasers and
NGV delivers to Seaber sufficient gas quantities to fulfill NGV's contractual
obligations. NGV can terminate the Joint Venture Agreement on 60-days advance
notice. During the term of the Joint Venture Agreement, on a calender year
basis, NGV has the option to share 50 percent of all Seaber's net profits
provided that NGV meets certain scheduled delivery requirements. Each year,
twenty-five percent of NGV's share of Seaber net profits is retained by Seaber
as an account payable, which Seaber uses as additional working capital. At the
end of the term of the Joint Venture Agreement, and subject to delivering
scheduled volumes of gas, NGV can elect to convert its cumulative accounts
payable into fifty percent of the outstanding Seaber common stock or can choose
to receive the payable in cash.
As set forth above, provided certain conditions are met, NGV will
distribute the Seaber net profits and equity interests, if any, to its
contracting parties on a pro rata basis.
COMPETITION
The oil and gas industry is highly competitive. Major oil and gas
companies, independent concerns, drilling and production purchase programs and
individual producers and operators are active bidders for desirable oil and gas
properties, as well as the equipment and labor required to operate those
properties. Many competitors have financial resources substantially greater than
those the Company would have following the Effective Time, and staffs and
facilities substantially larger than those of the Company. The availability of a
ready market for the oil and gas production of the Company will depend in part
on the cost and availability of alternative fuels, the level of consumer demand,
the extent of other domestic production of oil and gas, the extent of
importation of foreign oil and gas, the cost of and proximity to pipelines and
other transportation facilities, regulations by state and federal authorities
and the cost of complying with applicable environmental regulations.
REGULATION
The availability of a ready market for any natural gas and oil production
depends upon numerous factors beyond the Company's control. These factors
include regulation of natural gas and oil production, federal and state
regulations governing environmental quality and pollution control, state limits
on allowable rates of production by a well or proration unit, the amount of
natural gas and oil available for sale, the availability of adequate pipeline
and other transportation and processing facilities and the marketing of
competitive fuels. For example, a productive natural gas well may be "shut-in"
because of an oversupply of natural gas or the lack of an available natural gas
pipeline in the areas in which the Company may conduct operations. State and
federal regulations generally are intended to prevent waste of natural gas and
oil, protect rights to produce natural gas and oil between owners in a common
reservoir, control the amount of natural gas and oil produced by assigning
allowable rates of production and control contamination of the environment.
Pipelines are subject to the jurisdiction of various federal, state and local
agencies.
Regulation of Natural Gas and Oil Exploration and Production. Exploration
and production operations of the Company are subject to various types of
regulation at the federal, state and local levels. Such regulation includes
requiring permits for the drilling of wells, maintaining bonding requirements in
order to drill or
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operate wells, and regulating the location of wells, the method of drilling and
casing wells, the surface use and restoration of properties upon which wells are
drilling and the plugging and abandonment of wells. The Company's operations are
also subject to various conservation laws and regulations. These include the
regulation of the size of drilling and spacing units or proration units and the
density of wells which may be drilled and unitization or pooling of oil and gas
properties. In this regard, some states allow the forced pooling or integration
of tracts to facilitate exploration while other states rely on voluntary pooling
of lands and leases. In addition, state conservation laws establish maximum
rates of production from natural gas and oil wells, generally prohibit the
venting or flaring of natural gas and impose certain requirements regarding the
ratability of production. The effect of these regulations is to limit the
amounts of natural gas and oil the Company's operator or the Company can produce
from its wells, and to limit the number of wells or the locations at which the
Company can drill. Legislation affecting the oil and gas industry also is under
constant review for amendment or expansion. For example, legislation currently
pending in Texas, if enacted, would revise the current method by which maximum
allowable production for natural gas wells is determined in Texas in a manner
that might impose additional restrictions on the level of production. Generally,
state-established allowables have been influenced by overall natural gas market
supply and demand in the United States, as well as the specific "nominations"
for natural gas from the parties who produce or purchase gas from the field and
other factors deemed relevant by the agency. The Company cannot predict whether
further changes will be made in how these states set allowables or what impact,
if any, such further changes might have. In addition, numerous departments and
agencies, both federal and state, are authorized by statute to issue rules and
regulations binding on the natural gas and oil industry and its individual
members, some of which carry substantial penalties for failure to comply. The
regulatory burden on the natural gas and oil industry increases the Company's
cost of doing business and, consequently, affects its profitability. Inasmuch as
such laws and regulations are frequently expanded, amended or reinterpreted, the
Company is unable to predict the future cost or impact of complying with such
regulations.
Natural Gas Marketing and Transportation. Federal legislation and
regulatory controls in the United States have historically affected the price of
the natural gas produced by La/Cal and the manner in which such production is
marketed. The transportation and sales for resale of natural gas in interstate
commerce are regulated pursuant to the Natural Gas Act of 1938 (the "NGA"), the
Natural Gas Policy Act of 1978 (the "NGPA") and the regulations promulgated
thereunder by the Federal Energy Regulatory Commission (the "FERC"). Although
maximum selling prices of natural gas were formerly regulated, on July 26, 1989,
the Natural Gas Wellhead Decontrol Act ("Decontrol Act") was enacted, which
amended the NGPA to remove completely by January 1, 1993 price and nonprice
controls for all "first sales" of natural gas, which will include all sales by
the Company of its own production; consequently, sales of the Company's natural
gas currently may be made at market prices, subject to applicable contract
provisions. The FERC's jurisdiction over natural gas transportation was
unaffected by the Decontrol Act.
The FERC also regulates interstate natural gas transportation rates and
service conditions, which affect the marketing of natural gas produced by
La/Cal, as well as the revenues received by La/Cal for sales of such natural
gas. Since the latter part of 1985, the FERC has endeavored to make interstate
natural gas transportation more accessible to gas buyers and sellers on an open
and non-discriminatory basis. The FERC's efforts have significantly altered the
marketing and pricing of natural gas. Commencing in April 1992, the FERC issued
Order Nos. 636, 636-A, and 636-B (collectively "Order No. 636"), which, among
other things, require interstate pipelines to "restructure" to provide
transportation separate or "unbundled" from the pipelines' sales of gas. Also,
Order No. 636 requires pipelines to provide open-access transportation on a
basis that is equal for all gas supplies. Order No. 636 has been implemented
through negotiated settlements in individual pipeline service restructuring
proceedings. In many instances, the result of the Order No. 636 and related
initiatives has been to substantially reduce or bring to an end the interstate
pipelines' traditional role as wholesalers of natural gas in favor of providing
only storage and transportation services. The FERC has issued final orders in
virtually all pipeline restructuring proceedings, and has now commenced a series
of one year reviews to determine whether refinements are required regarding
individual pipeline implementations of Order No. 636.
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Although Order No. 636 does not regulate natural gas producers such as the
Company, the FERC has stated that Order No. 636 is intended to foster increased
competition within all phases of the natural gas industry. It is unclear what
impact, if any, increased competition within the natural gas industry under
Order No. 636 will have on the Company and its natural gas marketing efforts. In
addition, numerous petitions seeking judicial review of Order No. 636 are
pending. Numerous parties have also sought review of FERC orders implementing
Order No. 636 on individual pipeline systems. Order No. 636 could be reversed in
whole or in part as a result. Because the restructuring requirements that emerge
from this lengthy administrative and judicial review process may be
significantly different from those of Order No. 636 as originally promulgated,
it is not possible to predict what, if any, effect the final rule resulting from
Order No. 636 will have on the Company. Although Order No. 636, assuming it is
upheld in its entirety, could provide the Company with additional market access
and more fairly applied transportation service rates, terms and conditions, it
could also subject the Company to more restrictive pipeline imbalance tolerances
and greater penalties for violation of those tolerances. The Company does not
believe, however, that it will be affected by any action taken with respect to
Order No. 636 any differently than other natural gas producers and marketers
with which it competes.
The FERC has recently announced its intention to reexamine certain of its
transportation-related policies, including the appropriate manner for setting
rates for new interstate pipeline construction, the manner in which interstate
pipeline shippers may release interstate pipeline capacity under Order No. 636
for resale in the secondary market, and the use of market-based rates for
interstate gas transmission. While any resulting FERC action would affect the
Company only indirectly, these inquiries are intended to further enhance
competition in natural gas markets.
In 1994, the FERC eliminated a regulation that had caused virtually all
sales of natural gas by pipeline affiliates, such as the Company, to be
deregulated first sales. As a result, only sales by the Company of its own
production now qualify for this status. All other sales of gas for resale in
interstate commerce by the Company, such as those of gas purchased from third
parties, are now subject to NGA jurisdiction. Such sales are currently subject
to a blanket authorization that does not impose any price, volume or reporting
requirements; thus the Company does not anticipate this change will have any
significant current adverse effects. Such sales are subject to the future
possibility of greater federal oversight, however, including the possibility
that FERC might prospectively impose more restrictive conditions on such sales.
The Company's intrastate pipeline operations are subject to regulation by
the Railroad Commission of Texas ("RRC") under the Gas Utility Regulatory Act
and other statutes. Among other matters, the RRC has the authority to establish
just and reasonable rates, services and operations of gas utilities, including
gas transmission pipelines, in Texas. In addition, intrastate pipelines are
subject to non-discriminatory purchase and transport requirements. Interstate
pipeline rates for pipeline, transportation, industrial and similar large volume
customers, excluding rates for city-gate sales, are presumed to be just and
reasonable where (i) neither the company nor the customer had an unfair
advantage during negotiations; (ii) the rates are substantially the same as
rates for similar service; or (iii) competition does or did exist for the market
with another supplier of natural gas or an alternative form of energy.
To the extent an intrastate pipeline sells gas for resale in interstate
commerce, or transports gas in interstate commerce, such sales and
transportation are subject to regulation by the FERC under Section 311 of the
NGPA and related regulations, or under Section 7 of the NGA. Interstate
transportation by intrastate pipelines must be performed on an open access,
non-discriminatory basis. Both such transportation and sales for resale under
Section 311 must be performed at rates that do not exceed fair and equitable
rates, and can only be performed "on behalf of" intrastate pipelines and local
distribution companies. Intrastate piepline sales for resale in interstate
commerce are also authorized under the blanket authorization described above.
The Company believes that its intrastate pipeline activities comply with all
applicable RRC and FERC regulations and associated statutes, and that such
regulation does not affect materially the financial condition of the Company.
Additional proposals and proceedings that might affect the natural gas
industry are considered from time to time by Congress, the FERC, state
governmental bodies and the courts. The Company cannot predict when
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or if any such proposals might become effective, or their effect, if any, on the
Company's operations. The natural gas industry historically has been very
heavily regulated; therefore, there is no assurance that the less stringent
regulatory approach recently pursued by the FERC and Congress will continue
indefinitely into the future.
Oil Sales and Transportation Rates. Sales of crude oil, condensate and gas
liquids by the Company are not regulated and are made at market prices. The
price the Company receives from the sale of these products is affected by the
cost of transporting the products to market. Effective as of January 1, 1995,
the FERC implemented regulations establishing an indexing system for
transportation rates for oil pipelines, which would generally index such rates
to inflation, subject to certain conditions and limitations. These regulations
could increase the cost of transporting crude oil, liquids and condensates by
pipeline. These regulations are subject to pending petitions for judicial
review. The Company is not able to predict with certainty what effect, if any,
these regulations will have on it, but other factors being equal, the
regulations may tend to increase transportation costs or reduce wellhead prices
for such commodities.
Safety Regulation. The Company's intra-state pipeline operations are
subject to safety and operational regulations relating to the design,
installation, testing, construction, operation, replacement, and management of
facilities. Pipeline safety issues have recently been the subject of increasing
focus in various political and administrative arenas at both the state and
federal levels. In addition, the major federal pipeline safety law is subject to
change this year as it is considered for reauthorization by Congress. For
example, federal legislation addressing pipeline safety issues has been
introduced, which, if enacted, would establish a federal "one call" notification
system. Additional pending legislation would, among other things, increase the
frequency with which certain pipelines must be inspected, as well as increase
potential civil and criminal penalties for violations of pipeline safety
requirements. The Company believes its operations, to the extent they may be
subject to current gas pipeline safety requirements, comply in all material
respects with such requirements. The Company cannot predict what effect, if any,
the adoption of this or other additional pipeline safety legislation might have
on its operations, but the industry could be required to incur additional
capital expenditures and increased costs depending upon future legislative and
regulatory changes.
Federal Energy Tax. On August 10, 1993, President Clinton signed into law
the Revenue Reconciliation Act of 1993 which includes an increased excise tax on
transportation fuels. Effective October 1, 1993, an additional 4.3
cents-per-gallon tax is imposed on most motor and other transportation fuels.
Collection points vary, but most taxes become due upon the removal of the fuel
from the terminal or refinery, or upon the entry of the fuel into the United
States. The impact of this legislation may cause a reduction in the demand for
the Company's products as opposed to alternative energy sources that are
available to the end user of the Company's product. However, the effect upon the
Company's operations cannot be predicted with certainty at this time.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local laws and
regulations governing the discharge of materials into the environment or
otherwise relating to environmental protection. Numerous governmental
departments issue rules and regulations to implement and enforce such laws which
are often difficult and costly to comply with and which carry substantial
penalties for failure to comply. These laws and regulations may require the
acquisition of a permit before drilling commences, restrict the types,
quantities and concentration of various substances that can be released into the
environment in connection with drilling and production activities, limit or
prohibit drilling activities on certain lands lying within wilderness, wetlands
and other protected areas, and impose substantial liabilities for pollution
resulting from the Company's operations.
For example, the Comprehensive Environmental Response, Compensation and
Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability, without regard
to fault or the legality of the original conduct, on certain classes of persons
who are considered to have contributed to the release of a "hazardous substance"
into the environment. These persons include the owner or operator of the
disposal site or sites where the release occurred and companies that disposed or
arranged for the disposal of the hazardous
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substances. Under CERCLA, such persons may be subject to joint and several
liability for the costs of cleaning up the hazardous substances that have been
released into the environment and for damages to natural resources. It is not
uncommon for neighboring landowners and other third parties to file claims for
personal injury and property damage allegedly caused by the hazardous substances
released into the environment.
In addition, these laws, rules and regulations may restrict the rate of oil
and natural gas production below the rate that would otherwise exist. The
regulatory burden on the oil and gas industry increases the cost of doing
business and consequently affects its profitability. These laws, rules and
regulations affect the operations of the Company.
Stricter standards in environmental legislation may be imposed in the oil
and gas industry in the future. For instance, legislation has been proposed in
Congress from time to time that would reclassify certain oil and natural gas
exploration and production wastes as "hazardous wastes" and make the
reclassified wastes subject to more stringent handling, disposal and clean-up
requirements. If such legislation were to be enacted, it could have a
significant impact on the operating costs of the Company, as well as the oil and
gas industry in general. Furthermore, at least two courts have recently ruled
that certain wastes associated with the production of crude oil may be
classified as "hazardous substances" under CERCLA and thus such wastes may
become subject to liability and regulation under CERCLA, as described above.
State initiatives to further regulate the disposal of oil and natural gas wastes
are also pending in certain states, and these various initiatives could have a
similar impact on the Company. Compliance with environmental requirements
generally could have a material adverse effect upon the capital expenditures,
earnings or competitive position of the Company. Although the Company has not
experienced any material adverse effect from compliance with environmental
requirements, there is no assurance that this will continue in the future.
The Oil Pollution Act of 1990 (the "OPA") requires owners and operators of
"offshore facilities" to establish $150 million in financial responsibility to
cover environmental cleanup and restoration costs likely to be incurred in
connection with an oil spill. On August 25, 1993, the Minerals Management
Service (the "MMS") published an advance notice of its intention to adopt a rule
under the OPA that would define "offshore facilities" to include all oil and gas
facilities that have the potential to affect "waters of the United States." The
term "waters of the United States" has been broadly defined to include inland
waterbodies, including wetlands, playa lakes and intermittent streams. Since the
Company will have oil and gas facilities that could affect "waters of the United
States," the Company could become subject to the financial responsibility rule
if it is adopted as proposed. Under the proposed rule, financial responsibility
could be established through insurance, guaranty, indemnity, surety bond, letter
of credit, qualification as a self-insurer or a combination thereof. There is
substantial opposition to the proposed rule throughout the oil and gas industry,
and the MMS has informally indicated that it will not move forward with adoption
of the rule until Congress has had an opportunity to reconsider the financial
responsibility requirements imposed under OPA. The Company cannot predict the
final form of any financial responsibility rule that may be adopted by the MMS
under the OPA, but if the proposed rule were adopted, no assurance can be given
as to the Company's ability to comply with such rule or the costs of such
compliance. In any event, the impact of any rule is not expected to be any more
burdensome to the Company than it will be to other similarly situated companies
involved in oil and gas exploration and production.
The Federal Water Pollution Control Act ("FWPCA") imposes restrictions and
strict controls regarding the discharge of produced waters and other oil and gas
wastes into navigable waters. The FWPCA provides for civil, criminal and
administrative penalties for any unauthorized discharges of oil and other
hazardous substances in reportable quantities and, along with the OPA, imposes
substantial potential liability for the costs of removal, remediation and
damages. State laws for the control of water pollution also provide varying
civil, criminal and administrative penalties and liabilities in the case of a
discharge of petroleum or its derivatives into state waters. Within the next
three or four years, both the Louisiana state water discharge regulations and
the federal NPDES permits may prohibit the discharge of produced water and sand,
and some other substances related to the oil and gas industry, to coastal waters
of Louisiana. Although the costs to reformat Company operations to comply with
these zero discharge mandates under federal or state law may be significant, the
entire industry will experience similar costs and the Company believes that
these costs will not have a material adverse impact on the Company's financial
conditions and operations. Further, the Coastal
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<PAGE> 137
Zone Management Act authorizes state implementation and development of programs
of management measures for non-point source pollution to restore and protect
coastal waters.
OPERATIONAL RISKS AND INSURANCE
The Company's operations are subject to the usual hazards incident to the
drilling and production of oil and natural gas, such as blowouts, cratering,
explosions, uncontrollable flows of oil, natural gas or well fluids, fires,
formations with abnormal pressures, pollution, releases of toxic gas and other
environmental hazards and risks. These hazards can cause personal injury and
loss of life, severe damage to and destruction of property and equipment,
pollution or environmental damages and suspension of operations. As a result,
the Company could incur substantial liabilities to third parties or governmental
entities, the payment of which could reduce or eliminate the funds available for
development, acquisitions or exploration, or result in the loss of the Company's
properties.
The Company will be covered under various types of insurance policies with
the minimum being a $1 million general liability policy and a $5 million
umbrella policy. The Company will also be covered under additional insurance,
including policies covering commercial property, workers' compensation policies,
a business auto policy and an electronic equipment protection policy.
The Company's insurance coverage will not cover every potential risk
associated with the drilling and production of oil and natural gas. Among other
things, coverage is not obtainable for certain types of environmental hazards.
The occurrence of a significant adverse event, the risks of which are not fully
covered by insurance, could have a material adverse effect on the Company's
financial condition and results of operation. Moreover, there can be no
assurance that the Company's insurance coverage will be adequate to cover any
losses or exposure to liability or that the Company will be able to maintain
adequate insurance coverage in the future at rates it considers reasonable.
EMPLOYEES
Upon completion of the Transactions, the Company expects to employ
approximately 13 people, of whom six will be located at the Company's
headquarters in Houston, Texas, and seven of whom will be located at the
Company's offices in Shreveport, Louisiana.
OFFICES
Upon completion of the Transactions, the Company will assume a lease
covering approximately 8,101 square feet for its Houston, Texas headquarters.
The lease provides for monthly rental of $8,914 through September 1997,
increasing to $9,252 through the end of the lease term in September 1999.
Patrick is currently the lessee under the Houston office lease. The Company will
sublease office space from Goodrich Oil Company in Shreveport, Louisiana. The
lease will cover approximately 3,352 square feet at a monthly cost of $3,100 and
expire in May 1996. Patrick also leases approximately 4,195 square feet of
office space in Midland, Texas which expires on September 30, 1995. The Company
does not plan to renew the Midland lease. The Company plans to vacate Patrick's
month-to-month lease covering its premises in Jackson, Michigan within two
months after the Effective Time.
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<PAGE> 138
MANAGEMENT OF THE COMPANY AFTER THE EFFECTIVE TIME
At the Effective Time, the Board of Directors of the Company will consist
of twelve persons, six of whom currently serve as directors of Patrick and who
will be designated by Patrick, and six of whom will be designated by La/Cal. In
accordance with the Bylaws of the Company, the members of the Board of Directors
are divided into three classes and are elected for a term of office expiring at
the third succeeding annual stockholders' meeting following their election to
office or until a successor is duly elected and qualified. The Bylaws also
provide that such classes shall be as nearly equal in number as possible. The
terms of office of the Class I, Class II and Class III Directors expire at the
annual meeting of stockholders in 1996, 1997 and 1998, respectively. The
officers are elected by, and serve until their successors are elected by, the
Board of Directors.
Set forth below is certain information with respect to those individuals
who will serve as members of the Board of Directors and executive officers of
the Company after consummation of the Transactions:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
------------------------------- --- -----------------------------------------------
<S> <C> <C>
U. E. Patrick(1)............... 66 Chairman of the Board (Class I)
Walter G. Goodrich(2).......... 36 President, Chief Executive Officer and Director
(Class III)
Roland Frautschi............... 37 Vice President, Chief Financial Officer and
Treasurer
Robert C. Turnham, Jr.......... 37 Vice President and Chief Operating Officer
Henry Goodrich(2).............. 65 Director (Class II)
Sheldon Appel(2)............... 61 Director (Class I)
Jeff H. Benhard(2)............. 66 Director (Class II)
Michael Watts.................. 35 Director (Class I)
La/Cal Director (to be Director (Class III)
designated)..................
Basil M. Briggs(1)............. 59 Director (Class III)
Benjamin F. Edwards, II(1)..... 68 Director (Class III)
Wayne G. Kees(1)............... 71 Director (Class II)
James R. Jenkins(1)............ 75 Director (Class II)
John C. Napley(1).............. 70 Director (Class I)
</TABLE>
- ---------------
(1) Designated as a director by Patrick.
(2) Designated as a director by La/Cal.
Messrs. Henry Goodrich, Appel, Benhard, Watts, Briggs, Edwards, Kees,
Jenkins and Napley will be elected to the Company's Board of Directors at the
Effective Time. Mr. Turnham will be elected to the officer positions described
above at the Effective Time. Each of these individuals has consented to being so
named in this Joint Proxy Statement/Prospectus. For information with respect to
the interests of certain officers and directors of the Company in the
transactions contemplated by the Agreement, see "Description of
Transactions -- Interests of Certain Persons in the Transactions."
U.E. "Pat" Patrick has served as President and a Director of Patrick and
its predecessors since 1963. Mr. Patrick is a director of Marcum Natural Gas
Services, Inc., Denver, Colorado. He has been engaged in oil and gas exploration
and production since 1962.
Walter G. "Gil" Goodrich is the President and Chief Executive Officer as
well as a Director of the Company. Mr. Goodrich has also served as a member of
the Management Committee of La/Cal since the formation of the partnership. He
became Goodrich Oil Company's Vice President of Exploration in 1985 and its
President in 1989. He joined Goodrich Oil Company as an exploration geologist in
1980. Mr. Goodrich will resign from Goodrich Oil Company at the Effective Time.
Roland Frautschi is the Company's Vice President, Chief Financial Officer
and Treasurer. He has been employed by Goodrich Oil Company since 1982. During
that time, he has served Goodrich Oil Company in a
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<PAGE> 139
number of capacities, including internal auditor, controller and since 1990, as
Goodrich Oil Company's Vice President of Finance. Mr. Frautschi will resign from
Goodrich Oil Company at the Effective Time.
Robert C. Turnham has held various positions in the oil and gas business
since 1981. From 1981 to 1984, Mr. Turnham served as a financial analyst for
Pennzoil USA. In 1984, he formed Turnham-Interests, Inc., a professional land
management company. Since 1993, he has served as president and as a partner of
Liberty Production Company, an oil and gas exploration and production company.
Henry Goodrich is a petroleum geologist with over 45 years experience in
the oil and gas business. Mr. Goodrich has served as an exploration geologist
with the Union Producing Company and the McCord Oil Company. From 1971 to 1975,
Mr. Goodrich was President, Chief Executive Officer and a partner of the
McCord-Goodrich Oil Company. In 1975, Mr. Goodrich formed the Goodrich Oil
Company and remains its Chairman and Chief Executive Officer. Additionally, Mr.
Goodrich has served as a member of the Management Committee of La/Cal since its
formation.
J. Michael Watts has been the Director and Vice President of Marketing and
Administration of Goodrich Oil Company since 1985 and has been employed by
Goodrich Oil Company since 1983. From 1981 to 1983, Mr. Watts was employed by
P&O Falco, Inc.
Sheldon Appel has been involved in real estate development and finance
since 1955 when he formed the Sheldon Appel Companies. Mr. Appel also has served
as a director of American Consumer Industries and Beverly Hills Savings and Loan
Association.
Jeff H. Benhard is the President and Chief Executive Officer of a number of
businesses owned by the Benhard family including, Benhard Grain, Inc., Peoples
Moss Gin Co., Inc. and Louisiana Premium Seafoods, Inc. Mr. Benhard has been
involved in the agriculture and aquaculture businesses since 1949. He is
currently a director of the Pan American Life Insurance Company and the Past
President of the LSU Foundation. Mr. Benhard is also a Director of the
Washington State Bank of Louisiana.
Basil M. Briggs has been a practicing attorney in Detroit, Michigan since
1961 and is currently of counsel with the firm of Miro, Miro & Weiner in
Bloomfield Hills, Michigan. Mr. Briggs is a director of Marcum Natural Gas
Services, Inc. Mr. Briggs has in the past provided limited services to Patrick
as a consultant concerning corporate, financial and development matters and has
occasionally rendered legal services to Patrick. Mr. Briggs is the Secretary of
Patrick and has been a director of Patrick since its formation.
Benjamin F. Edwards, II has been an independent oil and gas consultant
since 1975. From July 1977 through August 1984, Mr. Edwards was a full-time
consultant to Patrick for corporate development, corporate planning and
financial matters.
Wayne G. Kees has been primarily engaged in the management of his personal
investments since 1976. Mr. Kees is a director of Sizzler International, Inc.
James R. Jenkins is a practicing certified public accountant. He has been a
partner or officer of the firm of Jenkins, Magnus, Volk & Carrol, Bloomfield
Hills, Michigan, since 1951. Mr. Jenkins has been a director of Patrick since
its formation. Mr. Jenkins' firm provides limited accounting and tax services to
Patrick.
John C. Napley has been an independent oil and gas consultant since 1984.
He was the president of NG Securities Corp. from 1984 through October 1988. Mr.
Napley has been a director of Patrick from the time of its formation and was
associated with PPCM from 1965 to 1984 in connection with its oil and gas
drilling and exploration activities.
Henry Goodrich is Gil Goodrich's father. Michael Watts is Henry Goodrich's
son-in-law and Gil Goodrich's brother-in-law There are no other family
relationships among the officers and directors of the Company.
Pursuant to a proposed settlement of the suit by B.A.R.D., Patrick has
agreed that it will nominate a designee of B.A.R.D. to the Company's Board of
Directors for a term expiring at the 1996 annual meeting if the shares of
Patrick Common Stock owned by B.A.R.D. are voted in favor of the adoption and
approval of the Agreement at the Patrick Special Meeting. B.A.R.D. has asserted
that it is the assignee of certain rights
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<PAGE> 140
with respect to a single seat on the Patrick Board of Directors pursuant to an
agreement among certain former stockholders in American National Petroleum
Corporation, which merged with Patrick in 1993. In the event B.A.R.D.'s designee
is to be added to the Board pursuant to such settlement agreement, Patrick and
La/Cal have agreed to increase the size of the Company's Board to 14 persons and
to elect an additional La/Cal designee to the Board immediately prior to the
Effective Time.
COMMITTEES OF THE BOARD OF DIRECTORS
Upon consummation of the Transactions, the Company will have the following
standing committees of the Board of Directors:
Executive Committee. The Executive Committee will be delegated the
authority to approve any actions that the Board of Directors could approve,
except to the extent restricted by law or by the Company's Certificate of
Incorporation or Bylaws.
Audit Committee. The Audit Committee will be responsible for meeting with
the independent auditors and senior executives of the Company to review and
inquire into matters affecting the financial reporting of the Company and
recommending to the Board of Directors the auditors to be recommended for
appointment at the annual stockholders meeting.
Compensation Committee. The Compensation Committee will review
recommendations for the appointment of persons to senior executive positions,
determine terms of employment and compensation and be responsible for the proper
and orderly administration of the Company's employee benefit plans. This
committee will also be responsible for the compensation of the Board of
Directors.
As of the date of this Joint Proxy Statement/Prospectus, no committee
members have been designated.
COMPENSATION OF DIRECTORS
General. For serving on the Company's Board of Directors, each of the
directors who are not officers of the Company or its subsidiaries will be paid
$1,000 for each Board of Directors meeting attended. In addition, they will be
entitled to reimbursement for their reasonable out-of-pocket expenses in
connection with travel to and from meetings of the Board of Directors or
committees thereof and to periodic grants of options to purchase Common Stock.
See "-- Nonemployee Director Stock Option Plan." For a description of the
Goodrich Consulting Agreement between the Company and Henry C. Goodrich, see
"-- Employment and Consulting Agreements."
During 1994 two directors of Patrick provided services to Patrick: Mr.
Briggs provided legal services and received or accrued $34,220 in fees and Mr.
Jenkins provided tax services and received $1,108 in fees. Neither director is
expected to provide services to the Company.
Nonemployee Director Stock Option Plan. The Goodrich Petroleum Corporation
1995 Nonemployee Director Stock Option Plan (the "Director Option Plan")
provides for the grant of options to acquire Common Stock, to be granted to each
director who is not and has never been an employee of the Company (an "Eligible
Director"). The purposes of the Director Option Plan are to attract and retain
the services of experienced and knowledgeable outside directors of the Company
and to provide an incentive for such outside directors to increase their
proprietary interest in the Company's long-term success and progress. The
Director Option Plan covers an aggregate of 500,000 shares of Common Stock
(subject to adjustments in the event of stock dividends, stock splits and
certain other events). Each of the options granted under the Director Option
Plan will be non-qualified stock options.
If the Transactions are consummated each Eligible Director who was not a
director of Patrick prior to the Effective Time will receive on the Effective
Date an option to purchase 20,000 shares of Common Stock at an exercise price
equal to the fair market value of the Common Stock on the date of grant. In
addition, each Eligible Director who is elected or appointed to the Board of
Directors for the first time after the Annual Meeting, will receive on the date
of such director's election or appointment an option to purchase 20,000
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<PAGE> 141
shares of Common Stock at an exercise price equal to the fair market value of
the Common Stock on the date of grant.
On the date of any subsequent annual meetings of stockholders prior to the
termination of the Director Option Plan, each Eligible Director who is
continuing in office will automatically receive an option to purchase an
additional 10,000 shares of Common Stock at an exercise price equal to the fair
market value of the Common Stock on the date of grant.
Exercisability. Each option granted under the Director Option Plan will
vest over a five year period as described below and will expire in all cases ten
years from the date the option is granted. Options under the Director Option
Plan vest in 20% increments after each full year of service as a director
following the date of grant. Except as described below and except in certain
circumstances including a merger or consolidation with another corporation or
the sale of substantially all of the Company's assets, no option will be
exercisable as to any shares as to which the continuous service requirement has
not been satisfied. If an option holder ceases to be a director of the Company
for cause or voluntarily (other than by reason of mandatory retirement) not at
the request of the Board, the option may be exercised (to the extent that the
option has vested) within the three month period following the date of cessation
(if otherwise within the option period), but not thereafter. If an option holder
becomes disabled or dies while a director of the Company, such option may be
exercised in full within 12 months after the date the option holder becomes
disabled or dies (if otherwise within the option period). If an option holder
ceases to be a director of the Company for any reason other than those listed in
the two preceding sentences, the option may be exercised in full within three
months after the date of cessation (if otherwise within the option period), but
not thereafter. If an option holder dies within the three-month period after
ceasing to be a director of the Company, such option may be exercised (to the
extent such option was exercisable by the option holder at the time of his
death) within 12 months after the date of death (if otherwise within the option
period).
Grants. The following options are scheduled to be granted under the
Director Option Plan on the Effective Date. As indicated above, employees and
executive officers of the Company are not entitled to receive options under the
Director Option Plan.
<TABLE>
<CAPTION>
NAME OPTIONS GRANTED
-------------------------------------------------------------- ---------------
<S> <C>
Sheldon Appel................................................. 20,000
Jeff H. Benhard............................................... 20,000
J. Michael Watts.............................................. 20,000
Additional La/Cal designee.................................... 20,000
</TABLE>
EXECUTIVE COMPENSATION
As described above in "Description of the Business and Properties of
La/Cal," La/Cal has no employees and pays no compensation to any person in
exchange for services rendered in connection with its properties. La/Cal is a
partnership that includes certain working and overriding royalty interests which
are operated by Goodrich Oil Company. The executive officers of the Company
after the Effective Time will primarily consist of persons who are employees of
Goodrich Oil Company. For a description of compensation paid to such individuals
by Goodrich Oil Company, see "-- Certain Relationships and Related Party
Transactions."
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<PAGE> 142
Set forth below is certain information with respect to the compensation
paid to Pat Patrick by Patrick. Mr. Patrick is the Chairman of the Board of the
Company, and will continue to serve in such position after the Effective Time.
No other officers of Patrick will serve as executive officers or directors of
the Company after the Effective Time.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
---------------------
AWARDS
---------
SECURITIES PAYOUTS
ANNUAL COMPENSATION UNDERLYING ------- ALL OTHER
NAME AND ----------------------------- OPTIONS/ LTIP COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) SARS(#) PAYOUTS ($)(1)
- ------------------------- ---- -------- ------- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
U.E. Patrick............. 1994 $409,616(2) 0 0 $18,064 $123,632
Chief Executive Officer 1993 339,231 0 1,336,204 19,059 137,336
1992 450,000 0 0 16,468 153,253
</TABLE>
- ------------
(1) Perquisites and other personal benefits did not exceed the lesser of $50,000
or 10% of salary. All Other Compensation for 1994 includes $122,372 accrued
to reimburse Mr. Patrick for premiums on insurance policies held by him; and
$1,260 which the Company paid for term life insurance premiums on behalf of
Mr. Patrick.
(2) Includes $109,616 of Mr. Patrick's salary which Patrick has accrued and will
be paid to him during 1995.
The following table sets forth certain information at December 31, 1994
with respect to stock options held by Mr. Patrick.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUES OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS FOR YEAR
FOR YEAR END (#) END($)
---------------------- ----------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
U.E. Patrick............................ 821,120 184,482 0 0
</TABLE>
PATRICK EMPLOYMENT AGREEMENT
Patrick entered into the Patrick Employment Agreement with Mr. Patrick
effective November 1, 1993. The agreement extends through December 31, 1998 and
is automatically renewed for one year periods thereafter. His base salary under
the agreement is currently $450,000 per year. Upon the expiration of the initial
term or any extension of the Employment Agreement, the agreement provides for a
consulting engagement as a general advisor and consultant to management for a
term of four years, with compensation at 50 percent of Mr. Patrick's then
current minimum annual salary under the agreement. The agreement also provides
that Mr. Patrick participates in the Patrick Petroleum Corporation of Michigan
1990 Bonus Pool Plan. In the event of Mr. Patrick's death or disability during
the term of the employment agreement or during the first two years of a
consulting arrangement, Mr. Patrick or his designee shall receive 50% of the
salary he would otherwise receive for the balance of the first two years. In the
event that a change in control of Patrick occurs, if Mr. Patrick's employment is
terminated, as that term is defined in the agreement, then Mr. Patrick is
entitled to the following severance benefits: (i) payment of his salary through
the date of termination, (ii) the sum of Mr. Patrick's base salary and the
highest bonus awarded to him during the previous three years times the lesser of
three or the number of whole and fractional years between the date of
termination and December 31, 1998 (but in no event less than two), (iii)
accelerated vesting of all outstanding stock options, and (iv) normal benefits
until December 31, 1998. If the Merger is consummated, this agreement will be
terminated and Mr. Patrick's compensation will be pursuant to the Patrick
Consulting Agreement. See "Description of the Transactions -- Patrick Consulting
Agreements."
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<PAGE> 143
EMPLOYMENT AND CONSULTING AGREEMENTS
Prior to the Effective Time, the Company expects to enter into an
employment agreement with Mr. Gil Goodrich (the "Goodrich Employment Agreement")
pursuant to which Mr. Goodrich will be employed as President and Chief Executive
Officer of the Company and will devote his full-time to the affairs of the
Company at an initial annual base salary of $150,000. Pursuant to the Goodrich
Employment Agreement, Mr. Goodrich will also be entitled to certain bonus and
other incentive compensation as determined by the Compensation Committee of the
Board of Directors from time to time and including an option grant of 250,000
shares on the Closing Date. See "-- Goodrich Petroleum Corporation 1995 Stock
Option Plan." The Goodrich Employment Agreement will have an initial term of
five years and will be subject to automatic one-year renewals unless terminated
by either party thereto.
Pursuant to the Goodrich Consulting Agreement, Mr. Henry Goodrich will
provide certain consulting services to the Company after the Effective Time for
five years with regard to the evaluation of acquisitions and drilling
opportunities, financing transactions, investor relations and related matters.
Mr. Goodrich will also remain Chairman of the Board and Chief Executive Officer
of Goodrich Oil Company. Under the Goodrich Consulting Agreement, Mr. Goodrich
will be entitled to annual consulting fees of $150,000 and will receive a stock
option grant for 250,000 shares on the Closing Date. It is anticipated that Mr.
Goodrich will devote approximately one-half of his work time to the affairs of
the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the formation of La/Cal in July 1993 and the related
financing, Messrs. Henry Goodrich, Gil Goodrich and Roland Frautschi and
entities affiliated with them became entitled to certain back-in and carried
interests with respect to the interests in the properties which were contributed
to La/Cal. Such persons also received certain promotional interests prior to the
formation of La/Cal at the time such Properties were acquired prior to the
formation of La/Cal. Each of Mr. Henry Goodrich, Mr. Gil Goodrich,Mr. Frautschi
and J. Michael Watts were entitled to such promotional and back-in rights
pursuant to the terms of participation agreements with working-interest
participants in the properties in which La/Cal subsequently acquired and now
owns working interests. All such promotional and back-in interests of such
persons and their affiliates, as well as, such persons' other participation
interests, for which such persons paid their full share of drilling expenses,
were contributed to La/Cal in July 1993 in connection with the organization of
the partnership and the related financing. During 1994 and 1993, La/Cal made
cash distributions to such persons and their affiliates in connection with all
of the partnership interests held by such persons and their affiliates as
follows: Mr. Henry Goodrich (1994 -- $88,287; 1993 -- $184,083); Mr. Gil
Goodrich (1994 -- $1,287,877; 1993 -- $1,540,027); Mr. Frautschi
(1994 -- $113,719; 1993 -- $118,894); and Michael Watts (1994 -- $170,442;
1993 -- $268,975).
Mr. Henry Goodrich, Mr. Gil Goodrich, Mr. Roland Frautschi and Michael
Watts were employees of Goodrich Oil Company during 1994 and 1993. Such persons
received cash compensation from Goodrich Oil Company of $2,128.42, $60,118.80,
$52,899.19 and $60,118.80, respectively, during 1994 and $2,128.42, $20,118.80,
$52,899.19 and $37,377.20, respectively, during 1993. During these periods,
Goodrich Oil Company also reimbursed such individuals for certain out-of-pocket
business expenses. Certain of the services provided to Goodrich Oil Company were
related to the La/Cal Interests, but such services were paid for Goodrich Oil
Company without reimbursement by La/Cal. Mr. Gil Goodrich and Mr. Frautschi will
resign as officers and employees of Goodrich Oil Company prior to the Effective
Time.
For a description of the relationship of the Company to Goodrich Oil
Company and Henry Goodrich after the Effective Time, see "Description of the
Transactions -- Joint Participation Agreement with Goodrich Oil Company" and
"-- Consulting Agreement with Henry Goodrich."
For a description of marketing activities between the Company and La/Cal
and Natural Gas Ventures, L.L.C., see "Business of the Company -- Marketing."
The Company will lease office space in Shreveport, Louisiana from Goodrich
Oil Company at a montly cost of $3,100.
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<PAGE> 144
OWNERSHIP OF CAPITAL STOCK
OWNERSHIP OF THE CAPITAL STOCK OF THE COMPANY AFTER THE EFFECTIVE TIME
The Company currently has only 10 shares of capital stock outstanding, all
of which are held by Patrick. These shares will be cancelled in the Merger. It
is anticipated that immediately after the Effective Time the Company will have
39,530,452 shares of Common Stock outstanding (assuming no exercise of Patrick
Stock Options or Patrick Warrants prior to the Effective Time). The following
table sets forth the amount of Common Stock expected to be beneficially owned
immediately after the Effective Time by (i) each person who is known to the
Company who will own 5% or more of the outstanding shares of Common Stock
immediately after the Effective Time, (ii) each director of the Company and
(iii) all directors and officers as a group. The information in the table is
based upon the listed persons' holdings of Patrick Common Stock as of May 1,
1995 (unless otherwise indicated) and the current ownership of partnership
interests in La/Cal and assumes no dispositions of such shares or partnership
interests prior to the Effective Time.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
BENEFICIALLY OF
NAME OF BENEFICIAL OWNER OWNED CLASS
----------------------------------------------------------- ------------ -------
<S> <C> <C>
Henry Goodrich(1).......................................... 5,048,811 12.8%
Walter G. Goodrich (1)..................................... 8,194,586 20.7%
333 Texas St., Suite 1350
Shreveport, LA 71101
Leo E. Bromberg(2)......................................... 3,218,786 8.1%
280 S. Beverly Dr.
Suite 401
Beverly Hills, CA 90212
U. E. Patrick(3)........................................... 944,093 2.3%
Rochelle Rand.............................................. 2,430,174 6.1%
2550 Fifth Ave.
Suite 126
San Diego, CA 92103
Sheldon Appel(4)........................................... 818,280 2.1%
Jeff H. Benhard............................................ --
J. Michael Watts(5)........................................ 1,095,350(5) 2.8
Basil M. Briggs(6)......................................... 49,652 *
Benjamin F. Edwards, II(7)................................. 54,000 *
Wayne G. Kees(8)........................................... 56,665 *
James R. Jenkins(9)........................................ 60,105 *
John C. Napley(10)......................................... 95,072 *
B.A.R.D. Industries, Inc.(11).............................. 3,107,741 7.9%
15311 Vantage Parkway West
Suite 315
Houston, TX 77032
Directors and Executive Officers as a Group (14
persons)(12)............................................. 10,791,962 26.6%
</TABLE>
- ---------------
* Less than 1%.
(1) As to Henry Goodrich and Walter G. Goodrich includes 4,402,152 shares held
by HGF Partnership, a Louisiana general partnership ("HGF Partnership")
which will be formed immediately prior to the Effective Time. Henry
Goodrich is the managing general partner of HGF Partnership, and Walter G.
Goodrich holds a general partnership interest in HGF Partnership, through a
wholly owned company.
(Notes continued on following page)
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<PAGE> 145
As to Walter G. Goodrich also includes 2,201,076 shares held by Goodrich
Energy, Inc., of which Walter G. Goodrich is the sole stockholder. Henry
Goodrich exercises sole voting and investment power with respect to the
shares held by HGF Partnership. Gil Goodrich exercises sole voting and
investment power with respect to the shares held by Goodrich Energy Inc.
(2) Includes 2,260,667 shares held by Mr. Bromberg as trustee. Mr. Bromberg
exercises sole investment and voting control over such shares.
(3) Includes 47,973 shares owned by members of Mr. Patrick's family as to which
he disclaims beneficial ownership, and 821,120 shares which may be acquired
pursuant to stock options exercisable within 60 days.
(4) All such shares are held by the Sheldon Appel Company, a partnership
affiliated with Mr. Sheldon Appel. Mr. Appel is designated to become a
director of the Company at the Effective Time. Mr. Appel exercises sole
voting and investment power with respect to these shares. Mr. Appel has
advised La/Cal that he holds 32,000 shares of Patrick Preferred Stock which
he purchased on May 16-17, 1995.
(5) Includes 170,831 shares held by Mr. Watts' wife and 84,200 shares held
jointly by Mr. Watts and his wife over which Mr. Watts exercises shared
voting and investment power.
(6) Includes 49,000 shares which may be acquired by Mr. Briggs pursuant to
options exercisable within 60 days.
(7) Includes 51,000 shares which may be acquired by Mr. Edwards pursuant to
options exercisable within 60 days.
(8) Includes 46,500 shares which may be acquired by Mr. Kees pursuant to
options exercisable within 60 days.
(9) Includes 44,000 shares which may be acquired by Mr. Jenkins pursuant to
options exercisable within 60 days.
(10) Includes 45,500 shares which may be acquired by Mr. Napley pursuant to
options exercisable within 60 days.
(11) Based on a Schedule 13D of B.A.R.D. Industries, Inc., dated February 6,
1995.
(12) The number of shares beneficially owned by all executive officers and
directors as a group includes 1,057,120 shares which officers and directors
of the Company have the right to acquire pursuant to options exercisable
within 60 days.
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<PAGE> 146
OWNERSHIP OF PATRICK CAPITAL STOCK
The following table reflects the ownership of Patrick Common Stock as of
April 11, 1995 by (i) persons or groups who are known to Patrick to be the
beneficial owners of more than 5% of the outstanding shares Patrick Common
Stock, (ii) each director and (iii) all directors and executive officers as a
group. Patrick believes that, except as noted, the stockholders listed below
have sole investment and voting power with respect to the Patrick Common Stock
beneficially owned by them. Patrick is not aware of any holders of 5% or more
of, and none of the officers or directors of Patrick owns any shares of, Patrick
Preferred Stock. Except as otherwise indicated below the address for each person
listed in the table is 301 W. Michigan Ave., Jackson, Michigan 49201. See the
notes above under "-- Ownership of Capital Stock After the Effective Time" with
respect certain information regarding the ownership of shares set forth in the
following table.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
BENEFICIALLY OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED CLASS
----------------------------------------------------------- ------------ -------
<S> <C> <C>
B.A.R.D. Industries, Inc.(1)............................... 3,107,741 15.7%
15311 Vantage Parkway West
Suite 315
Houston, Texas 77032
FMR Corp.(2)............................................... 1,081,770 5.2%
82 Devonshire Street
Boston, MA 02109
U.E. Patrick............................................... 944,093 5.0%
Basil M. Briggs............................................ 49,652 *
Benjamin F. Edwards, II.................................... 54,000 *
Wayne G. Kees.............................................. 56,665 *
James R. Jenkins........................................... 69,105 *
John C. Napley............................................. 95,072 *
Directors and Executive Officers as a group (11
persons)(3).............................................. 1,425,267 6.8%
</TABLE>
- ---------------
* Less than 1%.
(1) According to the Schedule 13D filed on February 6, 1995 on behalf of
B.A.R.D. Industries, Inc., the following are the officers and directors of
B.A.R.D. Industries, Inc.: (i) Robert Belfer and Lawrence Belfer, with a
principal business and address at Belco Petroleum, 767 Fifth Avenue, 46th
Floor, New York, NY 10153 and (ii) Arthur G. Hinze and Robert Alpert, with a
principal business and address at 15311 Vantage Parkway West, Suite 315,
Houston, Texas 77032.
(2) Based on information contained in a Schedule 13G of the Securities and
Exchange Commission filed by FMR Corp. on December 31, 1994. FMR Corp. is
the parent corporation of Fidelity Management and Research Company, an
investment adviser registered under the Investment Advisers Act of 1940
which acts as an investment adviser to several investment companies. The
shares listed assumes conversion of 174,000 shares of Patrick Preferred
Stock into 579,420 shares of Patrick Common Stock and 460,000 warrants into
460,000 shares of Patrick Common Stock.
(3) Includes 1,222,679 shares which the 11 officers and directors have the right
to acquire pursuant to the exercise of options within 60 days.
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<PAGE> 147
OWNERSHIP OF LA/CAL PARTNERSHIP INTERESTS
The following table reflects the ownership of the partnership interests in
La/Cal expressed as a percentage, as of the date of this Joint Proxy
Statement/Prospectus, by (i) each member of the Management Committee and (ii)
each Partner who owns more than 5% of such equity interests. Unless otherwise
indicated, the address of such holder is 333 Texas Street, Suite 1300,
Shreveport, Louisiana 71101.
<TABLE>
<CAPTION>
EQUITY
NAME OF PARTNER INTEREST
------------------------------------------------------ ----
<S> <C>
Walter G. Goodrich(1)................................. 42.5%
Henry Goodrich(1)..................................... 26.3%
Michael and Laura G. Watts............................ 5.7%
Leo E. Bromberg(2).................................... 14.1%
280 S. Beverly Dr.
Suite 401
Beverly Hills, CA 90212
Rochelle Rand......................................... 12.6%
2550 Fifth Ave.
Suite 126
San Diego, CA 92103
James G. Marston III.................................. 5.2%
</TABLE>
- ---------------
(1) As to Henry Goodrich and Walter G. Goodrich includes a 22.9% equity interest
held by HGF Partnership. As to Walter G. Goodrich includes an 11.4% equity
interest held by Goodrich Energy, Inc. See Note 1 under "-- Ownership of the
Capital Stock of the Company After the Effective Time" for a description of
the relationship among such persons.
(2) Includes an 11.7% equity interest held by Mr. Bromberg as trustee. Mr.
Bromberg has sole investment and voting control over such equity interest.
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<PAGE> 148
COMPARATIVE RIGHTS OF STOCKHOLDERS/PARTNERS
The following is a summary of material differences between the rights of
holders of the Company's capital stock and Patrick's capital stock and La/Cal
partnership interests, respectively. These summaries do not purport to be
complete statements of the rights of the Company's stockholders under the DGCL
or the Company's Certificate of Incorporation and Bylaws or a complete
description of the provisions referred to herein. Nevertheless, the following
information and summaries of such information contained elsewhere herein are an
accurate summary of the material differences associated with the differences in
the rights of stockholders of Patrick and Partners of La/Cal, respectively, and
the rights of stockholders of the Company. These summaries are qualified in
their entirety by reference to the DGCL and the governing instruments of the
Company, Patrick and La/Cal. The terms of the Company's securities are described
in greater detail in "Description of Company Capital Stock."
PATRICK CAPITAL STOCK AND COMPANY CAPITAL STOCK
Patrick and the Company are incorporated in Delaware. Stockholders of
Patrick, whose rights as stockholders are currently governed by the DGCL and by
Patrick's Certificate of Incorporation and Bylaws will, upon consummation of the
Merger, become stockholders of the Company and their rights as such will be
governed by the DGCL and the Company's Certificate of Incorporation and Bylaws.
Except with respect to certain takeover related provisions described in the
following paragraphs that are included in Patrick's charter documents but have
not been included in the Company's charter documents, the Company's Certificate
of Incorporation and Bylaws were patterned after Patrick's Restated Certificate
of Incorporation and Bylaws, and therefore, except as summarized below, the
rights of Patrick stockholders are substantially the same.
Patrick has adopted a stockholder rights plan which contains standard
"flip-in" and "flip-over" provisions that would be triggered by the acquisition
of a person or group of 25% or more of the Patrick Common Stock. The Rights Plan
is designed to cause substantial dilution to a person or group that attempts to
acquire Patrick on terms not approved by the Board of Directors. The Rights
generally will not interfere with any merger or other business combination
approved by the Board of Directors because the Rights may be redeemed by Company
at $.02 per right at any time prior to a 25% acquisition. Pursuant to the
Agreement, the Company has agreed to consider the adoption of a rights plan
similar to the Patrick rights plan prior to the Effective Time. There can be no
assurance that the Board will elect to adopt such a plan.
Patrick's Certificate of Incorporation requires the affirmative vote of the
holders of 80% of the outstanding voting shares of Patrick to approve a merger,
consolidation, combination, majority share acquisition involving stock
issuances, sale or disposition of all or substantially all the assets of Patrick
or dissolution, unless such transaction is approved by two-thirds of the Board
of Directors of Patrick. Patrick's Certificate of Incorporation also requires
the affirmative vote of the holders of not less than 80% of the outstanding
voting shares in order to amend or repeal any provision of Patrick's Certificate
of Incorporation, or any provision of the Bylaws (if it is required or demanded
that the stockholders vote on such amendment or repeal), unless such amendment
or repeal is approved by two-thirds of the Board of Directors of Patrick. The
Certificate of Incorporation of the Company contains no comparable
"super-majority" voting provisions.
Patrick's Certificate of Incorporation prohibits Patrick from purchasing
any shares of Patrick Common Stock from any stockholder who owns 1% or more of
the outstanding Patrick Common Stock at a price higher than its then current
fair market value, unless the repurchase is approved by the holders of a
majority of the disinterested holders of Patrick Common Stock, or unless Patrick
makes a comparable offer to all other stockholders. The Certificate of
Incorporation of the Company contains no comparable "anti-greenmail" provisions.
LA/CAL PARTNERSHIP INTERESTS AND COMPANY COMMON STOCK
La/Cal is a Louisiana general partnership and the rights of its Partners
are governed by Title XI of Louisiana Civil Code (the "Civil Code") and the
La/Cal partnership agreement. Upon the Effective Date, the Partners will become
stockholders of the Company, and their rights as such will be governed by the
DGCL
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<PAGE> 149
and the Company's Certificate of Incorporation and Bylaws. Certain significant
differences between the rights of the Partners and the rights of the
stockholders of the Company are summarized below.
Term of Existence. La/Cal was organized in July 1993 for a term of ten
years, unless sooner terminated under certain circumstances or extended by
unanimous consent of the Partners. The Company's existence is perpetual. It may
be dissolved by the requisite stockholder vote.
Distributions. La/Cal's assets consist of various oil and gas interests and
the cash receipts attributable to such assets are periodically distributed to
the Partners, rather than being reinvested in additional drilling opportunities.
During 1994 and 1993, the Partners received cash distributions from La/Cal
aggregating $3,355,000 and $4,073,000, respectively. Pursuant to the
Transactions, the La/Cal Interests will be contributed to the Company in
exchange for shares of Common Stock. The Company is expected to retain any cash
produced from operations for reinvestment in oil and gas exploration and
development and related activities and does not expect to pay dividends on the
Common Stock. As a result, Partners should not expect to receive dividends or
other distributions after the Effective Time.
The DGCL provides that the Board of Directors of the Company can declare
dividends out of funds legally available therefor, which includes "surplus" as
computed in accordance with Delaware law or "net profits" for the fiscal year in
which the dividend is declared. In addition, after the Effective Time, the
Company's revolving line of credit committed to be provided by Compass Bank
prohibits the payment of dividends if a default or event of default by the
Company exists.
Management. The La/Cal partnership agreement provides that except as
otherwise expressly provided, the management and control of the day-to-day
operations of La/Cal shall rest exclusively in a Management Committee comprised
of three Partners. The Management Committee is given broad powers under the
La/Cal partnership agreement; however, the consent of (i) all Partners is
required to extend the term of existence of La/Cal, (ii) Partners owning 51% of
the equity interest is required to sell or exchange all or substantially all of
La/Cal's properties, (iii) a majority in interest of the Partners is required to
remove a member of the Management Committee or to select a successor member,
(iv) a majority in interest is required to make certain decisions if a Partner
defaults in making his capital contributions, and (v) a majority of the Partners
is required to dissolve the partnership. The La/Cal Partnership Agreement
provides that the Management Committee shall not be liable to La/Cal or to any
other Partner for any actions taken in good faith and reasonably believed to be
in the best interests of La/Cal, or for errors of judgment, neglect, omission,
or wrongdoing; provided that a member of the Management Committee may be liable
for willful misconduct, gross negligence, or other breach of his fiduciary
duties.
Holders of Common Stock have no right as such to participate in the
management of the Company except pursuant to their right to vote in the election
of directors of the Company.
The Certificate of Incorporation of the Company provides that any person
who was or is a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was an officer, director, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership or other business entity, shall be
indemnified against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred or to be incurred by
him in connection with such actions or proceedings, if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interest of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
The Certificate of Incorporation further provides that no director shall be
personally liable to the corporation or its stockholders for monetary damages
for any breach of fiduciary duty by such director as a director. Notwithstanding
the foregoing sentence, a director shall be liable to the extent provided by
applicable law (i) for breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law,
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<PAGE> 150
(iii) pursuant to Section 174 of the Delaware General Corporation, law or (iv)
for any transaction from which the director derived an improper personal
benefit.
Fiduciary Duties. The business and affairs of the Company will be managed
under the direction of the Board of Directors. Directors have a fiduciary duty
to the Company and its stockholders, which immediately following the Effective
Time will include both the former stockholders of Patrick and the former
Partners of La/Cal. The fiduciary duty includes the legal responsibilities of
care, loyalty and good faith. As permitted by Delaware law, the Company's
Certificate of Incorporation provides for indemnification of directors under
certain circumstances and limits their liability to the Company and its
stockholders under certain circumstances. The La/Cal partnership agreement
includes provisions for indemnification of members of the Management Committee.
Indemnification. The La/Cal partnership agreement provides broad
indemnification provisions for the Management Committee, including that the
Management Committee shall not be liable to the Partnership or to any other
Partner for (i) any action taken in good faith and reasonably believed to be in
the best interests of the Partnership, or (ii) errors of judgment, neglect,
omission, or wrongdoing; provided, however, that a member of the Management
Committee shall be liable for willful misconduct, gross negligence, or other
breaches of fiduciary duties.
The Company's indemnification of directors and officers under certain
circumstances under the DGCL provides that provisions eliminating or limiting
the personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for authorizing the improper
payment of dividends or (iv) for any transaction from which the director derived
an improper personal benefit.
Voting Rights. The Civil Code does not contain any voting rights
provisions, and the voting rights of the Partners are limited to the consent
requirements referred to above. Holders of Common Stock are entitled to vote on
the election of directors of the Company and are also entitled to vote on
various other matters, including (i) amendments to the Certificate of
Incorporation, (ii) the sale of substantially all of the assets of the Company,
(iii) the voluntary dissolution of the Company or (iv) merger or share exchange.
Meetings. There is no provision in the Civil Code or in the La/Cal
partnership agreement providing for meetings of the Partners. The Bylaws of the
Company provide for an annual meeting of stockholders, and further that a
special meeting of stockholders may be called by the Chairman of the Board, or
the President, or by a majority of the directors acting with or without a
meeting.
Liability. Each Partner is jointly and severally liable for all debts and
obligations of La/Cal. In general, a stockholder of the Company has no liability
for any debts or obligations of the Company.
Tax Consequences. La/Cal is currently treated as a partnership and not as
an associate taxable as a corporation for federal income tax purposes. Under
present law, a partnership is not a taxable entity and incurs no federal income
tax liability. Instead, each item of partnership income, gain, loss, deduction
or credit "flows through" to the partners. A distribution by a partnership to a
partner is generally not taxable to the partner unless the distribution is money
in excess of the partner's adjusted basis in his partnership interest or the
amount such partner has "at risk" in the partnership.
Since the Company will be classified as a corporation for federal income
tax purposes, any income of the Company and its subsidiaries will be subject to
tax at the corporate rate, and any dividends by the Company to its stockholders
will incur a second level of tax in the hands of the stockholders. In other
words, any income of the Company distributed to its stockholders will be subject
to "double taxation." The Company does not expect to pay dividends on its Common
Stock for the foreseeable future. See "Federal Income Tax Consequences."
Rights to Inspect. The La/Cal partnership agreement provides that Partners
or their representatives shall have reasonable access to the accounting records
of La/Cal during regular business hours. The DGCL
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<PAGE> 151
provides that any stockholder of record or its representative shall upon written
demand under oath stating the purpose thereof, have the right during the usual
hours for business to inspect for any "proper purpose" the Company's stock
ledger, a list of stockholders and its other books and records. A "proper
purpose" for purposes of inspecting the Company's books and records means a
purpose reasonably related to such person's interest as a stockholder.
Dissenters' Rights. Neither the La/Cal Partnership Agreement nor the Civil
Code provides that a partner has the right to seek a judicial determination of
the fair market value of his partnership interest if the assets of La/Cal are
sold.
SUMMARY OF SIGNIFICANT DIFFERENCES
The table set forth below illustrates the primary differences between stock
ownership in the Company and partnership interest ownership in La/Cal.
<TABLE>
<CAPTION>
STOCK OWNERSHIP INTEREST OWNERSHIP
CONSIDERATION IN THE COMPANY IN LA/CAL
- ----------------------- --------------------------------- ---------------------------------
<S> <C> <C>
1. Term of Existence... Perpetual. 10 Year Term
2. Distributions....... The Company plans to reinvest La/Cal regularly distributed net
cash generated from operations; income to the Partners.
no dividends in near term.
3. Personal Stockholders have no personal Each La/Cal Partner is jointly
Liability............ liability for any debts or and severally liable for all
obligations of the Company. La/Cal debts and obligations
(except for secured financing).
4. Tax Consequences.... Items of income, gain, loss and All items of income, gain, loss
deduction are retained by the and deduction are passed through
Company, with distributions, if La/Cal to the Partners.
any, subject to another level of
taxation at the stockholder
level.
5. Voting.............. Stockholders are entitled to vote The Louisiana Civil Code does not
on the election of directors of contain any voting rights
the Company and certain other provisions. The voting rights of
fundamental matters. the Partners are limited to
certain consent requirements set
forth in the partnership
agreement.
</TABLE>
140
<PAGE> 152
DESCRIPTION OF COMPANY CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, par value $0.20 per share, and 10,000,000 shares of Preferred
Stock, par value $1.00 per share, of which 1,175,000 shares are designated as
Series A Convertible Preferred Stock. As of the date of this Joint Proxy
Statement/ Prospectus, ten shares of Common Stock and no shares of Preferred
Stock were issued and outstanding. The following description is a summary of the
material terms of the Company's capital stock. For a complete description of the
terms of the capital stock, reference is made to the Company's Certificate of
Incorporation and Bylaws, which are included as exhibits to the Registration
Statement.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Holders of Common
Stock do not have the right to cumulate their votes in the election of
directors. Holders of Common Stock are entitled to receive dividends when, as
and if declared by the Board of Directors of the Company out of funds legally
available therefor, subject to any dividend preferences of any outstanding
shares of Preferred Stock. In the event of the liquidation, dissolution or
winding up of the Company, holders of Common Stock have the right to share
ratably in any assets remaining after the satisfaction in full of the
liabilities of the Company and of all liquidation preferences on any outstanding
shares of Preferred Stock. Holders of Common Stock have no preemptive or
preferential rights to purchase or subscribe for any part of any additional
securities or rights to convert their Common Stock into other securities and are
not subject to future calls or assessments by the Company. All outstanding
shares of Common Stock are, and all shares of Common Stock offered in connection
with the Transactions and to be issued upon conversion of the Preferred Stock
upon issuance will be, fully paid and nonassessable.
PREFERRED STOCK
Generally. Under the Company's Certificate of Incorporation, the Board of
Directors of the Company is authorized, without further action by the
stockholders, to issue up to 10,000,000 shares of Preferred Stock and to fix and
determine the designations, series, powers, preferences, rights, qualifications,
limitations and restrictions of the Preferred Stock. The rights of the holders
of Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of Company Preferred Stock. The issuance of a new series of the
Company Preferred Stock could have the effect of delaying, deferring or
preventing a change of control of the Company.
Series A Convertible Preferred Stock. The Company's Certificate of
Incorporation authorizes 1,175,000 shares of Series A Convertible Preferred
Stock. Initially, shares of Preferred Stock will be issued pursuant to the
Merger in exchange for outstanding shares of Patrick Preferred Stock. The terms
and provisions of the Preferred Stock are substantially identical to those of
the Patrick Preferred Stock. The Preferred Stock will rank senior to the Common
Stock with respect to dividends and distributions of assets upon the
liquidation, dissolution or winding up of the Company. No shares of Preferred
Stock are outstanding as of the date hereof.
Holders of shares of Preferred Stock will be entitled to receive, when, as
and if declared by the Board of Directors of the Company, out of any funds
legally available therefor, cash dividends at the annual rate of 8%, or $0.80
per share, accruing without interest and cumulative from the date of first
issuance, payable quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year. Dividends and distributions (other than dividends
payable solely in junior ranking capital stock) may not be declared, paid or set
apart for payment and purchases, redemptions or other acquisitions of shares of
Common Stock or other junior ranking capital stock unless all accrued and unpaid
dividends on the Preferred Stock have been paid or declared and set apart for
payment.
The Company may, at its option, redeem all or part of the shares of
Preferred Stock then outstanding, subject to the limitations, if any, imposed by
applicable law, at a redemption price of $12 per share plus any accrued and
unpaid dividends, whether or not declared. There is no mandatory redemption or
sinking fund obligation with respect to the Preferred Stock.
141
<PAGE> 153
In the event of a voluntary or involuntary liquidation, dissolution or
winding up of the Company, holders of shares of Preferred Stock will be entitled
to receive, out of the assets of the Company legally available therefor, a sum
equal to $10.00 per share of Preferred Stock, subject to adjustments for stock
splits or combinations, plus all dividends, if any, accrued and unpaid to the
distribution date.
Holders of shares of Preferred Stock will have no voting rights, except as
required by law, unless dividends payable on the Preferred Stock fall in arrears
in an amount equal to at least six quarterly dividends, in which case the number
of directors of the Company will be increased by two, and holders of shares of
Preferred Stock (voting separately as a class with the holders of stock ranking
in parity with the Preferred Stock and with like voting rights) will be
exclusively entitled to elect, at any meeting of stockholders at which directors
are to be elected, such two additional directors to serve until all such
dividends have been paid in full or set apart for payment.
So long as any shares of Preferred Stock are outstanding, the Company may
not, (i) without the affirmative vote of the holders of at least two-thirds of
all outstanding shares of Preferred Stock, voting separately as a class, (a)
amend, alter or repeal any provision of the Company's Certificate of
Incorporation or Bylaws to adversely affect the rights of the Preferred Stock,
(b) authorize or issue any additional class or series of stock ranking senior to
the Preferred Stock, or (c) effect any reclassification of the Preferred Stock,
or (ii) without the affirmative vote of the holders of at least fifty percent of
all outstanding shares of Preferred Stock, voting separately as a class, (a)
authorize or issue any additional class or series of stock having rights in
parity with the Preferred Stock and having the right to vote on matters as to
which the Preferred Stock is not entitled to vote, or (b) incur indebtedness for
money borrowed or authorize or issue stock ranking in parity with such Preferred
Stock if adjusted stockholders' equity is less than the liquidation preference
of all stock ranking senior or in parity with the Preferred Stock.
The holder of any shares of Preferred Stock will have the right, at the
holder's option, to convert any or all such shares into Common Stock at any time
prior to redemption. Each share of Preferred Stock will be convertible into
shares of Common Stock at a conversion rate which is equal (x) to the then
liquidation preference of the shares of Preferred Stock, plus accrued and unpaid
dividends, divided by (y) the conversion price, which is initially $3.00 and is
subject to customary adjustments. If the Preferred Stock is converted prior to
September 15, 1997, the holders of shares of Preferred Stock will, upon the
conversion of shares into Common Stock, also receive one warrant to purchase one
share of Common Stock with an exercise price of $5 per share for each share of
Preferred Stock received upon conversion. In the event that the closing price
for the Preferred Stock, as quoted on the Nasdaq Stock Market or any national
securities exchange, exceeds 150% of the then liquidation preference per share
for ten consecutive trading days, then all outstanding shares of Preferred Stock
will be automatically converted into shares of Common Stock (and, if prior to
September 15, 1997, warrants) at the then effective conversion rate.
If a Corporate Change (as defined below) should occur with respect to the
Company, each holder of Preferred Stock shall have the right, at the holder's
option, for a period of 45 days after the mailing of a notice by the Company
that a Corporate Change has occurred, to convert all, but not less than all, of
such holder's Preferred Stock into Marketable Stock (as defined below) with an
aggregate Market Value (as defined below) equal to the aggregate Adjusted Value
(as defined below) of the Preferred Stock for which conversion is elected. If a
Corporate Change will result in no Marketable Stock being outstanding following
its occurrence, each holder of Preferred Stock shall have the special conversion
right, if he so elects to receive an amount of the securities, cash or other
property distributed to holders of Common Stock in the Corporate Change, the
value of which equals the Adjusted Value per share of Preferred Stock, and, in
the event each share of Common Stock entitles its holder to more than one type
of consideration, in the same relative proportion of each type of consideration
per share of Common Stock. The Company or the successor corporation, as the case
may be, may, at its option, in lieu of providing Marketable Stock or other
appropriate consideration as required above upon any such special conversion,
provide the holder with cash equal to the Adjusted Value of the shares of the
Preferred Stock for which conversion was elected. Preferred Stock that becomes
convertible pursuant to the special conversion right will, unless so converted,
remain convertible into the kind and amount of securities, cash or other assets
that the holders of the Preferred Stock would have owned immediately after the
Corporate Change if the holders had converted the Preferred Stock immediately
142
<PAGE> 154
before the effective date of the Corporate Change. The Company will notify the
registered holders of Preferred Stock of any pending Corporate Change at least
30 days in advance of the effective date of any such Corporate Change in order
to allow such holders an opportunity to exercise their other conversion rights
prior to the effective date of such Corporate Change and before the special
conversion right commences.
If any Ownership Change (as defined below) should occur with respect to the
Company, each holder of Preferred Stock shall have the right, at the holder's
option, for a period of 45 days after the mailing of a notice by the Company
that an Ownership Change has occurred, to convert all, but not less than all, of
such holder's Preferred Stock into Common Stock with an aggregate Market Value
equal to the aggregate Adjusted Value of the Preferred Stock for which
conversion is elected. The Company may, at its option, in lieu of providing
Common Stock upon any such special conversion, provide the holder with cash
equal to the Adjusted Value of the shares of the Preferred Stock for which
conversion was elected. The special conversion right arising upon an Ownership
Change will be applicable only with respect to the first Ownership Change that
occurs after the first date of issuance of any shares of Preferred Stock.
At least 30 days prior to the proposed effective date of a Corporate
Change, the Company shall mail to each holder of Preferred Stock a notice
setting forth the details of the proposed Corporate Change and the special
conversion right. Upon the occurrence of a Corporate Change or an Ownership
Change with respect to the Company, within 30 days after such occurrence, the
Company will mail to each registered holder of Preferred Stock a notice of such
occurrence setting forth details regarding the special conversion right of such
Corporate Change or Ownership, as the case may be. A holder of Preferred Stock
must exercise the special conversion right within the 45-day period after the
mailing of such notice of occurrence by the Company or such special conversion
right shall expire. Exercise of such conversion right shall be irrevocable and
dividends on Preferred Stock tendered for special conversion shall cease to
accrue from and after the conversion date. The conversion date with respect to
the exercise of a special conversion right arising upon a Corporate Change or
Ownership Change shall be the 45th day after the mailing of the notice by the
Company that a Corporate Change or Ownership Change, as the case may be, has
occurred.
As used herein, a "Corporate Change" with respect to the Company means (i)
the occurrence of any transaction or event in connection with which all or
substantially all of the Common Stock of the Company is exchanged for, converted
into, acquired for or constitutes solely the right to receive cash, securities,
property or other assets (whether by means of an exchange offer, liquidation,
tender offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise) or (ii) the conveyance, sale, lease, assignment,
transfer or other disposal of all or substantially all of the Company's
property, business or assets.
As used herein, an "Ownership Change" with respect to the Company shall be
deemed to have occurred at such time as any person together with any of its
Affiliates or Associates (as defined below) becomes the beneficial owner,
directly or indirectly, of more than 30% of the outstanding Common Stock of the
Company pursuant to a transaction that does not constitute a Corporate Change
with respect to the Company. An "Affiliate" of a specified person is a person
that directly or indirectly controls, or is controlled by, or is under common
control with, the person specified. An "Associate" of a person means (i) any
corporation or organization, other than the Company or any subsidiary of the
Company, of which the person is an officer or partner or is, directly or
indirectly, the beneficial owner of 10% or more of any class of equity
securities; (ii) any trust or estate in which the person has a substantial
beneficial interest or as to which the person serves as trustee or in a similar
fiduciary capacity and (iii) any relative or spouse of the person, or any
relative of the spouse, who has the same home as the person or who is a director
or officer of the person or any of its parents or subsidiaries.
As used herein, the "Adjusted Value" of a share of Preferred Stock is an
amount equal to the Stated Value; provided, however, that if the Reference Value
of a share of Common Stock exceeds both the Market Value of a share of Common
Stock and the Applicable Value, then the Adjusted Value shall be determined by
multiplying the greater of the Market Value of a share of Common Stock or the
Applicable Value by the quotient of the Stated Value of a share of Preferred
Stock divided by the Reference Value per share of Common Stock.
143
<PAGE> 155
As used herein, the "Applicable Value" shall be an amount equal to the sum
of the cash, Market Value of Marketable Stock and the value of any other
securities, property or other consideration distributed to holder of Common
Stock for each share of Common Stock upon or in connection with a Corporate
Change.
As used herein, "Market Value" of the Common Stock, or of the common stock
of the corporation that is the successor to all or substantially all of the
business and assets of the Company as the result of a Corporate Change, shall be
the average of the closing market price of such Common Stock or other common
stock, as the case may be, for the five business days ending on the last
business day preceding the date of the Ownership Change or Corporate Change.
As used herein, the term "Marketable Stock" shall mean the Common Stock or
common stock of any corporation that is the successor to all or substantially
all of the business and assets of the Company as a result of a Corporate Change,
which in either case is (or will, upon distribution thereof, be) listed on the
New York Stock Exchange or the American Stock Exchange or approved for quotation
in the Nasdaq National Market or any similar system of automated dissemination
of quotations of securities prices in the United States.
As used herein, "Stated Value" of a share of Preferred Stock converted
during the 45-day period following the occurrence of a Corporate Change or an
Ownership Change shall mean the price per share the Company would be required to
pay if it exercised its option to redeem such shares on the conversion date,
plus an amount equal to the amount by which the Market Value of the Common Stock
exceeds the exercise price of the Warrant. See "Redemption," above.
As used herein, the term "Reference Value" shall initially mean $1.92 per
share; provided, however, that in the event of any adjustment to the conversion
price, the Reference Value shall also be adjusted so that the ratio of the
Reference Value to the conversion price, after giving effect to any such
adjustment, shall always be the same as the ratio of $1.92 to the initial
conversion price.
Holders of Preferred Stock will have no preemptive rights with respect to
any shares of Common Stock or any other securities of the Company convertible
into or carrying rights or options to purchase any such shares.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
are intended to enhance the likelihood of continuity and stability in the Board
of Directors of the Company and in its policies, but might have the effect of
delaying or preventing a change in control of the Company and may make more
difficult the removal of incumbent management even if such transactions could be
beneficial to the interests of stockholders. Set forth below is a summary
description of such provisions:
Classified Board of Directors. Pursuant to the Company's Bylaws, the Board
of Directors of the Company is divided into three classes of directors. Each
class has a term of three years and one class is elected at each annual meeting
of stockholders.
Number of Directors; Filling Vacancies; Removal. The Company's Bylaws
provide that the number of directors shall be not less than six nor more than 12
as fixed by the Board of Directors of the Company. The Board of Directors of the
Company has fixed the number at 12 directors. The Board of Directors of the
Company, acting by a majority of the directors then in office, may fill any
vacancy or newly created directorship. Moreover, under the DGCL, in the case of
a corporation having a classified board, stockholders may remove a director only
for cause.
Stockholder Actions and Meetings. The Company's Certificate of
Incorporation provides that all actions required or permitted to be taken by the
stockholders of the Company are to be taken only at a duly held meeting of the
stockholders, and no stockholder action may be taken by written consent without
a meeting. The Company's Bylaws provide that special meetings of stockholders
may be called only by the Chairman of the Board, the President or by a majority
of the directors.
144
<PAGE> 156
DELAWARE BUSINESS COMBINATION STATUTE
The Company is subject to the provisions of Section 203 of the DGCL
("Business Combination Statute"). In general, the Business Combination Statute
prohibits a publicly-held Delaware corporation from engaging in certain
"business combinations" with an "interested stockholder" for a period of three
years after the date such person became an interested stockholder, unless (i)
before such person became a stockholder, the board of directors approved either
the proposed business combination or the proposed acquisition of stock resulting
in such person's becoming an interested stockholder, (ii) the interested
stockholder acquired at least 85% of the voting stock of the corporation in the
transaction in which it became an interested stockholder, or (iii) the business
combination is approved by a majority of the board of directors and by the
affirmative vote of the holders of two-thirds of the outstanding shares of the
corporation's voting stock other than shares held by the interested stockholder
at a meeting of the stockholders. A "business combination" is defined broadly to
include a merger, consolidation, sale or other disposition of assets and certain
other transactions resulting in the receipt of financial benefits by the
interested stockholder. An "interested stockholder" is defined as a person who,
together with affiliates and associates, beneficially owns (or within the
preceding three years, did beneficially own) 15% or more of the corporation's
voting stock.
The Business Combination Statute could have the effect of delaying,
deferring or preventing a change in control of the Company by means of a tender
offer, open market purchase, a proxy fight or otherwise. These provisions are
designed to encourage persons seeking to acquire control of the Company to
negotiate a transaction with the Board of Directors of the Company. To the
extent these provisions discourage takeover attempts, they could deprive
stockholders of opportunities to realize takeover premiums for their shares or
could depress the market price of the Company Common Stock.
TRANSFER AGENT
The transfer agent for the Common Stock and the Preferred Stock has not
been determined.
145
<PAGE> 157
SHARES ELIGIBLE FOR FUTURE SALE
While the Patrick Common Stock is traded on the NYSE, there has been no
public market for partnership interests in La/Cal. After the Effective Time, the
Company will have 39,530,452 shares of Common Stock issued and outstanding and
2,981,602 shares subject to issuance upon the exercise of outstanding option
allotments. As a result of the registration of Common Stock to be issued to
La/Cal pursuant to the Agreement (and subsequently distributed to the Partners
upon liquidation of La/Cal), effectively all shares of Common Stock to be
received by the Partners and the Patrick stockholders (other than by
"affiliates", as defined in Rule 144 under the Securities Act, of La/Cal,
Patrick or the Company and subject to contractual restrictions described below)
will be eligible for public sale without restriction immediately after the
Effective Time. In addition, subject to such contractual restrictions, shares
held by affiliates (of the Company, Patrick or La/Cal) should be eligible for
sale under Rule 144, subject to volume and certain other limitations (see
"Description of the Transactions -- Restrictions on Resale by Affiliates"). It
is expected that Partners holding at least 99% of the partnership interests in
La/Cal (who will own at least 19,567,573 shares of Common Stock after the
Effective Time) and each director of Patrick (who collectively will own an
estimated 1,259,587 shares of Common Stock after the Effective Time) will enter
into agreements not to sell any Common Stock or other securities of the Company
for a period of six months after the Effective Time. Considering that there has
been no market for partnership interests in La/Cal, it is possible that after
expiration of such six month period former Partners may elect to sell all or
part of their Common Stock, which could adversely affect the market price. In
addition, the Company will enter into a Registration Rights Agreement with
certain affiliates of La/Cal and Patrick, who will collectively have
registration rights with respect to approximately 16,000,000 shares of Common
Stock after the Effective Time, whereby such holders will have the right,
subject to certain conditions, to require the Company to register the offer and
sale of their shares under the Securities Act. Substantial sales of shares by
holders of Common Stock whether in a registered offering or pursuant to Rule 144
or otherwise, could adversely affect the market price of the Common Stock.
EXPERTS
The consolidated financial statements and schedules of Patrick as of
December 31, 1994 and 1993 and for each of the years in the three-year period
ended December 31, 1994 included herein and elsewhere in the Registration
Statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, appearing herein and elsewhere and have been so included
in reliance upon such report of such firm given upon the authority of such firm
as experts in accounting and auditing.
The financial statements of La/Cal as of December 31, 1994 and for the year
ended December 31, 1994 and the period from July 15, 1993 through December 31,
1993 and the statement of revenues and direct operating expenses of the
properties contributed to La/Cal for the period from January 1, 1993 through
July 14, 1993 included herein and elsewhere in the Registration Statement have
been included herein and in the Registration Statement in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants,
appearing herein and elsewhere in the Registration Statement and upon the
authority of such firm as experts in accounting and auditing.
The information provided by H.J. Gruy and Associates, Inc. independent
petroleum engineers, included herein under "Business and Properties of La/Cal,"
and the letter report of such firm included herein as Appendix III have been
included in reliance upon such firm as experts with respect to the matters
contained therein.
The information provided by Coutret & Associates, Inc., independent
petroleum engineers, included herein under "Business and Properties of La/Cal,"
and the letter report of such firm included herein as Appendix IV have been
included in reliance upon such firm as experts with respect to the matters
contained therein.
The information provided by Lee Keeling & Associates, independent petroleum
engineers, included herein under "Business and Properties of Patrick" and in the
Patrick Annual Report on Form 10-K and the
146
<PAGE> 158
letter report of such firm included herein as Appendix V have been included in
reliance upon such firm as experts with respect to the matters contained
therein.
The information provided by Huddleston & Co., Inc., independent petroleum
engineers, included herein under "Business and Properties of Patrick" and in the
Patrick Annual Report on Form 10-K has been included in reliance upon such firm
as experts with respect to the matters contained therein.
LEGAL MATTERS
The validity of the issuance of the securities offered hereby and certain
other matters will be passed upon for Patrick by Emens, Kegler, Brown, Hill &
Ritter Co., L.P.A., a legal professional association, Columbus, Ohio. The
validity of the issuance of the securities offered hereby and certain other
matters have been passed upon for La/Cal by Vinson & Elkins L.L.P., Houston,
Texas.
STOCKHOLDERS' PROPOSALS
Any proposal of a stockholder intended to be presented at the 1996 Annual
Meeting of Stockholders of the Company must be received by the Secretary of the
Company at its principal executive offices a reasonable time before proxies are
solicited by the Board of Directors of the Company for that meeting, and must
otherwise meet the requirements of applicable federal and state law, in order to
be considered for inclusion in the proxy statement and form of proxy for that
meeting. In addition to the foregoing requirements of law, the Company's Bylaws
require a written statement setting forth any such proposal to be delivered to
the Board of Directors of the Company not less than 60 days prior to a meeting
of stockholders.
Patrick will hold a 1995 annual meeting of stockholders only if the Merger
is not consummated. In the event an annual meeting is held, any proposal of a
stockholder intended to be presented at such annual meeting must have been
received by Patrick at its principal executive offices a reasonable time before
proxies are solicited by the Board of Directors of Patrick, and must otherwise
meet the requirements of applicable federal and state law, in order to be
considered for inclusion in the proxy statement and form of proxy for that
meeting. In addition to the foregoing requirements of law, Patrick's Bylaws
require a written statement setting forth any such proposal to be delivered to
the Board of Directors of Patrick not less than 60 days prior to a meeting of
stockholders.
La/Cal does not hold annual meetings. There is no provision in the La/Cal
Partnership Agreement relating to meetings of the Partners.
147
<PAGE> 159
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PATRICK PETROLEUM COMPANY
Independent Auditors' Report....................................................... F-1
Consolidated Balance Sheets at December 31, 1994 and 1993.......................... F-2
Consolidated Statements of Operations for the three years ending December 31, 1994,
1993
and 1992........................................................................ F-4
Consolidated Statements of Stockholders' Equity for the three years ending December
31, 1994, 1993 and 1992......................................................... F-5
Consolidated Statements of Cash Flows for the three years ending December 31, 1994,
1993, and 1992.................................................................. F-6
Notes to Consolidated Financial Statements......................................... F-8
Consolidated Balance Sheets at March 31, 1995 (Unaudited) and December 31, 1994.... F-27
Consolidated Statements of Operations for the three months ended March 31, 1995 and
1994 (Unaudited)................................................................ F-28
Consolidated Statements of Cash Flows for the three months ended March 31, 1995 and
1994 (Unaudited)................................................................ F-29
Notes to Consolidated Financial Statements......................................... F-30
LA/CAL ENERGY PARTNERS
Independent Auditors' Report....................................................... F-33
Balance Sheet -- December 31, 1994................................................. F-34
Statements of Operations -- Year ended December 31, 1994 and period from July 15,
1993 through December 31, 1993.................................................. F-35
Statements of Partners' Capital (Deficit) -- Year ended December 31, 1994 and
period from July 15, 1993 through December 31, 1993............................. F-36
Statements of Cash Flow -- Year ended December 31, 1994 and period from July 15,
1993 through December 31, 1993.................................................. F-37
Notes to Financial Statements -- December 31, 1994 and 1993........................ F-38
PROPERTIES CONTRIBUTED TO LA/CAL ENERGY PARTNERS
Independent Auditors' Report....................................................... F-43
Statement of Revenues and Direct Operating Expenses -- Period from January 1, 1993
through July 14, 1993........................................................... F-44
LA/CAL ENERGY PARTNERS -- SUPPLEMENTARY OIL AND GAS RESERVE INFORMATION -- Years
ended December 31, 1994 and 1993 (Unaudited)....................................... F-45
LA/CAL ENERGY PARTNERS -- PROPERTIES ACQUIRED FROM MOBIL CORPORATION
Statement of Revenues -- Year ended December 31, 1993 (Unaudited).................. F-48
LA/CAL ENERGY PARTNERS -- PROPERTIES ACQUIRED FROM FOSTER BROWN COMPANY
Statement of Revenues and Direct Operating Expenses -- Period from January 1, 1993
through November 30, 1993 (Unaudited)........................................... F-49
LA/CAL ENERGY PARTNERS
Balance Sheets -- March 31, 1995 (Unaudited) and December 31, 1994................. F-50
Statements of Operations -- Three months ended March 31, 1995 and 1994
(Unaudited)..................................................................... F-51
Statements of Partners' Capital (Deficit) -- Three months ended March 31, 1995 and
1994 (Unaudited)................................................................ F-52
Statements of Cash Flows -- Three months ended March 31, 1995 and 1994
(Unaudited)..................................................................... F-53
Note to Financial Statements -- March 31, 1995..................................... F-54
GOODRICH PETROLEUM CORPORATION
Consolidated Balance Sheet -- March 31, 1995....................................... F-55
</TABLE>
F-i
<PAGE> 160
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Patrick Petroleum Company
Jackson, Michigan
We have audited the accompanying consolidated balance sheets of Patrick
Petroleum Company and subsidiaries as of December 31, 1994 and 1993 and the
related statements of operations, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Patrick Petroleum Company and
subsidiaries, as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note A to the financial statements, the Company adopted
recently issued Statements of Financial Accounting Standards and, accordingly,
changed its method of accounting for investment securities in 1994 and its
method of accounting for income taxes in 1993.
Detroit, Michigan
March 20, 1995
F-1
<PAGE> 161
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1993
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 748,811 $ 685,654
Marketable securities (Note B)................................. 1,434,800
Accounts receivable:
Trade, net of allowance..................................... 509,136 1,080,103
Accrued oil and gas revenue................................. 743,401 2,516,252
Other....................................................... 350,580
Prepaid expenses............................................... 33,421 171,721
Assets held for sale........................................... 836,238 1,733,724
------------ -----------
TOTAL CURRENT ASSETS................................... $ 4,305,807 $ 6,538,034
OTHER ASSETS (Note B):
Investments in Penske entities (at cost)....................... $ 3,344,954 $ 9,427,700
Investment in Pecos pipeline, net.............................. 2,089,384 2,382,750
Marketable securities.......................................... 581,050
Other investments and deferred charge.......................... 197,439 679,958
------------ -----------
TOTAL OTHER ASSETS..................................... $ 5,631,777 $13,071,458
PROPERTY AND EQUIPMENT (Notes C, D and E):
Oil and gas properties (full cost method -- $5,626,003 and
$7,096,818 excluded from amortization in 1994 and 1993,
respectively)............................................... $ 35,885,937 $81,439,407
Furniture, fixtures and equipment.............................. 2,462,062 2,537,955
------------ -----------
$ 38,347,999 $83,977,362
Less accumulated depletion and depreciation.................... 18,882,785 34,104,228
------------ -----------
TOTAL PROPERTY & EQUIPMENT............................. $ 19,465,214 $49,873,134
------------ -----------
TOTAL ASSETS........................................... $ 29,402,798 $69,482,626
============ ===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 162
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1993
------------ -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................... $ 2,045,333 $ 3,422,186
Accrued liabilities............................................ 423,137 711,036
Deferred revenue............................................... 556,784
Reserve for contingent liabilities (Note J).................... 1,022,000 1,202,241
Current portion of long term debt.............................. 5,000,000 2,109,651
------------ -----------
TOTAL CURRENT LIABILITIES.............................. $ 8,490,470 $ 8,001,898
LONG TERM DEBT (Note E):
Bank debt...................................................... $11,000,000
Subordinated Collateralized Notes.............................. $ 5,000,000 20,000,000
------------ -----------
TOTAL LONG-TERM DEBT................................... $ 5,000,000 $31,000,000
STOCKHOLDERS' EQUITY (Notes E, H and M):
Preferred stock, par value $1.00 per share;
authorized -- 10,000,000; issued 1,175,000 (liquidating
preference $10 per share, aggregating to $11,750,000)....... $ 1,175,000 $ 1,175,000
Common stock, par value $0.20 per share; authorized 40,000,000
shares -- issued 19,981,076 in 1994 and 1993................ 3,996,215 3,996,215
Additional paid-in capital..................................... 82,088,679 82,088,679
Retained earnings (deficit).................................... (71,494,176) (56,072,026)
Unrealized gain on marketable securities....................... 853,750
------------ -----------
$ 16,619,468 $31,187,868
Less:
Treasury stock at cost -- 215,849 shares in 1994 and 1993...... $ 707,140 $ 707,140
------------ -----------
TOTAL STOCKHOLDERS' EQUITY............................. $ 15,912,328 $30,480,728
------------ -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY............... $ 29,402,798 $69,482,626
============ ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 163
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1994 1993 1992
------------ ----------- ------------
<S> <C> <C> <C>
REVENUES:
Oil and gas sales................................. $ 11,071,486 $ 9,330,048 $ 9,561,068
Interest and dividend income...................... 147,210 691,924 749,195
Net Gain on sale of investments (Note B).......... 6,447,102 5,095,714 2,460
Revenue from pipeline system...................... 1,111,525 665,949
Other income...................................... 212,084 490,761 149,884
------------ ----------- ------------
$ 18,989,407 $16,274,396 $ 10,462,607
EXPENSES:
Production taxes.................................. $ 844,389 $ 584,406 $ 683,515
Lease operating costs............................. 4,076,956 3,113,569 2,317,658
Depletion, depreciation and amortization.......... 6,491,645 5,732,490 5,566,885
General and administrative (Note L)............... 3,311,240 3,041,014 3,376,820
Interest.......................................... 2,170,478 2,972,116 3,017,369
Impairment of oil and gas properties and other
assets (Note D)................................ 12,557,652 9,709,000 16,987,859
Loss on sale of oil and gas properties (Note D)... 2,786,841
------------ ----------- ------------
$ 32,239,201 $25,152,595 $ 31,950,106
LOSS BEFORE EQUITY IN LOSS OF AFFILIATE AND
EXTRAORDINARY ITEM................................ $(13,249,794) $(8,878,199) $(21,487,499)
Equity in loss of affiliate....................... (419,694) (407,620)
------------ ----------- ------------
LOSS BEFORE EXTRAORDINARY ITEM...................... $(13,249,794) $(9,297,893) $(21,895,119)
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt........... 1,232,356
------------ ----------- ------------
NET LOSS............................................ $(14,482,150) $(9,297,893) $(21,895,119)
============ =========== ============
NET LOSS PER COMMON SHARE (Note I).................. $ (.78) $ (.63) $ (1.79)
============ =========== ============
WEIGHTED AVERAGE SHARES OUTSTANDING................. 19,765,226 16,133,707 12,401,604
============ =========== ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 164
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
------------------------ ----------------------- ADDITIONAL RETAINED
NUMBER NUMBER PAID-IN EARNINGS TREASURY
OF SHARES PAR VALUE OF SHARES PAR VALUE CAPITAL (DEFICIT) STOCK
----------- ----------- ---------- ----------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1992.......... 12,417,036 $ 2,483,407 $ 58,079,759 $(23,675,343) $(707,140)
Issuance of stock:
for acquisition................... 300,000 60,000 783,750
for exercise of stock options..... 1,000 200 2,238
Adjustment to valuation allowance
for marketable equity
securities........................
Proceeds from issuance of preferred
stock............................. 1,175,000 $ 1,175,000 9,332,372
Preferred stock dividend............ (263,671)
Net loss for the year............... (21,895,119)
----------- ----------- ---------- ----------- ------------ ------------ ---------
Balance at December 31, 1992........ 12,718,036 $ 2,543,607 1,175,000 $ 1,175,000 $ 68,198,119 $(45,834,133) $(707,140)
----------- ----------- ---------- ----------- ------------ ------------ ---------
Issuance of stock for acquisition... 7,263,040 1,452,608 13,890,560
Preferred stock dividend............ (940,000)
Net Loss for the year............... (9,297,893)
----------- ----------- ---------- ----------- ------------ ------------ ---------
Balance at December 31, 1993........ 19,981,076 $ 3,996,215 1,175,000 $ 1,175,000 $ 82,088,679 $(56,072,026) $(707,140)
----------- ----------- ---------- ----------- ------------ ------------ ---------
Cumulative effect of change in
accounting for marketable
securities at January 1, 1994.....
Unrealized depreciation of
marketable securities available
for sale..........................
Preferred stock dividend............ (940,000)
Net Loss for the year............... (14,482,150)
----------- ----------- ---------- ----------- ------------ ------------ ---------
Balance at December 31, 1994........ 19,981,076 $ 3,996,215 1,175,000 $ 1,175,000 $ 82,088,679 $(71,494,176) $(707,140)
========== ========== ========= ========== ============ ============= ==========
<CAPTION>
NET
UNREALIZED
GAIN (LOSS) ON TOTAL
MARKETABLE STOCKHOLDERS'
SECURITIES EQUITY
-------------- -------------
<S> <C> <C>
Balance at January 1, 1992.......... $ (22,490) $ 36,158,193
Issuance of stock:
for acquisition................... 843,750
for exercise of stock options..... 2,438
Adjustment to valuation allowance
for marketable equity
securities........................ 22,490 22,490
Proceeds from issuance of preferred
stock............................. 10,507,372
Preferred stock dividend............ (263,671)
Net loss for the year............... (21,895,119)
-------------- -------------
Balance at December 31, 1992........ -0- $ 25,375,453
-------------- -------------
Issuance of stock for acquisition... 15,343,168
Preferred stock dividend............ (940,000)
Net Loss for the year............... (9,297,893)
-------------- -------------
Balance at December 31, 1993........ -0- $ 30,480,728
-------------- -------------
Cumulative effect of change in
accounting for marketable
securities at January 1, 1994..... 4,051,200 4,051,200
Unrealized depreciation of
marketable securities available
for sale.......................... (3,197,450) (3,197,450)
Preferred stock dividend............ (940,000)
Net Loss for the year............... (14,482,150)
-------------- -------------
Balance at December 31, 1994........ $ 853,750 $ 15,912,328
============== =============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 165
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................... $(14,482,150) $ (9,297,893) $(21,895,119)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depletion, depreciation and amortization....... 6,491,645 5,732,491 5,566,885
Equity in net loss of affiliate................ 419,694 407,620
Dividends from investing activities.............. (32,000) (72,000)
Writedown of oil and gas properties and other
assets......................................... 12,557,652 9,709,000 16,987,859
Extraordinary charge, early extinguishment of
debt........................................... 1,232,356
(Gain) loss on sale of assets.................... (3,660,261) (5,666,265) (2,460)
(Increase) decrease in:
Accounts receivable............................ 2,694,398 1,446,793 (94,887)
Assets held for sale........................... 1,686,599 371,766
Prepaid expenses and other..................... 138,300 541,474 (113,624)
Other investments and deferred charges......... (66,249) 28,540 61,056
(Decrease) increase in:
Accounts payable............................... (1,376,853) (1,132,711) 396,980
Accrued liabilities............................ (287,899) (1,440,510) 139,712
Deferred revenue............................... (556,784) 484,534 (449,140)
Reserve for contingent liabilities............. (180,241) 452,104 540,009
------------ ------------ ------------
Total Adjustments................................ $ 18,672,663 $ 10,914,910 $ 23,368,010
------------ ------------ ------------
Net Cash Provided By Operating Activities........ $ 4,190,513 $ 1,617,017 $ 1,472,891
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities and sales of investments -- net....... $ 11,745,000 $ 6,000,000 $ 1,819,960
Purchase of investments.......................... (2,116,043)
Proceeds from disposition of properties -- net... 13,637,700 10,601,825 985,917
Acquisition of ANPC (NOTE C)..................... 747,201 (10,675,898)
Capital expenditures............................. (5,168,066) (7,129,597) (11,297,093)
------------ ------------ ------------
Net Cash Provided by (Used In) Investing
Activities..................................... $ 20,961,835 $ (1,203,670) $(10,607,259)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings.................... $ 1,850,600 $ 28,376,000 $ 7,073,917
Principal payments on bank borrowings and
notes.......................................... (24,960,251) (27,415,459) (9,000,000)
Charge for early extinguishment of debt.......... (1,039,540)
Proceeds from issuance of common stock........... 2,438
Proceeds from issuance of preferred stock........ 10,507,372
Preferred stock dividend......................... (940,000) (940,000) (263,671)
------------ ------------ ------------
Net Cash (Used In) Provided By Financing
Activities.................................. $(25,089,191) $ 20,541 $ 8,320,056
------------ ------------ ------------
Net Increase (Decrease) In Cash And Cash
Equivalents................................. $ 63,157 $ 433,888 $ (814,312)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR... 685,654 251,766 1,066,078
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR......... $ 748,811 $ 685,654 $ 251,766
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 166
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Cash disbursements for:
Interest..................................... $2,392,945 $3,010,040 $2,960,667
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES:
On July 29, 1993, the Company acquired the common stock of American
National Petroleum Company, Inc. ("ANPC") through the issuance of 7,188,040
shares of the Company's Common Stock (See Note C of Notes To Consolidated
Financial Statements). Additionally, in conjunction with this transaction the
Company issued 75,000 shares of its common stock to an investment consultant as
partial compensation for his assistance in the completion of this acquisition.
The following table sets forth the noncash amounts recorded resulting from this
transaction:
<TABLE>
<CAPTION>
INVESTMENT INVESTMENT IN
CASH CURRENT IN PECOS OIL AND GAS CURRENT COMMON STOCK
EQUIVALENTS ASSETS PIPELINE PROPERTIES LIABILITIES ISSUED
----------- ---------- ------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ANPC Merger........... $10,619,102 $3,242,815 $ 2,539,000 $2,905,854 $(3,963,603) $(15,343,168)
</TABLE>
The following table sets forth the summary of the amounts recorded to
marketable securities and as a component of stockholders' equity resulting from
the adoption of SFAS No. 115 (See Note A).
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
MARKETABLE MARKETABLE
SECURITIES SECURITIES
---------- ----------
<S> <C> <C>
Marcum Natural Gas Services, Inc.............................. $853,750 $853,750
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 167
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) Principles of consolidation
The consolidated financial statements include the accounts of the Company
and all of its subsidiaries. All material intercompany profits, transactions,
and balances have been eliminated.
(2) Property and equipment
The Company follows the full cost method of accounting for oil and gas
properties. Accordingly, all external costs associated with the acquisition,
exploration, and development of oil and gas reserves are capitalized.
Additionally, the Company capitalizes any internal costs that are directly
attributable to its acquisition, exploration and development activities. For the
years ended December 31, 1994, 1993 and 1992 the amount of internal costs
capitalized totalled approximately $1,900,000, $2,100,000 and $2,075,000,
respectively.
The cost of oil and gas properties is accumulated in cost centers on a
country by country basis subject to a cost center ceiling (as defined by the
Securities and Exchange Commission). Costs to be depreciated or depleted include
the Company's estimated participation in drilling in progress and future
development costs of proved reserves. The Company's policy is to deplete the
cost of oil and gas properties over the estimated useful lives of the assets by
application of the gross revenue method using only proved oil and gas reserves.
In arriving at depletion rates under the gross revenue method, proved oil and
gas reserves are evaluated by an independent engineering firm.
Impairment is assessed on the cost of investments in unproved properties at
least annually. This evaluation considers the probable success of the area,
expiration dates on the leases, environmental costs and current drilling
environment in the area, the Company's available funds and the current prices
for hydrocarbons. Impairment can be determined on individual leases or prospects
or for a given area of interest. Once impairment is determined, the costs are
included in the full cost pool.
The Company is not currently, nor for any period presented, subject to
significant natural gas imbalances as the majority of production from the
Company's significant natural gas properties is marketed in the aggregate,
rather than by the individual interest owners.
Depreciation of furniture, fixtures and equipment is computed using the
straight-line method with asset lives ranging from 4 to 10 years.
The depletion expense per dollar of gross revenue for the Company was $.54
in 1994, $.56 in 1993, and $.54 in 1992.
(3) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, checking accounts, savings
accounts and temporary investments with maturities of ninety days or less at
date of purchase.
(4) Marketable Securities
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." This new accounting standard specifies the
accounting and reporting requirements for changes in the fair values of
investments in debt and equity securities which have readily determinable fair
values. Under SFAS No. 115, these debt and equity securities are segregated into
one of the following categories; trading, available-for-sale
F-8
<PAGE> 168
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and held-to-maturity. Trading securities and available-for-sale securities are
carried at their fair values. Changes in the fair values of trading securities
are recorded in the statement of operations. Changes in the fair values of
available-for-sale securities are recorded as a component of stockholders'
equity until such securities are sold. Held-to-maturity securities are carried
at cost adjusted for amortized premium or discount.
The Company has classified its marketable securities as "Available for
Sale" and, consistent with the provisions of SFAS No. 115, has recorded an
unrealized gain of $853,750 in the stockholders' equity section of the balance
sheet. Prior to 1994, investment securities were carried at cost.
The Company determines gains and losses on dispositions of investment
securities using the specific identification method. During 1994, there were no
sales of such securities by the Company.
(5) Other Assets
Investment in Penske Entities
During 1987 and 1988, the Company acquired approximately 7% of the common
stock of Penske Corporation. The purchase price of $6,620,000 approximated the
net book value of the shares. Additionally, the Company purchased an interest in
Penske Transportation, Inc., one of Penske's major units for $2,807,700
resulting in a total investment in Penske Corporation and Penske Transportation,
Inc. of $9,427,700. The Penske entities are privately held and as such no
independent market valuation is readily available, accordingly, the Company
records such investment at cost.
Penske Corporation is a privately held diversified transportation services
company that is involved in, among other things, truck leasing and rental, heavy
duty diesel engine manufacturing and automotive retailing.
On March 30, 1994, the Company entered into an agreement with Penske to
sell 37% of its interest in Penske Corporation and all of its interest in Penske
Transportation, Inc. for $12 million with the right to sell (put) the remaining
interest to Penske equally over the next five years. Terms call for Penske to
pay the Company, upon presentation of each put, an annual amount equal to the
greater of $2.4 million or 1.5 times book value of the shares presented. The
minimum value if all puts are presented will be an additional $12 million.
Penske has the right to call and accelerate the options in the event there is a
change in control of the Company during the term of the agreement.
On April 12, 1994 the Company utilized the proceeds from such sale to
prepay $10,000,000 of the Senior Notes secured by the Penske stock. As a result
of such transaction, the Company recognized a gain of $6,754,000 on the sale of
the stock and incurred penalties of $1,040,000 associated with the prepayment.
The Company has recorded $836,238 (20% of its Penske investment) as an
asset held for sale at December 31, 1994.
Investment in Pecos Pipeline
In conjunction with the acquisition of ANPC, discussed in Note C, the
Company acquired through Pecos Pipeline & Producing Company ("Pecos"), a
subsidiary of ANPC, a 20% interest in a pipeline joint venture. The Company's
carrying basis of the investment is at cost and is being amortized over the term
of the joint venture using the straight-line method (8 years). At December 31,
1994, accumulated amortization totals $449,616.
Other Investments and Deferred Charges
Other investments and deferred charges consist principally of certain debt
issue costs associated with the debt discussed in Note E and the Company's net
investment in Marcum-Patrick Pipeline Program 1993-1, a limited partnership.
F-9
<PAGE> 169
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The debt issue costs totalling $130,840, net of accumulated amortization of
$445,524, at December 31, 1994, are being amortized over the remaining term of
the debt.
(6) Treasury stock
The Company held 215,849 shares of common stock in treasury at December 31,
1994 and 1993. The treasury stock is carried at cost of acquisition and
presented as a deduction from stockholders' equity.
(7) Allowance for uncollectible accounts
Accounts receivable are reduced by an allowance for uncollectible accounts
of $174,000 and $331,000 at December 31, 1994 and 1993, respectively.
(8) Gas Balancing
The Company uses the entitlement method for recording natural gas sales.
Under the entitlement method of accounting, income is recorded based on the
Company's net working interest in production. Deliveries of natural gas in
excess of the Company's working interest are recorded as liabilities while
deliveries of natural gas less than the Company's working interest are recorded
as receivables.
(9) Futures Contracts
The Company periodically enters into futures contracts and energy swaps to
hedge its exposure to price fluctuations on crude oil and natural gas sales
transactions. Gains or losses resulting from these contracts are deferred and
recognized in operations when the crude oil and natural gas is sold. These
contracts are subject to the risk of price fluctuations and the Company is
required to have a minimum margin requirement on futures contracts. The Company
has no open contracts at December 31, 1994.
(10) Taxes on Income
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", which
requires the liability method of accounting for deferred income taxes and the
recognition of net deferred tax assets subject to an ongoing assessment of
realizability. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. The impact of
adopting SFAS No. 109 was nil as the Company has recorded a valuation allowance
for the entire amount of its net deferred tax asset due to the uncertainty of
its ultimate realization.
(11) Reclassifications
Certain reclassifications have been made in the 1993 financial statements
to conform to the classifications used in 1994.
F-10
<PAGE> 170
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- MARKETABLE SECURITIES
The amortized cost and estimated fair value of marketable securities as of
December 31, 1994, and 1993 are shown in the tables below:
<TABLE>
<CAPTION>
1994
---------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSSES VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Marketable equity securities............ $ 581,050 $ 853,750 $1,434,800
========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1993
---------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSSES VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Marketable equity securities............ $ 581,050 $3,470,150 $4,051,200
========= ========== ==========
</TABLE>
The Company uses the specific identification method in computing realized
gains and losses on sales of securities. In 1994, there were no sales of such
securities. In 1993, the Company recorded realized gains of approximately
$4,887,000 resulting from sales of marketable equity securities of approximately
$6,000,000.
NOTE C -- ACQUISITION
On July 29, 1993, the Company acquired the common stock of ANPC for
$36,639,000. The purchase price consisted of 7,188,040 shares of Company common
stock valued at $15,344,000 and cash of $21,295,000 of which $10,619,000 was
cash on hand at ANPC at the date of acquisition. ANPC is an independent oil and
gas company, operating primarily in Louisiana, Texas, Oklahoma and New Mexico.
ANPC operates as a wholly-owned subsidiary of the Company.
In connection with the acquisition and pursuant to a Purchase and Sale
Agreement dated May 10, 1993 an undivided one-third interest in all of the oil
and gas wells, developed and undeveloped leases associated with the wells and
the equipment related to the wells owned by ANPC was sold to Whiting Petroleum
Corporation for approximately $7,000,000.
The acquisition has been recorded using the purchase method of accounting.
Accordingly, the purchase price was allocated to assets and liabilities based on
their estimated fair values as of the date of the acquisition and no goodwill
was recognized.
The following unaudited proforma consolidated statement of operations data
assumes that the merger and subsequent asset sale took place effective January
1, 1993:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1993
------------
(UNAUDITED)
<S> <C>
Revenues........................................................ $ 23,885
Net Loss........................................................ $ (6,726)
Net Loss Per Share.............................................. $ (.34)
</TABLE>
F-11
<PAGE> 171
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- OIL AND GAS PROPERTIES
Total oil and gas expenditures were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Property acquisition costs.................. $ 331,197 $ 303,090 $ 2,366,853
Production purchases (net of ANPC
acquisition).............................. 2,430,097 408,811
Development costs........................... 2,046,919 1,439,847 3,841,795
Exploration costs........................... 2,767,258 2,749,667 4,434,010
Production costs............................ 4,921,344 3,697,975 2,986,353
Costs included in oil and gas properties in
connection with the ANPC acquisition...... 24,145,030
----------- ----------- -----------
$10,066,718 $34,765,706 $14,037,822
=========== =========== ===========
</TABLE>
The Company's aggregate amount of capitalized oil and gas expenditures
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Interest in unproved properties............. $ 5,626,003 $ 7,096,818 $ 8,373,557
Wells, equipment and facilities............. 30,259,934 74,342,589 61,476,688
----------- ----------- -----------
$35,885,937 $81,439,407 $69,850,245
Less accumulated depletion.................. 16,865,545 32,245,732 27,089,927
----------- ----------- -----------
$19,020,392 $49,193,675 $42,760,318
=========== =========== ===========
</TABLE>
On December 15, 1994 the Company sold substantially all of its producing
and nonproducing oil and gas properties in Alabama, Louisiana, Mississippi, New
Mexico, Oklahoma and Texas to Unit Petroleum for $16,100,000. Under the terms of
the agreement, the proceeds received by the Company were reduced by the net
revenues from such properties during the period May 1, 1994 to December 15,
1994. The Company received approximately $13,236,000 after such adjustments. In
a related transaction, LLOG Exploration Company exercised its election of
preferential right to purchase the Company's interests in the Bayou Pigeon
Field, Iberia Parish, Louisiana. The Company entered into a Purchase and Sale
Agreement dated December 14, 1994, and closed the transaction December 16, 1994,
receiving approximately $1,569,000. The combined proceeds were used to repay the
Company's bank debt, approximately $13,700,000, with the remaining proceeds used
for interest, fees and general corporate purposes, including the Company's
exploration efforts in West Texas. Based upon an analysis performed by
management the sale resulted in a significant alteration in the relationship
between capitalized costs and proved reserves of oil and gas attributable to the
cost center. In accordance with the full cost accounting methods and because the
sale involved more than 25% of the reserve quantities of the cost center, the
Company recognized a loss on the transaction of approximately $2,786,000. The
revenues, net of expenses, received during the period, May 1 to December 15,
1994, accounted for approximately $2,580,000 of the loss.
The Company's remaining oil and gas properties are located principally in
West Texas and Michigan with additional properties in certain western states.
During 1994, declines in prices, revisions of previous estimates and normal
production declines resulted in a reduction in the present value of the
Company's future net revenue. In accordance with the full cost
F-12
<PAGE> 172
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounting method, the Company recorded writedowns in the value of its oil and
gas properties totaling $12,301,000 during 1994. Of these writedowns, $3,241,000
was recorded during the second quarter, $2,659,000 was recorded during the third
quarter, and $6,401,000 was recorded in the fourth quarter.
The Company has recorded writedowns in accordance with the full-cost
accounting method calculations as presented in the table below:
<TABLE>
<CAPTION>
REVISIONS
AND
PRICING ABANDONMENTS TOTAL
----------- ------------ -----------
<S> <C> <C> <C>
1994................................ $ 2,001,000 $10,300,000 $12,301,000
1993................................ 4,150,000 5,269,000 9,419,000
1992................................ 2,700,000 12,940,000 15,640,000
1991................................ 3,000,000 3,000,000
1990................................ 12,800,000 12,800,000
1985................................ 8,100,000 8,100,000
----------- ------------ -----------
$19,951,000 $41,309,000 $61,260,000
=========== =========== ===========
</TABLE>
The Company has excluded from amortization its interest in unproven
properties and the cost of uncompleted exploratory wells. Excluded costs consist
of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1992
1994 1993 AND PRIOR TOTAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net acquisition costs of unproved
properties.............................. $ 331,197 $ 891,656 $1,394,823 $2,617,676
Exploration costs......................... 785,496 1,068,092 1,154,739 3,008,327
---------- ---------- ---------- ----------
$1,116,693 $1,959,748 $2,549,562 $5,626,003
========== ========== ========== ==========
</TABLE>
The excluded costs are associated with undeveloped properties located
primarily in Michigan and West Texas. Based on current exploration plans, it is
anticipated that these costs will be included in the amortization calculation at
a rate of approximately 33% over the next three years.
Results of operations for oil and gas producing activities were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1994 1993 1992
------------ ----------- ------------
<S> <C> <C> <C>
Oil and gas revenues.............................. $ 11,071,486 $ 9,330,048 $ 9,561,068
Expenses:
Production taxes................................ 844,389 584,406 683,515
Lease operating costs........................... 4,076,955 3,113,569 2,302,838
Depletion and depreciation...................... 6,066,679 5,635,209 5,469,605
Writedown of oil and gas properties............. 12,301,000 9,419,000 15,640,000
Loss on sale of oil and gas properties.......... 2,786,841
------------ ----------- ------------
26,075,864 18,752,184 24,095,958
------------ ----------- ------------
Loss from oil and gas producing activities........ $(15,004,378) $(9,422,136) $(14,534,890)
============ =========== ============
</TABLE>
NOTE E -- LONG TERM DEBT
The Company has signed a Commitment Letter with a Bank for a new Credit
Agreement which provides for a maximum credit facility of $30,200,000,
consisting of a $5,200,000 term loan, and a $25,000,000
F-13
<PAGE> 173
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
revolving line of credit with an initial borrowing base of $6,000,000
(collectively the "Bank Loan"). The Company has also consummated a short-term
interim $2,000,000 Bridge Loan with the same Bank, which debt will be retired as
part of the above-described revolving line of credit. The Bank Loan offers fixed
and variable interest rate options based on Prime or LIBOR (+2%). The interest
rates will increase by amounts up to .50% on Prime and 1.00% on LIBOR if the
merger discussed in Note N does not occur on a timely basis. Substantially all
of the Company's assets are pledged to secure these credit facilities.
The Revolving Credit Facility provides an initial $6,000,000 borrowing
base, of which $2,000,000 is designated to refinance the $2,000,000 on a
short-term interim Bridge Loan, with the remainder available to refinance up to
$4,000,000 of the $10,000,000 10.75% Subordinated Collateralized Notes, and to
fund capital expenditures for oil and gas reserve acquisitions, and exploration
and development purposes. The borrowing base shall be reduced to $5,250,000 on
April 1, 1996, unless redetermined otherwise pursuant to the scheduled borrowing
base review.
The $5,200,000 term loan is designated to refinance the remaining principal
and accrued interest on the $10,000,000 10.75% Subordinated Collateralized
Notes. The term loan must be activated and funded by May 1, 1996 or the same is
terminated. If the term loan is activated, the maturity is April 30, 1999, and
repayment is based on the proceeds received from the Sale of Penske stock. See
Note A(5).
In 1990, the Company sold $20,000,000 in 10.75% Subordinated Collateralized
Notes with Warrants to acquire 800,000 shares of the Company's $0.20 par value
Common Stock at $6.16 per share, to three institutional investors. The Company's
equity ownership in Penske Corporation and Penske Transportation Inc. serves as
the collateral for the Senior Notes. The Senior Note Purchase Agreement contains
financial covenants consistent with those contained in the Bank Loan.
In April, 1994, the Company utilized the proceeds from the sale of the
Penske Stock described in Note A(5) to prepay $10,000,000 of the Senior Notes.
As a result of such transaction, the Company incurred penalties of $1,040,000
associated with the prepayment.
At December 31, 1994, the Company was in default of its minimum net worth
covenant. The Senior Note holders have waived the covenant violation and reset
the minimum net worth covenant to $15,250,000. In return, the note holders will
receive a waiver fee of $50,000 if the notes remain outstanding at August 31,
1995.
NOTE F -- EMPLOYEE BENEFITS
The Company has established a profit-sharing plan whereby eligible
employees who choose to participate under the terms of the plan must contribute
2%, 4% or 6% of their annual regular compensation (excluding incentive
compensation, discretionary bonuses, and overtime). The Company is required to
contribute to the plan, but only out of net earnings as defined in the
agreement, an amount equal to the employees' contribution. On January 1, 1994,
the Company converted the plan to a 401K plan, allowing employees to contribute
on a pre-tax basis an amount up to 15% of their compensation. The Company will
continue to match up to 6% of the employees contributions. The Company may also
make additional contributions. The Company's contributions for 1994, 1993 and
1992 were approximately $50,000, $79,000, and $81,000 respectively.
The Company has an incentive compensation plan for key management personnel
under which past and present employees receive from the Company an assigned
overriding interest of the net revenue interest in wells drilled by the Company,
or an amount based upon a specified percentage of the gross revenues of selected
oil and gas properties acquired by the Company. Participants in the plan are
selected by a committee comprised of three members of the Board of Directors.
The portion of the incentive compensation plan for acquired oil and gas
properties was terminated July 1, 1990. Company revenues have been reduced by
the net amounts distributed to the participants, by $68,500 for 1994, $108,000
for 1993, and $101,000 for 1992. The
F-14
<PAGE> 174
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
present value (discounted at 10%) of net vested benefits for the pre-July, 1990,
awards is estimated to be approximately $71,000 at December 31, 1994.
The Company has a defined benefit pension plan covering substantially all
of its employees, under which the Company will pay the entire cost of providing
eligible employees with a monthly retirement benefit equal to 1.6% of final
average monthly earnings multiplied by years of service up to a maximum of 30
years. The Company makes annual contributions to the plan equal to the amount
accrued for pension expense. The Company intends to terminate this plan in 1995.
The Company does not anticipate recognizing a loss as a result of such action
because the fair market value of the plan's assets at December 31, 1994, exceeds
the projected benefit obligation of the plan.
The table presented below sets forth the plan's funded status and amounts
recognized in the Company's consolidated statement of operations at December 31,
1994, 1993 and 1992.
NET PERIODIC PENSION COST
(PENSION EXPENSE)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Service Cost................................... $ 81,700 $ 174,700 $ 165,900
Interest Cost.................................. 189,602 181,608 170,639
Actual Return on Assets........................ (29,330) (247,473) (208,962)
Amortization and Deferral:
(i) Amortization of Initial Unrecognized Net
Assets existing at January 1, 1987...... (12,100) (12,100) (12,100)
(ii) Amortization of Deferred (Gain) Loss.... (209,330) 25,922 (6,647)
---------- ---------- ----------
Net Pension Expense............................ $ 20,542 $ 122,657 $ 108,830
========== ========== ==========
Reconciliation of Funded Status:
Projected Benefit Obligation................. $1,427,900 $2,884,000 $2,663,900
Plan Assets at Market Value.................. 1,687,636 2,983,570 2,794,657
---------- ---------- ----------
Projected Benefit Obligation over
(under) plan assets....................... $ (259,736) $ (99,570) $ (130,757)
Unrecognized Net Asset existing at January 1,
1987...................................... 140,785 152,885 164,985
Unrecognized Net Loss........................ 218,513 99,872 52,979
---------- ---------- ----------
Accrued Pension Cost......................... $ 99,562 $ 153,187 $ 87,207
========== ========== ==========
Additional Disclosures:
Accumulated Benefit Obligation............... $1,038,400 $2,503,900 $2,318,200
Vested Benefit Obligation.................... 1,006,900 2,465,700 2,291,300
Assumptions:
Discount rate for liabilities................ 7.0% 7.0% 7.0%
Asset earnings rate.......................... 8.0% 8.0% 8.0%
Salary Increases............................. 5.0% 5.0% 5.0%
Inflation for IRC Section 415 Limitation..... 4.0% 4.0% 4.0%
</TABLE>
The plan's assets consist primarily of fixed rate certificates of deposit
and no load mutual funds stated at fair market value.
F-15
<PAGE> 175
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a funded supplemental Executive Retirement Plan for key
executives as designated by the Board of Directors. Benefits are payable at age
65 or earlier with prior written approval of the Board of Directors.
Participation in the plan requires that the executive or consultant meet certain
participation requirements and be designated by the Board of Directors to
participate in the plan. The participant's benefits are subject to forfeiture,
conditional upon future service. The Company's pension expense for this plan was
approximately $99,000, and $89,000 for the years ended December 31, 1993 and
1992, respectively. The plan was fully funded as of December 31, 1993, and the
plan was terminated in 1994.
NOTE G -- INCOME TAXES
Deferred income taxes and benefits reflect the impact of "temporary
differences" between amounts of assets and liabilities for financial reporting
purposes and such amounts as measured by enacted tax laws.
At December 31, 1994 and 1993, the significant items comprising the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Deferred tax assets:
Differences between book and tax basis of:
Allowance for uncollectible receivables............... $ 59,000 $ 112,000
Investment in affiliate and joint venture............. 24,000 387,000
Contingencies......................................... 336,000 181,000
Capitalized inventory costs........................... -0- 43,000
Capital loss carryover................................ 112,000 112,000
AMT Tax credit carryover................................ 1,377,000 1,377,000
Statutory depletion..................................... 4,580,000 4,018,000
Investment tax credit carryover......................... 1,335,000 1,345,000
Operating loss carryforwards............................ 12,848,000 9,490,000
------------ ------------
Total deferred tax assets..................... $ 20,671,000 $ 17,065,000
Deferred tax liabilities:
Differences between book and tax basis of:
Property and equipment................................ $ (2,939,000) $ (4,431,000)
Investment in Pecos pipeline.......................... (541,000) (570,000)
Accounts receivable................................... (119,000)
------------ ------------
Total deferred tax liabilities................ $ (3,480,000) $ (5,120,000)
------------ ------------
Net deferred tax asset.................................. 17,191,000 11,945,000
Valuation allowance..................................... (17,191,000) (11,945,000)
------------ ------------
Net deferred tax asset.................................. $ -0- $ -0-
============ ============
</TABLE>
F-16
<PAGE> 176
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the amounts and expiration dates of
operating loss and investment tax credit carryforwards:
<TABLE>
<CAPTION>
INVESTMENT TAX CREDIT
OPERATING LOSS CARRYFORWARDS CARRYFORWARDS
- ------------------------------ -----------------------------
AMOUNT EXPIRES AMOUNT EXPIRES
- ----------- ------- ---------- -------
<S> <C> <C> <C>
$ 2,320,000 2001 $ 102,000 1995
2,995,000 2003 193,000 1996
4,802,000 2004 302,000 1997
1,551,000 2005 558,000 1998
7,564,000 2006 23,000 1999
9,331,000 2007 68,000 2000
4,756,000 2008 97,000 2001
4,468,000 2009 2,000 2002
- ----------- ----------
$37,787,000 $1,345,000
=========== ==========
</TABLE>
The Company's statutory depletion carryforwards and AMT credit carryovers
have no expiration date.
NOTE H -- STOCK OPTIONS AND WARRANTS
The Company has a Rights Agreement providing for the distribution of one
right to purchase 1/100th of a share of Series A Preferred Stock ($1 par value)
on each share of Common Stock. The rights become exercisable after the
occurrence of certain triggering events, such as the acquisition of 25% or more
of the Common Stock (unless such acquisition has been previously approved by the
Board of Directors), or the announcement of an intention to commence a tender
offer for 25% or more of the Common Stock. The rights are redeemable at $.02 per
right at any time prior to a 25% acquisition by an Acquiring Person. Each right
entitles the holder thereof to purchase 1/100th of a share of Series A Preferred
Stock for $30.00. The rights also entitle the holder to acquire Common Stock of
the Company, or of an acquiror of the Company, at a 50% discount after a 25%
acquisition.
Stock Options
The Company has a non-qualified option plan covering shares of common stock
and stock appreciation rights (SARs). The options are exercisable for a period
of six years from the grant date. The exercise price for these options is equal
to the market price at the date of grant.
F-17
<PAGE> 177
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock options and SAR activity for the years ended December 31, 1994, 1993,
and 1992 were as follows:
<TABLE>
<CAPTION>
STOCK STOCK
OPTION APPRECIATION CURRENTLY
OPTION PRICES SHARES RIGHTS EXERCISABLE
---------------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1992.......... 1,868,989 305 1,334,360
Options granted..................... 2.4375 to 3.0000 395,000
Options exercised................... 2.4375 (1,000)
Options expired..................... 2.4375 to 4.3750 (12,000)
---------- ------
Balance at December 31, 1992........ 2,250,989 305 1,540,364
Options granted..................... 2.2500 to 3.0000 569,085
Options exercised...................
Options expired..................... 2.4375 to 4.3750 (469,085) (305)
---------- ------
Balance at December 31, 1993........ 2,350,989 -0- 1,726,658
Options granted..................... 1.7500 to 2.2500 1,786,602
Options expired..................... 2.4375 to 4.3750 (1,955,989)
---------- ------
Balance at December 31, 1994........ 2,181,602 -0- 1,860,206
========== ======
</TABLE>
The following table shows the number of options outstanding and the related
exercise price as of:
<TABLE>
<CAPTION>
OPTION PRICES OPTION SHARES
------------- -------------
<S> <C> <C>
December 31, 1992................................. $2.4375 322,306
2.5000 237,500
2.7500 95,000
3.0000 235,387
3.0625 1,000,587
3.3125 25,000
3.5625 79,209
4.0625 151,000
4.3750 105,000
---------
2,250,989
=========
December 31, 1993................................. $2.2500 559,085
2.4375 317,615
2.5000 37,500
2.7500 95,000
3.0000 234,387
3.0625 752,193
3.3125 25,000
3.5625 79,209
4.0625 151,000
4.3750 100,000
---------
2,350,989
=========
</TABLE>
F-18
<PAGE> 178
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OPTION PRICES OPTION SHARES
------------- -------------
<S> <C> <C>
December 31, 1994................................. $1.7500 60,000
2.0000 10,000
2.2500 1,916,602
2.5000 37,500
2.7500 60,000
3.0000 97,500
---------
2,181,602
=========
</TABLE>
The options outstanding at December 31, 1994, have various expiration dates
as follows:
<TABLE>
<CAPTION>
OPTIONS
---------
<S> <C>
1995.............................................................. 350,000
1996.............................................................. 375,068
1997.............................................................. 705,000
1998.............................................................. 145,000
1999.............................................................. 446,534
2003.............................................................. 100,000
2004.............................................................. 60,000
---------
2,181,602
=========
</TABLE>
Warrants
In conjunction with the 10.75% Subordinated Collateralized Notes sold on
May 10, 1990, the Company issued warrants to acquire 800,000 shares of the
Company's $0.20 par value Common Stock at $3.00 to $6.16 per share, to three
institutional investors. These warrants expire on May 10, 1997.
NOTE I -- LOSS PER SHARE
The loss per common share has been calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Average number of common shares
outstanding............................ 19,765,226 16,133,707 12,401,604
Net operating loss....................... $(14,482,150) $ (9,297,893) $(21,895,119)
Preferred stock dividend................. (940,000) (940,000) (263,671)
------------ ------------ ------------
Net loss............................... $(15,422,150) $(10,237,893) $(22,158,790)
============ ============ ============
Net loss per common share.............. $ (.78) $ (.63) $ (1.79)
============ ============ ============
</TABLE>
Common share equivalents are not included in the above calculations since
their inclusion would have the effect of decreasing the loss per share amount.
NOTE J -- COMMITMENTS AND CONTINGENCIES
The U.S. Environmental Protection Agency ("EPA") has identified the Company
as a potentially responsible party ("PRP") for the cost of clean-up of
"hazardous substances" at an oil field waste disposal site
F-19
<PAGE> 179
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in Vermillion Parish, Louisiana. The EPA has estimated that the total cost of
long-term cleanup of the site will be approximately $13.5 million, with the
Company's percentage of responsibility to be approximately 3.09%. As of December
31, 1994, the Company has accrued approximately $500,000 for this liability. The
EPA and the PRPs will continue to evaluate the site and revise estimates for the
long-term cleanup of the site. There can be no assurance that the cost of
cleanup and the Company's percentage responsibility will not be higher than
currently estimated by the EPA. In addition, under the federal environmental
laws, the liability costs for the cleanup of the site is joint and several among
all PRPs. Therefore, the ultimate cost of the cleanup to the Company could be
significantly higher than the amount presently accrued for this liability.
Additionally, the Company is party to a number of lawsuits arising in the
normal course of business. The Company has defended and intends to continue to
defend these actions vigorously and believes, based on currently available
information, that adverse settlements, if any, in excess of insurance coverage
or amounts already provided, will not be material to its financial position or
results of operations.
The Company has operating lease agreements, principally for office
facilities for its Michigan and Texas offices. Certain of these leases include
renewal provisions at the option of the Company. Rent expense under such lease
agreements for the years ended December 31, 1994, 1993 and 1992 was
approximately $194,000, $264,000, and $176,000, respectively.
Aggregate rental commitments for noncancellable operating leases at
December 31, 1994, were as follows:
<TABLE>
<S> <C>
1995.............................................................. $159,000
1996.............................................................. $110,000
1997.............................................................. $110,000
1998.............................................................. $110,000
1999.............................................................. $ 78,000
</TABLE>
NOTE K -- SEGMENT REPORTING AND MAJOR CUSTOMERS
The Company is principally involved in the business of oil and gas
exploration and production.
Customers which are unaffiliated oil and gas purchasers that represent more
than 10% of oil and gas revenues are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Nomeco Oil and Gas...................................... 13% 36% 38%
</TABLE>
NOTE L -- RELATED PARTY TRANSACTIONS
An accounting firm in which a Director of the Company is a partner received
$1,000, $12,000, and $8,500 for the years ended December 31, 1994, 1993 and
1992, respectively, for computer, accounting, and tax services rendered to the
Company.
A member of the Board of Directors rendered legal services to the Company
for which the Company paid $7,200 during 1993.
During 1993, a partnership, in which the President of the Company is a
partner, purchased the Company's Lear Jet for $400,000. The Company, as a result
of this transaction, recorded a gain of $284,000.
NOTE M -- PREFERRED STOCK
In September 1992, the Company sold 1,100,000 shares of Series B Preferred
Stock at $10.00 per share.
F-20
<PAGE> 180
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Series B Convertible Preferred Stock, par value $1.00 per share with a
liquidation preference of $10.00 per share, is convertible at the option of the
holder at any time, unless earlier redeemed, into shares of Common Stock of the
Company at an initial conversion rate of 3.33 shares of Common stock per share
of Preferred. The Preferred Stock also will automatically convert to Common
Stock if the closing price for the Preferred Stock exceeds $15.00 per share for
ten consecutive trading days. Upon any conversion of a share of Preferred Stock
prior to the close of business on September 15, 1997, the stockholder will
receive one Common Stock purchase warrant to purchase one share of Common Stock
at $5.00 per share, subject to adjustment in certain events. Any outstanding
warrants can be called on thirty days notice for $.25 per warrant and will
expire on September 15, 1997.
The Preferred Stock is redeemable, in whole or in part, at $12.00 per
share, plus accrued and unpaid dividends. Dividends on the Preferred Stock
accrue at the annual rate of 8%.
In October 1992, the Underwriters exercised 75,000 shares of its
overallotment option.
NOTE N -- SUBSEQUENT EVENT
On March 10, 1995 the Company entered into an Agreement and Plan of Merger
("Merger Agreement") with La/Cal Energy Partners of Shreveport, Louisiana
("La/Cal"). The proposed transaction has been approved by the Board of Directors
of the Company and the Management Committee of La/Cal and is subject to approval
by their respective stockholders and partners as well as other customary
conditions and approvals. The dates for the stockholder and partner votes have
not yet been determined.
To effect the exchange of stock, the Company formed a holding company,
Goodrich Petroleum Corporation ("Goodrich"). La/Cal will contribute its oil and
gas assets to Goodrich for 19,765,226 shares of Goodrich common stock. The
Patrick common stockholders will be entitled to receive one share of Goodrich
common stock for each of the 19,765,226 outstanding Company common shares. The
Patrick Series B Preferred stockholders will be entitled to receive for each of
their 1,175,000 shares, one share of Goodrich Series A Preferred Stock with
substantially identical terms. The Company will continue as a wholly-owned
subsidiary of Goodrich Petroleum.
Should the Merger occur, the Company will undergo an ownership change as
defined in the Internal Revenue Code. Therefore, annual utilization of tax net
operating losses and other tax attributes will be limited to the long-term tax
exempt bond rate multiplied by the value of the Company at the date of change.
The overall limitation will be determined upon closing of the transaction with
La/Cal. The annual limitation may be increased by any built-in gains existing at
the ownership change date and recognized during the succeeding five years,
decreased by built-in losses. These amounts cannot be determined at this time.
On March 15, 1995, B.A.R.D. Industries ("B.A.R.D.") filed litigation
against Patrick Petroleum Company, U. E. Patrick and Petrie-Parkman Co., Inc. in
the District Court of Harris County, Texas. B.A.R.D. claims to be beneficial
owner of 3,107,741 shares of common stock in the Company. B.A.R.D. raised
several causes of action including breach of fiduciary duty, breach of
registration agreement, conspiracy and a claim for actual and punitive damages
in an unspecified amount, including attorneys' fees. In addition, B.A.R.D. seeks
a temporary and permanent injunction requiring the production of various
information from the defendants. Plaintiff claims that unless defendants are
immediately restrained from taking any action concerning the proposed merger
with La/Cal Energy Partners of Shreveport, Louisiana, that plaintiff will suffer
irreparable injury including the loss of a board seat, the dilution from an
ownership of 15.7% of the Company's common stock to approximately 7.875%, and
the loss of assets for less than fair value. Defendants removed the state court
proceeding to the United States District Court for the Southern District of
Texas. In response, B.A.R.D. filed with the United States District Court a
motion to remand the proceedings to the 269th District Court of Harris County,
Texas.
F-21
<PAGE> 181
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE O -- QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the year ended December 31, 1994,
is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------
1994 DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
------------------------------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Oil and gas revenues........... $ 2,251,515 $ 2,866,548 $ 3,103,553 $2,849,870
Oil and gas expenses........... 8,799,641 8,857,105 6,544,569 2,556,167
----------- ------------ ----------- ----------
Earnings (loss) from oil & gas
producing activities......... $(6,548,126) $ (5,990,557) $(3,441,016) $ 293,703
Other income................... 543,089 368,295 204,121 6,802,416
Other expenses................. 1,443,123 1,204,871 1,484,281 1,349,444
----------- ------------ ----------- ----------
Net earnings (loss) before
extraordinary item........... $(7,448,160) $ (6,827,133) $(4,721,176) $5,746,675
----------- ------------ ----------- ----------
Extraordinary Item:
Loss on early extinguishment of
debt......................... 1,232,356
Net earnings (loss)............ $(7,448,160) $ (6,827,133) $(4,721,176) $4,514,319
=========== ============ =========== ==========
Net earnings (loss) per common
share........................ $ (.39) $ (.36) $ (.25) $ .21
=========== ============ =========== ==========
</TABLE>
Summarized quarterly financial data for the year ended December 31, 1993,
is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------
1993 DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------------------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Oil and gas revenues......... $ 2,710,329 $2,349,053 $ 2,090,126 $ 2,180,540
Oil and gas expenses......... 12,115,006 2,269,541 2,503,561 1,864,077
------------ ------------ ----------- -----------
Earnings (loss) from oil &
gas producing activities... $ (9,404,677) $ 79,512 $ (413,435) $ 316,463
Other income................. 583,913 6,234,339 54,512 71,584
Other expenses............... 2,189,150 1,641,984 1,247,617 1,321,659
------------ ------------ ----------- -----------
Net earnings (loss) before
share of affiliate loss.... $(11,009,914) $4,671,867 $(1,606,540) $ (933,612)
Equity in (loss) of
affiliate.................. -0- (191,809) (40,308) (187,577)
------------ ------------ ----------- -----------
Net earnings (loss).......... $(11,009,914) $4,480,058 $(1,646,848) $(1,121,189)
============ ========== =========== ===========
Net earnings (loss) per
common share............... $ (.57) $ .21 $ (.18) $ (.09)
============ ========== =========== ===========
</TABLE>
NOTE P -- OIL AND GAS RESERVES (UNAUDITED)
The following table sets forth the Company's estimate of its future net
recoverable proved developed and proved undeveloped reserves of oil (including
condensate) and natural gas. For the year ended December 31, 1994, Lee Keeling &
Associates evaluated the Company's reserves. Lee Keeling & Associates evaluated
the reserves associated with the Company as of December 31, 1993, while
Huddleston & Company evaluated the reserves associated with ANPC. For the
reserves at 1992, Lee Keeling & Associates evaluated new wells and significant
properties and/or fields and audited the Company's estimates for the remaining
reserve information.
F-22
<PAGE> 182
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Proved Developed(1)(2)
Crude Oil, Condensate, and Gas Liquids
(Bbls):
Producing.............................. 762,920 882,867 820,603
Non-Producing.......................... 133,900 373,396 115,673
Natural Gas (Mcf):
Producing.............................. 1,456,944 11,678,718 9,287,041
Non-Producing.......................... 1,978,958 7,858,552 5,687,397
Proved Undeveloped(3)
Crude Oil, Condensate, and
Gas Liquids (Bbls)..................... 248,051 530,449 513,336
Natural Gas (Mcf)......................... 3,291,514 12,236,142 7,954,443
Total Proved Reserves(4)
Crude Oil, Condensate, and
Gas Liquids (Bbls)..................... 1,144,871 1,786,712 1,449,612
Natural Gas (Mcf)......................... 6,727,416 31,773,412 22,928,881
Changes in Proved Developed (1)(2) and
Undeveloped(3) Oil Reserves (Bbls):
Beginning of period....................... 1,786,712 1,449,612 1,092,308
Revisions of previous estimates........... (422,835) (458,644) 415,304
Purchases of reserves-in-place............ -0- 1,528,163 32,100
Extensions, discoveries, and other
additions.............................. 486,300 40,418 147,400
Production................................ (282,974) (237,637) (230,700)
Sales of reserves-in-place................ (423,332) (535,200) (6,800)
End of period(4).......................... 1,143,871 1,786,712 1,449,612
Proved Developed Oil Reserves:
End of period.......................... 896,820 1,256,263 936,276
Gas Reserves(Mcf):
Beginning of period....................... 31,773,412 22,928,881 30,438,856
Revisions of previous estimates........... (5,552,441) (5,441,435) (12,484,775)
Purchases of reserves-in-place............ -0- 25,751,451 28,400
Extensions, discoveries, and other
additions.............................. 214,500 27,094 7,842,000
Production................................ (2,631,707) (2,524,528) (2,759,100)
Sales of reserves-in-place................ (17,076,348) (8,968,051) (136,500)
End of period(4).......................... 6,727,416 31,773,412 22,928,881
Proved Developed Gas Reserves:
End of period.......................... 3,435,902 19,537,270 14,974,438
</TABLE>
- ---------------
(1) The Securities and Exchange Commission requires the reserve presentation to
be calculated using period-end prices and costs and assuming a continuation
of existing economic conditions. Considerations for price changes were used
only to the extent provided by contractual agreements and by provision of
the Natural Gas Policy Act of 1978 and Executive Order 12287. Proved
reserves cannot be measured exactly and the estimation of reserves involves
judgmental determinations. Reserve estimates must be reviewed and adjusted
periodically to reflect additional information gained from reservoir
performance, new geological and geophysical data and economic changes. The
above estimates are based on current
F-23
<PAGE> 183
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
technology and economic conditions, and the Company considers such estimates
to be reasonable and consistent with current knowledge of the
characteristics and extent of production. The estimates include only those
amounts considered to be proved reserves and do not include additional
amounts which may result from extensions of currently proved areas, or
amounts which may result from new discoveries in the future, or from
application of secondary and tertiary recovery processes where facilities
are not in place.
(2) Proved developed reserves are reserves which can be expected to be recovered
through existing wells with existing equipment and operating methods. This
classification includes:
(a) Proved developed producing reserves which are reserves expected to be
produced from existing completion intervals now open for production in
existing wells; and
(b) Proved developed non-producing reserves which are reserves which exist
behind the casing of existing wells which are expected to be produced
in the predictable future, where the cost of making such oil and gas
available for production should be relatively small compared to the
cost of a new well.
Any reserves expected to be obtained through the application of fluid
injection or other improved recovery techniques for supplementing primary
recovery methods are included as proved developed reserves only after
testing by a pilot project or after the operation of an installed program
has confirmed through production response that increased recovery will be
achieved.
(3) Proved undeveloped reserves are proved reserves which are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on
undrilled acreage are limited to those drilling units offsetting productive
units, which are reasonably certain of production when drilled. Proved
reserves for other undrilled units are claimed only where it can be
demonstrated with certainty that there is continuity of production from the
existing productive formation. No estimates for proved undeveloped reserves
are attributable to or included in this table for any acreage for which an
application of fluid injection or other improved recovery technique is
contemplated unless proved effective by actual tests in the area in the same
reservoir.
(4) Proved reserves are those estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known oil and
gas reservoirs under then existing economic and operating conditions.
At December 31, 1994, approximately 37 percent of the Company's proved
natural gas reserves were being produced.
The Company has estimated future net revenue and the present value of
estimated future net revenue as outlined in the tables below pursuant to the
Securities and Exchange Commission's regulations. See notes following the tables
for the assumptions used in these calculations.
ESTIMATED FUTURE NET REVENUE UNDISCOUNTED
AS OF DECEMBER 31, 1994 (1)
<TABLE>
<CAPTION>
YEAR ENDED PROVED TOTAL
DECEMBER 31 DEVELOPED PROVED
----------- ----------- -----------
<S> <C> <C>
1995.................................................... $ 2,912,711 2,893,287
1996.................................................... 2,881,167 2,807,907
1997.................................................... 2,154,861 2,870,473
Remaining................................................. 5,712,881 10,221,353
----------- -----------
TOTAL........................................... $13,661,620 $18,793,020
=========== ===========
</TABLE>
F-24
<PAGE> 184
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PRESENT VALUE OF ESTIMATED FUTURE NET REVENUE(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1994 1993 1992
------------ ------------ -----------
<S> <C> <C> <C>
Proved Reserves Added in Years Prior to
the Current Year........................ $ 24,551,463 $ 19,185,518 $22,391,780
Proved Reserves Added During the Current
Year.................................... 5,182,300 397,750 11,550,562
Sales of Reserves in Place................ (16,874,400) (10,966,370) (191,804)
Purchases of Reserves in Place............ -0- 32,899,110 510,321
------------ ------------ -----------
TOTAL PROVED.................... $ 12,859,363 $ 41,516,008 $34,260,859
============ ============ ===========
Proved Developed Reserves............... $ 9,915,238 $ 27,122,325 $22,637,800
============ ============ ===========
</TABLE>
- ---------------
(1) Year-end prices and costs of production were applied assuming a continuation
of existing economic conditions and operating conditions to estimate future
net revenues and the present value of the reserves. Consideration for price
changes were used only to the extent provided by contractual agreements and
by provision of the Natural Gas Policy Act of 1978. A discount factor of ten
percent was applied to the calculation.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVE QUANTITIES (UNAUDITED)
The standardized measure of discounted future net cash flows relating to
proved oil and gas reserves is presented in accordance with the provisions of
Statement of Financial Accounting Standards No. 69, "Disclosures about Oil and
Gas Producing Activities" (SFAS No. 69). In computing this data, assumptions and
estimates have been utilized and the Company cautions against viewing this
information as a forecast of future economic conditions.
The standardized measure of discounted future net cash flows is determined
by using estimated quantities of proved reserves and the periods in which they
are expected to be developed and produced based on year-end economic conditions.
The estimated future production is priced at year-end prices, except where fixed
and determinable price escalations are provided by contract. The resulting
estimated future cash inflows are reduced by estimated future costs to develop
and produce the proved reserves based on year-end costs levels. The pre-tax
future net cash flows are then reduced further by deducting future income tax
expenses. Such income taxes are determined by applying the appropriate year-end
statutory tax rates, to the future pre-tax net cash flows relating to the
Company's proved oil and gas reserves, less the tax basis of the properties
involved. The future income tax expenses give effect to permanent differences
and tax credits and allowances relating to the Company's proved oil and gas
reserves. The resultant future net cash flows are reduced to present value by
applying a ten percent discount factor.
The following tables present a standardized measure of the Company's net
cash flows relating to proved oil and gas reserve quantities, using average
prices received for oil and the average price received by well for natural gas,
effective at the end of the year.
F-25
<PAGE> 185
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVE QUANTITIES
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1994 1993 1992
------- -------- --------
<S> <C> <C> <C>
Future Cash Inflows................................. $30,355 $ 97,531 $ 74,579
Future Production Costs............................. (8,133) (25,426) (17,930)
Other Related Future Costs.......................... (3,429) (6,401) (3,924)
Future Income Tax Expense........................... -0- -0- -0-
------- -------- --------
Future Net Cash Inflows............................. 18,793 $ 65,704 $ 52,725
Discount at 10 Percent.............................. (5,934) (24,188) $(18,464)
------- -------- --------
Standardized Measure of Discounted Future Cash
Flows............................................. $12,859 $ 41,516 $ 34,261
======= ======== ========
</TABLE>
SUMMARY OF CHANGES IN THE STANDARDIZED MEASURE
OF DISCOUNTED NET CASH FLOWS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of period........................... $ 41,516 $ 34,261 $ 38,160
Sales and transfers of oil and gas net of related
costs................................................ (6,150) (5,632) (6,375)
Revisions to estimates of proved reserves:
Pricing.............................................. (650) 1,110 3,503
Development costs.................................... 657 493 269
Production costs..................................... (1,217) (2,678) (426)
Quantities........................................... (13,412)(4) (11,559)(1) (14,906)(2)
Extensions, discoveries and improved recovery less
costs................................................ 5,182 625 11,551
Development costs incurred during the period........... (345) (348) (1,650)
Net purchases (sales) of reserves in place............. (16,874)(3) 21,818 319
Accretion of discount.................................. 4,152 3,426 3,816
Income taxes........................................... -0- -0- 0
-------- -------- --------
Balance, end of period................................. $ 12,859 $ 41,516 $ 34,261
======== ======== ========
</TABLE>
- ---------------
(1) Principally due to revisions in quantity estimates associated with certain
Louisiana and Michigan properties resulting from continued water
encroachment on those properties and from certain proved undeveloped
reserves in Michigan.
(2) Principally due to revisions in quantity estimates associated with certain
Louisiana and Michigan properties resulting from continued water
encroachment on those properties and due to production declines in Michigan,
Mississippi and Texas, resulting from to declining reservoir pressures and
the unsuccessful attempt to establish production on the Garfield #1-7 well
(proved undeveloped location).
(3) Principally due to the sale of oil and gas properties to Unit Petroleum
Company.
(4) Principally due to revisions in quantity estimates associated with certain
Louisiana properties resulting from continued water encroachment on those
properties and from certain proved undeveloped reserves in Michigan and
Texas.
F-26
<PAGE> 186
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................... $ 1,086,468 $ 748,811
Marketable securities (Note D).......................................... 1,097,200 1,434,800
Accounts receivable:
Trade, net of allowance............................................... 226,443 509,136
Accrued oil and gas revenue........................................... 842,319 743,401
Other................................................................. 7,099
Prepaid expenses and other.............................................. 58,596 33,421
Assets held for sale.................................................... 836,238 836,238
------------ ------------
TOTAL CURRENT ASSETS............................................. $ 4,154,363 $ 4,305,807
OTHER ASSETS:
Investments in Penske entities (at cost)................................ $ 3,344,954 $ 3,344,954
Investment in Pecos pipeline, net....................................... 2,010,040 2,089,384
Other investments and deferred charge................................... 170,662 197,439
------------ ------------
TOTAL OTHER ASSETS............................................... $ 5,525,656 $ 5,631,777
PROPERTY AND EQUIPMENT:
Oil and gas properties (full cost method -- $5,704,026 and $5,626,003
excluded from amortization in 1995 and 1994, respectively)............ $ 36,403,236 $ 35,885,937
Furniture, fixtures and equipment....................................... 2,461,762 2,462,062
------------ ------------
$ 38,864,998 $ 38,347,999
Less accumulated depletion and depreciation............................. (19,360,919) (18,882,785)
------------ ------------
TOTAL PROPERTY AND EQUIPMENT..................................... $ 19,504,079 $ 19,465,214
------------ ------------
TOTAL ASSETS..................................................... $ 29,184,098 $ 29,402,798
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable........................................................ $ 1,320,428 $ 2,045,333
Accrued liabilities..................................................... 689,864 423,137
Reserve for contingent liabilities (Note C)............................. 1,033,496 1,022,000
Note payable to bank.................................................... 1,000,000
Current portion of long term debt....................................... 2,000,000 5,000,000
------------ ------------
TOTAL CURRENT LIABILITIES........................................ $ 6,043,788 $ 8,490,470
LONG TERM DEBT (Note B):
Subordinated Collateralized Notes....................................... $ 8,000,000 $ 5,000,000
TOTAL LONG-TERM DEBT............................................. $ 8,000,000 $ 5,000,000
STOCKHOLDERS' EQUITY (Notes B and E):
Preferred stock, par value $1.00 per share; authorized -- 10,000,000;
issued 1,175,000 (liquidating preference $10 per share, aggregating to
$11,750,000).......................................................... $ 1,175,000 $ 1,175,000
Common stock, par value $0.20 per share; authorized 40,000,000
shares -- issued 19,981,076 in 1995 and 1994.......................... 3,996,215 3,996,215
Additional paid-in capital.............................................. 82,088,679 82,088,679
Retained earnings (deficit)............................................. (71,928,594) (71,494,176)
------------ ------------
Unrealized gain on marketable securities................................ (516,150) (853,750)
$ 15,847,450 $ 16,619,468
Less:
Treasury stock at cost -- 215,849 shares in 1995 and 1994............... 707,140 707,140
------------ ------------
TOTAL STOCKHOLDERS' EQUITY....................................... $ 15,140,310 $ 15,912,328
============ ============
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY......................... $ 29,184,098 $ 29,402,798
============ ============
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE> 187
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
REVENUES:
Oil and gas sales............................................... $ 918,549 $ 2,849,870
Interest and dividend income.................................... 1,750
Gain on sale of investments..................................... 7,260 6,498,492
Revenue from pipeline systems................................... 570,000 264,500
Other income.................................................... 57,106 39,424
----------- -----------
$ 1,554,665 $ 9,652,286
EXPENSES:
Production taxes................................................ $ 42,155 $ 198,919
Lease operating costs........................................... 262,672 881,096
Depletion, depreciation and amortization........................ 581,105 1,476,152
General and administrative...................................... 603,102 642,506
Interest........................................................ 265,049 706,461
----------- -----------
$ 1,754,083 $ 3,905,134
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM......................... $ (199,418) $ 5,747,152
Early extinguishment of debt.................................... $ 1,232,832
----------- -----------
NET EARNINGS (LOSS)............................................... $ (199,418) $ 4,514,320
=========== ===========
NET EARNINGS (LOSS) PER SHARE..................................... $ (.02) $ .21
----------- -----------
Weighted Average Shares Outstanding............................... 19,765,226 19,765,226
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-28
<PAGE> 188
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------------
1995 1994
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss).............................................. $ (199,418) $ 4,514,320
Adjustments to reconcile net earnings (loss) to net cash provided
by (used in) operating activities:
Depletion, depreciation and amortization.................... 581,105 1,476,151
Extraordinary charge, early extinguishment of debt.......... 1,232,832
Gain on sale of investment.................................. (6,498,492)
(Increase) decrease in:
Accounts and notes receivable............................ 176,676 (182,243)
Assets held for resale................................... (7,260) 1,516,316
Prepaid expenses and other............................... (25,175) (73,871)
Other investments........................................ 14,105 (76,420)
(Decrease) increase in:
Accounts payable......................................... (724,905) (930,335)
Accrued liabilities...................................... 278,223 79,614
---------- -----------
Total Adjustments................................... $ 292,769 $(3,456,448)
---------- -----------
Net Cash Provided By (Used In) Operating
Activities....................................... $ 93,351 $ 1,057,872
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposition of properties.......................... $ 25,778 $ 177,878
Proceeds from adjustments relating to ANPC acquisition........... 747,000
Capital expenditures............................................. (546,472) (1,349,815)
---------- -----------
Net Cash Used in Investing Activities............... $ (520,694) $ (424,937)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings.................................... $1,000,000
Principal payments on bank borrowings............................ $ (552,823)
Preferred stock dividends........................................ (235,000) $ (235,000)
---------- -----------
Net Cash Provided By (Used in) Financing
Activities....................................... $ 765,000 $ (787,823)
---------- -----------
Net Decrease In Cash and Cash Equivalents........... $ 337,657 $ (154,888)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................... $ 748,811 $ 685,654
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......................... $1,086,468 $ 530,766
========== ===========
</TABLE>
See notes to consolidated financial statements.
F-29
<PAGE> 189
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) For a description of the accounting policies followed refer to the
notes to Patrick's annual consolidated financial statements for the year
ended December 31, 1994, included in Form 10-K filed with the Securities
and Exchange Commission on March 31, 1995.
(2) The consolidated financial statements include the accounts of the
Company and all of its subsidiaries. All material intercompany profits,
transactions, and balances have been eliminated.
(3) In the opinion of the management of the Company, the accompanying
unaudited consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present
fairly the financial position as of March 31, 1995 and the results of
operations for the three months ended March 31, 1995 and 1994.
(4) The results of operations for the three month period ended March 31,
1995 are not necessarily indicative of the results to be expected for
the full year.
NOTE B -- DEBT
The Company has entered into a new Credit Agreement with bank which
provides for a maximum credit facility of $30,200,000, consisting of a
$5,200,000 term loan, and a $25,000,000 revolving line of credit with an initial
borrowing base of $6,000,000 (collectively the "Bank Loan"). The Company had
consummated a short-term interim $2,000,000 Bridge Loan with the same Bank,
which debt will be retired as part of the above-described revolving line of
credit. At March 31, 1995 the Company has borrowed $1,000,000 under the Bridge
Loan. The Bank Loan offers fixed and variable interest rate options based on
Prime or LIBOR (+2%). The current borrowing rate is 8.125%. The interest rates
will increase by amounts up to .50% on Prime and 1.00% on LIBOR if the merger
described in Management's Discussion and Analysis of Financial Condition and
Results of Operations (page ) does not occur on a timely basis. Substantially
all of the Company's assets are pledged to secure these credit facilities.
The Revolving Credit Facility provided an initial $6,000,000 borrowing
base, of which $2,000,000 is designated to refinance the short-term interim
Bridge Loan, to refinance a portion of the 10.75% Subordinated Collateralized
Notes, to fund capital expenditures for oil and gas reserve acquisitions, and
exploration and development purposes. The borrowing base shall be reduced to
$5,250,000 on April 1, 1996, unless redetermined otherwise pursuant to the
scheduled borrowing base review.
The $5,200,000 term loan was designated to refinance the remaining
principal and accrued interest on the $10,000,000 10.75% Subordinated
Collateralized Notes. The maturity is April 30, 1999, and repayment is based on
the proceeds received from the sale of Penske stock.
In 1990, the Company sold $20,000,000 in 10.75% Subordinated Collateralized
Notes with Warrants to acquire 800,000 shares of the Company's $0.20 par value
Common Stock at $6.16 per share, to three institutional investors. The Company's
equity ownership in Penske Corporation and Penske Transportation Inc. serves as
the Collateral for the Senior Notes. The Senior Note Purchase Agreement contains
financial covenants consistent with those contained in the Bank Loan.
In April, 1994, the Company utilized the proceeds from the sale of the
Penske Stock to prepay $10,000,000 of the Senior Notes. As a result of such
transaction, the Company incurred penalties of $1,040,000 associated with the
prepayment.
NOTE C -- COMMITMENTS AND CONTINGENCIES
The U.S. Environmental Protection Agency ("EPA") has identified the Company
as a potentially responsible party ("PRP") for the cost of clean-up of
"hazardous substances" at an oil field waste disposal site
F-30
<PAGE> 190
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in Vermillion Parish, Louisiana. The EPA has estimated that the total cost of
long-term cleanup of the site will be approximately $13.5 million, with the
Company's percentage of responsibility to be approximately 3.09%. As of March
31, 1995 the Company has accrued approximately $500,000 for this liability. The
EPA and the PRP's will continue to evaluate the site and revise estimates for
the long-term cleanup of the site. There can be no assurance that the cost of
cleanup and the Company's percentage responsibility will not be higher than
currently estimated by the EPA. In addition, under the federal environmental
laws, the liability costs for the cleanup of the site is joint and several among
all PRP's. Therefore, the ultimate cost of the cleanup to the Company could be
significantly higher than the amount presently accrued for this liability.
On March 15, 1995, B.A.R.D. Industries ("B.A.R.D.") filed litigation
against Patrick Petroleum Company, U. E. Patrick and Petrie-Parkman Co., Inc. in
the District Court of Harris County, Texas. B.A.R.D. claims to be beneficial
owner of 3,107,741 shares of common stock in the Company. B.A.R.D. raised
several causes of action including breach of fiduciary duty, breach of
registration agreement, conspiracy and a claim for actual and punitive damages
in an unspecified amount, including attorneys' fees. In addition, B.A.R.D. seeks
a temporary and permanent injunction requiring the production of various
information from the defendants. Plaintiff claims that unless defendants are
immediately restrained from taking any action concerning the proposed merger
with La/Cal Energy Partners of Shreveport, Louisiana, that plaintiff will suffer
irreparable injury including the loss of a board seat, the dilution from an
ownership of 15.7% of the Company's common stock to approximately 7.875%, and
the loss of assets for less than fair value. Defendants removed the state court
proceeding to the United States District Court for the Southern District of
Texas. In response, B.A.R.D. filed with the United States District Court a
motion to remand the proceedings to the 269th District Court of Harris County,
Texas but has subsequently decided not to pursue the remand motion. On April 5,
1995, B.A.R.D.'s claims against Petrie-Parkman Co. were voluntarily dismissed
without prejudice.
Additionally, the Company is party to a number of lawsuits arising in the
normal course of business. The Company has defended and intends to continue to
defend these actions vigorously and believes, based on currently available
information, that adverse settlements, if any, in excess of insurance coverage
or amounts already provided, will not be material to its financial position or
results of operations.
NOTE D -- MARKETABLE SECURITIES
The amortized cost and estimated fair market value of marketable securities
as of March 31, 1995, and December 31, 1994 are shown in the tables below:
<TABLE>
<CAPTION>
MARCH 31, 1995
--------------------------------------
GROSS ESTIMATED
AMORTIZED UNREALIZED FAIR MARKET
COST GAIN VALUE
--------- ---------- -----------
<S> <C> <C> <C>
Marketable equity securities........................ $ 581,050 $ 516,150 $ 1,097,200
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
--------------------------------------
GROSS ESTIMATED
AMORTIZED UNREALIZED FAIR MARKET
COST GAIN VALUE
--------- ---------- -----------
<S> <C> <C> <C>
Marketable equity securities........................ $ 581,050 $ 853,750 $ 1,434,800
</TABLE>
The Company uses the specific identification method in computing realized
gains and losses on sales of securities. In 1995, there were no sales of such
securities.
F-31
<PAGE> 191
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- CHANGES IN STOCKHOLDERS' EQUITY
During the three months ended March 31, 1995, Stockholders' equity changed
as follows:
<TABLE>
<S> <C>
Balance as of December 31, 1994................................. $15,912,328
Unrealized loss on Marketable Securities........................ (337,600)
Net Loss........................................................ (199,418)
Preferred Stock Dividends....................................... (235,000)
-----------
Balance at March 31, 1995............................. $15,140,310
===========
</TABLE>
NOTE F -- SALE OF ASSETS
On December 15, 1994 the Company sold substantially all of its producing
and nonproducing oil and gas properties in Alabama, Louisiana, Mississippi, New
Mexico, Oklahoma and Texas to Unit Petroleum for $16,100,000. Under the terms of
the agreement, the proceeds received by the Company were reduced by the net
revenues from such properties during the period May 1, 1994 to December 15,
1994. The Company received approximately $13,236,000 after such adjustments. In
a related transaction, LLOG Exploration Company exercised its election of
preferential right to purchase the Company's interests in the Bayou Pigeon
Field, Iberia Parish, Louisiana. The Company entered into a Purchase and Sale
Agreement dated December 14, 1994, and closed the transaction December 16, 1994,
receiving approximately $1,569,000. The combined proceeds were used to repay the
Company's bank debt, approximately $13,700,000, with the remaining proceeds used
for interest, fees and general corporate purposes, including the Company's
exploration efforts in West Texas.
F-32
<PAGE> 192
INDEPENDENT AUDITORS' REPORT
THE PARTNERS OF LA/CAL ENERGY PARTNERS:
We have audited the accompanying balance sheet of La/Cal Energy Partners as
of December 31, 1994, and the related statements of operations, partners'
capital (deficit), and cash flows for the year ended December 31, 1994, and the
period from July 15, 1993 (inception) through December 31, 1993. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of La/Cal Energy Partners as of
December 31, 1994, and the results of its operations and its cash flows for the
year ended December 31, 1994, and the period from July 15, 1993 (inception)
through December 31, 1993, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Shreveport, Louisiana
March 31, 1995
F-33
<PAGE> 193
LA/CAL ENERGY PARTNERS
BALANCE SHEET
DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................................... $ 710,762
Accrued oil and gas revenues receivable........................................ 934,910
----------
TOTAL CURRENT ASSETS................................................... 1,645,672
PROPERTY AND EQUIPMENT:
Producing leasehold costs...................................................... 6,262,476
Lease and well equipment....................................................... 1,009,073
----------
7,271,549
Less accumulated depreciation and depletion.................................... 1,309,866
----------
Net property and equipment............................................. 5,961,683
Organizational cost, at amortized cost........................................... 63,709
Deferred financing cost, at amortized cost....................................... 559,432
----------
$8,230,496
==========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt.............................................. $1,816,723
Accounts payable............................................................... 135,916
Accrued expenses and other current liabilities................................. 109,074
----------
TOTAL CURRENT LIABILITIES.............................................. 2,061,713
Long-term debt, excluding current to portion..................................... 8,250,000
----------
TOTAL LIABILITIES...................................................... 10,311,713
Partners' capital (deficit)...................................................... (2,081,217)
----------
$8,230,496
==========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE> 194
LA/CAL ENERGY PARTNERS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
FROM
JULY 15,
1993
YEAR (INCEPTION)
ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1994 1993
--------- ---------
<S> <C> <C>
REVENUES:
Oil and gas sales............................................. $4,995,663 $1,059,882
Interest...................................................... 17,783 8,522
---------- ----------
Total revenues........................................ 5,013,446 1,068,404
---------- ----------
EXPENSES:
Lease operating expense and production taxes.................. 684,131 194,054
Exploration expenses.......................................... 4,240 --
Depreciation, depletion, and amortization..................... 1,156,624 179,476
General and administrative.................................... 81,535 1,301
Interest, net................................................. 1,072,098 199,389
---------- ----------
Total expenses........................................ 2,998,628 574,220
---------- ----------
Net income............................................ $2,014,818 $ 494,184
========== ==========
NET INCOME AS ADJUSTED FOR INCOME TAXES (unaudited):
Income before income taxes as above........................... $2,014,818 $ 494,184
Proforma income tax expense*.................................. 785,779 192,732
---------- ----------
Net income as adjusted for income taxes....................... $1,229,039 $ 301,452
========== ==========
</TABLE>
- ---------------
* As described in note 2, no provision for income taxes is included in the
statements of operations since such taxes are the responsibility of the
individual partners. Certain unaudited pro forma information relating to the
Partnership's results of operations for the aforementioned periods had the
Partnership been treated as a corporation is shown above.
See accompanying notes to financial statements.
F-35
<PAGE> 195
LA/CAL ENERGY PARTNERS
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
PERIOD
FROM
JULY 15,
1993
YEAR (INCEPTION)
ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1994 1993
---------- ----------
<S> <C> <C>
BALANCE AT BEGINNING OF PERIOD................................ $ (988,777) $ --
Capital contributions....................................... -- 2,590,224
Capital distributions....................................... (3,107,258) (4,073,185)
Net income.................................................. 2,014,818 494,184
----------- -----------
BALANCE AT END OF PERIOD...................................... $(2,081,217) $ (988,777)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE> 196
LA/CAL ENERGY PARTNERS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
FROM
JULY 15,
1993
YEAR (INCEPTION)
ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1994 1993
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................... $2,014,818 $ 494,184
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion, and amortization................... 1,156,624 179,476
Amortization of deferred financing costs.................... 112,530 29,598
Exploratory expenses charged against income................. 4,240 --
Increase in accrued oil and gas receivable.................. (454,610) (480,300)
Increase (decrease) in accounts payable..................... (72,846) 208,762
Increase in accrued expenses and other current
liabilities................................................ 61,831 47,243
---------- ----------
Net cash provided by operating activities.............. 2,822,587 478,963
---------- ----------
Cash used by investing activities -- capital expenditures........ (3,719,782) (1,967,989)
---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt................................... 5,719,933 6,510,580
Payments on long-term debt..................................... (1,756,856) (406,934)
Organizational costs incurred.................................. -- (89,944)
Capital contributions.......................................... -- 300,647
Capital distributions.......................................... (3,107,258) (4,073,185)
---------- ----------
Net cash provided by financing activities.............. 855,819 2,241,164
---------- ----------
Net (decrease) increase in cash.................................. (41,376) 752,138
Cash at beginning of period...................................... 752,138 --
---------- ----------
Cash at end of year.............................................. $ 710,762 $ 752,138
========== ==========
Supplemental cash flow information:..............................
Interest paid during period.................................... $1,051,927 194,738
Noncash investing and financing activities:
Contribution of property and equipment...................... $ -- $2,289,577
Deferred financing cost..................................... 292,560 409,000
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE> 197
LA/CAL ENERGY PARTNERS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
(1) ORGANIZATION
La/Cal Energy Partners ("La/Cal") was formed on July 15, 1993, pursuant to
the provisions of the State of Louisiana, for the purpose of engaging in the
domestic exploration for oil and gas reserves primarily in the States of
Louisiana and Texas. Under the provisions of the Agreement of Partnership (the
"Partnership Agreement"), the business of La/Cal is to acquire interests in
leases within a defined program area in Louisiana and certain railroad districts
in East Texas (as amended from time to time) and drill primarily development
wells. La/Cal can also engage in the development, production, and sale of any
commercial accumulations of oil and gas discovered.
Profits, losses, and distributable cash are allocated to the individual
partners as defined in the Partnership Agreement.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment -- La/Cal uses the successful efforts method of
accounting for exploration and development expenditures.
Leasehold acquisition costs are capitalized. When proved reserves are found
on an undeveloped property, leasehold cost is reclassified to proved properties.
Significant undeveloped leases are reviewed periodically, and a valuation
allowance is provided for any estimated decline in value. Cost of all other
undeveloped leases is amortized over the estimated average holding period of the
leases.
Costs of exploratory drilling are initially capitalized, but if proved
reserves are not found, the costs are subsequently expensed. All other
exploratory costs are charged to expense as incurred. Development costs are
capitalized, including the cost of unsuccessful development wells.
Undiscounted future net revenues are compared annually to net capitalized
cost of proved properties to determine if an impairment has occurred in the
amount capitalized.
Depreciation and depletion of producing oil and gas properties are provided
under the unit-of-production method. Developed reserves are used to compute unit
rates for unamortized tangible and intangible development costs, and proved
reserves are used for unamortized leasehold costs. Estimated dismantlement,
abandonment, and site restoration costs, net of salvage value, are considered in
determining depreciation and depletion provisions.
Gains and losses on disposals or retirements that are significant or
include an entire depreciable or depletable property unit are included in
income. All other dispositions, retirements, or abandonments are reflected in
accumulated depreciation, depletion, and amortization.
Organizational and Deferred Financing Costs -- Organizational costs include
professional fees and other costs associated with the formation of La/Cal. Such
costs are being amortized over a five-year period on a straight-line basis.
Organization costs at December 31, 1994, are presented net of accumulated
amortization of $26,234. Amortization expense for the year ended December 31,
1994 and the period from July 15, 1993 (inception) through December 31, 1993 was
$17,989 and $8,245, respectively.
Deferred financing costs represent the net present value of the overriding
royalty interest given to the purchaser of the general obligation notes as
consideration for the purchase of the notes. Such costs are being amortized over
the life of the note agreement and are included in interest expense in the
financial statements. Deferred financing costs at December 31, 1994, are
presented net of accumulated amortization of $142,128. Amortization expense
included in interest expense for the year ended December 31, 1994 and the period
from July 15, 1993 (inception) to December 31, 1993 were $112,530 and $29,598,
respectively.
F-38
<PAGE> 198
LA/CAL ENERGY PARTNERS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes -- The federal income tax effect of La/Cal activities has not
been reflected in the financial statements since such taxes are the
responsibility of the individual Partners. At December 31, 1994, the book basis
of La/Cal's net assets exceeded their tax basis by $2,835,000.
(3) LONG-TERM DEBT
Pursuant to the terms of the 10% Senior Secured General Obligation Notes
(the "Notes"), issued under a Note Purchase Agreement as amended ("Note
Agreement"), the purchasers make advances to La/Cal as determined by the Reserve
Base defined in the Note Agreement. During 1994, a Second Amendment to the Note
Purchase Agreement was executed which, among other things, increased the amount
of the available Notes under the Note Agreement from $10,000,000 to $19,000,000.
All advances under the Note Agreement bear interest at ten percent. Principal
and interest is payable in monthly installments of 30% or 62.5% (depending upon
the then outstanding balance of the note) of the Net Proceeds of Production, as
defined in the Note Agreement. The final monthly installment is due and payable
on December 1, 1999. Principal amount outstanding at December 31, 1994, was
$10,066,723.
As security for the payment of the notes and the performance of the
obligation of La/Cal, La/Cal has pledged as collateral substantially all oil,
gas, or mineral leases or subleases owned or which may be acquired; present and
future buildings, improvements, and tangible property situated upon the
mortgaged property; all oil, gas, and other minerals produced, saved, or sold
from the mortgaged property; and two demand deposit accounts maintained by
La/Cal at a bank ($709,762 at December 31, 1994).
In addition, the Partners conveyed to the purchasers a 4% overriding
royalty interest (ORRI) in each of the mortgaged oil and gas properties
effective May 1, 1993. Estimated present value of such ORRI was $409,000 and was
recorded as a deferred financing cost and as a reduction of producing leasehold
costs by the Partners during 1993. During 1994, in connection with the Second
Amendment to the Note Purchase Agreement, $292,560 of ORRI was recorded by
La/Cal. Net ORRI distributed during the year ended December 31, 1994 and the
period from July 15, 1993 (inception) through December 31, 1993, was $180,000
and $37,000, respectively.
None of the general partners of La/Cal have any obligation or liability for
their share of the obligations or liabilities for the repayment of the notes;
provided, however, that a partner is liable for any loss, cost, or expense which
results directly from such partner's fraud; willful material misrepresentation
made in the transaction documents; the failure to deliver first and valid
security interest of the mortgaged oil and gas property contributed by the
partner; and the failure to deliver a first and valid security interest of such
Partner's share of La/Cal.
Interest cost incurred in 1994 and 1993 included in the accompanying
statement of revenues and expenses are net of interest capitalized of $6,986 and
$4,120, respectively.
Future maturities of long-term debt as of December 31, 1994, are as
follows:
<TABLE>
<S> <C>
1995............................................. $1,816,723
1996............................................. 3,995,000
1997............................................. 1,945,000
1998............................................. 1,200,000
1999............................................. 1,110,000
</TABLE>
The maturities above are based upon the corresponding maximum principal
amount which can be outstanding for the relevant future repayment dates. It is
anticipated that the corresponding maximum principal outstanding amounts
reflected above will be adjusted in the future to compensate for additional
advances received.
F-39
<PAGE> 199
LA/CAL ENERGY PARTNERS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) PARTNERS' CAPITAL (DEFICIT)
Pursuant to the terms of the Partnership Agreement, the term of La/Cal
exists for ten years unless sooner terminated in accordance with terms in the
Partnership Agreement, or unless extended beyond such period by the unanimous
consent of La/Cal Partners.
The Partners contributed and conveyed to La/Cal certain undivided mineral
interests including developed leasehold cost and existing oil and/or gas wells,
together with appurtenant production facilities (historical cost basis of
$2,289,577 at La/Cal's inception).
From time to time the Partners may be notified of certain additional
exploration, development, or recompletion opportunities available to LaCal. To
the extent that such opportunities require funds above amounts available under
the Note Agreement, such funds are to be provided by additional capital
contributions from the Partners on a pro rata basis based upon each Partner's
distributive share. Such additional capital contributions are optional, and no
Partner is compelled to pay his pro rata share of such capital contributions.
The net profits and the net losses of La/Cal are shared and allocated among
the Partners in proportion to their respective distributive shares in La/Cal.
From time to time, as may be determined, cash in excess of the current and
projected needs of the La/Cal are distributed to the Partners according to their
respective distributive shares.
(5) PRO FORMA INCOME TAX INFORMATION (UNAUDITED)
As described in note 2, no provision for income taxes for La/Cal is
included in the statements of operations due to the tax effect of Partnership
activities being the responsibility of the individual Partners. The pro forma
composition of the provision for income taxes for the year ended December 31,
1994, and the period from July 15, 1993 (inception) through December 31, 1993,
is as follows:
<TABLE>
<CAPTION>
PERIOD
FROM
JULY 15,
YEAR 1993
ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1994 1993
-------- ---------
<S> <C> <C>
Federal -- current......................... $404,584 $(105,829)
Federal -- deferred........................ 381,195 298,561
-------- ---------
$785,779 $ 192,732
======== =========
</TABLE>
The pro forma federal income taxes approximates taxes at a blended U.S.
federal and state income tax rate of 39%.
At December 31, 1994, the book basis of La/Cal's net assets exceeded their
tax basis by $3,798,000 which would have resulted in a deferred income tax
liability of approximately $1,374,000 if La/Cal had been a taxable entity. The
pro forma tax effects of the temporary differences comprising this amount are as
follows at December 31, 1994:
<TABLE>
<S> <C>
Property and equipment -- principally due to accumulated
depletion and depreciation............................. $1,105,000
Cash to accrual differences.............................. 269,000
----------
$1,374,000
==========
</TABLE>
F-40
<PAGE> 200
LA/CAL ENERGY PARTNERS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) NATURAL GAS AND CRUDE OIL COST DATA AND RESULTS OF OPERATIONS.
The following reflects La/Cal's capitalized costs related to natural gas
and oil activities at December 31, 1994:
<TABLE>
<S> <C>
Producing leasehold costs (including work-in-progress)................... $6,262,476
Lease and well equipment................................................. 1,009,073
----------
7,271,549
Less accumulated depreciation and depletion.............................. 1,309,866
----------
Net property and equipment..................................... $5,961,683
==========
</TABLE>
The following table reflects certain data with respect to natural gas and
oil property acquisitions, exploration and development activities:
<TABLE>
<CAPTION>
PERIOD
FROM
JULY 15,
YEAR 1993
ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1994 1993
--------- ---------
<S> <C> <C>
Acquisition of proved properties.......................... $2,112,308 $1,250,000
Exploration costs......................................... 4,240 --
Development costs......................................... 1,600,235 717,989
</TABLE>
Results of operations for natural gas and oil producing activities follow:
<TABLE>
<CAPTION>
PERIOD
FROM
JULY 15,
YEAR 1993
ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1994 1993
--------- ---------
<S> <C> <C>
Sales to unaffiliated customers........................... $4,995,663 $1,059,882
Production costs (lease operating expense and taxes)...... 684,131 194,054
Exploration expenses...................................... 4,240 --
Depreciation, depletion and amortization.................. 1,138,635 171,231
---------- ----------
1,827,006 365,285
---------- ----------
Results of operations before pro forma income tax
expense................................................. 3,168,657 694,597
Pro forma income tax expense.............................. 1,235,776 270,893
---------- ----------
Results of operations as adjusted for income taxes........ $1,932,881 $ 423,704
========== ==========
</TABLE>
La/Cal has operated as a partnership since formation and accordingly has
not directly paid income taxes. Pro forma income tax expense and results of
operations as adjusted for income taxes is shown above in order to reflect the
impact of income taxes as if La/Cal had been organized as a corporation.
(7) RELATED PARTY TRANSACTIONS
La/Cal does not have any employees and is dependent on Goodrich Oil Company
to provide substantially all management of oil and gas operations and
administrative functions. Since inception La/Cal has not paid Goodrich Oil
Company for such services. Goodrich Oil Company is the operator of record of the
majority of the oil and gas properties in which La/Cal has an interest and owns
joint interests in such properties.
F-41
<PAGE> 201
LA/CAL ENERGY PARTNERS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(8) CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Due to the nature of the industry La/Cal sells its production to a limited
number of purchasers and accordingly amounts receivable from such purchasers
could be significant. During 1994 and for the period from July 15, 1993 through
December 31, 1993 La/Cal sold a significant amount of its production to two
purchasers. Sales as a percent of oil and gas sales revenue to these purchasers
were as follows:
<TABLE>
<CAPTION>
PERIOD
FROM
JULY 15,
YEAR 1993
ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1994 1993
--- ---
<S> <C> <C>
Tenneco Gas Marketing Company..................................... 41% 70%
Seaber Corporation of Louisiana................................... 48% --
</TABLE>
(9) SUBSEQUENT EVENT
On March 10, 1995, La/Cal entered into an Agreement and Plan of Merger with
Patrick Petroleum Company, a New York Stock Exchange listed public company. The
proposed transaction has been approved by the Board of Directors of Patrick
Petroleum Company and the Management Committee of La/Cal and is subject to
approval by their respective stockholders and partners as well as other
customary conditions and approvals.
(10) NEW ACCOUNTING STANDARD
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The standard
established guidance for recognizing and measuring impairment losses and
requires that the carrying value of an impaired asset be reduced to fair value.
La/Cal has not fully determined the impact that adoption of the standard will
have on its financial statements although management of La/Cal feels that any
such impact would not be material to its financial condition or results of
operations. The standard must be adopted no later than 1996 for La/Cal.
F-42
<PAGE> 202
INDEPENDENT AUDITORS' REPORT
THE PARTNERS OF LA/CAL ENERGY PARTNERS:
We have audited the accompanying statement of revenues and direct operating
expenses of the Properties Contributed to La/Cal Energy Partners for the period
from January 1, 1993 through July 14, 1993. This financial statement is the
responsibility of the management of the owners of the properties. Our
responsibility is to express an opinion on this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenues and direct
operating expenses are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statement. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
presentation of the statement. We believe that our audit provides a reasonable
basis for our opinion.
The accompanying statement of revenues and direct operating expenses was
prepared for the purpose of complying with certain rules and regulations of the
Securities and Exchange Commission (for inclusion in the Form S-4 Registration
Statement of Goodrich Petroleum Corporation) and are not intended to be a
complete financial presentation of the Properties Contributed to La/Cal Energy
Partners.
In our opinion, such statement of revenues and direct operating expenses
presents fairly, in all material respects, the revenues and direct operating
expenses of the Properties Contributed to La/Cal Energy Partners as described in
Note 1 for the period from January 1, 1993 through July 14, 1993, in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Shreveport, Louisiana
March 31, 1995
F-43
<PAGE> 203
PROPERTIES CONTRIBUTED TO LA/CAL ENERGY PARTNERS
STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES
<TABLE>
<CAPTION>
PERIOD
FROM
JANUARY 1,
1993
THROUGH
JULY 14,
1993
--------
<S> <C>
Revenues -- oil and gas sales.................................................. $946,939
Direct operating expenses -- lease operating expenses
and production and property taxes............................................ 136,608
--------
Excess of revenues over direct operating expenses.............................. $810,331
========
</TABLE>
BASIS OF PRESENTATION
The statement of revenues and direct operating expenses ("Statement") was
prepared from historical accounting records related to the properties. The
revenues and direct operating expenses relate to the net working interest in the
properties of their owners who ultimately contributed such properties to La/Cal
Energy Partners. Lease operating expenses include labor, repairs and
maintenance, fuel consumed and supplies utilized to operate and maintain the
wells and related equipment and facilities. The Statement does not include
general and administrative expenses, interest or provisions for depreciation,
depletion, amortization and dismantlement costs, or income taxes.
Complete financial statements, including balance sheets, are not presented
as the properties were not maintained as a separate business unit and assets,
liabilities or indirect operating costs applicable to the properties were not
segregated. It is not practicable to identify all assets, liabilities, or
indirect operating costs applicable to the properties.
F-44
<PAGE> 204
LA/CAL ENERGY PARTNERS
SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION
YEARS ENDED DECEMBER 31, 1994 AND 1993
(UNAUDITED)
The supplemental oil and gas reserve information that follows relates to
the properties contributed to La/Cal by its Partners prior to formation (period
from January 1 1993 through July 14, 1993) and properties owned by La/Cal
subsequent to formation (period from July 15, 1993 through December 31, 1993 and
year ended December 31, 1994). For comparative purposes the supplemental oil and
gas information for 1993 is presented on a combined basis for the properties
contributed to La/Cal and La/Cal subsequent to inception. All of La/Cal's
reserves are located in the continental United States.
The following schedules are presented in accordance with Statement of
Financial Accounting Standards No. 69 (SFAS No. 69), Disclosures about Oil and
Gas Producing Activities. The schedules provide users with a common base for
preparing estimates of future cash flows and comparing reserves among companies.
Additional background information follows concerning the schedules.
Schedules 1 and 2 -- Estimated Net Proved Oil and Gas Reserves
Reserves of crude oil, condensate, and natural gas liquids and natural gas
were evaluated by Coutret and Associates, Inc. and H.J. Gruy and Associates,
Inc. for the year ended December 31, 1994 and by Coutret and Associates, Inc.
for the year ended December 31, 1993.
Many assumptions and judgmental decisions are required to estimate
reserves. Quantities reported are considered reasonable, but they are subject to
future revisions, some of which may be substantial, as additional information
becomes available. Such additional knowledge may be gained as the result of
reservoir performance, new geological and geophysical data, additional drilling,
technological advancements, price changes, and other factors.
Regulations published by the Securities and Exchange Commission define
proved reserves as those volumes of crude oil, condensate, and natural gas
liquids and natural gas that geological and engineering data demonstrate with
reasonable certainty are recoverable from known reservoirs under existing
economic and operating conditions. Proved developed reserves are those volumes
expected to be recovered through existing wells with existing equipment and
operating methods. Proved undeveloped reserves are those volumes expected to be
recovered as a result of making additional investment by drilling new wells on
acreage offsetting productive units or recompleting existing wells.
Schedule 3 -- Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
SFAS No. 69 requires calculation of future net cash flows using a ten
percent annual discount factor and year end prices, costs, and statutory tax
rates, except for known future changes such as contracted prices and legislated
tax rates.
The calculated value of proved reserves in not necessarily indicative of
either fair market value or present value of future cash flows because prices,
costs, and governmental policies do not remain static; appropriate discount
rates may vary; and extensive judgment is required to estimate the timing of
production. Other logical assumptions would likely have resulted in
significantly different amounts. Average crude oil prices received for oil and
the average price received by well for natural gas, effective at the end of the
year, were used for this calculation.
Schedule 3 also presents a summary of the principal reasons for change in
the standard measure of discounted future net cash flows for each of the two
years in the period ended December 31, 1994.
F-45
<PAGE> 205
LA/CAL ENERGY PARTNERS
SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION -- (CONTINUED)
SCHEDULE 1 -- ESTIMATED NET PROVED GAS RESERVES (MCF)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------
1994 1993
--------- ---------
<S> <C> <C>
Proved:
Balance, beginning of period..................................... 17,550,038 9,313,693
Revisions of previous estimates.................................. (702,870) (653,255)
Purchase of minerals in place.................................... 4,380,429 3,769,789
Extensions, discoveries, and other additions..................... 3,141,537 6,041,157
Production....................................................... (2,386,130) (921,346)
---------- ----------
Balance, end of period........................................... 21,983,004 17,550,038
========== ==========
Proved developed:
Beginning of period.............................................. 13,729,911 8,026,445
End of period.................................................... 18,839,882 13,729,911
</TABLE>
SCHEDULE 2 -- ESTIMATED NET PROVED OIL RESERVES (BARRELS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1994 1993
------- -------
<S> <C> <C>
Proved:
Balance, beginning of period.......................................... 209,941 68,796
Revisions of previous estimates....................................... (23,246) 51,806
Purchase of minerals in place......................................... 47,482 37,106
Extensions, discoveries, and other additions.......................... 326,033 59,463
Production............................................................ (36,488) (7,230)
------- -------
Balance, end of period................................................ 523,722 209,941
======= =======
Proved developed:
Beginning of period................................................... 174,641 30,179
End of period......................................................... 504,908 174,641
</TABLE>
F-46
<PAGE> 206
LA/CAL ENERGY PARTNERS
SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION -- (CONTINUED)
SCHEDULE 3 -- STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Future cash inflows..................................................... $44,878 $38,098
Future production and development cost.................................. (3,803) (2,765)
Future income tax expense(1)............................................ -- --
------- -------
Future net cash flows................................................... 41,075 35,333
10% annual discount for estimated timing of cash flows.................. (13,559) (13,900)
------- -------
Standardized measure of discounted future net cash flows................ $27,516 $21,433
======= =======
</TABLE>
Principal sources of change in the standardized measure of discounted
future net cash flows for the years shown:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net charges in prices and production cost, including excise taxes....... $(2,978) $ 840
Sales and transfers of oil and gas produced, net of production costs.... (4,312) (1,676)
Net change due to revisions, extensions, and discoveries................ 4,662 6,899
Net change due to purchase of minerals-in-place......................... 5,105 4,549
Development cost incurred during the period............................. 1,191 747
Accretion of discount................................................... 2,143 931
Change in production rates (timing) and other........................... 272 170
------- -------
$ 6,083 $12,120
======= =======
</TABLE>
- ---------------
(1) La/Cal has operated as a partnership since formation and accordingly has not
directly paid income taxes. Prior to the formation of La/Cal the properties
were owned individually by the La/Cal Partners and accordingly the Partners
were responsible for income taxes. Accordingly for purposes of this
presentation future income tax expense related to pre tax cash flows have
not been reflected.
F-47
<PAGE> 207
LA/CAL ENERGY PARTNERS
PROPERTIES ACQUIRED FROM MOBIL CORPORATION
STATEMENT OF REVENUES
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR
ENDED
DECEMBER 31,
1993
---------
<S> <C>
Revenues -- oil and gas sales................................................ $ 443,007
=========
</TABLE>
(1) BASIS OF PRESENTATION
In March 1994, La/Cal acquired a 43.10% working interest in three of Mobil
Corporation's Miami Corp. wells, and a 2.26% royalty interest in Mobil
Corporation's Cutler #1 well.
The statement of revenues ("Statement") was prepared from historical
production records related to the properties. Historical accounting records for
the properties were not readily available. The revenues presented were
determined using production data for the properties acquired and prices for
similar production in the area. Average prices used were $17.53 per barrel of
oil and $1.97 per Mcf of gas. The Statement does not include lease operating
expenses, general and administrative expenses, interest or provisions for
depreciation, depletion, amortization and dismantlement costs, or income taxes
as such information was not available.
Complete financial statements, including balance sheets, are not presented
as the properties were not maintained as a separate business unit and assets,
liabilities or indirect operating costs applicable to the properties were not
segregated. It is not practicable to identify all assets, liabilities, or
indirect operating costs applicable to the properties.
(2) SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
Total proved crude oil, condensate, and natural gas liquids and natural gas
in the three Mobil Miami Corp. wells, and the royalty interest in Mobil
Corporation's Cutler #1 well acquired by La/Cal in early 1994 were estimated by
H.J. Gruy and Associates, Inc. as of January 1, 1994 in accordance with
guidelines established by the Securities and Exchange Commission. All of the
reserves of the properties acquired are located in the Pecan Lake field which is
located approximately fifty miles southeast of Lake Charles, Louisiana. There
were no reserve reports available for the acquired properties prior to January
1, 1994 and therefore, La/Cal is unable to present reserve information for any
periods prior to January 1, 1994.
Estimated quantities of net proved reserves as of January 1, 1994 follows:
<TABLE>
<CAPTION>
NATURAL CRUDE
GAS OIL
(MCF) (BBLS)
--------- ------
<S> <C> <C>
Proved developed reserves................... 2,947,885 32,774
</TABLE>
There were no quantities of proved undeveloped reserves associated with the
acquired properties.
The standardized measure of discounted future net cash flows before income
taxes relating to proved reserves acquired as of January 1, 1994 follows:
<TABLE>
<S> <C>
Future cash inflows net of production taxes.............. $ 6,133,507
Future production and development costs.................. (170,676)
-----------
Future net cash flows.................................... 5,962,831
10% annual discount for estimated timing of cash flows... (2,073,093)
-----------
Standardized measure of discounted future net cash
flows.................................................. $ 3,889,738
===========
</TABLE>
F-48
<PAGE> 208
LA/CAL ENERGY PARTNERS
PROPERTIES ACQUIRED FROM FOSTER BROWN COMPANY
STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD
FROM
JANUARY 1,
1993
THROUGH
NOVEMBER 30,
1993
---------
<S> <C>
Revenues -- oil and gas sales................................................ $ 485,201
Direct operating expenses -- lease operating expenses and production
and property taxes......................................................... 46,190
---------
Excess of revenues over direct operating expenses............................ $ 439,011
=========
</TABLE>
(1) BASIS OF PRESENTATION
On December 1, 1993, La/Cal acquired a 50% working interest from Foster
Brown Company in the Nickerson Fee well and an additional 2.73% royalty interest
in the City of Lake Charles #1 well.
The statement of revenues and direct operating expenses ("Statement") was
prepared from historical accounting records related to the properties. The
revenues and direct operating expenses relate to the net working interest in the
properties purchased by La/Cal. Lease operating expenses include labor, repairs
and maintenance, fuel consumed and supplies utilized to operate and maintain the
wells and related equipment and facilities. The Statement does not include
general and administrative expenses, interest or provisions for depreciation,
depletion, amortization and dismantlement costs, or income taxes.
Complete financial statements, including balance sheets, are not presented
as the properties were not maintained as a separate business unit and assets,
liabilities or indirect operating costs applicable to the properties were not
segregated. It is not practicable to identify all assets, liabilities, or
indirect operating costs applicable to the properties.
(2) SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
Total proved crude oil, condensate, and natural gas liquids and natural gas
in the Nickerson Fee well and City of Lake Charles #1 well acquired by La/Cal in
December 1993 were estimated by Coutret and Associates, Inc. as of December 31,
1993 in accordance with guidelines established by the Securities and Exchange
Commission. All of the reserves of the properties acquired are located in the
Lake Charles field located adjacent to the city of Lake Charles, Louisiana.
There were no reserve reports available for the acquired properties prior to
December 31, 1993 and therefore, La/Cal is unable to present reserve information
for any periods prior to December 31, 1993.
Estimated quantities of net proved reserves as of December 31, 1993
follows:
<TABLE>
<CAPTION>
NATURAL CRUDE
GAS OIL
(MCF) (BBLS)
-------- ------
<S> <C> <C>
Proved developed reserves................... 2,769,681 43,133
</TABLE>
There were no quantities of proved undeveloped reserves associated with the
acquired properties.
The standardized measure of discounted future net cash flows relating to
proved reserves acquired as of December 31, 1993 follows:
<TABLE>
<S> <C>
Future cash inflows net of production taxes.............. $ 6,333,118
Future production and development costs.................. (307,475)
-----------
Future net cash flows.................................... 6,025,643
10% annual discount for estimated timing of cash flows... (2,462,243)
-----------
Standardized measure of discounted future net cash
flows.................................................. $ 3,563,400
===========
</TABLE>
F-49
<PAGE> 209
LA/CAL ENERGY PARTNERS
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................................ $ 710,835 $ 710,762
Accrued oil and gas revenues receivable......................... 739,213 934,910
----------- ------------
TOTAL CURRENT ASSETS.................................... 1,450,048 1,645,672
PROPERTY AND EQUIPMENT:
Producing leasehold costs....................................... 6,262,476 6,262,476
Lease and well equipment........................................ 1,009,073 1,009,073
----------- ------------
7,271,549 7,271,549
Less accumulated depreciation and depletion..................... 1,533,614 1,309,866
----------- ------------
Net property and equipment.............................. 5,737,935 5,961,683
Organizational cost, at amortized cost............................ 59,212 63,709
Deferred financing cost, at amortized cost........................ 530,735 559,432
Other deferred charges............................................ 174,952 --
----------- ------------
$ 7,952,882 $ 8,230,496
=========== ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt............................... $ 1,787,250 $ 1,816,723
Accounts payable................................................ 281,116 135,916
Accrued expenses and other current liabilities.................. 64,765 109,074
----------- ------------
TOTAL CURRENT LIABILITIES............................... 2,133,131 2,061,713
Long-term debt, excluding current to portion...................... 7,800,000 8,250,000
----------- ------------
TOTAL LIABILITIES....................................... 9,933,131 10,311,713
Partners' capital (deficit)....................................... (1,980,249) (2,081,217)
----------- ------------
$ 7,952,882 $ 8,230,496
=========== ============
</TABLE>
See accompanying note to financial statements.
F-50
<PAGE> 210
LA/CAL ENERGY PARTNERS
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
REVENUES:
Oil and gas sales.................................................. $1,127,089 $878,457
Interest........................................................... 6,331 3,455
---------- --------
Total revenues............................................. 1,133,420 881,912
---------- --------
EXPENSES:
Lease operating expense and production taxes....................... 149,949 93,238
Exploration expenses............................................... -- 3,398
Depreciation, depletion, and amortization.......................... 228,245 222,622
General and administrative......................................... 22,329 16,335
Interest, net...................................................... 274,845 203,424
---------- --------
Total expenses............................................. 675,368 539,017
---------- --------
Net income................................................. $ 458,052 $342,895
========== ========
NET INCOME AS ADJUSTED FOR INCOME TAXES:
Income before income taxes as above................................ $ 458,052 $342,895
Proforma income tax expense*....................................... 178,640 133,729
---------- --------
Net income as adjusted for income taxes............................ $ 279,412 $209,166
========== ========
</TABLE>
- ---------------
* No provision for income taxes is included in the statements of operations
since such taxes are the responsibility of the individual partners. Certain
unaudited pro forma information relating to the Partnership's results of
operations for the aforementioned periods had the Partnership been treated as
a corporation is shown above.
See accompanying note to financial statements.
F-51
<PAGE> 211
LA/CAL ENERGY PARTNERS
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
BALANCE AT BEGINNING OF PERIOD.................................. $(2,081,217) $ (988,777)
Capital contributions......................................... -- --
Capital distributions......................................... (357,084) (1,765,288)
Net income.................................................... 458,052 342,895
----------- -----------
BALANCE AT END OF PERIOD........................................ $(1,980,249) $(2,411,170)
=========== ===========
</TABLE>
See accompanying note to financial statements.
F-52
<PAGE> 212
LA/CAL ENERGY PARTNERS
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................... $ 458,052 $ 342,895
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion, and amortization................... 228,245 222,622
Amortization of deferred financing costs.................... 28,697 26,439
Exploratory expenses charged against income................. -- 3,398
(Increase) decrease in accrued oil and gas receivable....... 195,697 (131,572)
Increase in accounts payable................................ 145,200 84,957
Decrease in accrued expenses and other current
liabilities................................................ (44,309) (9,568)
---------- ----------
Net cash provided by operating activities.............. 1,011,582 539,171
---------- ----------
Cash used by investing activities -- capital expenditures........ -- (2,882,222)
---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt................................... -- 4,052,015
Payments on long-term debt..................................... (479,473) (255,410)
Deferred costs................................................. (174,952) --
Capital distributions.......................................... (357,084) (1,765,288)
---------- ----------
Net cash provided (used) by financing activities....... (1,011,509) 2,031,317
---------- ----------
Net (decrease) increase in cash.................................. 73 (311,734)
Cash at beginning of period...................................... 710,762 752,138
---------- ----------
Cash at end of period............................................ $ 710,835 $ 440,404
========== ==========
Supplemental cash flow information:
Interest paid during period.................................... $ 249,956 $ 170,787
Noncash investing and financing activities --
Deferred financing cost..................................... $ -- $ 292,560
</TABLE>
See accompanying note to financial statements.
F-53
<PAGE> 213
LA/CAL ENERGY PARTNERS
NOTE TO FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1995 AND 1994
BASIS OF PRESENTATION
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to rules and regulations of the
Securities and Exchange Commission; however, La/Cal believes the disclosures
which are made are adequate to make the information presented not misleading.
These financial statements and footnote should be read in conjunction with the
financial statements and notes thereto included in La/Cal's historical financial
statements for the year ended December 31, 1994 and for the period from July 15,
1993 through December 31, 1993 included elsewhere herein.
The unaudited financial information for the three months ended March 31,
1995 and 1994 has not been audited by independent public accountants; however,
in the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the results of operations for
the periods presented have been included therein. The results of operations for
the first three months of the year are not necessarily indicative of the results
of operations which might be expected for the entire year.
F-54
<PAGE> 214
GOODRICH PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEET
MARCH 31, 1995
(UNAUDITED)
<TABLE>
<S> <C>
Asset -- Cash........................................................................ $100
Stockholder's Equity:
Preferred Stock, par value $1.00 per share; authorized 10,000,000 shares........... $ --
Common Stock, par value $.20 per share; authorized 100,000,000 shares -- issued and
outstanding 10 shares........................................................... 2
Additional paid-in capital......................................................... 98
----
Total stockholder's equity................................................. $100
====
</TABLE>
- ---------------
NOTE -- Goodrich Petroleum Corporation (Goodrich) was formed on March 7, 1995 to
become the parent company of businesses presently conducted by Patrick
Petroleum Company (Patrick) and La/Cal Energy Partners (La/Cal) pursuant
to an Agreement and Plan of Merger dated as of March 10, 1995
(Agreement) between Patrick and La/Cal. Goodrich is a wholly-owned
subsidiary of Patrick which to date has conducted no business.
Goodrich has a wholly-owned subsidiary, Goodrich Acquisition
Corporation, formed on March 7, 1995 for the sole purpose of
facilitating the transactions contemplated by the Agreement.
F-55
<PAGE> 215
APPENDIX I
AGREEMENT AND PLAN OF MERGER
LA/CAL ENERGY PARTNERS
GOODRICH PETROLEUM CORPORATION
PATRICK PETROLEUM COMPANY
and
GOODRICH ACQUISITION, INC.
Dated as of March 10, 1995
<PAGE> 216
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I. MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.03 Effect of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.04 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.05 Certificate of Incorporation and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.06 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.07 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.08 Taking of Necessary Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II. STATUS AND CONVERSION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.01 Status, Contribution and Conversion of Goodrich Petroleum Securities . . . . . . . . . . . . . . . . . . . . . 3
2.02 Status and Conversion of Goodrich Acquisition Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.03 Status and Conversion of Patrick Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Patrick of Delaware Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(c) Patrick of Delaware Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(d) Patrick of Delaware Options and Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III. MERGER APPROVAL AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.01 Registration Statement; Proxy Statement - Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.02 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) La/Cal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Patrick . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.03 Completion of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.04 Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.01 Patrick Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(a) Producing Oil and Gas Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(b) Non-Producing Oil and Gas Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(c) Personal Property and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(d) Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(e) Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(f) Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(g) Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(h) Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(i) Stoney Point Gas Plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(j) Geological and Geophysical Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(k) Remaining Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.02 La/Cal Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) Producing Oil and Gas Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
i
<PAGE> 217
<TABLE>
<CAPTION>
Page
----
<S> <C>
(b) Non-Producing Oil and Gas Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(c) Personal Property and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(d) Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.03 Permitted Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.04 Good and Defensible Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.05 Material; Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.06 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE V. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.01 Representations and Warranties of Patrick . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Corporate Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Capital Stock of Patrick . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(c) Options or Other Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(d) Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(e) Corporate Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(f) Transactions Authorized; Execution of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(g) Restated Certificate of Incorporation, Bylaws and Minute Books . . . . . . . . . . . . . . . . . . . . 10
(h) Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(i) Partnership Organization, Qualification and Authority. . . . . . . . . . . . . . . . . . . . . . . . . 11
(j) Partnership Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(k) Partnership Leases and Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(l) Contracts and Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(m) Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(n) Stoney Point Gas Plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(o) Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(p) Partnership and Subsidiary Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(q) Payout Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(r) Prepayment for Production and Production Imbalances . . . . . . . . . . . . . . . . . . . . . . . . . 12
(s) Additional Drilling Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(t) Books and Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(u) Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(v) SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(w) Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(x) Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(y) Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(z) Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(aa) Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(bb) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(cc) Compliance with Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(dd) Material Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(ee) Operations of Patrick . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(ff) Brokers' Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(gg) Complete Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(hh) Investment in Penske . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(ii) Investment in Marcum Natural Gas Services, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(jj) Capital Stock of Goodrich Petroleum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(kk) Corporate Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(ll) Transactions Authorized; Execution of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(mm) Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
ii
<PAGE> 218
<TABLE>
<CAPTION>
Page
----
<S> <C>
(nn) Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(oo) Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(pp) Public Utility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(qq) Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.02 Representations and Warranties of La/Cal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(a) Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(b) Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(c) Transactions Authorized; Execution of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(d) Partnership Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(e) Partnerships and Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(f) Contracts and Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(g) Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(h) Payout Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(i) Prepayment for Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(j) Additional Drilling Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(k) Books and Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(l) Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(m) Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(n) Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(o) Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(p) Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(q) Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(r) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(s) Compliance with Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(t) Material Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(u) Operations of La/Cal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(v) Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(w) Complete Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VI. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.01 Covenants and Agreements of Patrick . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(a) Books, Records and Files . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(b) Continuing Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(c) Continuing Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(d) New Agreements and Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(e) Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(f) Notifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(g) Confidential Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(h) Amendments of Certificate of Incorporation, Bylaws, Etc. . . . . . . . . . . . . . . . . . . . . . . . 23
(i) Change in Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(j) Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(k) Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(l) Severance and Consulting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(m) Consulting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(n) COBRA Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(o) Patrick Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(p) Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(q) Stock Sale Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(r) Affiliate Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
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(s) Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(t) Accountants Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(u) Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.02 Covenants and Agreements of La/Cal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(a) Books, Records and Files . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(b) Continuing Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(c) Continuing Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(d) New Agreements and Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(e) Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(f) Notifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(g) Confidential Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(h) Amendments of Partnership Agreement, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(i) Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(j) Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(k) Affiliate Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(l) Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(m) Stock Sale Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(n) Accountants Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(o) Goodrich Oil Company Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VII. PURCHASE PRICE ADJUSTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.01 Claims from Breach of Warranties, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.02 Notice of Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(a) Title Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(b) Other Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(c) La/Cal's Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(d) Patrick's Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.03 Valuation of Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(a) Adjustment Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(b) Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(c) Valuation Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.04 Right of Offset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.05 Directors' and Officers' Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VIII. CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.01 Conditions to Obligations of La/Cal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(a) Validity of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(b) Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(c) Consents of Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(d) Pending Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(e) Maintenance of Balance Sheet Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(f) Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(g) No Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(h) Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(i) Stock Sale Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.02 Conditions to Obligations of Patrick . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(a) Validity of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(b) Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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(c) Consents of Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(d) Pending Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(e) Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(f) La/Cal Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(g) No Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(h) Stock Sale Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(i) Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.03 Conditions to Obligations of La/Cal and Patrick . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(a) Prohibition of Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(b) Stockholders' and Partners' Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(c) Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE IX. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.01 Date of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.02 Place of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.03 Closing Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(a) La/Cal Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(b) Patrick Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(c) Good Standing and Foreign Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(d) Other Closing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE X. OBLIGATIONS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.01 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.02 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE XI. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.01 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.02 Liabilities Upon Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE XII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.01 Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.02 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
12.03 Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
12.04 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
12.05 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.06 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.07 Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.08 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.09 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.10 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.12 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.13 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
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1.01 Contribution Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3.03 Certificate of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.01 Patrick Oil and Gas Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.02 La/Cal Oil and Gas Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.01 Exception to Patrick Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.01(a) Patrick State Foreign Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.01(c) List of Rights to Acquire Patrick of Delaware Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . 10
5.01(d) Patrick Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.01(h) Patrick Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.01(l) Patrick Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.01(m) Patrick Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.01(z) Patrick Employment Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.01(aa) Patrick Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.01(hh) Penske Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.01(ii) Marcum Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.02 Exception to La/Cal Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.02(a) La/Cal Foreign Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.02(p) La/Cal Employment Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.02(q) La/Cal Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.01(d) Patrick Well Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.01(l) Patrick Severance and Consulting Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.01(m) Consulting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.01(q) Stock Sale Restriction Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.01(r) Patrick Affiliate Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.01(s) Registration Rights Agreement and Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.02(k) La/Cal Affiliate Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.02(m) Stock Sale Restriction Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.02(o) Goodrich Oil Company Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.01(b) Patrick Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.02(b) La/Cal Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.03(a) La/Cal Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.03(b) Patrick Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement"), dated as of
March 10, 1995, is among PATRICK PETROLEUM COMPANY, a Delaware corporation
("Patrick of Delaware"), with the address of 301 West Michigan Avenue, Jackson,
Michigan 49201 (unless the context otherwise requires, Patrick of Delaware and
its Subsidiaries and Partnerships (as hereinafter defined) are hereinafter
collectively called ("Patrick"), La/Cal Energy Partners, a Louisiana
partnership ("La/Cal"), Goodrich Petroleum Corporation, a newly formed Delaware
corporation ("Goodrich Petroleum"), and Goodrich Acquisition, Inc., a newly
formed Delaware Corporation ("Goodrich Acquisition") formed for the sole
purpose of consummating this Agreement, all with an address of 333 Texas
Street, Suite 1300, Shreveport, Louisiana. Patrick of Delaware and Goodrich
Acquisition may sometimes hereinafter be called the "Constituent Corporations."
WHEREAS, the partners of La/Cal Energy Partners ("La/Cal") will be
solicited to consent to the exchange of certain of the La/Cal assets for
Goodrich Petroleum Common Stock and the subsequent dissolution of La/Cal and
the distribution of the Goodrich Petroleum Common Stock to the partners;
WHEREAS, the respective Boards of Directors of each of the Constituent
Corporations and Goodrich Petroleum have approved this Agreement and deem it
advisable and generally to the welfare and advantage of each, and of the
stockholders of each, that Goodrich Acquisition merge with and into Patrick of
Delaware under and pursuant to the General Corporation Law of the state of
Delaware ("Delaware Law");
WHEREAS, the holders of shares of the common stock of Patrick of
Delaware are entitled to vote on and to adopt this Agreement;
WHEREAS, Goodrich Petroleum as the holder of the shares of Common
Stock of Goodrich Acquisition and Patrick of Delaware as the holder of the
shares of Common Stock of Goodrich Petroleum have voted on and adopted this
Agreement; and
WHEREAS, for federal income tax purposes, it is intended that the
merger and asset contribution shall qualify as a tax free exchange within the
meaning of Section 351(a) of the United States Internal Revenue Code of 1986,
as amended (the "Code").
NOW, THEREFORE, in consideration of the mutual premises, covenants and
agreements contained herein, the benefits to be derived by each party
hereunder, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Patrick of Delaware, La/Cal,
Goodrich Petroleum and Goodrich Acquisition agree as follows:
ARTICLE I. MERGER
1.01 Contribution.
Subject to the terms and conditions of this Agreement and the
Contribution Agreement attached as Exhibit 1.01 La/Cal hereby agrees to
contribute on the Effective Date (as hereinafter defined), effective as of
March 1, 1995, the La/Cal Interests (as hereinafter defined) to Goodrich
Petroleum in exchange for 19,765,226 shares of Goodrich Petroleum Common Stock,
subject to any adjustment resulting from the operation of Section 7.04.
1.02 Merger.
At the Effective Time, in accordance with the provisions of this
Agreement and Delaware Law, Goodrich Acquisition shall be merged with and into
Patrick of Delaware (the "Merger"), and the separate existence and corporate
organization of Goodrich Acquisition, except insofar as they may be continued
by statute, shall cease, and Patrick of Delaware shall continue as the
surviving corporation under Delaware Law, with Patrick of Delaware being
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sometimes hereinafter referred to as the "Surviving Corporation." The name of
the Surviving Corporation shall be "Patrick Petroleum Company," unless later
changed in accordance with Delaware Law.
1.03 Effect of Merger.
The Merger shall have the effects set forth under Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, except
as herein specifically set forth, at the Effective Time, the identity,
existence, corporate organization, purposes, powers, objects, franchises,
privileges, rights and immunities of Patrick of Delaware shall continue in
effect and be unimpaired by the Merger, the corporate existence of Goodrich
Acquisition shall cease, and Patrick of Delaware shall succeed, without other
transfer, to all of the rights and property of Goodrich Acquisition, and shall
be subject to all the debts and liabilities of Goodrich Acquisition in the same
manner as if Patrick of Delaware had itself incurred them. All rights of
creditors and all liens upon property of each of the Constituent Corporations
shall be preserved unimpaired by the Merger. From and after the Effective
Time, any action or proceeding by or against Goodrich Acquisition may be
prosecuted to judgment, which shall bind Patrick of Delaware, or Patrick of
Delaware may be proceeded against or substituted in its place.
1.04 Effective Time.
On the Closing Date or as soon as practicable thereafter the parties
hereto will cause the Merger to be consummated by filing with the Secretary of
State of the State of Delaware a certificate of merger ("Certificate of
Merger") in such form as required by, and executed in accordance with, the
relevant provisions of Delaware Law. The "Effective Time" of the Merger shall
mean such time as the Certificate of Merger is duly filed with the Secretary of
State of the State of Delaware or at such later time (not to exceed 90 days
from the date such Certificate of Merger is filed) as is specified in the
Certificate of Merger.
1.05 Certificate of Incorporation and Bylaws.
At the Effective Time, the Certificate of Incorporation and the Bylaws
of Goodrich Acquisition, as presently constituted, shall be and continue to be
the Certificate of Incorporation and Bylaws of the Surviving Corporation until
and unless the same shall be amended and changed as provided by law.
1.06 Directors.
The Directors of Goodrich Acquisition in office at the Effective Time
shall be the Directors of the Surviving Corporation until their successors are
elected in accordance with the Certificate of Incorporation and the Bylaws of
the Surviving Corporation and Delaware Law.
1.07 Officers.
The Officers of Goodrich Acquisition in office at the Effective Time
shall be the Officers of the Surviving Corporation, holding the offices in the
Surviving Corporation that they hold in Goodrich Acquisition on such date,
until their successors are elected or appointed in accordance with the
Certificate of Incorporation and the Bylaws of the Surviving Corporation and
Delaware Law.
1.08 Taking of Necessary Action.
Patrick of Delaware, La/Cal, Goodrich Petroleum and Goodrich
Acquisition, respectively, shall take all such lawful action as may be
necessary or appropriate in order to effectuate the transactions contemplated
hereby. If at any time and from time to time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full title to all assets,
rights, approvals, immunities and franchises of either of the Constituent
Corporations, the last acting officers and directors of Goodrich Acquisition,
or the corresponding officers of the Surviving Corporation, may, in the name of
Goodrich Acquisition
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or Patrick of Delaware, execute and deliver all such proper deeds, assignments
or other instruments and take or cause to be taken all such further and other
action as the Surviving Corporation may deem necessary or desirable.
ARTICLE II. STATUS AND CONVERSION
OF SECURITIES
2.01 Status, Contribution and Conversion of Goodrich Petroleum Securities.
Each share of Goodrich Petroleum Common Stock ("Goodrich Petroleum
Common Stock") owned by Patrick of Delaware immediately prior to the Effective
Time shall on such date by virtue of the Merger and without any action on the
part of Patrick of Delaware, be automatically cancelled.
Goodrich Petroleum shall cause to be contributed to Goodrich
Acquisition sufficient shares of Goodrich Petroleum Common Stock to effectuate
the transactions contemplated hereby.
2.02 Status and Conversion of Goodrich Acquisition Common Stock.
Each share of Common Stock of Goodrich Acquisition issued and
outstanding immediately prior to the Effective Time shall be converted into and
become one share of common stock of the Surviving Corporation.
2.03 Status and Conversion of Patrick Securities.
By virtue of the Merger, at the Effective Time and without any further
action on the part of the holders of such shares, the outstanding securities of
Patrick of Delaware will be converted into shares of Goodrich Petroleum as
follows:
(a) Patrick of Delaware Common Stock. Each share of Patrick of
Delaware Common Stock issued and outstanding immediately prior to the Effective
Time (except any shares of treasury stock, which shall be cancelled) shall, on
such date, by virtue of the Merger and without any action on the part of the
holder thereof, be automatically converted into and exchanged for the right to
receive one share of Goodrich Petroleum Common Stock. At the Effective Time
the stock transfer books of Patrick of Delaware shall be closed and no further
transfers of Patrick of Delaware Common Stock shall be recorded.
(b) Fractional Shares. No fractional shares of Goodrich Petroleum
Common Stock shall be issued to represent any fractional share interest in
shares of Patrick of Delaware, and such fractional share interests shall not
entitle the owners thereof to vote, to receive dividends or to exercise any
other right of stockholders of Goodrich Petroleum. Instead, each person who,
except for the provisions of this subsection, would be entitled to a fractional
share interest as a result of the conversions provided for herein, shall, upon
surrender of his certificate or certificates representing shares of Patrick of
Delaware Common Stock, be entitled to receive, in lieu of such fractional
interest, an amount of cash equal to the product of such fraction multiplied by
the market value of Patrick of Delaware Common Stock which shall be the closing
price of Patrick of Delaware Common Stock on the New York Stock Exchange on the
trading day immediately prior to the Effective Time. All shares held by a
record holder shall be aggregated for purposes of computing the stock due under
this Section 2.03.
(c) Patrick of Delaware Preferred Stock. Each share of Patrick of
Delaware Series B Preferred Stock issued and outstanding immediately prior to
the Effective Time (except any shares of treasury stock which shall be
cancelled) shall, on such date, by virtue of the Merger and without any action
on the part of the holder thereof, be automatically cancelled and converted
into and exchanged for the right to receive one share of Goodrich Petroleum
Series B Preferred Stock. The Goodrich Petroleum Series B Preferred Stock has
substantially the same rights, preferences, qualifications and limitations and
restrictions as the Patrick Series B Preferred Stock except that the
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Goodrich Petroleum Series B Preferred Stock shall be convertible for the same
number of shares of Goodrich Petroleum Common Stock.
(d) Patrick of Delaware Options and Warrants. At the Effective
Time, Patrick of Delaware's obligations with respect to each outstanding
Patrick of Delaware Stock Option to purchase shares of Patrick of Delaware
Common Stock, as amended in the manner described in the following sentence,
shall be assumed by Goodrich Petroleum. The Patrick of Delaware Stock Options
so assumed by Goodrich Petroleum shall continue to have, and be subject to, the
same terms and conditions as set forth in the stock option plans and agreements
pursuant to which such Patrick of Delaware Stock Options were issued as in
effect immediately prior to the Effective Time, except that each such Patrick
of Delaware Stock Option shall be exercisable for the same number of shares of
Goodrich Petroleum Common Stock. Each Patrick of Delaware Warrant shall be
converted into a Goodrich Petroleum Warrant on the same terms and conditions
except that each such Warrant shall be exercisable for the same number of
shares of Goodrich Petroleum Common Stock. Goodrich Petroleum shall (i)
reserve for issuance the number of shares of Goodrich Petroleum Common Stock
that will become issuable upon the exercise of such Patrick of Delaware Stock
Options and Warrants pursuant to this Section 2.03(d) and (ii) promptly after
the Effective Time issue to each holder of an outstanding Patrick of Delaware
Stock Option or Warrant a document evidencing the assumption by Goodrich
Petroleum of Patrick of Delaware's obligations with respect thereto under this
Section 2.03(d). Nothing in this Section shall affect the schedule of vesting
with respect to the Patrick of Delaware Stock Options to be assumed by Goodrich
Petroleum as provided in this Section. In addition to the adjustment provided
by this Section, effective as of the Effective Time, the terms of each
outstanding Patrick of Delaware Stock Option shall be amended to provide that
it shall not expire prior to the end of its term; provided, however, that in no
event shall the maximum term of such Patrick of Delaware Stock Option be
extended.
ARTICLE III. MERGER APPROVAL AND PROCEDURES
3.01 Registration Statement; Proxy Statement - Prospectus.
As soon as reasonably practicable after the execution of this
Agreement, Goodrich Petroleum, Patrick of Delaware and La/Cal shall take all
steps necessary to prepare, to file with the Securities and Exchange Commission
("SEC"), to exercise their best efforts to secure SEC approval, and to
disseminate to the holders of the Patrick of Delaware Common Stock and the
partners of La/Cal ("Partners") a joint Proxy Statement - Prospectus for the
meeting of stockholders and solicitation of consents of Partners to be carried
out in accordance with Section 3.02 hereof. Such joint Proxy Statement -
Prospectus shall be furnished to both Patrick and La/Cal for review, comment
and approval prior to filing with the SEC.
As soon as reasonably practicable after the execution of this
Agreement, Goodrich Petroleum agrees to prepare and file with the SEC, and to
use its best efforts to cause to become effective, a registration statement on
Form S-4 under the Securities Act of 1933 (the "Registration Statement") (such
Registration Statement to include the Proxy Statement - Prospectus referred to
above) pertaining to the shares of Goodrich Petroleum capital stock to be
issued pursuant to Sections 1.01 and 2.03 hereof and to take such actions
reasonably required to be taken under any applicable state securities laws in
connection with the issuance hereunder of the Goodrich Petroleum capital stock.
Patrick of Delaware and Goodrich Petroleum agree to exercise their best efforts
to cause all shares of Goodrich Petroleum Common Stock issued pursuant to the
Registration Statement to be approved for listing on the New York Stock
Exchange and to cause all shares of Goodrich Preferred Stock issued pursuant to
the Registration Statement to be approved for trading on Nasdaq National Market
upon official notice of issuance prior to the Closing Date.
Patrick and Goodrich Petroleum agree that the joint Proxy
Statement-Prospectus (except with respect to information concerning La/Cal
furnished by or on behalf of La/Cal specifically for use therein, for which
La/Cal shall be responsible), at the time the joint Proxy Statement-Prospectus
is first mailed to the stockholders, at the time of the stockholders' meeting,
at the Effective Time and at the time the Registration Statement is declared
effective, will comply as to form in all material respects with the
requirements of the Securities Act of 1933 and the rules and
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regulations thereunder and the Securities Exchange Act of 1934 and the rules
and regulations thereunder, and that the joint Proxy Statement-Prospectus and
Registration Statement (except with respect to information concerning La/Cal
furnished by or on behalf of La/Cal specifically for use therein, for which
La/Cal shall be responsible) will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. Patrick will
advise La/Cal promptly in writing if, prior to the Effective Time it shall
obtain knowledge of any facts that would make it necessary to amend or
supplement the joint Proxy Statement-Prospectus or Registration Statement in
order to make the statements therein not misleading or to comply with
applicable law. La/Cal agrees that the joint Proxy Statement-Prospectus
(except with respect to information concerning Patrick or Goodrich Petroleum
furnished by or on behalf of Patrick or Goodrich Petroleum specifically for use
therein, for which Patrick and Goodrich Petroleum shall be responsible), at the
time the joint Proxy Statement-Prospectus is first mailed to the Partners, at
the Effective Time and at the time the Registration Statement is declared
effective, will comply as to form in all material respects with the requirement
of the Securities Act of 1933 and the rules and regulations thereunder and the
Securities Exchange Act of 1934 and the rules and regulations thereunder, and
that the joint Proxy Statement-Prospectus and Registration Statement (except
with respect to information concerning Patrick or Goodrich Petroleum furnished
by or on behalf of Patrick or Goodrich Petroleum specifically for use therein,
for which Patrick and Goodrich Petroleum shall be responsible) will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading. La/Cal will advise Patrick promptly in writing, if prior to the
Effective Time La/Cal shall obtain knowledge of any facts that would make it
necessary to amend or supplement the joint Proxy Statement-Prospectus or
Registration Statement in order to make the statements therein not misleading
or to comply with applicable law.
3.02 Approvals.
(a) La/Cal. Subject to the provisions of Section 6.02(l) the
management committee of La/Cal ("Management Committee") shall solicit the
written consent of Partners owning at least 51% of the equity interests of
La/Cal to exchange the La/Cal Interests for Goodrich Petroleum Common Stock and
the written consent of at least a majority of the Partners to dissolve La/Cal
and distribute the Goodrich Petroleum Common Stock to the Partners subject to
all of the conditions of Article VIII hereof being met or waived.
(b) Patrick. Subject to the provisions of Section 6.01(k) a
special meeting of the holders of Patrick of Delaware Common Stock shall be
called to be held as soon as practicable in accordance with Patrick of
Delaware's Restated Certificate of Incorporation and Bylaws and the Delaware
Law. At the meeting the stockholders shall be asked to consider and to vote
upon the Merger. At such meeting Patrick of Delaware agrees to seek all votes
and approvals of the holders of its capital stock (including using all
reasonable efforts in the solicitation of proxies in favor of such approvals)
that are required in connection with this transaction pursuant to Delaware Law,
Patrick of Delaware's Restated Certificate of Incorporation and Bylaws, and the
rules, regulations and guidelines of the New York Stock Exchange.
3.03 Completion of Merger.
If this Agreement is approved and adopted as provided for in Sections
3.02(a) and (b), and if the other conditions precedent to the consummation of
the Merger have been satisfied, so that the Merger is not thereafter abandoned
as permitted by the provisions of this Agreement, a Certificate of Merger
setting forth the information required by Delaware Law in substantially the
form attached as Exhibit 3.03 shall be filed within five banking days after the
later of the Patrick of Delaware stockholder meeting or the satisfaction of the
conditions precedent hereunder or as soon thereafter as practicable with the
Secretary of State of the State of Delaware.
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3.04 Stock Certificates.
On and after the Effective Date, all of the outstanding certificates
which immediately prior to the Effective Date represented shares of Patrick of
Delaware capital stock shall be deemed for all purposes to evidence ownership
of, and to represent, shares of capital stock of Goodrich Petroleum into which
the shares of capital stock of Patrick of Delaware formerly represented by such
certificates have been converted as herein provided. The registered owner on
the books and records of Patrick of Delaware or its transfer agent of any such
outstanding stock certificate shall, until such certificate shall have been
surrendered for transfer or otherwise accounted for to Goodrich Petroleum or
its transfer agent, have and be able to exercise any voting and other rights
with respect to and receive any dividend or other distributions upon the
capital stock of Goodrich Petroleum evidenced by such outstanding certificate
as provided.
ARTICLE IV. DEFINITIONS
4.01 Patrick Interests.
All of the following shall herein be called the "Patrick Interests":
(a) Producing Oil and Gas Interests. All of Patrick's right,
title and interest in and to producing oil and gas leases, licenses, permits,
and similar arrangements (the "Patrick Producing Leases"), overriding royalty
interests, mineral interests, and other interests in producing oil and gas
properties, including, without limitation, the interests and rights in and to
the producing leases, units, wells, and other properties described as attached
hereto as Exhibit 4.01 (the "Patrick Producing Oil and Gas Interests").
(b) Non-Producing Oil and Gas Interests. All of Patrick's right,
title and interest in and to non-producing oil and gas leases, licenses,
permits, and similar arrangements (the "Patrick Non-Producing Leases"),
overriding royalty interests, mineral interests, and other interests in
non-producing oil and gas properties, including, without limitation, the
interests and rights in and to the non-producing leases, units, wells, and
other properties described in Exhibit 4.01 (the "Patrick Non-Producing Oil and
Gas Interests").
(c) Personal Property and Equipment. All of Patrick's right,
title and interest in and to all personal property, equipment, inventory and
supplies of whatsoever kind or nature, wheresoever situated.
(d) Real Estate. All of Patrick's right, title and interest in
and to all owned real property, all leases, subleases or other agreements under
which Patrick is lessor or lessee of any real property, and any other interest
or right whatsoever in any real property, including, without limitation,
licenses, easements and rights of way, together with all buildings and
improvements thereon; excluding the Patrick Producing and Non-Producing Oil and
Gas Interests (the "Real Estate").
(e) Contracts. All interests and other rights created by all
equipment and other property leases, licenses, permits, employment contracts,
security agreements, joint venture agreements and any other contracts or
agreements, whether written or verbal, to which Patrick is a party or by which
Patrick or any of its assets or properties is bound, together with all of the
property and rights incident thereto (the "Patrick Contracts").
(f) Partnership Interests. All of Patrick's interests, both
general and limited (the "Partnership Interests"), in and to all partnerships
and joint ventures listed on Exhibit 5.01(h), including, without limitation,
BKWC Limited Partnership, Marcum-Patrick Pipeline Program 1993-1, L.P., Pecos
Pipeline System and Madison Gas Marketing Services (the "Partnerships"),
together with all rights under their respective partnership or joint venture
agreements (the "Partnership Agreements").
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(g) Subsidiaries. All interest, stock, securities, ownership
rights and other rights of Patrick in and to all corporations in which Patrick
of Delaware, directly or indirectly, owns or has the power to vote or exercise
a controlling influence with respect to 50% or more of the outstanding
securities, including, without limitation, Patrick Petroleum Corporation of
Michigan, American National Petroleum Company, Drilling & Workover Company,
Inc., LECE, Inc., Pecos Pipeline & Producing Company and National Marketing
Company (the "Subsidiaries").
(h) Investments. All interest, stock, securities, ownership
rights and other rights of Patrick in and to Penske Corporation or any of its
subsidiaries or affiliates and Marcum Natural Gas Services, Inc. or any of its
subsidiaries or affiliates (the "Investments").
(i) Stoney Point Gas Plant. All of Patrick's right, title and
interest in and to the Stoney Point Gas Plant, located in Hillsdale County,
Michigan, (the "Stoney Point Gas Plant").
(j) Geological and Geophysical Data. All of Patrick's right,
title or interest in or to any seismic, geological and geophysical data, of
whatsoever kind or nature, wheresoever situated, together with all interpretive
analyses.
(k) Remaining Assets. All other assets and properties now or as
of the Effective Time owned by Patrick, whether real or personal, tangible or
intangible, wheresoever situated.
The Patrick Producing Leases and the Patrick Non-Producing Leases
shall herein be called the "Patrick Leases."
4.02 La/Cal Interests.
All of the following shall herein be called the "La/Cal Interests:"
(a) Producing Oil and Gas Interests. All of La/Cal's right, title
and interest in and to producing oil and gas leases, licenses, permits, and
similar arrangements (the "La/Cal Producing Leases"), overriding royalty
interests, mineral interests, and other interests in producing oil and gas
properties, including, without limitation, the interests and rights in and to
the producing leases, units, wells, and other properties described in Exhibit
4.02 (the "La/Cal Producing Oil and Gas Interests").
(b) Non-Producing Oil and Gas Interests. All of La/Cal's right,
title and interest in and to non-producing oil and gas leases, licenses,
permits, and similar arrangements (the "La/Cal Non-Producing Leases"),
overriding royalty interests, mineral interests, and other interests in
non-producing oil and gas properties, including without limitation, the
interests and rights in and to the non-producing leases, units, wells, and
other properties described in Exhibit 4.02 (the "La/Cal Non-Producing Oil and
Gas Interests").
(c) Personal Property and Equipment. All of La/Cal's right, title
and interest in and to all personal property (except for cash and accounts
receivable), equipment, inventory and supplies of whatsoever kind or nature,
wheresoever situated, which are used or useful in connection with the Producing
and Non-Producing Oil and Gas Interests.
(d) Contracts. All interests and other rights created by all
equipment and other property leases, licenses, permits, employment contracts,
security agreements, joint venture agreements and any other contracts or
agreements, whether written or verbal which directly affect or relate to the
Producing or Non-Producing Oil and Gas Interests or by which the Producing or
Non-Producing Oil and Gas Interests are bound, together with all of the
property and rights incident thereto (the "La/Cal Contracts")."
The La/Cal Producing Leases and the La/Cal Non-Producing Leases shall
herein be called the "La/Cal Leases."
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4.03 Permitted Encumbrances.
As used in this Agreement, the term "Permitted Encumbrances" shall
mean, with respect to any Patrick Interest or La/Cal Interest, as the case may
be (an "Interest"), (a) landowners' royalties, overriding royalties, production
payments, net profits interests, and other similar burdens on production in
amounts that do not operate to reduce the "Revenue Interest" of any Interest to
less than the "Revenue Interest" set forth on Exhibit 4.01 or Exhibit 4.02, as
the case may be, for such Interest; (b) division orders and oil sales contracts
that contain terms and conditions customary in the industry for the area in
which the affected Interest is located, that are terminable without penalty
upon 30 days notice and that do not operate to reduce the "Revenue Interest" of
any Interest to less than the "Revenue Interest" set forth on Exhibit 4.01 or
Exhibit 4.02, as the case may be, for such Interest and that do not increase
the "Working Interest" of any Interest to greater than the "Working Interest"
set forth on Exhibit 4.01 or Exhibit 4.02, as the case may be, for such
Interest without a corresponding and proportionate increase in the "Revenue
Interest"; (c) gas sales contracts that contain terms and conditions customary
in the industry for the geographical area in which the affected Interest is
located; (d) operating agreements containing terms and conditions customary in
the industry for the geographical area in which the affected Interest is
located and that do not operate to reduce the "Revenue Interest" of any
Interest to less than the "Revenue Interest" set forth on Exhibit 4.01 or
Exhibit 4.02, as the case may be, for such Interest and that do not increase
the "Working Interest" of any Interest to greater than the "Working Interest"
set forth on Exhibit 4.01 or Exhibit 4.02, as the case may be, for such
Interest without a corresponding and proportionate increase in the "Revenue
Interest"; (e) unitization, pooling, communitization and spacing agreements and
orders that contain terms and conditions customary in the industry for the area
in which the affected Interest is located and that do not operate to reduce the
"Revenue Interest" of any Interest to less than the "Revenue Interest" set
forth on Exhibit 4.01 or Exhibit 4.02, as the case may be, for such Interest
and that do not increase the "Working Interest" of any Interest to greater than
the "Working Interest" set forth on Exhibit 4.01 or Exhibit 4.02, as the case
may be, for such Interest without a corresponding and proportionate increase in
the "Revenue Interest"; (f) farmout and farm-in agreements that contain terms
and conditions that are customary in the industry for the area in which the
affected Interest is located and that have been taken into consideration in
setting forth the "Revenue Interests" and "Working Interests" set forth on
Exhibit 4.01 or Exhibit 4.02, as the case may be; (g) mechanic's,
materialmen's, warehousemen's and carrier's liens and other similar liens
arising by operation of law or statute in the ordinary course of business for
obligations that are not delinquent, that will be paid or discharged in the
ordinary course of business; (h) liens arising under joint operating agreements
for obligations that are not delinquent, that will be paid or discharged in the
ordinary course of business; (i) in the case of the Patrick Interests only,
liens for taxes, assessments and similar governmental charges incurred that are
not delinquent, or, if delinquent, that are being contested in good faith and
for which adequate reserves have been established on the Patrick Financial
Statements; (j) liens and encumbrances that shall be released at or prior to
the Closing at no cost; (k) easements, servitudes, rights-of-way and other
similar rights that do not materially interfere with the use of the Patrick
Leases or the La/Cal Leases, as the case may be; (l) all rights to consent by,
required notices to, filings with or other actions by, governmental entities in
connection with the Closing if they are customarily obtained after the Closing;
(m) preferential rights of purchase not exercisable in connection with the
Merger or asset contribution by La/Cal; (n) rights reserved to or vested in any
municipality or to governmental, statutory or public authority to control or
regulate any of the Interests in any manner, and all applicable laws, rules and
orders of governmental authorities; (o) any mortgage or security interest
granted by Patrick to secure the borrowings referred to in Section 6.01(j); and
(p) any mortgage or security interest granted by La/Cal to secure a debt of
approximately $10,000,000 owed to RIMCO Partners L.P. and to RIMCO Partners
L.P. IV ("RIMCO Debt").
4.04 Good and Defensible Title.
For purposes of this Agreement, "Good and Defensible Title" shall
mean, with respect to any Patrick Lease or La/Cal Lease, as the case may be (a
"Lease"), or any other Interest, that title, free and clear of all liens,
encumbrances, burdens and claims, which entitles a party to receive, during the
remaining life of Lease or other mineral rights or interests constituting an
Interest, not less than the undivided interests set forth in Exhibit 4.01 or
Exhibit 4.02, as the case may be, as "Revenue Interests" of all hydrocarbons
produced, saved, and marketed from such Lease or other mineral rights and all
wells located thereon through the plugging, abandonment and salvage of
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such wells, without suspense or any indemnity other than normal division order
warranty of title, and obligates a party to bear a portion of the costs and
expenses relating to the maintenance and development of, and operations
relating to, the Lease or other mineral rights or interests and all wells
located thereon through the plugging, abandonment and salvage of such wells not
greater than the "Working Interest" for such Leases or other mineral rights or
interests set forth on Exhibit 4.01 or Exhibit 4.02, as the case may be, except
in each case (a) to the extent that Exhibit 4.01 or Exhibit 4.02, as the case
may be, indicates that such "Revenue Interest" and/or "Working Interest" is
subject to change; (b) for changes therein under circumstances customarily
provided for in unitization and similar agreements; (c) for penalty provisions
and contribution requirements customarily provided for in operating and other
similar agreements; (d) for increases in the "Working Interest" where there has
been a corresponding and proportionate increase in the "Revenue Interest"; and
(e) for Permitted Encumbrances.
4.05 Material; Material Adverse Effect.
Any reference to any event, change, condition or effect being
"material" means an event, change, condition or effect which is material in
relation to the condition (financial or otherwise), assets, liabilities,
business prospects or operations of an entity and its subsidiaries taken as a
whole. The term "material adverse effect" means a material adverse effect on
the business prospects, assets, results of operations or condition (financial
or otherwise) of the entity and its subsidiaries taken as a whole.
4.06 Knowledge.
Any reference in this Agreement to any party having "knowledge" or to
a representation or warranty being made "to the best of" a party's knowledge
shall mean that such party possesses such actual knowledge as would be obtained
by a reasonable person upon making such investigation or inquiry as would be
reasonable and prudent in light of the gravity of the issue under consideration
and the circumstances under which such issue was confronted.
ARTICLE V. REPRESENTATIONS AND WARRANTIES
5.01 Representations and Warranties of Patrick.
Patrick represents and warrants to La/Cal that, except as otherwise
specifically set forth inExhibit 5.01:
(a) Corporate Organization and Qualification. Each of Patrick and
its Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, and, to the
extent necessary to comply with all applicable laws, rules and regulations, is
duly qualified and authorized to carry on its business and is in good standing
in each of the jurisdictions in which the nature of the business conducted by
it or the ownership or leasing of its properties makes such qualification
necessary, which jurisdictions are set forth on Exhibit 5.01(a), except in such
jurisdictions where the failure to be duly qualified does not, and would not in
the aggregate, have a material adverse effect on Patrick.
(b) Capital Stock of Patrick of Delaware. The authorized capital
stock of Patrick of Delaware consists of (a) 40,000,000 shares of Common Stock,
par value $.20 per share, of which, on the date of this Agreement, 19,765,226
shares are issued and outstanding, 215,229 shares are held in treasury and
11,500,352 shares are reserved for future issuance upon exercise of the Patrick
of Delaware Stock Options and the exercise or conversion of Patrick of Delaware
Preferred Stock and Patrick of Delaware Warrants and (b) 10,000,000 shares of
Preferred Stock, par value $1.00 per share, of which, on the date of this
Agreement, no shares are issued and outstanding as Series A Preferred Stock and
1,175,000 shares are issued and outstanding as Series B Convertible Preferred
Stock. No other class of capital stock of Patrick of Delaware is authorized or
outstanding. All outstanding shares of Patrick of Delaware Common and
Preferred Stock and the capital stock of its Subsidiaries are duly authorized,
validly issued, fully paid, non-assessable and not subject to preemptive
rights.
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(c) Options or Other Rights. Except as set forth on Exhibit
5.01(c), which includes the Patrick of Delaware Stock Options and Patrick of
Delaware Warrants, there is no outstanding option, right, subscription,
warrant, call, unsatisfied preemptive right, or other agreement of any kind to
purchase or otherwise to receive any of the outstanding, authorized but
unissued, unauthorized or treasury shares of the capital stock or any other
security of Patrick of Delaware, and there is no outstanding security of any
kind convertible into such capital stock. There are no obligations, contingent
or otherwise, of Patrick to repurchase, redeem or otherwise acquire any capital
stock of Patrick of Delaware.
(d) Subsidiaries. Exhibit 5.01(d) sets forth the names of the
Subsidiaries, the capitalization of such entities and the states of their
incorporation. Patrick of Delaware or a Subsidiary is the record and
beneficial owner of all of the outstanding shares of capital stock of each
Subsidiary free and clear of all security interests, liens, claims, pledges, or
other encumbrances.
(e) Corporate Authority. Patrick has all requisite power and
authority to own, lease and operate its assets, properties and business and to
carry on its business as presently conducted, to enter into this Agreement,
and, upon obtaining the requisite approval of holders of Patrick of Delaware
Common Stock, to perform its obligations under this Agreement and to consummate
the Merger. Subject to the consents referred to in Sections 8.02 and 8.03,
below, the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement will not
violate, or cause or constitute a breach or default under, or be in conflict
with, any provision of Patrick of Delaware's Restated Certificate of
Incorporation or Bylaws or other governing documents, or any agreement or
instrument to which Patrick is a party or by which Patrick or its assets are
bound, or any judgment, decree, order, statute, rule, regulation, permit,
license, consent or approval applicable to Patrick, its properties or its
business except those which, in the aggregate, would not have a material
adverse effect on Patrick.
(f) Transactions Authorized; Execution of Agreement. The
execution, delivery and performance of this Agreement and, subject to
stockholder approval, the consummation of the transactions contemplated hereby
have been duly and validly authorized by all requisite action, corporate and
otherwise, on the part of Patrick of Delaware. This Agreement has been duly
executed and delivered on behalf of Patrick of Delaware, and, subject to the
consents referred to in Sections 8.02 and 8.03 below, at the Closing all
documents and instruments required hereunder to be executed and delivered by
Patrick of Delaware shall be duly executed and delivered. This Agreement does,
and, subject to the consents referred to in Sections 8.02 and 8.03, below, such
documents and instruments shall, constitute legal, valid and binding
obligations of Patrick of Delaware enforceable in accordance with their terms,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium,
or other similar laws affecting the rights of creditors generally or general
equitable principals.
(g) Restated Certificate of Incorporation, Bylaws and Minute
Books. Patrick has heretofore delivered to La/Cal true and complete copies of
the charter documents and bylaws of Patrick of Delaware and Subsidiaries as in
effect on the date hereof. The corporate minute books of Patrick of Delaware
and Subsidiaries contain true and complete records of all meetings of
directors, committees and stockholders, all of which meetings were duly called
and held, and all consents in lieu of meetings, which records are accurate in
all material respects.
(h) Partnerships. Attached hereto as Exhibit 5.01(h) is a list of
all of the Partnerships (excepting usual and customary joint operating
agreements and informal joint ventures). Exhibit 5.01(h) also lists any
capital contribution obligations of Patrick with respect to such entities.
(i) Partnership Organization, Qualification and Authority. Each
of the following, BKWC Limited Partnership, Marcum-Patrick Pipeline Program
1993-1, L.P., Pecos Pipeline System and Madison Gas Marketing Services, is duly
organized and validly existing under the laws of the state of its creation,
and, to the extent necessary to comply with all applicable laws, rules and
regulations, each of the Partnerships is duly authorized, empowered and
qualified to carry on its business in each jurisdiction in which their
respective Partnership Properties is located. Each of the Partnerships has all
requisite power and authority to carry on its business as presently conducted.
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(j) Partnership Operation. Patrick and, to the best of Patrick's
knowledge, all predecessor general partners, have, in all material respects,
complied with, and operated the Partnerships in accordance with the terms and
provisions set forth in their respective Partnership Agreements, if any, and
with all applicable laws, rules, regulations, ordinances and orders of all
local, tribal, state, federal and foreign governmental bodies, authorities and
agencies.
(k) Partnership Leases and Contracts. Patrick has no knowledge of
and has not received any notice of a dispute under any lease or contract to
which any Partnership is a party and, to the best of Patrick's knowledge, none
of the leases or contracts to which any Partnership is a party is subject to
pending or threatened cancellation other than in accordance with its respective
terms.
(l) Contracts and Other Agreements. Exhibit 5.01(l) sets forth
all of the following Patrick Contracts and other agreements to which Patrick is
a party or by or to which it or its assets or properties are bound or subject:
(i) contracts and other agreements with any current or former officer,
director, employee, consultant, agent or other representative, including
indemnification agreements; (ii) contracts and other agreements of any kind,
whether written or verbal, which require payment by Patrick or which provide
for the receipt by Patrick of sums in excess of $1,000 during any month; (iii)
contracts and other agreements with customers or suppliers for the sharing of
fees, the rebating of charges or other similar arrangements; (iv) contracts and
other agreements for the payment of fees or other consideration to any officer
or director of Patrick or to any other entity in which any of the foregoing has
an interest; and (v) contracts or other agreements between Patrick and its
Subsidiaries or the Partnerships or their affiliates. There have been
delivered or made available to La/Cal true and complete copies of all of the
Patrick Contracts currently in existence to which Patrick is a party. Except
as separately identified on Exhibit 5.01, no approval or consent of any person
is needed in order that the Patrick Contracts continue in full force and effect
following the consummation of the transactions contemplated by this Agreement.
Patrick is not in material default under any material contract or agreement.
Except as set forth on Exhibit 5.01, Patrick has no knowledge of, and has not
received notice of a default under any Patrick Lease or Contract.
(m) Real Estate. Exhibit 5.01(m) sets forth a list and property
description of all of Patrick's Real Estate, together with a summary
description of all buildings and improvements thereon. Except as set forth on
Exhibit 5.01, all of Patrick's rights in and to the Real Estate are in full
force and effect, and Patrick has not received any notice of any default with
respect thereto.
(n) Stoney Point Gas Plant. To the best of Patrick's knowledge,
the Stoney Point Gas Plant and the equipment and facilities appurtenant thereto
are in good condition and working order, and Patrick has no knowledge of any
material capital expenditures which are required or would be required to keep
the plant and its equipment and facilities in good repair and working
condition. To the best of Patrick's knowledge, the Stoney Point Gas Plant has
been operated in accordance with all applicable laws, rules, regulations and
ordinances.
(o) Title to Properties. Patrick has Good and Defensible Title to
the Patrick Producing Oil and Gas Interests and Patrick Non-Producing Oil and
Gas Interests shown on Exhibit 4.01. Patrick has good title to all Patrick
Interests other than the Patrick Producing and Non-Producing Oil and Gas
Interests, free and clear of all liens, encumbrances, burdens and claims except
for (i) liens resulting from the debt set out in Section 6.01(j), (ii) liens
for current property taxes not yet due and payable, (iii) statutory liens not
yet delinquent, and (iv) liens, encumbrances, burdens, and restrictions on the
Investments referred to in Sections 5.01(hh) and (ii).
(p) Partnership and Subsidiary Encumbrances. The Partnerships and
Subsidiaries have no indebtedness, borrowings, loan agreements, promissory
notes, pledges, mortgages, guaranties or other liabilities for borrowed monies
(direct or indirect), secured or unsecured other than the Notes referred to in
Section 6.01(j) and accounts payable incurred in the ordinary course of
business.
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(q) Payout Agreements. There are no Patrick Interests with
respect to which the "Revenue Interests" and "Working Interests" of Patrick, as
shown on Exhibit 4.01, are determined with respect to "Payout" and as to which
"Payout" has not occurred, except as shown on Exhibit 4.01.
(r) Prepayment for Production and Production Imbalances. As of
December 31, 1994, and except as shown on Exhibit 4.01, Patrick is not
obligated, by virtue of a prepayment arrangement, a "take or pay" arrangement,
a gas balancing arrangement, a production payment or any other arrangement, to
deliver hydrocarbons produced from its Interests at some future time without
then or thereafter receiving full payment therefor. Exhibit 4.01 lists all
production imbalances with respect to the Patrick Producing Oil and Gas
Interests and shows whether Patrick is the over-produced or under-produced
party and the extent of such over-or under-production.
(s) Additional Drilling Obligations. Except as set forth on
Exhibit 5.01, no agreement applicable to the Patrick Interests contains express
provisions that require the drilling of additional wells or other material
development operations in order to earn or to continue to hold all or any
portion of the Interests.
(t) Books and Accounts. The books of account, asset ledgers,
inventory ledgers and related records of Patrick are complete and accurate in
all material respects, have been maintained on a consistent basis, and fairly
reflect all of Patrick's income, expenses, assets, liabilities, obligations and
commitments, in accordance with generally accepted accounting principles
applied on a consistent basis. Except as and to the extent reflected or
reserved against in the financial statements for Patrick for the period ended
December 31, 1994, (the "Patrick Financial Statements") or in Patrick's SEC
filings or as set forth on Exhibit 5.01, Patrick, as of the date of such
Financial Statements has no material liabilities or obligations (absolute or
contingent). Such Financial Statements, together with the notes thereto, are
complete and correct in all material respects and present fairly the
consolidated financial position and the consolidated results of operations of
Patrick as of the date, and for the period, indicated, all such statements have
been prepared in conformity with generally accepted accounting principles
applied on a consistent basis and to the best of Patrick's knowledge such
Financial Statements comply as to form and substance in all material respects
with Regulation S-X as promulgated by the Securities and Exchange Commission.
(u) Accounts Receivable. The accounts and notes receivable
reflected on the books of Patrick (the "Patrick Accounts Receivable"),
represent and will represent bona fide amounts due from debtors for goods
delivered, either for sale or lease, or services fully performed on or before
the respective dates of such Patrick Accounts Receivable. The Patrick Accounts
Receivable are not and will not be subject to any valid defenses, counterclaims
or rights of setoff. At least 90% of the Patrick Accounts Receivable as of
December 31, 1994 (other than those relating to gas balancing obligations), are
collectible in the ordinary course of business within 120 days after billing.
(v) SEC Filings. Since January 1, 1992, Patrick has filed all
forms, reports, statements and other documents required to be filed with the
SEC and any other applicable state securities authorities. All filings made
and to be made with the SEC prior to the Closing by Patrick do and will at the
Closing comply with the provisions of the Securities Act of 1933 and the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the SEC under such Acts, and did not, during the period of time to which any
such filings relate, (i) contain any untrue statement of material fact; or (ii)
omit any statement of material fact required to be stated therein or necessary
to make the statements contained therein, in light of the circumstances under
which they were made, not misleading.
(w) Payment of Taxes. Patrick has paid in full all taxes and
assessments that have been or may be accrued, due or levied against Patrick or
the Patrick Interests by any local, tribal, county, state, federal, foreign or
other taxing authority, including, without limitation, applicable estimated
taxes, corporation taxes, franchise taxes, federal and state income taxes,
state and municipal sales and use taxes, stamp, excise and excess profits
taxes, federal unemployment and old age insurance taxes, property taxes,
capital stock taxes, ad valorem taxes, production taxes, severance taxes,
windfall profit taxes, and all other taxes and assessments, including all
deficiencies or other additions to tax, interest and penalties in connection
with any such taxes. No waiver or agreement is in force for the extension of
time for the assessment or payment of any tax, except for normal extensions.
Except as set forth on Exhibit 5.01, there are no assessed tax deficiencies
against Patrick or the Patrick Interests, there are no tax deficiencies
proposed
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or threatened, and no audit by any federal, state or local taxing authority is
in progress, or, to the best of Patrick's knowledge, is being proposed,
threatened or discussed.
(x) Legal Proceedings. Except as set forth on Exhibit 5.01, there
is no suit, action or other proceeding pending, instituted, or, to the best of
Patrick's knowledge, being investigated or threatened before any court or
governmental body, authority or agency; and, to the best of Patrick's
knowledge, no claim or cause of action exists against Patrick or the Patrick
Interests. Except as set forth on Exhibit 5.01, Patrick is not a party or
subject to any injunction, judgment, order, notice of violation or decree,
whether or not still subject to appeal, of any court or governmental body,
authority or agency. To the knowledge of Patrick, except as set forth on
Exhibit 5.01, there is no fact, event or circumstance that may give rise to any
suit, action, claim, investigation or proceeding or that would give rise to any
right of indemnification on the part of any officer or director of Patrick
against Patrick or its successors.
(y) Environmental Compliance. Except as set forth on Exhibit
5.01, Patrick has not, and, to the best of Patrick's knowledge, no previous
owner or holder of any interest therein has, caused or permitted the Patrick
Interests to be used to generate, manufacture, refine, transport, treat, store,
handle, dispose of, transfer, produce or process "Hazardous Substances"; the
Patrick Interests are in substantial compliance with each federal, state or
local law, ordinance or regulation relating to the environmental conditions on,
under or about the property including, but not limited to, soil and groundwater
conditions; all material licenses and permits have been obtained, and all
material reports have been timely filed, under all applicable federal, state
and local laws, ordinances or regulations; and no notices have been received
advising Patrick that it is potentially responsible for response costs with
respect to a release or threatened release of Hazardous Substances on, into,
under or from the Patrick Interests.
(z) Labor Matters. There are no controversies or disputes pending
between Patrick and any of its past or present employees, and, to the best of
Patrick's knowledge, no such claims or disputes are threatened or exist. Set
forth on Exhibit 5.01(z) are Patrick's employment contracts that are not
terminable at will and severance arrangements with its employees. There are no
unremedied violations of any state, federal or local labor or employment laws
or regulations, and Patrick has no knowledge of the existence or grounds for
the existence of any such claims or demands. No fringe benefit obligations
will arise or are now owed to any present employees or former employees, except
as set forth on Exhibit 5.01(z) or as required by applicable law and except for
accrued vacation pay which was approximately $105,892 at December 31, 1994.
Patrick has complied with all laws relating to the employment of labor, and is
not liable for any arrears of wages or any taxes or penalties.
(aa) Employee Benefits. Exhibit 5.01(aa) contains a true and
complete list of all pension, profit sharing, retirement, deferred
compensation, stock purchase, stock option, incentive, bonus, vacation,
severance, disability, hospitalization, medical insurance, life insurance and
other employee benefit plans, programs or arrangements, maintained by Patrick
or under which it has any obligations (other than obligations to make current
wage or salary payments or sales commissions terminable on notice of 30 days or
less) in respect of, or which otherwise cover, any current or former officers
or employees or their beneficiaries (hereinafter referred to as a "Patrick
Plan" and collectively referred to as the "Patrick Plans"). Patrick has
delivered or made available to La/Cal true and complete copies of all
documents, as they may have been amended to the date hereof, embodying or
relating to the Patrick Plans.
Except as specifically set forth in Exhibit 5.01, (i) Patrick has made
all payments due to date under or with respect to each Patrick Plan, and all
amounts properly accrued to date as liabilities under or with respect to each
Patrick Plan for the current plan years have been recorded on the books of
Patrick, (ii) Patrick has performed all material obligations required to be
performed under, and is not in default under or in violation of, any Patrick
Plan and, to the knowledge of Patrick, no other party is in default thereunder
or in violation thereof, and (iii) Patrick is in compliance in all material
respects with the requirements prescribed by all statutes, orders or
governmental rules or regulations applicable to the Patrick Plans. Exhibit
5.01(aa) sets forth all known, expected or anticipated payments to be made
under or pursuant to each Patrick Plan during calendar year 1995.
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(bb) Insurance. Patrick has provided to La/Cal a list and brief
description (specifying the insurer and the policy number or covering note
number with respect to binders,) of all policies or binders of insurance held
by or on behalf of Patrick. Patrick has not received notice of cancellation or
non-renewal of any such policy or binder.
(cc) Compliance with Applicable Law. Patrick has acquired all
material permits, licenses, approvals and consents from appropriate local,
tribal, state, federal and foreign governmental bodies, authorities and
agencies necessary or appropriate to conduct its business, including, without
limitation, operations on the Patrick Interests, in compliance with all
applicable laws, rules, regulations, ordinances and orders in all material
respects; and Patrick is in compliance with all such permits, licenses,
approvals and consents and with all applicable laws, rules, regulations,
ordinances and orders in all material respects and no proceeding is pending or,
to the knowledge of Patrick, threatened to revoke or limit any such permit or
license. Except for filings with the SEC of the joint Proxy
Statement-Prospectus and Registration Statement referred to in Section 3.01 and
other filings required by federal and state securities laws, no application,
notice, order, registration, qualification, waiver, consent, approval or other
action is required to be filed, given, obtained or taken by Patrick by virtue
of the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby. Patrick has complied in
all material respects with all laws, rules, regulations, ordinances, orders,
judgments awards and decrees of all local, tribal, state, federal and foreign
governmental bodies, authorities and agencies having jurisdiction over Patrick
or the Patrick Interests.
(dd) Material Changes. Since December 31, 1994, except as
disclosed in the Patrick Financial Statements:
(i) there has not been any material adverse change in the
assets, business, properties, operation, condition (financial or otherwise) and
future prospects of Patrick, whether such changes have occurred in the ordinary
course of business or otherwise (except for any changes affecting the oil and
gas industry generally) and Patrick knows of no such change that is threatened;
(ii) except for usual and customary dividends on Patrick
of Delaware Preferred Stock and for usual and customary distributions to or
repurchases of partnership interests from the partners of the Partnerships,
there has not been any declaration, setting aside or payment of any dividend or
other distribution on or in respect of the Patrick of Delaware Common or
Preferred Stock or the Partnerships, or any direct or indirect redemption,
retirement, purchase or other acquisition of any Patrick of Delaware Common or
Preferred Stock or the partners' interests in the Partnerships;
(iii) except in the ordinary course of business or as
disclosed in the Proxy Statement for Patrick of Delaware's 1994 Annual Meeting
or as set forth on Exhibit 5.01(z), there has not been any increase in the
compensation or in the rate of compensation payable, or to become payable, by
Patrick to any director, officer, employee, or any other person or entity, or
any payment of or commitment to pay any bonus, profit-sharing, severance or
other extraordinary compensation to any employee;
(iv) there has not been any damage, destruction or loss
that materially and adversely affects the assets, properties, business,
operation or condition (financial or otherwise) of Patrick, whether or not
covered by insurance;
(v) there has not been (A) any disposition of, or
encumbrance or agreement to dispose of or to encumber, or any pledge or grant
of a security interest in, or agreement to pledge an interest in, any Patrick
Interest or any other material assets of Patrick; (B) other than as incurred in
the ordinary course of business or otherwise permitted by Section 6.01, below,
any material increase or any agreement to increase any indebtedness of Patrick;
or (C) any guaranty by Patrick of the obligations of any third party;
(vi) there has not been (A) any agreement to merge,
consolidate or combine with any corporation or entity other than pursuant to
this Agreement; (B) any acquisition of or agreement to acquire any stock,
business, property or assets of any other person, firm, association,
corporation or other business organization, other
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than the acquisition of non-producing leasehold interests in the ordinary
course of business; or (C) any sale or grant to any party or parties of any
license, option or other right of any nature to sell, distribute or otherwise
deal in or with the property of Patrick other than in the ordinary course of
business;
(vii) there has not been any change in the accounting
methods or practices of Patrick or any change in depreciation or amortization
policies or rates theretofore adopted by Patrick; and
(viii) there has not, through the date of this Agreement,
been any material damage, destruction or loss to any of the Patrick Interests
or to the wells and reservoirs covered thereby, except such as arose through
conditions or characteristics within the reservoirs.
(ee) Operations of Patrick. Since December 31, 1994, Patrick has
not:
(i) amended its Restated Certificate of Incorporation or
By-Laws or subdivided or in any way reclassified any shares of its capital
stock or changed or agreed to change in any manner the rights of its
outstanding capital stock or the character of its business;
(ii) issued or sold or purchased, or issued options or
rights to subscribe to, or entered into any contracts or commitments to issue
or sell or purchase, any shares of its capital stock;
(iii) entered into or amended any employment agreement
(except as disclosed on Exhibit 5.01(z)), adopted, entered into, or amended any
employee benefit plan, or made any change in the actuarial methods or
assumptions used in funding any defined benefit pension plan, or made any
change in the assumptions or factors used in determining benefit equivalencies
thereunder;
(iv) reduced its cash or short term investments or their
equivalent, other than to meet cash needs arising in the ordinary course of
business, consistent with past practices;
(v) waived any right of material value to its business; or
(vi) except in the ordinary course of business sold,
abandoned or made any other disposition of any material amount of its assets or
properties.
(ff) Brokers' Fee. Patrick has incurred no liability or
responsibility, contingent or otherwise, for brokers' or finders' fees relating
to the transactions contemplated by this Agreement except to Petrie Parkman &
Co., Inc., in the amount payable in accordance with the engagement letter
between Petrie Parkman & Co., Inc. and Patrick of Delaware dated March 14,
1994.
(gg) Complete Disclosure. Patrick has not knowingly provided nor
made available to La/Cal any information that is misleading or inaccurate in
any material respect. Patrick has not knowingly withheld or failed to disclose
any data, documents or other information that a responsible seller would
consider necessary for a reasonable evaluation by a prospective purchaser of
the properties, assets, operations or business of Patrick taken as a whole.
There is no fact that Patrick has not disclosed to La/Cal in writing that
materially adversely affects, or so far as Patrick can now foresee will
materially adversely affect, the assets, properties, business, operations or
condition (financial or otherwise) of Patrick or the ability of Patrick to
perform this Agreement.
(hh) Investment in Penske. Exhibit 5.01(hh) sets forth a
description of Patrick's investment in Penske Corporation ("Penske"), including
the percentage of Penske owned by Patrick on a primary and fully diluted basis.
Patrick has Good and Defensible Title to such investment in Penske, free and
clear of all security interests, liens, claims, pledges, or other encumbrances
or restrictions, except for (i) the pledge of its interest under the 10.75%
Subordinated Collateralized Notes, (ii) Penske's right to purchase the Penske
stock upon a change in control of Patrick, and (iii) Patrick's right to put the
stock to Penske over a period of five years. Patrick has no knowledge of
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any material adverse change in the assets, business, properties, operation, and
condition (financial or otherwise) and future prospects of Penske, whether such
changes have occurred in the ordinary course of business or otherwise and
Patrick knows of no such change that is threatened.
(ii) Investment in Marcum Natural Gas Services, Inc. Exhibit
5.01(ii) sets forth a description of Patrick's investment in Marcum Natural Gas
Services, Inc. ("Marcum"), including the percentage of Marcum owned by Patrick
on a primary and fully diluted basis. Patrick has Good and Defensible Title to
such investment in Marcum, free and clear of all security interests, liens,
claims, pledges, or other encumbrances or restrictions except that certain of
the shares are subject to restrictions on resale imposed by the federal
securities laws. Patrick has no knowledge of any material adverse change in
the assets, business, properties, operation, condition (financial or otherwise)
and future prospects of Marcum, whether such changes have occurred in the
ordinary course of business or otherwise and Patrick knows of no such change
that is threatened.
(jj) Capital Stock of Goodrich Petroleum and Goodrich Acquisition.
The authorized capital stock of Goodrich Petroleum consists of (a) 60,000,000
shares of Common Stock, par value $.20 per share, of which, on the date of this
Agreement, ten shares are issued and outstanding and owned by Patrick of
Delaware and no shares are held in treasury, and (b) 10,000,000 shares of
Preferred Stock, par value $1.00 per share, of which, on the date of this
Agreement, no shares are issued and outstanding. No other class of capital
stock of Goodrich Petroleum is authorized or outstanding.
The authorized capital stock of Goodrich Acquisition consists of 1500
shares of Common Stock, no par value, of which on the date of this Agreement
ten shares are issued and outstanding and owned by Goodrich Petroleum.
(kk) Corporate Authority. Goodrich Petroleum and Goodrich
Acquisition have all requisite power and authority to enter into this Agreement
and to perform their obligations under this Agreement and to consummate the
Merger. Subject to the consents referred to in Article VIII, below, the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated by this Agreement will not violate, or cause or
constitute a breach or default under, or be in conflict with, any provision of
Goodrich Petroleum's or Goodrich Acquisition's Certificate of Incorporation or
bylaws or other governing documents.
(ll) Transactions Authorized; Execution of Agreement. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
all requisite action, corporate and otherwise, on the part of Goodrich
Petroleum and Goodrich Acquisition. This Agreement has been duly executed and
delivered on behalf of Goodrich Petroleum and Goodrich Acquisition, and,
subject to the consents referred to in Article VIII below, at the Closing all
documents and instruments required hereunder to be executed and delivered by
Goodrich Petroleum and Goodrich Acquisition shall be duly executed and
delivered. This Agreement does, and, subject to the consents referred to in
Article VIII below, such documents and instruments shall, constitute legal,
valid and binding obligations of Goodrich Petroleum and Goodrich Acquisition
enforceable in accordance with their terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
affecting the rights of creditors generally or general equitable principals.
(mm) Board of Directors. Patrick of Delaware as sole stockholder
and the Board of Directors of Goodrich Petroleum have taken the necessary
corporate action to set the size of the Goodrich Petroleum Board of Directors
at 12 directors and to cause six of such directors to be persons designated by
La/Cal and six of such directors to be persons designated by Patrick.
(nn) Officers. The Board of Directors of Goodrich Petroleum has
elected U.E. Patrick as Chairman of the Board, Walter G. Goodrich as President
and Chief Executive Officer, J. Michael Watts as Secretary, and Roland L.
Frautschi as Treasurer of Goodrich Petroleum.
(oo) Fairness Opinion. Patrick has obtained from an investment
banker a written opinion ("Fairness Opinion") that the common stock exchange
ratio pursuant to this Agreement is fair to the Patrick of Delaware common
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stockholders from a financial point of view and the Series B Preferred Stock
exchange ratio pursuant to this Agreement is fair to the Patrick of Delaware
Series B Preferred stockholders.
(pp) Public Utility. Patrick is not subject to regulation under
the Public Utility Holding Company Act of 1935, as amended, or the rules and
regulations thereunder.
(qq) Rights Agreement. The Rights Agreement, dated March 24, 1988,
as amended, by and between Patrick of Delaware and NBD Bank, N.A., as Rights
Agent ("Rights Agreement"), has been amended to provide that no "Distribution
Date" or "Shares Acquisition Date" (as such terms are defined in the Rights
Agreement) shall have occurred, neither Goodrich Petroleum nor La/Cal nor any
affiliate or associate of Goodrich Petroleum or La/Cal should be deemed to be
an "Acquiring Person" (as such term is defined in the Rights Agreement), and no
holder of "Rights" (as such term is defined in the Rights Agreement) shall be
entitled to exercise such Rights under or be entitled to any rights pursuant to
Section 7(a), 11(a) or 13 of the Rights Agreement, by reason of (i) the
adoption, approval, execution, delivery or effectiveness of the Agreement, or
(ii) the consummation of the transactions contemplated by the Agreement in
accordance with the terms thereof including, without limitation, the
consummation of the Merger. The Rights Agreement and any Rights thereunder
shall terminate as a result of the Merger at the Effective Time.
To the extent that the same relates to any Patrick Interest that is
not operated or otherwise controlled by Patrick, any representation or warranty
contained in this Section 5.01 (except as to title) shall be deemed limited to
the best of Patrick's knowledge notwithstanding any expression or implication
to the contrary contained herein.
5.02 Representations and Warranties of La/Cal.
La/Cal represents and warrants to Patrick that, except as otherwise
specifically set forth inExhibit 5.02:
(a) Organization and Qualification. La/Cal is a partnership duly
organized and validly existing under the laws of State of Louisiana, and, to
the extent necessary to comply with all applicable laws, rules and regulations,
is duly qualified and authorized to carry on its business in each of the
jurisdictions in which the nature of the business conducted by it or the
ownership or leasing of its properties makes such qualification necessary,
which jurisdictions are set forth on Exhibit 5.02(a), except in such
jurisdictions where the failure to be duly qualified does not, and would not in
the aggregate, have a material adverse effect on La/Cal.
(b) Authority. La/Cal has all requisite power and authority to
own, lease and operate its assets, properties and business and to carry on its
business as presently conducted, to enter into this Agreement, and, upon
obtaining the requisite approval of its Partners to perform its obligations
under this Agreement. Subject to the consents referred to in Sections 8.01 and
8.03, below, the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement will not
violate, or cause or constitute a breach or default under, or be in conflict
with, any provision of La/Cal's Partnership Agreement or any agreement or
instrument to which La/Cal is a party or by which La/Cal or its assets are
bound, or any judgment, decree, order, statute, rule, regulation, permit,
license, consent or approval applicable to La/Cal, its properties or its
business except those which, in the aggregate, will not have a material adverse
effect on La/Cal.
(c) Transactions Authorized; Execution of Agreement. The
execution, delivery and performance of this Agreement and, subject to Partners'
approval, the consummation of the transactions contemplated hereby have been
duly and validly authorized by all requisite action, Partnership and otherwise,
on the part of La/Cal. This Agreement has been duly executed and delivered on
behalf of La/Cal, and, subject to the consents referred to in Sections 8.01 and
8.03 below, at the Closing all documents and instruments required hereunder to
be executed and delivered by La/Cal shall be duly executed and delivered. This
Agreement does, and, subject to the consents referred to in Sections 8.01 and
8.03, below, such documents and instruments shall, constitute legal, valid and
binding obligations of La/Cal enforceable in accordance with their terms,
except as may be limited by bankruptcy, insolvency,
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reorganization, moratorium, or other similar laws affecting the rights of
creditors generally or general equitable principals.
(d) Partnership Agreement. La/Cal has heretofore delivered to
Patrick a true and complete copy of the Partnership Agreement of La/Cal as in
effect on the date hereof and true and complete records of all meetings of the
Management Committee which records are accurate in all material respects.
(e) Partnerships and Real Estate. La/Cal is not a partner in any
general partnership, limited partnership or joint venture. La/Cal does not own
any interest in or lease any real estate except as set forth in Exhibit 4.02.
(f) Contracts and Other Agreements. Exhibit 4.02 sets forth all
of the La/Cal Contracts.
(g) Title to Properties. La/Cal has Good and Defensible Title to
the La/Cal Producing Oil and Gas Interests and Non-Producing Oil and Gas
Interests shown on Exhibit 4.02. La/Cal has good title to all its La/Cal
Interests other than the La/Cal Producing and Non-Producing Oil and Gas
Interests, free and clear of all liens, encumbrances, burdens and claims except
for (i) liens resulting from the RIMCO Debt, (ii) liens for current property
taxes not yet due and payable and (iii) statutory liens not yet delinquent.
(h) Payout Agreements. There are no La/Cal Interests with respect
to which the "Revenue Interests" and "Working Interests" of La/Cal, as shown on
Exhibit 4.02, are determined with respect to "Payout" and as to which "Payout"
has not occurred, except as shown on Exhibit 4.02.
(i) Prepayment for Production. As of December 31, 1994, and
except as shown on Exhibit 5.02, La/Cal is not obligated, by virtue of a
prepayment arrangement, a "take or pay" arrangement, a gas balancing
arrangement, a production payment or any other arrangement, to deliver
hydrocarbons produced from its Interests at some future time without then or
thereafter receiving full payment therefor. Exhibit 4.02 lists all production
imbalances with respect to the La/Cal Producing Oil and Gas Interests and shows
whether La/Cal is the over-producer or under-producer party and the extent of
such over or under-production.
(j) Additional Drilling Obligations. Except as set forth on
Exhibit 5.02, no agreement applicable to the La/Cal Interests contains express
provisions that require the drilling of additional wells or other material
development operations in order to earn or to continue to hold all or any
portion of the Interests.
(k) Books and Accounts. The books of account, asset ledgers,
inventory ledgers and related records of La/Cal are complete and accurate in
all material respects, have been maintained on a consistent basis, and fairly
reflect all of La/Cal's income, expenses, assets, liabilities, obligations and
commitments, in accordance with generally accepted accounting principles
applied on a consistent basis. Except as and to the extent reflected or
reserved against in the financial statements for La/Cal for the period ended
December 31, 1994 (the "La/Cal Financial Statements"), La/Cal, as of the date
of such Financial Statements has no material liabilities or obligations
(absolute or contingent). Such Financial Statements, together with the notes
thereto, are complete and correct in all material respects and present fairly
the consolidated financial position and the consolidated results of operations
of La/Cal as of the date, and for the period, indicated, and all such
statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis.
(l) Accounts Receivable. The accounts and notes receivable
reflected on the books of La/Cal (the "La/Cal Accounts Receivable"), represent
and will represent bona fide amounts due from debtors for goods delivered,
either for sale or lease, or services fully performed on or before the
respective dates of such La/Cal Accounts Receivable. The La/Cal Accounts
Receivable are not and will not be subject to any valid defenses, counterclaims
or rights of setoff. At least 90% of the La/Cal Accounts Receivable as of
December 31, 1994 (other than those relating to gas balancing obligations), are
collectible in the ordinary course of business within 120 days after billing.
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(m) Payment of Taxes. La/Cal has paid in full all taxes and
assessments that have been or may be accrued, due or levied against La/Cal or
the La/Cal Interests by any local, tribal, county, state, federal, foreign or
other taxing authority, including, without limitation, applicable estimated
taxes, partnership taxes, franchise taxes, federal and state income taxes,
state and municipal sales and use taxes, stamp, excise and excess profits
taxes, federal unemployment and old age insurance taxes, property taxes,
capital stock taxes, ad valorem taxes, production taxes, severance taxes,
windfall profit taxes, and all other taxes and assessments, including all
deficiencies or other additions to tax, interest and penalties in connection
with any such taxes. No waiver or agreement is in force for the extension of
time for the assessment or payment of any tax, except for normal extensions.
Except as set forth on Exhibit 5.02, there are no assessed tax deficiencies
against La/Cal or the La/Cal Interests, there are no tax deficiencies proposed
or threatened, and no audit by any federal, state or local taxing authority is
in progress, or, to the best of La/Cal's knowledge, is being proposed,
threatened or discussed.
(n) Legal Proceedings. Except as set forth on Exhibit 5.02, there
is no suit, action or other proceeding pending, instituted, or, to the best of
La/Cal's knowledge, being investigated or threatened before any court or
governmental body, authority or agency; and, to the best of La/Cal's knowledge,
no claim or cause of action exists against La/Cal, its Interests or any of its
properties or assets, including the La/Cal Interests. Except as set forth on
Exhibit 5.02, La/Cal is not a party or subject to any injunction, judgment,
order, notice of violation or decree, whether or not still subject to appeal,
of any court or governmental body, authority or agency. To the knowledge of
La/Cal, except as set forth on Exhibit 5.02, there is no fact, event or
circumstance that may give rise to any suit, action, claim, investigation or
proceeding or that would give rise to any right of indemnification on the part
of any partner of La/Cal against La/Cal or its successors.
(o) Environmental Compliance. Except as set forth on Exhibit
5.02, La/Cal has not, and, to the best of La/Cal's knowledge, no previous owner
or holder of any interest therein has, caused or permitted the La/Cal Interests
to be used to generate, manufacture, refine, transport, treat, store, handle,
dispose of, transfer, produce or process "Hazardous Substances"; the La/Cal
Interests are in substantial compliance with each federal, state or local law,
ordinance or regulation relating to the environmental conditions on, under or
about the property including, but not limited to, soil and groundwater
conditions; all material licenses and permits have been obtained, and all
material reports have been timely filed, under all applicable federal, state
and local laws, ordinances or regulations; and no notices have been received
advising La/Cal that it is potentially responsible for response costs with
respect to a release or threatened release of Hazardous Substances on, into,
under or from the La/Cal Interests.
(p) Labor Matters. There are no controversies or disputes pending
between La/Cal and any of its past or present employees, and, to the best of
La/Cal's knowledge, no such claims or disputes are threatened or exist. Except
as set forth on Exhibit 5.02(p), La/Cal has no employment contracts that are
not terminable at will and no severance arrangements with its employees. There
are no unremedied violations of any state, federal or local labor or employment
laws or regulations, and La/Cal has no knowledge of the existence or grounds
for the existence of any such claims or demands. No fringe benefit obligations
will arise or are now owed to any present employees or former employees, except
as required by applicable law. La/Cal has complied with all laws relating to
the employment of labor and is not liable for any arrears of wages or any taxes
or penalties.
(q) Employee Benefits. Exhibit 5.02(q) contains a true and
complete list of all pension, profit sharing, retirement, deferred
compensation, stock purchase, stock option, incentive, bonus, vacation,
severance, disability, hospitalization, medical insurance, life insurance and
other employee benefit plans, programs or arrangements, maintained by La/Cal or
under which it has any obligations (other than obligations to make current wage
or salary payments or sales commissions terminable on notice of 30 days or
less) in respect of, or which otherwise cover, any current or former partners
or employees or their beneficiaries (hereinafter referred to as a "La/Cal Plan"
and collectively referred to as the "Plans"). La/Cal has delivered or made
available to Patrick true and complete copies of all documents, as they may
have been amended to the date hereof, embodying or relating to the La/Cal
Plans.
Except as specifically set forth in Exhibit 5.02, (i) La/Cal has made
all payments due to date under or with respect to each La/Cal Plan, and all
amounts properly accrued to date as liabilities under or with respect to each
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La/Cal Plan for the current plan years have been recorded on the books of
La/Cal, (ii) La/Cal has performed all material obligations required to be
performed under, and is not in default under or in violation of, any La/Cal
Plan and, to the knowledge of La/Cal, no other party is in default thereunder
or in violation thereof, (iii) La/Cal is in compliance in all material respects
with the requirements prescribed by all statutes, orders or governmental rules
or regulations applicable to the La/Cal Plans; and (iv) no La/Cal Plan that is
or was subject to Title IV of ERISA has been terminated. Exhibit 5.02(q) sets
forth all known, expected or anticipated payments to be made under or pursuant
to each Plan during calendar year 1995.
(r) Insurance. La/Cal has provided to Patrick a list and brief
description (specifying the insurer and the policy number or covering note
number with respect to binders,) of all policies or binders of insurance held
by or on behalf of La/Cal. La/Cal has not received notice of cancellation or
non-renewal of any such policy or binder.
(s) Compliance with Applicable Law. La/Cal has acquired all
material permits, licenses, approvals and consents from appropriate local,
tribal, state, federal and foreign governmental bodies, authorities and
agencies necessary or appropriate to conduct its business, including, without
limitation, operations on the La/Cal Interests, in compliance with all
applicable laws, rules, regulations, ordinances and orders in all material
respects; and La/Cal is in compliance with all such permits, licenses,
approvals and consents and with all applicable laws, rules, regulations,
ordinances and orders in all material respects and no proceeding is pending or,
to the knowledge of La/Cal, threatened to revoke or limit any such permit or
license. Except for filings with the SEC of the joint Proxy
Statement-Prospectus and Registration Statement referred to in Section 3.01 and
other filings required by federal and state securities laws, no application,
notice, order, registration, qualification, waiver, consent, approval or other
action is required to be filed, given, obtained or taken by La/Cal by virtue of
the execution, delivery and performance of this Agreement or the consummation
of the transactions contemplated hereby. La/Cal has complied in all material
respects with all laws, rules, regulations, ordinances, orders, judgments
awards and decrees of all local, tribal, state, federal and foreign
governmental bodies, authorities and agencies having jurisdiction over La/Cal
and the La/Cal Interests.
(t) Material Changes. Since December 31, 1994, except as
disclosed in the La/Cal Financial Statements:
(i) there has not been any material adverse change in the
assets, business, properties, operation, condition (financial or otherwise) and
future prospects of La/Cal, whether such changes have occurred in the ordinary
course of business or otherwise (except for any changes affecting the oil and
gas industry generally) and La/Cal knows of no such change that is threatened;
(ii) except for usual and customary distributions to
Partners pursuant to the La/Cal Partnership Agreement there has not been any
declaration, setting aside or payment of any distribution or any direct or
indirect redemption, retirement, purchase or other acquisition of any Partner's
interest in La/Cal;
(iii) except in the ordinary course of business, there has
not been any increase in the compensation or in the rate of compensation
payable, or to become payable, by La/Cal to any partner or employee, or any
other person or entity, or any payment of or commitment to pay any bonus,
profit-sharing, severance or other extraordinary compensation to any employee;
(iv) there has not been any damage, destruction or loss
that materially and adversely affects the assets, properties, business,
operation or condition (financial or otherwise) of La/Cal whether or not
covered by insurance;
(v) there has not been (A) any disposition of, or
encumbrance or agreement to dispose of or to encumber, or any pledge or grant
of a security interest in, or agreement to pledge an interest in, any La/Cal
Interest or any other material assets of La/Cal; (B) other than as incurred in
the ordinary course of business or otherwise permitted by Section 6.02, below,
any material increase or any agreement to increase any indebtedness of La/Cal;
or (C) any guaranty by La/Cal of the obligations of any third party;
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(vi) there has not been (A) any agreement to merge,
consolidate or combine with any corporation or entity other than pursuant to
this Agreement; (B) any acquisition of or agreement to acquire any stock,
business, property or assets of any other person, firm, association,
corporation or other business organization, other than the acquisition of
non-producing leasehold interests in the ordinary course of business; or (C)
any sale or grant to any party or parties of any license, option or other right
of any nature to sell, distribute or otherwise deal in or with the property of
La/Cal, other than in the ordinary course of business;
(vii) there has not been any change in the accounting
methods or practices of La/Cal or any change in depreciation or amortization
policies or rates theretofore adopted by La/Cal; and
(viii) there has not, through the date of this Agreement,
been any material damage, destruction or loss to any of the La/Cal Interests or
to the wells and reservoirs covered thereby, except such as arose through
conditions or characteristics within the reservoirs.
(u) Operations of La/Cal. Since December, 31 1994, La/Cal has not:
(i) waived any right of material value to its Interests;
(ii) except in the ordinary course of business sold,
abandoned or made any other disposition of any of its Interests.
(v) Brokers' Fees. La/Cal has incurred no liability or
responsibility, contingent or otherwise, for brokers' or finders' fees relating
to the transactions contemplated by this Agreement except to Leo Bromberg, in
the amount payable in accordance with the letter from the Management Committee
to the La/Cal Partners dated December 8, 1994.
(w) Complete Disclosure. La/Cal has not knowingly provided or
made available to Patrick any information that is misleading or inaccurate in
any material respect. La/Cal has not knowingly withheld from or failed to
disclose to Patrick any data, documents or other information that a responsible
seller would consider necessary for a reasonable evaluation by a prospective
purchaser of the properties, assets, operations or business of La/Cal taken as
a whole. There is no fact that La/Cal has not disclosed to Patrick in writing
that materially adversely affects, or so far as La/Cal can now foresee will
materially adversely affect, the assets, properties, business, operations or
condition (financial or otherwise) of La/Cal or the ability of La/Cal to
perform this Agreement.
To the extent that the same relates to any La/Cal Interest that is not
operated or otherwise controlled by La/Cal, any representation or warranty
contained in this Section 5.02 (except as to title) shall be deemed limited to
the best of La/Cal's knowledge, notwithstanding any expression or implication
to the contrary contained herein.
ARTICLE VI. COVENANTS
6.01 Covenants and Agreements of Patrick.
Patrick covenants and agrees that, from and after the date hereof, and
until the Merger is consummated, terminated or abandoned, as provided in this
Agreement:
(a) Books, Records and Files. Patrick shall give La/Cal, through
its Partners, attorneys, accountants, petroleum engineers and authorized
representatives ("La/Cal's Agents"), free and full access, for the purposes of
inspection, review and photocopying, to the facilities, properties, books,
contracts, records and files of Patrick in the possession of Patrick, its
agents or attorneys, to permit La/Cal to make such investigation as La/Cal may
deem necessary or desirable. Patrick shall furnish La/Cal's Agents during such
period with all such information and copies
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of such documents concerning the affairs of Patrick as such Agents may
reasonably request and cause its officers, employees, consultants, agents,
accountants and attorneys to cooperate fully with such representatives in
connection with such review and examination and to make full disclosure to
La/Cal and La/Cal's Agents of all material facts affecting the financial
condition and business operations of Patrick.
(b) Continuing Operation. Patrick shall (i) develop, maintain and
operate the Patrick Interests that are operated by Patrick in a good and
workmanlike manner; (ii) maintain all insurance now in force with respect to
the Patrick Interests and pay or cause to be paid all costs and expenses
incurred in connection therewith and pay or cause to be paid all costs and
expenses incurred in connection therewith; (iii) keep the material Patrick
Producing Leases, the material Patrick Non-Producing Leases and the material
Patrick Contracts in full force and effect, unless La/Cal gives prior consent
to the termination of any material Patrick Lease or Contract (which consent
shall not be unreasonably withheld), and perform and comply with all of the
covenants and conditions contained therein and all agreements relating to the
Patrick Interests in all material respects, (iv) maintain the books and records
of Patrick in the usual, regular and ordinary course on a basis consistent with
prior years; (v) use its best efforts to keep available the services of its
current officers and key employees; and (vi) use its best efforts to preserve
the goodwill associated with its business relationships.
(c) Continuing Management. Patrick shall carry on the business of
Patrick in substantially the same manner as Patrick has heretofore and shall
not introduce any new method of management, operation or accounting.
(d) New Agreements and Sales. Patrick shall not and shall not
permit the Partnerships or the Subsidiaries, without the prior written consent
of La/Cal (which consent shall not be unreasonably withheld), to (i) enter into
any new material agreements or commitments not listed on Exhibit 6.01(d) or not
otherwise in the ordinary course of business; (ii) make or commit to make any
new expenditures not otherwise incurred in the ordinary course of business;
(iii) abandon any well capable of producing in paying quantities located on the
Patrick Interests or release or abandon all or any portion of any of the
Patrick Leases, (iv) modify or terminate any of the agreements relating to the
Patrick Interests (including gas sales agreements) that extend for a period of
more than 30 days; (v) enter into any farmout or farmin agreements other than
in the ordinary course of business; or (vi) encumber, sell or otherwise dispose
of any of the Patrick Interests, other than (A) in transactions involving total
proceeds of $100,000 or less from the sale of properties in Colorado,
California, North Dakota or Wyoming, or (B) disposition of personal property
that is replaced by equivalent property or consumed in the normal operation of
the Patrick Interests.
(e) Filings. Patrick shall duly and timely file, or cause to be
filed, with governmental authorities all required reports and shall duly
observe and comply in all material respects with all laws, rules, regulations,
ordinances and orders relating to Patrick except that, in the case of any
Patrick Interests subject to any operating agreement appointing a third party
as operator, Patrick shall not be required to perform or to oversee any action
required of, or customarily performed by, operators, but shall use its best
efforts to cause such compliance.
(f) Notifications. Patrick shall promptly notify La/Cal of (i)
any suit, action or other proceeding pending or threatened before any court or
governmental body, authority or agency and any claim, cause of action or
dispute of which Patrick has knowledge or has received notice that directly
affects or relates to Patrick, or any director, officer, employee, consultant,
agent, or other representative thereof in his capacity as such, (ii) any
occurrence or failure to occur of any event that would be likely to cause any
representation or warranty of Patrick contained in this Agreement to be untrue
or inaccurate, or (iii) any material failure or reasonably likely inability of
Patrick to satisfy any covenant, condition or agreement contained herein.
(g) Confidential Data. Patrick shall exercise all due diligence
in safeguarding and maintaining the security of all non-public data in the
possession of Patrick relating in any fashion to La/Cal (the "La/Cal
Information"). Patrick shall not use the La/Cal Information in a manner or for
a purpose detrimental to La/Cal or the Merger, and Patrick shall not, without
La/Cal's prior written consent, disclose the La/Cal Information to any person
other than the responsible officers, directors or employees of Patrick, or to
Patrick's responsible agents, consultants, attorneys or other persons who need
to know such La/Cal Information for the purpose of assisting Patrick
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in evaluating or effecting the Merger and who have been informed of the
confidential nature of this La/Cal Information and have agreed to be bound by
the provisions of this subsection. In the event that the Merger is not
consummated, Patrick agrees promptly to return or to cause to be returned to
La/Cal all copies of the La/Cal Information and to destroy any notes, studies
or other documents based on the La/Cal Information and relating to the Merger.
(h) Amendments of Certificate of Incorporation, Bylaws, Etc.
Patrick of Delaware shall not amend its Restated Certificate of Incorporation
or Bylaws or those of its Subsidiaries, except as set forth in this Agreement.
(i) Change in Capital Stock. No change shall be made in the
corporate structure of Patrick or in the authorized or issued capital stock of
Patrick except as may result from the exercise of Patrick of Delaware Stock
Options or Patrick of Delaware Warrants or conversion of Patrick of Delaware
Preferred Stock; and Patrick shall not issue or grant any right or option to
purchase or otherwise to acquire any of its capital stock.
(j) Conduct of Business. Patrick shall not without the prior
written approval of La/Cal (which approval shall not be unreasonably withheld)
do any of the following:
(i) (A) increase the compensation payable or to become
payable to any director, officer or employee, except for Patrick of Delaware
director's fees of $2,000 per meeting (attended in person by at least one-half
of the directors) through the Effective Date and payments made in the ordinary
course of business and consistent with past practice; (B) grant any severance
or termination pay, or enter into any severance agreement with any director,
officer or employee, or enter into any employment agreement with any director,
officer, or employee (other than pursuant to normal severance policy or as set
forth on Exhibit 5.01(z)); or (C) establish, adopt, enter into or amend any
employee benefit plan or arrangement, except as may be required to comply with
applicable law;
(ii) declare or pay any dividend on, or make any other
distribution in respect of, outstanding shares of capital stock except for
dividends declared in the ordinary course of business and dividends paid on the
Patrick Preferred Stock;
(iii) (A) redeem, purchase or otherwise acquire any shares
of its capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock, or any options, warrants or
conversion or other rights to acquire any shares of its capital stock or any
such securities or obligations; (B) effect any reorganization or
recapitalization; or (C) split, combine or reclassify any of its capital stock
(except for the issuance of shares upon the exercise of options or warrants in
accordance with their terms);
(iv) issue, deliver, award, grant or sell, or authorize
the issuance, delivery, award, grant or sale (including the grant of any
security interests, liens, claims, pledges, limitations in voting rights,
charges or other encumbrances) of, any shares of any class of its capital stock
(including shares held in treasury), any securities convertible into or
exercisable or exchangeable for any such shares, or any rights, warrants or
options to acquire, any such shares (except for the issuance of shares upon the
exercise of outstanding options or warrants in accordance with their terms), or
amend or otherwise modify the terms of any such rights, warrants or options the
effect of which shall be to make such terms more favorable to the holders
thereof;
(v) sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, any material amount of any of its assets,
except as provided in (d) above or dispositions in the ordinary course of
business and consistent with past practice;
(vi) incur any obligation for borrowed money or
indebtedness, whether or not evidenced by a note, bond, debenture or similar
instrument, in excess of $50,000 except for borrowing up to $2,000,000 for
drilling and completing the wells listed on Exhibit 6.01(d) with any remaining
amounts to be used for working capital and borrowing either approximately
$3,100,000 to be used exclusively for the May 1995 payment on the 10.75%
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Subordinated Collateralized Notes ("Notes") or approximately $11,000,000 to be
used exclusively to refinance the Notes; or
(vii) take any action or fail to take any action which
could reasonably be expected to have a material adverse effect after the
Effective Time, or that could reasonably be expected to adversely affect the
ability of the parties to obtain consents of third parties or approvals of
governmental entities required to consummate the transactions contemplated in
this Agreement.
(k) Acquisition Proposals. From and after the date hereof,
Patrick will not, directly or indirectly, through any of its officers,
directors, employees, agents or advisors or other representatives or
consultants, solicit or initiate or knowingly encourage, including by means of
furnishing information, any proposals or offers from any person (other than
La/Cal) relating to any acquisition or purchase of all or a material amount of
the assets of, or any securities of, or any merger, tender offer, consolidation
or business combination with, Patrick (an "Acquisition Proposal"); provided,
however, that Patrick may furnish information and may consider, evaluate and
engage in discussions or negotiations with any person if outside counsel
advises Patrick's directors that failure to furnish such information or engage
in such discussions or negotiations could involve Patrick's directors in a
breach of their fiduciary duties. If the Board of Directors of Patrick of
Delaware receives a request for confidential information from a potential
bidder for Patrick and the Board of Directors determines, after consultation
with outside counsel, that the Board of Directors has a fiduciary obligation to
provide such information to a potential bidder, then Patrick may, subject to a
confidentiality agreement substantially similar to that previously executed
with La/Cal, provide such potential bidder with access to information regarding
Patrick. Patrick shall promptly notify La/Cal, orally and in writing, if any
such proposal or offer is made and shall, in any such notice, indicate the
identity and terms and conditions of any proposal or offer, or any such inquiry
or contact. Patrick shall keep La/Cal advised of the progress and status of
any such proposals or offers. The obligation of the Board of Directors of
Patrick of Delaware to convene a meeting of its stockholders and to recommend
the adoption and approval of this Agreement to the stockholders of Patrick of
Delaware shall be subject to the fiduciary duties of the Directors, as
determined by the Directors after consultation with their outside counsel, and
nothing contained in this Agreement shall prevent the Board of Directors of
Patrick from approving or recommending to the stockholders of Patrick of
Delaware any unsolicited offer or proposal by a third party if required in the
exercise of their fiduciary duties, as determined by the Directors after
consultation with outside counsel.
(l) Severance and Consulting. Patrick will be responsible for the
severance and consulting payments under the Agreements with the individuals
listed on Exhibit 6.01(l) totaling $483,432 at March 4, 1995, but no other
severance or consulting payments.
(m) Consulting Agreements. Patrick shall have entered into
severance or consulting agreements with U.E. Patrick and Mark Patrick
substantially in the form of Exhibits 6.01(m)(i) and (ii), respectively.
(n) COBRA Obligations. Patrick agrees that, following the
Effective Time, it will provide, or cause the Surviving Corporation to provide,
continuation coverage, as required by the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA"), to be given to any employee of Goodrich
Petroleum, Patrick or the Surviving Corporation whose employment has been or
will be terminated. The parties understand that COBRA may require that such
continuation coverage be provided for a period of up to 36 months as provided
in Section 4980B of the Internal Revenue Code of 1986, as amended, at the
qualified beneficiary's expense.
(o) Patrick Employee Benefits. All of the Patrick Plans will be
terminated by the Effective Date and Patrick will have no obligation to make
any payments to any Patrick Plans after such time.
(p) Best Efforts. Upon the terms and subject to the conditions
hereof, Patrick agrees to use its best efforts to take or cause to be taken,
all appropriate action, and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective the transactions
contemplated by this Agreement.
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(q) Stock Sale Restrictions. Patrick shall enter into an
agreement with each member of the Board of Directors of Patrick of Delaware,
substantially in the form of Exhibit 6.01(q), pursuant to which such Directors
agrees not to sell any common stock or other securities of Goodrich Petroleum
for a period of six (6) months after the Effective Time.
(r) Affiliate Letters. Patrick will use its reasonable efforts to
cause all persons who, immediately prior to the Effective Time, may be deemed
to be affiliates of Patrick, as that term is used in Rule 145 under the
Securities Act of 1993 and who will become the beneficial owners of Goodrich
Petroleum Common Stock pursuant to the Merger, to execute "affiliate letters"
substantially in the form of Exhibit 6.01(r) hereto prior to the Effective
Time. Goodrich Petroleum will use its reasonable efforts to comply with the
provisions of Rule 144(c) under the Securities Act of 1933 in order that such
affiliates may resell shares of Goodrich Petroleum Common Stock pursuant to
Rule 145(d) under the Securities Act of 1933.
(s) Registration Rights Agreement. Goodrich Petroleum will
enter into a Registration Rights Agreement in the form attached as Exhibit
6.01(s) with all of the persons listed in Exhibit 6.01(s).
(t) Accountants Letters. Patrick shall use its reasonable
efforts to cause Deloitte & Touche to deliver a letter dated as of the date of
the joint Proxy Statement-Prospectus, and addressed to itself and La/Cal, in
form and substance reasonably satisfactory to La/Cal and customary in scope and
substance for agreed upon procedures letters delivered by independent public
accountants in connection with registration statements and proxy statements
similar to the Registration Statement and joint Proxy Statement-Prospectus.
(u) Rights Agreement. Prior to the Effective Date the
Board of Directors of Goodrich Petroleum shall consider the adoption of a
rights agreement substantially similar to the Rights Agreement.
To the extent that the same relates to any Patrick Interest that is
not operated or otherwise controlled by Patrick, any covenant or agreement
contained in this Section 6.01 shall be deemed limited to the exercise of
Patrick's best efforts, notwithstanding any expression or implication to the
contrary contained herein.
6.02 Covenants and Agreements of La/Cal.
La/Cal covenants and agrees that, from and after the date hereof, and
until the Merger is consummated, terminated or abandoned as provided in this
Agreement:
(a) Books, Records and Files. La/Cal shall give Patrick, through
its officers, attorneys, accountants, petroleum engineers and authorized
representatives ("Patrick's Agents"), free and full access, for the purposes of
inspection, review and photocopying, to the facilities, properties, books,
contracts, records and files of La/Cal in the possession of La/Cal, its agents
or attorneys, to permit Patrick to make such investigation as Patrick may deem
necessary or desirable. La/Cal shall furnish Patrick's Agents during such
period with all such information and copies of such documents concerning the
affairs of La/Cal as such Agents may reasonably request and cause its officers,
employees, consultants, agents, accountants and attorneys to cooperate fully
with such representatives in connection with such review and examination and to
make full disclosure to Patrick and Patrick's Agents of all material facts
affecting the financial condition and business operations of La/Cal.
(b) Continuing Operation. La/Cal shall (i) develop, maintain and
operate the La/Cal Interests that are operated by La/Cal in a good and
workmanlike manner; (ii) maintain all insurance now in force with respect to
the La/Cal Interests and pay or cause to be paid all costs and expenses
incurred in connection therewith; (iii) keep the material La/Cal Producing
Leases, the material La/Cal Non-Producing Leases and the material La/Cal
Contracts in full force and effect, unless Patrick gives prior consent to the
termination of any material La/Cal Lease or Contract (which consent shall not
be unreasonably withheld), and perform and comply with all of the covenants and
conditions contained therein and all agreements relating to the La/Cal
Interests in all material respects; (iv) maintain the books and records of
La/Cal in the usual, regular and ordinary course on a basis consistent with
prior years; (v) keep
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available the services of its current Partners and key employees; and (vi)
preserve the goodwill associated with its business relationships.
(c) Continuing Management. La/Cal shall carry on the business of
La/Cal in substantially the same manner as La/Cal has heretofore and shall not
introduce any new method of management, operation or accounting.
(d) New Agreements and Sales. La/Cal shall not, without the prior
written consent of Patrick (which consent shall not be unreasonably withheld),
(i) enter into any new material agreements or commitments other than in the
ordinary course of business; (ii) make or commit to make any new expenditures
not otherwise incurred in the ordinary course of business; (iii) abandon any
well capable of producing in paying quantities located on the La/Cal Interests
or release or abandon all or any portion of any of the La/Cal Leases; (iv)
modify or terminate any of the agreements relating to its Interests (including
gas sales agreements) that extend for a period of more than thirty (30) days;
(v) enter into any farmout or farmin agreements other than in the ordinary
course of business; or (vi) encumber, sell or otherwise dispose of any of its
Interests, other than personal property that is replaced by equivalent
property or consumed in the normal operation of the La/Cal Interests.
(e) Filings. La/Cal shall duly and timely file, or cause to be
filed, with governmental authorities all required reports and shall duly
observe and comply in all material respects with all laws, rules, regulations,
ordinances and orders relating to La/Cal, except that, in the case of any of
the La/Cal Interests subject to any operating agreement appointing a third
party as operator, La/Cal shall not be required to perform or to oversee any
action required of, or customarily performed by, operators, but shall use its
best efforts to cause such compliance.
(f) Notifications. La/Cal shall promptly notify Patrick of (i)
any suit, action or other proceeding pending or threatened before any court or
governmental body, authority or agency and any claim, cause of action or
dispute of which La/Cal has knowledge or has received notice that directly
affects or relates to La/Cal or any partner, employee, consultant, agent, or
other representative thereof in his capacity as such, (ii) any occurrence or
failure to occur of any event that would be likely to cause any representation
or warranty of La/Cal contained in this Agreement to be untrue or inaccurate,
or (iii) any material failure or reasonably likely inability of La/Cal to
satisfy any covenant, condition or agreement contained herein.
(g) Confidential Data. La/Cal shall exercise all due diligence in
safeguarding and maintaining the security of all non-public data in the
possession of La/Cal relating in any fashion to Patrick (the "Patrick
Information"). La/Cal shall not use the Patrick Information in a manner or for
a purpose detrimental to Patrick or the Merger, and La/Cal shall not, without
Patrick's prior written consent, disclose the Patrick Information to any person
other than the responsible officers, directors or employees of La/Cal, or to
La/Cal's responsible agents, consultants, attorneys or other persons who need
to know such Patrick Information for the purpose of assisting La/Cal in
evaluating or effecting the Merger and who have been informed of the
confidential nature of this Patrick Information and have agreed to be bound by
the provisions of this subsection. In the event that the Merger is not
consummated, La/Cal agrees promptly to return or to cause to be returned to
Patrick all copies of the Patrick Information and to destroy any notes, studies
or other documents based on the Patrick Information and relating to the Merger.
(h) Amendments of Partnership Agreement, Etc. La/Cal shall not
amend its Partnership Agreement except as provided in this Agreement.
(i) Conduct of Business. La/Cal shall not, without the prior
written approval of Patrick (which approval shall not be unreasonably withheld)
do any of the following:
(i) sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, any material amount of any of the La/Cal
Interests, except for dispositions in the ordinary course of business and
consistent with past practice;
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(ii) incur any obligation for borrowed money or
indebtedness, whether or not evidenced by a note, bond, debenture or similar
instrument, in excess of $50,000; or
(iii) take any action or fail to take any action which
could reasonably be expected to have a material adverse effect after the
Effective Time, or that could reasonably be expected to adversely affect the
ability of the parties to obtain consents of third parties or approvals of
governmental entities required to consummate the transactions contemplated in
this Agreement.
(j) Best Efforts. Upon the terms and subject to the conditions
hereof, La/Cal agrees to use its best efforts to take or cause to be taken, all
appropriate action, and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective the transactions
contemplated by this Agreement.
(k) Affiliate Letters. La/Cal will use its reasonable efforts to
cause all persons who, immediately prior to the Effective Time, may be deemed
to be affiliates of La/Cal, as that term is used in Rule 145 under the
Securities Act of 1933 and who will become the beneficial owners of Goodrich
Petroleum Common Stock pursuant to the Merger, to execute "affiliate letters"
substantially in the form of Exhibit 6.02(k) hereto prior to the Effective
Time. Goodrich Petroleum will use its reasonable efforts to comply with the
provisions of Rule 144(c) under the Securities Act of 1933 in order that such
affiliates may resell shares of Goodrich Petroleum Common Stock pursuant to
Rule 145(d) under the Securities Act of 1933.
(l) Acquisition Proposals. From and after the date hereof, La/Cal
will not, directly or indirectly, or knowingly encourage, including by means of
furnishing information through its Partners, solicit or initiate any proposals
or offers from any person (other than Patrick) relating to any acquisition or
purchase of all or a material amount of the assets of, or any securities of, or
any merger, tender offer, consolidation or business combination with, La/Cal;
provided, however, that La/Cal may furnish information and may consider,
evaluate and engage in discussions or negotiations with any person if outside
counsel advises the Management Committee that failure to furnish such
information or engage in such discussions or negotiations could involve the
Management Committee in a breach of its fiduciary duties. If the Management
Committee receives a request for confidential information from a potential
bidder for La/Cal and the Management Committee determines, after consultation
with outside counsel, that the Management Committee has a fiduciary obligation
to provide such information to a potential bidder, then La/Cal may, subject to
a confidentiality agreement substantially similar to that previously executed
with Patrick, provide such potential bidder with access to information
regarding La/Cal. La/Cal shall promptly notify Patrick, orally and in writing,
if any such proposal or offer is made and shall, in any such notice, indicate
the identity and terms and conditions of any proposal or offer, or any such
inquiry or contact. La/Cal shall keep Patrick advised of the progress and
status of any such proposals or offers. The obligation of the Management
Committee to convene a meeting of its Partners and to recommend the adoption
and approval of this Agreement to the Partners shall be subject to the
fiduciary duties of the Management Committee, as determined by the Management
Committee after consultation with their outside counsel, and nothing contained
in this Agreement shall prevent the Management Committee from approving or
recommending to the Partners any unsolicited offer or proposal by a third party
if required in the exercise of their fiduciary duties, as determined by the
Management Committee after consultation with outside counsel.
(m) Stock Sale Restrictions. La/Cal shall cause Partners owning at
least 99% of the Partnership Interests to enter into agreements with Goodrich
Petroleum, substantially in the form of Exhibit 6.02(m), by which they agree
not to sell any common stock or other securities of Goodrich Petroleum for a
period of six months after the Effective Time.
(n) Accountants Letters. La/Cal shall use its reasonable
efforts to cause KPMG Peat Marwick to deliver a letter dated as of the date of
the joint Proxy Statement-Prospectus, and addressed to itself and Patrick, in
form and substance reasonable satisfactory to Patrick and customary in scope
and substance for agreed upon procedures letters delivered by independent
public accountants in connection with registration statements and proxy
statements similar to the Registration Statement and joint Proxy
Statement-Prospectus.
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(o) Goodrich Oil Company Agreement. La/Cal shall cause Goodrich
Oil Company to enter into an agreement with Goodrich Petroleum in the form
attached as Exhibit 6.02(o) on or before the Effective Date.
To the extent that the same relates to any La/Cal Interest that is not
operated or otherwise controlled by La/Cal, any covenant or agreement contained
in this Section 6.02 shall be deemed limited to the exercise of La/Cal's best
efforts, notwithstanding any expression or implication to the contrary
contained herein.
ARTICLE VII. PURCHASE PRICE ADJUSTMENT
7.01 Claims from Breach of Warranties, Etc.
All claims, losses, damages, costs, expenses and liabilities that
result from or relate or are attributable to the existence of any encumbrance,
encroachment, circumstance, or defect that renders title of Patrick or La/Cal
to their respective Patrick Interests and La/Cal Interests, or any portion
thereof, less than Good and Defensible Title are hereinafter referred to as the
Title Defects. The sole remedy for any Title Defect shall be the right of
offset pursuant to Section 7.04, below. Any claim based on a Title Defect
shall apply only to that portion of a Patrick Interest or La/Cal Interest, as
the case may be, that is affected by the Title Defect and shall be equal to the
applicable "Title Loss Amount," as determined in accordance with Section 7.03,
below. All claims, losses, damages, costs, expenses and liabilities that
result from or relate or are attributable to any representation or warranty of
La/Cal or Patrick contained herein being untrue or any representation or
warranty of La/Cal or Patrick contained herein being breached are hereinafter
referred to as the "Other Defects". Patrick and La/Cal shall have no claim for
any damage, destruction or loss to any of the Patrick Interests or La/Cal
Interests, as the case may be, or to the wells and reservoirs covered thereby
(a) arising from conditions or characteristics within a reservoir or (b)
occurring after the date of this Agreement (except such damage, destruction or
loss caused by the gross negligence or willful misconduct of the owning party).
7.02 Notice of Claims.
(a) Title Defects. Patrick or La/Cal shall, as soon as
practicable after discovery, but no later than 30 days after the execution of
this Agreement, give the other or its representative written notice of any
Title Defects which it believes to exist, ascribing a value thereto and
proposing adjustments to be made (the "Proposed Title Adjustments").
(b) Other Defects. Patrick or La/Cal shall, as soon as
practicable after discovery, but no later than 30 days after the execution of
this Agreement, give the other or its representative written notice of any
Other Defects which it believes to exist, ascribing a value thereto and
proposing adjustments to be made (the "Proposed Other Adjustments").
(c) La/Cal's Representative. Walter G. Goodrich shall serve as
La/Cal's representative ("La/Cal's Representative"), with full power and
authority to act for and on behalf of La/Cal and the Partners for the purpose
of receiving the notices referred to in this Section and serving on the
"Adjustment Committee" (as hereinafter defined). The authority herein
conferred on La/Cal's Representative, who shall enjoy full power of
substitution, shall be irrevocable and deemed coupled with an interest and
shall be binding on the heirs, personal representatives, successors, and
assigns of the Partners.
(d) Patrick's Representative. U.E. Patrick shall serve as
Patrick's representative ("Patrick's Representative"), with full power and
authority to act for and on behalf of Patrick and the Patrick of Delaware
stockholders for the purpose of receiving the notices referred to in this
Section and serving on the "Adjustment Committee" (as hereinafter defined).
The authority herein conferred on Patrick's Representative, who shall enjoy
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full power of substitution, shall be irrevocable and deemed coupled with an
interest and shall be binding on the heirs, personal representatives,
successors, and assigns of the Patrick of Delaware stockholders.
7.03 Valuation of Claims.
(a) Adjustment Committee. The "Adjustment Committee" shall
consist of Patrick's Representative and La/Cal's Representative.
(b) Definitions. For purposes of this Article VII, the following
terms shall have the following meanings:
(i) "Title Loss Amount" shall mean the amount by which the
value of a Patrick Interest or a La/Cal Interest, as the case may be, is
reduced due to a Title Defect. In the determination of the Title Loss Amount,
the following factors shall be taken into account: the value assigned to the
Interest involved; the portion of such Interest affected by the Title Defect;
the legal effect of the Title Defect and the potential economic effect of the
Title Defect over the life of such Interest; the length of time that such
Interest has been producing by all owners and holders thereof in privity of
title; and whether the defect is of the type expected to be encountered, and is
customarily acceptable to prudent purchasers, in the area in which such
Interest is located.
(ii) "Other Loss Amount" shall mean the amount by which
La/Cal or Patrick has been or will be damaged as a result of any Other Defect,
taking into account, as to future damages, the likelihood that the damage will
be incurred. Notwithstanding any other provision of this Agreement, a party's
liability for breach of any representation or warranty, contained in this
Agreement shall be limited to actual damages and shall not include incidental,
consequential, or indirect damages (except attorneys' fees and costs).
(c) Valuation Procedure. All Proposed Title Adjustments and
Proposed Other Adjustments of which La/Cal's or Patrick's Representative
receives notice shall be submitted to the Adjustment Committee, who shall
determine within 14 days the actual Title Loss Amount or Other Loss Amount, as
the case may be; and such determination shall be binding on all parties. In
the event that Patrick's Representative and La/Cal's Representative cannot
agree to the Title Loss Amount or Other Loss Amount with respect to any
particular Title Adjustment or Other Adjustment proposed (the "Disputed
Adjustments"), they shall select, within five business days after such
disagreement, an arbitrator, who shall be a person recognized as possessing the
expertise necessary to opine as to the matters involved (the "Arbitrator").
The Arbitrator shall, within one week of appointment, determine, after such
consultation with legal counsel, accountants, and other expert consultants as
may be necessary under the circumstances, the actual Title Loss Amount or Other
Loss Amount, as the case may be, with respect to the Disputed Adjustments, if
any; and such determination shall be binding on all parties. All costs and
expenses incurred in the arbitration proceedings shall be shared equally by the
parties.
7.04 Right of Offset.
In the event that the parties shall be entitled to adjustments
pursuant to Section 7.01, above, the actual Title Loss Amount and actual Other
Loss Amount attributable to both Patrick and La/Cal shall be offset against one
another to produce either a "Net Value Loss of La/Cal" meaning the net amount
by which La/Cal has been or will be damaged or a "Net Value Loss of Patrick"
meaning the net amount by which Patrick has been or will be damaged. If the
Net Value Loss of La/Cal or the Net Value Loss of Patrick, as the case may be,
is equal to or less than $1,000,000, there shall be no adjustment to the
consideration payable under Section 1.01 above. If the Net Value Loss of La/Cal
is greater than $1,000,000, the number of shares of Goodrich Petroleum Common
Stock issuable to La/Cal shall be increased to reflect the amount to reflect
which the Net Value Loss of La/Cal is greater than $1,000,000, allocated
consistently with Section 1.01 above. If the Net Value Loss of Patrick is
greater than $1,000,000, the total number of shares of Goodrich Petroleum
Common Stock issuable to La/Cal shall be decreased to reflect the amount by
which the Net Value Loss of Patrick is greater than $1,000,000, allocated
consistently with Section 1.01 above. The adjustments will be effected by
valuing the Patrick of Delaware Common Stock at its "market value", which shall
be the average of the closing prices of Patrick of Delaware Common Stock on the
New York Stock Exchange for ten
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consecutive trading days prior to final determination of the Net Value Loss and
valuing the Goodrich Petroleum Common Stock equal to the Patrick of Delaware
Common Stock.
Notwithstanding any other provision of this Agreement, Patrick and
La/Cal shall have no right to adjustment for a Title Defect or Other Defect
unless notice of such defect is given within the time period provided in
Sections 7.02(a) and 7.02(b), nor shall there be any other adjustments.
7.05 Directors' and Officers' Indemnification
(a) Goodrich Petroleum agrees that all rights to indemnification
and waivers of liability in favor of (i) the members of the Management
Committee now existing and in effect at the Effective Time as provided in the
La/Cal Partnership Agreement, and (ii) the directors or officers of Patrick of
Delaware now existing and in effect at the Effective Time as provided in its
charter documents as in effect on the date hereof, shall survive the Merger and
shall continue in full force and effect.
(b) Patrick of Delaware shall, regardless of whether the Merger
becomes effective, indemnify and hold harmless, and, after the Effective Time,
the Surviving Corporation and Goodrich Petroleum shall indemnify and hold
harmless, to the fullest extent permitted under applicable law and under
Goodrich Petroleum's Certificate of Incorporation, or Bylaws in effect on the
date hereof, each present and former director and officer of Patrick of
Delaware and each member of the Management Committee (collectively, the
"Indemnified Parties") against any costs or expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid
in settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative,
arising out of or pertaining to any action or omission occurring prior to the
Effective Time with respect to the transactions contemplated by this Agreement,
provided, however, that any Indemnified Parties shall be advanced any legal
costs and expenses until a final determination of such action, and such
indemnified person shall reimburse Goodrich Petroleum for any such costs and
expenses if the final decision is against the Indemnified Party) for a period
of five years after the date hereof; provided that, in the event any claim or
claims are asserted or made within such five-year period, all rights to
indemnification in respect to any such claim or claims shall continue until
final disposition of any and all such claims. After the Effective Time, the
Surviving Corporation and Goodrich Petroleum, shall also advance expenses as
incurred to the fullest extent permitted under applicable law provided the
person to whom expenses are advanced provides an undertaking to repay such
advances if it is ultimately determined that such person is not entitled to
indemnification.
In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), Goodrich
Petroleum or the Surviving Corporation shall have the right to assume the
defense thereof, except that if Goodrich Petroleum or the Surviving Corporation
elects not to assume such defense, or counsel for the Indemnified Parties
advises that there are issues which may raise conflicts of interest between
Goodrich Petroleum or the Surviving Corporation and the Indemnified Parties,
the Indemnified Parties may retain counsel satisfactory to them, and Goodrich
Petroleum, or the Surviving Corporation shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received; provided, however, that (i) Goodrich Petroleum or the
Surviving Corporation, as the case may be, shall pay for only two firms of
counsel for all Indemnified Parties in any jurisdiction unless the use of one
counsel for such Indemnified Parties would present such counsel with a conflict
of interest, (ii) neither Goodrich Petroleum nor the Surviving Corporation
shall be liable for any settlement effected without its prior written consent,
which consent shall not be unreasonably withheld, and (iii) neither Goodrich
Petroleum nor the Surviving Corporation shall have any obligation hereunder to
any Indemnified Party when and if a court of competent jurisdiction shall
ultimately determine, and such determination shall have become final, that the
indemnification of such Indemnified Party in the manner contemplated hereby is
prohibited by applicable law. Any Indemnified Party wishing to claim
indemnification under this Section 7.05, upon learning of any such claim,
action, suit proceeding or investigation, shall notify Goodrich Petroleum or
the Surviving Corporation thereof, but the failure to so notify shall not
relieve Goodrich Petroleum or the Surviving Corporation of any liability it may
have to such Indemnified Party if such failure does not materially prejudice
the indemnifying party. The parties intend, to the extent not prohibited by
applicable law, that the indemnification provided for in this Section 7.05
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shall apply to negligent acts or omissions by the Indemnified Parties. If such
indemnity is not available with respect to any Indemnified Party, then
Goodrich Petroleum or the Surviving Corporation and the Indemnified Party shall
contribute to the amount payable in such proportion as is appropriate to
reflect relative faults and benefits.
(c) In the event any action, suit, proceeding or investigation
relating hereto or to the transactions contemplated hereby is commenced by a
third party, whether before or after the Effective Time, the parties hereto
agree to cooperate and use their reasonable efforts to defend against and
respond thereto.
(d) The Indemnified Parties shall not be entitled to the
indemnification herein in connection with any claim initiated by the
Indemnified Party against Goodrich Petroleum or the Surviving Corporation or
any officer or director thereof unless Goodrich Petroleum or the Surviving
Corporation has joined in or consented to the initiation of such claim.
(e) For a period of five years after the Effective Time, Goodrich
Petroleum shall make all reasonable efforts to cause to be maintained in effect
the current policies of directors' and officers' liability insurance maintained
by Patrick of Delaware or a substitute policy of at least the same coverage and
amounts, terms and conditions which are no less favorable.
ARTICLE VIII. CONDITIONS TO CLOSING
8.01 Conditions to Obligations of La/Cal.
The obligations of La/Cal to consummate the transactions contemplated
by this Agreement are subject, at the option of La/Cal, to the satisfaction or
waiver of the following conditions:
(a) Validity of Representations. All representations and
warranties of Patrick contained in this Agreement shall be true and correct in
all material respects at and as of the Closing, as if such representations and
warranties were made at and as of the Closing, and Patrick shall have performed
and satisfied in all material respects all covenants, agreements and
obligations required by this Agreement to be performed and satisfied by Patrick
at or prior to the Closing.
(b) Opinion of Counsel. La/Cal shall have received an opinion
dated as of the Closing from Emens, Kegler, Brown, Hill & Ritter Co., L.P.A.,
Patrick's counsel, in form and substance as set forth in Exhibit 8.01(b)
hereto. In giving such opinion, such counsel may rely, to the extent recited
therein, on certificates of public officials and officers of Patrick as to
matters of fact of which the makers of such certificates have knowledge that do
not involve conclusions of law, and with respect to matters involving the laws
of any jurisdiction other than the State of Ohio, the United States of America,
and Delaware Law, and, to the extent they deem necessary, on the opinions of
local counsel reasonably acceptable to La/Cal. The opinion of Emens, Kegler,
Brown, Hill & Ritter Co., L.P.A., shall set forth the extent to which reliance
is placed upon the opinions of local counsel, and copies of all such opinions
shall be attached to the opinion of Emens, Kegler, Brown, Hill & Ritter Co.,
L.P.A.
(c) Consents of Third Parties. All necessary consents,
permissions, novations and approvals by third parties or governmental
authorities in connection with this transaction, and all permits and licenses
necessary or appropriate for the operation of the Patrick Interests shall have
been obtained. This condition shall be applicable only to the extent that the
failure to obtain such consent or permit would have a material adverse effect
on the Merger transaction.
(d) Pending Legal Proceedings. There shall be no legal
proceedings or environmental proceedings with respect to Patrick outstanding or
threatened, other than those that have been disclosed, which, either separately
31
<PAGE> 253
or in the aggregate, would materially and adversely affect the business,
operations or financial condition of Patrick taken as a whole.
(e) Maintenance of Balance Sheet Items. La/Cal shall have
received at Closing a balance sheet as of the quarter end preceding the Closing
certified by the President and Chief Financial Officer of Patrick of Delaware
showing (i) net amount of Patrick's total current liabilities (excluding
principal amounts due on bank debt and Notes), accounts receivable and cash and
cash equivalents equal to or greater than ($1,662,333) and (ii) cash and cash
equivalents equal to or in excess of $9,000.
(f) Tax Opinion. La/Cal shall have received a written opinion of
KPMG Peat Marwick in form and substance reasonably satisfactory to them to the
effect that the Merger and the asset contribution will qualify as a tax free
exchange within the meaning of Section 351 of the Code and such opinion shall
not have been withdrawn. In rendering such opinions, KPMG Peat Marwick shall
be entitled to rely upon representations of Patrick, La/Cal, Goodrich Petroleum
and Goodrich Acquisition and certain stockholders of Patrick of Delaware and
certain Partners.
(g) No Adverse Change. Since the date of this Agreement, no
material adverse change shall have occurred in the business, operations or
financial conditions, taken as a whole, of Patrick.
(h) Registration Rights Agreement. Goodrich Petroleum shall have
entered into the Registration Rights Agreement provided for in Section 6.01(s).
(i) Stock Sale Agreement. Goodrich Petroleum shall have received
executed copies of the Stock Sale Agreement provided for in Section 6.01(q).
8.02 Conditions to Obligations of Patrick.
The obligations of Patrick to consummate the transactions contemplated
by this Agreement are subject, at the option of Patrick, to the satisfaction or
waiver of the following conditions:
(a) Validity of Representations. All representations and
warranties of La/Cal contained in this Agreement shall be true and correct in
all material respects at and as of the Closing, as if such representations and
warranties were made at and as of the Closing, and La/Cal shall have performed
and satisfied in all material respects all covenants, agreements and
obligations required by this Agreement to be performed and satisfied by La/Cal
at or prior to the Closing.
(b) Opinion of Counsel. Patrick shall have received an opinion
dated as of the Closing from Hargrove, Pesnell & Wyatt, La/Cal's counsel, in
form and substance as set forth in Exhibit 8.02(b) hereto. In giving such
opinion, such counsel may rely, to the extent recited therein, on certificates
of public officials and Partners of La/Cal as to matters of fact of which the
makers of such certificates have knowledge that do not involve conclusions of
law, and with respect to matters involving the laws of any jurisdiction other
than the States of Louisiana, Delaware and the United States of America, and,
to the extent they deem necessary, on the opinions of local counsel reasonably
acceptable to Patrick. The opinion of Hargrove, Pesnell & Wyatt shall set forth
the extent to which reliance is placed upon the opinions of local counsel, and
copies of all such opinions shall be attached to the opinion of Hargrove,
Pesnell & Wyatt.
(c) Consents of Third Parties. All necessary consents,
permissions, novations and approvals by third parties or governmental
authorities in connection with this transaction, and all permits and licenses
necessary or appropriate for the operation of La/Cal Interests shall have been
obtained, except that Patrick shall take all La/Cal Interests subject to
preferential and similar rights of third parties to purchase any portion of
La/Cal Interests. This condition shall be applicable only to the extent that
failure to obtain such consent or permit shall have a material adverse effect
on the Merger transaction.
32
<PAGE> 254
(d) Pending Legal Proceedings. There shall be no legal
proceedings or environmental proceedings with respect to La/Cal, outstanding or
threatened, other than those that have been disclosed which, either separately
or in the aggregate, would materially and adversely affect the business,
operations or financial condition of La/Cal taken as a whole.
(e) Fairness Opinion. The Fairness Opinion has not been
materially changed or withdrawn or Patrick has not obtained a substantially
identical replacement Fairness Opinion.
(f) La/Cal Interests. La/Cal Energy Partners shall have
transferred the La/Cal Interests to Goodrich Petroleum in exchange for Goodrich
Petroleum Common Stock.
(g) No Adverse Change. Since the date of this Agreement, no
material adverse change shall have occurred in the business, operations or
financial conditions, taken as a whole, of La/Cal.
(h) Stock Sale Agreement. Goodrich Petroleum shall have received
executed copies of the Stock Sale Agreements provided for in Section 6.02(m)
from Partners owning at least 99% of the Partnership Interests.
(i) Tax Opinion. Patrick shall have received a written opinion of
Deloitte & Touche in form and substance reasonably satisfactory to it, to the
effect that the Merger will constitute a tax free exchange within the meaning
of Section 351(a) of the Code, and such opinion shall not have been withdrawn.
In rendering such opinions, Deloitte & Touche shall be entitled to rely upon
representations of Patrick, La/Cal, Goodrich Petroleum and Goodrich Acquisition
and certain stockholders of Patrick of Delaware and certain Partners.
(j) Goodrich Oil Company Agreement. Goodrich Petroleum and
Goodrich Oil Company shall have entered into the agreement provided for in
Section 6.02(o).
8.03 Conditions to Obligations of La/Cal and Patrick.
The obligations of La/Cal and Patrick to consummate the transactions
contemplated by this Agreement are subject, at the option of each party, to the
satisfaction or waiver by both parties of the following conditions:
(a) Prohibition of Transactions. No state or federal statute,
rule, regulation or action shall exist or shall have been adopted or taken, and
no judicial or administrative decision shall have been entered (whether on a
preliminary or final basis), and no action or proceeding by any governmental,
regulatory or administrative agency shall be pending that if adversely decided
would prohibit, restrict or unreasonably delay the consummation of the
transactions contemplated by this Agreement or make illegal the consideration
due hereunder.
(b) Stockholders' and Partners' Consent. Patrick of Delaware and
La/Cal shall have obtained the necessary consent of their respective
stockholders and Partners to the consummation of the transactions contemplated
by this Agreement.
(c) Registration Statement. The Registration Statement shall have
become effective under the Securities Act of 1933, as amended; no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC; and such Registration Statement, as at the time the
Merger becomes effective, shall not contain any untrue statement of a material
fact and shall not omit to state any material fact required to be stated
therein or necessary to make any statement therein, in light of the
circumstances under which the statements were made, not misleading.
33
<PAGE> 255
ARTICLE IX. CLOSING
9.01 Date of Closing.
Subject to the conditions stated in this Agreement, the consummation
of the transactions contemplated hereby (the "Closing") shall be held as soon
as practicable following the satisfaction or waiver of the conditions set forth
in Article VIII hereof. The date the Closing actually occurs is herein called
the "Closing Date."
9.02 Place of Closing.
The Closing shall be held at the offices of Patrick in Houston, Texas
or at such other place as La/Cal and Patrick shall agree.
9.03 Closing Obligations.
At the Closing the following events shall occur, each being a
condition precedent to the others and each being deemed to have occurred
simultaneously with the others:
(a) La/Cal Certificate. La/Cal shall execute, acknowledge and
deliver to Patrick a certificate, dated as of the Closing Date, in form and
substance as set forth in Exhibit 9.03(a) hereto.
(b) Patrick Certificate. Patrick shall execute, acknowledge and
deliver to La/Cal a certificate, dated as of the Closing Date, in form and
substance as set forth in Exhibit 9.03(b) hereto.
(c) Good Standing and Foreign Qualification. La/Cal, Patrick and
Goodrich Petroleum shall each deliver to the other a certificate or other
documentation from the Secretary of State of the States of their respective
formation, dated not more than 14 days prior to the Closing Date, as to the
legal existence and good standing of the party under the laws of such state and
similar certificates evidencing the continued qualification and good standing
of the Subsidiaries in each jurisdiction where each does business or owns
properties.
(d) Other Closing Documents. La/Cal and Patrick shall execute
and/or deliver all such other and further documents and instruments, including,
without limitation, corporate minutes, transfer agent certifications, third
party consents, books, records, etc., as may be reasonably requested by either
party.
ARTICLE X. OBLIGATIONS AFTER CLOSING
10.01 Further Assurances.
After the Closing, La/Cal and Patrick shall execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, such instruments
and shall take or cause to be taken all such other and further action as may be
necessary or advisable to carry out their respective obligations under this
Agreement and under any Exhibit, document, certificate or other instrument
delivered pursuant thereto.
10.02 Survival.
Except for such covenants and agreements of Sections 6.01(g) and (n),
6.02(g), 7.05 and Article XII which by their terms contemplate performance
after the Effective Time, all representations, warranties, covenants, and
agreements included or provided in this Agreement, or in any Exhibit, document,
certificate or other instrument delivered pursuant hereto, shall not survive
the Closing.
34
<PAGE> 256
ARTICLE XI. TERMINATION OF AGREEMENT
11.01 Termination.
This Agreement and the transactions contemplated hereby may be
terminated in the following instances:
(a) by either Patrick or La/Cal if any condition set forth in
Section 8.03 shall not be satisfied or waived on or before October 1, 1995, and
such failure has a material adverse effect on the transactions contemplated
hereby, taken as a whole;
(b) by Patrick if any condition set forth in Section 8.02 shall
not be satisfied or waived on or before October 1, 1995, and such failure has
a material adverse effect on La/Cal or the transactions contemplated hereby,
taken as a whole; provided however, that failure to satisfy Section 8.02(a)
with respect to Good and Defensible Title shall be grounds for termination only
if such failure involves 25% or more of the total value of the La/Cal
Interests;
(c) by La/Cal if any condition set forth in Section 8.01 shall not
be satisfied or waived on or before October 1, 1995, and such failure has a
material adverse effect on Patrick or the transactions contemplated hereby,
taken as a whole; provided however, that failure to satisfy Section 8.01(a)
with respect to Good and Defensible Title shall be grounds for termination only
if such failure involves 25% or more of the total value of the Patrick
Interests;
(d) by the mutual written agreement of Patrick of Delaware and
La/Cal, as authorized by their respective Board of Directors and Management
Committee;
(e) by Patrick if, prior to the Effective Time, (i) Patrick or its
stockholders receive an offer from any person other than La/Cal with respect to
an Acquisition Proposal and (ii) the Board of Directors of Patrick determines,
upon advice of counsel to such effect, that the fulfillment of the fiduciary
duties of Patrick's Board of Directors requires that the Board of Directors
approve or recommend such Acquisition Proposal;
(f) by La/Cal if, prior to the Effective Time, (i) La/Cal or its
Partners receive an offer from any person other than Patrick with respect to
any Acquisition Proposal, and (ii) the Management Committee determines, upon
advice of counsel to such effect, that the fulfillment of the fiduciary duties
of the Management Committee requires that the Management Committee approve or
recommend such Acquisition Proposal;
(g) by La/Cal or Patrick, if the Effective Time shall not have
occurred on or before October 1, 1995; provided, however, that the right to
terminate this Agreement under this clause (g) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Effective Time to occur on or
before such time.
(h) by La/Cal if the stockholders of Patrick of Delaware vote
against approval of this Agreement; or
(i) by Patrick if the Partners of La/Cal fail to approve this
Agreement.
11.02 Liabilities Upon Termination.
(a) If La/Cal or Patrick is entitled to and elects to terminate
this Agreement by reason of the failure of any of the conditions set forth in
Sections 8.01(b), (c), (d), (f) or (g) or in Sections 8.02(b), (c), (d), (g) or
(i), or in Sections 8.03(a) or (c), neither party shall have any liability or
obligation hereunder to the other party. If La/Cal is entitled to and elects
to terminate this Agreement by reason of the failure of any of the conditions
set forth in Sections 8.01(a), (e), (h) or (i), or Patrick is entitled to and
elects to terminate this Agreement by reason of the failure of the condition
set forth in Section 8.02(e) or by reason of the failure of the stockholders of
Patrick to consent to the
35
<PAGE> 257
consummation of the transactions contemplated by this Agreement, Patrick shall
pay to La/Cal the sum of $500,000, inclusive of all costs and expenses. If
this Agreement is terminated by reason of action taken by Patrick or its board
of directors or stockholders pursuant to Section 11.01(e), Patrick shall pay to
La/Cal the sum of $1,000,000.00 inclusive of all costs and expenses. If
Patrick is entitled to and elects to terminate this Agreement by reason of the
failure of any of the conditions set forth in Sections 8.02(a), (f), (h) or (j)
or by reason of the failure of the partners of La/Cal to consent to the
consummation of the transactions contemplated by this Agreement, La/Cal shall
pay to Patrick the sum of $500,000, inclusive of all costs and expenses. If
this Agreement is terminated by reason of action taken by La/Cal or its
Partners pursuant to Section 11.01(f), La/Cal shall pay to Patrick the sum of
$1,000,000, inclusive of all costs and expenses.
(b) If this Agreement is terminated for reasons other than those
set forth in Section 11.02(a), the terminating party shall pay to the
nonterminating party the sum of $1,000,000, inclusive of all costs and
expenses, and nothing contained herein shall be construed to limit either
party's legal or equitable remedies, including the right to enforce specific
performance of this Agreement.
ARTICLE XII. MISCELLANEOUS
12.01 Exhibits.
All of the Exhibits are hereby incorporated in this Agreement by
reference and constitute a part of this Agreement. Each party to this
Agreement and its counsel has received a complete set of Exhibits prior to and
as of the execution of this Agreement.
12.02 Expenses.
Subject to the provisions of Section 11.02, in the event this
Agreement is terminated, all fees, costs and expenses incurred by La/Cal or
Patrick in negotiating this Agreement or in consummating the transactions
contemplated by this Agreement shall be paid by the party incurring the same,
including, without limitation, legal and accounting fees, costs and expenses.
If the Merger is completed then all reasonable fees, costs and expenses
incurred by La/Cal or Patrick including, without limitation, legal and
accounting fees, costs and expenses will be paid or reimbursed by Goodrich
Petroleum.
12.03 Consent.
Whenever any consent or approval is required or desired under this
Agreement, such consent or approval shall not unreasonably or arbitrarily be
withheld or delayed. All requests for consent or approval shall be submitted
in writing, and, if not responded to within five banking days after receipt,
such consent or approval shall be deemed to have been given.
12.04 Notices.
All notices and communications required or permitted under this
Agreement shall be in writing and any such notice or communication shall be
deemed to have been duly made on such day if actually delivered or transmitted
via telecopy or telex, or three days after mailing if mailed by registered or
certified mail, postage prepaid, addressed as follows:
36
<PAGE> 258
If to Patric:
------------
Patrick Petroleum Company
301 West Michigan Avenue
Jackson, Michigan 49201
Attention: U.E. Patrick
With copy to:
Emens, Kegler, Brown, Hill & Ritter Co., L.P.A.
Capitol Square
65 East State Street
Columbus, Ohio 43215
Attention: Jack A. Bjerke
If to La/Cal, Goodrich Petroleum or Goodrich Acquisition, Inc.:
--------------------------------------------------------------
Walter G. Goodrich
La/Cal Energy Partners
333 Texas Street; Suite 1300
Shreveport, Louisiana 71101
With copy to:
Hargrove, Pesnell & Wyatt
Premier Bank Tower
400 Texas Street, Suite 1102
Shreveport, Louisiana 71101-3525
Attention: Scott C. Sinclair
Either party may, by written notice so delivered to the other, change the
address to which delivery shall thereafter be made.
12.05 Amendment.
This Agreement may not be altered or amended, or any rights hereunder
waived, except by an instrument in writing executed by the party or parties to
be charged with such amendment or waiver. No waiver of any term, provision or
condition of this Agreement, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such term, provision
or condition or as a waiver of any other term, provision or condition of this
Agreement.
12.06 Assignment.
Neither Patrick nor La/Cal may assign its rights or delegate its
duties or obligations under the terms of this Agreement.
12.07 Announcements.
Patrick and La/Cal shall consult with each other with regard to all
press releases and other announcements concerning this Agreement or the
transactions contemplated hereby, and, except as may be required by applicable
laws or the applicable rules and regulations of any governmental agency or
stock exchange, neither Patrick nor La/Cal shall issue any such press release
or make any other announcement without the prior written consent of the other
party.
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<PAGE> 259
12.08 Headings.
The headings of the Articles and Sections of this Agreement are for
guidance and convenience of reference only and shall not limit or otherwise
affect any of the terms or provisions of this Agreement.
12.09 Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original instrument, but all of which together shall
constitute but one and the same instrument.
12.10 References.
References made in this Agreement, including use of a pronoun, shall
be deemed to include, where applicable, masculine, feminine, singular or
plural, individuals, partnerships or corporations. As used in this Agreement,
"party" shall mean any natural person, corporation, partnership, trust, estate
or other entity. As used in this Agreement, "affiliate" of a party shall mean
any partnership, joint venture, corporation or other entity in which such party
has an interest or that controls, is controlled by or is under common control
with such party.
12.11 Governing Law.
This Agreement and the transactions contemplated hereby shall be
construed in accordance with, and governed by, the laws of the State of
Delaware.
12.12 Entire Agreement.
This Agreement (including the Exhibits hereto), constitutes the entire
understanding among the parties with respect to the subject matter hereof,
superseding all negotiations, prior discussions and prior agreements and
understandings relating to such subject matter.
12.13 Parties in Interest.
This Agreement shall be binding upon, and shall inure to the benefit
of, the parties hereto and, except as otherwise prohibited, their respective
successors and assigns; and nothing contained in this Agreement, express or
implied, is intended to confer upon any other person or entity any benefits,
rights or remedies.
12.14 Severability.
If any term, provision, covenant, or restriction of this Agreement is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants, and restrictions of this
Agreement shall continue in full force and effect and shall in no way be
affected, impaired, or invalidated.
38
<PAGE> 260
Executed as of the date first above mentioned.
PATRICK PETROLEUM COMPANY,
a Delaware corporation
By: /s/ U.E. PATRICK
---------------------------------------------
U.E. Patrick, President
GOODRICH PETROLEUM CORPORATION,
a Delaware corporation
By: /s/ U.E. PATRICK
---------------------------------------------
U.E. Patrick, President
LA/CAL ENERGY PARTNERS
a Louisiana Partnership
By: /s/ WALTER G. GOODRICH
---------------------------------------------
Walter G. Goodrich, Management Committee
Member and General Partner
GOODRICH ACQUISITION, INC.
a Delaware Corporation
By: /s/ U.E. PATRICK
---------------------------------------------
U.E. Patrick, President
39
<PAGE> 261
APPENDIX II
PETRIE PARKMAN & Co.
6350 Texas Commerce Tower
Houston, Texas 77002
713/650-3383 - Fax: 713/650-8461
March 10, 1995
The Board of Directors
Patrick Petroleum Company
301 West Michigan Ave
P.O. Box 747
Jackson, Michigan 49204
Dear Sirs:
You have asked us to advise you with respect to the fairness from a
financial point of view to the holders of the outstanding shares of common
stock, par value $0.20 per share ("Patrick Common Stock"), of Patrick Petroleum
Company ("Patrick") of the exchange ratio of one share of Common Stock, par
value $0.20 per share ("Goodrich Common Stock"), of Goodrich Petroleum
Corporation, a newly formed corporation ("Goodrich"), per share of Patrick
Common Stock (the "Common Stock Exchange Ratio") to be received by the holders
of Patrick Common Stock pursuant to the Agreement and Plan of Merger (the
"Merger Agreement") dated as of March 10, 1995 among Patrick, Goodrich, La/Cal
Energy Partners ("La/Cal") and Goodrich Acquisition, Inc., a wholly owned
subsidiary of Goodrich ("Goodrich Acquisition"). You have also asked us to
advise you with respect to the fairness from a financial point of view to the
holders of the outstanding shares of Series B Preferred Stock, par value $1.00
per share ("Patrick Preferred Stock"), of Patrick of the exchange ratio of one
share of Series B Preferred Stock, par value $1.00 per share ("Goodrich
Preferred Stock") of Goodrich per share of Patrick Preferred Stock (the
"Preferred Stock Exchange Ratio") to be received by holders of Patrick Preferred
Stock pursuant to the Merger Agreement. The Merger Agreement provides for La/Cal
to contribute the La/Cal Interests (as defined in the Merger Agreement) to
Goodrich in exchange for 19,765,226 shares of Goodrich Common Stock and the
merger (the "Merger") of Goodrich Acquisition with and into Patrick pursuant to
which (i) Patrick will become a wholly-owned subsidiary of Goodrich, (ii) each
of the 19,765,226 outstanding shares of Patrick Common Stock will be converted
into and exchanged for the right to receive Goodrich Common Stock at the Common
Stock Exchange Ratio and an aggregate of 39,530,452 shares of Goodrich Common
Stock will be outstanding immediately after the Merger and (iii) each
outstanding share of Patrick Preferred Stock will be converted into and
exchanged for the right to receive Goodrich Preferred Stock at the Preferred
Stock Exchange Ratio (all the foregoing, collectively, the "Transaction"). In
accordance with the Merger Agreement, Goodrich Oil Company, an affiliate of
La/Cal ("GOC"), will enter into a Participation Agreement (the "Participation
Agreement") with Goodrich pursuant to which GOC will be obligated to offer
Goodrich the right to participate in certain future oil and gas projects
identified by GOC.
<TABLE>
<S> <C>
DENVER LONDON
475 Seventeenth Street, Suite 1100 Princes House - 36 Jermyn Street
Denver, Colorado 80202 London, SW1Y 6DN
303/292-3877 - Fax 303/292-4284 071/287-3567 - Fax 071/287-3568
</TABLE>
<PAGE> 262
In arriving at our opinion, we have, among other things:
<TABLE>
<S> <C>
(i) reviewed certain available business and financial information relating to (1)
Patrick, including unaudited financial statements as of December 31, 1994, Annual
Reports to Stockholders and Annual Reports on Form 10-K for the five years ended
December 31, 1993 and (2) La/Cal, including audited financial statements as of
December 31, 1994 and historical performance data;
(ii) analyzed certain internal financial and operating data and certain financial and
operating forecasts concerning Patrick and La/Cal, all of which were prepared or
provided by the senior management of Patrick and La/Cal;
(iii) held discussions with members of the senior management and operating staff of
Patrick and La/Cal regarding the current operations and prospects of their
respective companies and of the combined company, giving proforma effect to the
Merger, including the operational efficiencies expected by Patrick and La/Cal to
be realized from the Merger and the benefits to Goodrich expected from the
Participation Agreement;
(iv) reviewed certain reserve reports prepared by Lee Keeling & Associates, Inc.
relating to Patrick's properties and certain reserve reports prepared by Gruy
Engineering Corp. and Coutret & Associates, Inc. relating to La/Cal's properties
as well as certain internal reserve projections prepared by the management of
La/Cal;
(v) reviewed certain provisions of the Merger Agreement;
(vi) reviewed the historical trading prices of the Patrick Common Stock;
(vii) compared the financial terms of the Transaction with the financial terms of
certain other recent business combinations and transactions which we deemed to be
relevant; and
(viii) made such other analyses and examinations as we have deemed necessary or
appropriate.
</TABLE>
We have not independently verified the information considered in our
review, and for purposes of the opinion set forth below, we have assumed and
relied upon the accuracy and completeness of all such information, including,
without limitation the statements made in the discussions referred to above.
With respect to the financial and operating forecasts and operational
efficiencies to be realized from the Merger, we have assumed that they have been
reasonably prepared and determined on bases reflecting the best currently
available estimates and judgements of Patrick and La/Cal, and the management of
Patrick has advised us that we may assume, and we have so assumed, for the
purposes of this opinion the reasonableness and achievability of such forecasts
and efficiencies. With respect to the reserve reports and reserve projections,
we have assumed that they have been reasonably prepared on bases reflecting the
best available estimates and judgements relating to Patrick's and La/Cal's oil
and gas properties. In addition, we have not made an independent evaluation or
appraisal of the assets or liabilities of Patrick or La/Cal nor, except for the
reserve reports referred to above, have we been furnished with such an
evaluation or appraisal. In accordance with the Merger Agreement, we have
assumed that the Goodrich Preferred Stock will have the same rights,
preferences, qualifications, limitations, restrictions, and other terms as the
Patrick Preferred Stock (except that the Goodrich Preferred Stock will be
convertible into Goodrich Common Stock).
Our opinion relates solely to the fairness from a financial point of view
to the holders of Patrick Common Stock of the Common Stock Exchange Ratio and to
the holders of the Patrick Preferred Stock of the Preferred Stock Exchange
Ratio, and does not extend to any other aspects of the Transaction or any
related transaction. We have not been requested to, and do not, express any
opinion regarding the fairness to La/Cal or any stockholder of La/Cal of any
aspect of the Transaction. Our engagement and the opinion expressed herein are
solely for the benefit of Patrick's Board of Directors and are not on behalf,
and are not intended to confer rights or remedies upon, any stockholder of
Patrick or any other person other than Patrick's Board of Directors. This letter
may not be used for any other purpose without our prior written consent. As you
are aware, we will receive a fee for advising Patrick in connection with the
Transaction.
Our opinion is rendered on the basis of conditions in the securities
markets and the oil and gas markets prevailing as of the date hereof and the
condition and prospects, financial and otherwise, of Patrick and
<PAGE> 263
La/Cal as they have been represented to us as of the date hereof or as they were
reflected in the materials and discussions described above.
Based upon and subject to the foregoing, and based upon such other matters
as we consider relevant, it is our opinion that, as of the date hereof, the
Common Stock Exchange Ratio is fair from a financial point of view to the
holders of Patrick Common Stock and the Preferred Stock Exchange Ratio is fair
from a financial point of view to the holders of the Patrick Preferred Stock.
Very truly yours,
<PAGE> 264
APPENDIX III
MARCH 24, 1995
LA/CAL ENERGY PARTNERSHIP
333 TEXAS STREET, SUITE 1350
SHREVEPORT, LOUISIANA 71101-5319
PECAN LAKE AND LAKE CHARLES FIELDS
CAMERON AND CALCASIEU
PARISHES
95-120-103
Gentlemen:
At your request, we have estimated the reserves and future net revenue as
of January 1, 1995, for certain interests owned by LA/CAL Energy Partnership.
These are working and royalty interests in gas and condensate properties located
in Pecan Lake and Lake Charles fields, Cameron and Calcasieu Parishes,
Louisiana. The estimated net reserves, future net revenue and discounted future
net revenue are summarized by reserve category as follows:
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
NET RESERVES FUTURE NET REVENUE
--------------------- -------------------------
OIL & DISCOUNTED
CONDENSATE GAS AT 10%
(BARRELS) (MCF) NONDISCOUNTED PER YEAR
------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Pecan Lake field
Total Proved......................... 129,885 12,485,583 $21,718,229 $14,492,248
Lake Charles field
Total Proved......................... 99,861 4,559,810 $ 9,294,350 $ 7,406,179
------- ---------- ----------- -----------
Total All Fields
Total Proved......................... 229,746 17,045,393 $31,012,579 $21,898,427
======= ========== =========== ===========
</TABLE>
The discounted future net revenue is not represented to be the fair market
value of these reserves. The estimated reserves included in this report have not
been adjusted for risk.
The estimated future net revenue shown is that revenue which will be
realized from the sale of the estimated net reserves after deduction of
royalties, ad valorem and production taxes, direct operating costs and required
capital expenditures, when applicable. Surface and well equipment salvage values
and well plugging and field abandonment costs have not been considered in the
revenue projections. Future net revenue as stated in this report is before the
deduction of federal income tax.
In the economic projections, prices, operating costs and development costs
remain constant for the projected life of each lease.
Reserves for these producing properties have been estimated from volumetric
calculations and analogy with the performance of comparable wells. The reserves
included in this study are estimates only and should not be construed as exact
quantities. Future conditions may affect recovery of estimated reserves and
revenue, and all categories of reserves may be subject to revision as more
performance data become available. The proved reserves included in this report
conform to the applicable definitions promulgated by the Securities and
<PAGE> 265
LA/CAL ENERGY PARTNERSHIP MARCH 24, 1995
Exchange Commission. Attachment 1, following this letter, sets forth all reserve
definitions incorporated in this study.
Extent and character of ownership, gas and condensate prices, production
data, direct operating costs, capital expenditure estimates and other data
provided by Goodrich Oil Company have been accepted as represented. The
production data available to us were at least through the month of October,
1994. No independent well tests, property inspections or audits of operating
expenses were conducted by our staff in conjunction with this study. We did not
verify or determine the extent, character, obligations, status or liabilities,
if any, arising from any gas imbalances or any current or possible future
environmental liabilities that might be applicable.
In order to estimate the reserves, costs and future revenues shown in this
report, we have relied in part on geological, engineering and economic data
furnished by our client. Although we have made a best efforts attempt to acquire
all pertinent data and to analyze it carefully with methods accepted by the
petroleum industry, there is no guarantee that the volumes of gas or condensate
or the revenues projected will be realized. The reserve and revenue projections
presented in this report may require revision as additional data become
available.
If investments or business decisions are to be made in reliance on these
estimates by anyone other than our client, such person with the approval of our
client is invited to visit our offices at his expense so that he can evaluate
the assumptions made and the completeness and extent of the data available on
which our estimates are based.
Any distribution or publication of this report or any part thereof must
include this letter in its entirety.
Yours very truly,
H.J. GRUY AND ASSOCIATES, INC.
Sylvia Castilleja
Senior Reservoir Engineer
Gregory A. Avra
Senior Reservoir Engineer
SHC/GAA/me
2
<PAGE> 266
Appendix IV
[COUTRET AND ASSOCIATES, INC. LETTERHEAD]
MARCH 30, 1995
Mr. Roland Frautschi
La/Cal Energy Partnership
333 Texas Street, Suite 1350
Shreveport, Louisiana 71101-5319
Re: Economic Evaluation of La/Cal Energy
Partnership in Oil and Gas Properties
Effective Date: January 1, 1995
Gentlemen:
In compliance with your request, an economic evaluation has been
prepared for the interest of the La/Cal Energy Partnership in oil and gas
properties with the exception of the proved developed producing properties in
Lake Charles and Pecan Lake Fields. These properties are located in north and
south Louisiana and east and south Texas and the effective date of this
appraisal is January 1, 1995. The attached report presents the results of our
evaluation.
The text of the report contains a brief discussion of the properties
evaluated and the procedures used in determining their value. The data and
results are tabulated in the appendix of the report. In preparing this study
all available records and data were used.
ECONOMIC SUMMARY
The evaluated interest share of future proved oil and gas reserves as
of January 1, 1995 are 3,419 barrels of oil and 2,703,547 MCF of gas that will
generate a future net profit of $$3,216,099. When discounted at 10%, this net
profit has a present worth of $2,041,473.
The evaluated interest share of future probable oil and gas reserves as
of January 1, 1995 are 1,111 barrels of oil and 317,123 MCF of gas that will
generate a future net profit of $428,890 that, when discounted at 10%, has a
present worth of $112,153.
ESCALATION ASSUMPTIONS
Prices and costs used in obtaining the above stated economic results
were held constant throughout well life.
<PAGE> 267
COUTRET AND ASSOCIATES INC.
Maps, work sheets and other data used for this report will be
maintained in our files for your future use. If you have any questions or need
additional information, please feel free to call at your convenience.
Yours very truly,
COUTRET AND ASSOCIATES, INC.
/s/ ROBERT M. MCGOWEN, P.E.
-----------------------------
Robert M. McGowen, P.E.
Page 2
<PAGE> 268
Appendix V
LEE KEELING AND ASSOCIATES, INC.
PETROLEUM CONSULTANTS
3500 FIRST PLACE TOWER
15 EAST 5TH STREET
TULSA, OKLAHOMA 74103 USA
(918) 587-5521
FACSIMILE 587-2881
March 17, 1995
Patrick Petroleum Company
301 West Michigan Avenue
Jackson, Michigan 49201
Attention: Mr. Thomas G. Johnson, Comptroller
Re: Appraisal
Oil and Gas Properties
Patrick Petroleum Company
Constant Prices and Expenses
Gentlemen:
In accordance with your request, we have prepared an appraisal of the interests
in certain oil and gas reserves owned by Patrick Petroleum Company. The
economics have been based on constant pricing guidelines with an effective date
of January 1, 1995. The results are summarized by reserve category on Exhibit I
with the grand total presented below:
<TABLE>
<CAPTION>
ESTIMATED REMAINING
NET RESERVES FUTURE NET REVENUE
--------------------- -----------------------------
OIL GAS PRESENT WORTH
(BBLS.) (MCF) TOTAL DISCOUNTED @10%
--------- --------- ----------- ---------------
<S> <C> <C> <C> <C>
GRAND TOTAL............... 1,149,474 7,012,160 $19,701,443 $13,389,777
</TABLE>
Future net revenue is the amount, exclusive of state and federal income taxes,
which will accrue to the appraised interests from continued operation of the
properties to depletion. It should not be construed as a fair market or trading
value. No provision has been made for the cost of plugging and abandoning the
properties nor for the value of salvable equipment.
This appraisal includes approximately 170 oil and gas leases, including several
proved behind-pipe zones, one pressure-maintenance and/or secondary recovery
unit and one gas processing facility. These properties are located in the
states of California, Colorado, Kansas, Louisiana, Michigan, Montana, New
Mexico, North Dakota, Oklahoma, Texas and Wyoming.
<PAGE> 269
Summary forecasts of annual gross and net production, severance and ad valorem
taxes, operating income, and net revenue by reserve type are included in
Schedule No. 1. Presented in Schedule No. 2 are present worth determinations at
nine discount rates, ranging from eight to thirty-five per cent. Field
Summaries are listed on Schedule No. 3 and an alphabetical lease listing is
presented on Schedule No. 4. Schedule No. 5 reflects the Stoney Point Gas Plant
and the individual lease forecasts are contained in Schedule No. 6.
CLASSIFICATION OF RESERVES
This appraisal provides for several categories of reserves. Standard or
accepted definitions of the various reserve categories are presented on
Exhibit II.
ESTIMATION OF RESERVES
Most of the appraised properties have been producing for some time. The
remaining wells commenced production only recently or are currently
shut-in awaiting recompletion. Essentially, all have been previously appraised
by this firm.
Reserves attributable to oil and gas wells for which performance data were
available have been based on extrapolation of existing bottom-hole pressure-
cumulative recovery relationships, oil-cut cumulative recovery relationships,
or production decline trends to the economic limit. Condensate reserves for the
older gas wells were based on the extrapolation of existing condensate-gas
ratio trends.
The reserves assigned to the South Stoney Point Unit, Hillsdale and Jackson
Counties, Michigan, were based on material balance calculations.
Reserves assigned to the Stoney Point gasoline plant have been based on the
total field reserve estimates.
Oil and gas reserves attributable to wells with brief or no performance
histories were based upon volumetric determinations and/or analogy. Results of
these calculations were adjusted for productivity where indicated. Productive
areas used in volumetric determinations were based on drainage areas deemed
reasonable for the respective formations. A review of wells having considerable
performance histories indicated that the productive areas used are realistic.
Consideration was given to structural position, net pay thicknesses, well
capacities, gas-oil ratios, water production, bottom-hole pressures and other
factors. Condensate recoveries for new gas wells and casinghead gas recoveries
for new oil wells were based on analogy with older wells in the respective
areas.
2
<PAGE> 270
FUTURE NET REVENUE
Operating Income
Income from the sale of oil was estimated using an initial price of $16.50 per
barrel as of January 1, 1995, as supplied by Patrick Petroleum Company. At the
request of Patrick Petroleum Company, this price was held constant for the life
of the properties. Provisions were made for applicable state severance and ad
valorem taxes.
Income from the sale of gas was based on the gas sales prices for the various
areas, as provided by Patrick Petroleum Company. These prices have been held
constant for the life of the properties. Provisions were made for state
severance and ad valorem taxes.
Income from the processing of gas at the Stoney Point gas plant was based
primarily on a processing fee of $1.34 per MCF. The processing facility owns no
interest in the gas and liquid reserves. The future net revenue was determined
by applying the processing fee to the wet gas stream from the Stoney Point
Field and deducting plant operating expenses. These processing fees were not
escalated.
It should be noted that income from the Stoney Point gas plant is not included
in the lease forecast section of this report but is presented separately on
Schedule No. 5.
Operating Expenses
Operating expenses attributable to the individual wells and gas processing
facilities have been based upon data supplied by Patrick Petroleum Company or
actual experience of operators in the respective area. At the request of
Patrick Petroleum Company, they were held constant for the life of the
properties. These expenses do not provide for general administrative overhead.
Future Expenses
Provision has been made for the cost of recompletion of zones currently behind
the pipe and installation of pumping equipment where necessary. These costs and
the anticipated drilling expenses in the Sean Andrew Field are based on the
experiences of operators in the various areas.
GENERAL
Information upon which this appraisal has been based was furnished by the staff
of Patrick Petroleum Company, the respective operators of the oil and gas
properties, or has been obtained by us from outside sources considered to be
reliable. All the information supplied is assumed to be correct. No attempt has
been made to verify title or ownership of the appraised interests.
3
<PAGE> 271
Leases were not inspected by a representative of this firm, nor were the wells
tested under our supervision; however, the performance of most of the
individual wells was discussed with Patrick Petroleum Company.
You should be aware that state regulatory authorities could, in the future,
change the allocation of reserves allowed to be produced from a particular well
in any reservoir, thereby altering the material premise upon which our reserve
estimates may be based.
This report has been prepared utilizing methods and procedures regularly used
by petroleum engineers to estimate oil and gas reserves for properties of this
type and character. The recovery of oil and gas reserves and projection of
producing rates are dependent upon many variable factors including prudent
operation, compression of gas when needed, market demand, installation of
lifting equipment and remedial work when required. The reserves included in
this report have been based upon the assumption that the wells will continue to
be operated in a prudent manner under the same conditions existing at the
present time.
Constant prices have been used in this evaluation in accordance with current
S.E.C. guidelines. There is no assurance that prices will be maintained at
current levels. For this reason, the future net cash from the sale of
production from the appraised properties may vary from the estimates contained
in this report.
No attempt has been made to quantify or otherwise account for any accumulative
gas production imbalances that may exist. Neither has an attempt been made to
determine whether the wells and facilities are in compliance with various
governmental regulations, including environmental, nor have the costs been
included in the event they are not.
No consideration has been given to the effect possible, pending or future
litigation may have on the future net revenue or value of the appraised
properties.
The information developed during the course of this investigation, basic data,
maps and worksheets showing recovery determinations is available for inspection
in our office.
We appreciate this opportunity to be of service to you.
Very truly yours,
/s/ LEE KEELING AND ASSOCIATES, INC.
Lee Keeling and Associates, Inc.
4
<PAGE> 272
EXHIBIT I
APPRAISAL
PATRICK PETROLEUM COMPANY
CONSTANT PRICES AND EXPENSES
AS OF JANUARY 1, 1995
<TABLE>
<CAPTION>
ESTIMATED REMAINING
NET RESERVES FUTURE NET REVENUE
------------------------ --------------------------------
RESERVE Oil Gas Present Worth
CLASSIFICATION (Barrels) (MCF) Total Discounted @10%
- -------------- --------- --------- ----------- ---------------
<S> <C> <C> <C> <C>
PROVED RESERVES
Developed
Producing 762,920 1,456,944 $ 9,961,714 $ 7,349,523
Behind-Pipe 133,900 1,978,958 3,699,902 2,565,715
Undeveloped 248,051 3,291,514 5,131,400 2,944,125
--------- --------- ----------- -----------
TOTAL PROVED 1,144,871 6,727,416 $18,793,016 $12,859,363
Probable
Reserves 4,950 143,790 $ 304,925 $ 156,521
Possible
Reserves 0 141,315 $ 261,866 100,473
--------- --------- ----------- -----------
TOTAL
ALL RESERVES 1,149,821 7,012,521 $19,359,807 $13,116,357
Stoney Point
Gas Plant 0 0 402,935 318,741
--------- --------- ----------- -----------
GRAND TOTAL 1,149,821 7,012,521 $19,762,742 $13,435,098
</TABLE>
Note: Totals may not agree due to computer roundoff.
<PAGE> 273
APPENDIX VI
APPRAISAL RIGHTS UNDER
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
SEC.262 (a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec.228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fraction shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
VI-1
<PAGE> 274
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation of the Registrant includes the following
provisions:
Any person who was or is a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was an officer, director, employee or agent of
the corporation (for the purposes of this Article, references to "the
corporation" includes all constituent corporations absorbed in a consolidation
or merger as well as the resulting or surviving corporation, pursuant to Section
145 (h) of Title 8 of the Delaware Code), or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership or other business entity, is hereby indemnified against
expenses (including attorney's fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred or to be incurred by him in
connection with such actions or proceedings, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interest of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit, by or in the right of the
corporation to procure judgment in its favor by reason of the fact that he is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership or business entity, is hereby
indemnified against expenses (including attorney's fees), actually and
reasonably incurred or to be incurred by him in connection with the defense or
settlement of such action or suit, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duties to the
corporation.
No director shall be personally liable to the corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law (i) for breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation, law or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article 10 shall
apply to or have any effect on the liability of alleged liability of any
director of the corporation for or with respect to any acts of omissions of such
director occurring prior to such amendment.
The determination that the person has met the standards set forth above
shall be made (1) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
The indemnification provided by this section shall not be deemed exclusive
of any other rights to which those seeking indemnification may be entitled
including without limiting the generality of the foregoing, any insurance
purchased by the corporation. The indemnification provided by this section shall
inure to the benefit of the heirs, executors and administrators of such persons.
II-1
<PAGE> 275
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
<S> <C> <C>
*2.1 -- Agreement and Plan of Merger among Patrick Petroleum Company,
Patrick Acquisition Corp. and American National Petroleum Company
dated as of March 25, 1993, as amended. (The exhibits to this
Agreement are not included. A list describing such exhibits is
contained on pages vi and vii of the Agreement. Patrick will
provide a copy of any omitted exhibit to the Commission
supplementally upon request.) (Incorporated by reference to Form
S-4, reg. #33-61480).
*2.2 -- Agreement and Plan of Merger among Patrick Petroleum Company,
La/Cal Energy Partners, Goodrich Petroleum Corporation, and
Goodrich Acquisition Corporation, Inc. dated as of March 10, 1995
(Incorporated by reference to Exhibit 2.2 to Patrick's Annual
Report on Form 10-K for the year ended December 31, 1994).
*3.1 -- Form of Restated Certificate of Incorporation of the Company.
*3.2 -- Form of Amended and Restated By-Laws of the Company.
5.1 -- Opinion of Emens, Kegler, Brown, Hill & Ritter Co., L.P.A.
regarding the legality of the securities.
8.1 -- Opinion of KPMG Peat Marwick LLP regarding tax matters.
*8.2 -- Opinion of Deloitte & Touche LLP regarding tax matters.
10.1 -- Patrick Petroleum Company Profit Sharing Plan and Trust dated
December 27, 1984. (Incorporated by reference to Exhibit 10.3 to
Patrick's Annual Report on Form 10-K for the year ended December
31, 1984).
10.2 -- First amendment dated December 17, 1987 to the Patrick Petroleum
Company Profit Sharing and Trust dated December 27, 1984.
(Incorporated by reference to Exhibit 10.3A to Patrick's Annual
Report on Form 10-K for the year ended December 31, 1994).
10.3 -- Patrick Petroleum Corporation of Michigan Retirement Plan and
Trust, Restated 1984. (Incorporated by reference to Exhibit 10.4
to Patrick's Annual Report on Form 10-K for the year ended
December 31, 1984).
10.4 -- Amendments number one, two and three to the Patrick Petroleum
Corporation of Michigan Retirement Plan and Trust, Restated 1984.
(Incorporated by reference to Exhibit 10.4a to Patrick's Annual
Report on Form 10-K for the year ended December 31, 1990).
10.5 -- Patrick Petroleum Corporation of Michigan 1984 Incentive
Compensation Plan. (Incorporated by reference to Exhibit 10.5 to
Patrick's Annual Report on Form 10-K for the year ended December
31, 1984).
10.6 -- Executive Employment Agreement for U. E. Patrick with Patrick
dated November 1, 1993. (Incorporated by reference to Exhibit
10.18 to Patrick's Annual Report on Form 10-K for the year ended
December 31, 1993.)
10.7 -- Credit Agreement between Patrick Petroleum Corporation of
Michigan and First Union National Bank of North Carolina dated
March 16, 1995, with Exhibits (Incorporated by reference to
Exhibit 10.21 of Patrick's Annual Report on Form 10-K for the
year ended December 31, 1994).
10.8 -- Patrick Petroleum Corporation of Michigan 1990 Bonus Pool Plan
executed August 7, 1990. (Incorporated by reference to Exhibit
10.21 to Patrick's Annual Report on Form 10-K for the year ended
December 31, 1990).
10.9 -- Amendment dated August 7, 1992 to the Note and Warrant Purchase
Agreement dated May 10, 1990 (incorporated by reference to
Exhibit 10.22 to Patrick's Registration Statement on Form S-2
Registration No. 33-50756).
</TABLE>
II-2
<PAGE> 276
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
<S> <C> <C>
10.10 -- Asset Purchase Agreement by and between Patrick Petroleum
Corporation of Michigan and American National Petroleum, Inc. as
Seller, and Unit Petroleum Company, as Purchaser, effective May
1, 1994 (Incorporated by reference to Exhibit 10.25 of Patrick's
Annual Report on Form 10-K for the year ended December 31, 1994).
10.11 -- Patrick's 1993 Stock Option Plan (Incorporated by reference to
Patrick's Registration Statement on Form S-8 Registration No.
33-72342).
10.12 -- Patrick's Directors Stock Option Plan (Incorporated by reference
to Patrick's Registration Statement on Form S-8 Registration No.
33-72342).
10.13 -- Stock Purchase and Put Option Agreement dated as of March 30,
1994 between Patrick and Penske Corporation. (Incorporated by
reference to Exhibit 10.29 to Patrick's Annual Report on Form
10-K for the year ended December 31, 1993).
10.14 -- Closing Agreement and Instructions to Agent entered into as of
April 12, 1994 between Patrick and Noteholders. (Incorporated by
reference to Exhibit 10.29b to Patrick's Annual Report on Form
10-K for the year ended December 31, 1994).
10.15 -- Voting Agreement dated as of March 30, 1994 between Patrick and
Penske. (Incorporated by reference to Exhibit 10.29c to Patrick's
Annual Report on Form 10-K for the year ended December 31, 1993.)
10.16 -- Letter dated March 31, 1994 between Patrick and Penske regarding
letter of credit. (Incorporated by reference to Exhibit 10.29d to
Patrick's Annual Report on Form 10-K for the year ended December
31, 1993.)
10.17 -- Agreement dated March 31, 1994 between Patrick and certain
employees. (Incorporated by reference to Exhibit 10.30 to
Patrick's Annual Report on Form 10-K for the year ended December
31, 1993.)
10.18 -- Form of Joint Participation Agreement between the Company and
Goodrich Oil Company.
10.19 -- Form of Marketing Agreement between the Company and Natural Gas
Ventures, L.L.C.
10.20 -- Natural Gas Marketing Joint Venture Agreement between Seaber
Corporation and Natural Gas Ventures, L.L.C.
10.21 -- Goodrich Petroleum Corporation 1995 Stock Option Plan.
10.22 -- Goodrich Petroleum Corporation 1995 Nonemployee Director Stock
Option Plan.
10.23 -- Form of Consulting Services Agreement between the Company and
Henry Goodrich.
10.24 -- Form of Employment Agreement between the Company and Walter G.
Goodrich.
*10.25 -- Consulting Agreement with U.E. Patrick (Included as exhibit
6.01(m)(i) of Exhibit 2.2).
10.26 -- Form of Assignment of Certain Back in and Carried Working
Interests from Walter G. Goodrich to the Company.
10.27 -- Form of Assignment of Certain Back in and Carried Working
Interests from Henry Goodrich to the Company.
10.28 -- Form of Assignment of Certain Back in and Carried Working
Interests from Roland Frautschi.
</TABLE>
II-3
<PAGE> 277
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
<S> <C> <C>
</TABLE>
<TABLE>
<S> <C> <C>
10.29 -- Form of Assignment of Certain Back in and Carried Working
Interests from Michael Watts.
21.1 -- Upon completion of the Merger, the Company will own Patrick as a
wholly owned subsidiary, which owns the following subsidiaries:
1. Patrick Petroleum Corporation of Michigan (a Michigan
corporation), a wholly-owned subsidiary of Patrick.
2. American National Petroleum Company, (a Nevada corporation), a
wholly-owned subsidiary of Patrick, has the following
wholly-owned subsidiaries:
a. Drilling & Workover Company, Inc. (Louisiana corporation)
b. Lece, Inc. (Texas corporation)
c. National Marketing Company (Delaware corporation)
d. Pecos Pipeline & Producing Company (Texas corporation)
23.1 -- Consent of Emens, Kegler, Brown, Hill & Ritter Co., L.P.A. (Set
forth in Exhibit 5.1).
*23.2 -- Consent of KPMG Peat Marwick LLP (set forth in Exhibit 8.1).
*23.3 -- Consent of Deloitte & Touche LLP (set forth in Exhibit 8.2).
23.4 -- Consent of KPMG Peat Marwick LLP.
23.5 -- Consent of Deloitte & Touche LLP.
*23.6 -- Consent of H. J. Gruy and Associates, Inc.
*23.7 -- Consent of Coutret & Associates, Inc.
*23.8 -- Consent of Lee Keeling & Associates.
*23.9 -- Consent of Huddleston & Co., Inc.
*23.10 -- Consent of Sheldon Appel.
*23.11 -- Consent of Henry Goodrich.
*23.12 -- Consent of Jeff H. Benhard.
*23.13 -- Consent of Robert C. Turnham.
*23.14 -- Consent of Basil M. Briggs.
*23.15 -- Consent of Benjamin F. Edwards, II.
*23.16 -- Consent of Wayne G. Kees.
*23.17 -- Consent of James R. Jenkins.
*23.18 -- Consent of John C. Napley.
*23.19 -- Consent of Petrie Parkman.
23.20 -- Consent of Michael Watts.
27.1 -- Financial Data Schedule -- Patrick.
27.2 -- Financial Data Schedule -- La/Cal.
99.1 -- Form of Patrick Proxy.
99.2 -- Form of La/Cal Proxy.
99.3 -- Reports of KPMG Peat Marwick LLP
99.4 -- Report of Deloitte & Touche LLP
</TABLE>
- ------------
* Previously filed.
II-4
<PAGE> 278
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered the Registrant will, unless the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE> 279
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS,
ON MAY 30, 1995.
GOODRICH PETROLEUM CORPORATION
By: /s/ WALTER G. GOODRICH
Walter G. Goodrich, President
and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------- ---------------------------------- ---------------------
<C> <S> <C>
/s/ WALTER G. GOODRICH President and Chief Executive May 30, 1995
Walter G. Goodrich Officer
and Director (Principal
Executive Officer)
/s/ ROLAND FRAUTSCHI Vice President and Chief Financial May 30, 1995
Roland Frautschi Officer (Principal Accounting
Officer)
/s/ U. E. PATRICK Chairman of the Board May 30, 1995
U. E. Patrick (Director)
</TABLE>
II-6
<PAGE> 280
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
COLUMN C
COLUMN B ---------- COLUMN D
---------- ADDITIONS ------------ COLUMN E
COLUMN A BALANCE AT CHARGED TO ADDITIONS -------------
- ------------------------------------------ BEGINNING COSTS AND (DEDUCTIONS) BALANCE AT
DESCRIPTION OF PERIOD EXPENSES DESCRIBE END OF PERIOD
- ------------------------------------------ ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1994
Accounts receivable..................... $ 331,000 $ (157,000)(1) $ 174,000
======== =========
Year ended December 31, 1993
Accounts receivable..................... $ 65,000 $ 266,000(2) $ 331,000
======== =========
Year ended December 31, 1992
Accounts receivable..................... $ 65,000 $ 65,000
======== =========
</TABLE>
- ---------------
(1) Accounts receivable written off against valuation allowance.
(2) Allowance associated with the accounts receivable acquired in the ANPC
acquisition.
S-1
<PAGE> 281
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
<S> <C> <C>
*2.1 -- Agreement and Plan of Merger among Patrick Petroleum Company,
Patrick Acquisition Corp. and American National Petroleum Company
dated as of March 25, 1993, as amended. (The exhibits to this
Agreement are not included. A list describing such exhibits is
contained on pages vi and vii of the Agreement. Patrick will
provide a copy of any omitted exhibit to the Commission
supplementally upon request.) (Incorporated by reference to Form
S-4, reg. #33-61480).
*2.2 -- Agreement and Plan of Merger among Patrick Petroleum Company,
La/Cal Energy Partners, Goodrich Petroleum Corporation, and
Goodrich Acquisition Corporation, Inc. dated as of March 10, 1995
(Incorporated by reference to Exhibit 2.2 to Patrick's Annual
Report on Form 10-K for the year ended December 31, 1994).
*3.1 -- Form of Restated Certificate of Incorporation of the Company.
*3.2 -- Form of Amended and Restated By-Laws of the Company.
5.1 -- Opinion of Emens, Kegler, Brown, Hill & Ritter Co., L.P.A.
regarding the legality of the securities.
8.1 -- Opinion of KPMG Peat Marwick LLP regarding tax matters.
*8.2 -- Opinion of Deloitte & Touche LLP regarding tax matters.
10.1 -- Patrick Petroleum Company Profit Sharing Plan and Trust dated
December 27, 1984. (Incorporated by reference to Exhibit 10.3 to
Patrick's Annual Report on Form 10-K for the year ended December
31, 1984).
10.2 -- First amendment dated December 17, 1987 to the Patrick Petroleum
Company Profit Sharing and Trust dated December 27, 1984.
(Incorporated by reference to Exhibit 10.3A to Patrick's Annual
Report on Form 10-K for the year ended December 31, 1994).
10.3 -- Patrick Petroleum Corporation of Michigan Retirement Plan and
Trust, Restated 1984. (Incorporated by reference to Exhibit 10.4
to Patrick's Annual Report on Form 10-K for the year ended
December 31, 1984).
10.4 -- Amendments number one, two and three to the Patrick Petroleum
Corporation of Michigan Retirement Plan and Trust, Restated 1984.
(Incorporated by reference to Exhibit 10.4a to Patrick's Annual
Report on Form 10-K for the year ended December 31, 1990).
10.5 -- Patrick Petroleum Corporation of Michigan 1984 Incentive
Compensation Plan. (Incorporated by reference to Exhibit 10.5 to
Patrick's Annual Report on Form 10-K for the year ended December
31, 1984).
10.6 -- Executive Employment Agreement for U. E. Patrick with Patrick
dated November 1, 1993. (Incorporated by reference to Exhibit
10.18 to Patrick's Annual Report on Form 10-K for the year ended
December 31, 1993.)
10.7 -- Credit Agreement between Patrick Petroleum Corporation of
Michigan and First Union National Bank of North Carolina dated
March 16, 1995, with Exhibits (Incorporated by reference to
Exhibit 10.21 of Patrick's Annual Report on Form 10-K for the
year ended December 31, 1994).
10.8 -- Patrick Petroleum Corporation of Michigan 1990 Bonus Pool Plan
executed August 7, 1990. (Incorporated by reference to Exhibit
10.21 to Patrick's Annual Report on Form 10-K for the year ended
December 31, 1990).
10.9 -- Amendment dated August 7, 1992 to the Note and Warrant Purchase
Agreement dated May 10, 1990 (incorporated by reference to
Exhibit 10.22 to Patrick's Registration Statement on Form S-2
Registration No. 33-50756).
</TABLE>
<PAGE> 282
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
<S> <C> <C>
10.10 -- Asset Purchase Agreement by and between Patrick Petroleum
Corporation of Michigan and American National Petroleum, Inc. as
Seller, and Unit Petroleum Company, as Purchaser, effective May
1, 1994 (Incorporated by reference to Exhibit 10.25 of Patrick's
Annual Report on Form 10-K for the year ended December 31, 1994).
10.11 -- Patrick's 1993 Stock Option Plan (Incorporated by reference to
Patrick's Registration Statement on Form S-8 Registration No.
33-72342).
10.12 -- Patrick's Directors Stock Option Plan (Incorporated by reference
to Patrick's Registration Statement on Form S-8 Registration No.
33-72342).
10.13 -- Stock Purchase and Put Option Agreement dated as of March 30,
1994 between Patrick and Penske Corporation. (Incorporated by
reference to Exhibit 10.29 to Patrick's Annual Report on Form
10-K for the year ended December 31, 1993).
10.14 -- Closing Agreement and Instructions to Agent entered into as of
April 12, 1994 between Patrick and Noteholders. (Incorporated by
reference to Exhibit 10.29b to Patrick's Annual Report on Form
10-K for the year ended December 31, 1994).
10.15 -- Voting Agreement dated as of March 30, 1994 between Patrick and
Penske. (Incorporated by reference to Exhibit 10.29c to Patrick's
Annual Report on Form 10-K for the year ended December 31, 1993.)
10.16 -- Letter dated March 31, 1994 between Patrick and Penske regarding
letter of credit. (Incorporated by reference to Exhibit 10.29d to
Patrick's Annual Report on Form 10-K for the year ended December
31, 1993.)
10.17 -- Agreement dated March 31, 1994 between Patrick and certain
employees. (Incorporated by reference to Exhibit 10.30 to
Patrick's Annual Report on Form 10-K for the year ended December
31, 1993.)
10.18 -- Form of Joint Participation Agreement between the Company and
Goodrich Oil Company.
10.19 -- Form of Marketing Agreement between the Company and Natural Gas
Ventures, L.L.C.
10.20 -- Natural Gas Marketing Joint Venture Agreement between Seaber
Corporation and Natural Gas Ventures, L.L.C.
10.21 -- Goodrich Petroleum Corporation 1995 Stock Option Plan.
10.22 -- Goodrich Petroleum Corporation 1995 Nonemployee Director Stock
Option Plan.
10.23 -- Form of Consulting Services Agreement between the Company and
Henry Goodrich.
10.24 -- Form of Employment Agreement between the Company and Walter G.
Goodrich.
*10.25 -- Consulting Agreement with U.E. Patrick (Included as exhibit
6.01(m)(i) of Exhibit 2.2).
10.26 -- Form of Assignment of Certain Back in and Carried Working
Interests from Walter G. Goodrich to the Company.
10.27 -- Form of Assignment of Certain Back in and Carried Working
Interests from Henry Goodrich to the Company.
10.28 -- Form of Assignment of Certain Back in and Carried Working
Interests from Roland Frautschi.
</TABLE>
<PAGE> 283
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
<S> <C> <C>
</TABLE>
<TABLE>
<S> <C> <C>
10.29 -- Form of Assignment of Certain Back in and Carried Working
Interests from Michael Watts.
21.1 -- Upon completion of the Merger, the Company will own Patrick as a
wholly owned subsidiary, which owns the following subsidiaries:
1. Patrick Petroleum Corporation of Michigan (a Michigan
corporation), a wholly-owned subsidiary of Patrick.
2. American National Petroleum Company, (a Nevada corporation), a
wholly-owned subsidiary of Patrick, has the following
wholly-owned subsidiaries:
a. Drilling & Workover Company, Inc. (Louisiana corporation)
b. Lece, Inc. (Texas corporation)
c. National Marketing Company (Delaware corporation)
d. Pecos Pipeline & Producing Company (Texas corporation)
23.1 -- Consent of Emens, Kegler, Brown, Hill & Ritter Co., L.P.A. (Set
forth in Exhibit 5.1).
*23.2 -- Consent of KPMG Peat Marwick LLP (set forth in Exhibit 8.1).
*23.3 -- Consent of Deloitte & Touche LLP (set forth in Exhibit 8.2).
23.4 -- Consent of KPMG Peat Marwick LLP.
23.5 -- Consent of Deloitte & Touche LLP.
*23.6 -- Consent of H. J. Gruy and Associates, Inc.
*23.7 -- Consent of Coutret & Associates, Inc.
*23.8 -- Consent of Lee Keeling & Associates.
*23.9 -- Consent of Huddleston & Co., Inc.
*23.10 -- Consent of Sheldon Appel.
*23.11 -- Consent of Henry Goodrich.
*23.12 -- Consent of Jeff H. Benhard.
*23.13 -- Consent of Robert C. Turnham.
*23.14 -- Consent of Basil M. Briggs.
*23.15 -- Consent of Benjamin F. Edwards, II.
*23.16 -- Consent of Wayne G. Kees.
*23.17 -- Consent of James R. Jenkins.
*23.18 -- Consent of John C. Napley.
*23.19 -- Consent of Petrie Parkman.
23.20 -- Consent of Michael Watts.
27.1 -- Financial Data Schedule -- Patrick.
27.2 -- Financial Data Schedule -- La/Cal.
99.1 -- Form of Patrick Proxy.
99.2 -- Form of La/Cal Proxy.
99.3 -- Reports of KPMG Peat Marwick LLP
99.4 -- Report of Deloitte & Touche LLP
</TABLE>
- ------------
* Previously filed.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
GOODRICH PETROLEUM CORPORATION
I. The name of the corporation is GOODRICH PETROLEUM CORPORATION.
II. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware,
County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
III. The purpose or purposes for which the corporation is formed are to
engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
IV. The total number of shares of all classes of stock which the
corporation shall have authority to issue is one hundred ten million
(110,000,000), consisting of one hundred million (100,000,000) shares
of Common Stock, par value $0.20 per share, and ten million
(10,000,000) shares of Preferred Stock, par value $1.00 per share.
The Board of Directors shall have the authority to establish by
resolution, without stockholder approval or action, one or more series
of Preferred Stock out of the authorized and unissued shares of
Preferred Stock having such number of shares, designations, rights,
preferences and limitations as may be determined by the Board of
Directors in such resolution.
A. Series A Convertible Preferred Stock
1. Designation and Amount
There shall be a series of Preferred Stock designated as Series A
Convertible Preferred Stock ("Series A Preferred Stock") and the number of
shares constituting such series shall be 1,375,000. Such number of shares may
be increased or decreased by resolution of the Board of Directors, provided
that no decrease shall reduce the number of Series A Preferred Stock to a
number less than the number of shares then outstanding or reserved for issuance
in certain events. All shares of Series A Preferred Stock shall rank prior,
both as to payment of dividends and as to distributions of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation to all of the Corporation's now or hereafter issued Common Stock
and any other series of capital stock of the corporation that is not, by its
terms, senior to or pari passu with the Series A Preferred Stock.
-1-
<PAGE> 2
2. Dividends
The holders of the then outstanding Series A Preferred Stock shall be
entitled to receive, when, as, and if declared by the Board of Directors, out
of any funds legally available therefor, dividends at an annual rate of eight
percent (8%) per share of Series A Preferred Stock (appropriately adjusted for
stock splits and combinations), payable in preference and priority to any
payment of any dividend on the Corporation's Common Stock. Dividends shall
accrue without interest and be cumulative from the date of first issuance and
shall be payable in cash, when, as and if declared by the Board of Directors of
the Corporation, quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year, beginning on September 30, 1993 (except that if any
such date is a Saturday, Sunday or legal holiday then such dividend shall be
payable on the next day that is not a Saturday, Sunday or legal holiday) to
holders of record on such record dates as are fixed by the Board of Directors.
Subject to the following paragraph, dividends in arrears for any past dividend
period may be declared and paid at any time. The amount of dividends payable
for any period shorter than a full quarterly dividend period shall be computed
on the basis of a 360-day year.
Dividends and distributions (other than dividends payable solely in
Common Stock or other capital stock ranking junior as to dividend rights to the
Series A Preferred Stock) may not be declared, paid, or set apart for payment
and purchases, redemptions or other acquisitions of shares of Common Stock or
other capital stock ranking junior as to dividend rights may not be made unless
all accrued and unpaid dividends (including the full dividend for the then
current dividend period) on the Series A Preferred Stock have been paid or
declared and set apart for payment.
If at any time any dividend on any capital stock of the Corporation
ranking senior as to dividends to the Series A Preferred Stock shall be in
default, in whole or in part, then no dividend shall be paid or declared and
set apart for payment on the Series A Preferred Stock unless and until all
accrued and unpaid dividends with respect to the senior ranking stock shall
have been paid or declared and set apart for payment. No full dividends shall
be paid or declared and set apart for payment on any class or series of the
Corporation's capital stock ranking, as to dividends, on a parity with the
Series A Preferred Stock for any period unless full cumulative dividends have
been or contemporaneously are, paid or declared and set apart for payment on
the Series A Preferred Stock for all dividend payment periods terminating on or
prior to the date of payment of such full cumulative dividends. No full
dividends shall be paid or declared and set apart for payment on the Series A
Preferred Stock for any period unless full cumulative dividends have been, or
contemporaneously are, paid or declared and set apart for payment on the stock
ranking on parity with the Series A Preferred Stock for all dividend periods
terminating on or prior to the date of payment of such full cumulative
dividends. When dividends are not paid in full, all dividends paid or declared
and set apart for payment upon shares of Series A Preferred Stock and the stock
ranking on parity with the Series A Preferred Stock shall be paid or declared
and set apart for payment pro rata so that the amount of dividends paid or
declared and set aside for payment per share on the Series A Preferred Stock
and the stock ranking on parity shall in all cases bear to each other the same
ratio that accrued and unpaid dividends per share on the shares of Series A
Preferred Stock and the stock ranking on parity bear to each other.
-2-
<PAGE> 3
Any reference to "distribution" contained in this Section II shall not
be deemed to include any distribution made in connection with any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
3. Liquidation Rights
In the event of a voluntary or involuntary liquidation, dissolution,
or winding up of the Corporation, the holders of shares of Series A Preferred
Stock shall be entitled to receive, out of the assets of the Corporation
legally available therefor, a sum equal to $10.00 per share of Series A
Preferred Stock, as appropriately adjusted for stock splits or combinations,
plus dividends, if any, then accrued and unpaid to the distribution date,
before any payment shall be made or any assets distributed to the holders of
Common Stock, or other class or series of capital stock ranking junior to the
Series A Preferred Stock in liquidation rights, provided that such rights shall
accrue to the holders of Series A Preferred Stock only in the event that
payments with respect to the liquidation preferences of the holders of capital
stock of the Corporation ranking senior as to liquidation rights to the Series
A Preferred Stock are fully met. The holders of Series A Preferred Stock and
all classes of stock hereafter issued that rank on a parity as to liquidation
rights with the Series A Preferred Stock are entitled to share ratably, in
accordance with the respective preferential amounts payable on such stock, in
any distribution which is not sufficient to pay in full the aggregate of the
amounts payable thereon.
A consolidation, merger or other business combination of the
Corporation with or into any other corporation or entity or a sale or transfer
of all or substantially all of the assets of the Corporation for cash,
securities or other property shall not be deemed to be a liquidation,
dissolution or winding up for purposes of this Section 3.
4. Voting Rights
The holders of Series A Preferred Stock shall have no voting rights
except as set forth herein or as required by the Delaware General Corporation
Law. In connection with any such vote, each outstanding share of Series A
Preferred Stock shall be entitled to one vote, except that any such shares held
by the Corporation or any entity controlled by the Corporation shall have no
voting rights and shall not be counted in determining the presence of a quorum.
Whenever dividends on the Series A Preferred Stock or any outstanding
shares of stock having parity with the Series A Preferred Stock as to dividends
are in arrears in an amount equal to at least six quarterly dividends, whether
or not consecutive, the number of directors of the Corporation shall be
increased by two, and the holders of the Series A Preferred Stock (voting
separately as a class with the holders of stock having parity with the Series A
Preferred Stock as to dividends on which like voting rights have been conferred
and are exercisable) shall be exclusively entitled to elect such two additional
directors at any meeting of stockholders of the Corporation at which directors
are to be elected held during the period such dividends remain in arrears.
Such voting right will terminate when all such dividends accrued and in default
have been declared and paid in full or set apart for payment. The term of
office of all directors so elected shall terminate immediately upon such
payment or setting apart for payment.
-3-
<PAGE> 4
The foregoing right of the holders of the Series A Preferred Stock
with respect to the election of two directors may be exercised at any annual
meeting of stockholders or at any special meeting of stockholders held for such
purpose. If the right to elect directors shall have accrued to the holders of
the Series A Preferred Stock more than 90 days preceding the date established
for the next annual meeting of stockholders, the president of the Corporation
shall, within 20 days after the delivery to the Corporation at its principal
office of a written request for a special meeting signed by the holders of at
least ten percent (10%) of the Series A Preferred Stock then outstanding, call
a special meeting of the holders of the Series A Preferred Stock to be held
within 60 days after the delivery of such request for the purpose of electing
such additional directors.
Any vacancy in the Board of Directors occurring because of the death,
resignation or removal of a director elected by the holders of Series A
Preferred Stock (and any class of stock having parity) voting as a separate
class shall be filled by the vote of the holders of the Series A Preferred
Stock (and any class of stock having parity) or, in the absence of action by
such holders, by action of the remaining director elected by the holders of
such stock.
So long as any Series A Preferred Stock is outstanding, the
Corporation shall not, without the affirmative vote of the holders of at least
66 2/3 percent of all outstanding shares of Series A Preferred Stock, voting
separately as a class, whether or not a vote of the stockholders would
otherwise be required by law, (i) amend, alter or repeal (by merger or
otherwise) any provision of the Certificate of Incorporation or the Bylaws of
the Corporation so as to affect adversely the relative rights, preferences,
qualifications, limitations or restrictions of the Series A Preferred Stock,
(ii) authorize or issue, or increase the authorized amount of, any additional
class or series of stock of the Corporation, or any security convertible into
stock of such class or series, having rights senior to the Series A Preferred
Stock as to dividends or liquidation, or (iii) effect any reclassification of
the Series A Preferred Stock.
So long as any Series A Preferred Stock is outstanding, the
Corporation shall not, without the affirmative vote of the holders of at least
50 percent of all outstanding shares of Series A Preferred Stock, voting
separately as a class, whether or not a vote of the stockholders would
otherwise be required by law, (i) authorize or issue, or increase the
authorized amount of, any additional class or series of stock of the
Corporation, or any security convertible into stock of such class or series,
having rights pari passu with the Series A Preferred Stock as to dividends or
liquidation and any right to vote, whether as a separate class or otherwise, on
any matter (other than a matter that can have no effect on the rights of the
Series A Preferred Stock) as to which the Series A Preferred Stock is not
entitled to vote, or (ii) incur indebtedness for money borrowed or authorize or
issue, or increase the authorized amount of, any additional class or series of
stock of the Corporation, or any security convertible into stock of such class
or series, having rights pari passu with the Series A Preferred Stock as to
dividends or liquidation if, immediately following such event, Adjusted
Stockholders' Equity, as defined below, shall be less than the aggregate
liquidation preferences of the Series A Preferred Stock and all classes and
series of stock of the Corporation ranking senior to or pari passu with the
Series A Preferred Stock as to liquidation preference. For the purpose of the
foregoing sentence, Adjusted Stockholders' Equity shall mean the Stockholders'
Equity of the Corporation, as shown on its most recent balance sheet filed with
the Securities and Exchange Commission pursuant to the
-4-
<PAGE> 5
Securities Exchange Act of 1934, as amended, (the "Exchange Act") increased by
(A) any amount of any liability or other reduction in Stockholders' Equity
attributable to the Series A Preferred Stock and any class or series of stock
of the Corporation ranking senior to or pari passu with the Series A Preferred
Stock as to liquidation preference and (B) the net proceeds of any equity
financing of the Corporation since the date of such balance sheet, and reduced
by the amount of any reduction in Stockholders' Equity resulting from a
disposition of assets since the date of such balance sheet which disposition of
assets is required to be described on Form 8-K under the Exchange Act.
5. Redemption
The Corporation may, at its option, redeem all or part of the shares
of the Series A Preferred Stock then outstanding on any date set by the Board
of Directors at any time after September 14, 1994. The redemption price, to be
paid in cash, for each share of Series A Preferred Stock shall be $12.00 plus
any accrued and unpaid dividends, whether or not declared.
At least 30 but not more than 60 days prior to the date fixed for
redemption of any of the Series A Preferred Stock ("Redemption Date"), written
notice shall be mailed, first class postage prepaid, to each holder of record
of the Series A Preferred Stock to be redeemed at the close of business on the
business day next preceding the day on which notice is given (the "Redemption
Record Date") at the address last shown on the records of the Corporation for
such holder or given by the holder to the Corporation for the purpose of
notice, notifying such holder of the redemption to be effected and specifying
the Redemption Date; the redemption price; the place or places at which payment
may be obtained; the method used in determining what shares are to be redeemed
in the event that less than all shares are to be redeemed; that the payment
will be made upon presentation and surrender of the shares to be redeemed; that
on and after the Redemption Date, dividends will cease to accrue on such
shares; the then effective conversion rate of the shares to be redeemed; the
date on which such holder's conversion rights as to such shares terminate and
calling upon such holder to surrender to the Corporation, in the manner and at
the place designated, his certificate or certificates representing the shares
to be redeemed (the "Redemption Notice").
Any notice that is mailed as herein provided shall be conclusively
presumed to have been duly given, whether or not the holder receives such
notice; and failure to give such notice by mail, or any defect in such notice,
to the holders of any shares designated for redemption shall not affect the
validity of the proceedings for the redemption of any other shares of Series A
Preferred Stock. On or after the date fixed for redemption as stated in such
notice, each holder of the shares called for redemption shall surrender the
certificate evidencing such shares to the Corporation at the place designated
in such notice and shall thereupon be entitled to receive payment of the
redemption price. If less than all the shares represented by any such
surrendered certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
From and after the Redemption Date, unless there shall have been a
default in payment of the redemption price, all rights of the holders of the
Series A Preferred Stock so redeemed (except the right to receive the
redemption price without interest upon surrender of their certificate or
certificates) shall terminate with respect to such shares, and such shares
shall not
-5-
<PAGE> 6
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever. The shares of Series A Preferred Stock
not redeemed, if any, shall remain outstanding and entitled to all the rights
and preferences provided herein.
Three days prior to the Redemption Date, the Corporation shall deposit
the redemption price of all Series A Preferred Stock to be redeemed with a bank
or trust company in the United States of America having aggregate capital and
surplus in excess of $50,000,000 as a trust fund for the benefit of the holders
of the shares designated for redemption. Simultaneously, the Corporation shall
deposit irrevocable instruction and authority to such bank or trust company to
pay, on and after the Redemption Date, the redemption price of the Series A
Preferred Stock to the holders thereof upon surrender of their certificates.
Any monies deposited by the Corporation for the redemption of shares that are
thereafter converted into shares of Common Stock (and Warrants prior to
September 15, 1997) no later than the close of business on the day preceding
the Redemption Date shall be returned to the Corporation forthwith upon such
conversion. The balance of any monies deposited by the Corporation remaining
unclaimed at the expiration of one year following the Redemption Date shall
thereafter be returned to the Corporation, provided that the stockholder to
which such monies would be payable hereunder shall be entitled, upon proof of
ownership of the Series A Preferred Stock and payment of any bond requested by
the Corporation, to receive such monies but without interest from the
Redemption Date.
If fewer than all of the outstanding shares of Series A Preferred
Stock are to be redeemed, the Corporation shall designate those shares to be
redeemed pro rata or by lot or in such other manner as the Board of Directors
may determine. There shall be no mandatory redemption, retirement or sinking
fund obligation of the Corporation with respect to the Series A Preferred
Stock. In the event that the Corporation is in arrears on the payment of
accrued and unpaid dividends on the Series A Preferred Stock, it shall not
redeem any of the then outstanding shares of the Series A Preferred Stock until
all such accrued dividends and (except with respect to shares to be redeemed)
the then current quarterly dividend have been paid in full.
6. Conversion
(A) Automatic Conversion. If at any time, the
closing price for the Series A Preferred Stock, as quoted on Nasdaq or any
national securities exchange, shall exceed 150% of the then liquidation
preference per share of Series A Preferred Stock for ten consecutive trading
days, then, effective as of the close of trading on the tenth such trading day,
all of the then outstanding shares of Series A Preferred Stock shall be
automatically converted into Common Stock and a Warrant, as provided in Section
6 (C), below, at the then effective conversion rate.
(B) Optional Conversion. Each share of Series A
Preferred Stock shall be convertible at the option of the holder thereof at any
time prior to maturity and prior to the close of business on the business day
prior to the Redemption Date relating to such share, if any, into Common Stock
and a Warrant, as provided in Section 6 (C), below.
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<PAGE> 7
(C) Effect of Conversion. Upon the occurrence of
a conversion as provided in Sections 6 (A) or (B), above, the holder of shares
of converted Series A Preferred Stock shall be entitled to receive (i) a number
of shares of Common Stock determined by multiplying the number of shares of
Series A Preferred Stock to be converted by the Conversion Rate (as defined
below) and (ii) if such conversion occurs prior to September 15, 1997, one
Warrant to purchase one share of Common Stock. The Conversion Rate shall be
applied by multiplying one by a fraction, the numerator of which is the sum of
the then liquidation preference of a share of Series A Preferred Stock and all
fully accrued and unpaid dividends as of the end of the most recent dividend
period relating to such share of Series A Preferred Stock, and the denominator
of which (the "Conversion Price") is initially $3.00 and is subject to
adjustment as provided in Section 6 (E), below. From and after any conversion
of Series A Preferred Stock, all rights of the holders of converted Series A
Preferred Stock shall cease, except the right to receive Common Stock and
Warrants as provided in this Section 6 (C). For the purpose of this Section 6,
the term "Common Stock" shall initially mean the class designated as Common
Stock, par value $.20 per share, of the Corporation as of September 14, 1992,
subject to adjustment as hereinafter provided and the term "Warrant" shall mean
the Warrants issued pursuant to the Warrant Agency Agreement as provided in
Section 6 (K), below.
(D) Conversion Procedures. Any holder of shares
of Series A Preferred Stock desiring to convert such shares shall surrender the
certificate or certificates for such shares of Series A Preferred Stock at the
office of the transfer agent for the Series A Preferred Stock, which
certificate or certificates, if the Corporation shall so require, shall be duly
endorsed to the Corporation or in blank, or accompanied by proper instruments
of transfer to the Corporation or in blank, accompanied by irrevocable written
notice to the Corporation that the holder elects so to convert such shares of
Series A Preferred Stock and specifying the name or names (with address) in
which a certificate or certificates for Common Stock and Warrants are to be
issued.
Upon automatic conversion of Series A Preferred Stock as provided in
Section 6 (A), above, certificates that, until such conversion, represented
Series A Preferred Stock ("Former Series A Certificates") shall thereafter
represent solely the right to receive the securities and/or other property to
which the holders of such certificates became entitled upon such conversion.
However, such holders shall not be entitled to certificates representing any
such securities or to receive any such other property except upon surrender of
such Former Series A Certificates at the office of the transfer agent for the
Series A Preferred Stock or such successor transfer agent as the Corporation
shall reasonably appoint for that purpose and give notice to the holders of
Former Series A Certificates of such appointment.
No adjustments in respect of dividends on the Common Stock issued upon
conversion shall be made upon the conversion of any shares of Series A
Preferred Stock.
The Corporation will, as soon as practicable after receipt of
certificates for Series A Preferred Stock accompanied by any required written
notice and compliance with any other conditions herein contained, deliver at
such office of such transfer agent to the person for whose account such shares
of Series A Preferred Stock were so surrendered, or to his nominee or nominees,
certificates for the number of full shares of Common Stock and Warrants to
which he shall be entitled as aforesaid together with a cash adjustment for any
fraction of a share as
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hereinafter provided. Subject to the following provisions of this paragraph,
such conversion shall be deemed to have been made as of the date of such
surrender of the shares of Series A Preferred Stock to be converted, and the
person or persons entitled to receive the Common Stock and Warrants deliverable
upon conversion of such Series A Preferred Stock shall be treated for all
purposes as the record holder or holders of such Common Stock and Warrants on
such date; provided, however, that the Corporation shall not be required to
convert any shares of Series A Preferred Stock while the stock transfer books
of the Corporation are closed for any purpose, but the surrender of Series A
Preferred Stock for conversion during any period while such books are so closed
shall become effective for conversion immediately upon the reopening of such
books as if the surrender had been made on the date of such reopening, and the
conversion shall be at the conversion rate in effect on such date.
(E) Adjustment of Conversion Price. The
definition of the term "Common Stock" for purposes of this Section 6 and the
Conversion Price shall be subject to adjustment from time to time as follows:
(i) In case the Corporation shall (1)
pay a dividend or make a distribution on its Common Stock that is paid
or made (A) in other shares of stock of the Corporation or (B) in
rights to purchase stock or other securities (other than an event
described in this Section 6 (E)), (2) subdivide its outstanding shares
of Common Stock into a greater number of shares or (3) combine its
outstanding shares of Common Stock into a smaller number of shares,
then in each such case the Conversion Price in effect immediately
prior thereto shall be adjusted retroactively and the definition of
"Common Stock" shall be changed so that the holder of any shares of
Series A Preferred Stock thereafter surrendered for conversion shall
be entitled to receive the number of shares of Common Stock of the
Corporation and other shares and rights to purchase stock or other
securities (or, in the event of the redemption of any such shares or
rights, any cash, property or securities paid in respect of such
redemption) which such holder would have owned or have been entitled
to receive after the happening of any of the events described above
had such shares of Series A Preferred Stock been converted immediately
prior to the happening of such event. An adjustment made pursuant to
this Section 6 (E)(i) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become
effective immediately after the effective date in the case of a
subdivision or combination.
(ii) In case the Corporation shall issue
rights or warrants to all holders of its Common Stock entitling them
(for a period expiring within 45 days after the dated fixed for
determination mentioned below) to subscribe for or purchase shares of
Common Stock at a price per share less than the current market price
per share (determined as provided below) of the Common Stock on the
date fixed for the determination of stockholders entitled to receive
such rights or warrants, then the Conversion Price in effect at the
opening of business on the day following the date fixed for such
determination shall be increased by multiplying such Conversion Price
by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed
for such determination plus the number of shares of Common Stock so
offered for subscription or purchase and the
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<PAGE> 9
denominator shall be the number of shares of Common Stock outstanding
at the close of business on the date fixed for such determination plus
the number of shares of Common Stock that the aggregate of the
offering price of the total number of shares of Common Stock so
offered for subscription or purchase would purchase at such current
market price, such increase to become effective immediately after the
opening of business on the day following the date fixed for such
determination; provided, however, that in the event that all the
shares of Common Stock offered for subscription or purchase are not
delivered upon the exercise of such rights or warrants, upon the
expiration of such rights or warrants the Conversion Price shall be
readjusted to the Conversion Price that would have been in effect had
the numerator and the denominator of the foregoing fraction and the
resulting adjustment been made based upon the number of shares of
Common Stock actually delivered upon the exercise of such rights or
warrants, rather than upon the number of shares of Common Stock
offered for subscription or purchase. For the purposes of this
subparagraph (ii), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the
Corporation.
(iii) In case the Corporation shall, by
dividend or otherwise, distribute to all holders of its Common Stock
evidences of its indebtedness, cash (excluding ordinary cash dividends
paid out of retained earnings of the Corporation), other assets or
rights or warrants to subscribe for or purchase any security
(excluding those referred to in subparagraphs (i) and (ii) above),
then in each such case the Conversion Price shall be adjusted
retroactively so that the same shall equal the amount determined by
multiplying the Conversion Price in effect immediately prior to the
close of business on the date fixed for the determination of
stockholders entitled to receive such distribution by a fraction of
which the numerator shall be the current market price per share
(determined as provided below) of the Common Stock on the date fixed
for such determination and the denominator shall be such current
market price per share of the Common Stock less the amount of cash and
the then fair market value (as determined by the Board of Directors,
whose determination shall be conclusive and described in a resolution
of the Board of Directors) of the portion of the assets, rights or
evidences of indebtedness so distributed applicable to one share of
Common Stock, such adjustment to become effective immediately prior to
the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such distribution.
(iv) For the purpose of any computation
under subparagraphs (ii) and (iii), the current market price per share
of Common Stock on any date shall be deemed to be the average of the
daily closing prices for the 20 consecutive trading days commencing
with the 30th trading day before the day in question. The closing
price for each day shall be the reported last sales price regular way
or, in case no such reported sale takes place on such day, the average
of the reported closing bid and asked prices regular way, in either
case on the New York Stock Exchange or, if the Common Stock is not
listed or admitted to trading on such Exchange, on the principal
national securities exchange on which the Common Stock is listed or
admitted to trading (based on the aggregate dollar value of all
securities listed or admitted to trading) or, if not listed or
admitted to trading on any national securities exchange, on NASDAQ or,
if the Common Stock is not listed or admitted to trading on any
national securities exchange or quoted
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<PAGE> 10
on NASDAQ, the average of the closing bid and asked prices in the
over-the-counter market as furnished by any New York Stock Exchange
member firm selected from time to time by the Corporation for that
purpose, or, if such prices are not available, the fair market value
set by, or in a manner established by, the Board of Directors of the
Corporation in good faith. "Trading day" shall mean a day on which
the national securities exchange or NASDAQ used to determine the
closing price is open for the transaction of business or the reporting
of trades or, if the closing price is not so determined, a day on
which the New York Stock Exchange is open for the transaction of
business.
(v) No adjustment in the Conversion
Price shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in such price;
provided, however, that the Corporation may make any such adjustment
at its election; and provided, further, that any adjustments which by
reason of this subparagraph (v) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 6 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be.
(vi) Whenever the Conversion Price is
adjusted or the term "Common Stock" is redefined as provided in any
provision of this Section 6:
(1) the Corporation shall compute
the adjusted Conversion Price in accordance with this
Section 6 and shall prepare a certificate signed by
the principal financial officer of the Corporation
setting forth the adjusted Conversion Price and the
new definition of the term "Common Stock" if any, and
showing in reasonable detail the facts upon which
such adjustment is based, and such certificate shall
forthwith be filed with the transfer agent for the
Series A Preferred Stock; and
(2) a notice stating that the
Conversion Price has been adjusted and setting forth
the adjusted Conversion Price shall forthwith be
required, and as soon as practicable after it is
required, such notice shall be mailed by the
Corporation to each holder of record of Series A
Preferred Stock at such holder's address as it shall
appear upon the stock transfer books of the
Corporation.
(vii) In the event that at any time, as a
result of any adjustment made pursuant to this Section 6, the holder
of any shares of Series A Preferred Stock thereafter surrendered by
conversion shall become entitled to receive any shares of the
Corporation other than shares of Common Stock and Warrants or to
receive any other securities, the number of such other shares or
securities so receivable upon conversion of any share of Series A
Preferred Stock shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the
provisions contained in this Section 6 with respect to the Common
Stock.
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<PAGE> 11
(F) No Fractional Shares. No fractional shares or
scrip representing fractional shares of Common Stock shall be issued upon
conversion of Series A Preferred Stock. If more than one certificate
representing shares of Series A Preferred Stock shall be surrendered for
conversion at one time by the same holder, the number of full shares issuable
upon conversion thereof shall be computed on the basis of the aggregate number
of shares of Series A Preferred Stock so surrendered. Instead of any
fractional share of Common Stock that would otherwise be issuable upon
conversion of any shares of Series A Preferred Stock, the Corporation will pay
a cash adjustment in respect of such fractional interest in an amount equal to
the same fraction of the market price per share of Common Stock as determined
by the Board of Directors or in any manner prescribed by the Board of
Directors, which, so long as the Common Stock is listed on the New York Stock
Exchange shall be the reported last sale price regular way at the close of
business on the business day prior to the day of conversion.
(G) Reclassification, Consolidation, Merger or
Sale of Assets. In case of any reclassification of the Common Stock, any
consolidation of the Corporation with, or merger of the Corporation into, any
other person, any merger of another person into the Corporation (other than a
merger that does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock), any sale or transfer of
all or substantially all of the assets of the Corporation or any compulsory
share exchange, pursuant to which share exchange the Common Stock is converted
into other securities, cash or other property (any of the foregoing being
herein referred to as a "Transaction"), then lawful provision shall be made as
part of the terms of such Transaction whereby the holder of each share of
Series A Preferred Stock then outstanding shall have the right thereafter,
during the period such share shall be convertible, to convert such share only
into the kind and amount of securities, cash and other property receivable upon
such reclassification, consolidation, merger, sale, transfer or share exchange
by a holder of the number of shares of Common Stock of the Corporation into
which such share of Series A Preferred Stock might have been converted
immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. As a condition to the consummation of any
Transaction, the Corporation shall require that the person formed by such
consolidation or resulting from such merger or that acquires such assets or
that acquires the Corporation's shares, as the case may be, shall make
provisions in its certificate or articles of incorporation or other constituent
documents to establish such right. Such certificate or articles of
incorporation or other constituent documents shall provide for adjustments
which, for events subsequent to the effective date of such certificate or
articles of incorporation or other constituent documents, shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section 6. The above provisions shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
(H) Reservation of Shares: Transfer Taxes: Etc.
The Corporation shall at all times reserve and keep available, out of its
authorized and unissued stock, solely for the purpose of effecting the
conversion of the Series A Preferred Stock, such number of shares of its Common
Stock and other securities free of preemptive rights as shall from time to time
be sufficient to effect the conversion of all shares of Series A Preferred
Stock and exercise of Warrants from time to time outstanding. The Corporation
shall from time to time, in accordance with the laws of the State of Delaware,
increase the authorized number of shares of Common Stock and other securities
if at any time the number of shares of Common Stock and other
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<PAGE> 12
securities not outstanding shall not be sufficient to permit the conversion of
all the then outstanding shares of Series A Preferred Stock and the exercise of
Warrants.
If any shares of Common Stock required to be reserved for purposes of
conversion of the Series A Preferred Stock and exercise of Warrants hereunder
require registration with or approval of any governmental authority under any
Federal or State law before such shares may be issued upon conversion or
exercise, the Corporation will in good faith and as expeditiously as possible
endeavor to cause such shares to be duly registered or approved, as the case
may be. If the Common Stock is listed on the New York Stock Exchange or any
other national securities exchange, the Corporation will, if permitted by the
rules of such exchange, list and keep listed on such exchange, upon official
notice of issuance, all shares of Common Stock issuable upon conversion of the
Series A Preferred Stock and the exercise of Warrants.
The Corporation will pay any and all issue or other taxes that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of the Series A Preferred Stock or the exercise of Warrants. The
Corporation shall not, however, be required to pay any tax that may be payable
in respect of any transfer involved in the issue or delivery of Common Stock
(or other securities or assets) in a name other than that in which the shares
of Series A Preferred Stock so converted or the Warrants so exercised were
registered, and no such issue or delivery shall be made unless and until the
person requesting such issue has paid to the Corporation the amount of such tax
or has established, to the satisfaction of the Corporation, that such tax has
been paid.
The Corporation shall not take any action that would cause any equity
securities issuable upon conversion of Series A Preferred Stock immediately
following such action to be other than fully paid and nonassessable. In
particular, but without limiting the generality of the foregoing, before taking
any action that would cause an adjustment reducing the Conversion Price, such
that the effective Conversion Price would be below the then par or stated value
of the Common Stock, the Corporation will take any corporate action that may,
in the opinion of its counsel, be necessary in order that the Corporation may
validly and legally issue fully paid and nonassessable shares of Common Stock
at the Conversion Price as so adjusted.
(I) Prior Notice of Certain Events. In case:
(i) the Corporation shall (1) declare
any dividend (or any other distribution) on its Common Stock,
other than (A) a dividend payable in shares of Common Stock or
(B) a dividend payable in cash out of its retained earnings
other than any special or nonrecurring or other extraordinary
dividend or (2) declare or authorize a redemption or
repurchase of in excess of ten percent (10%) of the then
outstanding shares of Common Stock; or
(ii) the Corporation shall authorize the
granting to the holders of Common Stock of rights or warrants
to subscribe for or purchase any shares of stock of any class
or of any other rights or warrants (other than any rights
specified in paragraph (E)(i)(1)(B) of this Section 6); or
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(iii) of any reclassification of Common
Stock (other than a subdivision or combination of the
outstanding Common Stock, or a change in par value, or from
par value to no par value, or from no par value to par value),
or of any consolidation or merger to which the Corporation is
a party and for which approval of any stockholders of the
Corporation shall be required, or of the sale or transfer of
all or substantially all of the assets of the Corporation or
of any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or other property; or
(iv) of the voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed with the transfer agent for the
Series A Preferred Stock and shall cause to be mailed to each holder of record
of the outstanding Series A Preferred Stock, at such holder's address as it
shall appear upon the stock transfer books of the Corporation, at least 15 days
prior to the applicable record date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption or granting of rights or warrants or, if a record is
not to be taken, the date as of which the holders of Common Stock of record to
be entitled to such dividend, distribution, redemption, rights or warrants are
to be determined, or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding up (but neither the failure so to mail such
notice nor any defect therein or in the mailing thereof, shall affect the
validity of the corporate action required to be specified in such notice).
(J) Other Changes in the Conversion Price . The
Corporation from time to time may decrease the Conversion Price by any amount
for any period of time if the period is at least 20 days and if the decrease is
irrevocable during the period. Whenever the Conversion Price is so decreased,
the Corporation shall mail to holders of record of the Series A Preferred Stock
a notice of the decrease at least 15 days before the date the decreased
Conversion Price takes effect, and such notice shall state the decreased
Conversion Price and the period it will be in effect.
The Corporation may make such decreases in the Conversion Price, in
addition to those required or allowed by this Section 6, as shall be determined
by it, as evidenced by a resolution of the Board of Directors, to be advisable
in order to avoid or diminish any income tax to holders of Common Stock
resulting from any dividend or distribution of stock or issuance of rights or
warrants to purchase or subscribe for stock or from any event treated as such
for income tax purposes.
(K) Warrants. Upon conversion of the Series A
Preferred Stock prior to September 15, 1997, the holders will receive one
warrant to purchase one share of Common Stock of the Corporation ("Warrant")
for each share of Series A Preferred Stock converted. The
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<PAGE> 14
Warrants are to be issued pursuant to a Warrant Agency Agreement between the
Corporation's subsidiary Patrick Petroleum Company ("Patrick") and Harris Trust
& Savings Bank as Warrant Agent or such other party as may act as Warrant Agent
under the Warrant Agency Agreement which shall be in substantially the form
filed as an exhibit to Patrick's Registration Statement on Form S-2
(Registration No. 33-50756) as filed with the Securities and Exchange
Commission and as amended on September 3 and September 14, 1992, completed as
set forth therein and with such changes as may be required by law or usage.
The Warrants will allow the holders thereof to purchase one share of Common
Stock of the Corporation for $5.00, subject to adjustment, for a period of five
years from September 14, 1992. The Warrants cannot be called by the Patrick
prior to September 14, 1994 and thereafter are subject to call on 30 days
notice for $.25 per Warrant.
7. Special Conversion Rights Upon Corporate Change or Ownership
Change
(A) Corporate Change. Upon the occurrence of a
Corporate Change (as defined in (E) below) with respect to the Corporation,
each holder of Series A Preferred Stock shall have the right, at the holder's
option, for a period of 45 days after the mailing of a notice by the
Corporation that a Corporate Change has occurred, to convert all, but not less
than all, of such holder's Series A Preferred Stock into Marketable Stock (as
defined in (E) below) with an aggregate Market Value (as defined in (E) below)
equal to the aggregate Adjusted Value (as defined in (E) below) of the Series A
Preferred Stock for which conversion is elected. If a Corporate Change will
result in no Marketable Stock being outstanding following its occurrence, each
holder of Series A Preferred Stock shall have the special conversion right, if
such holder so elects, to receive an amount of the securities, cash or other
property distributed to holders of Common Stock in the Corporate Change, the
value of which equals the Adjusted Value per share of Series A Preferred Stock,
and in the event each share of Common Stock entitles its holder to more than
one type of consideration, in the same relative proportion of each type of
consideration per share of Common Stock. The Corporation or the successor
corporation, as the case may be, at its option, in lieu of providing Marketable
Stock or such other appropriate consideration as required above upon any such
conversion, may provide the holder with cash equal to the Adjusted Value of the
shares of the Series A Preferred Stock for which conversion was elected.
Series A Preferred Stock that becomes convertible pursuant to the special
conversion right will, unless so converted, remain convertible into the kind
and amount of securities, cash or other assets that the holder of the Series A
Preferred Stock would have owned immediately after the Corporate Change if the
holder had converted the Series A Preferred Stock immediately before the
effective date of the Corporate Change. The Corporation shall mail a notice of
the holders of record of Series A Preferred Stock of any pending Corporate
Change at least 30 days in advance of the effective date of such Corporate
Change in order to allow such holders an opportunity to exercise their
conversion rights under Section 6 hereof prior to the effective date of such
Corporate Change and before the special conversion right commences.
(B) Ownership Change. Upon the occurrence of an
Ownership Change (as defined in (E) below) with respect to the Corporation,
each holder of Series A Preferred Stock shall have the right, at the holder's
option, for a period of 45 days after the mailing of a notice by the
Corporation that an Ownership Change has occurred, to convert all, but not less
than all, of such holder's Series A Preferred Stock into Common Stock with an
aggregate
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<PAGE> 15
Market Value equal to the aggregate Adjusted Value of the Series A Preferred
Stock for which conversion was elected. The Corporation may, at its option, in
lieu of providing Common Stock upon any such special conversion, provide the
holder with cash equal to the Adjusted Value of the shares of the Series A
Preferred Stock for which conversion as elected. The special conversion right
arising upon an Ownership Change shall be applicable only with respect to the
first Ownership Change that occurs after the first date of issuance of any
shares of Series A Preferred Stock.
(C) Notice. At least 30 days prior to the
proposed effective date of a Corporate Change, the Corporation shall mail to
each holder of record of Series A Preferred Stock, at such holder's address as
it shall appear upon the stock transfer books of the Corporation, a notice
setting forth the details of the proposed Corporate Change and the special
conversion right. Upon the occurrence of a Corporate Change or an Ownership
Change with respect to the Corporation, within 30 days after such occurrence,
the Corporation shall mail to each holder of record of Series A Preferred
Stock, at such holder's address as it shall appear upon the stock transfer
books of the Corporation, a notice of such occurrence (the "Special Conversion
Notice") setting forth the following:
(i) the event constituting the Corporate Change or Ownership Change;
(ii) the last date upon which the special
conversion right may be exercised (the "Conversion
Date");
(iii) the Applicable Value (as
defined in (E) below);
(iv) the conversion price then in effect
under Section 6 and the continuing conversion rights,
if any, under Section 6;
(v) the name and address of the paying
agent and the conversion agent;
(vi) that holders who want to convert
shares of Series A Preferred Stock must satisfy the
requirements of Section 6(B) and must exercise such
special conversion right within the 45-day period
after the mailing of such notice by the Corporation;
and
(vii) that the Corporation may, at
its option, elect to pay cash equal to the aggregate
Adjusted Value of all shares of Series A Preferred
Stock for which the special conversion was elected.
(D) Exercise Procedures. A holder of Series A
Preferred Stock must exercise the special conversion right within the 45-day
period after the mailing of the Special Conversion Notice by the Corporation or
such special conversion right shall expire. Such right must be exercised in
accordance with Section 6(B) to the extent the procedures in Section 6(B) are
consistent with the special provisions of this Section 7. Exercise of such
special conversion
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right shall be irrevocable and dividends on Series A Preferred Stock tendered
for special conversion shall cease to accrue from and after the Conversion
Date. The Conversion Date with respect to the exercise of a special conversion
right arising upon a Corporate Change or Ownership Change shall be the 45th day
after the mailing of the Special Conversion Notice.
(E) Definitions. The following definitions shall
apply to terms used in this Section 7:
(i) a "Corporate Change" with respect to
the Corporation means (1) the occurrence of any transaction or event
in connection with which all or substantially all of the Common Stock
of the Corporation shall be exchanged for, converted into, acquired
for or constitute solely the right to receive cash, securities,
property or other assets (whether by means of an exchange offer,
liquidation, tender offer, consolidation, merger, combination,
reclassification, recapitalization or otherwise) or (2) the
conveyance, sale, lease, assignment, transfer or other disposal of all
or substantially all of the Corporation's property, business or
assets;
(ii) an "Ownership Change" with respect
to the Corporation shall be deemed to have occurred at such time as
any person together with any of its Affiliates or Associates (as
defined herein) becomes the beneficial owner, directly or indirectly,
of more than thirty percent (30%) of the outstanding voting stock of
the Corporation pursuant to a transaction that does not constitute a
Corporate Change with respect to the Corporation. An "Affiliate" of a
specified person is a person that directly or indirectly controls, or
is controlled by, or is under common control with, the person
specified. An "Associate" of a person means (1) any corporation or
organization, other than the Corporation or any subsidiary of the
Corporation, of which the person is an officer or partner or is,
directly or indirectly, the beneficial owner of ten percent (10%) or
more of any class of equity securities; (2) any trust or estate in
which the person has a substantial beneficial interest or as to which
the person serves as trustee or in a similar fiduciary capacity; and
(3) any relative or spouse of the person, or any relative of the
spouse, who has the same home as the person or who is a director or
officer of the person or any of its parents or subsidiaries. As used
herein, a person shall be deemed to have "beneficial ownership" with
respect to, and shall be deemed to "beneficially own," any securities
of the Corporation in accordance with Section 13 of the Securities
Exchange Act of 1934, as amended, and the rules and regulations
(including Rule 13d-3, Rule 13d-5 and any successor rules) promulgated
by the Securities and Exchange Commission thereunder; provided that a
person shall be deemed to have beneficial ownership of all securities
that any such person has a right to acquire whether such right is
exercisable immediately or only after the passage of time and without
regard to the 60-day limitation referred to in Rule 13d-3;
(iii) the "Adjusted Value" of a share of
Series A Preferred Stock is an amount equal to the Stated Value;
provided, however, that if the Reference Value of a share of Common
Stock exceeds both the Market Value of a share of Common Stock and the
Applicable Value, then the Adjusted Value shall be determined by
multiplying the greater of the Market Value of a share of Common Stock
and the
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<PAGE> 17
Applicable Value by the quotient of the Stated Value of a share of
Series A Preferred Stock divided by the Reference Value per share of
Common Stock;
(iv) the "Applicable Value" shall be an
amount equal to the sum of the cash, Market Value of Marketable Stock
and the value of any other securities, property or other consideration
distributed to holders of Common Stock for each share of Common Stock
upon or in connection with a Corporate Change;
(v) the "Market Value" of the Common
Stock, or of the common stock of the corporation that is the successor
to all or substantially all of the business and assets of the
Corporation as the result of a Corporate Change, shall be the average
of the closing market price of such Common Stock or other common
stock, as the case may be, for the five business days ending on the
last business day preceding the date of the Ownership Change or
Corporate Change;
(vi) "Marketable Stock" shall mean the
Common Stock of the Corporation, or common stock of any corporation
that is the successor to all or substantially all of the business and
assets of the Corporation as a result of a Corporate Change, which in
either case is (or will, upon distribution thereof, be) listed on the
New York Stock Exchange or the American Stock Exchange or approved for
quotation on NASDAQ or any similar system of automated dissemination
of quotations of securities prices in the United States;
(vii) "Stated Value" of a share of Series
A Preferred Stock converted during the 45-day period following the
occurrence of a Corporate Change or an Ownership Change shall mean the
price per share the Corporation would be required to pay if it
exercised its option to redeem such shares on the Conversion Date plus
an amount equal to the amount by which the Market Value of the Common
Stock exceeds the exercise price of the Warrant; and
(viii) "Reference Value" shall initially
mean $1.92 per share of Common Stock; provided, however, that in the
event of any adjustment to the Conversion Price, the Reference Value
shall also be adjusted so that the ratio of the Reference Value to the
Conversion Price, after giving effect to any such adjustment, shall
always be the same as the ratio of $1.92 to the initial Conversion
Price.
8. Reacquired Shares
Any shares of Series A Preferred Stock redeemed, converted, purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such shares
upon their cancellation shall become authorized but unissued shares of
Preferred Stock without designation as to series and may thereafter be reissued
as part of a new series of Preferred Stock to be created by resolution of the
Board of Directors, but not as shares of Series A Preferred Stock.
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<PAGE> 18
9. Outstanding Shares
For purposes hereof, all shares of Series A Preferred Stock shall be
deemed outstanding except (i) from any Redemption Date as defined in Section 5,
all shares of Series A Preferred Stock that have been called for redemption on
that Redemption Date; (ii) from the date of surrender of certificates
representing shares of Series A Preferred Stock, all shares of Series A
Preferred Stock voluntarily converted into Common Stock; (iii) from the
effective date of any automatic conversion, all shares of Series A Preferred
Stock; and (iv) from the date of registration of transfer, all shares of Series
A Preferred Stock held of record by the Corporation or any subsidiary of the
Corporation.
V. The names and mailing addresses of the current directors of the
corporation are:
Name Address
---- --------
U.E. Patrick 301 West Michigan Avenue
Jackson, MI 49201
Walter G. Goodrich 333 Texas Street
Suite 1350
Shreveport, LA 71101
The number of directors of the corporation shall be as specified in,
or determined in the manner provided in, the bylaws. Election of
directors may need not be by written ballot.
VI. In furtherance of, and not in limitation of, the powers conferred by
statute, the Board of Directors is expressly authorized to adopt,
amend or repeal the bylaws of the corporation.
VII. Whenever a compromise or arrangement is proposed between the
corporation and its creditors or any class of them and/or between the
corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the
application in a summary way of the corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers
appointed for the corporation under the provisions of Section 291 of
Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the
corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the
corporation, as the case may be, to be summoned in such manner as the
said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of the corporation, as
the case may be, agree to any compromise or arrangement and to any
reorganization of the corporation as a consequence of such compromise
or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
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creditors, and/or on all the stockholders or class of stockholders, or
the corporation, as the case may be, and also on the corporation.
VIII. To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or may hereafter be amended, a director of the
corporation shall not be liable to the corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director.
IX. All actions which are required to be or may be taken by the
stockholders of the corporation shall be taken at a meeting of the
stockholders, duly held and upon proper notice, may not be taken by
written consent without a meeting, and the power of stockholders to
consent in writing to the taking of any action is specifically denied.
X. The corporation shall have the right, subject to any express
provisions or restrictions contained in the certificate of
incorporation or bylaws of the corporation, from time to time, to
amend the certificate of incorporation or any provision thereof in any
manner now or hereafter provided by law, and all rights and powers of
any kind conferred upon a director or stockholder of the corporation
by the certificate of incorporation or any amendment thereof are
subject to such right of the corporation.
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<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
GOODRICH PETROLEUM CORPORATION
A DELAWARE CORPORATION
<PAGE> 2
GOODRICH PETROLEUM CORPORATION
BYLAWS
Table of Contents
<TABLE>
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PAGE
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<S> <C>
ARTICLE I OFFICES
Section 1. Registered Office.......................................................... 1
Section 2. Other Offices.............................................................. 1
ARTICLE II STOCKHOLDERS
Section 1. Place of Meetings.......................................................... 1
Section 2. Quorum; Adjournment of Meetings............................................ 1
Section 3. Annual Meetings............................................................ 2
Section 4. Special Meetings........................................................... 2
Section 5. Record Date................................................................ 2
Section 6. Notice of Meetings......................................................... 3
Section 7. Stock List................................................................. 3
Section 8. Proxies.................................................................... 3
Section 9. Voting; Elections; Inspectors.............................................. 4
Section 10. Conduct of Meetings....................................................... 5
Section 11. Treasury Stock............................................................ 5
Section 12. Action Without Meeting.................................................... 5
Section 13. Nominations for Election as a Director.................................... 5
ARTICLE III BOARD OF DIRECTORS
Section 1. Power; Number; Term of Office.............................................. 6
Section 2. Quorum..................................................................... 7
Section 3. Place of Meetings; Order of Business....................................... 7
Section 4. First Meeting.............................................................. 7
Section 5. Regular Meetings........................................................... 7
Section 6. Special Meetings........................................................... 8
Section 7. Removal.................................................................... 8
Section 8. Vacancies; Increases in the Number of Directors............................ 8
Section 9. Compensation............................................................... 8
Section 10. Action Without a Meeting; Telephone Conference Meeting.................... 8
Section 11. Approval or Ratification of Acts or Contracts by Stockholders............. 9
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
ARTICLE IV COMMITTEES
Section 1. Designation; Powers........................................................ 9
Section 2. Procedure; Meetings; Quorum................................................ 9
Section 3. Substitution of Members.................................................... 10
ARTICLE V OFFICERS
Section 1. Number, Titles and Term of Office.......................................... 10
Section 2. Salaries................................................................... 10
Section 3. Removal.................................................................... 10
Section 4. Vacancies.................................................................. 10
Section 5. Powers and Duties of the Chief Executive Officer........................... 10
Section 6. Powers and Duties of the Chairman of the Board............................. 11
Section 7. Powers and Duties of the President......................................... 11
Section 8. Vice Presidents............................................................ 11
Section 9. Treasurer.................................................................. 11
Section 10. Assistant Treasurers...................................................... 11
Section 11. Secretary................................................................. 11
Section 12. Assistant Secretaries..................................................... 12
Section 13. Action with Respect to Securities of Other Corporations................... 12
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
Section 1. Right to Indemnification................................................... 12
Section 2. Indemnification of Employees and Agents.................................... 13
Section 3. Right of Claimant to Bring Suit............................................ 13
Section 4. Nonexclusivity of Rights................................................... 13
Section 5. Insurance.................................................................. 13
Section 6. Savings Clause............................................................. 14
Section 7. Definitions................................................................ 14
ARTICLE VII CAPITAL STOCK
Section 1. Certificates of Stock...................................................... 14
Section 2. Transfer of Shares......................................................... 15
Section 3. Ownership of Shares........................................................ 15
Section 4. Regulations Regarding Certificates......................................... 15
Section 5. Lost or Destroyed Certificates............................................. 15
ARTICLE VIII MISCELLANEOUS PROVISIONS
Section 1. Fiscal Year................................................................ 15
Section 2. Corporate Seal............................................................. 15
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Section 3. Notice and Waiver of Notice................................................ 15
Section 4. Resignations............................................................... 16
Section 5. Facsimile Signatures....................................................... 16
Section 6. Reliance upon Books, Reports and Records................................... 16
ARTICLE IX AMENDMENTS
</TABLE>
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<PAGE> 5
DELAWARE BYLAWS
OF
GOODRICH PETROLEUM CORPORATION
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
required by the General Corporation Law of the State of Delaware to be
maintained in the State of Delaware, shall be the registered office named in the
original Certificate of Incorporation of the Corporation, or such other office
as may be designated from time to time by the Board of Directors in the manner
provided by law. Should the Corporation maintain a principal office within the
State of Delaware such registered office need not be identical to such principal
office of the Corporation.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders shall be
held at the principal office of the Corporation, or at such other place within
or without the State of Delaware as shall be specified or fixed in the notices
or waivers of notice thereof.
Section 2. Quorum; Adjournment of Meetings. Unless otherwise required by
law or provided in the Certificate of Incorporation or these bylaws, the holders
of a majority of the stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum at any
meeting of stockholders for the transaction of business and the act of a
majority of such stock so represented at any meeting of stockholders at which a
quorum is present shall constitute the act of the meeting of stockholders. The
stockholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Notwithstanding the other provisions of the Certificate of Incorporation or
these bylaws, the chairman of the meeting or the holders of a majority of the
issued and outstanding stock, present in person or represented by proxy, at any
meeting of stockholders, whether or not a quorum is present, shall have the
power to adjourn such meeting from time to time, without any notice other than
announcement at the meeting of the time and place of the holding of the
adjourned meeting. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at such meeting. At such adjourned meeting at which a quorum
shall be
<PAGE> 6
present or represented any business may be transacted which might have been
transacted at the meeting as originally called.
Section 3. Annual Meetings. An annual meeting of the stockholders, for the
election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held on such date, and at such time as the Board of Directors shall fix
and set forth in the notice of the meeting, which date shall be within thirteen
(13) months subsequent to the last annual meeting of stockholders. At the annual
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the annual meeting. To be properly brought before
the annual meeting of stockholders, business must be (i) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (ii) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (iii) otherwise properly brought before
the meeting by a stockholder of the Corporation who is a stockholder of record
at the time of giving of notice provided for in this Section 3, who shall be
entitled to vote at such meeting and who complies with the notice procedures set
forth in this Section 3. For business to be properly brought before an annual
meeting by a stockholder, the stockholder, in addition to any other applicable
requirements, must have given timely notice thereof in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting of stockholders of the Corporation. A stockholder's
notice to the Secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting: (a) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (b) the name and address, as
they appear on the Corporation's books, of the stockholder proposing such
business, (c) the class and number of shares of voting stock of the Corporation
which are beneficially owned by the stockholder, (d) a representation that the
stockholder intends to appear in person or by proxy at the meeting to bring the
proposed business before the annual meeting, and (e) a description of any
material interest of the stockholder in such business. Notwithstanding anything
in these bylaws to the contrary, no business shall be conducted at an annual
meeting except in accordance with the procedures set forth in this Section 3.
The presiding officer of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 3, and if
he should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing provisions of this Section 3, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder with respect
to the matters set forth in this Section 3.
Section 4. Special Meetings. Unless otherwise provided in the Certificate
of Incorporation, special meetings of the stockholders for any purpose or
purposes may be called at any time by the Chairman of the Board (if any), by the
President or by a majority of the Board of Directors.
Section 5. Record Date. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, or entitled to express consent
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<PAGE> 7
to corporate action in writing without a meeting, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors of the
Corporation may fix, in advance, a date as the record date for any such
determination of stockholders, which date shall not be more than sixty (60) days
nor less than ten (10) days before the date of such meeting, nor more than sixty
(60) days prior to any other action.
If the Board of Directors does not fix a record date for any meeting of the
stockholders, the record date for determining stockholders entitled to notice of
or to vote at such meeting shall be at the close of business on the day next
preceding the day on which notice is given, or, if in accordance with Article
VIII, Section 3 of these bylaws notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. If, in accordance
with Section 12 of this Article II, corporate action without a meeting of
stockholders is to be taken, the record date for determining stockholders
entitled to express consent to such corporate action in writing, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed. The record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 6. Notice of Meetings. Written notice of the place, date and hour
of all meetings, and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be given by or at the direction of the
Chairman of the Board (if any) or the President, the Secretary or the other
person(s) calling the meeting to each stockholder entitled to vote thereat not
less than ten (10) nor more than sixty (60) days before the date of the meeting.
Such notice may be delivered either personally or by mail. If mailed, notice is
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation.
Section 7. Stock List. A complete list of stockholders entitled to vote at
any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in the name of such stockholder, shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held. The stock list shall also be produced and
kept at the time and place of the meeting during the whole time thereof, and may
be inspected by any stockholder who is present.
Section 8. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to a corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy. Proxies for use at any meeting of stockholders shall be filed with the
Secretary, or such other officer as the Board of Directors may from time to time
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<PAGE> 8
determine by resolution, before or at the time of the meeting. All proxies shall
be received and taken charge of and all ballots shall be received and canvassed
by the secretary of the meeting who shall decide all questions touching upon the
qualification of voters, the validity of the proxies, and the acceptance or
rejection of votes, unless an inspector or inspectors shall have been appointed
by the chairman of the meeting, in which event such inspector or inspectors
shall decide all such questions.
No proxy shall be valid after three (3) years from its date, unless the
proxy provides for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power.
Should a proxy designate two or more persons to act as proxies, unless such
instrument shall provide the contrary, a majority of such persons present at any
meeting at which their powers thereunder are to be exercised shall have and may
exercise all the powers of voting or giving consents thereby conferred, or if
only one be present, then such powers may be exercised by that one; or, if an
even number attend and a majority do not agree on any particular issue, each
proxy so attending shall be entitled to exercise such powers in respect of the
same portion of the shares as he is of the proxies representing such shares.
Section 9. Voting; Elections; Inspectors. Unless otherwise required by law
or provided in the Certificate of Incorporation, each stockholder shall have one
vote for each share of stock entitled to vote which is registered in his name on
the record date for the meeting. Shares registered in the name of another
corporation, domestic or foreign, may be voted by such officer, agent or proxy
as the bylaw (or comparable instrument) of such corporation may prescribe, or in
the absence of such provision, as the Board of Directors (or comparable body) of
such corporation may determine. Shares registered in the name of a deceased
person may be voted by his executor or administrator, either in person or by
proxy.
All voting, except as required by the Certificate of Incorporation or where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by stockholders holding a majority of the issued and outstanding
stock present in person or by proxy at any meeting a stock vote shall be taken.
Every stock vote shall be taken by written ballots, each of which shall state
the name of the stockholder or proxy voting and such other information as may be
required under the procedure established for the meeting. All elections of
directors shall be by ballot, unless otherwise provided in the Certificate of
Incorporation.
At any meeting at which a vote is taken by ballots, the chairman of the
meeting may appoint one or more inspectors, each of whom shall subscribe an oath
or affirmation to execute faithfully the duties of inspector at such meeting
with strict impartiality and according to the best of his ability. Such
inspector shall receive the ballots, count the votes and make and sign a
certificate of the result thereof. The chairman of the meeting may appoint any
person to serve as inspector, except no candidate for the office of director
shall be appointed as an inspector.
Unless otherwise provided in the Certificate of Incorporation, cumulative
voting for the election of directors shall be prohibited.
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<PAGE> 9
Section 10. Conduct of Meetings. The meetings of the stockholders shall be
presided over by the Chairman of the Board (if any), or if he is not present, by
the President, or if neither the Chairman of the Board (if any), nor President
is present, by a chairman elected at the meeting. The Secretary of the
Corporation, if present, shall act as secretary of such meetings, or if he is
not present, an Assistant Secretary shall so act; if neither the Secretary nor
an Assistant Secretary is present, then a secretary shall be appointed by the
chairman of the meeting. The chairman of any meeting of stockholders shall
determine the order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem to him
in order. Unless the chairman of the meeting of stockholders shall otherwise
determine, the order of business shall be as follows:
(a) Calling of meeting to order.
(b) Election of a chairman and the appointment of a secretary if
necessary.
(c) Presentation of proof of the due calling of the meeting.
(d) Presentation and examination of proxies and determination of a
quorum.
(e) Reading and settlement of the minutes of the previous meeting.
(f) Reports of officers and committees.
(g) The election of directors if an annual meeting, or a meeting
called for that purpose.
(h) Unfinished business.
(i) New business.
(j) Adjournment.
Section 11. Treasury Stock. The Corporation shall not vote, directly or
indirectly, shares of its own stock owned by it and such shares shall not be
counted for quorum purposes.
Section 12. Action Without Meeting. Unless otherwise provided in the
Certificate of Incorporation, any action permitted or required by law, the
Certificate of Incorporation or these bylaws to be taken at a meeting of
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by all of the holders of outstanding stock entitled to vote thereon.
Section 13. Nominations for Election as a Director. Only persons who are
nominated in accordance with the procedures set forth in these bylaws shall be
eligible for election by stockholders as, and to serve as, directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders (a) by or at the direction of the Board
of Directors or (b) by any stockholder of the Corporation who is a stockholder
of record at the time of giving of notice provided for in this Section 13, who
shall be entitled to vote for the election of directors at the meeting and who
complies with the notice procedures set forth in this Section 13. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered to
or mailed and received at the principal executive offices of the Corporation (i)
with respect to an election to be held at the annual meeting of the stockholders
of the Corporation, not less than ninety (90) days prior to the anniversary date
of the immediately preceding annual meeting of stockholders of the Corporation,
and (ii) with respect to an election to
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<PAGE> 10
be held at a special meeting of stockholders of the Corporation for the election
of directors not later than the close of business on the tenth (10th) day
following the day on which notice of the date of the special meeting was mailed
to stockholders of the Corporation as provided in these bylaws or public
disclosure of the date of the special meeting was made, whichever first occurs.
Such stockholder's notice to the Secretary shall set forth (x) as to each person
whom the stockholder proposes to nominate for election or re-election as a
director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including such person's written consent to being named in the proxy
statement as a nominee and to serve as a director if elected), and (y) as to the
stockholder giving the notice (i) the name and address, as they appear on the
Corporation's books, of such stockholder and (ii) the class and number of shares
of voting stock of the Corporation which are beneficially owned by such
stockholder. At the request of the Board of Directors, any person nominated by
the Board of Directors for election as a director shall furnish to the Secretary
of the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. In the event that a person
is validly designated as a nominee to the Board of Directors in accordance with
the procedures set forth in this Section 13 and shall thereafter become unable
or unwilling to stand for election to the Board of Directors, the Board of
Directors or the stockholder who proposed such nominee, as the case may be, may
designate a substitute nominee. Other than directors chosen pursuant to the
provisions of Article III, Section 8, no person shall be eligible to serve as a
director of the Corporation unless nominated in accordance with the procedures
set forth in this Section 13. The presiding officer of the meeting of
stockholders shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the procedures prescribed by
these bylaws, and if he should so determine, he shall so declare to the meeting
and the defective nomination shall be disregarded. Notwithstanding the foregoing
provisions of this Section 13, a stockholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder with respect to the matters set forth in
this Section 13.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Power; Number; Term of Office. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors, and subject to the restrictions imposed by law or the Certificate of
Incorporation, they may exercise all the powers of the Corporation.
The number of directors which shall constitute the whole Board of
Directors, shall be no less than six and no more than twelve, as determined from
time to time by resolution of the Board of Directors (provided that no decrease
in the number of directors which would have the effect of shortening the term of
an incumbent director may be made by the Board of Directors). If the Board of
Directors makes no such determination, the number of directors shall be the
number set forth in the Certificate of Incorporation. Each director shall hold
office for the term for which he is elected, and until his successor shall have
been elected and qualified or until his earlier death, resignation or removal.
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<PAGE> 11
The Board of Directors shall be divided into three classes: Class I, Class
II and Class III. The number of directors in each class shall be the whole
number contained in the quotient arrived at by dividing the authorized number of
Directors by three and if a fraction is also contained in such quotient and if
such fraction is one-third, the extra Director shall be a member of Class III,
and if the fraction is two-thirds, one extra Director shall be a member of Class
III and the other shall be a member of Class II. Except as otherwise provided in
this Section 1, each Director elected at an annual meeting shall serve for a
term ending on the third annual meeting following the meeting at which such
Director was elected; provided, however, that the Directors first elected to
Class I shall serve for a term ending at the annual meeting in 1996, the
Directors first elected to Class II shall serve for a term ending at the annual
meeting in 1997 and the Directors first elected to Class III shall serve for a
term ending at the annual meeting in 1998. The foregoing notwithstanding, each
Director shall serve until his successor shall have been duly elected and
qualified or until his earlier death, resignation or removal. If for any reason
the number of Directors in the various classes shall not conform with the
formula set forth in this Section, the Board of Directors may redesignate any
Director in a different class in order that the balance of Directors in such
class shall conform thereto; provided, however, that no such redesignation may
have the effect of reducing the term to which a Director was elected.
Unless otherwise provided in the Certificate of Incorporation, directors
need not be stockholders nor residents of the State of Delaware.
Section 2. Quorum. Unless otherwise provided in the Certificate of
Incorporation, a majority of the total number of directors shall constitute a
quorum for the transaction of business of the Board of Directors and the vote of
a majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
Section 3. Place of Meetings; Order of Business. The directors may hold
their meetings and may have an office and keep the books of the Corporation,
except as otherwise provided by law, in such place or places, within or without
the State of Delaware, as the Board of Directors may from time to time determine
by resolution. At all meetings of the Board of Directors business shall be
transacted in such order as shall from time to time be determined by the
Chairman of the Board (if any), or in his absence by the President, or by
resolution of the Board of Directors.
Section 4. First Meeting. Each newly elected Board of Directors may hold
its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as the
annual meeting of the stockholders. Notice of such meeting shall not be
required. At the first meeting of the Board of Directors in each year at which a
quorum shall be present, held next after the annual meeting of stockholders, the
Board of Directors shall proceed to the election of the officers of the
Corporation.
Section 5. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times and places as shall be designated from time to time
by resolution of the Board of Directors. Notice of such regular meetings shall
not be required.
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Section 6. Special Meetings. Special meetings of the Board of Directors may
be called by the Chairman of the Board (if any), the President or, on the
written request of any two directors, by the Secretary, in each case on at least
twenty-four (24) hours personal, written, telegraphic, cable or wireless notice
to each director. Such notice, or any waiver thereof pursuant to Article VIII,
Section 3 hereof, need not state the purpose or purposes of such meeting, except
as may otherwise be required by law or provided for in the Certificate of
Incorporation or these bylaws.
Section 7. Removal. Any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors; provided that, unless the
Certificate of Incorporation otherwise provides, if the Board of Directors is
classified, then the stockholders may effect such removal only for cause; and
provided further that, if the Certificate of Incorporation expressly grants to
stockholders the right to cumulate votes for the election of directors and if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against his removal would be sufficient to elect him if
then cumulatively voted at an election of the entire Board of Directors, or, if
there be classes of directors, at an election of the class of directors of which
such director is a part.
Section 8. Vacancies; Increases in the Number of Directors. Unless
otherwise provided in the Certificate of Incorporation, vacancies and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or a sole remaining director; and any director so chosen
shall hold office until the next annual election and until his successor shall
be duly elected and shall qualify, unless sooner displaced.
If the directors of the Corporation are divided into classes, any directors
elected to fill vacancies or newly created directorships shall hold office until
the next election of the class for which such directors shall have been chosen,
and until their successors shall be duly elected and shall qualify.
Section 9. Compensation. Unless otherwise restricted by the Certificate of
Incorporation, the Board of Directors shall have the authority to fix the
compensation of directors.
Section 10. Action Without a Meeting; Telephone Conference Meeting. Unless
otherwise restricted by the Certificate of Incorporation, any action required or
permitted to be taken at any meeting of the Board of Directors, or any committee
designated by the Board of Directors, may be taken without a meeting if all
members of the Board of Directors or committee, as the case may be consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee. Such consent shall have the
same force and effect as a unanimous vote at a meeting, and may be stated as
such in any document or instrument filed with the Secretary of State of
Delaware.
Unless otherwise restricted by the Certificate of Incorporation, subject to
the requirement for notice of meetings, members of the Board of Directors, or
members of any committee designated by the Board of Directors, may participate
in a meeting of such Board of Directors or committee, as the case may be, by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in such a meeting
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shall constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
Section 11. Approval or Ratification of Acts or Contracts by Stockholders.
The Board of Directors in its discretion may submit any act or contract for
approval or ratification at any annual meeting of the stockholders, or at any
special meeting of the stockholders called for the purpose of considering any
such act or contract, and any act or contract that shall be approved or be
ratified by the vote of the stockholders holding a majority of the issued and
outstanding shares of stock of the Corporation entitled to vote and present in
person or by proxy at such meeting (provided that a quorum is present), shall be
as valid and as binding upon the Corporation and upon all the stockholders as if
it has been approved or ratified by every stockholder of the Corporation. In
addition, any such act or contract may be approved or ratified by the written
consent of stockholders holding a majority of the issued and outstanding shares
of capital stock of the Corporation entitled to vote and such consent shall be
as valid and as binding upon the Corporation and upon all the stockholders as if
it had been approved or ratified by every stockholder of the Corporation.
ARTICLE IV
COMMITTEES
Section 1. Designation; Powers. The Board of Directors may, by resolution
passed by a majority of the whole board, designate one or more committees,
including, if they shall so determine, an executive committee, each such
committee to consist of one or more of the directors of the Corporation. Any
such designated committee shall have and may exercise such of the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation as may be provided in such resolution, except that no
such committee shall have the power or authority of the Board of Directors in
reference to amending the Certificate of Incorporation, adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution of the Corporation, or amending, altering or
repealing the bylaws or adopting new bylaws for the Corporation and, unless such
resolution or the Certificate of Incorporation expressly so provides, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Any such designated committee may authorize the
seal of the Corporation to be affixed to all papers which may require it. In
addition to the above such committee or committees shall have such other powers
and limitations of authority as may be determined from time to time by
resolution adopted by the Board of Directors.
Section 2. Procedure; Meetings; Quorum. Any committee designated pursuant
to Section 1 of this Article shall choose its own chairman, shall keep regular
minutes of its proceedings and report the same to the Board of Directors when
requested, shall fix its own rules or procedures, and shall meet at such times
and at such place or places as may be provided by such rules, or by resolution
of such committee or resolution of the Board of Directors. At every meeting of
any such committee,
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the presence of a majority of all the members thereof shall constitute a quorum
and the affirmative vote of a majority of the members present shall be necessary
for the adoption by it of any resolution.
Section 3. Substitution of Members. The Board of Directors may designate
one or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of such committee. In the absence
or disqualification of a member of a committee, the member or members present at
any meeting and not disqualified from voting, whether or not constituting a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of the absent or disqualified member.
ARTICLE V
OFFICERS
Section 1. Number, Titles and Term of Office. The officers of the
Corporation shall be a President, one or more Vice Presidents (any one or more
of whom may be designated Executive Vice President or Senior Vice President), a
Treasurer, a Secretary and, if the Board of Directors so elects, a Chairman of
the Board and such other officers as the Board of Directors may from time to
time elect or appoint. Each officer shall hold office until his successor shall
be duly elected and shall qualify or until his death or until he shall resign or
shall have been removed in the manner hereinafter provided. Any number of
offices may be held by the same person, unless the Certificate of Incorporation
provides otherwise. Except for the Chairman of the Board, if any, no officer
need be a director.
Section 2. Salaries. The salaries or other compensation of the officers and
agents of the Corporation shall be fixed from time to time by the Board of
Directors.
Section 3. Removal. Any officer or agent elected or appointed by the Board
of Directors may be removed, either with or without cause, by the vote of a
majority of the whole Board of Directors at a special meeting called for the
purpose, or at any regular meeting of the Board of Directors, provided the
notice for such meeting shall specify that the matter of any such proposed
removal will be considered at the meeting but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not of itself create contract rights.
Section 4. Vacancies. Any vacancy occurring in any office of the
Corporation may be filled by the Board of Directors.
Section 5. Powers and Duties of the Chief Executive Officer. The President
shall be the chief executive officer of the Corporation unless the Board of
Directors designates the Chairman of the Board as chief executive officer.
Subject to the control of the Board of Directors and the executive committee (if
any), the chief executive officer shall have general executive charge,
management and control of the properties, business and operations of the
Corporation with all such powers as may be reasonably incident to such
responsibilities; he may agree upon and execute all leases, contracts, evidences
of indebtedness and other obligations in the name of the Corporation and may
sign all
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certificates for shares of capital stock of the Corporation; and shall have such
other powers and duties as designated in accordance with these bylaws and as
from time to time may be assigned to him by the Board of Directors.
Section 6. Powers and Duties of the Chairman of the Board. If elected, the
Chairman of the Board shall preside at all meetings of the stockholders and of
the Board of Directors; and he shall have such other powers and duties as
designated in these bylaws and as from time to time may be assigned to him by
the Board of Directors.
Section 7. Powers and Duties of the President. Unless the Board of
Directors otherwise determines, the President shall have the authority to agree
upon and execute all leases, contracts, evidences of indebtedness and other
obligations in the name of the Corporation; and, unless the Board of Directors
otherwise determines, he shall, in the absence of the Chairman of the Board or
if there be no Chairman of the Board, preside at all meetings of the
stockholders and (should he be a director) of the Board of Directors; and he
shall have such other powers and duties as designated in accordance with these
bylaws and as from time to time may be assigned to him by the Board of
Directors.
Section 8. Vice Presidents. In the absence of the President, or in the
event of his inability or refusal to act, a Vice President designated by the
Board of Directors shall perform the duties of the President, and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President. In the absence of a designation by the Board of Directors of a Vice
President to perform the duties of the President, or in the event of his absence
or inability or refusal to act, the Vice President who is present and who is
senior in terms of time as a Vice President of the Corporation shall so act. The
Vice Presidents shall perform such other duties and have such other powers as
the Board of Directors may from time to time prescribe.
Section 9. Treasurer. The Treasurer shall have responsibility for the
custody and control of all the funds and securities of the Corporation, and he
shall have such other powers and duties as designated in these bylaws and as
from time to time may be assigned to him by the Board of Directors. He shall
perform all acts incident to the position of Treasurer, subject to the control
of the chief executive officer and the Board of Directors; and he shall, if
required by the Board of Directors, give such bond for the faithful discharge of
his duties in such form as the Board of Directors may require.
Section 10. Assistant Treasurers. Each Assistant Treasurer shall have the
usual powers and duties pertaining to his office, together with such other
powers and duties as designated in these bylaws and as from time to time may be
assigned to him by the chief executive officer or the Board of Directors. The
Assistant Treasurers shall exercise the powers of the Treasurer during that
officer's absence or inability or refusal to act.
Section 11. Secretary. The Secretary shall keep the minutes of all meetings
of the Board of Directors, committees of directors and the stockholders, in
books provided for that purpose; he shall attend to the giving and serving of
all notices; he may in the name of the Corporation affix the seal of the
Corporation to all contracts of the Corporation and attest the affixation of the
seal of the Corporation thereto; he may sign with the other appointed officers
all certificates for shares of capital stock of the Corporation; he shall have
charge of the certificate books, transfer books and stock
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ledgers, and such other books and papers as the Board of Directors may direct,
all of which shall at all reasonable times be open to inspection of any director
upon application at the office of the Corporation during business hours; he
shall have such other powers and duties as designated in these bylaws and as
from time to time may be assigned to him by the Board of Directors; and he shall
in general perform all acts incident to the office of Secretary, subject to the
control of the chief executive officer and the Board of Directors.
Section 12. Assistant Secretaries. Each Assistant Secretary shall have the
usual powers and duties pertaining to his office, together with such other
powers and duties as designated in these bylaws and as from time to time may be
assigned to him by the chief executive officer or the Board of Directors. The
Assistant Secretaries shall exercise the powers of the Secretary during that
officer's absence or inability or refusal to act.
Section 13. Action with Respect to Securities of Other Corporations. Unless
otherwise directed by the Board of Directors, the chief executive officer shall
have power to vote and otherwise act on behalf of the Corporation, in person or
by proxy, at any meeting of security holders of or with respect to any action of
security holders of any other corporation in which this Corporation may hold
securities and otherwise to exercise any and all rights and powers which this
Corporation may possess by reason of its ownership of securities in such other
corporation.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS
Section 1. Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she or a person
of whom he or she is the legal representative, is or was or has agreed to become
a director or officer of the Corporation or is or was serving or has agreed to
serve at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director or officer or in any other capacity while serving or having agreed to
serve as a director or officer, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended, (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than said law permitted the
Corporation to provide prior to such amendment) against all expense, liability
and loss (including without limitation, attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to serve in the
capacity which initially entitled such person to indemnity hereunder and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof)
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was authorized by the board of directors of the Corporation. The right to
indemnification conferred in this Article VI shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a current, former or proposed director or officer in
his or her capacity as a director or officer or proposed director or officer
(and not in any other capacity in which service was or is or has been agreed to
be rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such indemnified person, to repay all
amounts so advanced if it shall ultimately be determined that such indemnified
person is not entitled to be indemnified under this Section or otherwise.
Section 2. Indemnification of Employees and Agents. The Corporation may, by
action of its Board of Directors, provide indemnification to employees and
agents of the Corporation, individually or as a group, with the same scope and
effect as the indemnification of directors and officers provided for in this
Article.
Section 3. Right of Claimant to Bring Suit. If a written claim received by
the Corporation from or on behalf of an indemnified party under this Article VI
is not paid in full by the Corporation within ninety days after such receipt,
the claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
Section 4. Nonexclusivity of Rights. The right to indemnification and the
advancement and payment of expenses conferred in this Article VI shall not be
exclusive of any other right which any person may have or hereafter acquire
under any law (common or statutory), provision of the Certificate of
Incorporation of the Corporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 5. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any person who is or was serving as a director,
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
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expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Section 6. Savings Clause. If this Article VI or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify and hold harmless each director and
officer of the Corporation, as to costs, charges and expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement with respect
to any action, suit or proceeding, whether civil, criminal, administrative or
investigative to the full extent permitted by any applicable portion of this
Article VI that shall not have been invalidated and to the fullest extent
permitted by applicable law.
Section 7. Definitions. For purposes of this Article, reference to the
"Corporation" shall include, in addition to the Corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger prior to (or, in the case of an entity specifically
designated in a resolution of the Board of Directors, after) the adoption hereof
and which, if its separate existence had continued, would have had the power and
authority to indemnify its directors, officers and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
ARTICLE VII
CAPITAL STOCK
Section 1. Certificates of Stock. The certificates for shares of the
capital stock of the Corporation shall be in such form, not inconsistent with
that required by law and the Certificate of Incorporation, as shall be approved
by the Board of Directors. The Chairman of the Board (if any), President or a
Vice President shall cause to be issued to each stockholder one or more
certificates, under the seal of the Corporation or a facsimile thereof if the
Board of Directors shall have provided for such seal, and signed by the Chairman
of the Board (if any), President or a Vice President and the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer certifying the
number of shares (and, if the stock of the Corporation shall be divided into
classes or series, the class and series of such shares) owned by such
stockholder in the Corporation; provided, however, that any of or all the
signatures on the certificate may be facsimile. The stock record books and the
blank stock certificate books shall be kept by the Secretary, or at the office
of such transfer agent or transfer agents as the Board of Directors may from
time to time by resolution determine. In case any officer, transfer agent or
registrar who shall have signed or whose facsimile signature or signatures shall
have been placed upon any such certificate or certificates shall have ceased to
be such officer, transfer agent or registrar before such certificate is issued
by the Corporation, such certificate may nevertheless be issued by the
Corporation with the same effect as if such person were such officer, transfer
agent or registrar at the date of issue. The stock certificates shall be
consecutively numbered
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and shall be entered in the books of the Corporation as they are issued and
shall exhibit the holder's name and number of shares.
Section 2. Transfer of Shares. The shares of stock of the Corporation shall
be transferable only on the books of the Corporation by the holders thereof in
person or by their duly authorized attorneys or legal representatives upon
surrender and cancellation of certificates for a like number of shares. Upon
surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
Section 3. Ownership of Shares. The Corporation shall be entitled to treat
the holder of record of any share or shares of capital stock of the Corporation
as the holder in fact thereof and, accordingly, shall not be bound to recognize
any equitable or other claim to or interest in such share or shares on the part
of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of the State of Delaware.
Section 4. Regulations Regarding Certificates. The Board of Directors shall
have the power and authority to make all such rules and regulations as they may
deem expedient concerning the issue, transfer and registration or the
replacement of certificates for shares of capital stock of the Corporation.
Section 5. Lost or Destroyed Certificates. The Board of Directors may
determine the conditions upon which a new certificate of stock may be issued in
place of a certificate which is alleged to have been lost, stolen or destroyed;
and may, in their discretion, require the owner of such certificate or his legal
representative to give bond, with sufficient surety, to indemnify the
Corporation and each transfer agent and registrar against any and all losses or
claims which may arise by reason of the issue of a new certificate in the place
of the one so lost, stolen or destroyed.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation shall be such as
established from time to time by the Board of Directors.
Section 2. Corporate Seal. The Board of Directors may provide a suitable
seal, containing the name of the Corporation. The Secretary shall have charge of
the seal (if any). If and when so directed by the Board of Directors or a
committee thereof, duplicates of the seal may be kept and used by the Treasurer
or by the Assistant Secretary or Assistant Treasurer.
Section 3. Notice and Waiver of Notice. Whenever any notice is required to
be given by law, the Certificate of Incorporation or under the provisions of
these bylaws, said notice shall be deemed to be sufficient if given (i) by
telegraphic, cable or wireless transmission or (ii) by deposit of the same in a
post office box in a sealed prepaid wrapper addressed to the person entitled
thereto at his post
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office address, as it appears on the records of the Corporation, and such notice
shall be deemed to have been given on the day of such transmission or mailing,
as the case may be.
Whenever notice is required to be given by law, the Certificate of
Incorporation or under any of the provisions of these bylaws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice unless so required by the Certificate of Incorporation
or the bylaws.
Section 4. Resignations. Any director, member of a committee or officer may
resign at any time. Such resignation shall be made in writing and shall take
effect at the time specified therein, or if no time be specified, at the time of
its receipt by the chief executive officer or Secretary. The acceptance of a
resignation shall not be necessary to make it effective, unless expressly so
provided in the resignation.
Section 5. Facsimile Signatures. In addition to the provisions for the use
of facsimile signatures elsewhere specifically authorized in these bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors.
Section 6. Reliance upon Books, Reports and Records. Each director and each
member of any committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith upon the
books of account or reports made to the Corporation by any of its officers, or
by an independent certified public accountant, or by an appraiser selected with
reasonable care by the Board of Directors or by any such committee, or in
relying in good faith upon other records of the Corporation.
ARTICLE IX
AMENDMENTS
If provided in the Certificate of Incorporation of the Corporation, the
Board of Directors shall have the power to adopt, amend and repeal from time to
time bylaws of the Corporation, subject to the right of the stockholders
entitled to vote with respect thereto to amend or repeal such bylaws as adopted
or amended by the Board of Directors.
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Exhibit 5.1
[EMENS, KEGLER, BROWN, HILL & RITTER LETTERHEAD]
May 26, 1995
Goodrich Petroleum Corporation
5847 San Felipe, Suite 700
Houston, TX 77057
Gentlemen:
We have acted as counsel for Goodrich Petroleum Corporation ("Company")
in connection with the registration under the Securities Act of 1933, as
amended, of up to 46,436,554 shares of common stock, par value $.20 per share
("Common Stock") of the Company and up to 1,175,000 shares of preferred stock
("Preferred Stock"). In this connection, we have examined the Certificate of
Incorporation, the Bylaws and the respective amendments thereto, the directors'
and the stockholders' minutes and the Registration Statement filed with the
Securities and Exchange Commission, and the exhibits thereto, and such other
documents as we have deemed necessary to the opinion hereinafter expressed.
We are of the opinion that the Common Stock and Preferred Stock to be
issued by the Company is validly authorized and, upon its sale as contemplated
by the Registration Statement, will be legally issued, fully paid, and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Legal
Matters."
Very truly yours,
EMENS, KEGLER, BROWN, HILL & RITTER
CO., L.P.A.
By: JOHN R. THOMAS
___________________________________
John R. Thomas, Esq.
<PAGE> 1
PEAT MARWICK LLP
(LETTERHEAD)
May 22, 1995
Mr. Walter G. Goodrich
La/Cal Energy Partners
333 Texas Street, Suite 1300
Shreveport, Louisiana 71101
Dear Mr. Goodrich:
You have requested our opinion as to certain federal income tax consequences to
La/Cal Energy Partners (La/Cal), its partners (Partners), and Goodrich
Petroleum Corporation (GPC) resulting from an Agreement and Plan of Merger
(plan) dated March 10, 1995, pursuant to which GPC will acquire (i) certain
assets of La/Cal and (ii) the outstanding stock of Patrick Petroleum Company
(PPC) in exchange solely for GPC stock and the assumption by GPC of liabilities
of La/Cal. For purposes of this opinion, the acquisition by GPC of the assets
and stock described in the preceding sentence will sometimes be referred to as
the "Transfer", and La/Cal and the shareholders of PPC will sometimes be
referred to collectively as the "Transferors". As part of the plan, La/Cal will
dissolve and distribute the GPC stock and any remaining assets to its partners.
We have not reviewed the legal documents or statutes necessary to effectuate
the various steps involved in the Transfer and we assume that all steps will be
effectuated under applicable state and federal law and will be consistent with
the following facts submitted to us.
FACTS
La/Cal, a Louisiana partnership, is engaged in the ownership and development of
natural gas properties in Louisiana. It is a privately-owned partnership, the
principal owners of which are the H. Goodrich family, Rochelle Rand, and Leo E.
Bromberg, trustee for G&P.
PPC, a Delaware corporation, is an independent exploration and production
company listed on the New York stock exchange. It has outstanding
approximately 19,765,226 shares of common stock and 1,175,000 shares of Series
B preferred stock. B.A.R.D. Industries Inc. Is the principal shareholder of
PPC.
GPC, a newly-formed Delaware corporation, was created for the purpose of
effecting the Transfer.
Goodrich Acquisition, Inc. (INTERIM) is a newly-formed Delaware corporation
created for the sole purpose of effecting a statutory merger with and into PPC.
All of its outstanding stock is owned by GPC.
<PAGE> 2
Peat Marwick LLP
Mr. Walter G. Goodrich
La/Cal Energy Partners
May 22, 1995
Page 2
For valid corporate business purposes, the following plan is proposed:
La/Cal will transfer certain of its oil and gas assets, subject to liabilities,
set forth in Article IV of the plan (La/Cal assets) to GPC solely in exchange
for approximately 19,765,226 shares of GPC common stock, subject to possible
adjustments set forth in Article VII of the plan. La/Cal will dissolve and
distribute 19,521,095 shares of the GPC common stock and any remaining assets
(other than 494,131 shares of GPC common stock which will be transferred to Mr.
Leo E. Bromberg in exchange for services rendered to La/Cal (Excluded Stock))
to its partners in proportion to their partnership interests. GPC may transfer
the La/Cal assets to PPC. In such event, PPC will then transfer these assets to
Patrick Petroleum of Michigan, a wholly-owned subsidiary of PPC.
Concurrently with the transfer of assets by La/Cal, INTERIM will merge with and
into PPC under the merge statues of Delaware. PPC will survive the merger as a
wholly-owned subsidiary of GPC. Prior to the merger, GPC will transfer
sufficient shares of its common stock to INTERIM to effectuate the merger with
PPC. In the merger, the PPC shareholders will receive solely one share of GPC
common stock for each share of PPC common and one share of GPC nonvoting
preferred common stock for each share of PPC nonvoting preferred stock. The
common stock of INTERIM owned by GPC prior to the merger will be automatically
converted, on a share-for-share basis, into common stock of PPC.
After the Transfer, La/Cal and the shareholders of PPC will own all of the
outstanding stock of GPC.
We have received the following representations relating to the proposed
Transfer;
LA/CAL
REPRESENTATIONS AND INFORMATION
(a) The transfer and exchanges will occur under the Agreement and Plan of
Merger between La/Cal Energy Partners (La/Cal), Goodrich Petroleum
Corporation (GPC), Patrick Petroleum Company (PPC), and Goodrich
Acquisition, Inc. such agreement dated as of March 10, 1995
(unamended). This Plan of Merger has been agreed upon before the
transaction in which the rights of the parties are defined and all
exchanges will occur on approximately the same date.
(b) No stock will be issued for services rendered by La/Cal or the
partners of La/Cal (Partners) to or for the benefit of GPC in
connection with the transfer. However, for services rendered to
La/Cal, Mr. Leo E. Bomberg will received 494,131 shares of voting
stock in exchange for services. This will represent approximately
1.25% of the voting power of GPC after the transaction. (The 494,131
shares of GPC stock that will subsequently be transferred to La/Cal in
exchange for services rendered to La/Cal are collectively referred to
as the Excluded Stock.)
<PAGE> 3
Peat Marwick LLP
Mr. Walter G. Goodrich
La/Cal Energy Partners
May 22, 1995
Page 3
(c) No stock or securities will be issued to La/Cal in satisfaction of
indebtedness of GPC.
(d) None of the assets to be transferred to GPC were received by La/Cal as
part of the plan of liquidation of another corporation. There is no
knowledge on the part of Walter G. Goodrich, management committee
member of La/Cal that the assets to be transferred to GPC were
received as part of the plan of liquidation of another corporation.
(e) La/Cal has not accumulated receivables nor made extraordinary payment
of payables in anticipation of the transaction.
(f) Pursuant to the Agreement and Plan of Merger, La/Cal will be dissolved
and will distribute all of the stock (less the Excluded Stock) it
received in GPC (and other assets not received in this transaction) to
its partners in proportion to their partnership interests.
(g) La/Cal will not retain any rights in the property transferred to GPC.
(h) None of the property to be transferred from La/Cal to GPC will be
leased back to La/Cal or a related party.
(i) The value of the stock received by La/Cal in exchange for accounts
receivable will be equal to the net value of the accounts transferred,
i.e., the face amount of the accounts receivable previously included
in income less the reserve for bad debts.
(j) Liabilities of La/Cal to be assumed by GPC were incurred in the
ordinary course of business and are associated with the assets to be
transferred.
(k) There is no indebtedness between La/Cal and GPC and there will be no
indebtedness created in favor of La/Cal or the Partners as a result of
the transaction.
(l) There is no present plan or intention by La/Cal to dispose of the GPC
stock to be received in the transfer other than the distribution of
the GPC shares by La/Cal to the Partners in dissolution of La/Cal.
There is no present plan or intention by the Goodrich family,
including Goodrich Energy, Inc. or Rochelle Rand, or Leo E. Bromberg,
trustee for G&P to dispose of the GPC stock to be received in the
transaction. There is knowledge on the part of Walter G. Goodrich,
management committee member of any present plan or intention by the
remaining Partners to dispose of GPC stock to be received in the
transaction.
(m) La/Cal will receive stock of GPC approximately equals to the fair
market value of the property transferred to GPC.
<PAGE> 4
Peat Marwick LLP
Mr. Walter G. Goodrich
La/Cal Energy Partners
May 22, 1995
Page 4
(n) There are no loans, exchanges, or other transactions, except as may be
described in the Agreement and Plan of Merger by La/Cal or the
Partners that will occur in connection with the exchange.
(o) GPC will only pay expenses of La/Cal that are directly related to this
transaction. GPC will not pay any personal expenses of the Partners.
(p) La/Cal is not under the jurisdiction of a court in a title 11 or
similar case (within the meaning of section 368(3)(A)). To the best of
the knowledge of Walter G. Goodrich, management committee member,
there are no Partners under the jurisdiction of a court in a title 11
or similar case (within the meaning of section 368(a)(3)(A)).
(q) To the extent that La/Cal received GPC stock in exchange for property
(the fair market value of which differed from its adjusted basis at
the time contributed to La/Cal) that was contributed to la/Cal within
the five year period that ends with the date La/Cal will distribute
GPC stock to its partners in complete liquidation of their interests
in La/Cal, La/Cal will distribute the GPC stock received in exchange
for such contributed property to the partner who contributed the
property to La/Cal.
ASSUMPTION REGARDING
LA/CAL AND THE PARTNERS
At least one Partner contributed property (the fair market value of which
differed from its adjusted basis at the time contributed to La/Cal) to La/Cal
within the five year period that ends with the date La/Cal will distribute GPC
stock to its partners in complete liquidation of their interests in La/Cal.
PATRICK PETROLEUM CORPORATION
AND
GOODRICH PETROLEUM CORPORATION
REPRESENTATIONS AND INFORMATION
(a) The Patrick shareholders will receive Goodrich Petroleum stock
approximately equal to the fair market value of the property
transferred to Goodrich Petroleum.
(b) No stock will be issued for services rendered by the Patrick
Shareholders to or for the benefit of Goodrich Petroleum, Patrick, or
its affiliates in connection with the proposed transaction.
(c) The Patrick shareholders will not retain any rights in the property
transferred to Goodrich Petroleum.
<PAGE> 5
Peat Marwick LLP
Mr. Walter G. Goodrich
La/Cal Energy Partners
May 22, 1995
Page 5
(d) No liabilities of the Patrick shareholders will be assumed, nor will
any stock be transferred subject to a liability, in the transaction.
(e) There is no indebtedness between Goodrich Petroleum and the Patrick
shareholders, and there will be no indebtedness created in favor of the
Patrick shareholders as a result of proposed transactions.
(f) None of the property transferred to Goodrich Petroleum was received by
the Patrick shareholders as part of a plan of liquidation of another
corporation.
(g) Taking into account any issuance of additional shares of Goodrich
Petroleum stock; any issuance of stock for services; the exercise of
any Goodrich Petroleum stock rights, warrants, or subscriptions; a
public offering of Goodrich Petroleum stock; and the sale, exchange,
transfer by gift, or other disposition of any of the stock of Goodrich
Petroleum to be received in the exchange, the La/Cal partners and the
Patrick shareholders will be in control of Goodrich Petroleum within
the meaning of section 368(c), because they will collectively hold at
least 80 percent of the Goodrich Petroleum voting stock and at least
80 percent of each other class of Goodrich Petroleum stock.
(h) There is no plan or intention by Goodrich Petroleum to dispose of any
of the transferred property other than the proposed contribution to
Patrick, and subsequent contribution to Patrick to Michigan. Both
Patrick and Michigan will remain in existence and retain and use the
property transferred to them by Goodrich Petroleum in a trade or
business, with no plan or intention to dispose of the property other
than the proposed transfer of the property to Michigan.
(i) None of the property being transferred to Goodrich Petroleum will be
leased back to La/Cal, its partners, the Patrick shareholders, or to a
related party.
(j) There is no plan or intention on the part of Goodrich Petroleum to
redeem or otherwise reacquire any stock to issued in the proposed
transaction.
(k) Neither Goodrich Petroleum, Patrick, nor Michigan will be investment
companies within the meaning of section 351(e)(1) and section
1.351-1(c)(1)(ii) of the Income Tax Regulations (the "Regulations")
because less than 80 percent of their assets will consist of readily
marketable stock or securities, or regulated investment companies or
real estate investment trusts. For purposes of this representation,
each company holding stock, which represents a 50 percent or greater
interest of a corporation, will be treated as owning pro rata the
assets of the 50 percent or more owned company.
(l) Each of the parties to the transaction will pay its own expenses, if
any, other than expenses solely and directly related to the proposed
transaction.
<PAGE> 6
Peat Marwick LLP
Mr. Walter G. Goodrich
La/Cal Energy Partners
May 22, 1995
Page 6
(m) Patrick management knows of no plan or intention on the part of
Patrick shareholders to dispose of the Goodrich stock received in the
transaction. There are no Patrick shareholders who, after the
transaction, will own 5% or more of the Goodrich Petroleum common
stock or 5% or more of the Goodrich Petroleum preferred stock other
than B.A.R.D. Industries Inc. who will own approximately 8% of the
Goodrich Petroleum common stock.
(n) Patrick is not under the jurisdiction of a court in a title 11 or
similar case (within the meaning of section 368(a)(3)(A)).
OPINION
FEDERAL INCOME TAX CONSEQUENCES
Based solely on the above facts, representations, and assumption, it is our
opinion that:
(1) Except as set forth in (2) below, no gain or loss will be recognized
to La/Cal on the transfer of its assets to GPC solely in exchange for
common stock of GPC and the assumption by GPC of liabilities of
La/Cal. Section 351(a) of the Code. See also, Rev. Rule. 67-448 and
Rev. Rule. 73-427. In addition, the distribution of the GPC common
stock by La/Cal to its partners pursuant to the plan will not violate
the control requirement of section 368(c). Rev. Rule. 84-111. 1984-2
C.B. 8.
(2) Gain will be recognized by La/Cal in an amount equal to the excess of
the sum of the amount of La/Cal's liabilities assumed by the Company
plus the amount of La/Cal liabilities to which the transferred
property is subject over the total adjusted basis of the property
transferred by La/Cal in the exchange. The amount of gain recognized
by La/Cal will be approximately $6.4 million. Section 357(c).
(3) The aggregate basis of the common stock received by La/Cal will be
equal to the basis of the assets exchanged therefor, reduced by the
sum of the liabilities assumed by GPC or to which the transferred
assets are subject, and increased by the gain recognized by La/Cal in
the exchange. Section 358(a)(1) and (d).
(4) The holding period of the stock of GPC received by La/Cal will include
the period during which the assets exchanged therefor was held,
provided that such assets were capital assets on the date of the
Transfer. Section 1223. To the extent the GPC stock is received in
exchange for neither a capital asset nor a section 1231 asset,
La/Cal's holding period for such stock will begin on the day following
the date of the exchange.
<PAGE> 7
Peat Marwick LLP
Mr. Walter G. Goodrich
La/Cal Energy Partners
May 22, 1995
Page 7
(5) No gain or loss will be recognized by GPC on the receipt of the
assets, subject to liabilities, of La/Cal in exchange solely for
common stock of GPC and the assumption by GPC of the liabilities of
La/Cal. Section 1032.
(6) The basis of the assets of La/Cal in the hands of GPC will be the same
as the basis of those assets in the hands of La/Cal immediately prior
to the transfer described above, increased by the amount of gain
recognized to La/Cal (due to the transfer to GPC). Section 362(b).
(7) The holding period of the assets transferred to GPC will include the
period during which such assets were held by La/Cal. Section 1223.
(8) Each Partner, in determining the Partner's income tax, must take into
account the Partner's distributive share, if any, of the gain
recognized by La/Cal pursuant to (2) above.
(9) A Partner's adjusted basis in its La/Cal partnership interest is (a)
increased to the extent of the Partner's distributive share, if any,
of the gain recognized by La/Cal pursuant to (2) above and (b)
decreased (but not below zero) by the sum of (i) the Partner's share
of La/Cal liabilities assumed by GPC and (ii) the Partner's share of
the La/Cal liabilities to which the transferred property is subject.
(10) A Partner receives a deemed distribution of money in an amount equal
to the sum of (i) the Partner's share of La/Cal liabilities assumed by
GPC and (ii) the Partner's share of the La/Cal liabilities to which
the transferred property is subject. Section 752(b). To the extent of
the Partner's distributive share of income for La/Cal's taxable year,
the deemed distribution is taken into account at the end of La/Cal's
taxable year. Rev. Rule. 94-4, 1994-1 C.B. 196. Otherwise, the deemed
distribution is taken into account when GPC assumes La/Cal liabilities
and La/Cal transfers property subject to a liability. The Partner will
recognize gain to the extent a distribution of money (including a
deemed distribution) exceeds the adjusted basis of the Partner's
interest immediately before the distribution occurs.
(11) Except as set forth in (10) above, neither La/Cal nor its Partners
will recognize gain or loss on the distribution of all of the La/Cal
assets (including 19,251,095 shares of GPC stock) to the Partners in
complete liquidation of the Partner's interests in La/Cal.
(12) Provided that a Partner receives an asset other than money, unrealized
receivables (as defined in section 751(c)), and inventory (as defined
in section 751(d)(2)), as part of the distribution in complete
liquidation of the Partner's interests in La/Cal, the aggregate basis
of the assets distributed to the partner will equal the Partner's
adjusted basis in the La/Cal partnership interest, reduced by any
money distributed to the Partner.
<PAGE> 8
PEAT MARWICK LLP
(LETTERHEAD)
Mr. Walter G. Goodrich
La/Cal Energy Partners
May 22, 1995
Page 8
(13) The holding period of the GPC stock distributed to the Partners in
complete liquidation of their La/Cal partnership interests will include
the holding period of La/Cal (as determined under section 1223) with
respect to the GPC Stock. See (4) above for La/Cal's holding period.
Except to the extent specifically provided herein, no opinion is expressed or
implied concerning the federal income tax consequences of the plan described
in the facts above. Specifically, no opinion is expressed with respect to the
transfer by La/Cal of 494,131 shares of common stock to Mr. Leo E. Bromberg in
exchange for services rendered to La/Cal.
Our opinion is based upon the facts, assumptions, and representations set forth
in this letter. If any fact, assumption, or representation is not entirely
complete or accurate, it is imperative that we be informed immediately as the
incompleteness or inaccuracy could have a material effect on our conclusions.
In rendering our opinion, we have relied upon the relevant provisions of the
Internal Revenue Code, the regulations thereunder, and judicial and
administrative interpretations thereof, which are subject to change or
modification by subsequent legislative, regulatory, administrative, or judicial
decisions. Any such changes could have an effect on the validity of our
opinion. We assume no duty to inform you of any changes in our opinion
hereafter due to any change in law or fact which may hereafter occur or come to
our attention.
Our opinion is effective as of the date hereof.
KMPG Peat Marwick LLP
<PAGE> 1
EXHIBIT 6.02(o)
JOINT PARTICIPATION AGREEMENT
This Agreement is made and effective as of the date hereinafter set
forth, by and between GOODRICH OIL COMPANY, a Louisiana corporation with
principal offices in Shreveport, Louisiana, at 333 Texas Street, Suite 1350,
Shreveport, Louisiana, 71101 (hereinafter referred to as "GOC"), and GOODRICH
PETROLEUM CORPORATION, a Delaware corporation with principal offices in
Houston, Texas, at 5847 San Felipe, Suite 700, Houston, Texas 77057
(hereinafter referred to as "GPC").
WHEREAS, GOC is in the business of acquiring certain rights in oil and
gas leases for the purpose of engaging in oil and gas drilling and producing
activities on Prospects (hereinafter defined) and is in the business of
acquiring, from time to time, producing oil and gas properties; and
WHEREAS, GPC is in the business of acquiring certain rights in oil and
gas leases for the purpose of engaging in oil and gas drilling and producing
activities on Prospects (hereinafter defined); and
WHEREAS, GPC desires the right to acquire from time to time through
December 31, 2000, a fifty percent (50%) participation in GOC's New Prospects
and New Acquisitions (hereinafter defined); and
WHEREAS, GOC desires the right to acquire from time to time through
December 31, 2000, a fifty percent (50%) participation in GPC's New Prospects
and New Acquisitions; and
WHEREAS, GOC and GPC desire to grant each other such participation
rights, subject to the terms and conditions hereinafter set forth:
NOW THEREFORE, for and in consideration of the mutual promises and
covenants herein contained, it is agreed by the parties hereto as follows:
1. TERM
The term of this Agreement shall commence as of the effective date of
this Agreement, that being the date upon which the Agreement and Plan of Merger
between La/Cal Energy Partners, Goodrich Petroleum Corporation, Patrick
Petroleum Company and Goodrich Acquisition, Inc. is effective (the "Effective
Date"), and shall terminate on the earlier to occur of (a) December 31, 2000,
or (b) the termination of all employment relationships, consulting agreements
and board memberships of both Henry Goodrich and Walter G. Goodrich with GPC.
1
<PAGE> 2
2. DEFINITIONS
2.1 Lease. The term "Lease" or "Leases" shall mean oil, gas and
mineral leases, licenses, permits and similar arrangements, and any interest
therein or related thereto, including, without limitation, working interests,
royalty interests, overriding royalty interests and farmouts or farmins.
2.2 Prospect. The term "Prospect" shall mean all land surrounding a
proposed well and the Leases affecting such land which, in the opinion of the
Proposing Party based on geological reason and logic, bears sands or formations
potentially productive of oil, gas or other hydrocarbons. Such land areas may
be enlarged or reduced from time to time by the Proposing Party, upon written
notice to the Electing Party, on the basis of any subsequently acquired
geological or engineering data which, in the opinion of the Proposing Party,
defines the productive limits of any reservoir that may be discovered in the
original area encompassed therein.
2.3 Proposing Party. The term "Proposing Party," with respect to any
given Prospect, shall mean the party, either GOC or GPC, which generates the
Prospect and presents the Prospect to the other party.
2.4 Electing Party. The term "Electing Party," with respect to any
given Prospect, shall mean the party, either GOC or GPC, other than the
Proposing Party with respect to that Prospect.
2.5 Excluded Prospect. The term "Excluded Prospect" shall mean any
Prospect of GOC or GPC which has been developed and generated as of the
Effective Date. On or prior to the Effective Date, each party will provide the
other with a written, detailed list of Excluded Prospects, which lists shall be
conclusive as to whether a prospect is to be treated as an Excluded Prospect
under the terms of this Agreement.
2.6 New Prospect. The term "New Prospect" shall mean any Prospect,
other than an Excluded Prospect which is developed or generated by either party
during the term thereof.
2.7 New Acquisition. The term "New Acquisition" shall mean any
purchase, exchange or other acquisition by a party during the term hereof of
Leases which have existing production of hydrocarbons attributable thereto at
the time of the acquisition.
3. OBLIGATION TO OFFER NEW PROSPECTS AND NEW ACQUISITIONS
During the term hereof, GOC, as the Proposing Party, shall give GPC
written notice with respect to each of GOC's New Prospects and New
Acquisitions. During the term hereof, GPC, as the Proposing Party, shall give
GOC written notice with respect to each of GPC's New Prospects. (GPC shall have
no obligation hereunder to offer its New Acquisitions to GOC.) Such written
notice shall specify the geographical boundaries of the New Prospect or New
Acquisition, the anticipated percentage interest of the total leasehold
interests included within such boundaries, and the anticipated percentage
interest of the Electing Party within such New Prospect or New Acquisition. For
New Prospects, the written notice shall also include information in reasonable
detail concerning
2
<PAGE> 3
the target sand(s) or formation(s) for the prospect, the geological or other
basis for proposing the prospect, and the estimated cost and timing of the well
or wells to be drilled on the prospect. For New Acquisitions, the written
notice shall also include information in reasonable detail concerning the
nature and extent of the existing production, including reserve reports, the
terms of the acquisition, and any plans or expectations for future development
of the property to be acquired.
4. ELECTION TO PARTICIPATE.
The Election Party shall have thirty (30) days from its receipt of each
notice given pursuant to paragraph 3 above to elect in writing to participate
in each New Prospect or New Acquisition. Any failure on the part of the
Electing Party to timely elect to participate in a New Prospect or New
Acquisition shall be deemed to be an election to participate in that New
Prospect or New Acquisition.
5. EFFECT OF ELECTION NOT TO PARTICIPATE.
In the event the Electing Party elects not to participate in any given
New Prospect or New Acquisition, the Electing Party shall have no participation
rights with respect to that particular New Prospect or New Acquisition and
shall have no rights with respect to any future development or operations
related thereto. Such events, however, shall not affect the Proposing Party's
obligation to give written notice to the Electing Party of New Prospects or New
Acquisitions which are thereafter developed or generated by the Proposing Party
and shall not affect the Electing Party's right to elect to participate in such
New Prospects or New Acquisitions.
6. EFFECT OF ELECTION TO PARTICIPATE.
With respect to each New Prospect or New Acquisition in which the
Electing Party elects to participate, the Electing Party shall be entitled to
receive from the Proposing Party an undivided fifty percent (50%) of the
Proposing Party's interest in such New Prospect or New Acquisition. The
Electing Party shall pay or reimburse the Proposing Party for the Electing
Party's proportionate share of all actual lease acquisition costs and all
actual development, drilling, completion, equipping and operating costs related
to such New Prospect or New Acquisition. An election to participate in a New
Prospect shall constitute an agreement to participate, through completion, in
the initial well proposed in the Prospect, and the Electing Party shall have no
right to go "nonconsent" with respect to such well. As to subsequent wells or
operations on each such Prospect, either party shall have such rights to either
consent or not consent as are contained in the Operating Agreement indentified
in paragraph 7 below.
7. ASSIGNMENTS TO THE ELECTING PARTY.
The Proposing Party, from time to time, will assign to the Electing
Party its proportionate interest in the Leases affecting New Prospects or New
Acquisitions in which the Electing Party elects to participate (the
"Assignments"). It is specifically agreed that each Assignment will convey to
the Electing Party an undivided interest in the Proposing Party's right, title
3
<PAGE> 4
and interest only, will be without warranty of title except as to claims by,
through or under the Proposing Party, and will be subject to all of the terms,
conditions, royalty interests, and encumbrances under which the Proposing Party
shall hold its interest in said Leases at the time of the Assignment. In this
regard, the Proposing Party's records regarding underlying Leases, assignments,
or agreements affecting the assigned Leases shall be furnished to the Electing
Party upon request. All Leases assigned to the Electing Party hereunder shall
be subject to all terms and conditions of an operating agreement substantially
in the form of the Model Form Operating Agreement, A.A.P.L. Form 610-1982 (the
"Operating Agreement"), attached hereto as Exhibit A. The Operating Agreement
may cover many Leases in many states, as descriptions of the various Leases are
added to it from time to time.
8. OBLIGATIONS OF THE ELECTING PARTY.
With respect to New Prospects in which the Electing Party has elected
to participate, it is understood and agreed that the Electing Party will be
obligated, upon notification, and in proportion to the interest assigned, to
drill wells, pay rentals and comply with any and all conditions and terms of
this Agreement and the applicable underlying Leases, and any assignments and
agreements to which the parties or the Leases may be subject. Further, the
Electing Party agrees to pay all invoices relating to expenses which may be
incurred under this Agreement or pursuant to this Electing Party has received
notice of the amounts due, shall, at the Proposing Party's election, give the
Proposing Party (a) a lien on the Electing Party's interest in the Leases, (b)
the right to refuse to assign any Leases which have not already been assigned
to the Electing Party hereunder, and (c) the right to set off any and all
amounts payable by the Proposing Party to the Electing Party, from whatever
source, against any amounts due hereunder from the Proposing Party to the
Electing Party. The foregoing shall be in addition to any other legal remedies
which the Proposing Party may have against the Electing Party.
9. ASSIGNABILITY OF LEASES.
The Leases covered hereby may be assigned or conveyed in whole or in
part by either party at any time; provided, however, that any such assignment
shall be subject to this Agreement in its entirety and that the non-assigning
party shall be given a copy of such assignment within a reasonable time.
10. ASSIGNABILITY OF RIGHTS UNDER THIS AGREEMENT.
The rights of the parties under this Agreement shall not
be assignable, in whole or in part, by either party, without the express
written consent of the other party.
4
<PAGE> 5
11. NOTICES.
Unless otherwise provided herein, all notices to be given under the
terms of this Agreement shall be effective when sent by regular or certified
mail, with proper postage affixed and properly addressed as follows:
GOODRICH OIL COMPANY
333 Texas Street, Suite 1350
Shreveport, Louisiana 71101
GOODRICH PETROLEUM CORPORATION
5847 San Felipe, Suite 700
Houston, Texas 77057
12. SUCCESSORS AND ASSIGNS.
The provisions of this Agreement are binding upon the parties hereto
and their respective heirs, legal representatives, successors, and assigns. Any
conditions hereunder can be waived by the Party entitled to the benefit of such
condition.
13. SURVIVAL OF RIGHTS AND OBLIGATIONS.
The rights and obligations of the parties hereunder with respect to
those New Prospects and New Acquisitions in which the Electing Party elects to
participate shall survive any termination of this Agreement.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the Effective Date.
GOODRICH OIL COMPANY
By:
---------------------------------
Henry Goodrich, President
GOODRICH PETROLEUM CORPORATION
By:
---------------------------------
U. E. Patrick Chairman
5
<PAGE> 1
AGENCY/MARKETING RIGHTS AGREEMENT
This Agreement is entered into as of the Effective Date (defined
below), by and between Natural Gas Ventures, L.L.C. ("Ventures"), a Louisiana
limited liability company, and Goodrich Petroleum Corporation ("Goodrich"), a
Delaware corporation, which declare and agree as follows:
1. REPRESENTATIONS.
1.1 Ventures has entered into a Natural Gas Joint Venture
Agreement (the "Joint Venture Agreement"), dated as of June 1, 1994,
with Seaber Corporation of Louisiana ("Seaber"), pursuant to which
Seaber has agreed to provide natural gas marketing services to Ventures
with respect to natural gas owned or controlled by Ventures. A copy of
the Joint Venture Agreement is attached hereto as Exhibit A.
1.2 Goodrich owns or controls natural gas production which
Goodrich desires to place under the control of Ventures for the purpose
of marketing such natural gas production under the Joint Venture
Agreement with Seaber.
1.3 Ventures desires to represent Goodrich by placing
Goodrich's natural gas under the Joint Venture Agreement with Seaber.
2. AGENCY.
2.1 Subject to the terms and provisions herein contained,
Goodrich hereby designates Ventures as its agent and attorney-in-fact
for the purpose of marketing specified volumes of Goodrich's natural
gas pursuant to the Joint Venture Agreement with Seaber.
3. TERM.
3.1 This Agreement shall commence as of the Effective Date,
that being the date upon which the Agreement and Plan of Merger between
La/Cal Energy Partners, Goodrich, Patrick Petroleum Company and
Goodrich Acquisition, Inc. becomes effective. This Agreement shall
terminate upon the earlier to occur of (1) the termination of the Joint
Venture Agreement or (2) Goodrich giving Ventures sixty (60) days'
prior written notice of its intent to terminate this Agreement. No
termination of this Agreement shall affect or impair any rights or
obligations under gas sales or purchase agreements which are in
existence as of the time this Agreement is terminated.
4. QUANTITIES/VOLUMES OF NATURAL GAS.
4.1 Goodrich shall, from time to time, identify natural gas
production which is owned or controlled by Goodrich and which is to be
covered by this Agreement in Exhibit B, attached hereto. Such volumes
of natural gas identified on Exhibit B shall be hereafter
<PAGE> 2
referred to as "Contributed Volumes." Goodrich may amend or modify Exhibit B at
any time and from time to time to add additional volumes or to remove existing
volumes of natural gas. Notice of any such amendments or modifications shall be
given in writing by Goodrich to Ventures and shall be effective ten (10) days
after receipt by Ventures. No amendment or modification of the Contributed
Volumes shall affect or impair any rights or obligations under gas sales or
purchase agreements which are in existence as of the time of the amendment or
modification.
5. CONTRACTING.
5.1 Goodrich shall submit to Ventures an approved list of qualified
buyers of the Contributed Volumes, which shall be incorporated herein as
Exhibit C. Goodrich may amend or modify the approved list of buyers at any time
and from time to time, by giving written notice thereof to Ventures. Ventures,
through the Joint Venture Agreement, shall arrange for the sale of the
Contributed Volumes to buyers from the approved list, and shall execute
contracts, issue nomination notices, transportation nominations and dispatching
communications, shall request transportation rate discounts when appropriate,
and shall cause deliveries of gas to be made in order to fulfill such
arrangements for the sale of the Contributed Volumes.
5.2 In the event Ventures is unable to arrange for the sale of any
portion of the Contributed Volumes, Ventures will give written notice thereof
to Goodrich as soon as possible under the circumstances. In such event,
Ventures will have no liability or responsibility to Goodrich for that portion
of the Contributed Volumes which Ventures is unable to arrange for sale.
6. TRANSPORTATION.
6.1 Ventures, through the Joint Venture Agreement, shall enter into
all necessary transportation agreements in order to effect the receipt and
delivery of the Contributed Volumes. Goodrich will provide Ventures with any
necessary approvals to allow transportation of the Contributed Volumes.
Goodrich and Ventures will work together to ensure that actual deliveries fall
within the transporting pipelines' operating tolerance for assessing scheduling
and imbalance penalties. The party causing or having notice of any change in
the dispatched quantities of gas will immediately notify the other party of the
variances and the parties shall work together to attempt to eliminate any
imbalances within the time period allowed for cure under the applicable
pipeline tariffs. Goodrich shall pay or reimburse Ventures for any scheduling
or imbalance penalty for which Ventures is liable under the Joint Venture
Agreement, unless such penalty results from the negligence of Ventures.
7. MEASUREMENT.
7.1 The Contributed Volumes shall be measured by Goodrich or Goodrich's
representative, at the receipt point(s) in accordance with approved industry
practices.
<PAGE> 3
8. BILLINGS AND PAYMENT.
8.1 Ventures will pay Goodrich for the Contributed Volumes
actually delivered within days after the receipt of Goodrich's
invoice, but not earlier than the day of the [second] month
following the month of delivery. If the payment date falls on a
Saturday, Sunday or other legal holday, payment will be made on the
next business day.
9. MARKETING FEE.
9.1 Goodrich shall pay or reimburse Ventures for the
marketing fee charged by Seaber under the Joint Venture Agreement, that
being a fee in the amount of three quarters of one percent (0.0075) of
the price paid per MMBtu for each MMBtu of Contributed Volumes actually
delivered under this Agreement.
10. PROFIT SHARING.
10.1 Pursuant to paragraph 11 and 12 of the Terms and
Conditions to the Joint Venture Agreement, Ventures has certain rights
to share in the profit of Seaber on a calendar year basis (the "Profit
Sharing"). In the event Goodrich has contributed volumes of natural gas
to this Agreement during the month of December in an applicable
calendar year, Goodrich will be entitled to participate in any Profit
Sharing revenues received by Ventures for such calendar year.
Goodrich's participation interest in such Profit Sharing revenues will
be determined by a fraction, the numerator of which shall be the total
Contributed Volumes of gas actually delivered by Goodrich during the
applicable calendar year and the denominator of which shall be the
total volume of gas marketed by Seaber during the applicable year.
Goodrich's share of any such Profit Sharing revenues shall be paid to
Goodrich within thirty (30) days after the Profit Sharing revenues are
received by Ventures. In the event Goodrich does not contribute
volumes of natural gas to this Agreement during the month of December
in an applicable year, Goodrich shall not be entitled to participate in
the Profit Sharing revenues.
11. EQUITY CONVERSION.
11.1 Pursuant to paragraph 13 of the Terms and Conditions to
the Joint Venture Agreement, Ventures has certain rights to convert
accrued but unpaid profits (the "Receivable") into common stock of
Seaber ("Common Stock"). As between Ventures and Goodrich, Ventures
shall have the sole right to determine whether to convert the
Receivable to Common Stock. In the event Ventures has the right to and
elects to convert to Common Stock and in the event Goodrich has
contributed volumes of natural gas to this Agreement during the last
month of deliveries under the Joint Venture Agreement, Goodrich will be
entitled to receive a proportionate share of such Common Stock actually
received by Ventures. Goodrich's proportionate share of the Common
Stock will be determined by a fraction, the numerator of which shall be
the total Contributed Volumes actually delivered by Goodrich during the
term of this Agreement and the denominator of which shall be the total
volumes of gas marketed by Seaber during the term of the Joint Venture
Agreement.
<PAGE> 4
Goodrich's share of any such Common Stock shall be delivered to
Goodrich within thirty (30) days after the Common Stock is received by
Ventures. In the event Goodrich does not contribute volumes of natural
gas to this Agreement during the last month of deliveries under the
Joint Venture Agreement, Goodrich will not be entitled to receive any
Common Stock.
11.2 In the event Ventures does not elect to convert the
Receivable into Common Stock and in the event Goodrich contributes
volumes of natural gas to this Agreement during the last month of
deliveries under the Joint Venture Agreement, Goodrich will be entitled
to participate in the Receivable, if and when received by Ventures.
Goodrich's proportionate share of the Receivable will be determined by
a fraction, the numerator of which shall be the total Contributed
Volumes actually delivered by Goodrich during the term of this
Agreement and the denominator of which shall be the total volume of gas
marketed by Seaber during the term of the Joint Venture Agreement.
Goodrich's share of the Receivable shall be paid to Goodrich within
thirty (30) days after the Receivable is received by Ventures. In the
event Goodrich does not contribute volumes of natural gas to this
Agreement during the last month of deliveries under the Joint Venture
Agreement, Goodrich will not be entitled to receive any portion of the
Receivable.
12. ASSIGNMENT.
12.1 This Agreement may not be assigned by either party
without the express written consent of the other party.
13. CONFIDENTIALITY.
13.1 The terms of this Agreement, and all information
between the parties hereto, shall be kept confidential, except as
necessary to effect transportation or as required by law, regulation or
order of any governmental authority.
14. INDEMNIFICATION.
14.1 Goodrich agrees to indemnify Ventures and save Ventures
harmless from all suits, actions, debts, accounts, damages, losses and
expenses arising from or out of adverse claims of any or all persons to
the Contributed Volumes or to royalties, taxes, license fees or other
charges which are applicable to the Contributed Volumes before title
thereto passes from Goodrich to Ventures or other buyers or which are
applicable to the passage of title from Goodrich to Ventures or other
buyers.
15. APPLICABLE LAW.
15.1 This Agreement, and all terms and provisions contained
herein, and the respective obligations of the parties, are subject to
valid laws, orders, notes and regulations of duly constituted
authorities having jurisdiction and shall be governed by and
interpreted in accordance with the laws of the State of Louisiana.
<PAGE> 5
16. FORCE MAJEURE.
16.1 Neither Goodrich nor Ventures shall be liable in
damages to the other for any interruption in the delivery or receipt of
gas hereunder which is occasioned by, or in consequences of, any acts
of God, strikes, lockouts, acts of the public enemy, wars, blockades,
insurrections, riots, epidemics, landslides, lightning, earthquakes,
fires, storms, floods, washouts, arrests and restraints of rulers of
peoples, civil disturbances, explosions, breakage or accident to
machinery or lines of pipe, temporary interruption of gas supply,
interruption of service under any transportation agreement affecting
this Agreement, the binding order of any court or governmental
authority, or any other cause which would prevent either party from
performing its obligations under the terms of this Agreement, whether
of the kind herein enumerated or otherwise, not within the control of
the party claiming suspension and which, by the exercise of due
diligence, it is unable to prevent or overcome. Such causes or
contingencies affecting performance shall not relieve Goodrich or
Ventures of liability in the event of failure of either to use due
diligence to remedy the situation and remove the cause in an adequate
manner and with all reasonable dispatch, nor shall such cause or
contingencies relieve either party from its obligations to make
payments of amounts then due hereunder.
17. ENTIRE AGREEMENT.
17.1 This Agreement and the exhibits attached hereto
constitute the entire agreement between the parties. No promises,
agreements or warranties in addition to the Agreement shall be deemed a
part hereof, nor shall any alteration or amendment of this Agreement
be effective unless the Agreement is amended in writing.
IN WITNESS WHEREOF, the undersigned intending to be legally
bound, have executed this Agreement as of the ____ day of _______, 1995.
Natural Gas Ventures, L.L.C.
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
Goodrich Petroleum Corporation
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
<PAGE> 1
NATURAL GAS MARKETING JOINT VENTURE AGREEMENT
THIS AGREEMENT made and entered into as of June 1, 1994 by and between
Seaber Corporation of Louisiana, a Louisiana corporation, hereinafter referred
to as AGENT, and Natural Gas Ventures, L.L.C., a Louisiana corporation,
hereinafter referred to as PRODUCER.
WITNESSETH:
WHEREAS, AGENT desires to represent PRODUCER to market certain
quantities of natural gas and
WHEREAS, PRODUCER owns and/or controls certain quantities of natural
gas and desires for AGENT to market such quantities of natural gas;
NOW, THEREFORE, as consideration for the promises and mutual covenants
and agreements contained herein, the parties hereto covenant and agree to the
rights and obligations under this Agreement in accordance with the terms set
forth below and in the attached "TERMS AND CONDITIONS" and of the "EXHIBIT A."
Any notice required herein shall be deemed to have been properly served
if delivered personally or if deposited in U.S. Mail, postage paid, or sent by
telephone facsimile to the addresses stated as follows:
Name of PRODUCER: Natural Gas Ventures, L.L.C.
Address for notices: 333 Texas Street, Suite 1350
Shreveport, Louisiana 71101
ATTN: Mr. Michael Watts
Telefax No.: 318-429-2339
Phone No.: 318-429-2300
Name of AGENT: Seaber Corporation
of Louisiana
Address for notices: P.O. Box 1801
Shreveport, Lousiana 71166-1801
ATTN: Mr. Charles Burwell
Telefax No.: 318-222-0942
Phone No.: 318-222-1801
<PAGE> 2
Should this information change, each party shall notify the other accordingly
in writing.
"End of contract"
Signature Page to Natural Gas Marketing Joint Venture Agreement
between
Seaber Corporation and Natural Gas Ventures, L.L.C.
WITNESS: Seaber Corporation
of Louisiana
/s/ Jeffrey W. Willbow By: /s/ Charles L. Burwell
/s/ Catherine Wallis Name: Charles L. Burwell
Title: President
AGENT
Natural Gas Ventures, L.L.C.
/s/ Diane H. Bleu By: /s/ J. Michael Watts
/s/ Mathew E. Brock Name: J. Michael Watts
Title:
PRODUCER
<PAGE> 3
TERMS AND CONDITIONS
1. GENERAL: PRODUCER retains AGENT to establish, on its behalf, a natural
gas marketing program whereby AGENT shall purchase or arrange for the sale of
specific volumes of natural gas under the terms of this Agreement by PRODUCER.
AGENT shall make good faith efforts to market such gas at the highest prices
reasonably obtainable under the circumstances. PRODUCER shall make all
arrangements necessary to authorize AGENT to enter into sales of gas for terms
of up to one (1) month without any additional consent or authority from
PRODUCER or any parties on whose behalf PRODUCER is acting. Prior to entering
into any gas sales agreements exceeding one (1) month, AGENT shall obtain the
consent of PRODUCER's representative. For this purpose, PRODUCER's
representative shall be Michael Watts; however, PRODUCER may change its
representative by written notice to AGENT.
2. TERM: The initial term of this Agreement shall be effective upon the
date entered into above and continue in full force and effect for a period of
the balance of this year, and for two (2) calendar years thereafter, unless the
agreement is extended as provided for herein. This Agreement may be terminated
at any time: (1) by PRODUCER giving sixty (60) days prior written notice or (2)
by AGENT should AGENT cease to be in the business of marketing natural gas. The
termination of this agreement shall not interfere with the satisfaction of the
terms of existing gas sales/purchase agreements.
3. QUANTITY: PRODUCER shall identify natural gas production, owned,
controlled, or operated, to be covered by this Agreement in exhibit A, which is
a part of this Agreement. The volumes identified therein shall be referred to as
the "contributed volumes". Exhibit A may be amended by PRODUCER from time to
time to add additional volumes, or to remove existing volumes. The addition or
removal of volumes by PRODUCER shall not interfere with the performance of
existing gas sales/purchase agreements. AGENT shall assist in determining the
feasibility of scheduling deliveries in accordance with identified production
packages.
4. MARKET: AGENT shall research and identify appropriate markets,
appropriate receipt points and transportation routing so that potential
opportunities are economically and physically evaluated.
5. CONTRACTING: Following PRODUCER's approval of a list of qualified
buyers, which PRODUCER reserves the right to change from time to time, AGENT
shall execute natural gas purchase/sales contracts with the buyers from the
approved list, and issue contracts, nomination notices, transportation
nominations, dispatching communications, and request transportation rate
<PAGE> 4
discounts when appropriate so that AGENT shall market the natural gas on
PRODUCER'S behalf and cause deliveries to be made in fulfillment of contractual
obligations.
6. TRANSPORTATION: AGENT shall enter into all necessary transportation
agreements in order to effect receipt and delivery of PRODUCER's natural gas
production. PRODUCER shall provide AGENT with the necessary approvals to allow
transportation of the contributed volumes. AGENT and PRODUCER shall work
together to ensure that actual deliveries fall within the transporting
pipelines operating tolerance for assessing scheduling and imbalance penalties.
The party causing or having notice of any change in the dispatched quantity
will immediately notify the other party of any variances and the parties shall
work together to attempt to eliminate any imbalances within the time period
allowed for cure in the applicable pipeline tariffs. If the natural gas is
shipped suing a transportation agreement(s) held by AGENT and scheduling and
imbalance penalties are assessed against AGENT, PRODUCER shall not be
responsible for any such penalties unless such penalties result from PRODUCER's
failure to deliver the agreed upon dispatched quantity and the penalty was
assessed without notice and an opportunity for cure or PRODUCER was provided
with notice of a daily penalty situation and did not take timely corrective
action. If the natural gas is shipped using a pipeline transportation
agreement(s) held by PRODUCER and scheduling and imbalance penalties are
assessed against PRODUCER, AGENT will not be responsible for any such penalties
unless such penalties result from AGENT's failure to take the agreed upon
dispatched quantity and the penalty was assessed without notice and opportunity
for cure or AGENT was provided with notice of a daily penalty situation and did
not take timely corrective action.
7. MONITORING: AGENT shall monitor and confirm all natural gas
transportation and sales activity for accuracy and timeliness such as
initiation of flow, volume statements, gas sales statements, transportation
statements, invoices and payments. AGENT shall appropriately summarize
information, or otherwise cause it to be communicated to PRODUCER.
8. MEASUREMENT: The natural gas shall be measured by PRODUCER, or
PRODUCER's representative, at the receipt point(s) in accordance with approved
industry practices. PRODUCER, or PRODUCER's representative, shall notify AGENT
in a timely manner of any contributed volume changes.
9. BILLINGS AND PAYMENT: AGENT will pay PRODUCER for the quantities of
natural gas delivered within ten (10) days after receipt of PRODUCER's invoice,
but not earlier than the twenty-fifth (25th) of the month following the month
of delivery. If the payment date falls on Saturday, Sunday, or a legal holiday,
payment will be made on the next business day. AGENT agrees that all
<PAGE> 5
monies received for payment by third parties for PRODUCER's natural gas
production shall be deposited into an account designated for distribution only
to PRODUCER. Further, the parties agree that only the undersigned
representative of AGENT shall have signatory authority on that account.
10. MARKETING FEE: AGENT shall charge a fee of three quarters of one
percent (.0075) of the price paid per MMBTU for each MMBTU of contributed
volumes marketed under this Agreement.
11. PROFIT SHARING: AGENT will share fifty percent (50%) of the profit,
from all marketing activities, with the PRODUCER on an annual calendar year
basis. Gross Profit, for the purpose of determining profit shall be gross
revenue less all directly related expenses for all natural gas marketing
activities, including but not limited to; cost of natural gas sold,
transportation expense, cost of letters of credit, payment of commissions to
third parties (non-employees), imbalance and over/under delivery penalties, as
they relate to PRODUCER's gas, and any other expenses directly related to a
specific transaction or transactions. Profit, for the purpose of making profit
distributions (profit sharing) to PRODUCER, shall be calculated by deducting
all reasonable and necessary business expenses as determined by the management
of SEABER Corporation, up to but not exceeding three quarters of one percent
(.0075) of the price paid per MMBTU of natural gas marketed, from Gross Profit
as defined above. In order to be entitled to participate fully in the profit
sharing portion of this Agreement, PRODUCER shall be required to meet minimum
scheduled delivery volumes of; five thousand (5,000) MMBTU per day by July 1,
1994, ten thousand (10,000) MMBTU per day by October 1, 1994, and twenty-five
(25,000) thousand MMBTU per day by January 1, 1995 and continuing through the
remaining term of this Agreement. It is agreed between the parties that, given
the anticipated swings in natural gas production, PRODUCER shall also be viewed
as having fulfilled the minimum scheduled volumes if PRODUCER meets the
following annual production minimum; June 1, 1994 - December 31, 1994
(3,810,000 MMBTU; January 1, 1995 - December 31, 1995 (10,095,000 MMBTU);
January 1, 1996 - December 31, 1996 (10,095,000). In addition any of PRODUCER's
volumes in excess of the "annual minimum" shall be credited to the upcoming
year for the purposes of this Agreement. In the event PRODUCER fails to meet
the annual minimum volume, PRODUCER's share of the annual profit as defined
above, shall be reduced proportionately.
12. RETAINED PROFITS: As a minimum PRODUCER shall allow twenty-five (25%)
percent of profit due to PRODUCER to remain as an account payable owed by the
AGENT to PRODUCER to be used as additional working capital for the entire term
of this Agreement. AGENT shall leave as retained earnings, twenty-five (25%)
percent of earnings (after deduction of PRODUCER's share of profit) during
<PAGE> 6
the contract period to be used as additional working capital. Upon the
termination of the agreement for any reason, the receivable from AGENT shall
become due and shall be paid in full within thirty (30) days.
13. CONVERSION TO EQUITY: Following the full term of this Agreement which
terminates on December 31, 1996, or June 30, 1997 as provided for herein, and
provided that this Agreement has remained in full force and effect for the
entire term and PRODUCER has succeeded in maintaining the minimum contributed
volume, defined in the aggregate as 24,000,000 MMBTU for the term of this
Agreement, then PRODUCER shall be entitled to receive ownership in the form of
common stock (Seaber Corporation of Louisiana, a Louisiana Corporation) equal
to the profit sharing percentage (defined above in Article 11) for which
PRODUCER is entitled to in the second (2nd) full calendar year of this
agreement. In the event that PRODUCER has not succeeded in meeting the minimum
contributed volume of 24,000,000 MMBTU's, as defined above, by December 31,
1996, then PRODUCER shall receive an additional six (6) month period in which
to provide additional volumes to meet the 24,000,000 MMBTU requirement as
specified herein. Such stock shall be issued to PRODUCER in exchange for the
receivable (funds retained out of profit sharing as described above in Article
11) due to PRODUCER from AGENT. Such stock shall be issued within sixty (60)
days following the end of the calendar year of 1996, or June 30, 1997, if
applicable. In the event PRODUCER has not succeeded in meeting the minimum
contributed volume of 24,000,000 MMBTU's by June 30, 1997, then PRODUCER's right
to receive ownership in the form of common stock shall be reduced
proportionately to that volume which has been contributed by PRODUCER by June
30, 1997. At the end of the term of this Agreement, PRODUCER may elect not to
convert said receivable to stock. If PRODUCER so elects, then the receivable
due form AGENT shall be paid in full within thirty (30) days of notification.
14. ASSIGNMENT: This Agreement may not be assigned without the written
consent of both parties.
15. CONFIDENTIALITY: The terms of this contract, and all information
between the parties hereto, shall be kept confidential, except as necessary to
effect transportation or required by law, regulation, or order of governmental
authority.
16. INDEMNIFICATION: PRODUCER agrees to indemnify AGENT and save AGENT
harmless from all suits, actions, debts, accounts, damages, costs, losses, and
expenses arising from or out of adverse claims of any or all persons to
contributed volumes or to royalties, taxes, license fees, or charges thereof
which are applicable before the title passes to AGENT or other buyers which may
be levied or assessed upon the sale thereof to AGENT or other buyers.
<PAGE> 7
17 FIDELITY COVERAGE: AGENT agrees to acquire blanket coverage in the
form of a fidelity, crime, and employee dishonesty bond. Said fidelity bond
will be in the amount of Three Million Dollars ($3,000,000). Upon mutual
agreement, in writing, between the parties hereto this amount may be changed
from time to time.
18. APPLICABLE LAW: This Agreement, and all terms and provisions contained
herein, and the respective obligations of the parties, are subject to valid
laws, orders, notes and regulations of duly constituted authorities having
jurisdiction and shall be governed by and interpreted in accordance with the
laws of the State of Louisiana.
19. FORCE MAJEURE: Neither PRODUCER nor AGENT shall be liable in damages
to the other for any interruption in the delivery or receipt of gas hereunder
which is occasioned by, or in consequence, of, any acts of God, strikes,
lockouts, acts of the public enemy, wars, blockades, insurrections, riots,
epidemics, landslides, lightening, earthquakes, fires, storms, floods,
washouts, arrests and restraints of rulers of peoples, civil disturbances,
explosions, breakage or accident to machinery or lines of pipe, temporary
interruption of gas supply, interruption of service under any transportation
agreement affecting this contract, the binding order of any court or
governmental authority, and any other cause which would prevent either party
from performing its obligations under the terms of this Agreement, whether of
the kind herein enumerated or otherwise, not within the control of the one
claiming suspension and which, by the exercise of due diligence, it is unable
to prevent or overcome. Such causes or contingencies affecting performance
shall not relieve PRODUCER or AGENT of liability in the event of failure of
either to use due diligence to remedy the situation and remove the cause in an
adequate manner and with all reasonable dispatch, nor shall such cause or
contingencies relieve either party from its obligations to make payments of
amounts then due hereunder.
20. ENTIRE AGREEMENT: The Agreement, Terms and Conditions and the Exhibit
A(s) constitute the entire Agreement between the parties. No promises,
agreements or warranties in addition to the Agreement shall be deemed a part
thereof, nor shall any alteration or amendment of this Agreement be effective,
unless the Agreement is amended in writing.
"End of Terms and Conditions"
<PAGE> 1
Exhibit 10.21
GOODRICH PETROLEUM CORPORATION
1995 STOCK OPTION PLAN
I. PURPOSE
The purpose of the GOODRICH PETROLEUM CORPORATION 1995 STOCK OPTION
PLAN (the "PLAN") is to provide a means through which GOODRICH PETROLEUM
CORPORATION, a Delaware corporation (the "COMPANY"), and its subsidiaries may
attract able persons to enter the employ of the Company and provide consulting
services to the Company and to provide a means whereby those key employees and
consultants upon whom the responsibilities of the successful administration and
management of the Company rest, and whose present and potential contributions
to the welfare of the Company are of importance, can acquire and maintain stock
ownership, thereby strengthening their concern for the welfare of the Company
and their desire to remain in its employ and continue to provide consulting
services. A further purpose of the Plan is to provide such key employees and
consultants with additional incentive and reward opportunities designed to
enhance the profitable growth of the Company. Accordingly, the Plan provides
for granting Incentive Stock Options, options which do not constitute Incentive
Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Long-Term
Incentive Awards, Phantom Stock Awards, or any combination of the foregoing, as
is best suited to the circumstances of the particular employee or consultant as
provided herein.
II. DEFINITIONS
The following definitions shall be applicable throughout the Plan
unless specifically modified by any paragraph:
(a) "Award" means, individually or collectively, any Option,
Restricted Stock Award, Phantom Stock Award, Long-Term Incentive Award or Stock
Appreciation Right.
(b) "Board" means the Board of Directors of the Company.
(c) "Change of Control" means the occurrence of any of the
following events: (i) the Company shall not be the surviving entity in any
merger, consolidation or other reorganization (or survives only as a subsidiary
of an entity other than a previously wholly-owned subsidiary of the Company),
(ii) the Company sells, leases or exchanges all or substantially all of its
assets to any other person or entity (other than a wholly-owned subsidiary of
the Company), (iii) the Company is to be dissolved and liquidated, (iv) any
person or entity, including a "GROUP" as contemplated by Section 13(d)(3) of
the 1934 Act, acquires or gains ownership or control (including, without
limitation, power to vote) of more than 50% of the outstanding shares of the
Company's voting stock (based upon voting power), or (v) as a result of or in
connection with
<PAGE> 2
a contested election of directors, the persons who were directors of the
Company before such election shall cease to constitute a majority of the Board.
(d) "Change of Control Value" shall mean (i) the per share price
offered to stockholders of the Company in any such merger, consolidation,
reorganization, sale of assets or dissolution transaction, (ii) the price per
share offered to stockholders of the Company in any tender offer or exchange
offer whereby a Change of Control takes place, or (iii) if such Change of
Control occurs other than pursuant to a tender or exchange offer, the Fair
Market Value per share of the shares into which Awards are exercisable, as
determined by the Committee. In the event that the consideration offered to
stockholders of the Company consists of anything other than cash, the Committee
shall determine the fair cash equivalent of the portion of the consideration
offered which is other than cash.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
Reference in the Plan to any section of the Code shall be deemed to include any
amendments or successor provisions to any section and any regulations under
such section.
(f) "Committee" means the group of Directors which shall be (i)
constituted so as to permit the Plan to comply with Rule 16b-3 and (ii)
constituted solely of "outside directors," within the meaning of section 162(m)
of the Code and applicable interpretive authority thereunder.
(g) "Company" means Goodrich Petroleum Corporation.
(h) A "consultant" means any person who is designated,
compensated, or otherwise classified or treated by the Company as an
independent contractor.
(i) "Director" means an individual elected to the Board by the
stockholders of the Company or by the Board under applicable corporate law who
is serving on the Board on the date the Plan is adopted by the Board or is
elected to the Board after such date.
(j) An "employee" means any person (including an officer or a
Director) in an employment relationship with the Company or any parent or
subsidiary corporation (as defined in section 424 of the Code).
(k) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(l) "Fair Market Value" means, as of any specified date, the mean
of high and low sales prices of the Stock reported on the New York Stock
Exchange Composite Tape on that date, or if no such price are reported on that
date, on the last preceding date on which such prices of the Stock are so
reported. In the event Stock is not publicly traded at the time a
determination of its value is required to be made hereunder, the determination
of its fair market value shall be made by the Committee in such manner as it
deems appropriate.
(m) "Holder" means an employee or consultant who has been granted
an Award.
-2-
<PAGE> 3
(n) "Incentive Stock Option" means an incentive stock option
within the meaning of section 422(b) of the Code.
(o) "Long-Term Incentive Award" means an Award granted under
Paragraph X of the Plan.
(p) "Long-Term Incentive Award Agreement" means a written
agreement between the Company and a Holder with respect to a Long-Term
Incentive Award.
(q) "Option" means an Award granted under Paragraph VII of the
Plan and includes both Incentive Stock Options to purchase Stock and Options
which do not constitute Incentive Stock Options to purchase Stock.
(r) "Option Agreement" means a written agreement between the
Company and a Holder with respect to an Option.
(s) "Phantom Stock Award" means an Award granted under Paragraph
XI of the Plan.
(t) "Phantom Stock Award Agreement" means a written agreement
between the Company and a Holder with respect to a Phantom Stock Award.
(u) "Plan" means the Goodrich Petroleum Corporation 1995 Stock
Option Plan, as amended from time to time.
(v) "Restricted Stock Agreement" means a written agreement between
the Company and a Holder with respect to a Restricted Stock Award.
(w) "Restricted Stock Award" means an Award granted under
Paragraph IX of the Plan.
(x) "Rule 16b-3" means SEC Rule 16b-3 promulgated under the 1934
Act, as such may be amended from time to time, and any successor rule,
regulation or statute fulfilling the same or a similar function.
(y) "Spread" means, in the case of a Stock Appreciation Right, an
amount equal to the excess, if any, of the Fair Market Value of a share of
Stock on the date such right is exercised over the exercise price of such Stock
Appreciation Right.
(z) "Stock" means the common stock of the Company.
(aa) "Stock Appreciation Right" means an Award granted under
Paragraph VIII of the Plan.
(ab) "Stock Appreciation Rights Agreement" means a written
agreement between the Company and a Holder with respect to an Award of Stock
Appreciation Rights.
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III. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall be effective upon the date of its adoption by the
Board, provided the Plan is approved by the stockholders of the Company within
twelve months thereafter and on or prior to the date of the first annual
meeting of stockholders of the Company held subsequent to the acquisition of an
equity security by a Holder hereunder for which exemption is claimed under Rule
16b-3. No further Awards may be granted under the Plan after the expiration of
ten years from the date of its adoption by the Board. The Plan shall remain in
effect until all Awards granted under the Plan have been satisfied or expired.
IV. ADMINISTRATION
(a) Committee. The Plan shall be administered by the Committee.
(b) Powers. Subject to the provisions of the Plan, the Committee
shall have sole authority, in its discretion, to determine which employees and
consultants shall receive an Award, the time or times when such Award shall be
made, whether an Incentive Stock Option, nonqualified Option or Stock
Appreciation Right shall be granted, the number of shares of Stock which may be
issued under each Option, Stock Appreciation Right or Restricted Stock Award,
and the value of each Long-Term Incentive Award and Phantom Stock Award. In
making such determinations the Committee may take into account the nature of
the services rendered by the respective employees and consultants, their
present and potential contribution to the Company's success and such other
factors as the Committee in its discretion shall deem relevant.
(c) Additional Powers. The Committee shall have such additional
powers as are delegated to it by the other provisions of the Plan. Subject to
the express provisions of the Plan, the Committee is authorized to construe the
Plan and the respective agreements executed thereunder, to prescribe such rules
and regulations relating to the Plan as it may deem advisable to carry out the
Plan, and to determine the terms, restrictions and provisions of each Award,
including such terms, restrictions and provisions as shall be requisite in the
judgment of the Committee to cause designated Options to qualify as Incentive
Stock Options, and to make all other determinations necessary or advisable for
administering the Plan. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in any agreement relating to an Award
in the manner and to the extent it shall deem expedient to carry it into
effect. The determinations of the Committee on the matters referred to in this
Article IV shall be conclusive.
V. GRANT OF OPTIONS, STOCK APPRECIATION RIGHTS,
RESTRICTED STOCK AWARDS,
LONG-TERM INCENTIVE AWARDS
AND PHANTOM STOCK AWARDS;
SHARES SUBJECT TO THE PLAN
(a) Stock Grant and Award Limits. The Committee may from time to
time grant Awards to one or more employees or consultants determined by it to
be eligible for participation in the Plan in accordance with the provisions of
Paragraph VI. Subject to Paragraph XII, the
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aggregate number of shares of Stock that may be issued under the Plan shall not
exceed 3,000,000 shares. Shares shall be deemed to have been issued under the
Plan only (i) to the extent actually issued and delivered pursuant to an Award,
or (ii) to the extent an Award granted under Paragraph VII, VIII, IX or XI is
settled in cash. To the extent that an Award lapses or the rights of its
Holder terminate, any shares of Stock subject to such Award shall again be
available for the grant of an Award. Separate stock certificates shall be
issued by the Company for those shares acquired pursuant to the exercise of an
Incentive Stock Option and for those shares acquired pursuant to the exercise
of any Option which does not constitute an Incentive Stock Option.
Notwithstanding any provision in the Plan to the contrary, the maximum number
of shares of Stock that may be subject to Awards granted to any one employee or
consultant during any calendar year is 500,000 shares of Stock (subject to
adjustment in the same manner as provided in Paragraph XII with respect to
shares of Stock subject to Awards then outstanding). The limitation set forth
in the preceding sentence shall be applied in a manner which will permit
compensation generated in connection with the exercise of Options and Stock
Appreciation Rights and, if determined by the Committee, Restricted Stock
Awards to constitute "performance-based" compensation for purposes of section
162(m) of the Code, including, without limitation, counting against such
maximum number of shares, to the extent required under section 162(m) of the
Code and applicable interpretive authority thereunder, any shares subject to
Options, Stock Appreciation Rights and, if applicable, Restricted Stock Awards,
that are cancelled or repriced.
(b) Stock Offered. The stock to be offered pursuant to the grant
of an Award may be authorized but unissued Stock or Stock previously issued and
outstanding and reacquired by the Company.
VI. ELIGIBILITY
Awards other than Incentive Stock Options may be granted only to
persons who, at the time of grant, are key employees or consultants. Incentive
Stock Options may be granted only to persons who, at the time of the grant, are
key employees. Further, awards may not be granted to any Director who is not
an employee or a consultant. An Award may be granted on more than one occasion
to the same person, and, subject to the limitations set forth in the Plan, such
Award may include an Incentive Stock Option or an Option which is not an
Incentive Stock Option, a Stock Appreciation Right, a Restricted Stock Award, a
Long-Term Incentive Award, a Phantom Stock Award or any combination thereof.
VII. STOCK OPTIONS
(a) Option Period. The term of each Option shall be as specified
by the Committee at the date of grant.
(b) Limitations on Exercise of Option. An Option shall be
exercisable in whole or in such installments and at such times as determined by
the Committee.
(c) Special Limitations on Incentive Stock Options. To the extent
that the aggregate Fair Market Value (determined at the time the respective
Incentive Stock Option is granted) of
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Stock with respect to which Incentive Stock Options granted after 1986 are
exercisable for the first time by an individual during any calendar year under
all incentive stock option plans of the Company and its parent and subsidiary
corporations exceeds $100,000, such Incentive Stock Options shall be treated as
options which do not constitute Incentive Stock Options. The Committee shall
determine, in accordance with applicable provisions of the Code, Treasury
Regulations and other administrative pronouncements, which of an optionee's
Incentive Stock Options will not constitute Incentive Stock Options because of
such limitation and shall notify the optionee of such determination as soon as
practicable after such determination. No Incentive Stock Option shall be
granted to an individual if, at the time the Option is granted, such individual
owns stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or of its parent or subsidiary corporation,
within the meaning of section 422(b)(6) of the Code, unless (i) at the time
such Option is granted the option price is at least 110% of the Fair Market
Value of the Stock subject to the Option and (ii) such Option by its terms is
not exercisable after the expiration of five years from the date of grant.
(d) Option Agreement. Each Option shall be evidenced by an Option
Agreement in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify an Incentive Stock Option
under section 422 of the Code. An Option Agreement may provide for the payment
of the option price, in whole or in part, by the delivery of a number of shares
of Stock (plus cash if necessary) having a Fair Market Value equal to such
option price. Each Option Agreement shall provide that the Option may not be
exercised earlier than six months from the date of grant and shall specify the
effect of termination of employment on the exercisability of the Option.
Moreover, an Option Agreement may provide for a "cashless exercise" of the
Option by establishing procedures whereby the Holder, by a properly-executed
written notice, directs (i) an immediate market sale or margin loan respecting
all or a part of the shares of Stock to which he is entitled upon exercise
pursuant to an extension of credit by the Company to the Holder of the option
price, (ii) the delivery of the shares of Stock from the Company directly to a
brokerage firm and (iii) the delivery of the option price from sale or margin
loan proceeds from the brokerage firm directly to the Company. Such Option
Agreement may also include, without limitation, provisions relating to (i)
subject to the provisions hereof accelerating such vesting on a Change of
Control, vesting of Options, (ii) tax matters (including provisions (y)
permitting the delivery of additional shares of Stock or the withholding of
shares of Stock from those acquired upon exercise to satisfy federal or state
income tax withholding requirements and (z) dealing with any other applicable
employee wage withholding requirements), and (iii) any other matters not
inconsistent with the terms and provisions of this Plan that the Committee
shall in its sole discretion determine. The terms and conditions of the
respective Option Agreements need not be identical.
(e) Option Price and Payment. The price at which a share of Stock
may be purchased upon exercise of an Option shall be determined by the
Committee, but such purchase price (i) shall not be less than the Fair Market
Value of a share of Stock on the date such Option is granted, and (ii) shall be
subject to adjustment as provided in Paragraph XII. The Option or portion
thereof may be exercised by delivery of an irrevocable notice of exercise to
the Company. The purchase price of the Option or portion thereof shall be paid
in full in the manner prescribed by the Committee.
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(f) Stockholder Rights and Privileges. The Holder shall be
entitled to all the privileges and rights of a stockholder only with respect to
such shares of Stock as have been purchased under the Option and for which
certificates of stock have been registered in the Holder's name.
(g) Options and Rights in Substitution for Stock Options Granted
by Other Corporations. Options and Stock Appreciation Rights may be granted
under the Plan from time to time in substitution for stock options held by
individuals employed by corporations who become employees as a result of a
merger or consolidation of the employing corporation with the Company or any
subsidiary, or the acquisition by the Company or a subsidiary of the assets of
the employing corporation, or the acquisition by the Company or a subsidiary of
stock of the employing corporation with the result that such employing
corporation becomes a subsidiary.
VIII. STOCK APPRECIATION RIGHTS
(a) Stock Appreciation Rights. A Stock Appreciation Right is the
right to receive an amount equal to the Spread with respect to a share of Stock
upon the exercise of such Stock Appreciation Right. Stock Appreciation Rights
may be granted in connection with the grant of an Option, in which case the
Option Agreement will provide that exercise of Stock Appreciation Rights will
result in the surrender of the right to purchase the shares under the Option as
to which the Stock Appreciation Rights were exercised. Alternatively, Stock
Appreciation Rights may be granted independently of Options in which case each
Award of Stock Appreciation Rights shall be evidenced by a Stock Appreciation
Rights Agreement which shall contain such terms and conditions as may be
approved by the Committee. The terms and conditions of the respective Stock
Appreciation Rights Agreements need not be identical. The Spread with respect
to a Stock Appreciation Right may be payable either in cash, shares of Stock
with a Fair Market Value equal to the Spread or in a combination of cash and
shares of Stock. With respect to Stock Appreciation Rights that are subject to
Section 16 of the 1934 Act, however, the Committee shall, except as provided in
Paragraph XII(c), retain sole discretion (i) to determine the form in which
payment of the Stock Appreciation Right will be made (i.e., cash, securities or
any combination thereof) or (ii) to approve an election by a Holder to receive
cash in full or partial settlement of Stock Appreciation Rights. Each Stock
Appreciation Rights Agreement shall provide that the Stock Appreciation Rights
may not be exercised earlier than six months from the date of grant and shall
specify the effect of termination of employment on the exercisability of the
Stock Appreciation Rights.
(b) Exercise Price. The exercise price of each Stock Appreciation
Right shall be determined by the Committee, but such exercise price (i) shall
not be less than the Fair Market Value of a share of Stock on the date the
Stock Appreciation Right is granted (or such greater exercise price as may be
required if such Stock Appreciation Right is granted in connection with an
Incentive Stock Option that must have an exercise price equal to 110% of the
Fair Market Value of the Stock on the date of grant pursuant to Paragraph
VII(c)), and (ii) shall be subject to adjustment as provided in Paragraph XII.
(c) Exercise Period. The term of each Stock Appreciation Right
shall be as specified by the Committee at the date of grant.
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(d) Limitations on Exercise of Stock Appreciation Right. A Stock
Appreciation Right shall be exercisable in whole or in such installments and at
such times as determined by the Committee.
IX. RESTRICTED STOCK AWARDS
(a) Forfeiture Restrictions To Be Established by the Committee.
Shares of Stock that are the subject of a Restricted Stock Award shall be
subject to restrictions on disposition by the Holder and an obligation of the
Holder to forfeit and surrender the shares to the Company under certain
circumstances (the "Forfeiture Restrictions"). The Forfeiture Restrictions
shall be determined by the Committee in its sole discretion, and the Committee
may provide that the Forfeiture Restrictions shall lapse upon (i) the
attainment of targets established by the Committee that are based on (1) the
price of a share of Stock, (2) the Company's earnings per share, (3) the
Company's revenue, (4) the revenue of a business unit of the Company designated
by the Committee, (5) the return on stockholders' equity achieved by the
Company, or (6) the Company's pre-tax cash flow from operations (ii) the
Holder's continued employment with the Company for a specified period of time,
or (iii) a combination of any two or more of the factors listed in clauses (i)
and (ii) of this sentence. Each Restricted Stock Award may have different
Forfeiture Restrictions, in the discretion of the Committee. The Forfeiture
Restrictions applicable to a particular Restricted Stock Award shall not be
changed except as permitted by Paragraph IX(b) or Paragraph XII.
(b) Other Terms and Conditions. Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate registered
in the name of the Holder of such Restricted Stock Award. The Holder shall
have the right to receive dividends with respect to Stock subject to a
Restricted Stock Award, to vote Stock subject thereto and to enjoy all other
stockholder rights, except that (i) the Holder shall not be entitled to
delivery of the stock certificate until the Forfeiture Restrictions shall have
expired, (ii) the Company shall retain custody of the Stock until the
Forfeiture Restrictions shall have expired, (iii) the Holder may not sell,
transfer, pledge, exchange, hypothecate or otherwise dispose of the Stock until
the Forfeiture Restrictions shall have expired, and (iv) a breach of the terms
and conditions established by the Committee pursuant to the Restricted Stock
Agreement, shall cause a forfeiture of the Restricted Stock Award. At the time
of such Award, the Committee may, in its sole discretion, prescribe additional
terms, conditions or restrictions relating to Restricted Stock Awards,
including, but not limited to, rules pertaining to the termination of
employment (by retirement, disability, death or otherwise) of a Holder prior to
expiration of the Forfeiture Restrictions. Such additional terms, conditions
or restrictions shall be set forth in a Restricted Stock Agreement made in
conjunction with the Award. Such Restricted Stock Agreement may also include,
without limitation, provisions relating to (i) subject to the provisions hereof
accelerating vesting on a Change of Control, vesting of Awards, (ii) tax
matters (including provisions (y) covering any applicable employee wage
withholding requirements and (z) prohibiting an election by the Holder under
section 83(b) of the Code), and (iii) any other matters not inconsistent with
the terms and provisions of this Plan that the Committee shall in its sole
discretion determine. The terms and conditions of the respective Restricted
Stock Agreements need not be identical.
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(c) Payment for Restricted Stock. The Committee shall determine
the amount and form of any payment for Stock received pursuant to a Restricted
Stock Award, provided that in the absence of such a determination, a Holder
shall not be required to make any payment for Stock received pursuant to a
Restricted Stock Award, except to the extent otherwise required by law.
(d) Agreements. At the time any Award is made under this
Paragraph IX, the Company and the Holder shall enter into a Restricted Stock
Agreement setting forth each of the matters contemplated hereby and such other
matters as the Committee may determine to be appropriate. The terms and
provisions of the respective Restricted Stock Agreements need not be identical.
X. LONG-TERM INCENTIVE AWARDS
(a) Performance Period. The Committee shall establish, with
respect to and at the time of each Long-Term Incentive Award, a performance
period over which the performance of the Holder shall be measured.
(b) Long-Term Incentive Awards. Each Long-Term Incentive Award
shall have a maximum value established by the Committee at the time of such
Award.
(c) Performance Measures. A Long-Term Incentive Award shall be
awarded to an employee or consultant contingent upon future performance of the
employee or consultant, the Company or any subsidiary, division or department
thereof by or in which is he employed during the performance period. The
Committee shall establish the performance measures applicable to such
performance prior to the beginning of the performance period but subject to
such later revisions as the Committee shall deem appropriate to reflect
significant, unforeseen events or changes.
(d) Awards Criteria. In determining the value of Long-Term
Incentive Awards, the Committee shall take into account an employee's or
consultant's responsibility level, performance, potential, other Awards and
such other considerations as it deems appropriate.
(e) Payment. Following the end of the performance period, the
Holder of a Long-Term Incentive Award shall be entitled to receive payment of
an amount, not exceeding the maximum value of the Long-Term Incentive Award,
based on the achievement of the performance measures for such performance
period, as determined by the Committee. Payment of a Long-Term Incentive Award
may be made in cash, Stock or a combination thereof, as determined by the
Committee. Payment shall be made in a lump sum or in installments as
prescribed by the Committee. Any payment to be made in Stock shall be based on
the Fair Market Value of the Stock on the payment date. If a payment of cash
is to be made on a deferred basis, the Committee shall establish whether
interest shall be credited, the rate thereof and any other terms and conditions
applicable thereto.
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(f) Termination of Employment. A Long-Term Incentive Award shall
terminate if the Holder does not remain continuously in the employ of the
Company at all times during the applicable performance period, except as may be
determined by the Committee or as may otherwise be provided in the Award at the
time granted.
(g) Agreements. At the time any Award is made under this
Paragraph X, the Company and the Holder shall enter into a Long-Term Incentive
Award Agreement setting forth each of the matters contemplated hereby, and, in
addition such matters as are set forth in Paragraph IX(b) as the Committee may
determine to be appropriate. The terms and provisions of the respective
agreements need not be identical.
XI. PHANTOM STOCK AWARDS
(a) Phantom Stock Awards. Phantom Stock Awards are rights to
receive shares of Stock (or cash in an amount equal to the Fair Market Value
thereof), or rights to receive an amount equal to any appreciation in the Fair
Market Value of Stock (or portion thereof) over a specified period of time,
which vest over a period of time or upon the occurrence of an event (including
without limitation a Change of Control) as established by the Committee,
without payment of any amounts by the Holder thereof (except to the extent
otherwise required by law) or satisfaction of any performance criteria or
objectives. Each Phantom Stock Award shall have a maximum value established by
the Committee at the time of such Award.
(b) Award Period. The Committee shall establish, with respect to
and at the time of each Phantom Stock Award, a period over which or the event
upon which the Award shall vest with respect to the Holder.
(c) Awards Criteria. In determining the value of Phantom Stock
Awards, the Committee shall take into account an employee's or consultant's
responsibility level, performance, potential, other Awards and such other
considerations as it deems appropriate.
(d) Payment. Following the end of the vesting period for a
Phantom Stock Award, the Holder of a Phantom Stock Award shall be entitled to
receive payment of an amount, not exceeding the maximum value of the Phantom
Stock Award, based on the then vested value of the Award. Payment of a Phantom
Stock Award may be made in cash, Stock or a combination thereof as determine by
the Committee. Payment shall be made in a lump sum or in installments as
prescribed by the Committee in its sole discretion. Any payment to be made in
Stock shall be based on the Fair Market Value of the Stock on the payment date.
Cash dividend equivalents may be paid during or after the vesting period with
respect to a Phantom Stock Award, as determined by the Committee. If a payment
of cash is to be made on a deferred basis, the Committee shall establish
whether interest shall be credited, the rate thereof and any other terms and
conditions applicable thereto.
(e) Termination of Employment. A Phantom Stock Award shall
terminate if the Holder does not remain continuously in the employ of the
Company at all times during the applicable vesting period, except as may be
otherwise determined by the Committee or as set forth in the Award at the time
of grant.
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(f) Agreements. At the time any Award is made under this
Paragraph XI, the Company and the Holder shall enter into a Phantom Stock Award
Agreement setting forth each of the matters contemplated hereby and, in
addition such matters as are set forth in Paragraph IX(b) as the Committee may
determine to be appropriate. The terms and provisions of the respective
agreements need not be identical.
XII. RECAPITALIZATION OR REORGANIZATION
(a) The shares with respect to which Awards may be granted are
shares of Stock as presently constituted, but if, and whenever, prior to the
expiration of an Award theretofore granted, the Company shall effect a
subdivision or consolidation of shares of Stock or the payment of a stock
dividend on Stock without receipt of consideration by the Company, the number
of shares of Stock with respect to which such Award may thereafter be exercised
or satisfied, as applicable, (i) in the event of an increase in the number of
outstanding shares shall be proportionately increased, and the purchase price
per share shall be proportionately reduced, and (ii) in the event of a
reduction in the number of outstanding shares shall be proportionately reduced,
and the purchase price per share shall be proportionately increased.
(b) If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise or satisfaction, as applicable, of an
Award theretofore granted the Holder shall be entitled to (or entitled to
purchase, if applicable) under such Award, in lieu of the number of shares of
Stock then covered by such Award, the number and class of shares of stock and
securities to which the Holder would have been entitled pursuant to the terms
of the recapitalization if, immediately prior to such recapitalization, the
Holder had been the holder of record of the number of shares of Stock then
covered by such Award.
(c) In the event of a Change of Control, outstanding Awards other
than Options shall immediately vest and become exercisable or satisfiable, as
applicable. The Committee, in its discretion, may determine that upon the
occurrence of a Change of Control, each Award other than an Option outstanding
hereunder shall terminate within a specified number of days after notice to the
Holder, and such Holder shall receive, with respect to each share of Stock
subject to such Award, cash in an amount equal to the excess, if any, of the
Change of Control Value. Further, in the event of a Change of Control, the
Committee, in its discretion shall act to effect one or more of the following
alternatives with respect to outstanding Options, which may vary among
individual Holders and which may vary among Options held by any individual
Holder: (1) accelerate the time at which Options then outstanding may be
exercised so that such Options may be exercised in full for a limited period of
time on or before a specified date (before or after such Change of Control)
fixed by the Committee, after which specified date all unexercised Options and
all rights of Holders thereunder shall terminate, (2) require the mandatory
surrender to the Company by selected Holders of some or all of the outstanding
Options held by such Holders (irrespective of whether such Options are then
exercisable under the provisions of the Plan) as of a date, before or after
such Change of Control, specified by the Committee, in which event the
Committee shall thereupon cancel such Options and the Company shall pay to each
Holder an amount of cash per share equal to the excess, if any, of the Change
of Control Value of the shares subject to such Option over the exercise
price(s) under such Options for such shares, (3) make such adjustments to
Options then outstanding as the Committee deems
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appropriate to reflect such Change of Control (provided, however, that the
Committee may determine in its sole discretion that no adjustment is necessary
to Options then outstanding) or (4) provide that thereafter upon any exercise
of an Option theretofore granted the Holder shall be entitled to purchase under
such Option, in lieu of the number of shares of Stock then covered by such
Option the number and class of shares of stock or other securities or property
(including, without limitation, cash) to which the Holder would have been
entitled pursuant to the terms of the agreement of merger, consolidation or
sale of assets and dissolution if, immediately prior to such merger,
consolidation or sale of assets and dissolution the Holder had been the holder
of record of the number of shares of Stock then covered by such Option. The
provisions contained in this paragraph shall be inapplicable to an Award
granted within six (6) months before the occurrence of a Change of Control if
the Holder of such Award is subject to the reporting requirements of Section
16(a) of the 1934 Act. The provisions contained in this paragraph shall not
terminate any rights of the Holder to further payments pursuant to any other
agreement with the Company following a Change of Control.
(d) In the event of changes in the outstanding Stock by reason of
recapitalization, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Award and not otherwise provided for by this Paragraph XII,
any outstanding Awards and any agreements evidencing such Awards shall be
subject to adjustment by the Committee at its discretion as to the number and
price of shares of Stock or other consideration subject to such Awards. In the
event of any such change in the outstanding Stock, the aggregate number of
shares available under the Plan may be appropriately adjusted by the Committee,
whose determination shall be conclusive.
(e) The existence of the Plan and the Awards granted hereunder
shall not affect in any way the right or power of the Board or the stockholders
of the Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of debt or
equity securities ahead of or affecting Stock or the rights thereof, the
dissolution or liquidation of the Company or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act of proceeding.
(f) Any adjustment provided for in Subparagraphs (a), (b), (c) or
(d) above shall be subject to any required stockholder action.
(g) Except as hereinbefore expressly provided, the issuance by the
Company of shares of stock of any class or securities convertible into shares
of stock of any class, for cash, property, labor or services, upon direct sale,
upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares of obligations of the Company convertible into such shares
or other securities, and in any case whether or not for fair value, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Stock subject to Awards theretofore granted or the purchase
price per share, if applicable.
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XIII. AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with
respect to any shares for which Awards have not theretofore been granted. The
Board shall have the right to alter or amend the Plan or any part thereof from
time to time; provided that no change in any Award theretofore granted may be
made which would impair the rights of the Holder without the consent of the
Holder (unless such change is required in order to cause the benefits under the
Plan to qualify as performance-based compensation within the meaning of section
162(m) of the Code and applicable interpretive authority thereunder), and
provided, further, that the Board may not, without approval of the
stockholders, amend the Plan:
(a) to increase the maximum number of shares which may be issued
on exercise or surrender of an Award, except as provided in Paragraph XII;
(b) to change the Option price;
(c) to change the class of employees or consultants eligible to
receive Awards or materially increase the benefits accruing to employees and
consultants under the Plan;
(d) to extend the maximum period during which Awards may be
granted under the Plan;
(e) to modify materially the requirements as to eligibility for
participation in the Plan; or
(f) to decrease any authority granted to the Committee hereunder
in contravention of Rule 16b-3.
XIV. MISCELLANEOUS
(a) No Right To An Award. Neither the adoption of the Plan by the
Company nor any action of the Board or the Committee shall be deemed to give an
employee or consultant any right to be granted an Award to purchase Stock, a
right to a Stock Appreciation Right, a Restricted Stock Award, a Long-Term
Incentive Award or a Phantom Stock Award or any of the rights hereunder except
as may be evidenced by an Award or by an Option Agreement, Stock Appreciation
Rights Agreement, Restricted Stock Agreement, Long-Term Incentive Award
Agreement or Phantom Stock Award Agreement duly executed on behalf of the
Company, and then only to the extent and on the terms and conditions expressly
set forth therein. The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of funds or assets to assure the payment of any Award.
(b) No Employment Rights Conferred. Nothing contained in the Plan
shall (i) confer upon any employee any right with respect to continuation of
employment with the Company or any subsidiary, (ii) interfere in any way with
the right of the Company or any subsidiary to terminate his or her employment
at any time, or (iii) eliminate or limit in any way the right of
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the Company or any subsidiary to terminate the service of any consultant
pursuant to the terms of such consultant's contract with the Company.
(c) Other Laws; Withholding. The Company shall not be obligated
to issue any Stock pursuant to any Award granted under the Plan at any time
when the shares covered by such Award have not been registered under the
Securities Act of 1933 and such other state and federal laws, rules or
regulations as the Company or the Committee deems applicable and, in the
opinion of legal counsel for the Company, there is no exemption from the
registration requirements of such laws, rules or regulations available for the
issuance and sale of such shares. No fractional shares of Stock shall be
delivered, nor shall any cash in lieu of fractional shares be paid. The
Company shall have the right to deduct in connection with all Awards any taxes
required by law to be withheld and to require any payments required to enable
it to satisfy its withholding obligations.
(d) No Restriction on Corporate Action. Nothing contained in the
Plan shall be construed to prevent the Company or any subsidiary from taking
any corporate action which is deemed by the Company or such subsidiary to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan or any Award made under the Plan. No employee,
consultant, beneficiary or other person shall have any claim against the
Company or any subsidiary as a result of any such action.
(e) Restrictions on Transfer. An Award shall not be transferable
otherwise than by will or the laws of descent and distribution or pursuant to a
"qualified domestic relations order" as defined by the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder, and shall be exercisable during the Holder's lifetime only by such
Holder or the Holder's guardian or legal representative.
(f) Rule 16b-3. It is intended that the Plan and any grant of an
Award made to a person subject to Section 16 of the 1934 Act meet all of the
requirements of Rule 16b-3. If any provision of the Plan or any such Award
would disqualify the Plan or such Award under, or would otherwise not comply
with, Rule 16b-3, such provision or Award shall be construed or deemed amended
to conform to Rule 16b-3.
(g) Section 162(m). It is intended that the Plan comply fully
with and meet all the requirements of Section 162(m) of the Code so that
Options and Stock Appreciation Rights granted hereunder and, if determined by
the Committee, Restricted Stock Awards, shall constitute "performance-based"
compensation within the meaning of such section. If any provision of the Plan
would disqualify the Plan or would not otherwise permit the Plan to comply with
Section 162(m) as so intended, such provision shall be construed or deemed
amended to conform to the requirements or provisions of Section 162(m);
provided that no such construction or amendment shall have an adverse effect on
the economic value to a Holder of any Award previously granted hereunder.
(h) Governing Law. This Plan shall be construed in accordance
with the laws of the State of Texas.
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<PAGE> 1
Exhibit 10.22
GOODRICH PETROLEUM CORPORATION
1995 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
I. PURPOSE OF THE PLAN
The GOODRICH PETROLEUM CORPORATION 1995 NONEMPLOYEE DIRECTOR STOCK
OPTION PLAN (the "PLAN") is intended to promote the interests of GOODRICH
PETROLEUM CORPORATION, a Delaware corporation (the "COMPANY"), and its
stockholders by helping to award and retain highly-qualified independent
directors, and allowing them to develop a sense of proprietorship and personal
involvement in the development and financial success of the Company.
Accordingly, the Company shall grant to directors of the Company who are not
and who never have been employees of the Company or any of its subsidiaries
("NONEMPLOYEE DIRECTORS") the option ("OPTION") to purchase shares of the
common stock of the Company ("STOCK"), as hereinafter set forth. Options
granted under the Plan shall be options which do not constitute incentive stock
options, within the meaning of section 422(b) of the Internal Revenue Code of
1986, as amended (the "CODE").
II. OPTION AGREEMENTS
Each Option shall be evidenced by a written agreement in the form
attached to the Plan.
III. ELIGIBILITY OF OPTIONEE
Options may be granted only to individuals who are Nonemployee
Directors of the Company and who did not serve as a director of Patrick
Petroleum Company prior to its merger with and into Goodrich Acquisition
Corporation ("ELIGIBLE NONEMPLOYEE DIRECTORS"). Each Eligible Nonemployee
Director who serves in such capacity on the effective date of the Plan shall
receive, as of such effective date and without the exercise of the discretion
of any person or persons, an Option exercisable for 20,000 shares of Stock.
Each Eligible Nonemployee Director who is elected or appointed to the Board of
Directors of the Company (the "BOARD") for the first time after the effective
date of the Plan shall receive, as of the date of his or her election or
appointment and without the exercise of the discretion of any person or
persons, an Option exercisable for 20,000 shares of Stock (subject to
adjustment in the same manner as provided in Paragraph VII hereof with respect
to shares of Stock subject to Options then outstanding). As of the date of the
annual meeting of the stockholders of the Company in each year that the Plan is
in effect as provided in Paragraph VI hereof, each Eligible Nonemployee
Director who is in office immediately after such meeting and who is not then
entitled to receive an Option pursuant to the preceding provisions of this
Paragraph III shall receive, without the exercise of the discretion of any
person or persons, an Option exercisable for 10,000 shares of Stock (subject to
adjustment in the same manner as provided in Paragraph VII hereof with respect
to shares of Stock subject to Options then outstanding). If, as of any date
that the Plan is in effect, there are not sufficient shares of Stock available
under the Plan to allow for the grant to each Eligible Nonemployee Director of
an Option for the number of shares provided herein,
<PAGE> 2
the Plan shall terminate as provided in Paragraph VI hereof. All Options
granted under the Plan shall be at the Option price set forth in Paragraph V
hereof and shall be subject to adjustment as provided in Paragraph VII hereof.
IV. SHARES SUBJECT TO THE PLAN
The aggregate number of shares which may be issued under Options
granted under the Plan shall not exceed 500,000 shares of Stock. Such shares
may consist of authorized but unissued shares of Stock or previously issued
shares of Stock reacquired by the Company. Any of such shares which remain
unissued and which are not subject to outstanding Options at the termination of
the Plan shall cease to be subject to the Plan, but, until termination of the
Plan, the Company shall at all times make available a sufficient number of
shares to meet the requirements of the Plan. Should any Option hereunder
expire or terminate prior to its exercise in full, the shares theretofore
subject to such Option may again be subject to an Option granted under the
Plan. The aggregate number of shares which may be issued under the Plan shall
be subject to adjustment in the same manner as provided in Paragraph VII hereof
with respect to shares of Stock subject to Options then outstanding. Exercise
of an Option shall result in a decrease in the number of shares of Stock which
may thereafter be available, both for purposes of the Plan and for sale to any
one individual, by the number of shares as to which the Option is exercised.
V. OPTION PRICE
The purchase price of Stock issued under each Option shall be the fair
market value of Stock subject to the Option on the date the Option is granted.
For all purposes under the Plan, the fair market value of a share of Stock on a
particular date shall be equal to the mean of the high and low sales prices of
the Stock reported on the New York Stock Exchange composite tape on that date,
or if no such prices are reported on that date, on the last preceding date on
which such prices of the Stock are so reported.
VI. TERM OF PLAN
The Plan shall be effective on the date the Plan is approved by the
stockholders of the Company. Except with respect to Options then outstanding,
if not sooner terminated under the provisions of Paragraph VIII, the Plan shall
terminate upon and no further Options shall be granted as of the date that the
remaining number of shares of Stock which may be issued under the Plan pursuant
to Paragraph IV is not sufficient to cover the Options required to be granted
under Paragraph III.
VII. RECAPITALIZATION OR REORGANIZATION
(a) The existence of the Plan and the Options granted hereunder
shall not affect in any way the right or power of the Board or the stockholders
of the Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of debt or
equity securities, the
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<PAGE> 3
dissolution or liquidation of the Company or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
(b) The shares with respect to which Options may be granted are
shares of Stock as presently constituted, but if, and whenever, prior to the
expiration of an Option theretofore granted, the Company shall effect a
subdivision or consolidation of shares of Stock or the payment of a stock
dividend on Stock without receipt of consideration by the Company, the number
of shares of Stock with respect to which such Option may thereafter be
exercised (i) in the event of an increase in the number of outstanding shares
shall be proportionately increased, and the purchase price per share shall be
proportionately reduced, and (ii) in the event of a reduction in the number of
outstanding shares shall be proportionately reduced, and the purchase price per
share shall be proportionately increased.
(c) If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise of an Option theretofore granted the
optionee shall be entitled to purchase under such Option, in lieu of the number
and class of shares of Stock then covered by such Option, the number and class
of shares of stock and securities to which the optionee would have been
entitled pursuant to the terms of the recapitalization if, immediately prior to
such recapitalization, the optionee had been the holder of record of the number
of shares of Stock then covered by such Option. If (i) the Company shall not
be the surviving entity in any merger or consolidation (or survives only as a
subsidiary of an entity other than a previously wholly-owned subsidiary of the
Company), (ii) the Company sells, leases or exchanges or agrees to sell, lease
or exchange all or substantially all of its assets to any person or entity
(other than a wholly-owned subsidiary of the Company) or (iii) the Company is
to be dissolved and liquidated (each such event is referred to herein as a
"CORPORATE CHANGE"), then effective as of the earlier of (1) the date of
approval by the stockholders of the Company of such Corporate Change or (2) the
date of such Corporate Change, (A) in the event of any such merger or
consolidation, upon any exercise of an Option theretofore granted the optionee
shall be entitled to purchase under such Option, in lieu of the number of
shares of Stock as to which such Option shall then be exercisable, the number
and class of shares of stock or other securities or property to which the
optionee would have been entitled pursuant to the terms of the agreement of
merger or consolidation if, immediately prior to such merger or consolidation
the optionee had been the holder of record of the number of shares of Stock as
to which such Option is then exercisable and (B) in the event of any such sale,
lease or exchange of assets or dissolution, all outstanding Options shall be
fully vested and each optionee shall surrender his or her Options to the
Company and the Company shall cancel such Options and pay to each optionee an
amount of cash per share equal to the excess of the per share price offered to
stockholders of the Company in any such sale, lease or exchange of assets or
dissolution transaction for the shares subject to such Options over the
exercise price(s) under such Options for such shares.
(d) Any adjustment provided for in Subparagraphs (b) or (c) above
shall be subject to any required shareholder action.
(e) Except as hereinbefore expressly provided, the issuance by the
Company of shares of stock of any class or securities convertible into shares
of stock of any class, for cash, property, labor or services, upon direct sale,
upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities,
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<PAGE> 4
and in any case whether or not for fair value, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Stock subject to Options theretofore granted or the
purchase price per share.
VIII. AMENDMENT OR TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with
respect to any shares for which Options have not theretofore been granted. The
Board shall have the right to alter or amend the Plan or any part thereof from
time to time; provided, that the Plan shall not be amended more than once every
six months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder;
and provided, further, that no change in any Option theretofore granted may be
made which would impair the rights of the optionee without the consent of such
optionee; and provided, further, that the Board may not make any alteration or
amendment which would materially increase the benefits accruing to participants
under the Plan, increase the aggregate number of shares which may be issued
pursuant to the provisions of the Plan, increase or decrease the number of
shares subject to each Option, change the schedule of the grants, extend the
term of the Options, change the class of individuals eligible to receive
Options under the Plan or extend the term of the Plan, without the approval of
the stockholders of the Company.
IX. SECURITIES LAWS
(a) The Company shall not be obligated to issue any Stock pursuant
to any Option granted under the Plan at any time when the offering of the
shares covered by such Option have not been registered under the Securities Act
of 1933, as amended, and such other state and federal laws, rules or
regulations as the Company deems applicable and, in the opinion of legal
counsel for the Company, there is no exemption from the registration
requirements of such laws, rules or regulations available for the offering and
sale of such shares.
(b) It is intended that the Plan and any grant of an Option made
to a person subject to Section 16 of the Securities Exchange Act of 1934, as
amended (the "1934 ACT") meet all of the requirements of Rule 16b-3, as
currently in effect or as hereinafter modified or amended ("RULE 16B-3"),
promulgated under the 1934 Act. If any provision of the Plan or any such
Option would disqualify the Plan or such Option under, or would otherwise not
comply with, Rule 16b-3, such provision or Option shall be construed or deemed
amended to conform to Rule 16b-3.
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<PAGE> 5
NONEMPLOYEE DIRECTOR STOCK OPTION AGREEMENT
AGREEMENT made as of the ______ day of ________________, 19___,
between GOODRICH PETROLEUM CORPORATION, a Delaware corporation (the "COMPANY")
and ________________________________ ("DIRECTOR").
To carry out the purposes of the GOODRICH PETROLEUM CORPORATION 1995
NONEMPLOYEE DIRECTOR STOCK OPTION PLAN (the "PLAN"), a copy of which is
attached hereto as Exhibit A, by affording Director the opportunity to purchase
shares of common stock of the Company ("STOCK"), and in consideration of the
mutual agreements and other matters set forth herein and in the Plan, the
Company and Director hereby agree as follows:
1. GRANT OF OPTION. The Company hereby irrevocably grants to
Director the right and option ("OPTION") to purchase all or any part of an
aggregate of ______ shares of Stock, on the terms and conditions set forth
herein and in the Plan, which Plan is incorporated herein by reference as a
part of this Agreement. This Option shall not be treated as an incentive stock
option within the meaning of section 422(b) of the Internal Revenue Code of
1986, as amended.
2. PURCHASE PRICE. The purchase price of Stock purchased
pursuant to the exercise of this Option shall be $_______ per share, which has
been determined to be not less than the fair market value of the Stock at the
date of grant of this Option. For all purposes of this Agreement, fair market
value of Stock shall be determined in accordance with the provisions of the
Plan.
3. EXERCISE OF OPTION. Subject to the earlier expiration of this
Option as herein provided, this Option may be exercised, by written notice to
the Company at its principal executive office addressed to the attention of its
Chairman, President and Chief Executive Officer, at any time and from time to
time after the date of grant hereof, but, except as otherwise provided below,
this Option shall not be exercisable for more than a percentage of the
aggregate number of shares offered by this Option determined by the number of
full years from the date of grant hereof to the date of such exercise, in
accordance with the following schedule:
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF FULL YEARS THAT MAY BE PURCHASED
-------------------- ---------------------
<S> <C>
LESS THAN 1 YEAR 0%
1 YEAR 20%
2 YEARS 40%
3 YEARS 60%
4 YEARS 80%
5 YEARS OR MORE 100%
</TABLE>
This Option is not transferable by Director otherwise than by will or
the laws of descent and distribution, and may be exercised only by Director (or
Director's guardian or legal representative) during Director's lifetime. If a
Director's membership on the Board of Directors of the Company (the "BOARD")
terminates, this Option may be exercised as follows:
<PAGE> 6
(a) If Director's membership on the Board terminates for
cause or voluntarily by Director (other than by reason of mandatory
retirement pursuant to the policy of the Board) not at the request of
the Board, this Option may be exercised by Director at any time during
the period of three months following such termination, or by
Director's estate (or the person who acquires this Option by will or
the laws of descent and distribution or otherwise by reason of the
death of Director) during a period of one year following Director's
death if Director dies during such three-month period, but in each
case only as to the number of shares Director was entitled to purchase
hereunder upon exercise of this Option as of the date Director's
membership on the Board so terminates. For purposes of this
Agreement, "cause" shall mean Director's gross negligence or willful
misconduct in performance of his duties as a director, or Director's
final conviction of a felony or of a misdemeanor involving moral
turpitude.
(b) If Director's membership on the Board terminates by
reason of disability, this Option may be exercised in full by Director
(or Director's guardian or legal representative or Director's estate
or the person who acquires this Option by will or the laws of descent
and distribution or otherwise by reason of the death of Director) at
any time during the period of one year following such termination.
(c) If Director dies while a member of the Board,
Director's estate, or the person who acquires this Option by will or
the laws of descent and distribution or otherwise by reason of the
death of Director, may exercise this Option in full at any time during
the period of one year following the date of Director's death.
(d) If Director's membership on the Board terminates for
any reason other than as described in (a), (b) or (c) above, this
Option may be exercised in full by Director at any time during the
period of three months following such termination, or by Director's
estate (or the person who acquires this Option by will or the laws of
descent and distribution or otherwise by reason of the death of
Director) during a period of one year following Director's death if
Director dies during such three-month period.
This Option shall not be exercisable in any event after the expiration of ten
years from the date of grant hereof. The purchase price of shares as to which
this Option is exercised shall be paid in full at the time of exercise (A) in
cash (including check, bank draft or money order payable to the order of the
Company), (B) by delivering to the Company shares of Stock having a fair
market value equal to the purchase price, or (C) any combination of cash or
Stock. No fraction of a share of Stock shall be issued by the Company upon
exercise of an Option or accepted by the Company in payment of the purchase
price thereof; rather, Director shall provide a cash payment for such amount as
is necessary to effect the issuance and acceptance of only whole shares of
Stock. Unless and until a certificate or certificates representing such shares
shall have been issued by the Company to Director, Director (or the person
permitted to exercise this Option in the event of Director's death) shall not
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<PAGE> 7
be or have any of the rights or privileges of a shareholder of the Company with
respect to shares acquirable upon an exercise of this Option.
4. WITHHOLDING OF TAX. To the extent that the exercise of this
Option or the disposition of shares of Stock acquired by exercise of this
Option results in compensation income to Director for federal or state income
tax purposes, Director shall deliver to the Company at the time of such
exercise or disposition such amount of money or shares of Stock as the Company
may require to meet its obligation under applicable tax laws or regulations,
and, if Director fails to do so, the Company is authorized to withhold from any
cash or Stock remuneration then or thereafter payable to Director any tax
required to be withheld by reason of such resulting compensation income. Upon
an exercise of this Option, the Company is further authorized in its discretion
to satisfy any such withholding requirement out of any cash or shares of Stock
distributable to Director upon such exercise.
5. STATUS OF STOCK. The Company intends to register for
issuance under the Securities Act of 1933, as amended (the "ACT"), the shares
of Stock acquirable upon exercise of this Option, and to keep such registration
effective throughout the period this Option is exercisable. In the absence of
such effective registration or an available exemption from registration under
the Act, issuance of shares of Stock acquirable upon exercise of this Option
will be delayed until registration of such shares is effective or an exemption
from registration under the Act is available. The Company intends to use all
reasonable efforts to ensure that no such delay will occur. In the event
exemption from registration under the Act is available upon an exercise of this
Option, Director (or the person permitted to exercise this Option in the event
of Director's death or incapacity), if requested by the Company to do so, will
execute and deliver to the Company in writing an agreement containing such
provisions as the Company may require to assure compliance with applicable
securities laws.
Director agrees that the shares of Stock which Director may acquire by
exercising this Option will not be sold or otherwise disposed of in any manner
which would constitute a violation of any applicable federal or state
securities laws. Director also agrees (i) that the certificates representing
the shares of Stock purchased under this Option may bear such legend or legends
as the Company deems appropriate in order to assure compliance with applicable
securities laws, (ii) that the Company may refuse to register the transfer of
the shares of Stock purchased under this Option on the stock transfer records
of the Company if such proposed transfer would in the opinion of counsel
satisfactory to the Company constitute a violation of any applicable securities
law and (iii) that the Company may give related instructions to its transfer
agent, if any, to stop registration of the transfer of the shares of Stock
purchased under this Option.
6. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of any successors to the Company and all persons lawfully
claiming under Director.
7. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
-3-
<PAGE> 8
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Director has executed
this Agreement, all as of the day and year first above written.
GOODRICH PETROLEUM CORPORATION
By: ---------------------------------
Chairman, President and Chief
Executive Officer
---------------------------------
Director
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<PAGE> 1
CONSULTING SERVICES AGREEMENT
THIS AGREEMENT, effective upon the closing of the merger between La/Cal Energy
Partners and Patrick Petroleum Company (the "Closing Date"), is by and
between Henry Goodrich ("Consultant") and Goodrich Petroleum Corporation
("Company") of 5847 San Felipe, Suite 700, Houston, Texas 77057.
WHEREAS, the parties hereto desire to confirm in writing their agreement
concerning consulting services that may be provided by Consultant for the
Company.
NOW, THEREFORE, in consideration of the mutual promises and agreements herein
contained, including the recital set forth hereinabove, the parties hereto
agree as follows:
1. The period covered by this agreement shall commence on the Closing
Date and terminate upon the expiration of five years from the Closing
Date.
2. Consultant agrees to provide consulting services concerning the
evaluation of hydrocarbon acquisitions and drilling opportunities,
financing transactions, investor relations and related matters to the
Company during the term of this Agreement. The Company will pay to
Consultant the annual sum of One Hundred and Fifty Thousand Dollars
($150,000), payable in equal monthly installments, as an initial
consulting fee for such services. In addition, promptly after the
Closing Date, the Company shall grant to Consultant a nonqualified
stock option (the "Option") under the Company's stock option Plan (the
"Plan") to purchase Two Hundred and Fifty Thousand (250,000) shares
(such number of shares as adjusted from time to time in accordance
with the terms of the Plan, the "Option Shares") of common stock, par
value $0.20 per share, of the Company at an exercise price equal to
the Fair Market Value (as defined in the Plan) per share for the
Company's common stock on the date of grant of the Option. The grant
date of the Option will be the Closing Date.
3. Consultant shall be directed by the Board of Directors and executive
officers of the Company.
4. The Company and Consultant shall agree in advance to a schedule for
services to be performed. The Company and Consultant will use their
best efforts to adhere to such schedule or in the event of the need to
modify such schedule at a later date, Consultant will notify the
Company for approval.
5. Consultant shall perform all consulting assignments on a best-efforts
basis.
6. Consultant shall be reimbursed by the Company, in accordance with the
Company's Travel and Business Expense Policy, for any reasonable
expenses incurred by Consultant in the performance of the consulting
services contemplated by this Agreement. Such expenses may include,
but are not limited to, hotel accommodations, airfare, meals, auto
rental, taxis and supplies.
<PAGE> 2
7. The Company agrees that Consultant may be supported by the Company
through the assistance of various Company employees (e.g., secretarial
and spreadsheet capability) in order to perform the consulting
services most efficiently.
8. In the performance of this Agreement, Consultant may have access to
private and confidential information owned or controlled by the
Company. Such private and confidential information includes, but is
not limited to, the terms of this Agreement; the terms of any
agreement between the Company and any other participant or
participants involved in the business of developing, drilling,
producing or marketing hydrocarbons, information relating to any
drilling or acquisition prospect, and any operating or performance
information of the Company (all of the above information is
collectively referred to as the "Confidential Information").
Consultant recognizes and agrees that all such Confidential
Information is and shall remain the property of the Company. All
information or data acquired by Consultant under this Agreement shall
be and remain the Company's exclusive property, or the property of
other participants or joint venturers of the Company or other third
parties, as the case may be. Consultant shall keep any and all
Confidential Information confidential, and shall not publish or
disclose any Confidential Information or data to others without the
Company's prior written approval. Consultant shall not, except for
the purposes allowed hereunder and under the terms of the Joint
Participation Agreement between the Company and Goodrich Oil Company
dated as of the Closing Date (the "Joint Participation Agreement"),
use for its benefit or for the benefit of others, any Confidential
Information. Upon the expiration or termination of this Agreement,
Consultant shall promptly return all Confidential Information and all
documents and all other materials embodying or constituting any of the
Confidential Information (and all copies thereof) to the Company. All
obligations of confidentiality shall survive any expiration or
termination of this Agreement unless otherwise agreed by the Company
and Consultant. Nothing herein shall limit Consultant's use or
dissemination of information or data not actually derived directly or
indirectly from the Company or any information or data that was made
public by the Company prior to Consultant's use or dissemination
thereof.
9. Except as expressly set forth in the Joint Participation Agreement,
neither Consultant nor Goodrich Oil Company nor any of their
respective affiliates shall have any obligation, or owe any duty, to
offer business opportunities developed by such persons (other than on
the basis of the Company's Confidential Information) to the Company.
10. Consultant shall perform all consulting services contemplated by this
Agreement as an independent contractor.
11. The laws of the State of Texas will govern the interpretation,
validity and effect of this Agreement.
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<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Agreement on this ______ day
of ___________________________, 1995.
Henry Goodrich Goodrich Petroleum Corporation
(Consultant) (Company)
By:
__________________________________ ___________________________________
Name:
_________________________________
Title:
________________________________
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<PAGE> 1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into by and between GOODRICH
PETROLEUM CORPORATION, a Delaware corporation, having an office at 5847 San
Felipe, Suite 700, Houston, Texas 77057 (hereinafter referred to as
"Employer"), and WALTER G. GOODRICH (hereinafter referred to as "Employee")
effective upon the closing of the merger between La/Cal Energy Partners and
Patrick Petroleum Company (the "Closing Date").
Attendant to Employee's employment by Employer, Employer and Employee
wish for there to be a complete understanding and agreement between Employer
and Employee with respect to, among other terms, Employee's duties and
responsibilities to Employer; the compensation and benefits owed to Employee;
the fiduciary duties owed by Employee to Employer; Employee's obligation to
avoid conflicts of interest, disclose pertinent information to Employer, and
refrain from using or disclosing Employer's information; and the term of
Employee's employment.
NOW, THEREFORE, in consideration of Employee's continued employment by
Employer and for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Employer and Employee agree as follows:
1. GENERAL DUTIES OF EMPLOYER AND EMPLOYEE.
1.1 Employer agrees to employ Employee and Employee agrees to
accept employment by Employer and to serve Employer in an executive capacity as
President and Chief Executive Officer of Employer. The duties and
responsibilities of Employee include those described for the particular
position in the By-laws of Employer or other documents of Employer, and such
other or additional duties as may from time-to-time be assigned to Employee by
the Board of Directors of Employer or any duly authorized committee thereof or
an authorized officer of Employer. While employed hereunder, the Employee
shall devote his full time, efforts, skills and attention to the affairs of
Employer in order that he shall faithfully perform his duties and obligations.
1.2 Employee agrees and acknowledges that he owes a fiduciary duty
of loyalty, fidelity and allegiance to act at all times in the best interests
of Employer and to do no act which would injure Employer's business, its
interests or its reputation.
<PAGE> 2
2. COMPENSATION AND BENEFITS.
2.1 As compensation for services to Employer, Employer shall pay
to Employee during the term of this Agreement an initial base salary at an
annual rate of One Hundred and Fifty Thousand Dollars ($150,000). The salary
shall be payable in equal monthly installments, subject only to such payroll
and withholding deductions as may be required by law and other deductions
applied generally to employees of Employer for insurance and other employee
benefit plans. The Compensation Committee of the Board of Directors of
Employer shall review Employee's overall annual compensation at least annually,
with a view to the adequacy thereof.
2.2 Employee will also be entitled to certain bonus and other
incentive compensation as determined by the Compensation Committee of the Board
of Directors of Employer from time to time.
2.3 Promptly after the Closing Date, Employer shall grant to
Employee an incentive stock option (the "Option") under the Employer's stock
option Plan (the "Plan") to purchase Two Hundred and Fifty Thousand (250,000)
shares (such number of shares as adjusted from time to time in accordance with
the terms of the Plan, the "Option Shares") of common stock, par value $0.20
per share, of Employer at an exercise price equal to 110% of the Fair Market
Value (as defined in the Plan per share for Employer's common stock on the
date of grant of the Option. The grant date of the Option will be the Closing
Date.
2.4 Other Perquisites. During his employment hereunder, Employee
shall be afforded the following benefits as incidences of his employment:
(i) Business and entertainment expenses - Employer will reimburse
Employee for, or pay on behalf of Employee, reasonable and
appropriate expenses incurred by Employee for business related
purposes, including dues and fees to industry and professional
organizations, costs of entertainment and business
development.
(ii) Other benefits - Employee and, to the extent applicable,
Employee's family, dependents and beneficiaries, shall be
allowed to participate in all benefits, plans and programs,
including improvements or modifications of the same, which are
now, or may hereafter be, available to similarly- situated
Company employees. Such benefits, plans and programs may
include, without limitation, thrift plan, health insurance or
health care plan, life insurance, disability insurance,
pension plan, and the like. Employer shall not, however, by
reason of this paragraph be obligated to institute, maintain,
or refrain from
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<PAGE> 3
changing, amending or discontinuing, any such benefit plan or program,
so long as such changes are similarly applicable to executive
employees generally.
The perquisites provided in this paragraph 2.4 shall be provided for the same
period as Employee's compensation hereunder is continued pursuant to this
Agreement; provided, however, that to the extent that any benefit cannot be
continued during a period when Employee is not an employee of Employer,
Employer shall pay Employee an amount equal to the economic value of such
benefit.
3. EMPLOYEE'S OBLIGATION TO AVOID CONFLICTS OF INTEREST.
In keeping with Employee's fiduciary duties to Employer, Employee
agrees that he shall not knowingly become involved in a conflict of interest,
or upon discovery thereof, allow such a conflict to continue. Moreover,
Employee agrees that he shall disclose to Employer's Board of Directors any
facts which might involve a conflict of interest that has not been approved by
Employer's Board of Directors.
4. OWNERSHIP OF INFORMATION, IDEAS, CONCEPTS, IMPROVEMENTS, DISCOVERIES
AND INVENTIONS, AND ALL ORIGINAL WORKS OF AUTHORSHIP.
4.1 All information, ideas, concepts, improvements, discoveries
and inventions, whether patentable or not, which are disclosed or made known to
Employee, individually or in conjunction with others, during Employee's
employment by Employer and which relate to Employer's business, products or
services are and shall be the sole and exclusive property of Employer. If
during Employee's employment by Employer, Employee creates any original work of
authorship fixed in any tangible medium of expression which is the subject
matter of copyright relating to Employer's business, products, or services,
whether such work is created solely by Employee of jointly with others,
Employer shall be deemed the author of such work if the work is prepared by
Employee in the scope of his employment.
4.2. As part of Employee's fiduciary duties to Employer, Employee
agrees to protect and safeguard Employer's information, ideas, concepts,
improvements, discoveries and inventions, and, except as may be expressly
required by Employer, Employee shall not during his employment by Employer,
directly or indirectly, use for his own benefit or for the benefit of another,
or disclose to another, any of such information, ideas, concepts, improvements,
discoveries or inventions.
4.3 Upon termination of his employment with Employer, or any other
time upon request, Employee shall immediately deliver to Employee all documents
embodying any of Employer's information, ideas, concepts, improvements,
discoveries and inventions.
-3-
<PAGE> 4
5. TERM AND TERMINATION OF EMPLOYMENT
5.1 Unless sooner terminated pursuant to other provisions hereof,
Employer agrees to employ Employee for a period beginning with the effective
date of this Agreement terminating after the expiration of five years. Such
term of employment shall be extended automatically for successive one year
periods until such time, as either party shall give written notice to the other
that no further such automatic extensions shall occur, in which event
employment shall terminate at the expiration of (i) six months following such
notice to terminate or (ii) the latest one year extension, whichever is later.
5.2 Notwithstanding the provisions of paragraph 5.1, Employer
shall have the right to terminate Employee's employment under this Agreement at
any time for any of the following reasons:
(i) upon Employee's death;
(ii) upon Employee's becoming incapacitated by accident,
sickness or other circumstance which renders him
mentally or physically incapable of performing the
duties and services required of him hereunder for a
period of at least 180 consecutive days or for a
period of 270 days during any twelve (12) month
period;
(iii) for cause, which for purposes of this Agreement shall
mean gross negligence of willful misconduct in
performance of the duties and services required of
him pursuant to this Agreement, or Employee's final
conviction of a felony or of a misdemeanor involving
moral turpitude; or
(iv) for Employee's material breach of any material
provision of this Agreement which, if correctable,
remains uncorrected for thirty (30) days following
written notice to Employee by the Employer of such
breach.
5.3 Notwithstanding the provisions of paragraph 5.1, Employee
shall have the right to terminate his employment under this Agreement at any
time for any of the following reasons:
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<PAGE> 5
(i) the assignment to Employee by the Board of Directors
of duties materially inconsistent with the duties of
the Employer's Chief Executive Officer as such duties
are constituted as of the effective date of this
Agreement;
(ii) the failure of Employer to elect or appoint, or to
re-elect or reappoint, Employee to the offices
described in paragraph 1.1 of this Agreement;
(iii) the occurrence of a "change of control." For purpose
of this paragraph 5.3(iii), a "change of control"
shall be deemed to have occurred if: (i) any person
(other than Employee), including a "group" as
determined in accordance with Section 13(d)(3) of the
Securities Exchange Act of 1934, becomes the
beneficial owner of shares of Employer having 40% or
more of the total number of votes that may be cast
for the election of directors of Employer; or (ii) as
a result of, or in connection with, any cash tender
or exchange offer, merger or other business
combination, sale of assets or contested election of
directors, or any combination of the foregoing
transactions (a "Transaction"), the persons who were
directors of Employer before such a Transaction shall
cease to constitute a majority of the Board of
Directors of the Employer or any successor to
Employer;
(iv) a material breach by Employer of any material
provision of this Agreement which, if correctable,
remains uncorrected for thirty (30) days following
written notice of such breach by Employee to
Employer; or
(v) for any other reason whatsoever, in the sole
discretion of Employee.
5.4 If Employer or Employee desires to terminate employment
hereunder at any time prior to expiration of the term of employment as provided
in paragraph 5.1, it or he shall do so by giving written notice to the other
party that it or he has elected to terminate Employee's employment hereunder
and stating the effective date and reason for such termination, provided that
no such action shall alter or amend any other provisions hereof or rights
arising hereunder. Such notice shall also, to the extent material to any right
or obligation hereunder, constitute notice under paragraph 5.1 of the
discontinuance of any further automatic extensions of the term of paragraph
5.1.
-5-
<PAGE> 6
6. EFFECT OF TERMINATION ON EMPLOYMENT.
6.1 By Expiration. If Employee's employment hereunder shall
terminate upon expiration of the term provided in paragraph 5.1 hereof as the
same may have been automatically extended from time to time, then all
compensation and all benefits to Employee hereunder shall terminate
contemporaneously with termination of his employment. This paragraph 6.1 shall
not be applicable in the event of termination of employment prior to the
expiration of the term provided in paragraph 5.1 hereof (as same may have been
automatically extended from time to time).
6.2 By Employer. If Employee's employment hereunder shall be
terminated by the Employer prior to expiration of the term provided in
paragraph 5.1 hereof as the same may have been automatically extended from time
to time, then, upon such termination, regardless of the reason therefor, all
compensation and all benefits to Employee hereunder shall terminate
contemporaneously with the termination of such employment, except that if such
termination shall be for any reason other than those encompassed by paragraphs
5.2(iii) or (iv), then Employee's compensation and benefits pursuant to
paragraphs 2.1 and 2.4 shall continue for the balance of such term.
6.3 By Employee. If Employee's employment hereunder shall be
terminated by Employee prior to expiration of the term provided in paragraph
5.1 hereof as the same may have been automatically extended from time to time,
then, upon such termination, regardless of the reason therefor, all
compensation and benefits to Employee hereunder shall terminate
contemporaneously with the termination of such employment, except that if such
termination shall be pursuant to paragraphs 5.3(i), (ii), (iii) or (iv) then
Employee's compensation and benefits pursuant to paragraphs 2.1 and 2.4 shall
continue for the balance of such term.
7. MISCELLANEOUS.
7.1 All notices and other communications required or permitted
hereunder or necessary or convenient in connection herewith shall be in writing
and shall be deemed to have been given when mailed by registered mail or
certified mail, return receipt requested, or reputable overnight delivery
service as follows (provided that notice of change of address shall be deemed
given only when received):
-6-
<PAGE> 7
If to Employer, to:
Goodrich Petroleum Corporation
5847 San Felipe, Suite 700
Houston, Texas 77057
(713) 780-9494
If to Employee, to:
Walter G. Goodrich
333 Texas St.
Suite 1350
Shreveport, Louisiana 71101
or to such other names or addresses as employer or employee, as the case may
be, shall designate by notice to the other party hereto in the manner specified
in this Section.
7.2 This Agreement shall be binding upon and inure to the benefit
of Employer, its successors, legal representatives and assigns, and upon
Employee, his heirs, executors, administrators, representatives and assigns;
provided, however, Employee agrees that his rights and obligations hereunder
are personal to him and may not be assigned without the express written consent
of Employer.
7.3 This Agreement replaces and merges all previous agreements and
discussions relating to the same or similar subject matters between Employee
and Employer and constitutes the entire agreement between the Employee and
Employer with respect to the subject matter of this Agreement. This Agreement
may not be modified in any respect by any verbal statement, representation or
agreement made by any employee, officer, or representative of Employer or by
any written agreement unless signed by an officer of Employer who is expressly
authorized by Employer to execute such document.
7.4 If any provision of this Agreement or application thereof to
anyone or under any circumstances shall be determined to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provisions or applications of this Agreement which can be given effect without
the invalid or unenforceable provision or application.
7.5 The laws of the State of Texas will govern the interpretation,
validity and effect of this Agreement.
-7-
<PAGE> 8
7.6 This Agreement may be executed in any number of counterparts,
all of which shall constitute the same instrument.
IN WITNESS WHEREOF, the undersigned intending to be legally bound,
have executed this Agreement as of the _____ day of _______________, 1995.
GOODRICH PETROLEUM CORPORATION
By:
____________________________________
Name:
_________________________________
Title:
________________________________
EMPLOYEE
_______________________________________
Walter G. Goodrich
-8-
<PAGE> 1
EXHIBIT 10.26
FORM OF
AGREEMENT TO ASSIGN
CERTAIN BACK-IN AND CARRIED WORKING INTERESTS
This Agreement is made and effective as of the date hereinafter set
forth, by and between WALTER G. GOODRICH (hereinafter referred to as
"Goodrich"), and GOODRICH PETROLEUM CORPORATION, a Delaware corporation with
principal offices in Houston, Texas, at 5847 San Felipe, Suite 700, Houston,
Texas 77057 (hereinafter referred to as "GPC").
WHEREAS, pursuant to an agreement between Goodrich Oil Company ("GOC")
and Goodrich (the "Working Interest Agreement"), Goodrich has certain rights to
receive certain back-in and carried working interests (the "Working Interests")
which are earned by GOC under various agreements between Goodrich Oil Company
and its oil and gas participants.
WHEREAS, GPC has entered into a Joint Participation Agreement with
GOC of even date herewith, under which GPC shall have certain rights to
participate with GOC in its New Prospects and Acquisitions (as defined in the
Joint Participation Agreement), and under which GOC shall have certain rights
to participate with GPC in its New Prospects and Acquisitions (as defined in
the Joint Participation Agreement).
WHEREAS, in consideration of the employment of Goodrich by GPC,
Goodrich desires to convey and assign to GPC certain rights under the Working
Interest Agreement, subject to the terms and conditions set forth below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, it is agreed by the parties hereto as follows:
1. Assignment of Rights. For so long as Goodrich is employed by
GPC or is a member of the Board of Directors of GPC, Goodrich does hereby
assign and convey to GPC all of Goodrich's right to receive the Working
Interests which are attributable to New Prospects and Acquisitions in which GPC
and GOC are joint participants during the term of this Agreement. This
assignment of rights shall be effective as to all New Prospects and
Acquisitions in which GPC shall elect to participate during the term of this
Agreement, regardless of when the Working Interests attributable thereto are
earned or become assignable. The actual assignment of the Working Interests
shall be made by GOC directly to GPC.
2. Termination of Agreement. This Agreement shall terminate upon
the earlier to occur of (i) the termination of Goodrich's employment by GPC,
(ii) the cessation of Goodrich's membership on the Board of Directors of GPC,
(iii) the termination of any consulting agreement, if any, between Goodrich and
GPC or (iv) the termination of the Joint Participation Agreement between GOC
and GPC.
<PAGE> 2
3. Miscellaneous Provisions.
3.1 Multiple Originals. This Agreement may be executed
in multiple originals, any one of which shall constitute due proof
hereof.
3.2 Governing Law. This Agreement shall be interpreted,
governed and enforced pursuant to the laws of the State of Louisiana.
3.3 Preparation. No implication or reference shall be
drawn from the fact that any party prepared or proposed portions or
the entirety of this Agreement, and this Agreement shall be construed
as having been drafted by and for the benefit of both parties,
equally.
3.4 Assignability. Neither party hereto may assign,
convey or transfer any of its rights hereunder without the express,
written consent of the other party.
3.5 Successors. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns. There are no third-party beneficiaries to
this Agreement.
3.6 Integration and Amendment. THIS AGREEMENT CONTAINS
THE ENTIRE AGREEMENT AND UNDERSTANDING OF THE PARTIES WITH RESPECT TO
ALL MATTERS RELATED TO THE ASSIGNMENT OF THE RIGHTS DESCRIBED ABOVE.
NO ORAL OR WRITTEN AGREEMENT, UNDERSTANDING, STATEMENT, REPRESENTATION
OR COMMENT NOT EXPRESSLY CONTAINED HEREIN SHALL BE BINDING OR VALID
AGAINST EITHER PARTY NOR SHALL HAVE ANY EFFECT ON THE RIGHTS OR
OBLIGATIONS OF THE PARTIES HEREUNDER. THIS AGREEMENT MAY BE MODIFIED
OR AMENDED ONLY BY A SUBSEQUENT WRITING SIGNED BY ALL PARTIES HERETO.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Effective Date.
_______________________________________
Walter G. Goodrich
GOODRICH PETROLEUM CORPORATION
By
____________________________________
U.E. Patrick, Chairman
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<PAGE> 1
EXHIBIT 10.27
FORM OF
AGREEMENT TO ASSIGN
CERTAIN BACK-IN AND CARRIED WORKING INTERESTS
This Agreement is made and effective as of the date hereinafter set
forth, by and between HENRY GOODRICH (hereinafter referred to as "Goodrich"),
and GOODRICH PETROLEUM CORPORATION, a Delaware corporation with principal
offices in Houston, Texas, at 5847 San Felipe, Suite 700, Houston, Texas 77057
(hereinafter referred to as "GPC").
WHEREAS, pursuant to an agreement between Goodrich Oil Company ("GOC")
and Goodrich (the "Working Interest Agreement"), Goodrich has certain rights to
receive certain back-in and carried working interests (the "Working Interests")
which are earned by GOC under various agreements between Goodrich Oil Company
and its oil and gas participants.
WHEREAS, GPC has entered into a Joint Participation Agreement
with GOC of even date herewith, under which GPC shall have certain rights to
participate with GOC in its New Prospects and Acquisitions (as defined in the
Joint Participation Agreement), and under which GOC shall have certain rights
to participate with GPC in its New Prospects and Acquisitions (as defined in
the Joint Participation Agreement).
WHEREAS, in consideration of the Consulting arrangerment between
Goodrich and GOC, Goodrich desires to convey and assign to GPC certain rights
under the Working Interest Agreement, subject to the terms and conditions set
forth below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, it is agreed by the parties hereto as follows:
1. Assignment of Rights. For so long as Goodrich is (a) employed
by GPC (b) a member of the Board of Directors of GPC or (c) engaged in a
consuting agreement with GOC, Goodrich does hereby assign and convey to GPC
all of Goodrich's right to receive the Working Interests which are
attributable to New Prospects and Acquisitions in which GPC and GOC are joint
participants during the term of this Agreement. This assignment of rights
shall be effective as to all New Prospects and Acquisitions in which GPC shall
elect to participate during the term of this Agreement, regardless of when the
Working Interests attributable thereto are earned or become assignable. The
actual assignment of the Working Interests shall be made by GOC directly to
GPC.
2. Termination of Agreement. This Agreement shall terminate upon
the earlier to occur of (i) the termination of Goodrich's employment by GPC, if
any, (ii) the cessation of Goodrich's membership on the Board of Directors of
GPC, (iii) the termination of any consulting agreement, if any, between
Goodrich and GPC or (iv) the termination of the Joint Participation Agreement
between GOC and GPC.
<PAGE> 2
3. Miscellaneous Provisions.
3.1 Multiple Originals. This Agreement may be executed
in multiple originals, any one of which shall constitute due proof
hereof.
3.2 Governing Law. This Agreement shall be interpreted,
governed and enforced pursuant to the laws of the State of Louisiana.
3.3 Preparation. No implication or reference shall be
drawn from the fact that any party prepared or proposed portions or
the entirety of this Agreement, and this Agreement shall be construed
as having been drafted by and for the benefit of both parties,
equally.
3.4 Assignability. Neither party hereto may assign,
convey or transfer any of its rights hereunder without the express,
written consent of the other party.
3.5 Successors. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns. There are no third-party beneficiaries to
this Agreement.
3.6 Integration and Amendment. THIS AGREEMENT CONTAINS
THE ENTIRE AGREEMENT AND UNDERSTANDING OF THE PARTIES WITH RESPECT TO
ALL MATTERS RELATED TO THE ASSIGNMENT OF THE RIGHTS DESCRIBED ABOVE.
NO ORAL OR WRITTEN AGREEMENT, UNDERSTANDING, STATEMENT, REPRESENTATION
OR COMMENT NOT EXPRESSLY CONTAINED HEREIN SHALL BE BINDING OR VALID
AGAINST EITHER PARTY NOR SHALL HAVE ANY EFFECT ON THE RIGHTS OR
OBLIGATIONS OF THE PARTIES HEREUNDER. THIS AGREEMENT MAY BE MODIFIED
OR AMENDED ONLY BY A SUBSEQUENT WRITING SIGNED BY ALL PARTIES HERETO.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Effective Date.
_______________________________________
Henry Goodrich
GOODRICH PETROLEUM CORPORATION
By
____________________________________
U.E. Patrick, Chairman
-2-
<PAGE> 1
EXHIBIT 10.28
FORM OF
AGREEMENT TO ASSIGN
CERTAIN BACK-IN AND CARRIED WORKING INTERESTS
This Agreement is made and effective as of the date hereinafter set
forth, by and between ROLAND FRAUTSCHI (hereinafter referred to as "Goodrich"),
and GOODRICH PETROLEUM CORPORATION, a Delaware corporation with principal
offices in Houston, Texas, at 5847 San Felipe, Suite 700, Houston, Texas 77057
(hereinafter referred to as "GPC").
WHEREAS, pursuant to an agreement between Goodrich Oil Company ("GOC")
and Frautschi (the "Working Interest Agreement"), Frautschi has certain rights
to receive certain back-in and carried working interests (the "Working
Interests") which are earned by GOC under various agreements between Goodrich
Oil Company and its oil and gas participants.
WHEREAS, GPC has entered into a Joint Participation Agreement with
GOC of even date herewith, under which GPC shall have certain rights to
participate with GOC in its New Prospects and Acquisitions (as defined in the
Joint Participation Agreement), and under which GOC shall have certain rights
to participate with GPC in its New Prospects and Acquisitions (as defined in
the Joint Participation Agreement).
WHEREAS, in consideration of the employment of Frautschi by GPC,
Frautschi desires to convey and assign to GPC certain rights under the Working
Interest Agreement, subject to the terms and conditions set forth below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, it is agreed by the parties hereto as follows:
1. Assignment of Rights. For so long as Frautschi is employed by
GPC or is a member of the Board of Directors of GPC, if applicable, Frautschi
does hereby assign and convey to GPC all of Frautschi's right to receive the
Working Interests which are attributable to New Prospects and Acquisitions in
which GPC and GOC are joint participants during the term of this Agreement.
This assignment of rights shall be effective as to all New Prospects and
Acquisitions in which GPC shall elect to participate during the term of this
Agreement, regardless of when the Working Interests attributable thereto are
earned or become assignable. The actual assignment of the Working Interests
shall be made by GOC directly to GPC.
2. Termination of Agreement. This Agreement shall terminate upon
the earlier to occur of (i) the termination of Frautschi's employment by GPC,
(ii) the cessation of Frautschi's membership on the Board of Directors of GPC,
if applicable, (iii) the termination of any consulting agreement, if any,
between Frautschi and GPC or (iv) the termination of the Joint Participation
Agreement between GOC and GPC.
<PAGE> 2
3. Miscellaneous Provisions.
3.1 Multiple Originals. This Agreement may be executed
in multiple originals, any one of which shall constitute due proof
hereof.
3.2 Governing Law. This Agreement shall be interpreted,
governed and enforced pursuant to the laws of the State of Louisiana.
3.3 Preparation. No implication or reference shall be
drawn from the fact that any party prepared or proposed portions or
the entirety of this Agreement, and this Agreement shall be construed
as having been drafted by and for the benefit of both parties,
equally.
3.4 Assignability. Neither party hereto may assign,
convey or transfer any of its rights hereunder without the express,
written consent of the other party.
3.5 Successors. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns. There are no third-party beneficiaries to
this Agreement.
3.6 Integration and Amendment. THIS AGREEMENT CONTAINS
THE ENTIRE AGREEMENT AND UNDERSTANDING OF THE PARTIES WITH RESPECT TO
ALL MATTERS RELATED TO THE ASSIGNMENT OF THE RIGHTS DESCRIBED ABOVE.
NO ORAL OR WRITTEN AGREEMENT, UNDERSTANDING, STATEMENT, REPRESENTATION
OR COMMENT NOT EXPRESSLY CONTAINED HEREIN SHALL BE BINDING OR VALID
AGAINST EITHER PARTY NOR SHALL HAVE ANY EFFECT ON THE RIGHTS OR
OBLIGATIONS OF THE PARTIES HEREUNDER. THIS AGREEMENT MAY BE MODIFIED
OR AMENDED ONLY BY A SUBSEQUENT WRITING SIGNED BY ALL PARTIES HERETO.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Effective Date.
_______________________________________
Roland Frautschi
GOODRICH PETROLEUM CORPORATION
By
____________________________________
U.E. Patrick, Chairman
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<PAGE> 1
EXHIBIT 10.29
FORM OF
AGREEMENT TO ASSIGN
CERTAIN BACK-IN AND CARRIED WORKING INTERESTS
This Agreement is made and effective as of the date hereinafter set
forth, by and between J. MICHAEL WATTS (hereinafter referred to as "Watts"),
and GOODRICH PETROLEUM CORPORATION, a Delaware corporation with principal
offices in Houston, Texas, at 5847 San Felipe, Suite 700, Houston, Texas 77057
(hereinafter referred to as "GPC").
WHEREAS, pursuant to an agreement between Goodrich Oil Company ("GOC")
and Watts (the "Working Interest Agreement"), Watts has certain rights to
receive certain back-in and carried working interests (the "Working Interests")
which are earned by GOC under various agreements between Goodrich Oil Company
and its oil and gas participants.
WHEREAS, GPC has entered into a Joint Participation Agreement with GOC
of even date herewith, under which GPC shall have certain rights to
participate with GOC in its New Prospects and Acquisitions (as defined in the
Joint Participation Agreement), and under which GOC shall have certain rights
to participate with GPC in its New Prospects and Acquisitions (as defined in
the Joint Participation Agreement).
WHEREAS, in consideration of Watts' membership or the Board of
Directors of GPC, Watts desires to convey and assign to GPC certain rights
under the Working Interest Agreement, subject to the terms and conditions set
forth below.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, it is agreed by the parties hereto as follows:
1. Assignment of Rights. For so long as Watts is employed by GPC
or is a member of the Board of Directors of GPC, Watts does hereby assign and
convey to GPC all of Watts right to receive the Working Interests which are
attributable to New Prospects and Acquisitions in which GPC and GOC are joint
participants during the term of this Agreement. This assignment of rights
shall be effective as to all New Prospects and Acquisitions in which GPC shall
elect to participate during the term of this Agreement, regardless of when the
Working Interests attributable thereto are earned or become assignable. The
actual assignment of the Working Interests shall be made by GOC directly to
GPC.
2. Termination of Agreement. This Agreement shall terminate upon
the earlier to occur of (i) the termination of Watts's employment by GPC, (ii)
the cessation of Watts's membership on the Board of Directors of GPC, (iii)
the termination of any consulting agreement, if any, between Watts and GPC or
(iv) the termination of the Joint Participation Agreement between GOC and GPC.
<PAGE> 2
3. Miscellaneous Provisions.
3.1 Multiple Originals. This Agreement may be executed
in multiple originals, any one of which shall constitute due proof
hereof.
3.2 Governing Law. This Agreement shall be interpreted,
governed and enforced pursuant to the laws of the State of Louisiana.
3.3 Preparation. No implication or reference shall be
drawn from the fact that any party prepared or proposed portions or
the entirety of this Agreement, and this Agreement shall be construed
as having been drafted by and for the benefit of both parties,
equally.
3.4 Assignability. Neither party hereto may assign,
convey or transfer any of its rights hereunder without the express,
written consent of the other party.
3.5 Successors. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns. There are no third-party beneficiaries to
this Agreement.
3.6 Integration and Amendment. THIS AGREEMENT CONTAINS
THE ENTIRE AGREEMENT AND UNDERSTANDING OF THE PARTIES WITH RESPECT TO
ALL MATTERS RELATED TO THE ASSIGNMENT OF THE RIGHTS DESCRIBED ABOVE.
NO ORAL OR WRITTEN AGREEMENT, UNDERSTANDING, STATEMENT, REPRESENTATION
OR COMMENT NOT EXPRESSLY CONTAINED HEREIN SHALL BE BINDING OR VALID
AGAINST EITHER PARTY NOR SHALL HAVE ANY EFFECT ON THE RIGHTS OR
OBLIGATIONS OF THE PARTIES HEREUNDER. THIS AGREEMENT MAY BE MODIFIED
OR AMENDED ONLY BY A SUBSEQUENT WRITING SIGNED BY ALL PARTIES HERETO.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Effective Date.
_______________________________________
J. Michael Watts
GOODRICH PETROLEUM CORPORATION
By
____________________________________
U.E. Patrick, Chairman
-2-
<PAGE> 1
Exhibit 23.1
CONSENT OF EMENS, KEGLER, BROWN, HILL & RITTER
We hereby consent to the filing of our Form of Opinion as an exhibit
to the S-4 Registration Statement of Goodrich Petroleum Corporation and to the
reference to us under the heading "Legal Matters."
EMENS, KEGLER, BROWN, HILL & RITTER CO., L.P.A.
By: /s/ JOHN R. THOMAS
John R. Thomas, Esq.
Columbus, Ohio
April 14, 1995
<PAGE> 1
EXHIBIT 23.3
[DELOITTE & TOUCHE LLP LOGO]
_______________________________________
Suite 900 Telephone: (313) 396-3000
600 Renaissance Center
Detroit, Michigan 48243-1704
INDEPENDENT AUDITORS CONSENT AND REPORT ON SCHEDULE
We consent to the use in this Amendment No. 1 to the Registration Statement of
Goodrich Petroleum Company on Form S-4 of our report on Patrick Petroleum
Company dated March 20, 1995, appearing in the Prospectus, which is a part of
this Registration Statement, and to the references to us under the heading
"Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of Patrick Petroleum Company
listed on Item 21(b). This financial statement schedule is the responsibility
of Patrick Petroleum Company management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
Detroit, Michigan
May 25, 1995
_______________
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
_______________
<PAGE> 1
Exhibit 23.5
INDEPENDENT AUDITORS CONSENT AND REPORT ON SCHEDULE
We consent to the use in the Registration Statement of Goodrich Petroleum
Company on Form S-4 of our report on Patrick Petroleum Company dated
March 20, 1995, appearing in the Prospectus, which is a part of this
Registration Statement, and to the references to us under the heading "Experts"
in such Prospectus.
Our audits of the financial statements referred to in our aforementioned report
also includes the financial statement schedule of Patrick Petroleum Company,
listed on Item 21(b). This financial statement schedule is the responsibility
of Patrick Petroleum Company management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic financial statements, taken as a
whole, presents fairly in all material respects the information set forth
therein.
Detroit, Michigan
April 13, 1995
<PAGE> 1
EXHIBIT 23.20
CONSENT OF DIRECTOR
I hereby consent to being named a director in the Goodrich Petroleum
Corporation Joint Proxy/Prospectus constituting a portion of the Registration
Statement on Form S-4 dated May 26, 1995.
Very truly yours,
/s/ J. MICHAEL WATTS
-------------------------------------
J. Michael Watts
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 748,811
<SECURITIES> 1,434,800
<RECEIVABLES> 1,252,537
<ALLOWANCES> 174,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,305,807
<PP&E> 38,347,999
<DEPRECIATION> 18,882,785
<TOTAL-ASSETS> 29,402,798
<CURRENT-LIABILITIES> 8,490,470
<BONDS> 5,000,000
<COMMON> 3,996,215
0
1,175,000
<OTHER-SE> 10,741,113
<TOTAL-LIABILITY-AND-EQUITY> 29,402,798
<SALES> 11,071,486
<TOTAL-REVENUES> 18,989,407
<CGS> 0
<TOTAL-COSTS> 32,239,201
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,170,478
<INCOME-PRETAX> (13,249,794)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,482,150)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,232,356
<CHANGES> 0
<NET-INCOME> (14,482,150)
<EPS-PRIMARY> (0.78)
<EPS-DILUTED> (0.78)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 710,762
<SECURITIES> 0
<RECEIVABLES> 934,910
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,645,672
<PP&E> 7,271,549
<DEPRECIATION> 1,309,866
<TOTAL-ASSETS> 8,230,496
<CURRENT-LIABILITIES> 2,061,712
<BONDS> 8,250,000
<COMMON> 0
0
0
<OTHER-SE> (2,081,216)
<TOTAL-LIABILITY-AND-EQUITY> 8,230,496
<SALES> 4,995,663
<TOTAL-REVENUES> 5,013,446
<CGS> 0
<TOTAL-COSTS> 2,998,628
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,072,098
<INCOME-PRETAX> 2,014,818
<INCOME-TAX> 785,779
<INCOME-CONTINUING> 785,779
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,229,039
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
- --------------------------------------------------------------------------------
PROXY PATRICK PETROLEUM COMPANY PROXY
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR A SPECIAL MEETING OF STOCKHOLDERS
, 1995
The undersigned hereby appoints U.E. Patrick and Robert J.
Swistock and each of them, with full power of substitution, as
proxies to represent the undersigned at a Special Meeting of
Stockholders of Patrick Petroleum Company ("Patrick") and any
adjournment thereof and to vote all shares of common stock the
undersigned would be entitled to vote as indicated upon all
matters referred to herein and in their discretion upon any other
matters which may properly come before the meeting.
(1) To approve and adopt an Agreement and Plan of Merger dated as
of March 10, 1995 a copy of which is attached as Appendix I to
the accompanying Joint Proxy Statement/Prospectus.
/ / FOR / / AGAINST / / ABSTAIN
(2) To approve and adopt the Goodrich Petroleum Corporation 1995
Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
(3) To transact such other business as may properly come before
the Special Meeting or any adjournment thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED. IF
NO DIRECTION IS INDICATED, THE SHARES WILL BE VOTED "FOR" PROPOSAL
1 AND "FOR" PROPOSAL 2.
- --------------------------------------------------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
If the shares are issued in the names of two or more persons,
each person should sign the Proxy. If the shares are issued in the
name of a corporation or partnership, please sign in the corporate
name, by president or other authorized officer, or in the
partnership name, by an authorized person.
Dated: _______________ , 1995
_____________________________
Signed
_____________________________
Signed
Please sign exactly as your
name appears and return this
Proxy promptly in the
accompanying postage-paid
envelope. When signing as
Attorney, Executor,
Administrator, Trustee,
Guardian or in any other
representative capacity,
please give your full title
as such.
IF YOU PLAN TO ATTEND THIS MEETING PLEASE CHECK THIS BOX. / /
PLEASE DATE, SIGN AND MAIL YOUR PROXY PROMPTLY
- --------------------------------------------------------------------------------
<PAGE> 1
- --------------------------------------------------------------------------------
PROXY LA/CAL ENERGY PARTNERS PROXY
PROXY SOLICITED BY THE MANAGEMENT COMMITTEE
FOR A SPECIAL MEETING OF PARTNERS
, 1995
The undersigned hereby appoints Walter G. Goodrich, and Roland
Frautschi, and each of them, with full power of substitution, as
proxies to represent the undersigned at a Special Meeting of
Partners of La/Cal Energy Partners ("La/Cal") and any adjournment
thereof and to vote all interests the undersigned would be
entitled to vote as indicated upon all matters referred to herein
and in their discretion upon any other matters which may properly
come before the meeting.
(1) To approve and adopt an Agreement and Plan of Merger dated as
of March 10, 1995 (the "Agreement") a copy of which is
attached as Appendix I to the accompanying Joint Proxy
Statement/Prospectus and the transactions contemplated
thereby.
/ / FOR / / AGAINST / / ABSTAIN
(2) Subject to the approval and adoption of proposal (1) above and
the consummation of the transactions contemplated by the
Agreement, to dissolve La/Cal and distribute all of La/Cal's
assets to the Partners.
/ / FOR / / AGAINST / / ABSTAIN
(3) To approve and adopt the Goodrich Petroleum Corporation 1995
Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
THE INTERESTS REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED.
IF NO DIRECTION IS INDICATED, THE INTERESTS WILL BE VOTED "FOR"
PROPOSAL 1, "FOR" PROPOSAL 2 AND "FOR" PROPOSAL 3.
This Proxy, if voted for proposal No. 1 hereon, and if not
revoked prior to the voting hereof, shall constitute written
consent of the undersigned pursuant to Sections 2.02(4) and
8.01(i) of the Agreement of Partnership of La/Cal Energy Partners
dated July 15, 1993.
- --------------------------------------------------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
If the interests are issued in the names of two or more
persons, each person should sign the Proxy. If the interests are
issued in the name of a corporation or partnership, please sign in
the corporate name, by president or other authorized officer, or
in the partnership name, by an authorized person.
Dated:____________________, 1995
________________________________
Signed
________________________________
Signed
Please sign exactly as your
name appears and return this
Proxy promptly in the
accompanying postage-paid
envelope. When signing as
Attorney, Executor,
Administrator, Trustee,
Guardian or in any other
representative capacity,
please give your full title
as such.
IF YOU PLAN TO ATTEND THIS MEETING PLEASE CHECK THIS BOX. / /
PLEASE DATE, SIGN AND MAIL YOUR PROXY PROMPTLY
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 99.3
INDEPENDENT AUDITORS' REPORT
THE PARTNERS OF LA/CAL ENERGY PARTNERS:
We have audited the accompanying balance sheet of La/Cal Energy Partners as
of December 31, 1994, and the related statements of operations, partners'
capital (deficit), and cash flows for the year ended December 31, 1994, and the
period from July 15, 1993 (inception) through December 31, 1993. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of La/Cal Energy Partners as of
December 31, 1994, and the results of its operations and its cash flows for the
year ended December 31, 1994, and the period from July 15, 1993 (inception)
through December 31, 1993, in conformity with generally accepted accounting
principles.
/s/ KMPG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Shreveport, Louisiana
March 31, 1995
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
THE PARTNERS OF LA/CAL ENERGY PARTNERS:
We have audited the accompanying statement of revenues and direct operating
expenses of the Properties Contributed to La/Cal Energy Partners for the period
from January 1, 1993 through July 14, 1993. This financial statement is the
responsibility of the management of the owners of the properties. Our
responsibility is to express an opinion on this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenues and direct
operating expenses are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statement. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
presentation of the statement. We believe that our audit provides a reasonable
basis for our opinion.
The accompanying statement of revenues and direct operating expenses was
prepared for the purpose of complying with certain rules and regulations of the
Securities and Exchange Commission (for inclusion in the Form S-4 Registration
Statement of Goodrich Petroleum Corporation) and are not intended to be a
complete financial presentation of the Properties Contributed to La/Cal Energy
Partners.
In our opinion, such statement of revenues and direct operating expenses
presents fairly, in all material respects, the revenues and direct operating
expenses of the Properties Contributed to La/Cal Energy Partners as described in
Note 1 for the period from January 1, 1993 through July 14, 1993, in conformity
with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Shreveport, Louisiana
March 31, 1995
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
THE PARTNERS OF LA/CAL ENERGY PARTNERS:
We have audited the accompanying balance sheet of La/Cal Energy Partners as
of December 31, 1994, and the related statements of operations, partners'
capital (deficit), and cash flows for the year ended December 31, 1994, and the
period from July 15, 1993 (inception) through December 31, 1993. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of La/Cal Energy Partners as of
December 31, 1994, and the results of its operations and its cash flows for the
year ended December 31, 1994, and the period from July 15, 1993 (inception)
through December 31, 1993, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Shreveport, Louisiana
March 31, 1995
F-33
<PAGE> 1
EXHIBIT 99.4
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Patrick Petroleum Company
Jackson, Michigan
We have audited the accompanying consolidated balance sheets of Patrick
Petroleum Company and subsidiaries as of December 31, 1994 and 1993 and the
related statements of operations, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Patrick Petroleum Company and
subsidiaries, as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note A to the financial statements, the Company adopted
recently issued Statements of Financial Accounting Standards and, accordingly,
changed its method of accounting for investment securities in 1994 and its
method of accounting for income taxes in 1993.
Detroit, Michigan
March 20, 1995
