<PAGE> 1
CONFIDENTIAL, FOR USE OF
THE COMMISSION ONLY
================================================================================
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
GOODRICH PETROLEUM CORPORATION
(NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/* Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11(c)(1)(ii).
(1) Title of each class of securities to which transaction applies:
Series B Convertible Preferred Stock, par value $1.00, of Goodrich
Acquisition II, Inc.
(2) Aggregate number of securities to which transaction applies:
750,000 shares of Goodrich Acquisition II, Inc. Series B Convertible
Preferred Stock
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
The amount of the filing fee of $0 is calculated pursuant to
Rule 0-11(a)(4) and (c)(1) of the Exchange Act by multiplying 1/50th of
1% by the value of the securities (based upon the book value of the
securities computed as of the latest practicable date prior to the date
of the filing) and other property to be transferred to security holders
in the transaction.
(4) Proposed maximum aggregate value of transaction: $ N/A
(5) Total fee paid: $0
/ / Fee paid previously with preliminary materials
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
Registration Statement number, or the Form of Schedule and the date
of its filing.
(i) Amount Previously Paid:
(ii) Form, Schedule or Registration Statement No.:
(iii) Filing Party:
(iv) Date Filed:
- ------------------
* Note: This Proxy Statement relates to the issuance of Series B
Preferred Stock by Goodrich Petroleum Corporation as consideration
for the acquisition of the properties of La/Cal Energy Partners II
and certain working interest owners.
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<PAGE> 2
GOODRICH PETROLEUM CORPORATION
HOUSTON, TEXAS
----------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 19, 1996
----------------------
To the Stockholders:
A Special Meeting of Stockholders of Goodrich Petroleum Corporation, a
Delaware corporation (the "Company"), will be held at the Company's offices,
5847 San Felipe, Suite 700, Houston, Texas, 77057, on December 19, 1996, at 8:00
a.m. local time, for the following purposes:
1. To approve the issuance of 750,000 shares of Series B
Convertible Preferred Stock of Goodrich Acquisition II, Inc.
("New Goodrich"), a wholly owned subsidiary of the Company, in
exchange for certain oil and gas properties described herein
pursuant to the terms and conditions of the Exchange Agreement
dated October 22, 1996 between the Company, New Goodrich and
the owners of such properties.
2. To transact any other business that may properly come before
such meeting or any adjournment thereof.
Only holders of record of the Company's common stock, par value $.20
per share, at the close of business on November 18, 1996 are entitled to notice
of and to vote at the Special Meeting.
By Order of the Board of Directors,
Walter G. "Gil" Goodrich
President and Chief Executive Officer
Houston, Texas
November __, 1996
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE SPECIAL MEETING
REGARDLESS OF THE NUMBER OF SHARES YOU HOLD. PLEASE COMPLETE, SIGN AND MAIL THE
ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE EVEN IF YOU INTEND TO BE PRESENT AT
THE MEETING. NO POSTAGE IS NEEDED. RETURNING THE PROXY WILL NOT LIMIT YOUR RIGHT
TO VOTE IN PERSON OR TO ATTEND THE MEETING, BUT WILL ENSURE YOUR REPRESENTATION
IF YOU CANNOT ATTEND. THE PROXY IS REVOCABLE AT ANY TIME PRIOR TO ITS USE.
<PAGE> 3
SUBJECT TO COMPLETION, DATED NOVEMBER 13, 1996
GOODRICH PETROLEUM CORPORATION
5847 SAN FELIPE
SUITE 700
HOUSTON, TEXAS 77057
----------------------
PROXY STATEMENT
----------------------
GENERAL INFORMATION
This Proxy Statement is being furnished to the common stockholders of
Goodrich Petroleum Corporation, a Delaware corporation (the "Company"), in
connection with the solicitation by the Board of Directors of the Company of
proxies for use at a Special Meeting of Stockholders to be held on December 19,
1996, and any adjournment thereof, for the purpose of considering the proposed
issuance of 750,000 shares of Series B Convertible Preferred Stock, $1.00 par
value per share (the "Series B Preferred Stock"), of Goodrich Acquisition II,
Inc., a wholly owned subsidiary of the Company ("New Goodrich"), in exchange for
certain oil and gas properties described herein. The shares of Series B
Preferred Stock are proposed to be issued pursuant to the terms and conditions
of the Exchange Agreement dated October 22, 1996 (the "Agreement") between the
Company, New Goodrich and La/Cal Energy Partners II ("La/Cal II") and the owners
(the "Working Interest Owners," and, collectively with La/Cal II, the "Sellers")
of working interests in certain oil and gas properties (the "Group A
Properties"). See "Description of the Transactions."
The Sellers include members of the Company's senior management and
board of directors. As a result, the Agreement was negotiated on behalf of the
Company by a special committee of independent directors. See "The
Transactions--Background" and "Interests of Certain Persons in the
Transactions." The special committee, which engaged an independent financial
advisor, reserve engineer and legal counsel in connection with its negotiation
and review of the proposed transactions, recommended approval of the proposed
transactions as set forth in the Agreement, including the issuance of the shares
of Series B Preferred Stock to the Company's Board of Directors. The proposed
transactions were approved unanimously by the Company's disinterested directors.
ACCORDINGLY, THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS
VOTE FOR APPROVAL OF THE ISSUANCE OF THE 750,000 SHARES OF SERIES B PREFERRED
STOCK.
Only holders of record of the Company's common stock, par value $.20
per share ("Common Stock"), as of November 18, 1996 (the "Record Date") are
entitled to notice of and to vote at the Special Meeting. The issuance of the
shares of Series B Preferred Stock does not require stockholder approval under
the laws of the State of Delaware. However, the rules of the New York Stock
Exchange require that such issuance be approved by a majority of the votes cast
at the Special Meeting. At the close of business on the Record Date, there were
41,804,510 shares of the Common Stock outstanding. Holders of shares of Common
Stock are entitled to one vote for each share. Each of the Company's executive
officers and directors, who collectively own 11,622,266 outstanding shares of
Common Stock, has indicated their intention to vote FOR the proposal.
The cost of the solicitation of proxies for the Special Meeting will be
borne by the Company, including expenses in connection with the preparation and
mailing of this Proxy Statement and all papers which now accompany or may
hereafter supplement it. Solicitation will be made by mail. The Company will
also supply brokers or persons holding Common Stock in their names or in the
names of their nominees with such number of proxies and proxy material as they
may require for mailing to beneficial owners, and will reimburse them for their
reasonable expenses incurred in connection therewith. In addition to
solicitation by mail, certain directors, officers, and regular employees of the
Company may solicit proxies by telegraph, telephone, and personal interview.
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<PAGE> 4
The Company will retain an independent agent to receive and tabulate
the proxies. Any stockholder giving the proxy enclosed with this Proxy Statement
has the power to revoke such proxy at any time prior to exercise by filing with
the Company a written revocation at or prior to the Special Meeting, by
executing a proxy bearing a later date, or by attending the Special Meeting and
voting in person the shares of Common Stock such stockholder is entitled to
vote.
All properly executed proxies delivered pursuant to this solicitation
and not revoked will be voted at the Special Meeting in accordance with the
directions given. Stockholders may vote for approval of the issuance of the
750,000 shares of Series B Preferred Stock, against such proposal or may abstain
from voting. Stockholders should specify their choices on the enclosed form of
proxy. If no specific instructions are given with respect to the matters to be
acted upon, the shares represented by each signed proxy will be voted FOR
approval of the issuance of such shares to the Sellers and at the discretion of
the proxy holders on any other matter that may properly come before the Special
Meeting or any adjournment thereof.
A majority of the shares of Common Stock outstanding on the Record
Date, present in person or by proxy, will constitute a quorum for the
transaction of business at the Special Meeting, but if a quorum should not be
present, the meeting may be adjourned from time to time until a quorum is
obtained. Abstentions will be treated as shares that are present and entitled to
vote for purposes of determining the presence of a quorum. Accordingly, an
abstention will have the same effect as a vote against the proposal. If a broker
indicates on the proxy that it does not have discretionary authority as to
certain shares to vote on a particular matter (a "broker non-vote"), those
shares will not be considered as present and entitled to vote with respect to
that matter and therefore will not effect the outcome of the vote.
The Company anticipates that the proxy and Proxy Statement will be
first sent to stockholders on or about November 25, 1996.
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<PAGE> 5
THE TRANSACTIONS
BACKGROUND OF THE TRANSACTIONS
At the time of the business combination between Patrick Petroleum
Company ("Patrick") and La/Cal Energy Partners (August 15, 1995), the Company
entered into a Joint Participation Agreement with Goodrich Oil Company ("GOC"),
a privately-held company owned by Henry Goodrich, the Company's Chairman. Under
the Joint Participation Agreement each of GOC and the Company are required to
offer to each other a 50% participation interest in their respective drilling
prospects and acquisitions of producing properties. GOC is engaged in developing
oil and gas drilling programs for its participants, primarily in Southern
Louisiana and East Texas. These participants consist of private investors and
industry partners which invest in GOC's drilling programs. GOC does not retain
any interest in its drilling programs, but Mr. Goodrich and his family members
invest directly in these programs. Since the effective date of the Patrick and
La/Cal Energy Partners combination, GOC has continued to operate independently
from the Company with its own geological and professional staff.
Early in 1996, Mr. Henry Goodrich and Mr. Walter G. "Gil" Goodrich, the
Company's President and Chief Executive Officer, began to consider the
possibility of combining certain of the producing properties developed by
GOC with the Company. The primary motivation for such a transaction was to
increase the Company's asset base and cash flow. At a regularly scheduled board
of directors meeting on March 13, 1996, Mr. Henry Goodrich and Mr. Gil Goodrich
reported to the board on the possibility of combining certain properties held by
participants in GOC drilling programs with the Company, and described the
general nature of the properties. Gil Goodrich described the formation of La/Cal
II in July 1995 pursuant to which participants in GOC drilling programs
contributed certain producing properties into a general partnership in order to
effect a non-recourse financing of the properties. Gil Goodrich also described
the properties referred to herein as the Group A Properties, which consist of
working interests in three wells also developed and operated by GOC. Gil
Goodrich also disclosed to the Board the nature of the Goodrich family's
interests in the properties as well as the interests of certain other members of
management and the board, and suggested that if the sentiment of the board was
to pursue discussions regarding a potential transaction that he and the other
interested parties would remove themselves from such discussions on behalf of
the Company.
At a special meeting of the Board of Directors on April 17, 1996, the
Board of Directors engaged in further discussions regarding the nature of the
La/Cal II properties and Group A Properties and voted to establish a special
committee (the "Special Committee"), comprised of outside directors Arthur
Seeligson and Basil M. Briggs, to evaluate, respond to and negotiate on behalf
of the Company in any transaction proposed by La/Cal II. In May 1996, the
Special Committee engaged Baker & Botts, L.L.P. as its independent legal
counsel. Mr. Seeligson, the Chairman of the Special Committee, reported on the
Special Committee's activities at a regularly-scheduled Board of Directors
meeting on May 22, 1996. Mr. Seeligson indicated that he had been informed that
a reserve report was being prepared for the La/Cal II properties and the Group A
Properties. He also reported on the Special Committee's initial meeting with its
legal counsel, at which the legal issues and responsibilities relating to such a
transaction were discussed. Finally, Mr. Seeligson reported that counsel had
advised the Special Committee to engage an independent financial advisor and a
reserve engineering firm to review the reserve report being prepared on behalf
of the Sellers. The disinterested members of the Board of Directors present at
the meeting voted unanimously to direct the Special Committee to continue its
activities in connection with analyzing a potential transaction and to engage
the independent advisors in the manner recommended by the counsel to the Special
Committee.
On May 30, 1996, Gil Goodrich, acting on behalf of La/Cal II and the
Working Interest Owners, sent a letter to the Special Committee offering to
transfer the oil and gas assets of La/Cal II and the Group A Properties (the
"Assets") to the Company and suggesting a transaction that included the exchange
of the Assets for a combination of the assumption of La/Cal II's debt and shares
of convertible preferred stock which would have a cash dividend feature and
would be junior to the Company's outstanding Series A Preferred Stock. On June
6, 1996, the Special Committee responded with a letter expressing its interest
in the transaction and requesting La/Cal II's price expectations for the
transaction.
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<PAGE> 6
In July 1996, the management committee of La/Cal II (the "Management
Committee"), which consisted of Henry Goodrich, Gil Goodrich and Leo Bromberg, a
consultant to the Company, and the Working Interest Owners engaged Coutret &
Associates, Inc., independent petroleum consultants ("Coutret"), to evaluate the
reserves of La/Cal II and the Group A Properties.
In July 1996, the Special Committee selected Morgan Keegan & Company,
Inc. ("Morgan Keegan") as its independent financial advisor and in August 1996,
engaged Ryder Scott Company as its independent petroleum engineers ("Ryder
Scott"). On August 7, 1996, Coutret delivered a copy of its reserve report to
the Management Committee and the Working Interest Owners, which reflected a
pre-tax value discounted at 10% for the Assets of approximately $22.5 million,
based on an average of (i) posted futures prices for the twelve months beginning
August 1996, (ii) current prices and (iii) prior twelve month spot prices. On
August 7, 1996 the representatives of the Sellers transmitted a copy of the
reserve report to the Special Committee.
On August 27, 1996, the representatives of the Sellers sent a letter to
the Special Committee outlining the terms of a proposed transaction between
La/Cal II and the Working Interest Owners and the Company. The material terms
included a total consideration for the Assets of $22.5 million, comprised of
$2.0 million in cash, $12.6 million in junior convertible preferred stock with
an annual dividend yield of 9.0%, the assumption of $7.9 million of indebtedness
of La/Cal II and an effective date of July 1, 1996. The representatives of the
Sellers also proposed that the preferred stock have a conversion premium of 15%
and not be subject to redemption for five years.
In early September 1996, representatives of Ryder Scott met with
Coutret to discuss the Coutret report and review the workpapers and supporting
documentation for such report. Subsequently, Ryder Scott met with
representatives of the Sellers to discuss the Coutret report and obtain
additional information regarding the Assets. At a regularly-scheduled meeting of
the Board of Directors of the Company on September 19, 1996, Mr. Seeligson
reported that the Special Committee had met on four occasions since the last
Board meeting. Mr. Seeligson reported to the board on the engagement of Ryder
Scott and Morgan Keegan as well as the Special Committee's initial meetings with
its advisors. Finally, Mr. Seeligson discussed the terms of the offer made to
the Company by the representatives of the Sellers on August 27, 1996.
On September 20, 1996, Coutret delivered a revised reserve report which
reflected an estimated pre-tax value for the Assets of approximately $22.4
million. This change resulted from lower volumes in response to suggestions made
by Ryder Scott, which were largely offset by using prices based on an average of
posted futures prices for twelve months beginning September 1996. Subsequently,
on September 20, 1996, Ryder Scott advised the Special Committee of the results
of its review of the revised Coutret report.
Following discussions with its advisors, the Special Committee
responded to the representatives of the Sellers in a letter dated September 24,
1996 with a counterproposal contemplating an aggregate purchase price for the
Assets of $15.9 million, comprised of $2.0 million in cash, the assumption of
$7.9 million of La/Cal II debt and $6.0 million of junior convertible preferred
stock with an annual dividend yield of 8.0%, a 28% conversion premium (subject
to a $1.00 minimum conversion price), a three-year no call period and a
redemption price equal to the per-share liquidation preference.
By letter dated September 26, 1996, the Management Committee responded
to the Special Committee with a new proposal consisting of total consideration
for the Assets of approximately $18.45 million, including $2.0 million in cash,
the assumption of $7.9 million of La/Cal II debt and $8.5 million of junior
convertible preferred stock with an annual dividend yield of 8.75%, a 20%
conversion premium, and a 4 1/2 year no-call period.
On September 26, 1996, after consultation with its financial and legal
advisors, the Special Committee authorized Arthur Seeligson to negotiate
directly with the representatives of the Sellers to determine if a purchase
price and preferred stock terms could be agreed upon. At a meeting between Mr.
Seeligson and Mr. Gil Goodrich on that date, the parties agreed upon the
following terms (subject to the agreement to and execution of definitive
agreements and receipt of necessary approvals): aggregate consideration of $17.4
million, comprised of $2.0 million in cash
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<PAGE> 7
consideration, $7.9 million in debt assumption and $7.5 million in junior
convertible preferred stock with the terms described herein.
During the period following the September 26, 1996 meeting, the parties
and their legal advisors negotiated the terms of the Exchange Agreement and
other documents relating to the Transactions (as defined below). Also during
this period, Morgan Keegan prepared an analysis of the Transactions and
transmitted copies of such analysis to the Special Committee and other members
of the Board of Directors.
On October 14, 1996, at a meeting of the Special Committee, Morgan
Keegan gave its analysis of the Transactions and expressed its opinion that the
consideration to be paid in the Transactions was fair to the Company
stockholders of the Company (other than the interested stockholders) from a
financial point of view. Robert Turnham, the Chief Operating Officer of the
Company, also presented an update on due diligence and other related matters.
The Special Committee also was advised as to the terms of the definitive
agreements. The Special Committee then voted to recommend to the entire Board
that it approve the Transactions. This recommendation was given at a Board
Meeting later that day. Also at such meeting, Morgan Keegan made a similar
presentation to the entire Board of Directors (exclusive of Messrs. Gil Goodrich
and Michael Watts, who recused themselves from all aspects of the Board meeting
relating to the consideration of the Transactions, and Messrs. Henry Goodrich,
Sheldon Appel, and Ben Edwards, who were absent). The disinterested members of
the Board who were present then unanimously voted (exclusive of Mr. Jenkins, who
left the meeting prior to such vote) to approve the Transactions and authorized
its officers to execute the Exchange Agreement and related documents and to take
the other steps necessary to consummate the Transactions when such agreements
were completed.
Prior to the completion of such agreements, Morgan Keegan circulated to
the Special Committee and to the entire Board of Directors, an additional
analysis of the Transactions that revised certain of its earlier computations
based upon reserve volumes for the Assets. On October 22, 1996, Morgan Keegan
gave an additional presentation and reconfirmed its fairness opinion as to the
Transactions at a meeting of the Special Committee, and subsequently at a
meeting of the Board of Directors on that same day (with all members of the
Board present, except Messrs. Henry Goodrich, Gil Goodrich, Michael Watts, who
recused themselves, and Mr. Sheldon Appel, who was absent). At the meeting of
the Board, the Special Committee unanimously reconfirmed its recommendation to
the Board and the disinterested members of the Board unanimously reconfirmed
their approval of the Transactions.
The Exchange Agreement was executed between the Company and the
Management Committee of La/Cal II on October 22, 1996. Thereafter, each of the
Working Interest Owners executed a counterpart of the Exchange Agreement during
the period from November 8-12, 1996. The partners of La/Cal II voted unanimously
to approve the Transactions at a special meeting of La/Cal II on November 12,
1996.
DESCRIPTION OF THE TRANSACTIONS
The following is a summary of the Agreement and the transactions
contemplated thereby (the "Transactions").
Asset Transfer and Consideration. Pursuant to the Exchange Agreement,
New Goodrich will acquire (i) the oil and gas properties and certain related
assets of La/Cal II, and (ii) the interests of the Working Interest Owners in
the Group A Properties (collectively, the "Asset Transfer") in exchange for (1)
an aggregate of 750,000 shares of Series B Preferred Stock, (2) the assumption
by New Goodrich of outstanding debt on La/Cal II's properties in an amount not
to exceed $7,946,696, and (3) $2,000,000 in cash (collectively, the
"Consideration"). The Exchange Agreement has been approved by the requisite vote
of La/Cal II and executed and delivered by each Working Interest Owner. New
Goodrich intends to repay all of the debt assumed promptly after closing with
borrowings under the Company's existing bank credit facility. See "Goodrich
Petroleum Corporation Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." The
interests to be acquired in the Asset Transfer are located in seven separate
fields in South Louisiana and East Texas and include proved reserves, as of July
1, 1996, of approximately 1,718,000 barrels of oil and 3,912,000 Mcf of gas or
2,370,000 barrels of oil equivalent. For a further description of the Assets,
see "Description of the La/Cal II and Group A Properties."
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<PAGE> 8
Series B Convertible Preferred Stock. The shares of Series B Preferred
Stock included in the consideration will be convertible into common stock of New
Goodrich at a conversion price equal to 1.25 times the average closing price of
the Common Stock for the 20 trading days ending on the business day prior to the
closing; provided, however, that the conversion price will not be less than
$0.9375 per share. Based upon the average closing price for the Common Stock
over the twenty trading days ending November 11, 1996, the conversion price
would have been $.9492 per share. Holders of the Series B Preferred Stock will
be entitled to receive dividends of $.825 per share (8.25%) per annum. The
shares have a liquidation preference of $10.00 per share and will rank junior to
the Series A Preferred Stock of New Goodrich as to dividends and upon
liquidation. The shares of Series B Preferred Stock are not redeemable prior to
the fourth anniversary of the closing date. Thereafter, such shares will be
redeemable in whole or in part at $10 per share. For a further description of
the Series B Preferred Stock, see "Description of Company Capital
Stock--Preferred Stock--Series B Convertible Preferred Stock."
Goodrich Merger. In connection with the Transactions, the Company has
agreed in the Exchange Agreement to effect a merger with its indirect, wholly
owned subsidiary Goodrich Sub I, Inc. ("Acquisition Sub") pursuant to which New
Goodrich will become a new holding company and all of the shares of stock in the
Company will be converted into shares of stock of New Goodrich (the "Merger").
The Merger will be effected pursuant to Section 251(g) of the Delaware General
Corporation Law and does not require the approval of the Company's stockholders.
The Merger will be effected by the merger of the Company with Acquisition Sub,
whereby (i) each outstanding share of common stock of the Company will be
converted into one share of common stock of New Goodrich, (ii) each outstanding
share of Series A Preferred Stock of the Company will be converted into one
share of Series A Preferred Stock of New Goodrich (having the same rights,
preferences, qualifications and restrictions as the Series A Preferred Stock of
the Company), (iii) each outstanding option or warrant to purchase common stock
of the Company will be converted into an option or warrant to purchase common
stock of New Goodrich on equivalent terms, (iv) the Company, the surviving
corporation in the Merger, will become a wholly owned subsidiary of New
Goodrich, and (v) New Goodrich will be renamed "Goodrich Petroleum Corporation."
After the Merger, the Board of Directors and management of New Goodrich will be
the same as the current Board of Directors and management of the Company, and
the Certificate of Incorporation and Bylaws of New Goodrich will be the same as
those of the Company.
As of the date of this Proxy Statement, the Company owns all of the
outstanding capital stock of New Goodrich, which in turn owns all of the
outstanding capital stock of Acquisition Sub. Both New Goodrich and Acquisition
Sub were recently organized for the sole purpose of facilitating the
Transactions.
Upon the closing of the Transactions and the consummation of the Merger
(the "Effective Time"), all of the outstanding certificates which immediately
prior to the consummation of the Merger represented shares of the capital stock
of the Company shall be deemed for all purposes to evidence ownership of, and to
represent, shares of capital stock of New Goodrich into which the shares of
capital stock of the Company formerly represented by such certificates have been
converted as a result of the Merger. The stockholders of the Company will not be
required to exchange their certificates representing shares of the capital stock
of the Company as a result of the Merger.
THE EXCHANGE AGREEMENT
Adjustments to Consideration. The Exchange Agreement provides that the
Consideration is subject to adjustment for title defects and other defects and
for a variety of other occurrences and circumstances. In the event a defect is
found in the Sellers' title to the oil and gas properties or a party is found to
be in breach of a representation or warranty (an "other defect"), the title
defect or other defect will be submitted to an adjustment committee for a
determination of the impact of the defect on the value of the Assets. The
adjustment committee consists of Gil Goodrich, on behalf of La/Cal II and the
Working Interest Owners, and Arthur Seeligson and Basil M. Briggs, on behalf of
the Company, and all decisions by the adjustment committee must be unanimous.
Failing a decision by the adjustment committee, the matter will be submitted to
arbitration. Adjustments to the Consideration resulting from title defects or
other defects will only be made to the extent the aggregate amount of such
adjustments exceeds the sum of $850,000 and will be made first to the portion of
the Consideration consisting of cash, next to the portion of the Consideration
consisting of Series B Preferred Stock and last to the portion of the
Consideration consisting of the assumption of debt.
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<PAGE> 9
In the event a third party exercises a contractual preferential right
to purchase any of the Assets, the Exchange Agreement provides that no
adjustment will be made to the Consideration, so long as La/Cal II or the
Working Interest Owners remit to the Company the total amount received in
respect of the preferential purchase right. If, prior to the closing, La/Cal II
or the Working Interest Owners fail to obtain any necessary consents, excluding
governmental consents or approvals, to the assignment of their interests in the
Assets, the adjustment committee will determine the value attributable to the
portion of the Assets for which the required consent has not been obtained. The
amount of the value so determined will be withheld from the Consideration
payable to the Sellers at closing, but shall be payable to the Sellers if the
consent is obtained thereafter. Adjustments to the Consideration resulting from
the failure to obtain required consents will be made first to the portion of the
Consideration consisting of cash, next to the portion of the Consideration
consisting of Series B Preferred Stock and last to the portion of the
Consideration consisting of the assumption of debt.
The Exchange Agreement provides that the Consideration will be (1)
increased by the amount of all costs and expenses paid by La/Cal II and the
Working Interest Owners for the operation of the Assets from July 1, 1996, to
the closing date, (2) decreased by the amount of all proceeds actually received
by the Working Interest Owners on account of production from the Assets from
July 1, 1996 to the closing date, and (3) decreased by the amount of all
proceeds actually received by La/Cal II (over and above the debt service paid by
La/Cal II against the debt to be assumed by the Company) on account of
production from the Assets from July 1, 1996, to the closing date. Any net
decrease in the Consideration resulting from the foregoing will be made first to
the portion of the Consideration consisting of cash, next to the portion of the
Consideration consisting of Series B Preferred Stock and last to the portion of
the Consideration consisting of the assumption of debt.
Representations and Warranties. Under the terms of the Exchange
Agreement, La/Cal II and the Working Interest Owners make a number of
representations and warranties to and for the benefit of New Goodrich. Such
representations and warranties are consistent with those normally given by
sellers of oil and gas assets and include such matters as representations and
warranties that taxes (other than income taxes) due with respect to the Assets
have been paid, there are no undisclosed litigation or claims that adversely
affect the Assets, the Sellers have materially complied with the leases,
contracts and governmental regulations affecting the Assets, there are no
undisclosed commitments or environmental matters that adversely affect the
Assets, and the Sellers have the power and authority to validly enter into and
perform the Exchange Agreement. No representations or warranties will survive
the closing of the Exchange Agreement.
Conditions to the Sellers' Obligation to Close. Pursuant to the
Exchange Agreement, La/Cal II and the Working Interest Owners are obligated to
consummate the Transactions, subject only to the following: the accuracy of the
representations and warranties given by New Goodrich and the Company, the
performance by New Goodrich and the Company of their respective obligations
under the Exchange Agreement, the absence of any proceeding to prohibit the
consummation of the Transactions, the execution of the Registration Rights
Agreement by New Goodrich, the completion of the Merger, and the approval of the
issuance of the Series B Preferred Stock by the stockholders of the Company.
Conditions to the Company's Obligation to Close. The obligation of the
Company and New Goodrich to close the Transactions is subject to a number of
matters, including the accuracy of the Sellers' representations and warranties
and the performance by the Sellers of their obligations thereunder. In addition,
the Company's and New Goodrich's obligation to close is subject to the absence
of any material adverse change affecting the Assets, receipt of financing
sufficient to pay the cash portion of the Consideration and to repay the assumed
debt, the opinion of Morgan Keegan not being withdrawn, the approval by the
Company's stockholders of the issuance of the Series B Preferred Stock, the
execution by the Sellers of a subscription certificate relating to the Series B
Preferred Stock and the absence of any proceeding to prohibit the consummation
of the Exchange Agreement.
Termination. The Exchange Agreement provides that it may be terminated
at any time by the mutual consent of the parties, or by either party if the
conditions to closing are not met or the Transactions otherwise fail to close by
March 31, 1997, or if the Transactions are prohibited by any final governmental
or court action. In the event of termination, the Exchange Agreement will become
null and void and neither party will have further obligations or rights
thereunder; provided, that, a termination of the Exchange Agreement will not
relieve a party from any breach thereof.
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Indemnities. The Exchange Agreement provides that La/Cal II and the
Working Interest Owners will indemnify the Company and New Goodrich against all
liabilities attributable to the Assets and arising from operations or from facts
or circumstances existing on or before July 1, 1996. Conversely, the Exchange
Agreement provides that New Goodrich will indemnify the Sellers against all
liabilities attributable to the Assets and arising from operations or from facts
or circumstances existing after July 1, 1996. In each case, the indemnification
obligations are without regard to the indemnitee's negligence, strict liability
or other fault.
The Exchange Agreement also provides that, to the extent permitted by
applicable law, New Goodrich and the Company will indemnify the Board of
Directors of the Company and the Management Committee from liabilities arising
out of acts or omissions with respect to the Transactions.
Other Matters. The Exchange Agreement provides that New Goodrich will
bear all ad valorem and other taxes (other than income taxes) related to the
Assets that become due after July 1, 1996. In the event the Transactions are
consummated, New Goodrich will reimburse the Sellers for up to $50,000 of
transaction expenses incurred by them.
THE COMPANY'S REASONS FOR THE TRANSACTIONS
The Board of Directors believes that the terms of the Transactions are
fair to, and in the best interests of, the stockholders of the Company. Subject
to the requisite vote of the stockholders, solicited hereby, approving the
issuance of 750,000 shares of New Goodrich's Series B Preferred Stock, the
Special Committee has recommended to the Board of Directors, and the
disinterested members of the Board of Directors have approved, the Transactions
and the documents effecting such. They recommend that the stockholders vote FOR
approval of the proposed issuance of the shares of Series B Preferred Stock.
As an independent oil and gas company, the Company's business strategy
has been to achieve reserve growth through the acquisition and efficient
development and exploitation of acreage and reserves. The Company has been
successful in implementing this strategy, and the Special Committee and the
Board of Directors (collectively, the "Company Representatives") believe that
the Transactions represent a substantial opportunity to enhance the Company's
financial and operational resources and to pursue this strategy on a broader
scale. Specifically, the Company Representatives believe that:
o the Transactions will increase the Company's reserve base, resulting in
the addition of 2.37 MBOE in proved reserves with an SEC PV10 of $22.7
million;
o the addition of the La/Cal properties and Group A Properties to the
Company's operations will be accretive to earnings and cash flow per
share on a pro forma basis; and
o the growth in the Company's reserve base and cash flow will further the
Company's overall business strategy and contribute to the Company's
financial flexibility.
In reaching these conclusions, the Company Representatives considered
the following material factors, (i) the terms of the proposed Transactions; (ii)
the purchase price as a percentage of SEC PV10 (77%); (iii) the high percentage
of proved developed producing reserves (81% on a PV10 basis); (iv) the future
development potential of the properties; (v) the amount of proved reserves which
are estimated to be recoverable in the near term (53% over 4 1/2 years); (vi)
the properties relatively low historical operating expenses on a per BOE basis;
(vii) the relatively high prices received for oil and gas produced from the
properties due to locations near gas pipelines and oil refineries and the high
Btu content of the gas; (viii) oil and gas commodity prices generally; (ix) the
opinion of the financial advisor to the Special Committee; and (x) the
availability of debt financing for a portion of the Consideration under the
Company's existing bank credit facility.
Because of the multiplicity of factors considered, the Company
Representatives 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 Company
Representatives cannot quantify the importance of particular factors. When
considered as a whole, the Company
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Representatives have concluded that such factors justify their conclusion that
the proposed Transactions are fair to and in the best interests of stockholders.
OPINION OF FINANCIAL ADVISOR
Morgan Keegan was retained by the Special Committee in connection with the
Transaction to render an opinion to the Special Committee and the Board of
Directors of the Company as to the fairness, from a financial point of view, to
the stockholders of the Company (other than stockholders who are also Sellers,
the "Interested Stockholders") of the consideration to be paid by the Company
pursuant to the Exchange Agreement. Morgan Keegan was selected by the Special
Committee based on Morgan Keegan's experience, expertise and familiarity with
the oil and gas exploration and production business.
Morgan Keegan is a nationally recognized investment banking firm and is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for various
purposes. Morgan Keegan has not been previously engaged to provide investment
banking services to the Company or the Interested Stockholders.
On October 22, 1996, Morgan Keegan communicated to the Special
Committee and the Board of Directors its oral opinion that the payment of the
Consideration for the Assets is fair, from a financial point of view, to the
stockholders of the Company (other than the Interested Stockholders as to which
Morgan Keegan expressed no opinion). On October 31, 1996, Morgan Keegan
confirmed its oral opinion by delivering the written opinion set forth in
Appendix A.
THE FULL TEXT OF THE OCTOBER 31, 1996 WRITTEN OPINION OF MORGAN KEEGAN,
WHICH SETS FORTH THE ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, OTHER
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN ARRIVING AT SUCH
OPINION, IS ATTACHED TO THIS PROXY STATEMENT AS APPENDIX A AND IS INCORPORATED
HEREIN BY REFERENCE. THE COMPANY STOCKHOLDERS ARE URGED TO READ SUCH OPINION IN
ITS ENTIRETY AND THE SUMMARY OF SUCH OPINION SET FORTH HEREIN IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. MORGAN KEEGAN'S
OPINION IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, TO THE
COMPANY STOCKHOLDERS (OTHER THAN THE INTERESTED STOCKHOLDERS) OF THE
CONSIDERATION TO BE PAID BY THE COMPANY PURSUANT TO THE EXCHANGE AGREEMENT, DOES
NOT ADDRESS ANY OTHER ASPECT OF THE PROPOSED TRANSACTIONS OR ANY RELATED
TRANSACTIONS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF THE
COMPANY AS TO HOW SUCH STOCKHOLDER SHOULD VOTE OR OTHERWISE.
In arriving at its opinion, Morgan Keegan reviewed an unexecuted draft
of the Exchange Agreement (including exhibits) dated October 10, 1996 (which,
for purposes of its analysis, it assumed that any further revisions, including
the filling in of blank spaces and the attachment of final exhibits and
appendices, would not materially alter the terms and provisions of such
documents and that such documents would be executed as finalized); held
discussions with various members of management and representatives of the
Company and the Sellers concerning the Company's and the Sellers' historical and
current operations, financial condition and prospects; reviewed historical
consolidated financial and operating data that was publicly available or
furnished to it by the Company and the Sellers; considered the pro forma effect
of the Transactions on the Company's capital ratios and earnings and cash flow
per share; reviewed internal financial analyses, financial and operating
forecasts, reports and other information prepared by officers and
representatives of the Company and the Sellers; reviewed the reserve reports
(the "Reserve Reports") of the Sellers prepared by Coutret & Associates, Inc.
and the review letter (the "Review Letter") of Ryder Scott Company dated
September 20, 1996; reviewed certain publicly available information with respect
to certain other companies that it believed to be comparable to the Company and
the trading markets for such other companies' securities; reviewed certain
publicly available information concerning the terms of certain other
transactions that it deemed relevant to its inquiry; analyzed the terms of
recent convertible preferred stock offerings; and conducted such other financial
studies, analyses and investigations as it deemed appropriate for the purposes
of its opinion including its assessment of general economic, market and monetary
conditions.
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<PAGE> 12
In connection with its review and analysis and in arriving at its
opinion, Morgan Keegan did not assume responsibility for independent
verification of any of the information provided to or otherwise reviewed by
Morgan Keegan and relied upon its being complete and accurate in all respects.
Morgan Keegan also assumed the correctness of and relied upon the
representations and warranties of the Company and the Sellers contained in the
Exchange Agreement. Morgan Keegan also relied upon management of the Company and
representatives of the Sellers as to the reasonableness and achievability of the
financial and operating projections and the assumptions and bases therefor
provided to it, and assumed that such projections reflected the best currently
available estimates and judgments of the management of the Company and the
representatives of the Sellers as to their respective future performance. Morgan
Keegan was not engaged to assess the achievability of such projections or the
assumptions on which they were based and expressed no view as to such
projections or assumptions. Morgan Keegan was not engaged to, and did not
conduct a physical inspection or appraisal of any of the assets, properties or
facilities of either the Company or the Sellers, nor was it furnished with any
such evaluation or appraisal, other than the Reserve Reports and the Review
Letter referred to above. Morgan Keegan assumed that the conditions to the
Transactions as set forth in the Exchange Agreement would be satisfied; and that
the Transactions would be consummated on a timely basis in the manner
contemplated by the Exchange Agreement and that the Transactions would be
accounted for as a purchase under generally accepted accounting principles.
Morgan Keegan expresses no opinion as to the price or trading range at which
shares of the Company common stock will trade after the date of its opinion, or
upon completion of the Transactions.
In connection with its presentations to the Special Committee and the
Board of Directors on October 22, 1996, and in preparing its written opinion for
the Special Committee and the Board of Directors, Morgan Keegan performed a
variety of financial and comparative analyses, including those summarized below.
Discounted Cash Flow Analysis. Under this method, Morgan Keegan
calculated an estimate of the risk adjusted discounted pre-tax future net cash
flows attributed to estimated reserves of the Sellers as of July 1, 1996,
utilizing reserve information prepared or provided by the Sellers under three
pricing scenarios. In Case I, future oil prices for West Texas Intermediate
(Cushing) spot equivalent crude oil were assumed to remain constant at $18.25
per barrel. Gas prices for Natural Gas Weekly's composite spot wellhead price
were assumed to remain constant at $1.90 per thousand cubic feet ("Mcf"). In
Case II, oil prices were assumed to be $18.25 per barrel during the remaining
months of 1996 and throughout 1997, and to escalate 3.5% per year thereafter;
gas prices were assumed to be $1.90 per Mcf during the remaining months of 1996
and throughout 1997, escalating 3.5% per year thereafter. In Case III, oil
prices were assumed to remain constant at $20.52 per barrel and gas prices were
assumed to remain constant at $2.10 per Mcf. These forecasts included
adjustments to such pricing scenarios to reflect transportation and quality
differentials, comments from Ryder Scott Company resulting from its review of
the Reserve Reports, and a pre-tax discount rate of 10%. From the resulting
present value of future net cash flows discounted at 10% ("PV10 Value"), Morgan
Keegan subtracted specific risk adjustment factors, which in Morgan Keegan's
professional judgment, reflect those generally relied upon in the oil and gas
industry to value oil and gas reserves. The risk adjustment factors which were
used were subtracted from the PV10 Value for each of the various proved reserve
categories. These risk factors used were 5% of PV10 Value for Proved Developed
Producing reserves, 15% for Proved Developed Non-Producing - Secondary Recovery
reserves, 20% for Proved Developed Non-Producing - Behind Pipe reserves, and 50%
for Proved Undeveloped - Undrilled reserves. Under this method, the implied
values for the oil and gas reserves acquired in the Transactions ranged from
$17.1 million to $19.5 million, compared to $17.4 million in consideration in
the Transactions.
Selected Transactions Analysis. In this analysis, Morgan Keegan
reviewed publicly available information regarding 17 oil and gas reserve
transactions (the "Selected Transactions") involving U.S., onshore Gulf Coast
oil and gas properties which took place between January 1995 and September 1996,
which it deemed relevant to its analysis of the Transactions. The total
consideration for the Selected Transactions ranged in value from $3.0 million to
$165.2 million, with an average of $46.1 million and a median of $19.5 million,
compared to $17.4 million in the contemplated Transactions. Morgan Keegan
calculated purchase price (purchase price plus obligations assumed less
estimated values of non-reserve assets) multiples of the PV10 Values for the
Selected Transactions, which ranged from 0.36x to 1.80x, with an average of.
0.83x and a median of 0.84x, compared to 0.78x PV10 Value in the contemplated
Transactions. In addition, Morgan Keegan calculated purchase price multiples of
equivalent proved reserves for the acquired oil and gas assets for the Selected
Transactions. The purchase prices per barrel of oil equivalent ("BOE") ranged
from $2.18 to $9.29, with an average of $4.68 and a median of $4.62, compared to
$7.36 per BOE in the contemplated Transactions.
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<PAGE> 13
Morgan Keegan noted that the oil and gas acquisition environment varies
over time because of a number of factors, including the properties involved,
commodity prices, life of reserves, interest rates and industry outlook. Morgan
Keegan believes that no transaction reviewed was identical to the Transactions
and that, accordingly, an assessment of the Selected Transactions analysis
involved complex consideration and judgments concerning differences in the
properties involved and other factors that relate to valuation.
Pro Forma Analysis. Morgan Keegan prepared pro forma analyses of the
financial impact of the Transactions. Morgan Keegan performed this analysis
assuming the Company would issue shares of Series B Preferred Stock with an
aggregate liquidation value of $7.5 million, pay $2.0 million in cash and incur
indebtedness of $7.9 million to eliminate La/Cal II's outstanding debt. The
Company's stand alone projections for 1996 and 1997 were compared with the pro
forma combined company projections for cash flow per share and earnings per
share and other measures of profitability. The pro forma cash flow per share and
earnings per share were then compared to the Company's stand alone projected
cash flow per share and earnings per share to determine the degree of dilution,
if any, to the Company stockholders subsequent to the Transactions. This
analysis indicated that the Transactions would be accretive to the Company
stockholders on a pro forma cash flow per share basis and pro forma earnings per
share basis in estimated years 1996 and 1997.
Analysis of the Preferred Stock. Using publicly available information,
Morgan Keegan analyzed the terms of 85 convertible preferred stock offerings
from January 1, 1995 through October 10, 1996. These offerings ranged in size
from $8.5 million to $373.8 million, included issues with Standard & Poors
ratings as high as "AA", and as low as "B-" and included 38 unrated offerings.
Yields ranged from 4.0% to 12.0%, with an average of 7.34% and a median of
7.13%. This compares to an 8.25% yield for the Preferred Stock issued as
consideration in the Transactions. Conversion premiums/discounts ranged from a
69.0% conversion discount to a 76.2% premium, with an average premium of 16.93%
and a median premium of 21.14%, compared to a 25.0% premium for the Series B
Preferred Stock.
Selected Companies Analysis. In addition, as part of its analysis of
the Series B Preferred Stock, Morgan Keegan reviewed and compared certain actual
and forecasted financial, operating and stock market information of the Company
to publicly available information regarding six publicly traded oil and gas
companies (the "Selected Companies") considered by Morgan Keegan to be
comparable to the Company based on a variety of criteria. The Selected Companies
included American Exploration Company, Callon Petroleum Company, Coho Energy
Inc., Denbury Resources Inc., PetroCorp Inc. and Southern Mineral Corporation.
The market capitalization for the Selected Companies ranged from $29.3 million
to $150.0 million. With respect to the Selected Companies, Morgan Keegan
considered market capitalization as a multiple of cash flow available to common
stockholders. Morgan Keegan's analyses of the Selected Companies indicated
market capitalization multiples of cash flow for 1995 results, which ranged from
5.1x to 8.8x, with an average of 6.8x and a median of 6.4x, 1996 estimates,
which ranged from 4.2x to 6.0x, with an average of 5.1x and a median of 5.0x,
and 1997 estimates, which ranged from 3.5x to 5.0x, with an average of 4.2x and
a median of 4.2x, compared to multiples of 6.3x, 6.8x and 3.9x, respectively,
for the Company. Morgan Keegan also considered leveraged market capitalization
(i.e., market value of common equity plus debt and preferred stock less working
capital) as a multiple of earnings before depletion, depreciation, amortization,
interest and taxes ("EBDIT") for 1995 results, which ranged from 6.4x to 12.5x,
with an average of 9.3x and a median of 8.4x, 1996 estimates, which ranged from
5.4x to 7.7x, with an average of 6.5x and a median of 6.6x, and 1997 estimates,
which ranged from 4.3x to 6.4x, with an average of 5.4x and a median of 5.6x,
compared to levered multiples of 9.8x, 10.3x and 6.7x, respectively, for the
Company. Morgan Keegan also calculated indicative equity values per share of the
Company common stock based upon the Selected Companies multiples. The median
indicative equity values per share were $.77 in respect of 1995 cash flow, $.55
in respect of 1996 estimated cash flow, $.79 in respect of 1997 estimated cash
flow, $.61 in respect of 1995 EBDIT, $.40 in respect of 1996 estimated EBDIT,
and $.60 in respect of 1997 estimated EBDIT.
The foregoing summary of Morgan Keegan's presentation and analyses does
not purport to be a complete description of such presentation to the Special
Committee and Board of Directors or of the analyses performed by Morgan Keegan.
The preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of these methods to the particular circumstances. Therefore a fairness opinion
is not susceptible to summary description. In arriving at its opinion, Morgan
Keegan did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the
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<PAGE> 14
significance and relevance of each analysis and factor. Accordingly, Morgan
Keegan believes that its analyses and the summary set forth above must be
considered as a whole and that selecting portions of its analyses, without
considering all analyses, or of the above summary, without considering all
factors and analyses, would create an incomplete view of the process underlying
the analyses presented to the Special Committee and the Board of Directors and
its opinion. In addition, Morgan Keegan may have deemed various assumptions more
or less probable than other assumptions, so that the ranges of valuations
resulting from any particular analysis described above should not be taken to
represent the actual value of the Assets or the combined company.
In performing its analyses, Morgan Keegan made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of the Company or the
Seller. No company or transaction used in the above analyses as a comparison is
identical to the Company or the Seller or the contemplated transaction. The
analyses performed by Morgan Keegan are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
part of Morgan Keegan's analysis of the fairness, from a financial point of
view, to the stockholders of the Company (other than the Interested
Stockholders) of the consideration to be paid by the Company pursuant to the
Exchange Agreement and were discussed with the Special Committee and the Board
of Directors of the Company at the October 22, 1996 meeting. The analyses do not
purport to be appraisals or to reflect prices at which a company might actually
be sold or the prices at which any securities may trade at the present time or
at any time in the future. In addition, as described above, Morgan Keegan's
presentation to the Special Committee and the Board of Directors of the Company
and opinion was one of many factors taken into consideration by the Special
Committee and Board of Directors of the Company in making its determination to
approve the Exchange Agreement.
Pursuant to an engagement letter with the Special Committee, Morgan
Keegan has received a fee of $100,000 for rendering its opinions with respect to
the Transactions. The Company has also agreed to reimburse Morgan Keegan for its
reasonable out-of-pocket expenses, including attorney's fees, and to indemnify
Morgan Keegan against certain liabilities, including liabilities under the
federal securities laws.
In the ordinary course of Morgan Keegan's business, Morgan Keegan may
actively trade the securities of the Company for its own account and for the
accounts of its customers, and, accordingly, may at any time hold a long or
short position in such securities.
ACCOUNTING TREATMENT
For accounting and financial reporting purposes, the Transactions will
be accounted for as a purchase of La/Cal II and the Group A Properties by the
Company. Consequently, the Company's consolidated financial statements after the
consummation of the Transactions will reflect the assets and liabilities of the
Company at book value and the assets and liabilities of La/Cal II and the Group
A Properties 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 consummation of the Transactions, see
"Unaudited Pro Forma Condensed Financial Information."
GOVERNMENTAL AND REGULATORY APPROVALS
The Company is 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
proxy solicitation requirements under federal and state securities laws.
SPECIAL CONVERSION RIGHT FOR HOLDERS OF THE COMPANY'S SERIES A CONVERTIBLE
PREFERRED STOCK
The Transactions will be a "Corporate Change" as such term is defined
in the Certificate of Designations of the Company's Series A Convertible
Preferred Stock (the "Series A Preferred"). Accordingly, holders of Series A
Preferred shares will have the right for 45 days after notification to convert
each share of Series A Convertible Preferred Stock of New Goodrich into 6.25
shares of common stock of New Goodrich. The shares of Series A Preferred
currently are, and after expiration of the special conversion period will be,
convertible into 3.33 shares of Common Stock. There are
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<PAGE> 15
801,149 shares of Series A Preferred currently outstanding. See "Description
of Company Capital Stock--Preferred Stock--Series A Convertible Preferred Stock"
REGISTRATION RIGHTS
Pursuant to the Exchange Agreement, New Goodrich has agreed to enter
into a Registration Rights Agreement with the Sellers at the closing providing
for the registration of the shares of New Goodrich common stock issuable upon
conversion of the shares of Series B Preferred Stock. The Registration Rights
Agreement will provide for one demand registration and unlimited piggyback
registrations. Expenses incurred in connection with the registration will be
paid by the Company, except for underwriting discounts or commissions.
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INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
Certain of the Company's directors and executive officers have
substantial interests in the properties to be acquired by New Goodrich.
Accordingly, the pending Transactions were negotiated on behalf of the Company
by a special committee of disinterested, outside directors. See "The
Transactions -- Background." The following describes the relationships that
currently exist among certain executive officers and directors of the Company
(and after the consummation of the Transactions, New Goodrich) and the
properties to be acquired.
o Henry Goodrich - Mr. Goodrich is Chairman of the Board, a director of
and consultant to the Company and will, after consummation of the
Transactions, serve in the same capacities for New Goodrich. He is
the beneficial owner of approximately 12.2% of the Company's Common
Stock, a Partner in La/Cal II, a member of the La/Cal II Management
Committee, a Working Interest Owner, and the father of Walter G.
"Gil" Goodrich and the father-in-law of J. Michael Watts. Mr.
Goodrich will beneficially receive $307,115 in cash and 114,874
shares of Series B Preferred Stock upon consummation of the
Transactions.
o Walter G. "Gil" Goodrich - Mr. Goodrich is President, Chief Executive
Officer and a director of the Company and will, after consummation of
the Transactions, serve in the same capacities for New Goodrich. He is
the beneficial owner of approximately 19.8% of the Company's Common
Stock, a Partner in La/Cal II, a member of the La/Cal II Management
Committee, a Working Interest Owner, and the son of Henry Goodrich and
the brother-in-law of J. Michael Watts. Mr. Goodrich will beneficially
receive $257,147 in cash and 212,498 shares of Series B Preferred Stock
upon consummation of the Transactions.
o J. Michael Watts - Mr. Watts is a director of the Company and will,
after consummation of the Transactions, serve in the same capacity
for New Goodrich. He is the beneficial owner of approximately 2.7%
of the Company's Common Stock, a Partner in La/Cal II, a Working
Interest Owner, and the son-in-law of Henry Goodrich and the
brother-in-law of Walter G. Goodrich. Mr. Watts will beneficially
receive $80,933 in cash and 29,849 shares of Series B Preferred Stock
upon consummation of the Transactions.
o Leo E. Bromberg - Mr. Bromberg is a consultant to the Company and will,
after consummation of the Transactions, serve in the same capacity for
New Goodrich. He is the beneficial owner of approximately 7.2% of the
Company's Common Stock, a Partner in La/Cal II, a member of the La/Cal
II Management Committee, and a Working Interest Owner. Mr. Bromberg
will beneficially receive $356,273 in cash and 134,149 shares of Series
B Preferred Stock upon consummation of the Transactions.
o Sheldon Appel - Mr. Appel is a director of the Company and will,
after consummation of the Transactions, serve in the same capacity
for New Goodrich. He is the beneficial owner of approximately 2.3%
of the Company's Common Stock and a Working Interest Owner. Mr.
Appel will beneficially receive $6,761 in cash and 5,222 shares of
Series B Preferred Stock upon consummation of the Transactions.
o Roland L. Frautschi - Mr. Frautschi is Senior Vice President and Chief
Financial Officer of the Company and will, after consummation of the
Transactions, serve in the same capacities for New Goodrich. He is the
beneficial owner of approximately 1.7% of the Company's Common Stock
and a Partner in La/Cal II. Mr. Frautschi will beneficially receive
$58,378 in cash and 19,141 shares of Series B Preferred Stock upon
consummation of the Transactions.
For a description of the number of shares of New Goodrich common stock
to be beneficially owned by such persons after the Transactions, see "Security
Ownership of Certain Beneficial Owners and Management."
During 1995 and through September 30, 1996, La/Cal II made cash
distributions to such persons and their affiliates in connection with all of
the partnership interests held by such persons as follows: Mr. Henry Goodrich
(1996--$421,861; 1995--$505,591); Mr. Gil Goodrich (1996--$352,940;
1995--$416,865); Mr. Roland Frautschi (1996--$97,088; 1995--$101,027); Mr.
Michael Watts (1996--$119,105; 1995--$130,817); and Mr. Leo Bromberg
(1996--$463,124; 1995--$620,561).
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<PAGE> 17
During 1995 and through September 30, 1996, the individuals above
received distributions from the Group A Properties related to their working
interest ownership as follows: Mr. Henry Goodrich (1996--$120,970;
1995--$6,528); Mr. Gil Goodrich (1996--$113,147; 1995--$25,206); Mr. Sheldon
Appel (1996--$15,105; 1995---0-); Mr. Michael Watts (1996--$22,617;
1995--$1,182); and Mr. Leo Bromberg (1996--$108,836; 1995--$26,174).
Messrs. Henry Goodrich and Michael Watts were employees of GOC during
1996 and 1995. Mr. Watts resigned in April 1996. Messrs. Gil Goodrich and Roland
Frautschi were employees of GOC during 1995 until the August 15, 1995 business
combination with Patrick at which time they resigned to become officers of the
Company. Such persons received cash compensation from GOC of $2,457, $15,094,
$-0- and $-0-, respectively, during the nine months ended September 30, 1996 and
$3,275, $52,009, $32,304 and $30,414, respectively, during 1995. During these
periods, GOC also reimbursed such individuals for certain out-of-pocket business
expenses. Certain of the services provided to GOC were related to the La/Cal II
Interests, but such services were paid by GOC without reimbursement by La/Cal
II.
The Company entered into a five-year consulting agreement with Mr.
Henry Goodrich commencing August 15, 1995. Mr. Goodrich provides consulting
services to the Company with regard to the identification and evaluation of
acquisition and drilling opportunities, financing transactions, investor
relations and other matters. Mr. Goodrich receives annual consulting fees form
the Company of $150,000 for such services over the five-year term of the
agreement. Mr. Goodrich also received a grant of options to purchase 250,000
shares of Common Stock at the closing price for such shares on August 15, 1995.
The Company entered into a five-year consulting agreement with Mr. Leo
E. Bromberg commencing October 20, 1995, which the Company or Mr. Bromberg may
terminate on any anniversary date of the consulting agreement. Mr. Bromberg
provides consulting services to the Company with regard to the acquisition and
financing of hydrocarbon assets. Mr. Bromberg receives annual consulting fees
from the Company of $120,000 for such services over the five-year term of the
agreement.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax
consequences of the Merger to the Company and the shareholders of the Company,
and represents the opinion of Vinson & Elkins L.L.P., counsel to the Company,
insofar as it relates to matters of law and legal conclusions. This summary does
not address all federal income tax aspects of the Merger, nor does it address
the tax consequences to taxpayers that are subject to special treatment under
the federal income tax laws (such as financial institutions, dealers in
securities, tax-exempt entities and foreign persons) or to taxpayers that do not
hold their shares of common stock or Series A Preferred Stock of the Company as
capital assets (generally property held for investment). This summary is based
upon current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury Regulations promulgated thereunder, judicial decisions and
Internal Revenue Service rulings, all of which are subject to change, possibly
with retroactive effect.
HOLDERS OF COMMON STOCK AND SERIES A PREFERRED STOCK OF THE COMPANY ARE
ADVISED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE FEDERAL INCOME OR OTHER TAX
CONSEQUENCES OF THE MERGER 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 Vinson & Elkins L.L.P., the Merger will constitute a
reorganization within the meaning of section 368(a) of the Code, with the
consequences to the Company and the holders of common stock and Series A
Preferred Stock of the Company described below.
HOLDERS OF COMMON STOCK AND SERIES A PREFERRED STOCK OF THE COMPANY
No gain or loss will be recognized to the holders of common stock and
Series A Preferred Stock of the Company upon the exchange of shares of common
stock or Series A Preferred Stock of the Company solely for shares of common
stock or Series A Preferred Stock, respectively, of New Goodrich pursuant to the
Merger. The tax basis of the shares of common stock or Series A Preferred Stock
of New Goodrich received in the Merger will be the same as the tax basis of the
shares of common stock or Series A Preferred Stock of the Company exchanged
therefor, and the holding period of the shares received will include the holding
period of the shares exchanged therefor (provided the shares exchanged are held
as capital assets at the time of the Merger).
THE COMPANY AND NEW GOODRICH
The Company and New Goodrich will each be a party to a reorganization
within the meaning of section 368(b) of the Code. No gain or loss will be
recognized by the Company or New Goodrich as a result of the Merger. The tax
basis and holding period of the assets of the Company will be unaffected by the
Merger.
-17-
<PAGE> 19
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA OF THE COMPANY
The selected financial data set forth below for the years ended
December 31, 1995 and 1994 and the period from July 15, 1993 through December
31, 1993 for the Company and for the period from January 1, 1993 through July
14, 1993 for the properties contributed to La/Cal Energy Partners prior to its
formation have been derived from audited financial statements contained
elsewhere in this Proxy Statement. The financial data for the years ended
December 31, 1992 and 1991 have been derived from the unaudited financial
records of the assets contributed to La/Cal Energy Partners. 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 "Goodrich Petroleum Corporation Management's Discussion and
Analysis of Financial Condition and Results of Operations," as well as the
Company's financial statements and the notes thereto included elsewhere in this
Proxy Statement.
<TABLE>
<CAPTION>
Period From
July 15, 1993
Nine Months Ended Year Ended (Inception) to
September 30, December 31, December 31,
------------------- ----------------------- -----------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and gas sales $5,455,000 $3,582,000 $5,477,000 $ 4,996,000 $1,060,000
Pipeline joint
venture 1,093,000 114,000 573,000 --- ---
Other 459,000 34,000 124,000 18,000 8,000
--------- ---------- ---------- ----------- ----------
Total revenues 7,007,000 3,730,000 6,174,000 5,014,000 1,068,000
--------- ---------- ---------- ----------- ----------
Expenses:
Lease operating
expense and
production taxes 1,145,000 535,000 1,030,000 684,000 194,000
Depletion,
depreciation and
amortization 2,681,000 907,000 1,786,000 1,157,000 180,000
Exploration 953,000 --- 193,000 4,000 ---
Impairment of oil
and gas
properties --- --- 157,000 --- ---
Interest expense 612,000 901,000 1,132,000 1,072,000 199,000
General and
administrative 1,511,000 197,000 739,000 82,000 1,000
--------- ---------- ---------- ----------- ----------
Total expenses 6,902,000 2,540,000 5,037,000 2,999,000 574,000
--------- ---------- ---------- ----------- ----------
Income before
extraordinary
item and income taxes 105,000 1,190,000 1,137,000 2,015,000 494,000
=========== ==========
Income taxes --- --- ---
--------- ---------- ----------
Income before
extraordinary item 105,000 1,190,000 1,137,000
Extraordinary item - early
extinguishment of debt -- (483,000) (483,000)
Net income 105,000 707,000 654,000
Preferred stock dividends 485,000 108,000 255,000
--------- ---------- ----------
Earnings (loss) applicable
to common stock $(380,000) $ 599,000 $399,000
========= ========== ==========
Loss per average common
share $(.01)
=========
Pro forma income tax and
per share information
(unaudited):
Income before
extraordinary item
and income taxes $1,190,000 1,137,000 2,015,000 494,000
Pro forma income
taxes(a) 402,000 402,000 786,000 193,000
---------- ---------- ----------- ----------
788,000 735,000 1,229,000 301,000
Extraordinary item --
early extinguishment
of debt (483,000) (483,000) --- ---
---------- ---------- ----------- ----------
Net income adjusted for
pro forma income taxes 305,000 252,000 1,229,000 301,000
Preferred stock dividends 108,000 255,000 --- ---
---------- ---------- ----------- ----------
Earnings (loss) applicable
to common stock adjusted
for pro forma income taxes 197,000 (3,000) 1,229,000 301,000
========== ========== =========== ==========
<CAPTION>
Period from
January 1,
1993 through Year Ended
July 14, December 31,
--------------- ------------------------
1993(c) 1992(c) 1991(c)
------- ------- -------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA: $947,000 $896,000 $244,000
Revenues:
Oil and gas sales
Pipeline joint venture
Other
Total revenues
Expenses:
Lease operating 137,000 173,000 55,000
expense and
production taxes
Depletion,
depreciation and
amortization
Exploration
Impairment of oil
and gas properties
Interest expense
General and
administrative
Total expenses
Income before
extraordinary
item and income taxes
Income taxes
Income before
extraordinary item
Extraordinary item - early
extinguishment of debt
Net income
Preferred stock dividends
Earnings (loss) applicable
to common stock
Loss per average common
share
Pro forma income tax and
per share information
(unaudited):
Income before
extraordinary item
and income taxes
Pro forma income taxes(a)
Extraordinary item --
early extinguishment
of debt
Net income adjusted for
pro forma income taxes
Preferred stock dividends
Earnings (loss) applicable
to common stock adjusted
for pro forma income tax
</TABLE>
-18-
<PAGE> 20
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JULY 15, 1993 JANUARY 1,
NINE MONTHS ENDED YEAR ENDED (INCEPTION) to 1993 THROUGH YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, July 14, December 31,
-------------------- ------------------- --------------- ----------- --------------
1996 1995 1995 1994 1993 1993(c) 1992(c) 1991(c)
---- ---- ---- ---- ---- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Income before extraordinary item
adjusted for pro forma income
taxes per average common
share $.03 .02 .06 .02
Extraordinary item per average
common share (.02) (.02) -- --
----- ----- --- ---
Earnings adjusted for pro forma
income taxes per average
common share $.01 -- .06 .02
==== === === ===
Pro forma weighted average
common shares outstanding(b) 23,095,631 27,722,543 19,765,226 19,765,226
========== ========== ========== ==========
OTHER FINANCIAL DATA:
Net cash provided by operating $3,234,000 $2,554,000 $3,579,000 $2,823,000 $479,000
activities
Net increase (decrease) in cash (225,000) (529,000) (97,000) (41,000) 752,000
and cash equivalents
Partnership distributions 1,133,000 1,133,000 3,107,000 4,073,000
Cash dividends per average
common share .01 -- .01
SELECTED OPERATING DATA:
Net crude oil produced (Bbls) 126,139 49,066 102,731 36,487 7,319
Average price per Bbl $ 20.14 $ 16.72 $ 16.27 $ 15.99 $ 16.65
Net natural gas produced (Mcf) 1,194,704 1,764,583 2,213,923 2,386,130 933,435
Average price per Mcf $ 2.44 $ 1.57 $ 1.72 $ 1.85 $ 2.02
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, AS OF DECEMBER 31,
-------------- ---------------------------------------------------
1996 1995 1994 1993
(UNAUDITED) ---- ---- ----
<S> <C> <C> <C> <C>
BALANCE SHEET DATA: (c)
Cash and cash equivalents $ 389,000 $ 613,000 $ 711,000 $ 752,000
Working capital (deficit) 772,000 1,028,000 (416,000) (427,000)
Total assets 21,404,000 22,383,010 8,230,000 5,371,000
Long-term debt, excluding current portion 9,800,000 9,750,000 8,250,000 4,700,000
Total liabilities 12,153,000 12,720,000 10,312,000 6,360,000
Stockholders' equity (deficit) 9,251,000 9,663,000 (2,081,000) (989,000)
</TABLE>
- ---------------------
(a) No provision for income taxes is included in the consolidated
statements of operations for the periods ended December 31, 1994 and
1993 or the period from January 1, 1995 through August 14, 1995, for
the operations of La/Cal Energy Partners (predecessor company), due
to La/Cal Energy Partners being a partnership and income taxes were
the responsibility of the individual partners of La/Cal Energy
Partners. Certain unaudited pro forma information relating to the
Company's results of operations had La/Cal Energy Partners been a
corporation for those periods, is shown above.
(b) For purposes of this presentation the number of pro forma shares
used for periods prior to August 15, 1995 is 19,765,226 shares, the
number of shares issued by the Company in exchange for La/Cal Energy
Partners net assets contributed.
(c) La/Cal Energy Partners was organized on July 15, 1993. Statement of
operations data, other financial data, and other selected operating
data, other than revenues from oil and gas sales and lease operating
expenses and production taxes, for the period from January 1, 1993
through July 15, 1993 and for the years ended December 31, 1992 and
1991, as well as balance sheet data as of December 31, 1992 and 1991,
is not presented as the properties for which such financial data
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
Energy Partners.
(d) The above data reflect the operations solely of La/Cal Energy
Partners for periods prior to August 15, 1995, whereas such data
reflects the operations of La/Cal Energy Partners combined with
Patrick Petroleum Company for periods subsequent to August 15, 1995.
-19-
<PAGE> 21
GOODRICH PETROLEUM CORPORATION CONSOLIDATED
QUARTERLY INCOME INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1996 First Quarter Second Quarter Third Quarter Fourth Quarter Total
---- ------------- -------------- ------------- -------------- -----
<S> <C> <C> <C> <C> <C>
Revenues $ 2,650,788 2,162,719 2,193,449
Costs and Expenses 2,374,423 2,445,198 2,082,413
Net income (loss) 276,365 (282,479) 111,036
Preferred stock dividends 162,230 162,190 160,190
Income (loss) applicable to common 114,135 (444,669) (49,154)
stock
Earnings (loss) per average common share $ -- (.01) --
1995
----
Revenues $ 1,133,420 1,047,620 1,549,524 2,443,848 6,174,412
Costs and Expenses 675,368 568,837 1,295,987 2,496,909 5,037,101
Income (loss) before extraordinary item 458,052 478,783 253,537 (53,061) 1,137,311
and income taxes
Extraordinary item -- early extinguishment of debt -- -- 482,906 -- 482,906
Net income (loss) 458,052 478,783 (229,369) (53,061) 654,405
Preferred stock dividends 107,960 146,972 254,932
Earnings (loss) applicable to common stock 458,052 478,783 (337,329) (200,033) 399,473
Earnings per average common share * * * $ -- *
1994
----
Revenues $ 881,912 1,115,823 1,637,786 1,377,925 5,013,446
Costs and Expenses 539,017 631,418 888,803 939,390 2,998,628
Net income 342,895 484,405 748,983 438,535 2,014,818
Earnings per average common share * * * * *
- ------------------------------------
</TABLE>
* Earnings per share information not presented due to the entity not being in
corporate form during the applicable periods. See pro forma presentation of
earnings per share in the statements of operations.
As noted in Note B to the consolidated financial statements, the Company's
operational financial results reflect the operations solely of La/Cal Energy
Partners for the periods prior to August 15, 1995, whereas such results reflect
the operations of the combined entities for the periods subsequent to August 15,
1995. Accordingly, the fourth quarter of 1995 amounts for revenues and costs and
expenses reflect the operations of the combined entities whereas such amounts
for the third quarter of 1995 reflect the operations solely of La/Cal Energy
Partners from July 1 through August 14, 1995 plus the operations of the combined
entities from August 15, 1995 through September 30, 1995.
The Company's quarterly revenues and costs and expenses are impacted by the fact
that the Company's pipeline joint venture contract requires higher revenue
payments in November through March versus April through October. Accordingly,
the Company records the revenues as earned and matches related amortization with
such revenues. Related revenue and amortization amounts for the first, second,
and third quarter were approximately $582,000 and $392,000, $244,000 and
$174,000, and $267,000 and $174,000, respectively.
The second quarter 1996 cost and expense amount contains costs amounting to
$438,000 related to dry holes during the quarter.
The fourth quarter 1995 cost and expense amount contains 1) a charge for
impairment of oil and gas properties of $157,000, 2) a provision for state
franchise taxes of approximately $60,000 and 3) dry hole costs of approximately
$50,000.
-20-
<PAGE> 22
GOODRICH PETROLEUM CORPORATION MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKGROUND OF BUSINESS COMBINATION AND BASIS OF PRESENTATION
On August 15, 1995, the transactions contemplated by the Agreement and Plan of
Merger among Patrick, La/Cal Energy Partners ("La/Cal"), the Company, and
Goodrich Acquisition, Inc. were completed. The Agreement provided for a
combination of Patrick and La/Cal, as a result of which the businesses
previously conducted by Patrick and La/Cal are now conducted by the Company,
which is a Delaware corporation formed for the purpose of consummating such
transactions, and its subsidiaries. The combination of Patrick and La/Cal was
effected primarily by two concurrent transactions: (a) the contribution by
La/Cal 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
"Patrick Merger") whereby (i) each outstanding share of Patrick common stock
("Patrick Common Stock") was converted into one share of Common Stock; (ii) each
outstanding share of Patrick Series B Convertible Preferred Stock was converted
into one share of the Company's Series A Convertible Preferred Stock (except for
76,290 shares for which appraisal rights were asserted) and (iii) Patrick, the
surviving corporation in the Patrick Merger, became a wholly-owned subsidiary of
the Company. Effective January 31, 1996, the former holders of the Patrick
Series B Convertible Preferred Stock who had asserted appraisal rights withdrew
their claims, resulting in the conversion of their shares into shares of the
Company's Series A Preferred Stock.
The combination transactions were accounted for as a purchase business
combination in accordance with Accounting Principles Board Opinion No. 16,
Business Combinations whereby La/Cal was deemed to be the acquiror and Patrick
the acquiree. Accordingly, on August 15, 1995, the Company recorded the assets
and liabilities of Patrick at fair value, whereas the assets and liabilities of
La/Cal are reflected at historical book value. The consolidated financial
statements reflect the operations solely of La/Cal for periods prior to August
15, 1995, whereas such financial statements reflect the operations of the
combined entities for periods subsequent to August 15, 1995. As a result,
comparison of the current and prior period financial statements presented are
significantly impacted by the combination transactions and, accordingly, are not
necessarily indicative of future operating results.
Prior to the combination transactions, La/Cal was a privately owned Louisiana
general partnership which was formed on July 15, 1993, by the contribution of
certain oil and gas properties owned by the partners.
CHANGES IN FINANCIAL CONDITION (DECEMBER 31, 1995 VERSUS DECEMBER 31, 1994)
As noted above, the balance sheet presented as of December 31, 1994 reflects
the assets and liabilities of La/Cal only whereas the balance sheet as of
December 31, 1995 reflects the assets and liabilities of the combined entities.
Variances in significant asset, liability and equity accounts are addressed in
the following paragraphs.
The December 31, 1995 balance sheet reflects the Company's investment in
marketable equity securities and investment in a pipeline joint venture which
were assets held by Patrick. Property and equipment reflects an increase of
approximately $9,000,000, substantially due to the addition of oil and gas
properties of Patrick which were recorded at their fair value on August 15,
1995, the acquisition date. December 31, 1995 amounts for accounts receivable
and prepaid expenses are the result of the activities of the Company subsequent
to the business combination. The reduction in deferred charges primarily
represents the charge for the early extinguishment of La/Cal's debt as more
fully discussed below.
Included in the December 31, 1995 amount for accrued liabilities is $400,000
which is related to possible future amounts payable in the Company's role as a
potentially responsible party for the cost of clean-up of "hazardous substances"
at an oil field waste disposal site. This liability was a Patrick liability and
was recorded by the Company as a part of the combination transactions.
-21-
<PAGE> 23
The December 31, 1995 balance sheet reflects $387,000 included in accrued
liabilities and $573,000 in other liabilities representing the current and
long-term portions of the Company's obligation under consulting agreements with
Patrick's former chairman and his son, a former employee of Patrick. Other
changes in accrued expenses and accounts payable are the result of activities of
the Company subsequent to the business combination.
Long term debt as of December 31, 1995 represents the outstanding balance
under the Company's credit facility with a bank. The original amount drawn under
the facility immediately following the business combination was $21,000,000 but
was reduced by $10,000,000 in September, 1995 primarily due to proceeds from the
sale of the investment in the Penske Corporation (see Note G to the consolidated
financial statements). This debt was further reduced during the fourth quarter
of 1995 by $1,250,000 from proceeds from the sale of certain properties located
in Michigan, Montana and North Dakota. Debt outstanding as of December 31, 1994
reflected amounts issued under La/Cal's 10% Senior Secured General Obligation
Notes. This debt was paid off in connection with the combination.
Due to La/Cal being a partnership and its recorded liabilities exceeding its
assets, the December 31, 1994 balance sheet reflects an amount for partners'
deficit of $2,081,217. The December 31, 1995 balance sheet reflects stockholder
equity accounts of the Company, a corporation. Convertible preferred stock of
Patrick was assumed as preferred stock of Goodrich and recorded at its par value
of $1,098,710 in the business combination. This amount was reduced by $363,851
as the result of the October 1995 conversion of certain shares of preferred
stock to common. Common stock reflects 39,530,452 shares issued in the business
combination transactions at $.20 per share par value plus 2,274,058 shares as a
result of the preferred stock conversion. The December 31, 1995, additional paid
in capital balance is the result of the effects of the combination transactions,
primarily the elimination of partners' deficit of La/Cal, issuance of the
Company's common and preferred stock, and the recording of Patrick's assets and
liabilities at fair value.
Accumulated deficit at December 31, 1995 reflects only the operations less
preferred stock dividends of the Company since August 15, 1995, the date of the
combination transactions.
RESULTS OF OPERATIONS
As noted above, the consolidated statements of operations for the year ended
December 31, 1994 and the period from July 15, 1993 through December 31, 1993
reflect the operations of La/Cal only, whereas the statement of operations for
the year ended December 31, 1995 reflect the operations solely of La/Cal prior
to the combination date (August 15, 1995) and the operations of the combined
entities subsequent to the combination date. The consolidated statement of
operations for the period from July 15, 1993 through December 31, 1993 reflects
the income information for La/Cal for 1993 subsequent to its formation on July
15,1993. The statement of revenues and direct operating expenses of "Properties
Contributed to La/Cal Energy Partners" presents the revenues and direct
operating expenses of the properties contributed to La/Cal prior to its
formation.
Nine months ended September 30, 1996 versus nine months ended September 30,
1995. Total revenues for the nine months ended September 30, 1996 amounted to
$7,007,000 and were $3,276,000 higher than the $3,731,000 for the nine months
ended September 30, 1995. Oil and gas sales were $1,872,000 higher due
substantially to increased oil production as a result of the inclusion of
revenues of the combined entities in the nine months ended September 30, 1996
along with increased oil prices for the period. Gas production for the nine
months ended September 30, 1996 was lower primarily due to the early abandonment
of two wells producing from a gas reservoir in the Lake Charles field and a
third well producing at a reduced rate. One of the abandoned wells has recently
been recompleted in an oil reservoir. The dollar impact of this decrease was
more than offset by increased gas prices for the period. Additionally, the nine
months ended September 30, 1996 includes nine months of revenues from the
pipeline joint venture which was acquired in the Patrick transaction amounting
to $1,093,000 versus one and one-half month's revenue ($114,000) in the nine
months ended September 30, 1995. Included in other, net for the nine months
ended September 30, 1996 ($459,000) are gains amounting to $95,000 on the sale
of certain oil and gas properties, substantially all in North Dakota, revenue
received by the Company as operator of certain wells and other miscellaneous
income items.
-22-
<PAGE> 24
The following table reflects the production volumes and pricing information
for the periods presented:
<TABLE>
<CAPTION>
Nine months Nine months
ended September 30, 1996 ended September 30, 1995
---------------------------- ----------------------------
Production Average Price Production Average Price
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Gas (Mcf).................. 1,194,704 $ 2.44 1,764,583 $ 1.57
Oil (Bbls)................. 126,139 20.14 49,066 16.72
</TABLE>
Lease operating expense and production taxes were $1,145,000 for the
nine months ended September 30, 1996 versus $535,000 for the nine months ended
September 30, 1995 or $610,000 higher due to the addition of the Patrick oil and
gas properties. Depletion, deprecation and amortization was $2,681,000 versus
$908,000 or $1,774,000 higher than 1995 due to the addition of the Patrick oil
and gas properties and the pipeline joint venture subsequent to August 15, 1995.
The Company incurred $953,000 of exploration expense in 1996, whereas there was
no such expense in 1995 due to La/Cal having virtually no exploration
activities. Included in 1996 exploration expense is $511,000 of costs related to
dry holes during the period.
General and administrative expenses amounted to $1,511,000 in the nine
months ended September 30, 1996 versus $197,000 in 1995 due to the fact that
La/Cal was provided substantially all of its general and administrative expenses
at no cost by an affiliate whereas the Company provides its own general and
administrative services. Additionally, as a public company, the Company incurs a
higher level of general and administrative expenses than a privately held
company.
Interest expense was $611,000 in the nine months ended September 30,
1996 compared to $901,000 (32% lower) in 1995 due to the Company having lower
average debt outstanding and a lower effective interest rate in the nine months
ended September 30, 1996 than La/Cal during the same period in 1995.
In connection with the combination transactions, the Company paid off
La/Cal's General Obligation Notes and the related unamortized debt financing
costs of $482,906 were charged to operations as an extraordinary item in the
third quarter of 1995.
The Company's preferred stock dividends amounted to $485,000 for the
nine months ended September 30, 1996 (nine months dividends on average of
808,000 shares outstanding) compared to $108,000 for the prior period (one and
one-half months dividends on average of 1,080,000 shares outstanding).
Year ended December 31, 1995 versus year ended December 31, 1994.
Revenues in 1995 amounted to $6,174,000 and were $1,161,000 (23%) higher than
1994 due to the inclusion of the combined entities subsequent to August 15,
1995, which produced higher oil and gas sales. This was primarily due to higher
volumes of oil production for the period slightly offset by lower gas production
and prices (see volume and price table below). Additionally, 1995 includes the
revenues from the pipeline joint venture which was acquired from Patrick and
contributed $573,000 in the period.
The following table reflects the production volumes and pricing
information for the periods presented:
<TABLE>
<CAPTION>
1995 1994
----------------------------- -------------------------------
Production Average Price Production Average Price
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Gas (MCF) 2,213,923 $ 1.72 2,386,130 $ 1.85
Oil (BBLS) 102,731 $ 16.27 36,487 $ 15.99
</TABLE>
-23-
<PAGE> 25
Lease operating expense and production taxes were $345,000 or 50%
higher due to the higher production volumes and depletion, depreciation and
amortization was $603,000 or 52% higher than 1994 due to the addition of the
Patrick properties subsequent to August 15, 1995, including the amortization of
the pipeline joint venture.
The Company recorded an impairment from the adoption of Financial
Accounting Standards Board Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of in the fourth
quarter of 1995 in the amount of $157,000. Additionally, the Company incurred
$193,000 of exploration expense in 1995, whereas the 1994 amount was only $4,000
due to La/Cal having virtually no exploration activities.
The large variance ($658,000) in general and administrative expenses is
due to the fact that La/Cal was provided substantially all of its general and
administrative expenses at no cost by an affiliate whereas the Company provides
its own general and administrative services. Additionally, as a public company,
the Company incurs a higher level of general and administrative expenses than as
a privately held company. However, based on the Company's current and
anticipated future level of operations on a combined basis, such expenses were,
and are anticipated to be less than the combined historical general and
administrative expenses of La/Cal and Patrick.
Interest expense was $60,000 (6%) higher in 1995 due to the Company
(from August 15, 1995 through December 31, 1995) and La/Cal (from January 1,
1995 through August 14, 1995) having slightly higher average debt outstanding in
1995 than La/Cal in 1994. A partial offsetting factor to this was the Company's
lower effective interest rate from August 15, 1995 to December 31, 1995.
The statements of operations reflect no income taxes due to: 1) the
individual partners of La/Cal being responsible for such taxes for the periods
containing the operations of La/Cal only and 2) the Company incurring a loss for
the period from August 15, 1995, through December 31, 1995, as a result of the
extraordinary item.
In connection with the combination transactions, the Company paid off
La/Cal's General Obligation Notes and the related unamortized debt financing
costs of $482,906 were charged to operations as an extraordinary item in the
third quarter of 1995.
The Company assumed Patrick's Convertible Preferred Stock and has
incurred related dividends of $255,000 from August 15, 1995 to December 31,
1995.
Year ended December 31, 1994 versus year ended December 31, 1993. For
purposes of this discussion, references to La/Cal's 1993 operations include the
sum of the operations of the properties contributed prior to La/Cal's formation
and its operations subsequent to its formation. Revenues were $5,013,000 in 1994
and were $2,998,000 (149%) higher than 1993. This was due to the higher volumes
of production (see table below) resulting from significant well development and
acquisition of producing properties by La/Cal in December, 1993 and February,
1994, offset by somewhat lower prices.
The following table reflects the production volumes and pricing
information for the periods presented:
<TABLE>
1994 1993
----------------------------- ------------------------------
Production Average Price Production Average Price
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Gas (MCF) 2,386,130 $ 1.85 933,435 $ 2.02
Oil (BBLS) 36,487 $ 15.99 7,319 $ 16.65
</TABLE>
Lease operating expenses and production taxes increased to $684,000 in
1994 compared to $331,000 in 1993. This increase is largely the result of
increased production and the acquisition of producing properties and development
-24-
<PAGE> 26
activity in the Pecan Lake and Lake Charles fields. 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 to the significant
increase in capitalized costs and production volumes.
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.
LIQUIDITY AND CAPITAL RESOURCES
Nine months ended September 30, 1996 versus nine months ended September
30, 1995. Net cash provided by operating activities was $3,234,000 in the nine
months ended September 30, 1996 compared to $2,554,000 in the nine months ended
September 30, 1995. The Company's accompanying consolidated statements of cash
flows identify major differences between net income and net cash provided by
operating activities for each of the periods presented.
The nine months ended September 30, 1996 reflects $3,220,000 in capital
expenditures offset by $326,000 in proceeds from the sale of certain oil and gas
properties, primarily located in North Dakota. The nine months ended September
30, 1995 reflects the receipt by the Company of $9,600,000 cash from the sale of
the investment in the Penske Corporation as well as the payment by the Company
of $1,088,000 in connection with the business combination. The 1995 period
included no capital expenditures as drilling and exploration operations were
suspended in anticipation of the combinations transactions.
Net cash used by financing activities was $519,000 for the current
period as compared to $11,125,000 in the prior year period. The 1996 amount is
composed primarily of preferred stock dividends of $485,000. The 1995 amount
included the borrowing of $21,000,000 by the Company which was used primarily to
pay off the debt assumed from La/Cal and Patrick ($19,777,531). The remainder of
the loan proceeds were used to provide working capital and pay accrued interest.
The quarter ended September 30, 1995 also reflects debt paydowns as follows: (i)
$915,310 by La/Cal on its General Obligation Notes prior to August 15, 1995;
(ii) $9,500,000 by the Company on its credit facility in September from the
Penske sale proceeds; (iii) $500,000 by the Company on its credit facility from
operations/working capital. The 1995 amount also includes partnership
distributions by La/Cal of $1,132,735 prior to August 15, 1995 and the Company's
preferred stock dividend for the third quarter in the amount of $215,921.
Year ended December 31, 1995 versus year ended December 31, 1994 versus
year ended December 31, 1993. Net cash provided by operating activities was
$3,579,000 in 1995 compared to $2,823,000 in 1994 and $479,000 from July 15,
1993, through December 31, 1993. The Company's accompanying consolidated
statements of cash flows identify major differences between net income and net
cash provided by operating activities for each of the periods presented.
Net cash provided by investing activities amounted to $8,877,000 in
1995 compared to net cash used of $3,720,000 in 1994 and $1,968,000 from July
15, 1993, through December 31, 1993. The year ended December 31, 1995, reflects
the receipt by the Company of $9,600,000 cash in September from the sale of the
investment in the Penske Corporation as well as $1,514,000 from the sale of
certain properties in Michigan, Montana and North Dakota in the fourth quarter.
This was offset by the payment by the Company of $1,088,000 in connection with
the business combination and $650,000 for capital expenditures. The 1994 and
1993 periods reflect $3,720,000 and $1,968,000 in capital expenditures,
respectively due to extensive drilling and completion activities and acquisition
of producing properties by La/Cal during those periods.
Net cash used by financing activities in 1995 total $12,553,000
compared to net cash provided by financing activities of $856,000 in 1994 and
$2,241,000 from July 15, 1993, through December 31, 1993. The 1995 amount
included the borrowing of $21,000,000 by the Company which was used primarily to
pay off the La/Cal debt ($9,151,000) and the debt assumed from Patrick
($10,626,000). The remainder of the loan proceeds were used to
-25-
<PAGE> 27
provide working capital and pay accrued interest. The year ended December 31,
1995 also reflects debt paydowns as follows: (i) $915,000 by La/Cal on its
General Obligation Notes prior to August 15, 1995; (ii) $9,500,000 by the
Company on its credit facility in September from the Penske sale proceeds; (iii)
$500,000 by the Company on its credit facility from operations/working capital
(iv) $1,250,000 by the Company in the fourth quarter from the sale of certain
oil and gas properties. The 1995 amount also includes partnership distributions
by La/Cal of $1,133,000 prior to August 15, 1995 and the Company's preferred
stock dividends subsequent to the business combination in the amount of
$363,000. The 1994 and 1993 amounts consist of La/Cal borrowings used to
partially fund the significant capital expenditures mentioned above. This was
offset by partnership distributions of $3,107,000 and $4,073,000, respectively.
Additionally, the amounts include subsequent payments of $1,757,000 and $407,000
on the borrowings.
The Company has a credit facility with a bank which provides for a
total borrowing base determined by the bank every six months based in part, on
the Company's oil and gas reserve information. Such borrowing base is currently
$12,800,000. The maturity date for all amounts drawn under the bank credit
facility is June 1, 1998. Interest is based on either of two methods at the
option of the Company: the bank's prime lending rate or LIBOR plus 2%. Interest
rates are set on specific draws for one, two, three or six month periods, also
at the option of the Company. The Company's credit facility requires minimum net
worth and debt service ratios be maintained by the Company. Accordingly, the
Company had $435,000 available for the payment of dividends at September 30,
1996. The amount outstanding under this facility as of September 30, 1996 was
$9,800,000.
The Company had $3,220,000 in capital expenditures in the nine months
ended September 30, 1996. The Company plans to incur capital expenditures in the
amount of approximately $1,300,000 in the fourth quarter of 1996. The Company
plans to fund such expenditures from operating cash flow and borrowings under
its bank credit facility.
The Company's business strategy is to explore and develop drilling
prospects along the Gulf Coast and in West Texas and pursue strategic
acquisitions of oil and gas properties that offer additional development
drilling opportunities. It is anticipated that such acquisitions would be
financed with bank or other institutional borrowings.
In connection with the proposed Transactions, the Company will pay the
Sellers $2 million in cash and assume up to $7.946 million in debt. The Company
is in discussions with its bank regarding the proposed Transactions and believes
that the additional reserves included in the Transactions will result in an
increase in the Company's borrowing base sufficient to repay all of the assumed
debt and pay the cash portion of the purchase price and related expenses.
NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
During 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123, Accounting for Stock Based
Compensation. This statement encourages companies to recognize compensation
expense for certain equity instrument issuances in accordance with new fair
value accounting guidelines. The Company has decided not to adopt the
recognition provisions of the Statement and will adopt the disclosure provisions
of the Statement in the fourth quarter of 1996.
-26-
<PAGE> 28
LA/CAL II SELECTED FINANCIAL DATA
The selected financial data set forth below for the period from July 7,
1995 (inception) through December 31, 1995 for La/Cal II and for the period from
January 1, 1995 through July 6, 1995 and the years ended December 31, 1994 and
1993 for the properties contributed to La/Cal II prior to its formation have
been derived from audited financial statements contained elsewhere in this Proxy
Statement. The properties first incurred costs and became operational during the
year ended December 31, 1993. 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 II Management's
Discussion and Analysis of Financial Condition and Results of Operations" as
well as the La/Cal II financial statements and the notes thereto included
elsewhere in this Proxy Statement.
<TABLE>
July 7, 1995 Year Ended
<CAPTION> Nine to December 1,
Months Ended December 31, January 1 to --------------------------
September 30, 1996 1995 July 6, 1995(a) 1994(a) 193(a)
------------------ ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:(b)
Revenues:
Oil and gas sales $2,390,000 $1,064,000 $658,000 $1,057,000 $74,000
Other 8,000 10,000
---------- ----------
Total revenues 2,398,000 1,074,000
---------- ----------
Expenses:
Lease operating expenses and
production taxes 377,000 169,000 73,000 186,000 14,000
Depletion, depreciation and
amortization 287,000 116,000
Interest expense 579,000 261,000
General and Administrative 49,000 4,000
---------- ----------
Total expenses 1,292,000 550,000
---------- ----------
Net Income $1,106,000 $ 524,000
========== ==========
Ratio of earnings to fixed charges 2.9 3.0
OTHER FINANCIAL DATA:
Net cash provided by operating
activities $1,503,000 $159,000
Net increase in cash and cash equivalents 344,000 161,000
Distributions to partners 2,660,000 3,600,000
SELECTED OPERATING DATA:
Net crude oil produced (Bbls) 76,104 36,007 18,561 48,138 4,007
Average price per Bbl $ 19.44 $ 16.54 $ 16.82 $ 15.57 $ 13.10
Net natural gas produced (Mcf) 358,755 262,231 211,308 175,872 11,941
Average price per Mcf $ 2.54 $ 1.7 1.64 $ 1.75 $ 1.78
<CAPTION>
As of As of
September 30, December 31,
1996 1995
------------------ ---------------
(Unaudited)
<S> <C> <C>
BALANCE SHEET DATA:(B)
Cash and cash equivalents $ 505,000 $ 161,000
Working capital (deficit) (518,000) (214,000)
Total assets 5,254,000 3,681,000
Long-term debt, excluding current
portion 6,380,000 3,842,000
Total liabilities 7,926,000 4,779,000
Partners' capital (deficit) (2,672,000) (1,181,000)
</TABLE>
(a) La/Cal II was organized on July 7, 1995. Statement of operations data and
other financial data, other than revenues from oil and gas sales and lease
operating expenses and production taxes for the period from January 1, 1995
through July 6, 1995 and for the years ended December 31, 1994 and 1993, as well
as balance sheet data as of December 31, 1994 and 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 II.
(b) Book value, net income and distribution per unit information is not
presented since La/Cal II is not structured on a unit basis.
-27-
<PAGE> 29
LA/CAL II MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
La/Cal II 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 II owns working interests in 11 wells in four fields in South
Louisiana and Texas. La/Cal II was formed in July 1995 when certain participants
in drilling programs operated by Goodrich Oil Company contributed their
interests to form La/Cal II. Prior to the formation of La/Cal II, the properties
contributed to La/Cal II were owned individually by the Partners. La/Cal II has
no employees and its interests are overseen and managed by Goodrich Oil Company.
La/Cal II'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 II's
operations has been distributed to the Partners from time to time, rather than
being reinvested in additional drilling opportunities. La/Cal II has borrowed
$9.4 million, made loan repayments of $1.5 million, incurred capital
expenditures of $2.9 million and made distributions to partners of approximately
$6.3 million from inception through September 30, 1996.
The Selected Historical Financial Data for the periods presented
represent the revenues and direct operating expenses of the properties
contributed to La/Cal II prior to its formation and the results of operations of
La/Cal II subsequent to its formation. For purposes of this discussion,
references to La/Cal II's operations also include the operations of the
properties contributed prior to La/Cal II's formation. Results of operations and
related cash flows are not presented in the financial statements and are not
discussed here for the properties contributed to La/Cal II prior to its
formation as the properties were not maintained as a separate business unit and
such information was not segregated by the owners of the properties.
La/Cal II has experienced rapid growth during the three year and nine
month period ending September 30, 1996. Because of the significant growth of
La/Cal II, La/Cal II'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 II will depend on its
ability to locate and develop additional natural gas and oil properties. Due to
the nature of La/Cal II'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 increased, such prices may not maintain their current
levels. Lower oil and natural gas prices in the future may reduce the amount of
La/Cal II's natural gas and oil reserves that are economical to produce and
accordingly negatively impact La/Cal II's cash flow.
On October 22, 1996, La/Cal II entered into an Exchange Agreement with
the Company. Under the terms of the Exchange Agreement, La/Cal II would
contribute to the Company substantially all of its assets in exchange for
$1,787,992 cash, 586,259 shares ($5,862,590 liquidation value) of New Goodrich's
Series B Convertible Preferred Stock and the assumption of La/Cal II's debt up
to $7,947,000.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996, PERIOD FROM
JULY 7, 1995 THROUGH DECEMBER 31, 1995 AND PERIOD FROM JANUARY 1, 1995 THROUGH
JULY 6, 1995
Revenues. La/Cal II's oil and gas sales were $2,390,000, $1,064,000 and
$658,000 for the nine months ended September 30, 1996, the period from July 7,
1995 through December 31, 1995 and the period January 1, 1995 through July 6,
1995, respectively. The following comparison of volumes and prices show that
this increase is due primarily to increased production levels for crude oil
along with an increase in the price received for both oil and gas production in
1996.
-28-
<PAGE> 30
<TABLE>
<CAPTION>
Period from July 7, Period from January 1,
Nine months ended 1995 through 1995 through July 6,
September 30, 1996 December 31, 1995 1995
------------------- ------------------- ----------------------
<S> <C> <C> <C>
Production Volumes
Crude Oil and Condensate ( Bbl) 76,104 36,007 18,561
Natural Gas (Mcf) 358,755 262,231 11,308
Average Sales Price
Crude Oil and Condensate
(per Bbl) $ 19.44 $ 16.54 $ 16.82
Natural Gas (per Mcf) $ 2.54 $ 1.78 $ 1.64
</TABLE>
The increase in oil production is primarily due to increased production
from certain wells in Second Bayou and Mary Blevins fields. See "Description of
the La/Cal II and Group A Properties -- La/Cal II Properties.
Lease operating expenses and production taxes. Lease operating expenses
and production taxes amounted to $377,000, $169,000 and $73,000 for the nine
months ended September 30, 1996, the period from July 7, 1995 through December
31, 1995 and period from January 1, 1995 through July 6, 1995, respectively.
This increase is largely the result of increased production and development.
Depreciation, depletion, and amortization. Depreciation, depletion and
amortization amounted to $287,000 for the nine months ended September 30, 1996
and $116,000 for the period from July 7, 1995 through December 31, 1995, and was
substantially comprised of depletion of the oil and gas properties.
General and administrative. La/Cal II's general and administrative
services are provided by Goodrich Oil Company at no cost, accordingly La/Cal
II's general and administrative expenses for the nine months ended September 30,
1996 and the period from July 7, 1995 through December 31, 1995 are not
significant.
Interest Expense. Interest expense for the nine months ended September
30, 1996 and the period from July 7, 1995 through December 31, 1995 amounted to
$579,000 and $261,000, respectively, and related almost entirely to the
Partnership's outstanding borrowings under its senior secured general obligation
notes.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995,
DECEMBER 31, 1994 AND DECEMBER 31, 1993
Revenues. La/Cal II's oil and gas sales increased to $1,722,000 in 1995
compared to $1,057,000 in 1994 and $74,000 in 1993. The following comparison of
volumes and prices shows that this increase is due primarily to increased
production levels for natural gas in 1995, both natural gas and oil in 1994
along with an increase in the price received for oil production in both 1995 and
1994.
-29-
<PAGE> 31
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------------------------------------------
1995 1994 1993
------------ ------------ --------------
<S> <C> <C> <C>
Production Volumes
Crude Oil and Condensate (Bbls) 54,568 48,138 4,007
Natural Gas (Mcf) 473,539 175,872 11,941
Average Sales Price
Crude Oil and Condensate
(per Bbl) $ 16.63 $ 15.57 $ 13.10
Natural Gas (per Mcf) $ 1.72 $ 1.75 $ 1.78
</TABLE>
The increase in La/Cal II's oil and gas sales was impacted by
development activity throughout 1995, 1994 and 1993. Oil and gas sales increased
$665,000 (63%) in 1995 and $983,000 (1328%) in 1994. The 1994 increase is due
primarily to the initial drilling and development of the two gas wells in Deep
Lake Field, a gas well in Kings Ridge Field, an oil well in Kings Ridge Field
and an oil well in Second Bayou. The 1995 increase is due primarily to increased
production from the two gas wells in Deep Lake Field and the gas well in Kings
Ridge Field along with initial drilling and development of the gas portion of an
oil and gas well at Second Bayou Field.
Lease operating expenses and production taxes. Lease operating expenses
and production taxes increased to $242,000 in 1995 compared to $186,000 in 1994
and $14,000 in 1993. This increase is the result of increased production and
development activity mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $1,503,000 in the first
nine months of 1996 and $159,000 for the period from July 7, 1995 through
December 31, 1995. The increase is due to the significant increase in oil and
gas revenues net of operating expenses brought about primarily by the
development activity in the Mary Blevins and Second Bayou fields.
During the nine months ended September 30, 1996 and the period from
July 7, 1995 through December 31, 1995 La/Cal II incurred capital expenditures
of $1,623,000 and $1,321,000 respectively. These expenditures represent
development activity primarily in the Second Bayou field. Financing activities
for the nine months ended September 30, 1996 consisted primarily of proceeds
from long-term debt, debt payments and capital distributions. Generally, any
excess of cash generated by operations and proceeds from long-term debt over
required debt payments was distributed to the partners.
Shortly after inception, La/Cal II entered into a Note Purchase
Agreement with an institutional lender. Initial 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. Except for the
original 1995 advance of $5,200,000, which accrues interest at 10%, advances
under the agreement bear interest at 12% per annum. As security for the payment
of the notes, La/Cal II 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 II at a bank. Principal and interest is payable in monthly
installments dependent upon the principal balance outstanding. In addition, the
lender receives a 5% overriding royalty interest in each of the mortgaged oil
and gas properties. Before additional advances can be funded, the lender must
agree with La/Cal II reserve estimates. La/Cal II estimates that the maximum
amount available under the Note Purchase Agreement is approximately
-30-
<PAGE> 32
$2,145,000. La/Cal II has limited capital expenditure requirements for the
remainder of 1996 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 II.
La/Cal II's working capital deficit increased from $214,000 as of
December 31, 1995 to $518,000 at September 30, 1996. La/Cal II believes cash
flow from operations will adequately provide for its net working capital needs.
OTHER MATTERS
La/Cal II has certain obligations based on federal, state and local
laws relating to the protection of the environment. Costs of compliance through
September 30, 1996 have not been material and currently La/Cal II does not
anticipate that such costs will become material in the near term.
Inflation has not had a significant effect on La/Cal II's financial
condition or earnings since inception.
-31-
<PAGE> 33
GROUP A PROPERTIES SELECTED FINANCIAL DATA
The selected combining financial data set forth below for the year
ended December 31, 1995 for the Group A Properties have been derived from
audited statements of revenues and direct operating expenses contained elsewhere
in the Proxy Statement. 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 the combining financial
statements of the Group A Properties and the notes thereto included elsewhere in
this Proxy Statement.
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1996 (unaudited)
--------------------------------------------------------
Smyth 35-1 Hebert #1 Warminster #1 Combined
---------- --------- ------------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(a):
Oil and gas sales........................... $ 327,000 $ 271,000 $ 141,000 $ 739,000
Lease operating expense and production taxes 40,000 28,000 29,000 97,000
--------- ---------- ---------- ----------
Excess of revenues over direct operating expenses $ 287,000 $ 243,000 $ 112,000 $ 642,000
========= ========== ========== ==========
SELECTED OPERATING DATA:
Net crude oil produced (Bbls)............... --- 869 7,023 7,89
Average price per Bbl....................... --- $ 19.32 $ 19.95 $ 19.8
Net natural gas produced (Mcf).............. 126,142 89,858 --- 216,00
Average price per Mcf....................... $ 2.59 $ 2.83 --- $ 2.6
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1995
---------------------------------------------------
Smyth 35-1 Hebert #1 Warminster #1 Combined
---------- --------- ------------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(a):
Oil and gas sales........................... --- $ 25,000 $ 159,000 $ 184,000
Lease operating expense and production taxes --- 2,000 32,000 34,000
--- --------- ---------- -----------
Excess of revenues over direct operating expenses --- $ 23,000 $ 127,000 $ 150,000
=== ========= ========== ===========
SELECTED OPERATING DATA:
Net crude oil produced (Bbls)............... --- --- 9,122 9,122
Average price per Bbl....................... --- --- $ 17.45 $ 17.45
Net natural gas produced (Mcf).............. --- 9,905 --- 9,905
Average price per Mcf....................... --- $ 2.51 --- $ 2.51
</TABLE>
(a) Statement of operations data other than revenues from oil and gas sales and
lease operating expenses and production taxes along with balance sheet data as
of and, for the nine months ended September 30, 1996 and as of and for the year
ended December 31, 1995 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.
(b) Dates of first production for the Smyth 35-1, Hebert #1 and Warminster #1
were January 1, 1996, November 1, 1995 and March 1, 1995, respectively.
-32-
<PAGE> 34
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma condensed financial information of
New Goodrich reflects the effects under the purchase method of accounting of the
contribution to New Goodrich of (i) the oil and gas properties and related
assets of La/Cal II and (ii) net working interests of selected owners of the
Smyth 35-1, Hebert #1 and Warminster #1 wells (referred to herein as the Group A
Properties) in exchange for cash, convertible preferred stock and the assumption
of La/Cal II debt. Additionally, the pro forma condensed statement of operations
and statement of cash flows for the year ended December 31, 1995 reflect the pro
forma effects of the August 15, 1995 business combination of the Company,
Patrick Petroleum Company and La/Cal Energy Partners. Additional basis of
presentation information and pro forma adjustments applicable to the
Transactions 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 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 took place as
of the dates indicated below; however, New Goodrich's actual financial
statements will ultimately reflect 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 the Company, Patrick Petroleum
Company, La/Cal II and the Group A Properties for the applicable periods which
are included elsewhere herein.
-33-
<PAGE> 35
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Goodrich Pro Forma Combined
Petroleum La/Cal II Adjustments Pro Forma
(Note H) (Note H) (Note B) (Note H)
--------- --------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 388,888 505,497 (2,092,375) (1) $ 1,047,689
2,245,679 (2)
Marketable equity securities............. 801,800 --- 801,800
Accounts receivable...................... 1,476,565 522,086 1,998,651
Other.................................... 216,954 --- 216,954
----------- ------------ -----------
Total current assets............... 2,884,207 1,027,583 4,065,094
----------- ------------ -----------
Net property and equipment.................. 14,461,926 3,959,733 12,504,454 (1) 31,326,113
400,000 (2)
Other assets:
Investment in pipeline joint venture 3,935,854 --- --- 3,935,854
Other investments and deferred charges 121,910 266,466 (240,000) (1) 148,376
----------- ------------ ---------- -----------
4,057,764 266,466 4,084,230
----------- ------------ -----------
Total Assets........................... $21,403,897 5,253,782 12,817,758 $39,475,437
=========== ============ ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........ --- 1,473,935 (1,473,935) (2) ---
Accounts payable......................... 383,795 --- 383,795
Accrued liabilities...................... 1,728,359 71,540 1,799,899
----------- ------------ -----------
Total current liabilities.............. 2,112,154 1,545,475 2,183,694
----------- ------------ -----------
Long term debt.............................. 9,800,000 6,380,386 (6,380,386) (2) 20,300,000
10,500,000 (2)
Other liabilities........................... 240,781 --- 240,781
Stockholders' equity:
Preferred stock Series A................. 801,149 --- 801,149
Preferred stock Series B................. --- --- 750,000 (1) 750,000
Common stock............................. 8,360,902 --- 8,360,902
Additional paid-in capital............... 1,059,488 --- 6,750,000 (1) 7,809,488
Partners' capital (deficit).............. --- (2,672,079) 2,672,079 (1) ---
Accumulated deficit...................... (1,012,777) --- (1,012,777)
Unrealized gain on marketable
equity securities...................... 42,200 --- 42,200
----------- ------------ -----------
Total stockholders' equity............. 9,250,962 (2,672,079) 16,750,962
----------- ------------ ---------- -----------
Total liabilities and
stockholders' equity............... $21,403,897 5,253,782 12,817,758 $39,475,437
=========== ============ ========== ===========
Book value applicable to
common stock or partners' deficit........ $ 1,239,472 $ (2,672,079) $ 1,239,472
=========== ============ ===========
Book value per share common or unit........ $ .03 $ .03
=== ===
Common shares or units outstanding......... 41,804,510 41,804,510
=========== ===========
</TABLE>
-34-
<PAGE> 36
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Patrick Pro Forma Goodrich Pro Forma
Goodrich Petroleum Adjustments Petroleum Group A Adjustments Combined
Petroleum (Note C) (Note D) Pro Forma La/Cal II Properties (Note E) Pro Forma
----------- --------- ----------- ---------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales............. $ 5,477,208 1,949,199 7,426,407 1,721,700 184,015 9,332,122
Pipeline joint venture 573,393 799,838 1,373,231 --- --- 1,373,231
Other, net.................... 123,811 2,123,364 (102,273)(3) 2,144,902 10,303 --- 2,155,205
----------- --------- ---------- --------- ------- ----------
Total revenues................ 6,174,412 4,872,401 10,944,540 1,732,003 184,015 12,860,558
----------- --------- ---------- --------- ------- ----------
Expenses:
Lease operating expense and
production taxes........... 1,029,501 791,317 1,820,818 242,314 34,487 2,097,619
Depletion, depreciation, and
amortization............... 1,785,502 1,207,167 151,020 (1) 3,143,689 115,808 --- 933,076 (1) 4,192,573
Exploration................... 193,159 --- 180,000 (4) 373,159 --- --- 373,159
Impairment of oil and
gas properties............. 157,000 --- 157,000 --- --- 157,000
Interest...................... 1,132,488 503,419 (503,419)(2) 1,037,488 261,499 --- 631,001 (2) 1,929,988
(95,000)(5)
General and administrative.... 739,451 1,577,818 100,736 (4) 2,056,005 3,557 --- 2,059,562
----------- --------- ---------- --------- ------- ----------
(362,000)(6)
Total costs and expenses...... 5,037,101 4,079,721 8,588,159 623,178 34,487 10,809,901
----------- --------- ---------- --------- ------- ----------
Income before extraordinary item
and income taxes............ 1,137,311 792,680 2,356,381 1,108,825 149,528 2,050,657
Pro forma income taxes 402,698 (402,698)(7) ---- --- --- ---
----------- --------- ---------- --------- ------- ----------
Income before extraordinary item. 734,613 792,680 2,356,381 1,108,825 149,528 2,050,657
Preferred stock dividends........ 254,932 470,000 --- 724,932 --- --- 618,750 (3) 1,343,682
----------- --------- -------- ---------- --------- ------- --------- ----------
Earnings before extraordinary
item applicable to common stock $ 479,681 322,680 829,088 1,631,449 1,108,825 149,528 (2,182,827) 706,975
=========== ========= ======= ========== ========= ======= ========= ==========
Earnings before extraordinary
item per average common share.... $ .02 .06 .03
Weighted average shares
outstanding................... 27,722,543 27,722,543 27,722,543
=========== ========== ==========
</TABLE>
-35-
<PAGE> 37
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Patrick Patrick Pro
Goodrich Petroleum Forma Entries Goodrich La/Cal II
Petroleum (Note C) (Note F) Pro Forma (Note G)
------------ ---------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 3,578,925 95,188 859,683 (1) 4,533,796 744,845
Cash Flow From
Investing Activities:
Sale of investment 9,600,000 2,400,000 12,000,000 ---
Proceeds from sale of oil and
gas properties 1,514,336 69,642 1,583,978 ---
Capital expenditures (649,604) (1,571,901) 100,736 (1) (2,120,769) (1,320,781)
Dividends received 102,273 (102,273)(2) --- ---
Cash paid in connection with business
combination (1,088,432) --- (362,000)(1) (1,450,432) ---
Overdraft bank balances assumed in
business combination (451,414) --- (451,414) ---
Other (47,883) --- (47,883) (35,288)
------------ ----------- ----------- ----------
NET CASH USED IN INVESTING ACTIVITIES 8,877,003 1,000,014 9,513,480 (1,356,069)
------------ ----------- ----------- ----------
Cash Flow From
Financing Activities:
Proceeds from debt 21,000,000 10,173,861 31,173,861 5,200,000
Principal payments of debt (31,942,841) (11,000,000) (598,419)(1) (43,438,987) (470,458)
102,273 (2)
Payment of debt financing costs (114,771) --- (114,771)
Partnership distributions (1,132,735) --- (1,132,735) (3,600,000)
Capital contributions --- --- --- 228,630
Preferred stock dividends (362,893) (470,000) (832,893) ---
Other (60,250) --- ---
------------ ----------- ----------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (12,553,240) (1,356,389) (14,345,525) 1,358,172
------------ ----------- ----------- ----------
Net increase (decrease) in cash (97,312) (261,187) (298,249) 746,948
==========
Cash at beginning of year 710,762 748,811 1,459,573
------------ ----------- ---------- -----------
Cash at end of year $ 613,450 487,624 --- 1,161 324
============ =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Group A Pro Forma
Properties Adjustments Combined
(Note G) (Note G) Pro Forma
---------- ----------- ----------
<S> <C> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES 149,528 (631,001)(1) 4,797,168
Cash Flow From
Investing Activities:
Sale of investment --- 12,000,000
Proceeds from sale of oil and
gas properties --- 1,583,978
Capital expenditures --- (3,441,550)
Dividends received ---
Cash paid in connection with business
combination --- (1,450,432)
Overdraft bank balances assumed in
business combination --- (451,414)
Other --- (83,171)
-------- -----------
NET CASH USED IN INVESTING ACTIVITIES --- 8,157,411
-------- -----------
Cash Flow From
Financing Activities:
Proceeds from debt --- 36,373,861
Principal payments of debt --- 631,001 (1) (42,659,694)
--- 618,750 (2)
Payment of debt financing costs --- (114,771)
Partnership distributions (149,528) (4,882,263)
Capital contributions --- 228,630
Preferred stock dividends --- (618,750)(2) (1,451,643)
Other ---
-------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (149,528) (12,505,880)
-------- -----------
Net increase (decrease) in cash --- 448,699
Cash at beginning of year --- 1,459,573
-------- -------- -----------
Cash at end of year --- --- $ 1,908,272
======== ======== ===========
</TABLE>
-36-
<PAGE> 38
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Pro Forma
Goodrich Group A Adjustments Combined
Petroleum La/Cal II Properties (Note E) Pro Forma
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales $5,454,441 2,390,064 739,119 8,583,624
Pipeline joint venture 1,093,297 -- -- 1,093,297
Other 459,218 8,405 -- 467,623
---------- --------- ------- ----------
Total revenues 7,006,956 2,398,469 739,119 10,144,544
---------- --------- ------- ----------
Expenses:
Lease operating expense and
production taxes 1,145,016 377,328 96,622 1,618,966
Depletion, depreciation, and
amortization 2,681,208 286,946 -- 1,014,235 (1) 3,982,389
Exploration 953,095 -- -- 953,095
Interest 611,447 579,321 -- 90,054 (2) 1,280,822
General and
administrative 1,511,268 48,599 -- 1,559,867
---------- --------- ------- ----------
Total costs and
expenses 6,902,034 1,292,149 96,622 9,395,139
---------- --------- ------- ----------
Income before income
taxes 104,922 1,106,275 642,497 749,405
Income taxes -- -- -- --
---------- --------- ------- ----------
Net income 104,922 1,106,275 642,497 749,405
Preferred stock dividends 484,610 -- -- 464,063 (3) 948,673
---------- --------- ------- ---------- ----------
Earnings (loss) applicable
to common stock $ (379,688) 1,106,275 642,497 (1,568,352) (199,268)
========== ========= ======= ========== ==========
Loss per average
common share $ (.01) (--)
========== ===
Weighted average common
shares outstanding 41,804,510 41,804,510
========== ==========
</TABLE>
-37-
<PAGE> 39
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Group A Pro Forma
Goodrich Properties Adjustments Combined
Petroleum La/Cal II (Note G) (Note G) Pro Forma
--------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY
OPERATING ACTIVITIES..... $3,233,937 1,502,463 642,497 (90,054)(1) $5,288,843
Cash Flow From Investing Activities:
Proceeds from sale of oil and
gas properties.............. 325,629 --- --- 325,629
Cash paid in connection with
business combination ..... (45,372) --- --- (45,372)
Capital expenditures............. (3,219,528) (1,623,141) --- (4,842,669)
---------- ---------- -------- ----------
NET CASH USED IN INVESTING
ACTIVITIES................ (2,939,271) (1,623,141) --- (4,562,412)
---------- ---------- -------- ----------
Cash Flow From Financing Activities:
Proceeds from debt............... 800,000 4,173,158 --- 4,973,158
Principal payments of debt....... (750,000) (1,048,379) --- 90,054 (1) (1,244,262)
464,063 (2)
Payment of debt financing costs.. (10,256) --- --- (10,256)
Retirement of preferred stock ... (74,362) --- --- (74,362)
Partnership distributions........ --- (2,660,000) (642,497) (3,302,497)
Preferred stock dividends........ (484,610) --- --- (464,063)(2) (948,673)
---------- ---------- -------- -------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING.................. (519,228) 464,779 (642,497) (606,892)
---------- ---------- -------- ----------
Net increase (decrease)
in cash.......................... (224,562) 344,101 --- 119,539
Cash at beginning of year........... 613,450 161,396 --- 774,846
---------- ---------- -------- -------- ----------
Cash at end of year................. $ 388,888 505,497 --- --- $ 894,385
========== ========== ======== ======== ==========
</TABLE>
-38-
<PAGE> 40
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
(A) BASIS OF PRESENTATION. The unaudited pro forma condensed financial
information reflects the contribution to New Goodrich of the oil and gas
properties and related assets of La/Cal II and net working interests of selected
owners of the Smyth 35-1, Hebert #1 and Warminster #1 wells, in exchange for
cash, preferred stock and the assumption of La/Cal II debt by New Goodrich using
the purchase method of accounting. Additionally the pro forma statement of
operations and cash flows for the year ended December 31, 1995 reflects the pro
forma effect of the August 15, 1995 business combination of La/Cal Energy
Partners, Patrick Petroleum Company and the Company.
(B) SEPTEMBER 30, 1996 BALANCE SHEET PRO FORMA ADJUSTMENTS. The pro
forma adjustments applicable to the September 30, 1996 balance sheet assume the
Transactions took place as of September 30, 1996 and reflect a preliminary
purchase price allocation that will be refined subsequent to the closing of the
Transactions.
(1) This adjustment reflects the issuance of 750,000 shares of
New Goodrich Series B Preferred Stock and the payment of the cash
portion of the purchase price ($2,000,000) plus an added cash portion
due to difference between the current level of La/Cal II debt versus
the balance at September 30, 1996 ($92,375). Also reflected is the
allocation of the purchase price and the elimination of La/Cal II's
partners' deficit.
The purchase price of $17,446,696 was determined based on the following
values:
<TABLE>
<S> <C>
Cash portion - stated $ 2,000,000
Added cash portion (post September 30, 1996
debt assumed) 92,375
La/Cal II debt assumed
(outstanding-September 30, 1996) 7,854,321
750,000 shares of New Goodrich
Series B Preferred Stock 7,500,000
-----------
$17,446,696
===========
</TABLE>
The purchase price was preliminarily allocated as follows:
<TABLE>
<CAPTION>
Carrying Allocated Pro Forma
Value Value Adjustment
---------- ---------- ----------
<S> <C> <C> <C>
Current assets $1,027,583 $1,027,583 ---
Net property and equipment 3,959,733 16,464,187 12,504,454
Other assets 266,466 26,466 (240,000)
Liabilities assumed
(excluding debt) (71,540) (71,540) ----
-----------
$17,446,696
===========
</TABLE>
(2) New Goodrich expects to increase its borrowings under its
existing credit facility. It is anticipated that initially $10,500,000
in additional borrowings will be made. The debt matures on June 1,
1998. Substantially all of the proceeds will be used to pay off La/Cal
II's outstanding debt ($7,854,321 at September 30, 1996), fund the cash
and added cash portion of the purchase price and pay the expenses of
the transaction ($400,000).
(3) 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 the
Company's net operating loss carryforwards to offset such deferred tax
liabilities. It is expected that such net operating loss
-39-
<PAGE> 41
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.
(4) A balance sheet as of September 30, 1996 is not presented
for the combined Group A properties as those properties were not
maintained as separate business units and assets and liabilities
applicable to the properties were not quantified or segregated.
(C) YEAR ENDED DECEMBER 31, 1995 STATEMENTS OF OPERATIONS AND CASH
FLOWS--PATRICK HISTORICAL. The amounts presented represent the historical
results of operations and cash flows for Patrick for the period during 1995
prior to the combination of La/Cal and Patrick on August 15, 1995. The amounts
presented are Patrick amounts for the six months ended June 30, 1995. Any
difference between those amounts and those for the period from January 1, 1995
through August 15, 1995 are considered immaterial for pro forma purposes.
During 1995, Patrick sold a portion of its investment in the Penske
Corporation and realized a gain of $1,563,762 on the sale which is included 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, 1995, the following pro forma amounts would have
resulted:
Total revenues................................................ $11,296,796
Income before extraordinary item.............................. 486,895
Loss before extraordinary item applicable to common stock..... (856,787)
Loss before extraordinary item per average common share....... (.03)
(D) YEAR ENDED DECEMBER 31, 1995 STATEMENT OF OPERATIONS PRO FORMA
ADJUSTMENTS--LA/CAL AND PATRICK BUSINESS COMBINATION. The pro forma adjustments
applicable to the statements of operations assume the combination of La/Cal and
Patrick business combination took place as of January 1, 1995.
(1) the Company follows the successful efforts method of
accounting for oil and gas properties and transactions, whereas Patrick
followed the full cost method. This entry 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.
(2) Reflects adjustment for the reduction in interest
expense due to the repayment of the outstanding indebtedness of
Patrick.
(3) Reflects elimination of Penske dividends received.
(4) To reflect increase in exploration expenses by $180,000
and increase in general and administrative expenses by $100,736 for
such costs capitalized by Patrick under the full cost accounting
method. Under the successful efforts method of accounting such costs
are charged to operations.
(5) Reflects the Company's cost of borrowings at estimated
average rates of approximately 8%. A pro forma adjustment is made to
reflect (i) the lower interest rate to be incurred by the Company
versus that of La/Cal and (ii) the lower level of amortization of
deferred financing costs. For pro forma purposes, for each one-eighth
percentage point change in the interest rate, interest expense would
change by $13,125 per year.
(6) Reflects elimination of expenses of the La/Cal and Patrick
business combination in the amount of $362,000 which was recorded by
Patrick as general and administrative expenses.
-40-
<PAGE> 42
(7) This adjustment reflects the elimination of income taxes
due to the availability of Patrick's net operating loss carryforwards
to offset any financial statement taxable income.
(8) Nonrecurring charges related to the early retirement of
certain long-term debt of Patrick and La/Cal, totaling $502,000 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) YEAR ENDED DECEMBER 31, 1995 AND NINE MONTHS ENDED SEPTEMBER 30,
1996 STATEMENT OF OPERATIONS PRO FORMA ADJUSTMENTS--TRANSACTIONS. The pro forma
adjustments applicable to the statements of operations assume the Transactions
took place as of January 1, 1995. The amounts presented for La/Cal II for the
year ended December 31, 1995 reflect the combined results of operations of
La/Cal II from July 7, 1995 (inception) through December 31, 1995 and of the
properties contributed to La/Cal II for the period from January 1, 1995 through
July 6, 1995.
(1) To adjust depletion, depreciation, and amortization of oil
and gas properties to an amount based on the allocated value of oil and
gas properties acquired.
(2) Additional debt of Company will be at a variable interest
rate which initially is estimated to be 8.5%. For pro forma purposes an
adjustment to interest expense is reflected for the difference between
estimated additional interest expense and La/Cal II's historical
amount. For each one-eighth percentage point change in the interest
rate, interest expense would change by $13,125 per year.
(3) This adjustment reflects the dividends on the 750,000
shares of New Goodrich Series B Preferred Stock at an annual dividend
rate of 8.25%.
(4) A pro forma adjustment for the provision of income taxes
has not been included in either statement of operations due to the
availability of the Company's net operating loss carryforwards to
offset any financial statement taxable income.
(5) the Company's activities prior to the combination of La/Ca
and Patrick were conducted in the form of a partnership and the Company
was established in corporate form on August 15, 1995. Earnings per
share information for the year ended December 31, 1995 has been
presented on a pro forma basis to reflect such information as if the
Company had been operated as a corporation for the entire year.
Combined pro forma earnings (loss) per average common share for the
nine months ended September 30, 1996 and the year ended December 31,
1995 is computed by dividing combined pro forma earnings (loss)
applicable to common stock by the combined pro forma weighted average
shares of common stock outstanding of 41,804,510 and 27,722,543,
respectively. Dual presentation of earnings per share has not been made
due to any conversion of preferred stock being antidilutive.
(F) YEAR ENDED DECEMBER 31, 1995 STATEMENT OF CASH FLOWS PRO
FORMA ADJUSTMENTS - LA/CAL AND PATRICK BUSINESS COMBINATION.
(1) Adjustments to cash provided by operating activities
related to the business combination of La/Cal and Patrick are as
follows:
General and administrative - capital expenditures $(100,736)
General and administrative - business combination
costs 362,000
Interest expense 598,419
---------
$ 859,683
The adjustments related to general and administrative for capital
expenditures and business combination costs have been reflected as
adjustments to investing activities.
-41-
<PAGE> 43
To the extent cash flow from operations is increased due to less
interest expense, more cash would have been available for debt service.
Accordingly, $598,419 is reflected as an adjustment to principal
payments of debt.
(2) Reflects elimination of cash dividends related to an
investment redeemed in the business combination transaction. To the
extent cash flow from investing activities is decreased due to less
dividends received, less cash would have been available to service
debt. Accordingly, $102,273 is reflected as an adjustment to principal
payments of debt.
(G) YEAR ENDED DECEMBER 31, 1995 AND NINE MONTHS SEPTEMBER 30, 1996
STATEMENTS OF CASH FLOWS PRO FORMA ADJUSTMENTS--TRANSACTIONS. The statements of
cash flows for the year ended December 31, 1995 and nine months ended September
30, 1996 do not include amounts for investing or financing activities or
operating activities other than revenues in excess of operating expenses
(presented as net income) for the Group A properties as those properties were
not maintained as separate business units and such information applicable to the
properties was not quantified or segregated.
The amounts presented for La/Cal II for the year ended December 31,
1995 reflect the combined results of operations of La/Cal II from July 7, 1995
(inception) through December 31, 1995 and of the properties contributed to
La/Cal II for the period from January 1, 1995 through July 6, 1995. The amounts
included for the period from January 1, 1995 through July 6, 1995 do not include
amounts for investing or financing activities or operating activities other than
revenues in excess of operating expenses (presented as net income) as those
properties were not maintained as separate business units and such information
applicable to the properties was not quantified or segregated.
(1) Adjustments to cash provided by operating activities
related to the Transactions are as follows:
<TABLE>
<CAPTION>
Nine Months Year Ended
Ended September 30, December 31,
1996 1995
------------------- ------------
<S> <C> <C>
Interest expense $(90,054) $(631,001)
</TABLE>
To the extent cash flow from operations is decreased due to additional
interest expense, less cash would have been available for debt service.
Accordingly, the amounts above are reflected as adjustments to
principal payments of debt.
(2) To reflect the increase in preferred stock dividends
related to New Goodrich's Series B Preferred Stock. To the extent cash
flow from financing activities is decreased due to increased preferred
stock dividends, less cash would have been available for debt service.
Accordingly, $618,750 for the year ended December 31, 1995 and $464,063
for the nine months ended September 30, 1996 are reflected as
adjustments to principal payments of debt.
(H) PRO FORMA BOOK VALUE PER SHARE. Pro forma book value applicable to
common stock per share is computed by reducing total stockholders' equity by the
liquidation preference applicable to any issuances of preferred stock (the
Company - $8,011,490; Combined Pro Forma - $15,511,490), divided by common
shares outstanding. Book value per unit for La/Cal II was not computed since
La/Cal II is not structured on a unit basis.
(I) PRO FORMA RESERVE INFORMATION. The following tables set forth an
analysis of New Goodrich's combined 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, 1995.
Combined pro forma reserve information is comprised of the combination
of reserve information as of January 1, 1995 for the Company, Patrick, La/Cal II
and the Group A Properties, as of December 31, 1995 for the
-42-
<PAGE> 44
Company, La/Cal II and the Group A Properties. Reserve information for the
Company as of December 31, 1995 was compiled based on evaluations performed by
several independent reserve engineers as well as internally by the Company.
Reserves were evaluated by independent reserve engineers as of March 1, 1995 and
November 30, 1995 with respect to La/Cal II and July 1, 1996 with respect to the
Group A Properties. Estimated reserve information as of January 1, 1995,
December 31, 1995 and for the year ended December 31, 1995 for La/Cal II and the
Group A Properties were estimated by the entities based on those evaluations.
<TABLE>
<CAPTION>
NATURAL GAS
OIL (BBL) (MCF)
--------- ----------
<S> <C> <C>
Proved reserves as of January 1, 1995 3,080,000 34,096,000
Revisions of previous estimates (244,000) (7,140,000)
Sales of minerals in place (186,000) (855,000)
Extensions and discoveries 40,000 734,000
Production (242,000) (2,925,000)
--------- -----------
Proved reserves as of December 31, 1995 2,448,000 23,910,000
========= ==========
Proved developed reserves
as of January 1, 1995. 2,694,000 26,230,000
as of December 31, 1995 2,309,000 18,719,000
</TABLE>
-43-
<PAGE> 45
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, 1995
-----------------
<S> <C>
Future cash flows $ 87,786,000
Future production, development and abandonment costs (13,461,000)
Income tax provision * (8,998,000)
-----------
Future net cash flows 65,327,000
10% annual discount (23,625,000)
------------
Standardized measure of discounted future net cash
flows $ 41,702,000
=============
</TABLE>
<TABLE>
<CAPTION>
CHANGES IN
STANDARDIZED MEASURE
TWELVE MONTHS ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Standardized measure at beginning of year $ 47,636,000
Revisions, extensions and discoveries (5,302,000)
Sales and transfers of oil and gas produced, net
of production costs (8,026,000)
Changes in price, net of future production costs 3,950,000
Development costs incurred during the period 2,722,000
Sales of minerals in place (3,942,000)
Net change in income taxes * (34,000)
Accretion of discount 4,067,000
Changes in production rates (timing) and other 631,000
------------
Standardized measure at end of year $ 41,702,000
============
</TABLE>
* Standard measure income taxes have been computed considering the
Company's net operating loss carryforwards and any limitation thereon.
-44-
<PAGE> 46
MARKET FOR GOODRICH PETROLEUM CORPORATION'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange.
At October 30, 1996, the number of holders of record of the Company's
common stock was approximately 3,900 with 41,804,510 shares outstanding. High
and low sales prices for the Company's common stock for each quarter during the
calendar years 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996
-------------
QUARTER ENDED HIGH LOW
------------- ---- ---
<S> <C> <C>
March 31......................................... 1 1/8 13/16
June 30.......................................... 1 1/8 13/16
September 30..................................... 13/16 5/8
December 31 (through November 6)................. 3/4 11/16
1995
-------------
QUARTER ENDED HIGH LOW
------------- ---- ---
March 31......................................... N/A N/A
June 30.......................................... N/A N/A
September 30..................................... 1 3/8 15/16
December 31...................................... 1 1/4 3/4
1994
-------------
QUARTER ENDED HIGH LOW
------------- ---- ---
March 31......................................... N/A N/A
June 30.......................................... N/A N/A
September 30..................................... N/A N/A
December 31...................................... N/A N/A
</TABLE>
Prices from periods prior to the business combination (August 15, 1995)
are not applicable due to La/Cal being a privately held partnership.
The Company has not paid a cash dividend on its Common Stock and does
not intend to pay such a dividend in the foreseeable future.
-45-
<PAGE> 47
DESCRIPTION OF THE LA/CAL II AND GROUP A PROPERTIES
OVERVIEW
La/Cal II is an independent oil and gas partnership engaged in the
development and production of, and the exploration for, natural gas and oil
primarily in southern Louisiana and eastern Texas. As of July 1, 1996, La/Cal II
had estimated proved reserves of approximately 1,693.06 Mbbls of oil and
condensate and 2.71 Bcf of natural gas, or an aggregate of 12.87 Bcfe with a
present value of future net revenues, discounted at 10%, of $20.05 million, of
which approximately 93.1% are classified as proved developed. The Group A
Properties are a combination of working interests in three different wells that
are not combined as a separate legal entity, but for the purpose of this
document have been aggregated because of commonality of ownership. The Group A
Properties as of July 1, 1996 had estimated proved reserves of approximately
24.99 Mbbls of oil and condensate and 1.21 Bcf of natural gas, or an aggregate
of 1.36 Bcfe with a present value of future net revenues, discounted at 10%, of
$2.62 million, of which 100% is classified as proved developed. As of July 1,
1996, La/Cal II and the Group A Properties have a total estimated 14.23 Bcfe
with a present value of future net revenues, discounted at 10%, of $22.67
million.
La/Cal II owns working interests in 11 wells in four fields in southern
Louisiana and eastern Texas. La/Cal II was formed in July 1995 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 II. La/Cal II has 28 general partners and is managed by the
Management Committee, which consists of Messrs. Henry Goodrich, Gil Goodrich and
Leo E. Bromberg. La/Cal II does not have any employees, and Goodrich Oil Company
oversees and manages the interests of La/Cal II, as it does for other
joint-interest investments, by acquiring and developing oil and gas properties
in a cost effective manner. Cash generated from La/Cal II's oil and gas
operations is distributed to the Partners from time to time, rather than being
reinvested in additional drilling opportunities. The Group A Properties comprise
working interests in three wells in three fields in southern Louisiana and
eastern Texas. The Group A Properties are also being operated by Goodrich Oil
Company. The net cash generated is distributed monthly to the individual Working
Interest Owners.
DESCRIPTION OF THE SOUTHERN LOUISIANA AND EASTERN TEXAS PRODUCING REGIONS
All of La/Cal II and Group A proved reserves are either in the southern
Louisiana or eastern Texas producing region. The southern Louisiana producing
region refers to the geographic area which covers the onshore and in-land waters
of southern Louisiana lying in the southern one-half of the state of Louisiana.
The eastern Texas producing region refers to the geographic area which includes
district five and six of the Texas Railroad Commission, located in the eastern
portion of the State of Texas.
The southern 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
permeability. 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 southern 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 II's and Group A
Properties' southern Louisiana production comes predominately from Miocene and
Frio-age formations.
The most prolific oil field in the continental United States was
discovered in the 1930's in the east Texas producing region. This was the east
Texas oilfield in Upshur, Gregg, Rusk, Smith, and Cherokee Counties. The East
Texas area includes two geologic features, the East Texas Basin and the Sabine
Uplift. This area has been explored for more than seventy years and still has
significant activity today. The formations found in East Texas producing region
range in depth from 2,500 feet to 13,000 feet below the surface. This area
produces both oil and gas with the Woodbine and Paluxy Sandstones (Upper
Cretaceous System) being the major oil producers. Carthage Field is a large gas
field
-46-
<PAGE> 48
in Panola County that produces from the Pettit Lime, Travis Peak sandstones, and
Cotton Valley sandstones all in the Lower Cretaceous System.
LA/CAL II PROPERTIES
Second Bayou Field. The Second Bayou field was discovered in 1955 by
the Sun Texas Company. Currently the other major operators in the field are Fina
Oil and Chemical Company and Texaco Producing Company. La/Cal II has a working
interest in approximately 1,395 gross acres in the field which is located in
Cameron Parish, Louisiana. To date, the field has produced approximately 420 Bcf
of natural gas and 2 million barrels of oil/condensate from multiple Miocene
aged sands ranging from 4,000 to 15,200 feet.
Mary Blevins Field. The Mary Blevins field was a new discovery fault
separated from Hitts Lake field which was discovered in 1953 by Sun Oil.
Currently there are three producing wells in this fault block with La/Cal II
having a working interest in approximately 782 gross acres in the field which is
located in Smith County, Texas. To date Hitts Lake has produced over 14 million
barrels of oil and Mary Blevins has produced over 183,000 barrels of oil from
the Paluxy which occurs at a depth of approximately 7,300 feet.
Kings Ridge Field. The Kings Ridge field was discovered in 1957 and the
major operators were Fina Oil and Chemical Company and Pennzoil Producing
Company. Production is from multiple Miocene aged sands, which range in depth
from 9,600 to 13,200 feet with current production from the 9,900' sand. The
field is located in Lafouche Parish, Louisiana and has produced approximately 82
Bcf of natural gas and 2 million barrels of condensate/oil. La/Cal II has a
working interest in the current geological unit of 435 gross acres.
Deep Lake Field. The Deep Lake field was discovered by the Superior Oil
Company in 1952. La/Cal II has a working interest in approximately 725 acres in
the field which is located in Cameron Parish, Louisiana. The field produces from
multiple Miocene sands ranging in depth from 6,700 to 16,000 feet. To date the
field has produced approximately 1 Tcf of natural gas and 4,700,000 barrels of
condensate/oil. Major operators in the field include Mobil Oil Exploration and
Production and Pennzoil Production Company.
GROUP A PROPERTIES
Mosquito Bay Field. The Mosquito Bay field was discovered in 1961 by
Forest Oil Company. Group A has a working interest in a producing geological
unit of 227 acres in the field which is located in Terrebonne Parish, Louisiana.
The field produces from multiple Miocene sands ranging in depth from 7,800 to
13,100 feet. To date the field has produced approximately 16 Bcf and 200,000
barrels of condensate/oil. Currently, Apache Corporation is the largest operator
in the field.
Jacksonville Field. The Jacksonville field was discovered in 1994 by
Goodrich Oil Company. Group A has a working interest in 753 acres in the field
which is located in Cherokee County, Texas. The field produces from the Woodbine
at a depth of approximately 5,000 feet. To date the field has produced
approximately 39,000 barrels of oil.
Currently Goodrich Oil Company is the only operator in the field.
Opelousas/Northcott Field. The Opelousas/Northcott field was discovered
in 1960 by Magnolia Petroleum Company. Group A has a working interest in 1,023
acres in the field which is located in St. Landry Parish, Louisiana. The field
produces from Sparta, Cockfield and Frio sands ranging in depth of 8,000 to
12,000 feet. To date the field has produced approximately 200 Bcf.
OIL AND NATURAL GAS RESERVES
The following table sets forth summary information with respect to
La/Cal II's proved reserves in all fields as of July 1, 1996, as estimated by
Coutret & Associates, Inc., independent petroleum engineers ("Coutret").
-47-
<PAGE> 49
<TABLE>
<CAPTION>
PRE-TAX PRESENT
OIL NET RESERVES VALUE OF FUTURE
CATEGORY (MBBLS) (BCF) BCFE(1) NET REVENUE
-------- -------- ------------ ------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Proved Developed Producing....................... 1,173.67 1.93 8.97 $15.81
Proved Developed Non-Producing................... 410.29 .39 2.85 2.85
Proved Undeveloped............................... 109.10 .39 1.05 1.39
-------- ---- ----- ------
Total Proved............................ 1,693.06 2.71 12.87 $20.05
======== ==== ===== ======
</TABLE>
(1) Estimated using a conversion ratio of 1.0 Bbl/6.0 Mcf.
The following table sets forth summary information with respect to the
Group A Properties proved reserves in all fields as of July 1, 1996, as
estimated by Coutret.
<TABLE>
<CAPTION>
PRE-TAX PRESENT
OIL NET RESERVES VALUE OF FUTURE
CATEGORY (MBBLS) BAS (BCF) BCFE(1) NET REVENUE
-------- ------- ------------ ------- ----------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Proved Developed Producing.......................
Mosquito Bay Field.......................... -- .93 .93 $1.71
Jacksonville Field.......................... 22.22 -- .13 .25
Opelousas/Northcutt......................... 2.77 .28 .30 .66
Proved Developed Non-Producing................... -- -- -- --
Proved Undeveloped............................... -- -- -- --
----- ---- ---- -----
Total Proved............................ 24.99 1.21 1.36 $2.62
===== ==== ==== =====
</TABLE>
(1) Estimated 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 II
and the Working Interest Owners. 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 estimated oil and natural gas reserves
attributable to La/Cal II and Group A Properties.
In accordance with the Commission's guidelines, the engineers'
estimates of future net revenues from La/Cal II and Group A 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 escalation. The average prices as of July 1, 1996 were $19.44 per Bbl of
crude oil/condensate and $2.78 per Mcf of natural gas. 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.
-48-
<PAGE> 50
PRODUCTIVE WELLS
The following table sets forth the number of well bores in which La/Cal
II maintains ownership interests as of September 30, 1996:
<TABLE>
<CAPTION>
GROSS NET
----- ----
<S> <C> <C>
Second Bayou
Oil................................... 5.00 1.55
Mary Blevins
Oil................................... 3.00 1.56
Kings Ridge
Oil .................................. 1.00 .41
Deep Lake
Gas................................... 1.00 .44
---- ---
Total Productive Wells........... 10.00 3.96
===== ====
</TABLE>
Currently the wells at Second Bayou and the well at Kings Ridge produce
gas along with oil whereas the Mary Blevins wells produce oil and the Deep Lake
well produces only gas and condensate. Productive wells consist of producing
wells and wells capable of production, including gas and oil wells awaiting
pipeline connections. A gross well is a well in which La/Cal II maintains an
ownership interest, while a net well is deemed to exist when the sum of the
fractional working interests owned by La/Cal II equals one. Wells that are
completed in more than one producing horizon are counted as one well. Of the
gross wells reported in the above fields four have multiple completions.
The following table sets forth the number of well bores in which the
Working Interest Owners maintain ownership interests as of September 30, 1996:
<TABLE>
<CAPTION>
GROSS NET
----- ----
<S> <C> <C>
Mosquito Bay
Gas................................... 1.00 .46
Jacksonville
Oil................................... 1.00 .47
Opelousas/Northcott
Gas................................... 1.00 .53
Total Productive Wells........... 3.00 1.46
==== ====
</TABLE>
Currently the wells at Mosquito Bay and Opelousas/Northcott produce
only gas and condensate, whereas the Jacksonville well produces only oil.
Productive wells consist of producing wells and wells capable of production,
including gas and oil wells awaiting pipeline connections. A gross well is a
well in which Group A maintains an ownership interest, while a net well is
deemed to exist when the sum of the fractional working interests owned by Group
A equals one. Wells that are completed in more than one producing horizon are
counted as one well. Of the gross wells reported in the above fields none have
multiple completions.
ACREAGE
The following table summarizes La/Cal II's gross and net developed
natural gas and oil acreage under lease as of September 30, 1996 in Second
Bayou, Mary Blevins, Kings Ridge and Deep Lake fields.
-49-
<PAGE> 51
<TABLE>
GROSS NET
-------- ---------
<S> <C> <C>
Developed acreage
Second Bayou 1,394.69 435.35
Mary Blevins 781.68 407.27
Kings Ridge 435.02 176.80
Deep Lake 725.18 320.81
Undeveloped acreage 0.00 0.00
-------- ---------
Total 3,336.57 1,340.23
======== =========
</TABLE>
The following table summarizes the Working Interest Owners' gross and net
developed natural gas and oil acreage under lease as of September 30, 1996 in
Mosquito Bay, Jacksonville and Opelousas/Northcott.
<TABLE>
GROSS NET
-------- -------
<S> <C> <C>
Developed acreage
Mosquito Bay 227.29 105.76
Jacksonville 753.15 361.11
Opelousas/Northcott 1,022.86 537.87
Undeveloped acreage 0.00 0.00
-------- --------
Total 2,003.30 1,004.74
======== ========
</TABLE>
WELL COMPLETIONS AND INTERESTS OWNED BY LA/CAL II
The following table sets forth La/Cal II's approximate working interest
and net revenue interests in its wells and well completions:
Second Bayou
<TABLE>
<CAPTION>
NET
YEAR WORKING REVENUE
WELL NAME DRILLED INTEREST INTEREST
--------- ------- -------- --------
<S> <C> <C> <C>
Miami Fee #1 & #1D ......................... 1993 28.96% 20.64%
Miami Fee #3 & #3D.......................... 1995 28.96% 20.64%
Miami Fee #4 (1)............................ 1995 45.67% 30.37%
Miami Fee #5 & #5D (1)...................... 1996 45.67% 30.37%
Miami Fee #6 & #6D (1)...................... 1996 45.67% 30.37%
</TABLE>
Mary Blevins
<TABLE>
<CAPTION>
NET
YEAR WORKING REVENUE
WELL NAME DRILLED INTEREST INTEREST
--------- ------- -------- --------
<S> <C> <C> <C>
Holder #1................................... 1994 48.35% 38.28%
Droke #1.................................... 1995 48.35% 37.32%
Droke A #1.................................. 1995 48.35% 36.75%
</TABLE>
-50-
<PAGE> 52
Kings Ridge
<TABLE>
<CAPTION>
NET
YEAR WORKING REVENUE
WELL NAME DRILLED INTEREST INTEREST
--------- ------- -------- --------
<S> <C> <C> <C>
State Lease 7501 #2......................... 1993 35.49% 23.60%
</TABLE>
Deep Lake
<TABLE>
<CAPTION>
NET
YEAR WORKING REVENUE
WELL NAME DRILLED INTEREST INTEREST
--------- ------- -------- --------
<S> <C> <C> <C>
WELL NAME
State Lease 2038 #2......................... 1994 41.85% 31.80%
</TABLE>
- ----------------------------------
(1) These are the current before payout interests which, if the party that
farmed out elects to back in, will change to 28.96% working interest and 20.64%
net revenue interest on the Miami Fee #4, #5, #5D, #6, and #6D.
In the foregoing tables, wells that are completed in more than one producing
horizon, which include the Second Bayou field wells Miami Fee #1, #1D, #3, #3D,
#5, #5D, #6, and #6D, are each counted as one well. The information in the
foregoing tables is rounded off to the nearest one-hundredth of one percent.
WELL COMPLETIONS AND INTERESTS OWNED BY THE WORKING INTEREST OWNERS
The following table sets forth the Working Interest Owners'
approximate working interests and net revenue interests in its wells and well
completions:
Mosquito Bay
<TABLE>
<CAPTION>
NET
YEAR WORKING REVENUE
WELL NAME DRILLED INTEREST INTEREST
--------- ------- -------- --------
<S> <C> <C> <C>
Smyth #35-1 ST ............................ 1995 47.09% 32.96%
Jacksonville
WELL NAME
---------
Warminster #1............................... 1995 44.19% 37.46%
Opelousas/Northcott
WELL NAME
---------
Hebert #1................................... 1995 52.59% 37.86%
</TABLE>
In the foregoing tables none of the wells are dually completed. The information
in the foregoing tables is rounded off to the nearest one-hundredth of one
percent.
OPERATOR ACTIVITIES
La/Cal II and the Working Interest Owners do not operate any wells in
which they maintain an ownership interest. Currently, Goodrich Oil Company is
the operator of record of every producing well.
-51-
<PAGE> 53
DRILLING ACTIVITIES
La/Cal II. La/Cal II participates in an active drilling program
conducted by Goodrich Oil Company on the natural gas and oil properties in which
La/Cal II maintains ownership interests. The following table sets forth the
drilling activity of Goodrich Oil Company in properties in which La/Cal II has a
working interest.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1994 1995(1)
---- ---- -------
GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Development Wells:
Productive................. 1.0 .41 2.0 .84 4.0 1.7
Non-Productive............. 0.0 .00 1.0 .52 0.0 0.0
--- --- --- --- --- ---
Total................ 1.0 .41 3.0 1.36 4.0 1.7
=== === === ==== === ===
Exploratory Wells:
Productive................. 1.0 .31 1.0 .52 0.0 0.0
Non-Productive............. 0.0 .00 0.0 .00 0.0 0.0
--- --- --- --- --- ---
Total................ 1.0 .31 1.0 .52 0.0 0.0
=== === === === === ===
Total Wells:
Productive................. 2.0 .72 3.0 1.36 4.0 1.7
Non-Productive............. 0.0 .00 1.0 .52 0.0 0.0
--- --- --- -- --- ---
Total................ 2.0 .72 4.0 1.88 4.0 1.7
=== === === ==== === ===
- -----------
</TABLE>
(1) La/Cal II was formed in July 1995.
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 September 30, 1996 La/Cal II was engaged in drilling activities in 2
productive development wells with a "net" well interest of .62 and 1
non-productive development well with a "net" well interest of .31.
Group A Properties. The Working Interest Owners participate in a
drilling program conducted by Goodrich Oil Company on the natural gas and oil
properties in which the Working Interest Owners maintain an ownership interest.
The following table sets forth the drilling activity of Goodrich Oil Company in
properties in which the Working Interest Owners have a working interest.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1994 1995(1)
---- ---- -------
GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Development Wells:
Productive................. 0.0 .00 0.0 .00 2.0 1.0
Non-Productive............. 0.0 .00 0.0 .00 0.0 0.0
--- --- --- --- --- ---
Total................ 0.0 .00 0.0 .00 2.0 1.0
=== === === === === ===
Exploratory Wells:
Productive................. 0.0 .00 0.0 .00 1.0 0.5
Non-Productive............. 0.0 .00 0.0 .00 0.0 0.0
--- --- --- --- --- ---
Total................ 0.0 .00 0.0 .00 1.0 0.5
=== === === === === ===
</TABLE>
-52-
<PAGE> 54
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Total Wells:
Productive................. 0.0 .00 0.0 .00 3.0 1.5
Non-Productive............. 0.0 .00 0.0 .00 0.0 0.0
--- --- --- --- --- ---
Total................ 0.0 .00 0.0 .00 3.0 1.5
=== === === === === ===
</TABLE>
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 September 30, 1996 the Working Interest Owners were not engaged
in any drilling activities.
NET PRODUCTION, UNIT PRICES AND COSTS
Partnership. The following table presents certain information with
respect to oil, gas and condensate production attributable to La/Cal II'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 nine months ended September 30, 1996 and years ended December 31,
1995, 1994 and 1993.
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED DECEMBER 31,
ENDED SEPTEMBER 30, --------------------------------------------
1996 1995 1994(1) 1993(1)
------------------ ------- ------- -------
<S> <C> <C> <C> <C>
Net Production:
Natural gas (Mcf)........................ 358,755 473,539 175,872 11,941
Oil (Bbls)............................... 76,104 54,568 48,138 4,007
Natural gas equivalents (Mcfe)............ 815,379 800,947 464,700 35,983
</TABLE>
<TABLE>
NINE MONTHS YEAR ENDED DECEMBER 31,
ENDED SEPTEMBER 30, --------------------------------------------
1996 1995 1994(1) 1993(1)
------------------- ------- ------- -------
<S> <C> <C> <C> <C>
Average Net Daily Production:
Natural gas (Mcf) 1,314 1,297 482 33
Oil (Bbls) 279 150 132 11
Natural gas equivalents (Mcfe) 2,988 2,194 1,271 99
Average Sales Price Per Unit:
Natural gas (per Mcf) $ 2.54 1.72 1.75 1.78
Oil (per Bbl) $19.44 16.63 15.57 13.10
Other Data
Lease operating expense (per Mcfe) $ .26 .18 .23 .19
Depreciation, depletion and
amortization (per Mcfe) $ .35 .24 --- ---
- ------------
</TABLE>
(1) La/Cal II ownership interest applied to pre-Partnership production.
Group A Properties. The following table presents certain information
with respect to oil, gas and condensate production attributable to the Group A
Properties 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 nine months ended September 30, 1996 and years ended December 31,
1995, 1994 and 1993.
-53-
<PAGE> 55
<TABLE>
<CAPTION>
NINE MONTHS
EMDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, -----------------------------------------
1996 1995 1994 1993
------------- -------- ------ ------
<S> <C> <C> <C> <C>
Net Production:
Natural gas (Mcf)........................ 216,000 9,905 -- --
Oil (Bbls)............................... 7,892 9,122 -- --
Natural gas equivalents (Mcfe)........... 263,352 64,637 -- --
Average Net Daily Production:
Natural gas (Mcf)........................ 791 27 -- --
Oil (Bbls) .............................. 29 25 -- --
Natural gas equivalents (Mcfe)........... 9,651 177 -- --
Average Sales Price Per Unit:
Natural gas (per Mcf).................... $ 2.69 2.51 -- --
Oil (per Bbl)............................ $ 19.88 7.45 -- --
Other Data
Lease operating expense (per Mcfe)..... $ .27 .41 -- --
</TABLE>
MARKETING
La/Cal II and the Working Interest Owners do not determine the
marketing activities relating to its production because neither operate their
existing properties. Goodrich Oil Company, the current operator of the
properties, sells La/Cal II and Group A Properties' production as provided for
in the applicable operating agreement for each property. Goodrich Oil Company or
its agent sells La/Cal II's and Group A Properties' production, as well as other
interest owners' production from each property on the spot market and by
entering into marketing arrangements, which are discussed below. Goodrich Oil
Company, as an operator of these properties does not charge for its marketing
activities and the benefits of the marketing, processing, and transportation
arrangements provided by Goodrich Oil Company are passed directly to La/Cal II
and the Working Interest Owners. These spot sales are arranged by Seaber
Corporation of Louisiana.
CUSTOMERS
From August 1, 1995 though December 31, 1995, Seaber Corporation of
Louisiana purchased 100% of the gas sales at Second Bayou, Kings Ridge, Deep
Lake and Opelousas Fields. From August 1, 1995 through December 31, 1995, Texaco
Trading and Transportation, Inc. purchased 100% of the oil sales from Second
Bayou Field, Falco S & D, Inc. purchased 100% of the oil sales from Kings Ridge
and Opelousas Fields and EOTT Energy Operating Ltd. Partnership purchased 100%
of the oil sales from Mary Blevins and Jacksonville Fields. From January 1, 1996
through September 30, 1996, Seaber Corporation of Louisiana purchased 100% of
the gas sales at Second Bayou, Kings Ridge, Deep Lake, Mosquito Bay and
Opelousas Fields. From January 1, 1996 through September 30, 1996, Texaco
purchased 100% of the oil sales from Second Bayou Field, Falco S & D purchased
100% of the oil sales from Kings Ridge and Opelousas Fields and EOTT purchased
100% of the oil sales from Mary Blevins and Jacksonville Fields. Based on
current demand for gas and oil La/Cal II and the Working Interest Owners do not
believe the loss of these purchasers would have a material adverse effect on
La/Cal II or the Group A Properties.
TITLE TO PROPERTIES
As is customary in the natural gas and oil industry, La/Cal II and the
Working Interest Owners make 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
-54-
<PAGE> 56
opinions or other investigations reflect title defects, La/Cal II and the
Working Interest Owners , rather than the seller of the undeveloped property, is
typically responsible to cure any such title defects at its expense. If La/Cal
II or the Working Interest Owners 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 II or the Working Interest Owners could suffer a loss of
their entire investment in the property. La/Cal II and the Working Interest
Owners or their 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 II's and the Working Interest Owners's natural gas and oil
properties are subject to customary royalty interests, liens for current taxes
and other burdens that La/Cal II and the Working Interest Owners believes do not
materially interfere with the use of or affect the value of such properties.
OPERATIONAL RISKS AND INSURANCE
La/Cal II's and the Group A Properties' 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, La/Cal II and the Working Interest Owners 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 La/Cal II's and the
Working Interest Owners' properties.
La/Cal II and the Working Interest Owners are covered under various
types of insurance policies with the minimum being a $1 million general
liability policy and $5 million umbrella policy. La/Cal II and the Working
Interest Owners are 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 II's and the Working Interest Owners' 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 II's and the Group A Properties' financial condition
and results of operation. Moreover, there can be no assurance that La/Cal II's
and the Working Interest Owners' insurance coverage will be adequate to cover
any losses or exposure to liability or that La/Cal II and the Working Interest
Owners will be able to maintain adequate insurance coverage in the future at
rates it considers reasonable.
LEGAL PROCEEDINGS
La/Cal II and the Working Interest Owners are 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 II's properties or financial condition.
EMPLOYEES
La/Cal II and the Working Interest Owners do 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 II and Group A Properties do not own or lease any office
facilities.
-55-
<PAGE> 57
BUSINESS AND PROPERTIES OF GOODRICH PETROLEUM CORPORATION
GENERAL
Goodrich Petroleum Corporation and subsidiaries ("the Company") is an
independent oil and gas company engaged in the exploration, development,
production and acquisition of oil and natural gas in the onshore portions of the
United States, primarily the states of Louisiana and Texas. In addition to its
oil and gas activities, the Company owns a 20% non-operated interest in a
natural gas pipeline joint venture and an equity interest in Marcum Natural Gas
Services (Marcum), a publicly held diversified provider of products and services
to the natural gas industry.
The Company and its subsidiaries are the result of a business
combination on August 15, 1995 between La/Cal Energy Partners (La/Cal) and
Patrick Petroleum Company and subsidiaries (Patrick). La/Cal was a privately
held independent oil and gas partnership formed in July 1993 and engaged in the
development, production and acquisition of, oil and natural gas primarily in
Southern Louisiana. Patrick was a publicly traded 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.
Patrick's oil and gas operations and properties were primarily located in West
Texas and Michigan at the time of the combination, with additional operations
and properties in certain western states.
The combination transactions were accounted for as a purchase business
combination in accordance with Accounting Principles Board Opinion No 16,
Business Combinations whereby La/Cal was deemed to be the acquiror and Patrick
the acquiree. Accordingly, the consolidated financial statements and other
operating data presented herein reflect the operations of La/Cal on a stand
alone basis for periods prior to August 15, 1995, whereas such information
reflects the operations of the combined entities for periods subsequent to
August 15, 1995.
The Company's principal executive offices are located at 5847 San
Felipe, Suite 700 Houston, Texas 77057 and its telephone number at such offices
is (713) 780-9494. The Company also has offices in Shreveport, Louisiana.
At September 30, 1996 the Company had 11 employees.
OIL AND GAS OPERATIONS AND PROPERTIES
At December 31, 1995, the Company had estimated proved reserves of
approximately 940.15 Mbbls of oil and condensate and 18.88 Bcf of natural gas,
or an aggregate of 24.52 Bcfe with a pre-tax present value of future net
revenues, discounted at 10% of $30.4 million, of which approximately 85% are
classified as proved developed.
The Company owns working and overriding royalty interests in 73 oil and
gas wells located in 37 active fields in 9 states as of September 30, 1996.
Louisiana. Substantially all of the Company's proved natural gas
reserves are in the Southern Louisiana producing region. The Southern Louisiana
producing region 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. The Company's
production comes predominately from Miocene and Frio age formations.
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<PAGE> 58
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 has
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. The field has produced in excess of 343 Bcf of
gas and 590,000 barrels of condensate. All the field production to date has come
from reservoirs which are of normal pressure.
In May 1992, La/Cal entered the Pecan Lake field under a farmout
arrangement with Mobil, whereby Mobil retained 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)
a 2.26% overriding royalty interest in Mobil's Cutler #1 wells for approximately
$2.11 million. Pecan Lake consists of seven well completions through six well
bores. The Company's working interests range from approximately 43.11% to
47.38%. The Company's average daily production at Pecan Lake was 37.02 Bbls of
oil and/or condensate and 3.14 Mmcf of natural gas during 1995. As of January 1,
1996, the Company's interests in the Pecan Lake field had proved reserves of
104.66 Mbbls of oil and condensate and 9.97 Bcf of natural gas.
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
three 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 7,500 feet to 9,100
feet. The field has produced from reservoirs which have had both waterdrive and
pressure depletion mechanisms. The Lake Charles field has produced, in excess of
17.3 Bcf of gas and 366,000 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, the Company owns working interests that range from 29.24% to 50.00%
in the five producing wells in the Lake Charles field. The Company's average
total daily production at the Lake Charles field was 36.06 Bbls of oil and
condensate and 2.11 Mmcf of natural gas during 1995. As of January 1, 1996, the
Company's interest in the Lake Charles field had proved developed reserves of
149.96 Mbbls of oil and 2.08 Bcf of natural gas.
Other. The Company 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,
and (iii) Calhoun field, located in Ouachita Parish, Louisiana.
Texas. The Company has oil and gas properties in West Texas as a
result of former Patrick holdings and operations.
Patrick's primary exploration focus in this area was 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 participated in over 375
squares miles of 3-D seismic acquisition in West Texas, and drilled
Pennsylvanian ("Penn") Reef and Fusselman prospects generated by this
technology. The Company owns two Geoquest work stations, which are being
utilized to interpret and map its 3-D data.
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<PAGE> 59
The Company's most significant West Texas producing properties are
located in Sean Andrew Field, Dawson County, Texas. The Company's average net
daily production at Sean Andrew Field was 419.10 Bbls of oil and .18 Mmcf of
natural gas from August 15, 1995 through December 31, 1995. The Sean Andrew
Field has produced in excess of 325,000 Bbls of oil and .12 Bcf of gas gross to
the working interest owners.
In addition to the West Texas interests, the Company maintains
ownership interests in acreage and wells in several additional fields including
the (i) North Rich Ranch field, located in Liberty County, Texas, (ii) North
Bammel field, located in Harris County, Texas, (iii) Carthage (Bethany) field,
located in Panola County, Texas and (iv) Oakhurst field, located in San Jacinto
County, Texas.
Oil and Natural Gas Reserves. The following table sets forth summary
information with respect to the Company's proved reserves as of January 1, 1996,
as estimated by the Company by compiling the reserve information prepared by
several engineering firms and the Company internally.
<TABLE>
<CAPTION>
Present
Value of
Net Reserves Future
Oil Gas Net
Category (Mbbls) (Bcf) Bcfe (1) Revenues
-------- ------- ----- -------- --------
(in millions)
<S> <C> <C> <C> <C>
Proved Developed Producing (Pre-tax)...... 725.06 10.27 14.62 $21.67
Proved Developed Non-Producing (Pre-tax) 195.50 3.54 4.71 4.03
Proved Undeveloped (Pre-tax).............. 19.59 5.07 5.19 4.66
----- ---- ---- ----
Total Proved (Pre-tax)................. 940.15 18.88 24.52 $30.36
====== ===== ===== =====
Standardized measure of discounted future
net cash flows......................... $26.88
=====
</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 the
Company. 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 estimated oil and natural gas reserves attributable to the
Company's properties.
In accordance with the Commission's guidelines, the engineers'
estimates of future net revenues from the Company'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 weighted average prices as of December 31, 1995 used in
such estimates were $2.01 per Mcf of natural gas and 17.90 per Bbl of crude
oil/condensate.
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<PAGE> 60
Productive Wells. The following table sets forth the number of active
well bores in which the Company maintains ownership interests as of September
30, 1996:
<TABLE>
<CAPTION>
Gross (1) Net (2)
--------- -------
<S> <C> <C>
Louisiana -Pecan Lake..................... 7.00 3.15
Louisiana -Lake Charles................... 4.00 1.50
Texas - Sean Andrew....................... 7.00 2.62
Other..................................... 45.00 10.61
----- -----
Total Productive Wells........... 63.00 17.88
===== =====
</TABLE>
- ---------------
(1) Does not include royalty or overriding royalty interests.
(2) Net working interest.
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 the Company maintains an ownership interest, while a net well is
deemed to exist when the sum of the fractional working interests owned by the
Company equals one.
Sales. The nine months ended September 30, 1996 had proceeds of
$325,629 from the sale of certain oil and gas properties, substantially all
in North Dakota.
Acreage. The following table summarizes the Company's gross and net
developed and undeveloped natural gas and oil acreage under lease as of December
31, 1995. Acreage in which the Company's interest is limited to royalty or
overriding royalty interest is excluded from the table.
<TABLE>
<CAPTION>
Gross Net
----- ---
<S> <C> <C>
Developed acreage
Louisiana - Pecan Lake Field.............. 870.63 400.10
Louisiana - Lake Charles Field............ 443.00 182.70
Texas - Sean Andrew Field................. 240.00 89.77
Other..................................... 3,557.02 969.31
Undeveloped acreage........................... 12,153.37 3,159.78
--------- --------
Total..................................... 17,264.02 4,801.66
========= ========
</TABLE>
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. As is customary in the oil
and gas industry, the Company can retain its interest 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 the Company has an
interest are for varying primary terms; however, most of the Company's lease
acreage is beyond the primary term and is held by producing natural gas and/or
oil wells.
The Company participated in several farmout agreements with other
owners of natural gas and oil leases and is actively leasing acreage in
Louisiana and Texas.
Operator Activities. Goodrich Petroleum is the operator of record of
every producing well in the Pecan Lake field except the Cutler #1 well. Goodrich
Petroleum 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.
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<PAGE> 61
Goodrich Petroleum operates a majority in value of the Company's
producing properties, and will seek to become the operator of record concerning
properties it drills or acquires in the future.
Drilling Activities. The following table sets forth the drilling
activity of the Company since 1992. This information reflects La/Cal's
operations on a stand alone basis prior to August 15, 1995. (As denoted in the
following 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.)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
----------------------------------------------------------------------- ----------------
1992 1993 1994 1995 1996
------------ ----------------- --------------- --------------- ----------------
GROSS NET GROSS NET GROSS NET GROSS NET GROSS NET
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Development Wells:
Productive.............. 8.0 2.6 2.0 .87 1.0 .43 1.0 .38 1.0 .40
Non-Productive.......... 0.0 0.0 1.0 .08 1.0 .43 0.0 0.00 0.0 .00
--- --- --- --- --- --- --- ---- --- ---
Total............... 8.0 2.6 3.0 .95 2.0 .86 1.0 .38 1.0 .40
=== === === === === === === ===== === ===
Exploratory Wells:
Productive.............. 0.0 0.0 0.0 0.0 0.0 0.0 1.0 .25 5.0 2.15
Non-Productive.......... 0.0 0.0 0.0 0.0 0.0 0.0 1.0 .20 3.0 1.33
--- --- --- --- --- --- --- --- --- ----
Total............... 0.0 0.0 0.0 0.0 0.0 0.0 2.0 .45 8.0 3.48
=== === === === === === === === === ====
Total Wells:
Productive.............. 8.0 2.6 2.0 .87 1.0 .43 2.0 .63 6.0 2.55
Non-Productive.......... 0.0 0.0 1.0 0.80 1.0 .43 1.0 .20 3.0 1.33
--- --- --- ---- --- --- --- --- --- ----
Total............... 8.0 2.6 3.0 .95 2.0 .86 3.0 .83 9.0 3.88
=== === === ===== === === === === === ====
</TABLE>
Information prior to July 15, 1993 reflects pre-La/Cal formation drilling
activity.
Net Production, Unit Prices and Costs. The following table presents
certain information with respect to oil, gas and condensate production
attributable to the Company'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 the nine months ended September 30, 1996 and
each of the years ended December 31, 1995, 1994, 1993 and 1992.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER
30,
1996 1995 1994 1993(1) 1992(1)
-------- ------------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net Production:
Natural Gas (Mcf).................... 1,194,704 2,213,923 2,386,130 933,435 417,482
Oil.................................. 126,139 102,721 36,487 7,319 4,347
Natural gas equivalents (Mcfe)....... 1,951,538 2,830,309 2,605,050 977,348 443,564
Average Net Daily Production:
Natural gas (Mcf).................... 4,376 6,065 6,537 2,557 1,144
Oil (Bbls)........................... 462 281 100 20 12
Natural gas equivalents (Mcfe)....... 7,148 7,754 7,137 2,678 1,215
Average Sales Price Per Unit:
Natural Gas (per Mcf)................ 2.44 1.72 1.85 2.02 1.94
Oil (per Bbl)........................ 20.14 16.27 15.99 16.65 19.80
Other Data:
Lease operating expense (per Mcfe)... .44 .22 .15 .23 .25
Depreciation, depletion and
amortization (per Mcfe)........... .98 .48 .40 .33 .65
- --------------
</TABLE>
(1) La/Cal ownership interest applied to pre La/Cal formation production.
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<PAGE> 62
Marketing.
Pecan Lake Field. Goodrich Petroleum'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 the
Company. From the central facility, the Company'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, the Company'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 ("Seaber").
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 Company (Texas
Gas"). If the operator elects to access these pipelines, the transportation is
covered under agreements between the operator and SOPCO for transportation to
either Columbia Gulf or Texas Gas.
From the central facility in Pecan Lake, the Company'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 Company and Grand Lake Liquids. The
Company's gas condensate is sold to Mobil Oil Trading & Transportation Company
at the Grand Lake tank farm. Pricing for the condensate is based on current
market prices referred to as posted prices. The Company's contract with Mobil is
a 30-day rollover agreement.
Lake Charles Field. The Company'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 Field, which
includes the Company. The gas is sold at the Koch pipeline interconnect, to
various markets arranged by Seaber. Transportation on the Koch pipeline is
arranged by the individual markets. Pricing for the condensate is based on
current market prices referred to as posted price. The operators' contract with
Seaber is based on a 30-day, rollover agreement.
Sean Andrew Field. The Company's oil production is gathered by
pipeline and purchased by Mobil at a premium over the posted price. The gas
is purchased by Pride Petroleum on a thirty day spot basis.
Remaining Fields. The Company'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. The Company'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. During 1995, Seaber purchased 90% of the Company's gas sales and
Mobil purchased 59% of the Company's oil sales.
The Company has entered 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's and its contracting parties' 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
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<PAGE> 63
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 a
60-days advance notice. During the term of the Joint Venture Agreement, on a
calendar year basis, NGV has the option to share in 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.
NATURAL GAS PIPELINE JOINT VENTURE
Pecos Pipeline & Producing Company ("Pecos"), one of the Company's
subsidiaries, has a 20% interest in a joint venture with Ferguson Crossing
Pipeline Company, now Southwestern Gas Gathering, Inc. ("Southwestern") a
subsidiary of Mitchell Energy and Development Company, relating to an intrastate
pipeline. Pecos and its related facilities are located 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 contract from the physical pipeline. The joint
venture participants are National Marketing Company, which is a subsidiary of
the Company, 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 contact 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.
INVESTMENT IN MARCUM NATURAL GAS SERVICES
The Company presently owns 675,200 shares of the common stock of
Marcum, or approximately 5.8% of the Marcum common stock outstanding. The
Company also owned 1,260,000 Marcum common stock purchase warrants exercisable
at a price of $4.00 per share. The warrants expired on February 13, 1996.
COMPETITION
The oil and gas industry is highly competitive. Major and independent
oil and gas companies, drilling and production acquisition programs and
individual producers and operators are active bidders for desirable oil and gas
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<PAGE> 64
properties, as well as the equipment and labor required to operate those
properties. Many competitors have financial resources substantially greater than
those the Company has, 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.
LEGAL PROCEEDINGS
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 in Vermilion Parish,
Louisiana. The EPA has estimated that the total cost of long-term clean-up of
the site will be approximately $15.4 million, with the Company's percentage of
responsibility to be approximately 3.09%. As of September 30, 1996, the Company
has accrued approximately $379,000 for this liability. The EPA and the PRPs will
continue to evaluate the site and revise estimates for the long-term clean-up of
the site. There can be no assurance that the cost of clean-up 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 clean-up 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.
The Company is party to additional lawsuits arising out of the normal
course of business. However, the Company has defended and intends to continue to
defend these actions vigorously and believes, based on currently available
information, that adverse results or judgments if any, in excess of insurance
coverage or amounts already provided, will not be material to the financial
position or results of operations of the Company and its consolidated
subsidiaries.
REGULATIONS
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 as well.
Federal Regulation of Natural Gas. The Federal Energy Regulatory
Commission ("FERC") regulates the transportation and resale of natural gas in
interstate commerce pursuant to the Natural Gas Act of 1938 (the "NGA"). Since
1978, the Natural Gas Policy Act of 1978 (the "NGPA") has regulated maximum
selling prices of certain categories of gas in either interstate or intrastate
commerce. FERC also administers the NGPA. Under the Natural Gas Wellhead
Decontrol Act of 1989, however, most regulation and control of natural gas have
been eliminated. None of the remaining areas of regulation under the NGA and
NGPA have a direct effect on the Company's operations. There can be no
assurance, however, that the Company's production of natural gas will not be
subject to federal regulation in the future.
In April 1992, subsequently as amended, FERC issued Order 636, a rule
which restructures the interstate natural gas transportation and marketing
system to ensure that direct sales of gas by producers or marketers receive
pipeline service comparable to pipeline gas sales. FERC Order 636 is intended to
provide "open access" to producers for transportation of gas on ten interstate
pipeline systems.
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Environmental Regulation. Various federal, state and local laws and
regulations covering the discharge of materials into the environment, or
otherwise relating to the protection of the environment, may affect the
Company's operations and costs as a result of their effect on oil and gas
development, exploration and production operations. It is not anticipated that
the Company will be required in the near future to expend amounts that are
material in relation to its total capital expenditures program by reason of
environmental laws and regulations but, inasmuch as such laws and regulations
are frequently changed by both federal and state agencies, the Company is unable
to predict the ultimate cost of continued compliance. Additionally, see existing
EPA matters discussion in "--Legal Proceedings."
State Regulation of Oil and Gas Production. State statutes and
regulations require permits for drilling operations, drilling bonds and reports
concerning operations. In addition, there are state statutes, rules and
regulations governing conservation matters, including the unitization or pooling
of oil and gas properties, establishment of maximum rates of production form oil
and gas wells and the spacing, plugging and abandonment of such wells. Such
statutes and regulations may restrict the rate at which oil and gas could
otherwise be produced form the Company's properties and may restrict the number
of wells that may be drilled on a particular lease or in a particular field.
(There are currently discussions in several states relating to the imposition of
limitations on annual natural gas productions rates.)
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The table below sets forth, as of October 30, 1996, certain information
with respect to the shares of Common Stock beneficially owned by (i) each person
known by the Company to own beneficially five percent or more of the shares of
common stock, (ii) each director of the Company, (iii) each of the executive
officers of the Company, and (iv) all directors and executive officers of the
Company as a group. The table also includes information relating to the
ownership of shares of Common Stock of New Goodrich assuming all of the shares
of Series B Preferred Stock were converted to Common Stock and the consummation
of the Transactions.
<TABLE>
<CAPTION>
OWNERSHIP AFTER
CURRENT OWNERSHIP THE TRANSACTIONS
----------------------------- ---------------------------
AMOUNT OF AMOUNT OF
COMMON STOCK COMMON STOCK
AND NATURE OF PERCENT AND NATURE OF PERCENT
BENEFICIAL OF BENEFICIAL OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS OWNERSHIP CLASS
------------------------ ---------- ------- ----------- -----
<S> <C> <C> <C> <C>
Henry Goodrich(1)......................... 5,098,811 12.2% 6,324,121 14.7%
333 Texas Street, Suite 1350
Shreveport, LA 71101
Walter G. Goodrich(2)..................... 8,270,406 19.8% 10,537,051 23.9%
5847 San Felipe, Suite 700
Houston, Texas 77057
Sheldon Appel(3)(4)....................... 958,170 2.3% 1,013,872 2.4%
Jeff H. Benhard(4)........................ 46,000 * 46,000 *
J. Michael Watts(4)(5).................... 1,075,350 2.6% 1,393,744 3.3%
Basil M. Briggs(4)........................ 30,652 * 30,652 *
Benjamin F. Edwards, II(4)................ 32,000 * 32,000 *
Wayne G. Kees(4).......................... 40,165 * 40,165 *
James R. Jenkins(4)....................... 46,105 * 46,105 *
John C. Napley(4)......................... 79,572 * 79,572 *
Roland L. Frautschi(10)................... 693,496 1.7% 897,671 2.1%
Robert C. Turnham, Jr.(11)................ 119,401 * 119,401 *
Arthur A. Seeligson(4)(6)................. 130,000 * 130,000 *
Leo E. Bromberg(7)(8)..................... 3,018,786 7.2% 4,449,705 10.3%
280 S. Beverly Dr., Suite 401
Beverly Hills, CA 90212
Rochelle Rand(7).......................... 2,430,174 5.8% 3,495,093 8.2%
2550 Fifth Ave., Suite 126
San Diego, CA 92103
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
B.A.R.D. Industries, Inc.(9).............. 3,107,741 7.4% 3,107,741 7.4%
15311 Vantage Parkway West,
Suite 315
Houston, Texas 77032
Directors & Executive Officers as a
Group(13 persons)(12)..................... 12,217,976 28.9% 15,062,892 32.5%
- -----------
</TABLE>
* Less than 1%.
(1) Includes 4,402,152 shares currently held by HGF Partnership, a
Louisiana general partnership owned by Henry Goodrich and Walter G.
Goodrich, and 1,225,310 shares issuable to HGF Partnership II, a
Louisiana general partnership. The amount owned post-Transactions
includes 1,225,310 shares issuable to HGF Partnership II, a Louisiana
partnership owned by Henry Goodrich and Walter G. Goodrich, upon the
conversion of 114,874 shares of Series B Preferred Stock to be issued
pursuant to the Exchange Agreement. Henry Goodrich is the managing
general partner of HGF Partnership and HGF Partnership II, and Walter
G. Goodrich holds a general partnership interest in both partnerships,
through a wholly owned company. Henry Goodrich exercises sole voting
and investment power with respect to the shares held by both
partnerships. Also includes options to purchase 50,000 shares that are
currently exercisable pursuant to the Company's 1995 Stock Option Plan.
(2) Includes 4,402,152 shares currently held by HGF Partnership, a
Louisiana general partnership owned by Henry Goodrich, Walter G.
Goodrich and 1,225,310 shares issuable to HGF Partnership II, a
Louisiana general partnership owned by Henry Goodrich and indirectly,
Walter G. Goodrich. The amount owned post- Transactions includes
1,225,310 shares issuable to HGF Partnership II, a Louisiana
partnership owned by Henry Goodrich and Walter G. Goodrich, upon the
conversion of 114,874 shares of Series B Preferred Stock to be issued
pursuant to the Exchange Agreement. Henry Goodrich exercises sole
voting and investment power with respect to the shares held by HGF
Partnership and HGF II Partnership. The post Transactions column
includes 453,029 shares issuable upon the conversion of 42,471 shares
of Series B Preferred Stock to be issued pursuant to the Exchange
Agreement. Also includes 2,201,076 shares currently owned by Goodrich
Energy, Inc. and, in the post-Transaction column, 588,305 shares
issuable upon the conversion of 55,153 shares of Series B Preferred
Stock to be issued pursuant to the Exchange Agreement. Walter G.
Goodrich is the sole stockholder of Goodrich Energy, Inc. Also includes
13,320 shares of Common Stock issuable upon the conversion of 4,000
shares of the Company Series A Preferred Stock and options to purchase
62,500 shares that are exercisable pursuant to the Company's 1995 Stock
Option Plan.
(3) Includes 818,280 shares of Common Stock currently held and 55,702
shares issuable upon the conversion of 5,222 shares of Series B
Preferred Stock to be issued pursuant to the Exchange Agreement by the
Sheldon Appel Company, a partnership affiliated with Mr. Appel. Mr.
Appel has advised the Company that he exercises sole voting and
investment power with respect to these shares. Also includes 109,890
shares of Common Stock issuable upon the conversion of 33,000 shares of
the Company Series A Preferred Stock.
(4) Includes options to purchase 30,000 shares that are currently
exercisable pursuant to the Company's 1995 Nonemployee Director Stock
Option Plan.
(5) Includes 170,831 shares held by Mr. Watts' wife and 299,720 shares held
jointly by Mr. Watts and his wife over which Mr. Watts exercises shared
voting and investment power. The post-Transactions column includes
318,394 shares issuable upon the conversion of 29,849 shares of Series
B Preferred Stock to be issued pursuant to the Exchange Agreement.
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<PAGE> 68
(6) Includes 40,000 shares issuable upon the exercise of outstanding
stock options.
(7) Based upon a report on Schedule 13G dated February 14, 1996.
(8) Includes 2,060,667 shares held by Mr. Bromberg as trustee. Mr. Bromberg
has advised the Company that he exercises sole investment and voting
control over such shares. The post-Transactions column includes 210,033
shares issuable upon the conversion of 19,690 shares of Series B
Preferred Stock to be issued pursuant to the Exchange Agreement to Mr.
Bromberg personally and 1,220,886 shares issuable upon the conversion
of 114,459 shares of Series B Preferred Stock to be issued pursuant to
the Exchange Agreement to Mr. Bromberg as trustee.
(9) Based on a Schedule 13D dated February 6, 1995.
(10) Includes options to purchase 30,000 shares that are currently
exercisable pursuant to the Company's 1995 Stock Option Plan. The
post-Transactions column includes 204,175 shares issuable upon the
conversion of 19,141 shares of Series B Preferred Stock to be issued
pursuant to the Exchange Agreement.
(11) Includes options to purchase 20,000 shares that are currently
exercisable pursuant to the Company's 1995 Stock Option Plan.
(12) The number of shares beneficially owned by all executive officers and
directors as a group includes 310,000 shares which directors of the
Company have the right to acquire pursuant to options exercisable
within 60 days pursuant to the Company's 1995 Nonemployee Director
Stock Option Plan. Also includes executive officer options to purchase
162,500 shares that are exercisable pursuant to the Company's 1995
Stock Option Plan and 123,210 shares issuable upon the conversion of
37,000 shares of the Company Series A Preferred Stock. The
post-Transactions column includes 2,844,916 shares issuable upon the
conversion of 266,710 shares of Series B Preferred Stock to be issued
pursuant to the Exchange Agreement.
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<PAGE> 69
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of, and the
authorized capital stock of New Goodrich after the Effective Time will consist
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 will be designated Series A Convertible Preferred Stock and
750,000 shares will be designated as Series B Convertible Preferred Stock. As of
the date of this Proxy Statement, 41,804,510 shares of Common Stock and 801,147
shares of Series A Convertible Preferred Stock of the Company were issued and
outstanding. Currently, no shares of Series B Convertible Preferred Stock are
issued and outstanding. The following description is a summary of the material
terms of such capital stock.
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 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. 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 Preferred Stock.
The issuance of a new series of the 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. The Series A Convertible Preferred Stock ranks senior to the Common Stock
with respect to dividends and distributions of assets upon the liquidation,
dissolution or winding up of the Company. There are 801,147 shares of Series A
Convertible Preferred Stock outstanding as of the date hereof.
Holders of shares of Series A Convertible Preferred Stock are 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 share of Common Stock or other junior ranking capital stock unless all
accrued and unpaid dividends on the Series A Convertible Preferred Stock have
been paid or declared and set apart for payment.
The Company may, at its option, redeem all or part of the share of
Series A Convertible Preferred Stock then outstanding, subject to the
limitations, if any, imposed by applicable law, at a redemption price of $12 per
share plus
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any accrued and unpaid dividends, whether or not declared. There is no mandatory
redemption or sinking fund obligation with respect to the Series A Convertible
Preferred Stock.
In the event of a voluntary or involuntary liquidation, dissolution or
winding up of the Company, holders of shares of Series A Convertible 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 Series A Convertible
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 Series A Convertible Preferred Stock have no
voting rights, except as required by law, unless dividends payable on the Series
A Convertible 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 Series A Convertible Preferred
Stock (voting separately as a class with the holders of stock ranking in parity
with the Series A Convertible 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 Series A Convertible 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 Series A Convertible
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 senor to the Preferred Stock, or (c) effect any
reclassification of the Series A Convertible Preferred Stock, or (ii) without
the affirmative vote of the holders of at least fifty percent of all outstanding
share 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 Series
A Convertible Preferred Stock and having the right to vote on matters as to
which the Series A Convertible Preferred Stock is not entitled to vote, or (b)
incur indebtedness for money borrowed or authorize or issue stock ranking in
parity with such Series A Convertible Preferred Stock if adjusted stockholders'
equity is less than the liquidation preference of all stock ranking senior or in
parity with the Series A Convertible Preferred Stock.
The holder of any shares of Series A Convertible 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
to (x) the then liquidation preference of the shares of Series A Convertible
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 Series A Convertible Preferred Stock is converted prior to
September 15, 1997, the holders of shares of Series A Convertible 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 Series A Convertible Preferred Stock received upon
conversion. In the event that the closing price for the Series A Convertible
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 Series A Convertible 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 Series A Convertible 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 Series A
Convertible 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 Convertible 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
Series A Convertible 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
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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 Series A Convertible Preferred Stock for which conversion was
elected. Series A Convertible 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 Series A Convertible Preferred Stock would have owned immediately after the
Corporate Change if the holders had converted the Series A Convertible Preferred
Stock immediately before the effective date of the Corporate Change. The Company
will notify the registered holders of Series A Convertible 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 Series A Convertible 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 Series A Convertible Preferred Stock into
Common Stock with an aggregate Market Value equal to the aggregate Adjusted
Value of the Series A Convertible 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 Series A Convertible 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 Series A Convertible
Preferred Stock.
At least 30 days prior to the proposed effective date of a Corporate
Change, the Company shall mail to each holder of Series A Convertible 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 Series A
Convertible 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 Series A Convertible 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
Series A Convertible 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 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.
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As used herein, the "Adjusted Value" of a share of Series A Convertible
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 Series A Convertible Preferred Stock divided by the Reference Value per
share of Common Stock.
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 Series A Convertible
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.
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 Series A Convertible 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.
Series B Convertible Preferred Stock. Immediately prior to the
Effective Time, the Board of Directors of New Goodrich will authorize the
issuance of a series of preferred stock consisting of 750,000 shares. The shares
of the Series B Preferred Stock to be issued pursuant to the Exchange Agreement
constitute a single series of the preferred stock of New Goodrich. The holders
of the Series B Preferred Stock will have no preemptive rights with respect to
any shares of capital stock of New Goodrich or any other securities of New
Goodrich. The Series B Preferred Stock will not be subject to any sinking fund
or other obligation of New Goodrich to redeem or retire the Series B Preferred
Stock. The Series B Preferred Stock has not been approved for listing on any
stock exchange.
The Series B Preferred Stock will rank senior to the Common Stock with
respect to the payment of dividends and as to the distribution of assets upon
liquidation, dissolution or winding up of New Goodrich and will rank junior to
New Goodrich's Series A Convertible Preferred Stock as to dividends and as to
the distribution of assets upon liquidation, dissolution or winding up.
Holders of the Series B Preferred Stock will be entitled to receive,
when, as and if declared by the Board of Directors of New Goodrich, out of the
funds of New Goodrich legally available therefor, annual cash dividends at an
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annual rate of $.825 per share, payable quarterly in arrears on March 31, June
30, September 30 and December 31 of each year, or if such day is not a business
day, the next succeeding business day. Dividends on the Series B Preferred Stock
will be cumulative from the date of original issuance, and will be payable to
holders of record as they appear on the stock books of New Goodrich at the close
of business on such dates, which shall be not more than 60 days nor less than 10
days preceding the payment dates, as shall be fixed by the Board of Directors,
provided that holders of shares of Series B Preferred Stock called for
redemption on a redemption date falling between a dividend payment record date
and the dividend payment date shall, in lieu of receiving such dividend on the
dividend payment date fixed therefor, receive such dividend payment together
with all other accrued and unpaid dividends on the date fixed for redemption
(unless such holders convert such shares in accordance with the Certificate of
Designations). Dividends payable per share of Series B Preferred Stock for each
quarterly dividend period will be computed by dividing the annual dividend
amount by four. The amount of dividends payable for the initial dividend period
and for any period shorter or longer than a full quarterly dividend period will
be computed on the basis of a 360-day year of twelve 30-day months. Holders of
the Series B Preferred Stock will not be entitled to any dividends, whether
payable in cash, property or securities, in excess of the full cumulative
dividends, as described above. No interest, or sum of money in lieu of interest,
will be payable in respect of any accrued and unpaid dividends.
If dividends are not paid in full, or declared in full and sums set
apart for the payment thereof, upon the Series B Preferred Stock and upon any
other capital stock ranking on a parity as to dividends with the Series B
Preferred Stock, all dividends declared upon shares of Series B Preferred Stock
and such other parity stock will be declared and paid pro rata that in all cases
the amount of dividends declared per share on the Series B Preferred Stock and
such other parity stock will bear to each other the same ratio that accrued and
unpaid dividends per share on the shares of Preferred Stock and such other
parity stock bear to each other. Except as set forth above, unless full
cumulative dividends on all outstanding shares of the Series B Preferred Stock
have been paid or declared and sums set aside for the payment thereof, dividends
(other than dividends paid in Common Stock or other stock ranking junior to the
Series B Preferred Stock as to dividends and upon liquidation, dissolution or
winding up) may not be declared or paid or set apart for payment, and other
distributions may not be made upon the Common Stock or on any other stock of New
Goodrich ranking junior to the Series B Preferred Stock or any other stock of
New Goodrich ranking junior to or on a parity with the Series B Preferred Stock
as to dividends or upon liquidation, dissolution or winding up be redeemed,
purchased or otherwise acquired for any consideration by New Goodrich (except by
conversion into or exchange for stock of New Goodrich ranking junior to the
Series B Preferred Stock as to dividends and upon liquidation, dissolution or
winding up).
Under Delaware law, New Goodrich may declare and pay dividends on its
capital stock only out of surplus, as defined in the Delaware General
Corporation Law or, in case there is no such surplus, out of its net profits for
the fiscal year in which the dividend is declared and/or the preceding fiscal
year. Surplus under the Delaware General Corporation Law is generally defined to
mean the excess, at any given time, of the net assets of a corporation over the
amount of the corporation's capital. No dividends or distributions may be
declared, paid or made if New Goodrich is or would be rendered insolvent by
virtue of such dividend or distribution, or if such declaration, payment of
distribution would contravene the Certificate of Incorporation.
In the event of any liquidation, dissolution or winding up of New
Goodrich, whether voluntary or involuntary, the holders of shares of Series B
Preferred Stock will be entitled to receive out of the assets of New Goodrich
available for distribution to stockholders the liquidation preference of $10.00
per share plus an amount equal to all dividends (whether or not earned or
declared) accrued and unpaid to the payment date before any payment or
distribution of assets is made to holders of Common Stock or of any other class
of stock of New Goodrich ranking junior to the Series B Preferred Stock upon
liquidation, dissolution or winding up. If upon any liquidation, dissolution or
winding up of New Goodrich, the amounts payable with respect to the Series B
Preferred Stock are not paid in full, the holders of the Series B Preferred
Stock and of such other parity stock will share ratably in any such distribution
of assets in proportion to the full respective preferential amounts to which
they are entitled. After payment of the full amount of the liquidation
preference to which they are entitled, the holders of shares of Series B
Preferred Stock will not be entitled to any further participation in any
distribution of assets by New Goodrich. Neither a consolidation or merger of New
Goodrich with
-72-
<PAGE> 74
another corporation nor a sale, lease, exchange or transfer of all or part of
New Goodrich's assets for cash, securities or other property will be considered
a liquidation, dissolution or winding up of New Goodrich for these purposes.
Shares of the Series B Preferred Stock will be convertible at any time
at the option of the holder thereof into the number of shares of Common Stock
obtained by dividing the aggregate liquidation preference of the shares to be
converted by the initial conversion price, subject to adjustment as described
below, except that, if shares of Series B Preferred Stock are called for
redemption, the conversion right will terminate at the close of business on the
date fixed for redemption. The initial conversion price shall be equal to the
product of 1.25 times the average Closing Price (as defined in the Certificate
of Designations) for Goodrich common stock during the 20 trading day period
prior to the closing of the Transactions; provided, however, that the conversion
price shall not be less than $0.9375. No fractional shares or securities
representing fractional shares of Common Stock will be issued upon conversion;
any fractional shares resulting from conversion will be paid in cash based upon
the last reported sales price of the Common Stock at the close of business on
the first trading day preceding the date of conversion.
In case New Goodrich shall be a party to any transaction (including,
without limitation, a merger, consolidation, statutory share exchange, sale of
all or substantially all of its assets or recapitalization of the Common Stock),
in each case as a result of which shares of Common Stock shall be converted into
the right to receive stock, securities or other property (including cash or any
combination thereof), each share of Series B Preferred Stock remaining
outstanding shall thereafter be convertible into the kind and amount of shares
of stock and other securities and property receivable (including cash) upon the
consummation of such transaction by a holder of that number of shares or
fraction thereof of Common Stock into which such share of Series B Preferred
Stock was convertible immediately prior to such transaction.
The conversion price is subject to adjustment upon certain events,
including: (i) the issuance of Common Stock as a dividend or distribution with
respect to the outstanding Common Stock, subdivisions, splits or combinations of
Common Stock, or the issuance of any shares of capital stock by reclassification
of the Common Stock; (ii) the issuance to all holders of Common Stock of rights
or warrants to subscribe for or purchase Common Stock, in each case at less than
the then current market price per share of Common Stock; and (iii) the payment
of a dividend or making of a distribution to holders of Common Stock of shares
of capital stock of New Goodrich or its subsidiaries (other than Common Stock)
or of evidences of its indebtedness, or of assets, including securities, but
excluding those rights, warrants, dividends and distributions referred to above,
dividends and distributions in connection with the liquidation, dissolution or
winding up of New Goodrich and regular periodic cash dividends payable out of
surplus.
No adjustment in the conversion price will be required to be made in
any case until cumulative adjustments amount to 1% or more of the conversion
price as last adjusted, but any such adjustment that would otherwise be required
to be made shall be carried forward and taken into account in any subsequent
adjustment. New Goodrich reserves the right, to the extent permitted by law, to
make such reductions in the conversion price in addition to those required in
the foregoing provisions as it, in its sole discretion, shall determine to be
advisable in order that certain stock-related distributions hereafter made by
New Goodrich to its stockholders shall not be taxable to such stockholders.
Holders of shares of Series B Preferred Stock at the close of business
on a dividend payment record date shall be entitled to receive the dividend
payable on such shares on the corresponding dividend payment date (except that
holders of shares called for redemption on a redemption date falling between
such dividend payment record date and the dividend payment date shall, in lieu
of receiving such dividend on the dividend payment date fixed therefor, receive
such dividend payment together with all other accrued and unpaid dividends on
the date fixed for redemption, unless such holders convert such shares in
accordance with the Certificate of Designations) notwithstanding the conversion
thereof following such dividend payment record date and prior to such dividend
payment date. However, shares of Series B Preferred Stock surrendered for
conversion during the period between the close of business on any dividend
payment record date and the opening of business on the corresponding dividend
payment date (except shares of Series B Preferred Stock called for redemption on
a redemption date during such period) must be accompanied by payment of an
amount equal to the dividend payment with respect to such shares of Series B
Preferred Stock presented for conversion on such dividend payment date. A holder
of shares of Series B Preferred Stock on a dividend payment
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<PAGE> 75
record date who (or whose transferee) surrenders any such shares for conversion
into shares of Common Stock on the corresponding dividend payment date will
receive the dividend payable by New Goodrich on such shares of Series B
Preferred Stock on such date, and the converting holder need not include payment
in the amount of such dividend upon surrender of shares of Series B Preferred
Stock for conversion on the dividend payment date. Except as provided above, New
Goodrich shall make no payment or allowance for unpaid dividends, whether or not
in arrears, on converted shares of Series B Preferred Stock or for dividends on
the shares of Common Stock issued upon such conversion.
New Goodrich will endeavor to comply with all federal and state
securities laws regulating the offer and delivery of shares of Common Stock upon
conversion of the Series B Preferred Stock.
Shares of the Series B Preferred Stock will not be redeemable prior to
the fourth anniversary of the date of original issuance. The shares of Series B
Preferred Stock will be redeemable at the option of New Goodrich, in whole or in
part, at any time or from time to time, out of funds legally available therefor,
on or after the fourth anniversary of the date of original issuance, on not less
than 30 nor more than 60 days notice by first-class mail at the redemption price
of $10.00 per share, plus in each case an amount equal to accrued and unpaid
dividends, if any, to (and including) the redemption date, whether or not earned
or declared (the "Redemption Price").
If fewer than all of the outstanding shares of Series B Preferred Stock
are to be redeemed, the shares to be redeemed shall be selected by lot or pro
rata or in some other equitable manner determined by the Board of Directors of
New Goodrich in its sole discretion. There is no mandatory redemption or sinking
fund obligation with respect to the Series B Preferred Stock. In the event that
New Goodrich has failed to pay accrued and unpaid dividends on the Series B
Preferred Stock, it may not redeem less than all of the then outstanding shares
of the Series B Preferred Stock until all such accrued and unpaid dividends and
the then current quarterly dividends have been paid in full. After the date
fixed for redemption, unless New Goodrich is in default in providing money for
the payment of the Redemption Price, dividends shall cease to accrue on the
Series B Preferred Stock called for redemption, such shares shall no longer be
deemed to be outstanding and all rights of the holders of such shares as
stockholders of New Goodrich shall cease, except the right to receive the moneys
payable upon such redemption, without interest thereon, upon surrender of the
certificates evidencing such shares.
The holders of the Series B Preferred Stock will have no voting rights,
except as described below or as required by law. In exercising any such vote,
each outstanding share of Series B Preferred Stock will be entitled to one vote,
excluding shares held by New Goodrich or any entity controlled by New Goodrich,
which shares shall have no voting rights.
Whenever dividends on the Series B Preferred Stock have not been paid
in an aggregate amount equal to at least four quarterly dividends on such shares
(whether or not consecutive), the holders of the Series B Preferred Stock
(voting separately as a class with the holders of any stock ranking on a parity
as to dividends with the Series B Preferred Stock on which like voting rights
have been conferred and are exercisable) will be entitled to elect two directors
to the Board of Directors either by written consent or at any meeting of
stockholders of New Goodrich at which directors are to be elected held during
the period such dividends remain in arrears. Such voting rights will terminate
when all such dividends accrued and in default have been paid in full or
declared and funds set apart for payment in full. The term of office of all
directors so elected will terminate immediately upon such payment or setting
apart for payment.
In addition, without the affirmative vote or consent of the holders of
at least 66 2/3% of shares of the Series B Preferred Stock then outstanding,
voting separately as a class, New Goodrich may not (i) authorize, create, issue
or increase the authorized number of shares of any class or classes or series of
stock, or any security convertible into stock of such class or series, ranking
prior to the Series B Preferred Stock either as to dividends or upon
liquidation, dissolution or winding up of New Goodrich, (ii) amend, alter or
repeal any of the provisions of the Certificate of Incorporation (including the
Certificate of Designations) of New Goodrich so as to affect adversely any
right, preference, privilege or voting power of the Series B Preferred Stock or
the holders thereof or (iii) authorize any reclassification of the Series B
Preferred Stock. Without the affirmative vote or consent of holders of at least
50% of the shares of Series B Preferred Stock then outstanding, New Goodrich may
not increase the amount of authorized
-74-
<PAGE> 76
Series B Preferred Stock or create additional classes of stock or issue series
of capital stock ranking on a parity with the Series B Preferred Stock with
respect to the payment of dividends or upon liquidation, dissolution and winding
up of New Goodrich. However, New Goodrich may increase the amount of authorized
Series B Preferred Stock or create additional classes of stock or issue series
of capital stock ranking junior to the Series B Preferred Stock with respect to
the payment of dividends and upon liquidation, dissolution and winding up of New
Goodrich without the consent of any holder of Series B Preferred Stock.
TRANSFER AGENT
The transfer agent for the Company is Harris Trust and Savings Bank and
the address is 311 W. Monroe St., Chicago, Illinois, 60690-3504.
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<PAGE> 77
INDEPENDENT AUDITORS
The consolidated financial statements of Goodrich Petroleum Corporation
and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholder's equity, and cash flow for the years
ended December 31, 1995 and 1994, and the period from July 15, 1993 (inception)
through December 31, 1993, as well as the 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, included herein have been
audited by KPMG Peat Marwick LLP, independent auditors, as stated in their
reports, appearing herein and have been so included in reliance upon such
reports of such firm.
The financial statements of the La/Cal Energy Partners II as of
December 31, 1995, the related statements of operations, partners' capital
(deficit), and cash flows for the period from July 7, 1995 (inception) through
December 31, 1995, and the accompanying statements of revenues and direct
operating expenses of the Properties contributed to La/Cal Energy Partners II
for the period from January 1, 1995 through July 6, 1995 and the years ended
December 31, 1994 and 1993 included herein have been audited by KPMG Peat
Marwick LLP, independent auditors, as stated in their reports, appearing herein
and have been so included in reliance upon such reports of such firm.
The accompanying statements of revenues and direct operating expenses
of the Herbert #1 and Warminster #1 Properties for the periods from March 1,
1995 and November 1, 1995, through December 31, 1995, respectively, included
herein have been audited by KPMG Peat Marwick LLP, independent auditors, as
stated in their reports, appearing herein and have been so included in reliance
upon such reports of such firm.
The consolidated financial statements of Patrick Petroleum Company and
Subsidiaries as of December 31, 1994, and 1993 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1994, 1993 and 1992 included herein have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein and have been so included in reliance upon such report of such firm.
Representatives of KPMG Peat Marwick LLP are expected to be present at
the Special Meeting of Stockholders. Such representatives will have the
opportunity to make a statement if they desire to do so, and they are expected
to be available to respond to appropriate questions.
STOCKHOLDERS PROPOSALS
Any proposal of a stockholder intended to be presented at the 1997
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.
AVAILABLE INFORMATION
The Company is, and after the consummation of the Transactions New
Goodrich will be, subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith the Company files, and New Goodrich 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,
-76-
<PAGE> 78
New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material 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 Company Common Stock is
traded on the NYSE and the Series A Preferred Stock is traded on the Nasdaq
Small-Cap Market and, as a result, the periodic reports, proxy statements and
other information filed by the Company 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.
OTHER MATTERS
The Board of Directors of the Company is not aware of any other
business to come before the Special Meeting. If any other business properly
comes before the meeting or any adjournment thereof, the persons named in the
enclosed proxy will vote in regard thereto according to their judgment.
-77-
<PAGE> 79
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
GOODRICH PETROLEUM CORPORATION
Consolidated Balance Sheets at September 30, 1996 (Unaudited) and December 31,
1995........................................................................... F-2
Consolidated Statements of Operations for the nine months ended September 30, 1996
and September 30, 1995 (Unaudited)............................................. F-3
Consolidated Statements of Cash Flows for the nine months ended September 30, 1996
and September 30, 1995 (Unaudited)............................................. F-4
Consolidated Statements of Stockholders' Equity for the nine months ended
September 30, 1996 and September 30, 1995 (Unaudited).......................... F-5
Notes to Consolidated Financial Statements........................................ F-6
Independent Auditors' Report...................................................... F-8
Consolidated Balance Sheets at December 31, 1995 and 1994......................... F-9
Consolidated Statements of Operations for the years ended December 31, 1995 and
1994 and the period from July 15, 1993 (Inception) through December 31, 1993... F-10
Consolidated Statements of Cash Flows for the year ended December 31, 1995 and
1994 and the period from July 15, 1993 (Inception) through December 31, 1993... F-11
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1995 and 1994 and the period from July 15, 1993 (Inception) through December
31, 1993....................................................................... F-12
Notes to Consolidated Financial Statements........................................ F-13
PROPERTIES CONTRIBUTED TO LA/CAL ENERGY PARTNERS
Independent Auditors' Report...................................................... F-27
Statement of Revenues and Direct Operating Expenses for the period from January 1,
1993 through July 14, 1993..................................................... F-28
LA/CAL ENERGY PARTNERS II
Independent Auditors' Report...................................................... F-29
Balance Sheets at September 30, 1996 (Unaudited) and December 31, 1995............ F-30
Statements of Operations for the nine months ended September 30, 1996 (Unaudited)
and the period from July 7, 1995 (Inception) through December 31, 1995......... F-31
Statements of Partners' Capital (Deficit) for the nine months ended September 30,
1996 (Unaudited) and the period from July 7, 1995 (Inception) through December
31, 1995....................................................................... F-32
Statements of Cash Flows for the nine months ended September, 1996 (Unaudited) and
the period from July 7, 1995 (Inception) through December 31, 1995............. F-33
Notes to Financial Statements..................................................... F-34
Supplemental Oil and Gas Reserve Information for the years ended December 31,
1995, 1994 and 1993 (Unaudited)................................................ F-39
PROPERTIES CONTRIBUTED TO LA/CAL ENERGY PARTNERS II
Independent Auditors' Report...................................................... F-42
Statements of Revenues and Direct Operating Expenses for the period from January
1, 1995 through July 7, 1995................................................... F-43
SMYTH 35-1, HEBERT #1 AND WARMISTER #1
Combining Statement of Revenues and Direct Operating Expenses for the nine months
ended September 30, 1996 (Unaudited)........................................... F-44
Independent Auditors' Report...................................................... F-45
Combining Statement of Revenues and Direct Operating Expenses for the year ended
December 31, 1995.............................................................. F-46
PATRICK PETROLEUM COMPANY
Independent Auditors' Report...................................................... F-47
Consolidated Balance Sheets at December 31, 1994 and 1993......................... F-48
Consolidated Statements of Operations for the years ended December 31, 1994, 1993
and 1992....................................................................... F-49
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1994, 1993 and 1992............................................................ F-50
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993
and 1992....................................................................... F-51
Notes to Consolidated Financial Statements........................................ F-53
Consolidated Balance Sheets at June 30, 1995 (Unaudited) and December 31, 1994.... F-72
Consolidated Statements of Operations for the six months ended June 30, 1995 and
1994 (Unaudited)............................................................... F-73
Consolidated Statements of Cash Flows for the six months ended June 30, 1995 and
1994 (Unaudited)............................................................... F-74
Notes to Consolidated Financial Statements........................................ F-75
</TABLE>
F-1
<PAGE> 80
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................................ $ 388,888 $ 613,450
Marketable equity securities..................................... 801,800 759,600
Accounts receivable
Trade and other, net of allowance............................. 231,653 170,593
Accrued oil and gas revenue................................... 908,912 1,014,709
Accrued pipeline joint venture................................ 336,000 530,792
Prepaid insurance................................................ 202,080 302,113
Other............................................................ 14,874 33,532
----------- -----------
Total current assets..................................... 2,884,207 3,424,789
----------- -----------
PROPERTY AND EQUIPMENT
Oil and gas properties (successful efforts method)............... 18,442,666 16,262,033
Furniture, fixtures and equipment................................ 107,056 101,333
----------- -----------
18,549,722 16,363,366
Less accumulated depletion, depreciation and amortization........ (4,087,796) (2,217,425)
----------- -----------
Net property and equipment.................................... 14,461,926 14,145,941
----------- -----------
OTHER ASSETS
Investment in pipeline joint venture, net........................ 3,935,854 4,676,500
Deferred charges................................................. 121,910 135,486
----------- -----------
4,057,764 4,811,986
----------- -----------
TOTAL ASSETS............................................. $ 21,403,897 $ 22,382,716
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................................................. $ 383,795 $ 656,886
Accrued liabilities.............................................. 1,728,359 1,740,028
----------- -----------
Total current liabilities................................ 2,112,154 2,396,914
----------- -----------
LONG TERM DEBT..................................................... 9,800,000 9,750,000
OTHER LIABILITIES.................................................. 240,781 572,990
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00 per share; authorized 10,000,000
shares; issued 801,149 at September 30, 1996 (liquidating
preference $10 per share, aggregating to $8,011,490) and
734,859 at December 31, 1995.................................. 801,149 734,859
Common stock, par value -- $0.20 per share; authorized
100,000,000 shares; issued and outstanding 41,804,510......... 8,360,902 8,360,902
Additional paid-in capital....................................... 1,059,488 1,200,140
Accumulated deficit.............................................. (1,012,777) (633,089)
Unrealized gain on marketable equity securities.................. 42,200 --
----------- -----------
Total stockholders' equity............................... 9,250,962 9,662,812
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............... $ 21,403,897 $ 22,382,716
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 81
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
REVENUES
Oil and gas sales............................................... $ 5,454,441 3,582,548
Pipeline joint venture.......................................... 1,093,297 113,937
Other........................................................... 459,218 34,079
----------- -----------
Total revenues.......................................... 7,006,956 3,730,564
----------- -----------
EXPENSES
Lease operating expense and production taxes.................... 1,145,016 534,819
Depletion, depreciation and amortization........................ 2,681,208 907,562
Exploration..................................................... 953,095 --
Interest expense................................................ 611,447 900,767
General and administrative...................................... 1,511,268 197,044
----------- -----------
Total costs and expenses................................ 6,902,034 2,540,192
----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM AND INCOME TAXES................. 104,922 1,190,372
Income taxes.................................................... -- --
----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM.................................. 104,922 1,190,372
Extraordinary item -- early extinguishment of debt.............. -- (482,906)
----------- -----------
NET INCOME........................................................ 104,922 707,466
Preferred stock dividends....................................... 484,610 107,960
----------- -----------
EARNINGS (LOSS) APPLICABLE TO COMMON STOCK........................ $ (379,688) 599,506
=========== ===========
LOSS PER AVERAGE COMMON SHARE..................................... $ (.01)
===========
AVERAGE COMMON SHARES OUTSTANDING................................. 41,804,510
===========
PRO FORMA INFORMATION:
Income before extraordinary item and income taxes............... $ 1,190,372
Pro forma income taxes(1)....................................... 402,698
-----------
787,674
Extraordinary item -- early extinguishment of debt........... (482,906)
-----------
Pro forma net income............................................ 304,768
Preferred stock dividends.................................... 107,960
-----------
Pro forma earnings applicable to common stock................... $ 196,808
===========
Pro forma income before extraordinary item per average common
share........................................................ $ .03
Pro forma extraordinary item per average common share........... (.02)
-----------
Pro forma earnings per average common share..................... $ .01
===========
Pro forma average common share outstanding(2)................... 23,095,631
===========
</TABLE>
- ---------------
(1) No provision for income taxes is included in the 1995 consolidated statement
of operations for the period prior to August 15, 1995, for the operations of
La/Cal (predecessor company) due to La/Cal being a partnership and income
taxes having been the responsibility of the individual partners of La/Cal.
Certain unaudited pro forma information relating to the Company's results of
operations had La/Cal been a corporation, is shown here.
(2) For purposes of this presentation for the nine months ended September 30,
1995, the number of pro forma shares used for the operations of La/Cal
(predecessor company -- January 1, 1995 through August 14, 1995), is
19,765,226 shares, the number issued by the Company in exchange for La/Cal's
net assets contributed.
See notes to consolidated financial statements.
F-3
<PAGE> 82
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
----------------------------
1996 1995
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income..................................................... $ 104,922 707,466
Adjustments to reconcile net income to net cash provided by
operating activities:
Depletion, depreciation and amortization.................... 2,681,208 907,562
Amortization of deferred debt financing costs............... 55,713 84,752
Gain on sale of oil and gas properties...................... (95,252) --
Capital expenditures charged to income...................... 746,095 --
Extraordinary item -- early extinguishment of debt.......... -- 482,906
Payment of contingent liability............................. (11,713) (31,920)
Payment of other liabilities................................ (295,552) (64,529)
----------- ------------
3,185,421 2,086,237
Changes in current assets and liabilities:
Accounts receivable......................................... 239,529 458,272
Prepaid insurance and other................................. 118,691 (269,534)
Accounts payable............................................ (273,091) 181,728
Accrued liabilities......................................... (36,613) 97,505
----------- ------------
Net cash provided by operating activities.............. 3,233,937 2,554,208
----------- ------------
INVESTING ACTIVITIES
Proceeds from sales of oil and gas properties.................. 325,629 --
Capital expenditures........................................... (3,219,528) (18,350)
Cash paid in connection with business combination.............. (45,372) (1,088,432)
Sale of investment............................................. -- 9,600,000
Overdraft bank balances assumed in business combination........ -- (451,414)
----------- ------------
Net cash provided by (used in) investing activities.... (2,939,271) 8,041,804
----------- ------------
FINANCING ACTIVITIES
Proceeds from bank borrowings.................................. 800,000 21,000,000
Principal payments of bank borrowings.......................... (750,000) (30,692,841)
Partnership distributions...................................... -- (1,132,735)
Payment of debt financing costs................................ (10,256) (83,020)
Retirement of preferred stock.................................. (74,362) --
Preferred stock dividends...................................... (484,610) (215,921)
----------- ------------
Net cash used in financing activities.................. (519,228) (11,124,517)
----------- ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS........................ (224,562) (528,505)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD......................................................... 613,450 710,762
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....................... $ 388,888 182,257
=========== ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 83
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
PARTNERS' ----------------------- ------------------------ ADDITIONAL
CAPITAL NUMBER OF NUMBER OF PAID-IN
(DEFICIT) SHARES PAR VALUE SHARES PAR VALUE CAPITAL
----------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994.................... $(2,081,217) -- $ -- -- $ -- $ --
Partnership distributions....................... (1,229,344) -- -- -- -- --
Business Combination............................ 3,310,561 1,098,710 1,098,710 39,530,452 7,906,090 258,539
Unrealized appreciation of marketable securities
available for sale............................ -- -- -- -- -- --
Preferred stock dividends....................... -- -- -- -- -- --
Net income...................................... -- -- -- -- -- 1,032,562
----------- --------- ---------- ---------- ---------- ----------
BALANCE AT SEPTEMBER 30, 1995................... -- 1,098,710 1,098,710 39,530,452 7,906,090 1,291,101
=========== ========= ========== ========== ========== ==========
BALANCE AT DECEMBER 31, 1995.................... -- 734,859 734,859 41,804,510 8,360,902 1,200,140
Net income...................................... -- -- -- -- -- --
Unrealized appreciation of marketable securities
available for sale............................ -- -- -- -- -- --
Preferred stock dividends....................... -- -- -- -- -- --
Retirement of preferred stock................... -- (10,000) (10,000) -- -- (64,362)
Reinstatement of preferred stock under appraisal
rights........................................ -- 76,290 $ 76,290 -- -- (76,290)
----------- --------- ---------- ---------- ---------- ----------
BALANCE AT SEPTEMBER 30, 1996................... $ -- 801,149 $ 801,149 41,804,510 $8,360,902 $1,059,488
=========== ========= ========== ========== ========== ==========
<CAPTION>
UNREALIZED
GAIN ON TOTAL
MARKETABLE STOCKHOLDERS'
ACCUMULATED EQUITY EQUITY
DEFICIT SECURITIES (DEFICIT)
----------- ---------- -----------
<S> <<C> <C> <C>
BALANCE AT DECEMBER 31, 1994.................... $ -- $ -- $(2,081,217)
Partnership distributions....................... -- -- (1,229,344)
Business Combination............................ -- -- 12,573,900
Unrealized appreciation of marketable securities
available for sale............................ -- 84,400 84,400
Preferred stock dividends....................... (107,960) -- (107,960)
Net income...................................... (325,096) -- 707,466
----------- ------- ----------
BALANCE AT SEPTEMBER 30, 1995................... (433,056) 84,400 9,947,245
=========== ======= ==========
BALANCE AT DECEMBER 31, 1995.................... (633,089) -- 9,662,812
Net income...................................... 104,922 -- 104,922
Unrealized appreciation of marketable securities
available for sale............................ -- 42,200 42,200
Preferred stock dividends....................... (484,610) -- (484,610)
Retirement of preferred stock................... -- -- (74,362)
Reinstatement of preferred stock under appraisal
rights........................................ -- -- --
----------- ------- ----------
BALANCE AT SEPTEMBER 30, 1996................... $(1,012,777) $ 42,200 $9,250,962
=========== ======= ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 84
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
NOTE A -- BUSINESS COMBINATION
As noted in the Company's 1995 annual report on Form 10-K, a business
combination of Patrick Petroleum Company ("Patrick"), La/Cal Energy Partners
("La/Cal") and Goodrich Petroleum Corporation (the "Company") took place in
August, 1995. As a result of the accounting for the combination transactions,
the financial statements for the three and nine months ended September 30, 1995
reflect solely the operations of La/Cal prior to August 15, 1995, whereas the
financial statements for the three and nine months ended September 30, 1996
reflect the operations of the combined entities.
NOTE B -- 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, the Company believes the
disclosures which are made are adequate to make the information presented not
misleading. The financial statements and footnotes included in this Form 10-Q
should be read in conjunction with the financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended December
31, 1995, specifically as it relates to the business combination and the related
impact on the basis of presentation of the accompanying financial statements.
In the opinion 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 of the
Company as of September 30, 1996 and the results of its operations for the three
and nine months ended September 30, 1996 and 1995.
The results of operations for the three and nine month periods ended
September 30, 1996 are not necessarily indicative of the results to be expected
for the full year.
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 in Vermilion Parish,
Louisiana. The EPA has estimated that the total cost of long-term clean-up of
the site will be approximately $15.4 million with the Company's percentage of
responsibility to be approximately 3.09%. As of September 30, 1996, the Company
has paid approximately $135,000 in costs related to this matter and accrued an
additional $379,000 for the remaining liability. The EPA and PRPs will continue
to evaluate the site and revise estimates for the long-term clean-up of the
site. There can be no assurance that the cost of clean-up 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 clean-up of the site is joint and several among all PRPs. Therefore, the
ultimate cost of the clean-up 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 results or 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 -- INCOME TAXES
The federal income tax effect of La/Cal's activities (prior to August 15,
1993) is not reflected in the 1995 financial statements since such taxes were
the responsibility of the individual partners of La/Cal. The
F-6
<PAGE> 85
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996 AND 1995
Company became subject to income as of August 15, 1995, as a result of the
La/Cal-Patrick-Goodrich Petroleum business combination.
No provision for income taxes has been recorded for the Company due to its
ability to utilize net operating loss carryforwards to offset future financial
taxable income.
NOTE E -- PRO FORMA FINANCIAL RESULTS OF OPERATIONS
Selected results of operations on a pro forma basis as if the
La/Cal-Patrick-Goodrich Petroleum business combination had occurred on January
1, 1995 are as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
1995
-------------------------
<S> <C>
Revenues....................................................... $ 9,144,470
Income before extraordinary item............................... 2,414,688
Net income..................................................... 1,931,782
Income applicable to common stock.............................. 1,245,861
Income per share before extraordinary item..................... .04
Income per average common share................................ $ .03
</TABLE>
The pro forma operations above contain a net gain on the sale of an
investment which accounted for $1,563,762 of revenue and net income and amounted
to $.04 income per share for nine months ended September 30, 1995.
NOTE F -- SUBSEQUENT EVENT
Effective October 22, 1996, the Company entered into an agreement with
La/Cal Energy Partners II ("La/Cal II") and certain working interest owners
whereby the Company would acquire oil and gas properties and related assets
(primarily oil and gas properties) of La/Cal II and the working interest owners.
The preliminary purchase price is $17,446,000 and is composed of $2,000,000
cash, the issuance of a new series of the Company's convertible preferred stock
($7,500,000) and the assumption of La/Cal II's outstanding indebtedness (not to
exceed $7,946,000).
The transaction is subject to customary approvals, including approval of
the preferred stock issuance by the Company's shareholders. The Company expects
to close the transactions in either the fourth quarter of 1996 or the first
quarter of 1997.
F-7
<PAGE> 86
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Goodrich Petroleum Corporation:
We have audited the accompanying consolidated balance sheets of Goodrich
Petroleum Corporation and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years ended December 31, 1995 and 1994, and the period from July
15, 1993 (inception) through December 31, 1993. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Goodrich
Petroleum Corporation and Subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for the years ended December
31, 1995 and 1994, and the period from July 15, 1993 (inception) through
December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in Note D to the consolidated financial statements, in 1995,
the Company adopted the provisions of Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of.
KPMG PEAT MARWICK LLP
Shreveport, Louisiana
March 26, 1996
F-8
<PAGE> 87
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents....................................... $ 613,450 $ 710,762
Marketable equity securities.................................... 759,600 --
Accounts receivable
Trade and other, net of allowance............................ 170,593 --
Accrued oil and gas revenue.................................. 1,545,501 934,910
Prepaid insurance............................................... 302,113 --
Other........................................................... 33,532 --
----------- -----------
Total current assets.................................... $ 3,424,789 1,645,672
----------- -----------
PROPERTY AND EQUIPMENT
Oil and gas properties.......................................... 16,262,033 7,271,549
Furniture, fixtures and equipment............................... 101,333 --
----------- -----------
16,363,366 7,271,549
Less accumulated depletion, depreciation and amortization....... (2,217,425) (1,309,866)
----------- -----------
Total property and equipment................................. 14,145,941 5,961,683
----------- -----------
OTHER ASSETS
Investment in pipeline joint venture, net....................... 4,676,500 --
Deferred charges................................................ 135,486 623,141
----------- -----------
4,811,986 623,141
----------- -----------
TOTAL ASSETS............................................ $ 22,382,716 $ 8,230,496
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt............................... $ -- $ 1,816,723
Accounts payable................................................ 656,886 135,916
Accrued liabilities............................................. 1,740,028 109,074
----------- -----------
Total current liabilities............................... 2,396,914 2,061,713
----------- -----------
LONG TERM DEBT.................................................... 9,750,000 8,250,000
OTHER LIABILITIES................................................. 572,990 --
STOCKHOLDERS' EQUITY (DEFICIT)
Partners' capital (deficit)..................................... -- (2,081,217)
Preferred stock, par value $1.00 per share; authorized
10,000,000 shares; issued 734,859 at December 31, 1995
(liquidating preference $10 per share, aggregating to
$7,348,590).................................................. 734,859 --
Common stock, par value -- $0.20 per share; authorized
100,000,000 shares; issued and outstanding 41,804,510 at
December 31, 1995............................................ 8,360,902 --
Additional paid-in capital...................................... 1,200,140 --
Accumulated deficit............................................. (633,089) --
----------- -----------
Total stockholders' equity (deficit).................... 9,662,812 (2,081,217)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $ 22,382,716 $ 8,230,496
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE> 88
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JULY 15, 1993
DECEMBER 31, (INCEPTION)
------------------------ THROUGH
1995 1994 DECEMBER 31, 1993
---------- ---------- -----------------
<S> <C> <C> <C>
REVENUES
Oil and gas sales.................................. $5,477,208 4,995,663 1,059,882
Pipeline joint venture............................. 573,393 -- --
Other, net......................................... 123,811 17,783 8,522
---------- ---------- ----------
Total revenues............................. 6,174,412 5,013,446 1,068,404
---------- ---------- ----------
COSTS AND EXPENSES
Lease operating expense and production taxes....... 1,029,501 684,131 194,054
Depletion, depreciation and amortization........... 1,785,502 1,156,624 179,476
Exploration........................................ 193,159 4,240 --
Impairment of oil and gas properties............... 157,000 -- --
Interest expense................................... 1,132,488 1,072,098 199,389
General and administrative......................... 739,451 81,535 1,301
---------- ---------- ----------
Total costs and expenses................... 5,037,101 2,998,628 574,220
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM AND INCOME TAXES.... 1,137,311 2,014,818 494,184
========== ==========
Income Taxes....................................... --
----------
INCOME BEFORE EXTRAORDINARY ITEM..................... 1,137,311
Extraordinary item -- early extinguishment of
debt............................................ (482,906)
----------
NET INCOME........................................... 654,405
Preferred stock dividends.......................... 254,932
----------
EARNINGS AVAILABLE TO COMMON STOCK................... $ 399,473
==========
PRO FORMA INFORMATION (UNAUDITED):
Income before extraordinary item and income taxes.... $1,137,311 2,014,818 494,184
Pro forma income taxes*.............................. 402,698 785,779 192,732
---------- ---------- ----------
734,613 1,229,039 301,452
Extraordinary item -- early extinguishment of
debt............................................ (482,906) -- --
---------- ---------- ----------
Pro forma net income................................. 251,707 1,229,039 301,452
Preferred stock dividends.......................... 254,932 -- --
---------- ---------- ----------
Pro forma earnings available to common stock......... $ (3,225) 1,229,039 301,452
========== ========== ==========
Pro forma income before extraordinary item per
average common share............................... $ .02 .06 .02
Pro forma extraordinary item per average common
share.............................................. (.02) -- --
---------- ---------- ----------
Pro forma earnings per average common share.......... $ -- .06 .02
========== ========== ==========
Pro forma weighted average common shares
outstanding**...................................... 27,722,543 19,765,226 19,765,226
========== ========== ==========
</TABLE>
- ---------------
* As described in Noted D, no provision for income taxes is included in the
consolidated statements of operations for the periods ended December 31, 1994
and 1993, for the operations of La/Cal Energy Partners (predecessor company),
due to La/Cal being a partnership and income taxes were the responsibility of
the individual partners of La/Cal. Certain unaudited pro forma information
relating to the Company's results of operations had La/Cal been a
corporation, is shown here.
** For purposes of this presentation the number of pro forma shares used for
periods prior to August 15, 1995, is 19,765,226 shares, the number issued by
the Company in exchange for La/Cal's net assets contributed.
See notes to consolidated financial statements.
F-10
<PAGE> 89
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 15, 1993
YEAR ENDED DECEMBER 31, (INCEPTION) THROUGH
--------------------------- DECEMBER 31,
1995 1994 1993
------------ ----------- -------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income..................................... $ 654,405 2,014,818 494,184
Adjustments to reconcile net income to net cash
provided by operating activities:
Depletion, depreciation and amortization.... 1,785,502 1,156,624 179,476
Amortization of deferred debt financing
costs..................................... 101,531 112,530 29,598
Extraordinary item -- early extinguishment
of debt................................... 482,906 -- --
Exploration costs charged to income......... 193,159 4,240 --
Impairment of oil and gas properties........ 157,000 -- --
Payment of other liabilities................ (130,010) -- --
(Increase) decrease in:
Accounts receivable....................... (28,773) (454,610) (480,300)
Prepaid insurance and other............... (322,900) -- --
(Decrease) increase in
Accounts payable.......................... 493,343 (72,846) 208,762
Accrued liabilities....................... 188,905 61,831 47,243
Other....................................... 3,857 -- --
------------ ----------- -----------
Net cash provided by operating
activities........................... 3,578,925 2,822,587 478,963
------------ ----------- -----------
INVESTING ACTIVITIES
Sale of investment............................. 9,600,000 -- --
Proceeds from sales of oil and gas
properties.................................. 1,514,336 -- --
Cash paid in connection with business
combination................................. (1,088,432) -- --
Overdraft bank balances assumed in business
combination................................. (451,414) -- --
Capital expenditures........................... (649,604) (3,719,782) (1,967,989)
Other.......................................... (47,883) -- --
------------ ----------- -----------
Net cash provided by (used in)
investing activities................. 8,877,003 (3,719,782) (1,967,989)
------------ ----------- -----------
FINANCING ACTIVITIES
Proceeds from bank borrowings.................. 21,000,000 5,719,933 6,510,580
Principal payments of bank borrowings.......... (31,942,841) (1,756,856) (406,934)
Partnership contributions...................... -- -- 300,647
Partnership distributions...................... (1,132,735) (3,107,258) (4,073,185)
Payment of debt financing costs................ (114,771) -- --
Preferred stock dividends...................... (362,893) -- --
Organizational costs incurred.................. -- -- (89,944)
------------ ----------- -----------
Net cash provided by (used in)
financing activities................. (12,553,240) 855,819 2,241,164
------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... (97,312) (41,376) 752,138
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD......................................... 710,762 752,138 --
------------ ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....... $ 613,450 710,762 752,138
============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE> 90
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994 AND PERIOD FROM JULY 15, 1993 (INCEPTION)
THROUGH DECEMBER 31, 1993
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
PARTNER'S ---------------------- ----------------------- ADDITIONAL TOTAL
CAPITAL NUMBER NUMBER PAID-IN ACCUMULATED STOCKHOLDERS'
(DEFICIT) OF SHARES PAR VALUE OF SHARES PAR VALUE CAPITAL DEFICIT EQUITY (DEFICIT)
----------- --------- ---------- ---------- ---------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 15,
1993............. $ -- -- $ -- -- $ -- -- -- --
Partnership
contributions.... 2,590,224 -- -- -- -- -- -- 2,590,224
Partnership
distributions.... (4,073,185) -- -- -- -- -- -- (4,073,185)
Net income......... 494,184 -- -- -- -- -- -- 494,184
----------- ---------- ----------- ---------- ---------- --------- -------- ----------
Balance at December
31, 1993......... (988,777) -- -- -- -- -- -- (988,777)
Partnership
distributions.... (3,107,258) -- -- -- -- -- -- (3,107,258)
Net Income......... 2,014,818 -- -- -- -- -- -- 2,014,818
----------- ---------- ----------- ---------- ---------- --------- -------- ----------
Balance at December
31, 1994......... (2,081,217) -- -- -- -- -- -- (2,081,217)
Partnership
distributions.... (1,229,344) -- -- -- -- -- -- (1,229,344)
Business
Combination...... 3,310,561 1,098,710 1,098,710 39,530,452 7,906,090 258,539 -- 12,573,900
Conversion of
preferred
stock............ -- (363,851) (363,851) 2,274,058 454,812 (90,961) -- --
Preferred stock
dividends........ -- -- -- -- -- -- (254,932) (254,932)
Net income......... -- -- -- -- -- 1,032,562 (378,157) 654,405
----------- ---------- ----------- ---------- ---------- --------- -------- ----------
Balance at December
31, 1995......... $ -- 734,859 $ 734,859 41,804,510 $8,360,902 1,200,140 (633,089) 9,662,812
=========== ========== =========== ========== ========== ========= ======== ==========
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE> 91
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE A -- BUSINESS COMBINATION
On August 15, 1995, the transactions contemplated by the Agreement and Plan
of Merger among Patrick Petroleum Company ("Patrick"), La/Cal Energy Partners
("La/Cal"), Goodrich Petroleum Corporation (the "Company"), and Goodrich
Acquisition, Inc. were completed. The Agreement provided for a combination of
Patrick and La/Cal, as a result of which the businesses previously conducted by
Patrick and La/Cal are now conducted by the Company, which is a Delaware
corporation formed for the purpose of consummating such transactions, and its
subsidiaries. The combination of Patrick and La/Cal was effected primarily by
two concurrent transactions: (a) the contribution by La/Cal 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") was converted
into one share of Common Stock; (ii) each outstanding share of Patrick Series B
Convertible Preferred Stock was converted into one share of the Company's Series
A Convertible Preferred Stock (except for 76,290 shares for which appraisal
rights were preserved) and (iii) Patrick, the surviving corporation in the
Merger, became a wholly-owned subsidiary of the Company.
La/Cal was formed, by the contribution of certain oil and gas properties
owned by the partners, 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 business of La/Cal was 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 also engaged in the development,
production, and sale of any commercial accumulations of oil and gas discovered.
Profits, losses, and distributable cash were allocated to the individual
partners as defined in the Partnership Agreement.
NOTE B -- BASIS OF PRESENTATION
The combination transactions were accounted for as a purchase business
combination in accordance with Accounting Principles Board Opinion No. 16,
Business Combinations whereby La/Cal was deemed to be the acquiror and Patrick
the acquiree. Accordingly, on August 15, 1995, the Company recorded the assets
and liabilities of Patrick at fair value, whereas the assets and liabilities of
La/Cal are reflected at historical book value. The consolidated financial
statements reflect the operations solely of La/Cal for periods prior to August
15, 1995, whereas such financial statements reflect the operations of the
combined entities for periods subsequent to August 15, 1995.
NOTE C -- DESCRIPTION OF BUSINESS
The Company is in the primary business of the exploration and production of
crude oil and natural gas. The Subsidiaries have interests in such operations in
eight states, primarily in Louisiana and Texas. The Company's subsidiaries also
have a minority interest in a natural gas pipeline joint venture located in the
state of Texas.
NOTE D -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment -- The Company 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
F-13
<PAGE> 92
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
During the fourth quarter of 1995, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Under SFAS No.
121, an impairment is determined to have occurred and a loss is recognized when
the net of future cash inflows expected to be generated by an identifiable
long-lived asset and cash outflows expected to be required to obtain those cash
inflows is less than the carrying value of the asset. The Company performs this
comparison for its oil and gas properties on a field-by-field basis. The Company
recorded such an impairment in the fourth quarter of 1995 in the amount of
$157,000.
Prior to the adoption of SFAS 121, undiscounted future net revenues were
compared annually to net capitalized cost of all oil and gas properties to
determine if an impairment had occurred in the amount capitalized.
Depreciation and depletion of producing oil and gas properties are provided
under the unit-of-production method. Proved 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.
Cash and Cash Equivalents -- Cash and cash equivalents include cash on
hand, demand deposit accounts and temporary cash investments with maturities of
ninety days or less at date of purchase.
Marketable Equity Securities -- In accordance with Statement of Financial
Accounting Standards No. 115, the Company has classified its investment in
marketable equity securities as available for sale. Accordingly, unrealized
holding gains and losses are excluded from earnings and are reported as a
separate component of stockholders' equity until realized.
Investment in Pipeline Joint Venture -- The Company's investment consists
of a 20% interest in an intrastate natural gas pipeline joint venture. The
Company's carrying basis in the investment was established at August 15, 1995
(fair value) and is being amortized on a basis which matches the amortization
with the monthly maximum average contract quantities over the remaining term of
the joint venture which is estimated to terminate in 2000. Amortization for the
year ended December 31, 1995 amounted to $403,254. The Company records its
equity in joint venture earnings as revenues on the statement of operations.
Income Taxes -- The federal income tax effect of La/Cal's activities (prior
to August 15, 1995) is not reflected in the financial statements since such
taxes were the responsibility of the individual partners of La/Cal. The Company
became subject to income taxes as of August 15, 1995, as a result of the
business combination.
The Company follows the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes which requires income taxes be
accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are
F-14
<PAGE> 93
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Earnings Per Share -- As discussed previously, La/Cal's activities prior to
the business combination were conducted in the form of a partnership and the
Company was established in corporate form on August 15, 1995. Earnings per share
information has been presented on a pro forma basis to reflect such information
as if La/Cal had been operated as a corporation for the periods presented.
Commitments and Contingencies -- Liabilities for loss contingencies,
including environmental remediation costs, arising from claims, assessments,
litigation, fines and penalties, and other sources are recorded when it is
probable that a liability has been incurred and the amount of the assessment
and/or remediation can be reasonably estimated. Recoveries from third parties
which are probable of realization are separately recorded, and are not offset
against the related environmental liability.
Use of Estimates -- Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
NOTE E -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 1995. FASB Statement No.
107, Disclosures about Fair Value of Financial Instruments, defines the fair
value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Financial asset --
Marketable equity securities.............................. $ 759,600 759,600
Financial liabilities --
Other liabilities......................................... 572,990 482,575
Long-term debt (including current maturities)............. 9,750,000 8,770,098
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and cash equivalents, accounts receivable, accounts payables and
accrued liabilities: The carrying amounts approximate fair value because of the
short maturity of those instruments. Therefore, these instruments were not
presented in the table above.
Marketable equity securities: Fair value is based on bid prices published
in financial media.
Other liabilities and Long-term debt: The fair value is estimated by
discounting the future cash flows of each instrument at rates currently offered
to the Company for similar debt instruments of comparable maturities by the
Company's bankers.
F-15
<PAGE> 94
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- PATRICK ASSETS AND LIABILITIES ACQUIRED
On August 15, 1995, the Company recorded the combination transactions which
effect was primarily the recording of the assets and liabilities of Patrick at
their fair value. Such amounts were as follows:
<TABLE>
<S> <C>
Cash overdraft......................................................... $ (451,414)
Marketable equity securities........................................... 759,600
Accounts receivable.................................................... 676,040
Prepaid expenses and other current assets.............................. 12,745
Investment in Penske Corporation....................................... 9,600,000
Investment in pipeline joint venture................................... 5,079,754
Property and equipment................................................. 10,780,422
Accounts payable....................................................... (27,627)
Accrued liabilities.................................................... (1,438,070)
Long term debt......................................................... (10,626,118)
Other liabilities...................................................... (703,000)
------------
$ 13,662,332
============
</TABLE>
The former common shareholders of Patrick received 19,765,226 shares of the
Company's common stock and the former preferred shareholders of Patrick
effectively received 1,098,710 shares of the Company's preferred stock in the
business combination. As reflected in the consolidated statements of
stockholders' equity, the issuance of such shares resulted in an increase in
stockholders' equity of $12,573,900.
NOTE G -- SALE OF INVESTMENT IN PENSKE CORPORATION
On September 18, 1995, the Company received $9,600,000 cash as redemption
of its investment in the Penske Corporation. The proceeds were used to pay down
the company's long term debt along with related accrued interest. No gain or
loss resulted from the transaction.
NOTE H -- LONG TERM DEBT
Long-term debt at December 31, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Borrowings under credit facility, interest, at prime or
LIBOR plus 2% (see below) (weighted average rate at
December 31, 1995 -- 7.89%); principal due June 1, 1997... $9,750,000 --
10% senior secured general obligation notes................. -- 10,066,723
---------- ----------
Total long-term debt........................................ 9,750,000 10,066,723
Less current portion........................................ -- 1,816,723
---------- ----------
Long-term debt, excluding current portion................... $9,750,000 8,250,000
========== ==========
</TABLE>
Long-term debt recorded on the December 31, 1994 balance sheet represented
La/Cal's 10% Senior Secured General Obligation Notes ("the General Obligation
Notes"). This debt was paid off with proceeds from the Company's credit
facility.
The Company has a credit facility with a bank which provides for a total
borrowing base determined by the bank every six months in part, based on the
Company's oil and gas reserves. Any and all amounts drawn are due and payable on
June 1, 1997. Interest on related borrowings is based on either of two methods
at the
F-16
<PAGE> 95
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
option of the Company: the bank's prime lending rate or LIBOR plus 2%. Interest
rates are set on specific draws for one, two, three or six month periods, also
at the option of the Company.
The original borrowing base of $22,000,000 was reduced to $15,000,000 after
the sale of the Company's investment in the Penske Corporation (see Note G
above), in accordance with the specific provisions of the credit facility.
The credit facility requires minimum net worth and debt service ratios be
maintained by the Company. On March 26, 1995, the bank amended the minimum net
worth covenant which lowered the minimum net worth requirement to $8,500,000
plus 50% of net income subsequent to September 30, 1995 effective December 1,
1995. Giving effect to such amendment, the Company had $1,027,326 available for
the payment of dividends at December 31, 1995.
Substantially all of the Company's assets are pledged to secure this credit
facility.
Interest paid during 1995, 1994 and the period from July 15, 1993
(inception of La/Cal) through December 31, 1993 amounted to $968,190, $1,051,927
and $194,738 respectively.
NOTE I -- EXTRAORDINARY ITEM-EARLY EXTINGUISHMENT OF DEBT
La/Cal's General Obligation Notes were paid off in connection with the
business combination and the related unamortized debt financing costs in the
amount of $482,906 were charged to operations as an extraordinary item, in the
third quarter of 1995.
NOTE J -- ACCRUED LIABILITIES
Accrued liabilities as of December 31, 1995 and 1994 consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
---------- -------
<S> <C> <C>
Environmental contingency..................................... $ 400,000 --
Current portion -- consulting agreement contracts............. 387,000 --
Prior years' state income and franchise taxes................. 200,000 --
Taxes other than income....................................... 160,000 --
Other......................................................... 593,028 109,074
---------- -------
$1,740,028 109,074
========== =======
</TABLE>
NOTE K -- PRO FORMA FINANCIAL RESULTS OF OPERATIONS (UNAUDITED)
Selected results of operations on a pro forma basis as if the combination
transactions had occurred on January 1, 1995 and January 1, 1994, respectively,
are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
---------------------------
1995 1994
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................. $11,588,318 $15,836,988
Income before extraordinary item.......................... 2,510,494 3,780,094
Net income................................................ 2,027,588 3,780,094
Income applicable to common stock......................... 1,377,588 2,840,094
Income before extraordinary item per average common
share................................................... .04 .07
Income per average common share........................... $ .03 $ .07
</TABLE>
F-17
<PAGE> 96
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma operations for the year ended December 31, 1995 contain a net
gain on the sale of an investment which accounted for $1,563,762 of net income
and $ .04 income per share. The operations information for the year ended
December 31, 1994 contains a net gain on sale of investments which accounted for
$6,447,102 of net income and $.16 income per share. Also the operations for the
year ended December 31, 1994 has been adjusted to eliminate operations related
to certain oil and gas properties sold by Patrick in December, 1994 in order to
present comparable amounts.
NOTE L -- 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 in Vermilion Parish,
Louisiana. The EPA has estimated that the total cost of long-term clean-up of
the site will be approximately $15.4 million with the Company's percentage of
responsibility to be approximately 3.09%. As of December 31, 1995, the Company
has paid approximately $115,000 in costs related to this matter and accrued an
additional $400,000 for the remaining liability. The EPA and PRPs will continue
to evaluate the site and revise estimates for the long-term clean-up of the
site. There can be no assurance that the cost of clean-up 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 clean-up of the site is joint and several among all PRPs. Therefore, the
ultimate cost of the clean-up 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 results or 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 M -- INCOME TAXES
Income tax expense for the period from August 15, 1995 through December 31,
1995 consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
<S> <C> <C> <C>
U.S. Federal................................................... $25,000 (25,000) --
State and local................................................ -- -- --
------- ------- ------
$25,000 (25,000) --
======= ======= ======
</TABLE>
Following is a reconciliation of the U.S. statutory income tax rate to the
Company's effective rate on loss before income taxes for the period from August
15, 1995 through December 31, 1995:
<TABLE>
<S> <C>
U.S. Statutory Income Tax Rate............................................... (35.0)%
Increase in deductible temporary differences for which no benefit recorded... 28.2
Nondeductible expenses....................................................... 6.8
-----
--
=====
</TABLE>
The significant components of deferred income tax expense for the period
from August 15, 1995 through December 31, 1995 are as follows:
<TABLE>
<S> <C>
Deferred tax benefit (exclusive of utilization of net operating loss
carryforwards).......................................................... 657,938
Utilization of net operating loss carryforward............................ 632,938
--------
$(25,000)
========
</TABLE>
F-18
<PAGE> 97
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1995 are presented below.
<TABLE>
<S> <C>
Deferred tax assets:
Differences between book and tax basis of:
Property and equipment............................................... $ 307,025
Marketable equity securities......................................... 140,156
Contingent liabilities............................................... 254,962
Consulting agreement contracts....................................... 335,997
Other................................................................ 70,306
AMT Tax credit carryforward............................................ 1,392,176
Statutory depletion carryforward....................................... 4,943,209
Investment tax credit carryforward..................................... 1,242,725
Operating loss carryforward............................................ 12,364,772
------------
Total gross deferred tax assets........................................ 21,051,328
Less valuation allowance............................................... (19,461,294)
------------
Net deferred tax assets................................................ 1,590,034
------------
Deferred tax liability:
Differences between book and tax basis of investment in Pecos
pipeline............................................................. (1,565,034)
------------
Total gross deferred liability......................................... (1,565,034)
------------
Net deferred tax asset................................................. $ 25,000
===========
</TABLE>
The valuation allowance for deferred tax assets increased $658,000 for the
period from August 15, 1995 through December 31, 1995 which substantially offset
the change in certain deferred tax assets. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Based primarily upon the level of projections for future
taxable income generated primarily by the reversal of future taxable temporary
differences over the periods which the deferred tax assets are deductible,
management believes it is more likely than not the Company will realize the
benefits of these deductible differences, net of the existing valuation
allowance at December 31, 1995. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
F-19
<PAGE> 98
GOODRICH PETROLEUM CORPORATION 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>
$ 511,282 2001 $ 193,346 1996
2,994,824 2003 302,001 1997
4,801,898 2004 558,042 1998
1,551,278 2005 22,591 1999
7,564,329 2006 68,171 2000
9,331,128 2007 96,466 2001
4,756,252 2008 2,108 2002
3,695,445 2009
121,484 2010
- ----------- ----------
$35,327,920 $1,242,725
=========== ==========
</TABLE>
As a result of the business combination, the Company's annual utilization
of its net operating and statutory depletion carryforwards are limited under
Internal Revenue Code Section 382. Such annual limitation is estimated to be
approximately $1,600,000 plus any built in gains at the date of the business
combination.
The Company's statutory depletion carryforwards and AMT credit carryovers
have no expiration date.
As described in Note D, no provision for income taxes for La/Cal was
included in the statements of operations prior to August 15, 1995 due to the tax
effect of Partnership activities being the responsibility of the individual
Partners.
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>
NOTE N -- STOCKHOLDERS' EQUITY
Common Stock -- At December 31, 1995, unissued shares of Goodrich common
stock were reserved in the amount of 2,447,080 shares for the conversion of
convertible preferred stock and 2,675,602 shares for stock option plans.
Preferred Stock -- In accordance with the terms of the combination
transactions, all of the outstanding shares of Patrick's Series B Convertible
Preferred Stock were converted into Goodrich Series A Convertible Preferred
Stock except for 76,290 shares for which appraisal rights had been preserved.
The Preferred Stock has a par value of $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
F-20
<PAGE> 99
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $4.25 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 an
annual rate of 8%.
As a result of the combination transactions, the Company was required to
offer a special conversion right to all holders of the Preferred Stock for a
period of 61 days beginning August 18, 1995. On October 18, 1995, holders of
363,851 shares of the Company's preferred stock elected to convert their shares
to Common Stock at an exchange rate of 6.25 to 1. This conversion resulted in
the Company issuing an additional 2,274,058 shares of Common Stock and resulted
in 734,859 preferred shares outstanding as of December 31, 1995.
Effective January 1, 1996, the preferred shares under appraisal rights were
reinstated, resulting in outstanding shares of 811,149.
Stock Option and Incentive Programs -- Goodrich currently has two plans
which provide for stock option and other incentive awards for the Company's key
employees and consultants and its directors. The Goodrich Petroleum Corporation
1995 Stock Option Plan allows the Board of Directors, through its Compensation
Committee, to grant stock options, restricted stock awards, stock appreciation
rights, long-term incentive awards, and phantom stock awards, or any combination
thereof to key employees and consultants. The Goodrich Petroleum Corporation
1995 Nonemployee Director Stock Option Plan provides for the grant of options to
each director who is not and has never been an employee of the Company.
Additionally, Goodrich assumed certain outstanding stock options of Patrick
as a result of the business combination.
Stock option transactions during 1995 were as follows:
<TABLE>
<CAPTION>
NUMBER OF AVERAGE
OPTIONS PRICE
--------- -------
<S> <C> <C>
Outstanding January 1, 1995..................................... -- --
Assumed from Patrick.......................................... 1,670,602 $2.32
Granted -- 1995 Stock Option Plan............................. 880,000 1.02
Granted -- 1995 Non Employee Director Stock Option Plan....... 220,000 0.97
Expiration of Options......................................... (95,000) 2.25
--------- -----
Outstanding December 31, 1995................................... 2,675,602 1.78
========= =====
Exercisable December 31, 1995................................... 1,890,602 $2.16
========= =====
</TABLE>
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for its stock option plans. During 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standard No. 123, Accounting for
Stock Based Compensation. This statement encourages companies to recognize
compensation expense for certain equity instrument issuances in accordance with
new fair value accounting guidelines. The Company has decided not to adopt the
recognition provisions of the Statement and will adopt the disclosure provisions
of the Statement in 1996.
NOTE O -- PATRICK PETROLEUM EMPLOYEE BENEFIT PLANS
Patrick maintained several employee benefit plans prior to the business
combination. In accordance with the business combination, each of these plans
has been or is in the process of being terminated. Accordingly,
F-21
<PAGE> 100
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the only activities of these plans subsequent to August 15, 1995 were related to
their termination. At December 31, 1995, the Patrick Petroleum Corporation of
Michigan Defined Benefit Plan and Trust held assets of $1,731,000. The Plan is
fully funded and these assets are expected to be distributed to the participants
during 1996.
NOTE P -- NATURAL GAS AND CRUDE OIL COST DATA AND RESULTS OF OPERATIONS.
The following reflects the Company's capitalized costs related to natural gas
and oil activities at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
----------- ---------
<S> <C> <C>
Proved properties........................................... $15,271,879 7,271,549
Unproved properties......................................... 990,154 --
----------- ---------
16,262,033 7,271,549
Less accumulated depreciation and depletion................. 2,209,924 1,309,866
----------- ---------
Net property and equipment........................ $14,052,109 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,
1993
YEAR ENDED DECEMBER 31, THROUGH
-------------------------- DECEMBER 31,
1995 1994 1993
---------- --------- ------------
<S> <C> <C> <C>
Acquisition of proved properties........... 10,680,422(a) 2,112,308 1,250,000
Exploration costs.......................... 193,159 4,240 --
Development costs.......................... 514,431 1,600,235 717,989
</TABLE>
- ---------------
(a) Properties acquired from Patrick.
Results of operations for natural gas and oil producing activities follow:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 15,
1993
YEAR ENDED DECEMBER 31, THROUGH
-------------------------- DECEMBER 31,
1995 1994 1993
---------- --------- ------------
<S> <C> <C> <C>
Sales to unaffiliated customers............ $5,477,208 4,995,663 1,059,882
Production costs (lease operating expense
and taxes)............................... 1,029,501 684,131 194,054
Exploration expenses....................... 193,159 4,240 --
Impairment of Oil and Gas Properties....... 157,000 -- --
Depreciation, depletion and amortization... 1,356,060 1,138,635 171,231
---------- --------- ---------
2,735,720 1,827,006 365,285
---------- --------- ---------
Results of operations before pro forma
income taxes............................. 2,741,488 3,168,657 694,597
Pro forma income taxes (Unaudited)......... 970,703 1,235,776 270,893
---------- --------- ---------
Pro forma results of operations
(Unaudited).............................. $1,770,785 1,932,881 423,704
========== ========= =========
</TABLE>
La/Cal operated as a partnership since its formation to the date of the
business combination (August 15, 1995) and, accordingly, did not directly pay
income taxes. Pro forma income tax expense and the results of oil
F-22
<PAGE> 101
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and gas operations as adjusted for pro forma income taxes is reflected above for
that period in order to reflect the impact of income taxes as if La/Cal had been
organized as a corporation.
No income taxes have been reflected for the Company since the business
combination due to its estimate that net operating loss and statutory depletion
loss carryforwards will be utilized to offset future taxable income.
NOTE Q -- RELATED PARTY TRANSACTIONS.
La/Cal did not have any employees and was dependent on Goodrich Oil Company
to provide substantially all management of oil and gas operations and
administrative functions. La/Cal was not required to pay Goodrich Oil Company
for such services. Goodrich Oil Company was the operator of record of the
majority of the oil and gas properties in which La/Cal had an interest and owned
joint interests in such properties.
The Company entered into additional transactions with Goodrich Oil Company
subsequent to the business combination as more fully described below. Goodrich
Oil Company is owned by Henry Goodrich who is the chairman of the Company and
the father of Walter G. Goodrich, the Company's President and Chief Executive
Officer.
Goodrich Oil Company continues to be the operator of record of certain oil
and gas properties in which the Company has an interest and Goodrich Oil Company
owns joint interests in such properties.
The Company is a party to a Joint Participation Agreement with Goodrich Oil
Company pursuant to which the Company and Goodrich Oil Company agree to offer to
the other a 50% participation interest in such company's share of all drilling
prospects and acquisitions of producing properties.
Included in accounts payable is $67,906 payable to Goodrich Oil Company at
December 31, 1995.
During 1995, the Company paid Goodrich Oil Company $222,530 for the
repayment of advances for business combination expenses and $50,132 for general
and administrative expenses.
The Company sold an airplane hangar and certain furniture and fixtures to
U.E. Patrick, Patrick's former chairman. Mr. Patrick paid the Company $137,329
for such items. The Company paid $118,750 during 1995 to Mr. Patrick under the
terms of a three-year consulting agreement expiring in August, 1998.
The Company paid $58,250 to Henry Goodrich during 1995 under a consulting
agreement which expires in August, 2000.
In connection with the business combination, Mr. Leo E. Bromberg, a partner
and member of the management committee of La/Cal received a finder's fee paid in
the form of 494,131 shares of the Company's common stock. Such shares were
included in the 19,765,226 shares of the Company's common stock received by the
La/Cal Partners in connection with the transactions.
F-23
<PAGE> 102
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE R -- CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Due to the nature of the industry the Company sells its oil and natural gas
production to a limited number of purchasers and accordingly amounts receivable
from such purchasers could be significant. Additionally, the Company receives
net monthly payments from its partner, Mitchell Marketing Company, in its
pipeline joint venture. Revenues from these sources as a percent of total
revenues for the periods presented were as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 15,
YEAR ENDED 1993
DECEMBER 31, THROUGH
--------------- DECEMBER 31,
1995 1994 1993
---- ---- ------------
<S> <C> <C> <C>
Tenneco Gas Marketing Company......................... -- 41% 70%
Seaber Corporation of Louisiana....................... 55% 48% --
Mobil Oil Corporation................................. 16% -- --
Mitchell Marketing Company............................ 9% -- --
</TABLE>
NOTE S -- SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED)
The supplemental oil and gas reserve information that follows is 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.
The supplemental oil and gas reserve information that follows relates to
the properties contributed to La/Cal by its Partners prior to its formation
(period from January 1, 1993 through July 14, 1993), properties owned by La/Cal
subsequent to formation but prior to the business combination with Patrick
(period from July 15, 1993 through December 31, 1993, year ended December 31,
1994 and period form January 1, 1995 through August 14, 1995) and properties of
the combined entities (period from August 15, 1995 through December 31, 1995.
Therefore, the supplemental oil and gas information for 1993 is presented on a
combined basis to include the properties contributed to La/Cal prior to its
inception. All of the subject reserves are located in the continental United
States.
Schedules 1 and 2 -- Estimated Net Proved Oil and Gas Reserves
The Company's reserve information related to crude oil, condensate, and
natural gas liquids and natural gas was compiled based on evaluations performed
by several engineering firms and the Company internally for the years presented.
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.
F-24
<PAGE> 103
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Schedule 3 -- Standardized Measure of Discounted Future Net Cash Flows 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 is 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, and were $17.90 per Bbl and $2.01 per Mcf,
respectively.
No income tax effect has been provided in the amounts below as of December
31, 1994 and 1993 due to the fact La/Cal was a partnership with all income taxes
being the responsibility of the partners themselves.
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 three
years in the period ended December 31, 1995.
SCHEDULE 1 -- ESTIMATED NET PROVED GAS RESERVES (MCF)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Proved:
Balance, beginning of period................. 21,983,004 17,550,038 9,313,693
Revisions of previous estimates.............. (5,727,528) (702,870) (653,255)
Purchase of minerals in place................ 5,324,607 4,380,429 3,769,789
Extensions, discoveries, and other
additions................................. 375,800 3,141,537 6,041,157
Production................................... (2,213,923) (2,386,130) (921,346)
Sales of minerals in place................... (854,771) -- --
---------- ---------- ----------
Balance, end of period....................... 18,887,189 21,983,004 17,550,038
========== ========== ==========
Proved developed:
Beginning of period.......................... 18,839,882 13,729,911 8,026,445
End of period................................ 13,815,905 18,839,882 13,729,911
</TABLE>
SCHEDULE 2 -- ESTIMATED NET PROVED OIL RESERVES (BARRELS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Proved:
Balance, beginning of period................. 523,722 209,941 68,796
Revisions of previous estimates.............. (236,934) (23,246) 51,806
Purchase of minerals in place................ 938,465 47,482 37,106
Extensions, discoveries, and other
additions................................. 3,389 326,033 59,463
Production................................... (102,731) 36,488 (7,230)
Sale of minerals in place.................... (185,764) -- --
---------- ---------- ----------
Balance, end of period....................... 940,147 523,722 209,941
---------- ---------- ----------
Proved, developed:
Beginning of period.......................... 504,908 174,641 30,179
End of period................................ 920,557 504,908 174,641
</TABLE>
F-25
<PAGE> 104
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SCHEDULE 3 -- STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATED
TO PROVED OIL AND GAS RESERVES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Future cash inflows............................ $ 51,615 44,878 38,098
Future production and development cost......... (8,267) (3,803) (2,765)
Future income tax expense...................... (4,150) -- --
---------- ---------- ----------
Future net cash flows before income tax
expense...................................... 39,198 41,075 35,333
10% annual discount for estimated timing of
cash flows................................... (12,316) (13,559) (13,900)
---------- ---------- ----------
Standardized measure of discounted future net
cash flows................................... $ 26,882 27,516 21,433
========== ========== ==========
</TABLE>
Principal sources of change in the standardized measure of discounted net
cash flows for the years shown:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net changes in prices and production cost, including
excise taxes........................................ $ 829 $(2,978) $ 840
Sales and transfers of oil and gas produced, net of
production costs.................................... (4,448) (4,312) (1,676)
Net change due to revisions, extensions, and
discoveries......................................... (8,327) 4,662 6,899
Net change due to purchase and sales of
minerals-in-place................................... 11,090 5,105 4,549
Development cost incurred during the period........... 531 1,600 718
Net change in income taxes............................ (3,475) -- --
Accretion of discount................................. 2,752 2,143 931
Change in production rates (timing) and other......... 414 (137) (141)
------- ------- -------
-- -- --
$ (634) $ 6,083 $12,120
======== ======= =======
</TABLE>
F-26
<PAGE> 105
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 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
the note to the statement 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-27
<PAGE> 106
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.................................................. 136,808
--------
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 on July 15, 1993. 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-28
<PAGE> 107
INDEPENDENT AUDITORS' REPORT
THE PARTNERS OF LA/CAL ENERGY PARTNERS II:
We have audited the accompanying balance sheet of La/Cal Energy Partners II
as of December 31, 1995, and the related statements of operations, partners'
capital (deficit), and cash flows for the period from July 7, 1995 (inception)
through December 31, 1995. These statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of La/Cal Energy Partners II as
of December 31, 1995, and the results of its operations and its cash flows for
the period from July 7, 1995 (inception) through December 31, 1995, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Shreveport, Louisiana
September 25, 1996
F-29
<PAGE> 108
LA/CAL ENERGY PARTNERS II
BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................................ $ 505,497 $ 161,396
Accrued oil and gas revenues receivable......................... 522,086 581,678
----------- -----------
TOTAL CURRENT ASSETS.................................... 1,027,583 743,074
PROPERTY AND EQUIPMENT:
Producing leasehold costs (successful efforts method)........... 3,657,211 2,215,999
Lease and well equipment........................................ 696,454 514,525
----------- -----------
4,353,665 2,730,524
Less accumulated depreciation and depletion..................... 393,932 112,279
----------- -----------
Net property and equipment.............................. 3,959,733 2,618,245
Organizational cost, at amortized cost............................ 26,466 31,759
Deferred financing cost, at amortized cost........................ 240,000 288,000
----------- -----------
TOTAL ASSETS............................................ $ 5,253,782 $ 3,681,078
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt............................... $ 1,473,935 $ 887,542
Accrued expenses and other current liabilities.................. 71,540 69,890
----------- -----------
TOTAL CURRENT LIABILITIES............................... 1,545,475 957,432
Long-term debt, excluding current portion......................... 6,380,386 3,842,000
----------- -----------
TOTAL LIABILITIES....................................... 7,925,861 4,799,432
Partners' capital (deficit)....................................... (2,672,079) (1,118,354)
----------- -----------
TOTAL LIABILITIES AND PARTNERS' DEFICIT................. $ 5,253,782 $ 3,681,078
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE> 109
LA/CAL ENERGY PARTNERS II
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 7, 1995
NINE MONTHS (INCEPTION)
ENDED THROUGH
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Oil and gas sales................................................ $ 2,390,064 $1,063,318
Interest......................................................... 8,405 10,303
----------- ----------
Total revenues........................................... 2,398,469 1,073,621
EXPENSES:
Lease operating expense and production taxes..................... 377,328 169,484
Depreciation, depletion, and amortization........................ 286,946 115,808
General and administrative....................................... 48,599 3,557
Interest......................................................... 579,321 261,499
----------- ----------
Total expenses........................................... 1,292,194 550,348
----------- ----------
Net income............................................... $ 1,106,275 $ 523,273
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE> 110
LA/CAL ENERGY PARTNERS II
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
PERIOD FROM
JULY 7, 1995
(INCEPTION)
NINE MONTHS ENDED THROUGH
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------------- ------------
(UNAUDITED)
<S> <C> <C>
BALANCE AT BEGINNING OF PERIOD................................ $(1,118,354) $ -0-
Capital contributions....................................... -- 1,958,373
Capital distributions....................................... (2,660,000) (3,600,000)
Net income.................................................. 1,106,275 523,273
----------- -----------
BALANCE AT END OF PERIOD...................................... $(2,672,079) $(1,118,354)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE> 111
LA/CAL ENERGY PARTNERS II
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 7, 1995
(INCEPTION)
NINE MONTHS THROUGH
ENDED DECEMBER 31,
SEPTEMBER 30, 1996 1995
------------------- ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 1,106,275 $ 523,273
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion, and amortization................ 286,946 115,808
Amortization of deferred financing costs................. 48,000 32,000
Decrease (Increase) in accrued oil and gas receivable.... 59,592 (581,678)
Increase in accrued expenses and other current
liabilities............................................ 1,650 69,890
----------- -----------
Net cash provided by operating activities........... 1,502,463 159,293
----------- -----------
Cash flows from investing activities:
Capital expenditures........................................ (1,623,141) (1,320,781)
Organizational costs incurred............................... -- (35,288)
----------- -----------
Net cash used by investing activities............... (1,623,141) (1,356,069)
----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt................................ 4,173,158 5,200,000
Payments on long-term debt.................................. (1,048,379) (470,458)
Capital contributions....................................... -- 228,630
Capital distributions....................................... (2,660,000) (3,600,000)
----------- -----------
Net cash provided by financing activities........... 464,779 1,358,172
----------- -----------
Net increase in cash.......................................... 344,101 161,396
Cash at beginning of period................................... 161,396 --
----------- -----------
Cash at end of year........................................... 505,497 161,396
=========== ===========
Supplemental cash flow information:
Interest paid during period................................. $ 526,993 $ 224,244
Noncash investing and financing activities:
Contribution of property and equipment................... $ -- 1,729,743
Contribution of net current assets....................... -- 228,630
Deferred financing cost.................................. -- 320,000
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE> 112
LA/CAL ENERGY PARTNERS II
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND BASIS OF PRESENTATION
La/Cal Energy Partners II ("La/Cal II") was formed on July 7, 1995, as a
general partnership pursuant to the laws 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
II 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 II 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.
With respect to the financial statements as of and for the nine months
ended September 30, 1996, 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, the Partnership
believes the disclosures which are made are adequate to make the information
presented not misleading.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment -- La/Cal II 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.
During the fourth quarter of 1995, La/Cal II adopted Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. Under SFAS No. 121, an
impairment is determined to have occurred and a loss is recognized when the net
of future cash inflows expected to be generated by an identifiable long-lived
asset and cash outflows expected to be required to obtain those cash inflows is
less than the carrying value of the asset. The Partnership performs this
comparison for its oil and gas properties on a field-by-field basis. There was
no impact on the financial statements upon the adoption of the new standard.
Prior to the adoption of SFAS 121, undiscounted future net revenues were
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.
F-34
<PAGE> 113
LA/CAL ENERGY PARTNERS II
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Organizational and Deferred Financing Costs -- Organizational costs include
professional fees and other costs associated with the formation of La/Cal II.
Such costs are being amortized over a five-year period on a straight-line basis.
Organization costs at December 31, 1995, are presented net of accumulated
amortization of $3,529.
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
statements of operations. Deferred financing costs at December 31, 1995, are
presented net of accumulated amortization of $32,000.
Income Taxes -- The federal income tax effect of La/Cal II activities has
not been reflected in the financial statements since such taxes are the
responsibility of the individual Partners. At December 31, 1995, the book basis
of La/Cal II's net assets exceeded their tax basis by $2,765,848.
Use of Estimates -- Management of the Partnership has made a number of
estimates and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
Financial Instruments -- Statement of Financial Accounting Standards No.
107, Disclosures about Fair Value of Financial Instruments, requires that the
Partnership disclose estimated fair values for its financial instruments. Fair
value estimates are set forth below for the Partnership's financial instruments:
- Long-term debt -- Management estimates that rates currently available to
the Partnership for debt with similar terms and remaining maturities are
not substantially different than the terms of its outstanding long-term
debt; accordingly, estimated fair value is equal to current carrying
amount.
- Cash and cash equivalents, accounts receivable, accounts payable and
accrued expenses and other current liabilities -- The carrying amounts
approximate fair value because of the short maturity of those
instruments.
The fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instruments.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
(3) LONG-TERM DEBT
Pursuant to the terms of the Note Purchase Agreement ("Note Agreement"),
the purchaser is to make advances to the Partnership as determined by the
Reserve Base defined in the Note Agreement. The notes consist of 10% Senior
Secured General Obligation Notes (principal amount of $5,200,000) and 12% Senior
Secured General Obligation Notes (principal amount of $10,000,000). Advances
under the Note Agreement bear interest at either 10% or 12%. Principal and
interest is payable in monthly installments of 75% of the Net Proceeds of
Production, as defined in the Note Agreement, provided that the maximum
principal amount outstanding does not exceed a predetermined amount as noted in
the Agreement. The final monthly installment is due and payable by July 1, 2000.
Principal amount outstanding at December 31, 1995, was $4,729,542 and represents
advances under the 10% notes.
As security for the payment of the notes and the performance of the
obligation of the Partnership, the Partnership 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
F-35
<PAGE> 114
LA/CAL ENERGY PARTNERS II
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
two demand deposit accounts maintained by the Partnership at a bank. The
balances in these two demand deposit accounts totaled $160,489 at December 31,
1995.
In addition, the partners conveyed to the purchasers a 5% overriding
royalty interest (ORRI) in each of the mortgaged oil and gas properties
effective May 1, 1995, subject to later adjustment as provided in the Agreement.
Estimated present value of such ORRI was $320,000 and was recorded as a deferred
financing cost and as a reduction of producing leasehold costs.
None of the general partners of the Partnership have any obligation or
liability whatsoever 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, a
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; or the failure to deliver a first and
valid security interest of such partner's share of the Partnership.
Maturities of long-term debt as of December 31, 1995 are based upon the
corresponding maximum principal amount that can be outstanding for the relevant
future repayment dates as stated in the Note Agreement and are as follows:
<TABLE>
<S> <C>
1996..................................................... $ 887,542
1997..................................................... 1,192,000
1998..................................................... 1,169,000
1999..................................................... 1,060,000
2000..................................................... 421,000
</TABLE>
(4) PARTNERS' CAPITAL (DEFICIT)
Pursuant to the terms of the Partnership Agreement, the term of La/Cal II
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 II Partners.
The Partners contributed and conveyed to La/Cal II certain undivided
mineral interests including developed leasehold cost and existing oil and/or gas
wells, together with appurtenant production facilities (historical cost basis of
$1,729,743 at La/Cal II's inception). Also contributed were net current assets
of $228,630.
From time to time the Partners may be notified of certain additional
exploration, development, or recompletion opportunities available to La/Cal II.
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 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 II are shared and allocated
among the Partners in proportion to their respective distributive shares in
La/Cal II. From time to time, as may be determined, cash in excess of the
current and projected needs of the La/Cal II are distributed to the Partners
according to their respective distributive shares.
F-36
<PAGE> 115
LA/CAL ENERGY PARTNERS II
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) PRO FORMA INCOME TAX INFORMATION (UNAUDITED)
As described in note 2, no provision for income taxes for La/Cal II is
included in the statements of operations due to the tax effect of Partnership
activities being the responsibility of the individual Partners.
At December 31, 1995, the book basis of La/Cal II's net assets exceeded
their tax basis by $2,765,848 which would have resulted in a deferred income tax
liability of approximately $1,078,681 if La/Cal II had been a taxable entity.
The pro forma tax effects of the temporary differences comprising this amount
are as follows at December 31, 1995:
<TABLE>
<S> <C>
Property and equipment -- principally due to
accumulated depletion and depreciation.................. $ 879,084
Cash to accrual differences............................... 199,597
----------
$1,078,681
==========
</TABLE>
(6) NATURAL GAS AND CRUDE OIL COST DATA AND RESULTS OF OPERATIONS.
The following reflects La/Cal II's capitalized costs related to natural gas
and oil activities at December 31, 1995:
<TABLE>
<S> <C>
Producing leasehold costs (including work-in-progress).... $2,215,999
Lease and well equipment.................................. 514,525
----------
2,730,524
Less accumulated depreciation and depletion............... 112,279
----------
Net property and equipment.............................. $2,618,245
==========
</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 7, 1995
THROUGH
DECEMBER 31,
1995
-------------
<S> <C>
Acquisition of proved properties......................... $ --
Exploration costs........................................ --
Development costs........................................ 1,320,781
</TABLE>
Results of operations for natural gas and oil producing activities follow:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 7, 1995
THROUGH
DECEMBER 31,
1995
------------
<S> <C>
Sales to unaffiliated customers.......................... $ 1,063,318
Production costs (lease operating expense and taxes)..... 169,484
Exploration expenses..................................... --
Depreciation, depletion and amortization................. 112,279
-----------
$ 781,555
===========
</TABLE>
F-37
<PAGE> 116
LA/CAL ENERGY PARTNERS II
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) RELATED PARTY TRANSACTIONS
La/Cal II 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 II 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 II has an interest and
owns joint interests in such properties.
Goodrich Oil Company is wholly-owned by Henry Goodrich who is a La/Cal II
partner and a member of the management committee of the Partnership.
(8) CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Due to the nature of the industry La/Cal II sells its production to a
limited number of purchasers and accordingly amounts receivable from such
purchasers could be significant. During the period from July 7, 1995 through
December 31, 1995 La/Cal II sold a significant amount of its production to three
purchasers. Sales as a percent of oil and gas sales revenue to these purchasers
were as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 7, 1995
THROUGH
DECEMBER 31,
1995
-------------
<S> <C>
Seaber Corporation of Louisiana.............................. 47%
Texaco Trading and Transportation, Inc....................... 28%
EOTT Energy Operating Ltd. Partnership....................... 22%
</TABLE>
(9) SUBSEQUENT EVENT (UNAUDITED)
On October 22, 1996, La/Cal II entered into an exchange agreement with
Goodrich Petroleum Corporation, a New York Stock Exchange listed public company
whereby La/Cal II would contribute its oil and gas property and related assets
to Goodrich Petroleum Corporation in exchange for a combination of cash,
preferred stock and the assumption of La/Cal II's debt. The proposed transaction
has been approved by the Board of Directors of Goodrich Petroleum Corporation
and the Management Committee of La/Cal II and is subject to certain approvals by
the stockholders of Goodrich Petroleum and the partners as well as other
customary conditions and approvals. A meeting of the Partnership has been called
to approve the terms of the exchange agreement. Additionally, the Partnership
will vote to approve the dissolution of the Partnership subsequent to the
exchange agreement transactions.
F-38
<PAGE> 117
LA/CAL ENERGY PARTNERS II
SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(UNAUDITED)
The supplemental oil and gas reserve information that follows relates to
the properties contributed to La/Cal II by its Partners prior to formation (the
period from January 1, 1995 through July 7, 1995 and years ended December 31,
1994 and 1993) and properties owned by La/Cal II subsequent to formation (period
from July 7, 1995 through December 31, 1995). For comparative purposes the
supplemental oil and gas information for 1995 is presented on a combined basis
for the properties contributed to La/Cal II subsequent to inception. All of
La/Cal II'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 independent reserve engineers as of March 1, 1995 and November
1, 1995. Estimated reserve information for the years ended December 31, 1995,
1994 and 1993 were estimated by the Partnership based on those evaluations.
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 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 is 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 and were $16.10 per Bbl and $2.26 per Mcf
at December 31, 1995 and $13.85 per Bbl and $1.63 per Mcf at December 31, 1994,
and $12.21 per Bbl and $2.52 per Mcf at December 31, 1993.
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 three
years in the period ended December 31, 1995.
F-39
<PAGE> 118
LA/CAL ENERGY PARTNERS II
SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(UNAUDITED)
SCHEDULE 1 -- ESTIMATED NET PROVED GAS RESERVES (MCF)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
--------- --------- -------
<S> <C> <C> <C>
Balance, beginning of period............................... 5,385,000 820,000 --
Revision of previous estimates............................. (236,000) -- --
Purchase of minerals in place.............................. -- -- --
Extensions, discoveries, and other additions............... -- 4,741,000 832,000
Production................................................. (474,000) (176,000) (12,000)
--------- --------- -------
Balance, end of period..................................... 4,675,000 5,385,000 820,000
========= ========= =======
Proved Developed:
Beginning of period...................................... 5,265,000 700,000 --
End of period............................................ 4,555,000 5,265,000 700,000
</TABLE>
SCHEDULE 2 -- ESTIMATED NET PROVED OIL RESERVES (BARRELS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
--------- --------- -------
<S> <C> <C> <C>
Balance, beginning of period............................... 1,412,000 628,000 --
Revision of previous estimates............................. 124,000 -- --
Purchase of minerals in place.............................. -- -- --
Extensions, discoveries, and other additions............... -- 832,000 632,000
Production................................................. (55,000) (48,000) (4,000)
--------- --------- -------
Balance, end of period..................................... 1,481,000 1,412,000 628,000
========= ========= =======
Proved Developed:
Beginning of period...................................... 1,292,000 508,000 --
End of period............................................ 1,361,000 1,292,000 508,000
</TABLE>
SCHEDULE 3 -- STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING
TO PROVED OIL
AND GAS RESERVES
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------
1995 1994 1993
----------- ---------- ---------
<S> <C> <C> <C>
Future cash inflows.................................... $34,384,000 28,344,000 9,742,000
Future production and development cost................. 4,684,000 4,106,000 2,542,000
Future income tax expense(1)........................... -- -- --
----------- ---------- ---------
Future net cash flows.................................. 29,700,000 24,238,000 7,200,000
10% annual discount for estimated timing of cash
flows................................................ 12,971,000 11,441,000 3,183,000
----------- ---------- ---------
Standardized measure of discounted future net cash
flows................................................ $16,729,000 12,797,000 4,017,000
=========== ========== =========
</TABLE>
F-40
<PAGE> 119
Principal sources of change in the standardized measure of discounted
future net cash flows for the years shown:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
----------- --------- ---------
<S> <C> <C> <C>
Net changes in prices and production cost,
including excise taxes........................ $ 3,033,000 (179,000) 593,000
Sales and transfers of oil and gas produced, net
of production costs........................... (1,479,000) (871,000) (60,000)
Net change due to revisions, extensions, and
discoveries................................... 475,000 8,513,000 3,452,000
Net change due to purchase of
minerals-in-place............................. -- -- --
Development cost incurred during the period..... 462,000 400,000 --
Accretion of discount........................... 1,280,000 402,000 --
Change in production rates (timing) and other... 161,000 515,000 31,000
----------- --------- ---------
$ 3,932,000 8,780,000 4,016,000
=========== ========= =========
</TABLE>
- ---------------
(1) La/Cal II has operated as a partnership since formation and accordingly has
not directly paid income taxes. Prior to the formation of La/Cal II the
properties were owned individually by the La/Cal II 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-41
<PAGE> 120
INDEPENDENT AUDITORS' REPORT
THE PARTNERS OF LA/CAL ENERGY PARTNERS II:
We have audited the accompanying statements of revenues and direct
operating expenses of the Properties Contributed to La/Cal Energy Partners II
for the period from January 1, 1995 through July 6, 1995 and the years ended
December 31, 1994 and 1993. These statements are the responsibility of the
management of the owners of the properties. Our responsibility is to express an
opinion on these 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 audits to obtain
reasonable assurance about whether the statements 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 statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
presentation of the statements. We believe that our audits provide a reasonable
basis for our opinion.
The accompanying statements of revenues and direct operating expenses were
prepared for the purpose of complying with certain rules and regulations of the
Securities and Exchange Commission and are not intended to be a complete
financial presentation of the Properties Contributed to La/Cal Energy Partners
II.
In our opinion, such statements of revenues and direct operating expenses
present fairly, in all material respects, the revenues and direct operating
expenses of the Properties Contributed to La/Cal Energy Partners II as described
in Note 1 for the period from January 1, 1995 through July 6, 1995, and the
years ended December 31, 1994 and 1993 in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Shreveport, Louisiana
September 25, 1996
F-42
<PAGE> 121
PROPERTIES CONTRIBUTED TO LA/CAL ENERGY PARTNERS II
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1995 YEAR ENDED YEAR ENDED
THROUGH JULY 7, DECEMBER 31, DECEMBER 31,
1995 1994 1993
--------------- ------------ ------------
<S> <C> <C> <C>
Revenues -- Oil and Gas Sales............................ $ 658,382 $1,057,219 $ 73,797
Direct Operating Expenses -- lease operating and
production taxes....................................... 72,830 186,391 14,166
--------- ---------- --------
Excess of revenues over direct operating expenses........ $ 585,552 $ 870,828 $ 59,631
========= ========== ========
</TABLE>
BASIS OF PRESENTATION
The statements of revenues and direct operating expenses ("Statements")
were prepared from historical accounting records related to the properties and
are presented on the accrual basis of accounting. 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 II.
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 Statements do 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-43
<PAGE> 122
SMYTH 35-1, HEBERT #1 AND WARMINSTER #1
COMBINING STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES
THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SMYTH 35-1 HEBERT #1 WARMINSTER #1 COMBINED
---------- --------- ------------- --------
<S> <C> <C> <C> <C>
Revenues -- Oil and Gas Sales..................... $326,633 $ 271,396 $ 141,090 $739,119
-------- --------- --------- --------
Direct Operating Expenses -- lease operating and
production taxes................................ 39,690 28,329 28,602 96,622
-------- --------- --------- --------
Excess of revenues over direct operating
expenses........................................ $286,943 $ 243,067 $ 112,488 $642,497
======== ========= ========= ========
</TABLE>
(1) BASIS OF PRESENTATION
The combining statement of revenues and direct operating expenses
("Statement") was prepared from historical accounting records related to
properties and is presented on the accrual basis of accounting. The revenues and
direct operating expenses relate to the net working interests in the properties
of selected owners who have indicated a desire to offer their net interests for
sale to Goodrich Petroleum Corporation (See Subsequent Event below). Lease
operating expenses include labor, repairs and maintenance, fuel consumed and
supplies utilized to operate and maintain the well 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) SUBSEQUENT EVENT
On October 23, 1996, the owners of the working interests presented above
entered into an exchange agreement with Goodrich Petroleum Corporation, a New
York Stock Exchange Company, whereby the owners would contribute the net assets
related to their interests to Goodrich Petroleum Corporation in exchange for a
combination of cash and preferred stock. The proposed transaction has been
approved by the board of directors of Goodrich Petroleum Corporation and is
subject to approval by the individual owners and the stockholders of Goodrich
Petroleum Corporation as well as other customary conditions and approvals.
F-44
<PAGE> 123
INDEPENDENT AUDITORS' REPORT
THE INTEREST OWNERS OF HEBERT #1 AND WARMINSTER #1 PROPERTIES:
We have audited the accompanying statement of revenues and direct operating
expenses of the Hebert #1 and Warminster #1 Properties for the periods from
March 1, 1995 and November 1, 1995, through December 31, 1995, respectively.
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 combining 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 statements of revenues and direct operating expenses was
prepared for the purpose of complying with certain rules and regulations of the
Securities and Exchange Commission and are not intended to be a complete
financial presentation of the Properties presented.
In our opinion, such statements of revenues and direct operating expenses
present fairly, in all material respects, the revenues and direct operating
expenses of the Properties as described in Note 1 for the periods from March 1,
1995 and November 1, 1995 through December 31, 1995, respectively, in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Shreveport, Louisiana
September 25, 1996
F-45
<PAGE> 124
SMYTH 35-1, HEBERT #1 AND WARMINSTER #1
COMBINING STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
HEBERT #1
SMYTH 35-1 (DATE OF WARMINSTER #1
(DATE OF FIRST PRODUCTION (DATE OF
FIRST PRODUCTION NOVEMBER 1, FIRST PRODUCTION
JANUARY 1, 1996) 1995) MARCH 1, 1995) COMBINED
---------------- ---------------- ---------------- --------
<S> <C> <C> <C> <C>
Revenues -- Oil and Gas Sales.......... $ -- $ 24,880 $159,135 $184,015
Direct Operating Expenses -- lease
operating and production taxes....... -- 2,362 32,125 34,487
-------- -------- -------- --------
Excess of revenues over direct
operating expenses................... $ -- $ 22,518 $127,010 $149,528
======== ======== ======== ========
</TABLE>
(1) BASIS OF PRESENTATION
The combining statement of revenues and direct operating expenses
("Statement") was prepared from historical accounting records related to
properties and is presented on the accrual basis of accounting. The revenues and
direct operating expenses relate to the net working interests in the properties
of selected owners who have indicated a desire to offer their net interests for
sale to Goodrich Petroleum Corporation. Lease operating expenses include labor,
repairs, and maintenance, fuel consumed and supplies utilized to operate and
maintain the well 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 RESERVE INFORMATION (UNAUDITED)
Supplemental oil and gas reserve information in accordance with Statement
of Financial Accounting Standards No. 69, Disclosures about Oil and Gas
Producing Activities, is not provided since information is insignificant for
these purposes.
F-46
<PAGE> 125
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.
/s/ DELOITTE & TOUCHE LLP
Detroit, Michigan
March 20, 1995
F-47
<PAGE> 126
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
============ ===========
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-48
<PAGE> 127
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-49
<PAGE> 128
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-50
<PAGE> 129
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-51
<PAGE> 130
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-52
<PAGE> 131
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-53
<PAGE> 132
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-54
<PAGE> 133
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-55
<PAGE> 134
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-56
<PAGE> 135
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 accounting
method, the Company recorded writedowns in the value of its oil and gas
properties totaling
F-57
<PAGE> 136
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$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 revolving line of credit
with an initial borrowing base of $6,000,000 (collectively the "Bank Loan"). The
F-58
<PAGE> 137
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-59
<PAGE> 138
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-60
<PAGE> 139
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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-61
<PAGE> 140
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-62
<PAGE> 141
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-63
<PAGE> 142
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-64
<PAGE> 143
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-65
<PAGE> 144
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-66
<PAGE> 145
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-67
<PAGE> 146
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-68
<PAGE> 147
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-69
<PAGE> 148
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-70
<PAGE> 149
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-71
<PAGE> 150
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................... $ 487,624 $ 748,811
Marketable securities (Note D).......................................... 928,400 1,434,800
Accounts receivable:
Trade, net of allowance............................................... 179,760 509,136
Accrued oil and gas revenue........................................... 636,524 743,401
Prepaid expenses and other.............................................. 100,209 33,421
Assets held for sale.................................................... 836,238 836,238
------------ ------------
TOTAL CURRENT ASSETS............................................. $ 3,168,755 $ 4,305,807
OTHER ASSETS:
Investments in Penske entities (at cost)................................ $ 2,508,716 $ 3,344,954
Investment in Pecos pipeline, net....................................... 1,957,144 2,089,384
Other investments and deferred charge................................... 140,862 197,439
------------ ------------
TOTAL OTHER ASSETS............................................... $ 4,606,722 $ 5,631,777
PROPERTY AND EQUIPMENT:
Oil and gas properties (full cost method -- $4,911,364 and $5,626,003
excluded from amortization in 1995 and 1994, respectively)............ $ 37,388,339 $ 35,885,937
Furniture, fixtures and equipment....................................... 2,461,762 2,462,062
------------ ------------
$ 39,850,101 $ 38,347,999
Less accumulated depletion and depreciation............................. (19,928,381) (18,882,785)
------------ ------------
TOTAL PROPERTY AND EQUIPMENT..................................... $ 19,921,720 $ 19,465,214
------------ ------------
TOTAL ASSETS..................................................... $ 27,697,197 $ 29,402,798
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable........................................................ $ 1,544,487 $ 2,045,333
Accrued liabilities..................................................... 395,542 423,137
Reserve for contingent liabilities (Note C)............................. 1,018,244 1,022,000
Current portion of long term debt....................................... 1,000,000 5,000,000
------------ ------------
TOTAL CURRENT LIABILITIES........................................ $ 3,958,273 $ 8,490,470
LONG TERM DEBT (Note B):
Bank Debt............................................................... 8,173,861
Subordinated Collateralized Notes....................................... -- $ 5,000,000
TOTAL LONG-TERM DEBT............................................. $ 8,173,861 $ 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)............................................. (71,335,041) (71,494,176)
Unrealized gain on marketable securities................................ 347,350 (853,750)
------------ ------------
$ 16,272,203 $ 16,619,468
Less:
Treasury stock at cost -- 215,849 shares in 1995 and 1994............... 707,140 707,140
------------ ------------
TOTAL STOCKHOLDERS' EQUITY....................................... $ 15,565,063 $ 15,912,328
============= =============
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY......................... $ 27,697,197 $ 29,402,798
============= =============
</TABLE>
See notes to consolidated financial statements.
F-72
<PAGE> 151
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
REVENUES:
Oil and gas sales............................................... $ 1,949,199 $ 5,953,423
Gain on sale of investments..................................... 1,563,762 6,466,100
Revenue from pipeline systems................................... 799,838 459,461
Other income.................................................... 559,602 48,584
----------- -----------
$ 4,872,401 $12,927,568
EXPENSES:
Production taxes................................................ $ 98,897 $ 420,328
Lease operating costs........................................... 692,420 2,216,440
Depletion, depreciation and amortization........................ 1,207,167 3,222,968
General and administrative...................................... 1,577,818 1,599,153
Interest........................................................ 503,419 1,201,703
Write-down of oil and gas properties............................ -- $ 3,241,000
----------- -----------
$ 4,079,721 $11,901,592
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM......................... 792,680 1,025,976
EXTRAORDINARY ITEM --
Early extinguishment of debt.................................... 163,545 1,232,832
----------- -----------
NET EARNINGS (LOSS)............................................... $ 629,135 $ (206,856)
=========== ===========
NET EARNINGS (LOSS) PER SHARE..................................... $ -- $ (.03)
----------- -----------
Weighted Average Shares Outstanding............................... 19,765,226 19,765,226
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-73
<PAGE> 152
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)........................................... $ 629,135 $ (206,856)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depletion, depreciation and amortization................. 1,207,167 3,222,968
Writedown of oil and gas properties...................... -- 3,241,000
Extraordinary charge, early extinguishment of debt....... 163,545 1,232,832
Dividends from investment activities..................... (102,273) --
Gain on sale of assets................................... (1,156,762) (6,466,100)
(Increase) decrease in:
Accounts and notes receivable......................... 436,253 465,863
Assets held for resale................................ -- 1,516,318
Prepaid expenses and other............................ (66,788) (86,046)
Other investments..................................... (77,892) (76,420)
(Decrease) increase in:
Accounts payable...................................... (500,846) (1,137,277)
Accrued liabilities................................... (29,351) (531,076)
------------ ------------
Total Adjustments................................ $ (533,947) $ 1,382,062
------------ ------------
Net Cash Provided By Operating Activities........ $ 95,188 $ 1,175,206
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities and sales of investments........................... $ 2,400,000 $ 11,745,000
Dividends from Penske entities................................ 102,273 --
Proceeds from disposition of properties....................... 69,642 461,277
Proceeds from adjustments relating to ANPC acquisition........ -- 747,201
Capital expenditures.......................................... (1,571,901) (2,612,263)
------------ ------------
Net Cash Provided By Investing Activities........ $ 1,000,014 $ 10,341,215
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings................................. $ 10,173,861 $ 250,000
Principal payments on bank borrowings......................... (1,000,000) (558,249)
Principal payments of Subordinated Collateralized note........ (10,000,000) (10,000,000)
Prepayment for early extinguishment of debt................... (60,250) (1,039,540)
Preferred stock dividends..................................... 490,000 (470,060)
------------ ------------
Net Cash Used in Financing Activities............ $ (1,356,389) $(11,817,789)
------------ ------------
Net Decrease In Cash and Cash Equivalents........ $ (261,187) $ (301,368)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................ $ 748,811 $ 685,654
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................... $ 487,624 $ 384,286
============ ============
</TABLE>
See notes to consolidated financial statements.
F-74
<PAGE> 153
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 June 30, 1995 and the results of
operations for the three months ended June 30, 1995 and 1994.
(4) The results of operations for the three month period ended June 30,
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 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"). The Company had
consummated a short-term interim $2,000,000 Bridge Loan with the same Bank,
which debt was retired as part of the above-described revolving line of credit.
At June 30, 1995 the Company has borrowed approximately $9,173 under the Bank
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 11) does not occur on a timely basis. Substantially
all of the Company's assets are pledged to secure these credit facilities.
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 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 June 30, 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.
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.
F-75
<PAGE> 154
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- MARKETABLE SECURITIES
The amortized cost and estimated fair market value of marketable securities
as of June 30, 1995, and December 31, 1994 are shown in the tables below:
<TABLE>
<CAPTION>
JUNE 30, 1995
--------------------------------------
GROSS ESTIMATED
AMORTIZED UNREALIZED FAIR MARKET
COST GAIN VALUE
--------- ---------- -----------
<S> <C> <C> <C>
Marketable equity securities........................ $ 581,050 $ 347,350 $ 928,400
</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>
NOTE E -- CHANGES IN STOCKHOLDERS' EQUITY
During the three months ended June 30, 1995, Stockholders' equity changed
as follows:
<TABLE>
<S> <C>
Balance as of December 31, 1994................................. $15,912,328
Unrealized loss on Marketable Securities........................ (506,400)
Net Income...................................................... 629,135
Preferred Stock Dividends....................................... (470,000)
-----------
Balance at June 30, 1995.............................. $15,565,063
===========
</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.
NOTE G -- TAXES ON INCOME
The following table summarizes the income tax expense and the deferred tax
(benefit) utilization of net operating loss carryforwards as of June 30, 1995.
<TABLE>
<CAPTION>
1995
---------
<S> <C>
Current tax expense.................................... $ 213,906
Deferred tax (benefit) utilization of net operating
loss carryforwards................................... (213,906)
---------
$ -0-
=========
</TABLE>
NOTE H -- SUBSEQUENT EVENT
On August 15, 1995, the transactions contemplated by the Agreement and Plan
of Merger among Patrick Petroleum Company ("Patrick"), La/Cal Energy Partners
("La/Cal"), Goodrich Petroleum Corporation
F-76
<PAGE> 155
PATRICK PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
("Goodrich"), and Goodrich Acquisition, Inc. were completed. The Agreement
provided for a combination of Patrick and La/Cal, as a result of which the
businesses previously conducted by Patrick and La/Cal are now conducted by
Goodrich. The combination of Patrick and La/Cal was effected primarily by two
concurrent transactions: (a) the contribution by La/Cal of all of its assets and
liabilities (excluding cash and accounts receivable accrued prior to March 1,
1995, and interest thereon) to Goodrich in exchange for 19,765,226 shares of
Goodrich'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") was converted into one
share of Goodrich Common Stock; (ii) each outstanding share of Patrick Series B
Convertible Preferred Stock was converted into one share of Goodrich's Series A
Convertible Preferred Stock and (iii) Patrick, the surviving corporation in the
Merger, became a wholly-owned subsidiary of Goodrich.
F-77
<PAGE> 156
APPENDIX A
[MORGAN KEEGAN LETTERHEAD]
October 31, 1996
Special Committee of the
Board of Directors and the Board of Directors of
Goodrich Petroleum Corporation
5487 San Felipe, Suite 700
Houston, Texas 77057
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of Goodrich Petroleum Corporation (the "Company"),
other than shareholders constituting the Seller (as defined below) or affiliates
of the Seller (collectively, the "Interested Shareholders") of the consideration
to be paid by the Company in connection with its proposed acquisition of certain
assets (the "Assets") of La/Cal Energy Partners II and certain working interest
owners (collectively, the "Seller") pursuant to and in accordance with the terms
of that certain Exchange Agreement (the "Agreement") proposed to be entered into
by and among the Company, a wholly owned subsidiary of the Company ("Acquisition
Corp.") and the Seller. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to them in the Agreement.
The Agreement provides that, upon consummation of the transaction described in
the Agreement (the "Transaction"), Seller shall receive (subject to adjustment
as described in the Agreement) $2.0 million in cash and 750,000 shares of 8.25%
convertible preferred stock ("Preferred Stock") with a liquidation preference of
$10.00 per share. The Preferred Stock is convertible to common stock at a
conversion price equal to a 25.0% premium over the Current Market Price, which
conversion price shall not be less than $0.9375 per share, and is redeemable
after four years at 100% of par. In addition, Acquisition Corp. will assume the
Seller's obligation to pay debts in an amount not to exceed $7,946,695.96 (the
"Rimco Debt"). The cash and shares of Preferred Stock issuable to Seller and the
Rimco Debt to be assumed by Acquisition Corp. pursuant to the terms of the
Agreement are hereinafter referred to collectively as the "Transaction
Consideration."
Morgan Keegan & Company, Inc. ("Morgan Keegan"), as part of its investment
banking business, is regularly engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, competitive biddings,
secondary distributions
<PAGE> 157
Goodrich Petroleum Corporation
October 31, 1996
Page 2
of listed and unlisted securities, private placements and valuations for
various purposes. We have been retained by the Special Committee of the Board
of Directors of the Company (the "Committee") for the purpose of, and will
receive a fee for, rendering this opinion. We have not advised any party in
connection with the Transaction other than the Committee and the Board of
Directors and we make no recommendation to the shareholders of the Company.
In connection with our opinion, we have (i) reviewed an unexecuted draft of the
Agreement (including exhibits) dated October 10, 1996; (for purposes of our
analysis, we have assumed that any further revisions, including the filing in
of blank spaces and the attachment of final exhibits and appendices, will not
materially alter the terms and provisions of such documents and that such
documents will be executed as finalized); (ii) held discussions with various
members of management and representatives of the Company and the Seller
concerning the Company's and the Seller's historical and current operations,
financial condition and prospects; (iii) reviewed historical consolidated
financial and operating data that was publicly available or furnished to us by
the Company and the Seller; (iv) reviewed internal financial analyses,
financial and operating forecasts, reports and other information prepared by
officers and representatives of the Company and the Seller; (v) reviewed the
reserve reports (the "Reserve Reports") of the Seller prepared by Coutret &
Associates, Inc. and the review letter (the "Review Letter") of Ryder Scott
Company dated September 20, 1996; (vi) reviewed certain publicly available
information with respect to certain other companies that we believe to be
comparable to the Company and the trading markets for such other companies'
securities; (vii) reviewed certain publicly available information concerning
the terms of certain other transactions that we deemed relevant to our inquiry;
(viii) analyzed the terms of recent convertible preferred stock offerings; and
(ix) conducted such other financial studies, analyses and investigations as we
deemed appropriate for the purposes of this opinion.
In our review and analysis and in arriving at our opinion, we have assumed and
relied upon the accuracy and completeness of (i) all of the financial and other
information provided us or publicly available, including, without limitation,
the Reserve Reports and the Review Letter, and (ii) the representations and
warranties of the Company and Seller contained in the Agreement. We have not
been engaged to, and have not independently attempted to, verify the accuracy
of any of such information. We have also relied upon management of the Company
and representatives of the Seller as to the reasonableness and achievability of
the financial and operating projections and the assumptions and bases therefor
provided to us and, with your consent, have assumed that such projections
reflect the best currently available estimates and judgments of the management
of the Company and the representatives of the Seller as to their respective
future performance. In addition, we have not conducted a physical inspection or
appraisal of any of the assets, properties or facilities of either the Company
or the Seller nor have we been furnished with any such evaluation or appraisal,
other than the
<PAGE> 158
Goodrich Petroleum Corporation
October 31, 1996
Page 3
Reserve Reports and the Review Letter referred to above. We have also assumed
that the conditions to the Transaction as set forth in the Agreement will be
satisfied, that the Transaction will be consummated on a timely basis in the
manner contemplated by the Agreement and that the Company will account for the
Transaction as a purchase under generally accepted accounting principles. Our
opinion is based upon analysis of the foregoing factors in light of our
assessment of general economic, financial and market conditions as they exist
and can be evaluated by us as of the date hereof. We express no opinion as to
the price or trading range at which shares of the Company's Common Stock will
trade following the date hereof, or upon completion of the Transaction.
Morgan Keegan has not previously provided investment banking services to the
Company.
It is understood that this opinion may be included in a proxy
statement/prospectus of the Company, but otherwise is not to be quoted or
referred to, in whole or in part (including excerpts or summaries), in any
filing, report, document, release or other communication used in connection
with the Transaction (unless required to be quoted or referred to by applicable
regulatory requirements, in which case we shall have the right to approve the
language describing this opinion), nor shall this opinion be used for any other
purposes, without our prior written consent, which consent shall not be
unreasonably withheld. Furthermore, our opinion is directed to the Committee
and the Board of Directors and does not constitute a recommendation to any
shareholder of the Company or to the Seller.
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, Acquisition
Corp.'s payment of the Transaction Consideration for the Assets is fair, from a
financial point of view, to the shareholders of the Company (other than the
Interested Shareholders as to which we express no opinion).
Yours very truly,
/s/ MORGAN KEEGAN & COMPANY, INC.
MORGAN KEEGAN & COMPANY, INC.
<PAGE> 159
PROXY GOODRICH PETROLEUM CORPORATION PROXY
Proxy Solicited on Behalf of the Board of Directors of
the Company for the Special Meeting of Stockholders on December 19, 1996
The undersigned hereby constitutes and appoints Walter G. Goodrich and
Glynn E. Williams, Jr. and each and either of them, his true and lawful
attorneys and proxies with full power of substitution, for and in the name,
place and stead of the undersigned, to attend the Special Meeting of
Stockholders of Goodrich Petroleum Corporation to be held at Goodrich Petroleum
Corporation's offices, 5847 San Felipe, Suite 700, Houston, Texas, on December
19, 1996 at 8:00 a.m., local time, and any adjournment(s) thereof, with all
powers the undersigned would possess if personally present and to vote thereat,
as provided on the reverse side of this card, the number of shares the
undersigned would be entitled to vote if personally present. In accordance with
their discretion, said attorneys and proxies are authorized to vote upon such
other matters as may properly come before the meeting or any adjournment
thereof.
STOCKHOLDERS ARE URGED TO DATE, MARK, SIGN AND RETURN
THIS PROXY PROMPTLY IN THE ENVELOPE PROVIDED, WHICH REQUIRES
NO POSTAGE IF MAILED WITHIN THE UNITED STATES.
(To be Signed and Continued on the Reverse Side.)
<PAGE> 160
GOODRICH PETROLEUM COPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
[ ]
1. Issuance of 750,000 shares FOR AGAINST ABSTAIN
of Series B Preferred Stock / / / / / /
of Goodrich Acquisition II, Inc.
This Proxy is solicited on behalf of
the Board of Directors. This Proxy
will be voted as directed. In the
absence of directions, this Proxy
will be voted FOR Proposal 1.
Dated __________________, 1996
Signature_____________________________
______________________________________
Note: Person signing as attorney,
executor, administrator, trustee
or partner, please sign full
title
<PAGE> 161
EXCHANGE AGREEMENT
LA/CAL ENERGY PARTNERS II AND CERTAIN OTHER PARTIES NAMED HEREIN,
GOODRICH ACQUISITION II, INC.
AND
GOODRICH PETROLEUM CORPORATION
<PAGE> 162
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.01 Agreement to Contribute Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.02 Forms of Contribution Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II
CONSIDERATION FOR THE ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.01 Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.02 Allocation of Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III
TITLE AND OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.01 Title Examination Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.02 Title Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.03 Permitted Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.04 Other Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.05 Remedy for Title Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.06 Notice of Title or Other Defects; Power of Attorney. . . . . . . . . . . . . . . . . . . . . 6
Section 3.07 Valuation of Title and Other Defects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.08 Right of Offset and Cash Consideration Adjustment. . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IV
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.01 Preferential Rights to Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.02 Consents to Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.03 Copies of Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.04 Conduct of Business Prior to Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.05 No Negotiations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.06 Books, Records and Files. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.07 Best Efforts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.08 Appointment of Acquisition II as Operator. . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.09 Amendment of La/Cal II's Partnership Agreement; Consents. . . . . . . . . . . . . . . . . . 10
Section 4.10 Registration or Proxy Statement; Confidential Memorandum . . . . . . . . . . . . . . . . . 10
Section 4.11 Covenants of Acquisition II and Goodrich. . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
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ARTICLE V
REPRESENTATIONS OF THE LA/CAL II PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.01 Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.02 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.03 Litigation and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.04 Lease Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.05 Other Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.06 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.07 Gas Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.08 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.09 Consents, Waivers and Preferential Rights . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.10 Environmental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.11 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.12 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.13 Adverse Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.14 Current Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.15 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.16 Organizational Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.17 Due Execution and Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.18 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.19 Wells . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.20 Evaluation Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.21 Well Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.22 Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.23 Reserve Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.24 Payout Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.25 Books and Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.26 Complete Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.27 No Affiliate or Business Limiting Agreements . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.28 Hydrocarbon Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.29 Employees; WARN Act Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.30. Limitation on Remedial Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.31 Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VI
REPRESENTATIONS OF ACQUISITION II AND GOODRICH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.01 Corporate Existence of Acquisition II . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.02 Corporate Power of Acquisition II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.03 Due Execution and Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.04 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.05 Financial Statements of Goodrich . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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Section 6.06 SEC Filings of Goodrich . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 6.07 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 6.08 Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE LA/CAL II PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.01 Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.02 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.03 Pending Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.04 Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.05 Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.06 Approval of the Partners of La/Cal II . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.07 Consummation of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.08 Approval of the Preferred Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF ACQUISITION II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 8.01 Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 8.02 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 8.03 Pending Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 8.04 Approval of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 8.05 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 8.06 La/Cal II Partners' Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 8.07 Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 8.08 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 8.09 No Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 8.10 Registration or Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 8.11 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 8.12 Consents of Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 8.13 Prohibition of Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 8.14 Subscription Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE IX
CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.01 Time and Place of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.02 Pre-Closing Review of Cash Consideration Adjustments . . . . . . . . . . . . . . . . . . . 23
Section 9.03 Adjustments to Cash Consideration at Closing . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.04 Post-Closing Adjustments and Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 9.05 Remittance of Certain Payments Received by the La/Cal II Parties . . . . . . . . . . . . . 24
Section 9.06 Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
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Section 9.07 Ad Valorem and Similar Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 9.08 Actions of the La/Cal II Parties at Closing . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 9.09 Actions of Acquisition II at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 9.10 Actions of Goodrich and Acquisition II Sub1 at Closing . . . . . . . . . . . . . . . . . . 26
Section 9.11 Further Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE X
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.01 Right of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.02 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE XI
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 11.01 The La/Cal II Parties' Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 11.02 Acquisition II's Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 11.03 Indemnitee's Negligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 11.04 Limitation on Responsibility for Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . 27
Section 11.05 Directors', Officers' and Management Committee Indemnifications . . . . . . . . . . . . . . 27
Section 11.06 Survival of Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE XII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 12.01 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 12.02 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 12.03 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 12.04 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 12.05 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 12.06 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 12.07 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 12.08 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 12.09 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 12.10 Action by and Notice to Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 12.11 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Schedule I -- List of Working Interest Owners
Exhibit A -- Form of Contribution Agreement
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Exhibit B -- Form of Certificate of Designations for Acquisition II Series B Convertible
Preferred Stock
Exhibit C -- Form of Registration Rights Agreement
Exhibit D -- Form of Certificate of Merger between Goodrich and Newco Sub1
Exhibit E -- Form of Subscription Certificate
Schedule 1.01 -- Leases, Wells and Contracts
Schedule 2.01(a) -- Allocation of Cash and Share Consideration among La/Cal Parties
Schedule 2.01(c) -- List of RIMCO Notes
Schedule 2.02 -- Allocation of Value among Assets
Schedule 5.02 -- Tax Matters
Schedule 5.03 -- Litigation and Claims
Schedule 5.07 -- Gas Imbalances and Take-or-Pay Obligations
Schedule 5.09 -- Preferential Rights to Purchase and Required Consents to Assignment
Schedule 5.13 -- Adverse Changes
Schedule 5.14 -- Outstanding AFE's and Commitments for Expenditures
Schedule 5.18 -- Insurance Coverage
Schedule 5.19 -- Well Operations
Schedule 5.20 -- Limitations on Rights regarding Evaluation Data
Schedule 5.21 -- Well Status
Schedule 5.23 -- Reserve Report Matters
Schedule 6.02 -- Consents Required by Acquisition II prior to Closing
Schedule 6.05 -- Financial Statement Disclosures
</TABLE>
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EXCHANGE AGREEMENT
This Exchange Agreement (this "Agreement") is made and entered into as
of the 22nd day of October, 1996, by and between La/Cal Energy Partners II
("La/Cal II"), a Louisiana general partnership, and certain working interest
owners named in Schedule I hereof (the "Working Interest Owners," and
collectively with La/Cal II, the "La/Cal II Parties"), Goodrich Acquisition II,
Inc., a Delaware corporation ("Acquisition II"), a wholly-owned subsidiary of
Goodrich Petroleum Corporation, a Delaware corporation ("Goodrich"), and
Goodrich. Acquisition II, Goodrich and the La/Cal II Parties are collectively
referred to herein as the "Parties" and sometimes individually referred to as a
"Party."
W I T N E S S E T H:
WHEREAS, the La/Cal II Parties wish to contribute to Acquisition II
and Acquisition II wishes to receive from the La/Cal II Parties, subject to the
terms and conditions set forth herein, certain oil and gas producing properties
in the states of Louisiana and Texas, together with certain other related
assets, referred to herein collectively as the "Assets.";
WHEREAS, the consideration to be received by the La/Cal II Parties in
exchange for the Assets is to consist of cash, shares of Acquisition II Series
B Convertible Preferred Stock (the "Preferred Shares") and the assumption of
the RIMCO Debt (as hereinafter defined);
WHEREAS, the partners of La/Cal II will be solicited to consent to the
exchange of the Assets in return for such consideration and to consent to the
subsequent dissolution of La/Cal II and the distribution of the Preferred
Shares and other consideration received by La/Cal II to such partners;
WHEREAS, Acquisition II has formed or will form two subsidiaries,
Acquisition II Sub1, a Delaware corporation formed solely for the purpose of
consummating the transactions contemplated by this Agreement, and Acquisition
II Sub2, a Nevada corporation, each of which is or shall be wholly-owned by
Acquisition II;
WHEREAS, concurrently with the contribution of the Assets from the
La/Cal II Parties to Acquisition II, Acquisition II Sub1 will merge with and
into Goodrich, in accordance with the provisions of Section 251(g) of the
Delaware General Corporation Law, with Goodrich being the surviving entity (the
"Merger");
WHEREAS, concurrently with or subsequent to the Merger, Acquisition II
will contribute the Assets to Acquisition II Sub2; and
WHEREAS, for federal income tax purposes, it is intended that the
Merger and asset contribution shall qualify as an integrated plan for the
contribution of the Assets and the outstanding stock of Goodrich to Acquisition
II which qualifies for nonrecognition treatment under Section 351 of the United
States Internal Revenue Code of 1986, as amended;
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<PAGE> 168
NOW, THEREFORE, in consideration of the mutual benefits derived and to
be derived from this Agreement by each Party, the receipt and sufficiency of
which are hereby acknowledged, the La/Cal II Parties, Acquisition II and
Goodrich hereby agree as follows:
ARTICLE I
ASSETS
Section 1.01 Agreement to Contribute Assets. Subject to the terms
and conditions of this Agreement, the La/Cal II Parties agree to contribute to
Acquisition II and Acquisition II agrees to receive from the La/Cal II Parties
all of the La/Cal II Parties' rights, title and interests in and to the
following assets (collectively, such interests in such assets are referred to
as the "Assets"):
(a) the oil and gas leases described in Schedule 1.01
attached hereto (collectively, the "Leases"), including, without
limitation, all overriding royalty interests and working interests,
production payments, net profits interests and the oil and gas wells
located upon the lands covered by the Leases or pooled or unitized
therewith (collectively, the "Wells");
(b) all rights, privileges, benefits and powers conferred
upon the La/Cal II Parties as the holder of any Leases with respect to
the use and occupation of the surface of, and the subsurface depths
under, the land covered by the Leases that may be necessary,
convenient or incidental to the possession and enjoyment of such
Leases;
(c) all of the La/Cal II Parties' rights in any pools or
units including all or any part of any Lease or including any Well
(the "Units"), including all right, title and interest in production
from any Unit;
(d) all platforms, water source wells, injection wells,
tubular goods, well equipment, lease equipment, production equipment,
pipelines and all other personal property, fixtures and facilities
appurtenant to or used in connection with the Leases, Units or the
Wells (collectively, the "Facilities");
(e) all production sales contracts, transportation
agreements, pooling agreements, unitization agreements, operating
agreements, processing agreements, surface leases, easements, permits,
division orders, purchase orders, invoices, receipts, licenses and
rights-of-way, orders of governmental authorities, and all other
contracts, agreements and instruments related to or utilized in
connection with the Leases, Units, Wells or Facilities, or the
production, storage, treatment, transportation, sale or disposal of
oil, gas, or other hydrocarbons, minerals or substances therefrom and
rights to insurance proceeds, and to the extent assignable, insurance
policies (collectively, the "Contracts"), including, without
limitation, the Contracts listed on Schedule 1.01;
(f) all of the La/Cal II Parties' original files, books,
records and data, or copies thereof, regarding the Leases, Units,
Wells, Facilities and Contracts, including without
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limitation, all abstracts of title, title opinions, title curative
documents, title records, leases, assignments, contracts,
correspondence, geologic, geophysical and seismic records, data and
information, and production records, logs, core data, pressure data,
and decline curve and production curve data, tax and accounting
records, material technology and proprietary information relating to
the Assets and all related items, including, without limitation,
computer disks, tapes and data relating to the foregoing
(collectively, the "Files");
(g) all oil, gas, distillate, condensate, casinghead gas
or other liquid or vaporous hydrocarbons, or other minerals
(collectively, the "Hydrocarbons"), produced from or attributable to
the Leases from and after July 1, 1996 (the "Effective Time"), and all
Hydrocarbons produced prior to the Effective Time and in storage as of
the Closing Date;
(h) all rights of way, easements and servitudes used by
the La/Cal II Parties in connection with the Assets; and
(i) all other assets of whatever kind and nature of the
La/Cal II Parties relating to items (a) through (h) of this paragraph.
Section 1.02 Forms of Contribution Agreements. The contribution
of the Assets shall be made in accordance with the terms and provisions of the
forms of Contribution Agreements attached hereto as Exhibit A.
ARTICLE II
CONSIDERATION FOR THE ASSETS
Section 2.01 Consideration. Subject to the terms and conditions
of this Agreement, Acquisition II, in full consideration for the Assets shall,
at the Closing (as hereinafter defined):
(a) Pay to the La/Cal II Parties the sum of Two Million
and No/100 Dollars ($2,000,000.00)(the "Cash Consideration"), as
adjusted in accordance with the provisions of Article IX (the
"Adjusted Cash Consideration"). The Adjusted Cash Consideration shall
be delivered by Acquisition II to the La/Cal II Parties at the
Closing with each La/Cal II Party receiving the sum, subject to
adjustment, set forth opposite such La/Cal II Party's name on Schedule
2.01(a) attached hereto.
(b) Deliver to the La/Cal II Parties Seven Hundred Fifty
Thousand (750,000) shares of the Preferred Shares, as adjusted in
accordance with the provisions of Article IX (the "Adjusted Preferred
Shares"). The Adjusted Preferred Shares shall be delivered to the
La/Cal II Parties at the Closing with each La/Cal II Party receiving
the number of shares set forth opposite such La/Cal II Party's name on
Schedule 2.01(a) attached hereto. The Preferred Shares shall have
substantially the same rights, preferences, qualifications and
limitations and restrictions as contained in the form of the
Certificate of Designations for the Acquisition II Series B
Convertible Preferred Stock attached hereto as Exhibit B. The
conversion price for the Preferred Shares shall be equal to the
product of 1.25 times the
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average Closing Price (as defined in the Certificate of Designations)
for Goodrich common stock for the twenty (20) trading days prior to
the date of Closing of this Agreement; provided, however, that the
conversion price shall not be less than $0.9375.
(c) Assume from La/Cal II the obligation to repay in full
all sums, including principal and interest, then outstanding under the
terms of that certain Note Purchase Agreement dated as of July 14,
1995, by and between La/Cal II, as Issuer, and RIMCO Partners, L.P.,
RIMCO Partners, L.P. II, RIMCO Partners, L.P. III, and RIMCO
Partners, L.P. IV, as Purchasers, including such sums as are
represented by the promissory notes listed on Schedule 2.01(c)
attached hereto (all of such obligations being collectively referred
to hereinafter as the "RIMCO Debt"); provided, however, that the
amount of the RIMCO Debt assumed pursuant hereto shall not exceed the
sum of $7,946,695.96.
Section 2.02 Allocation of Value. Schedule 2.02 sets forth the
initial allocation of the consideration, subject to adjustment, among the
Assets for all purposes, including financial accounting and tax purposes. The
Parties agree that they will not take any position inconsistent with such
allocation in preparing any tax returns or tax reports to governmental
authorities.
ARTICLE III
TITLE AND OTHER MATTERS
Section 3.01 Title Examination Period. During the period
commencing with the execution date of this Agreement and concluding forty-five
(45) days thereafter, the La/Cal II Parties shall provide Acquisition II and/or
its representatives access to and or use its best efforts to cause the operator
of any portion of the Assets to allow Acquisition II access to (i) all
abstracts of title, title opinions, title files, ownership maps, lease files,
assignments, division orders, operating records, agreements and other books,
records, contracts, correspondence, maps, data, reports, documents and
information of the La/Cal II Parties pertaining to the Assets, and (ii) the
Assets in order to conduct inspections thereof.
Section 3.02 Title Defects. The Assets shall be deemed to have a
"Title Defect" if the La/Cal II Parties have less than Good and Marketable
Title to any of the Assets. As used herein, the term "Good and Marketable
Title" means such record and beneficial title of the La/Cal II Parties that is
free and clear of all liens, charges, claims, defects and encumbrances, other
than Permitted Encumbrances (as hereinafter defined) and that, except (a) as
set forth in Schedule 1.01, (b) for changes therein under circumstances
customarily provided for in unitization and similar agreements, and (c) for
penalty provisions and contribution requirements customarily provided for in
operating and similar agreements, (i) entitles the La/Cal II Parties to receive
at least the undivided interest set forth on Schedule 1.01 as the "Net Revenue
Interest" of all Hydrocarbons produced, saved and marketed from each Well,
through the plugging, abandonment and salvage of such Well and (ii) obligates
the La/Cal II Parties to bear a portion of the costs and expenses relating to
the maintenance and development of, and operations relating to, such Well not
in excess of the undivided interest
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set forth on Schedule 1.01 as the "Working Interest" through the plugging,
abandonment and salvage of such Well.
Section 3.03 Permitted Encumbrances. For purposes of this
Agreement, the term "Permitted Encumbrances" shall mean any of the following:
(a) any liens for taxes and assessments not yet
delinquent or, if delinquent, that are being contested in good faith
in the ordinary course of business;
(b) any rights reserved to or vested in any municipality
or other governmental, statutory or public authority to control or
regulate any of the Assets in any manner, and all applicable laws;
(c) any easements, rights-of-way, servitudes, permits and
other rights in respect of surface operations, pipelines or the like,
and easements for pipelines, power lines and other similar
rights-of-way, and encroachments, on, over or in respect of any
property or lands of the La/Cal II Parties, or over which the La/Cal
II Parties own rights-of-way, easements, permits or licenses, that do
not unreasonably or materially interfere with the use of the Leases or
Units;
(d) all royalties, overriding royalties, net profits
interests, production payments, carried interests, reversionary
interests, calls on production and other similar burdens on or
deductions from the proceeds of production that do not operate to (i)
reduce the Net Revenue Interest of the La/Cal II Parties below that
set forth in Section 3.02(i); or (ii) increase the Working Interest of
the La/Cal II Parties above that set forth in Section 3.02(ii) without
a proportionate increase in the net revenue interest of the La/Cal II
Parties;
(e) division orders and oil sales contracts that contain
terms and conditions customary in the industry for the area in which
the affected Asset is located, that are terminable without penalty
upon 30 days notice and that do not operate to reduce the Net Revenue
Interest of the La/Cal II Parties below that set forth in Section
3.02(i) and that do not increase the Working Interest of the La/Cal II
Parties above that set forth in Section 3.02(ii) without a
corresponding and proportionate increase in the Net Revenue Interest
of the La/Cal II Parties;
(f) gas sales contracts that contain terms and conditions
customary in the industry for the geographical area in which the
affected Well is located;
(g) operating agreements containing terms and conditions
customary in the industry for the geographical area in which the
affected Well is located and that do not operate to reduce the Net
Revenue Interest of the La/Cal II Parties below that set forth in
Section 3.02(i) and that do not increase the Working Interest of the
La/Cal II Parties above that set forth in Section 3.02(ii) without a
corresponding and proportionate increase in the Net Revenue Interest
of the La/Cal II Parties;
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(h) unitization, pooling, communitization and spacing
agreements and orders that contain terms and conditions customary in
the industry for the area in which the affected Asset is located and
that do not operate to reduce the Net Revenue Interest of the La/Cal
II Parties below that set forth in Section 3.02(i) and that do not
increase the Working Interest of the La/Cal II Parties above that set
forth in Section 3.02(ii) without a corresponding and proportionate
increase in the Net Revenue Interest of the La/Cal II Parties;
(i) farmout and farm-in agreements that contain terms and
conditions that are customary in the industry for the area in which
the affected Asset is located and that have been taken into
consideration in setting forth the Net Revenue Interests and Working
Interests set forth in Section 3.02(i) and 3.02(ii);
(j) conventional rights of reassignment prior to
abandonment; and
(k) materialmen's, mechanics', repairmen's, employees',
contractors', operators', tax and other similar liens or charges
arising in the ordinary course of business incidental to construction,
maintenance or operation of any of the Assets (i) if they have not
been filed pursuant to law, (ii) if they have been filed pursuant to
law but they have not yet become due and payable or payment is being
withheld as provided by law or (iii) if their validity is being
contested in good faith in the ordinary course of business by
appropriate action.
Section 3.04 Other Defects. All claims, losses, damages, costs,
expenses and liabilities that result from or relate to or are attributable to
any representation of the La/Cal II Parties, Acquisition II or Goodrich
contained herein being untrue or being breached are hereinafter referred to as
"Other Defects."
Section 3.05 Remedy for Title Defects. The sole remedy for any
Title Defect shall be the right of offset, in the form of a Cash Consideration
Adjustment or a reduction in the number of Preferred Shares to be delivered
hereunder, pursuant to Article IX below; provided, however, that no adjustment
shall be made to the number of Preferred Shares to be delivered hereunder
unless and until the Cash Consideration has previously been exhausted by virtue
of adjustment. Any claim based on a Title Defect shall apply only to that
portion of the Assets affected by the Title Defect and shall be equal to the
applicable "Title Loss Amount," as determined in accordance with Section 3.07,
below.
Section 3.06 Notice of Title or Other Defects; Power of Attorney.
Acquisition II or La/Cal II shall, as soon as practicable after discovery, but
no later than forty-five (45) days after the execution of this Agreement, give
the other Party or its representative written notice of any Title Defects or
Other Defects which it believes to exist, ascribing a value thereto and
proposing the Cash Consideration Adjustment to be made. Walter G. Goodrich
shall serve as the La/Cal II Parties' attorney-in-fact and representative, with
full power and authority to act for and on behalf of the La/Cal II Parties for
the purpose of receiving the notices referred to above, serving on the
Adjustment Committee (as hereinafter defined), and agreeing to the Title or
Other Loss Amount. Arthur A. Seeligson and Basil M. Briggs shall serve as
Acquisition II's attorneys-in-fact and
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representatives, with full power and authority to act for and on behalf of
Acquisition II for the purpose of receiving the notices referred to above,
serving on the Adjustment Committee and agreeing to the Title or Other Loss
Amount. The Adjustment Committee shall consist of Arthur A. Seeligson and
Basil Briggs as the representatives of Acquisition II and Walter G. Goodrich as
the representative of the La/Cal Parties. Any decision made by the Adjustment
Committee must be unanimous. The authority herein conferred on the
representatives, each of whom shall enjoy the full power of substitution, shall
be irrevocable, shall be deemed coupled with an interest and shall be binding
on the heirs, personal representatives, successors and assigns of the party
whom each represents.
Section 3.07 Valuation of Title and Other Defects. For purposes
of this Article III, "Title Loss Amount" shall mean the amount by which the
value of an Asset 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 Asset involved; the portion of such Asset 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 Asset; the length of time that
the Asset has been producing by all owners and holders thereof in privity of
title; and whether the Title Defect is of the type expected to be encountered
and is customarily acceptable to prudent purchasers in the area where such
Asset is located. For purposes of this Article III, "Other Loss Amount" shall
mean the amount by which the La/Cal II Parties or Acquisition II has been or
will be damaged as a result of any Other Defect. (Notwithstanding any other
provision of this Agreement, a Party's liability for breach of any
representation contained in this Agreement shall be limited to actual damages
and shall not include incidental, consequential, indirect or punitive damages,
except for attorney fees and costs. For purposes of determining the existence
of or evaluating an Other Defect, the Adjustment Committee shall ignore the
fact that any representation may be qualified or limited by reference to a
Party's knowledge.) All asserted Title Defects and Other Defects shall be
submitted to the Adjustment Committee, who shall determine, within ten (10)
business days, the actual Title Loss Amount or Other Loss Amount, and such
determination shall be binding on all parties. In the event the Adjustment
Committee members cannot agree on the Title Loss Amount or Other Loss Amount
with respect to any particular asserted Title Defect or Other Defect, they
shall select, within three business (3) 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 shall, within
five business (5) days of appointment and receipt of all information requested
by the arbitrator, 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, if any, with
respect to the asserted Title Defect or Other Defect in dispute, and such
determination shall be binding on all parties. All costs and expenses incurred
in the arbitration process shall be shared equally by the parties.
Section 3.08 Right of Offset and Cash Consideration Adjustment.
If the cumulative total of all Title Loss Amounts and Other Loss Amounts is
equal to or less than the sum of $850,000.00, there shall be no adjustment to
the consideration payable pursuant to Section 2.01, above. If the cumulative
total of all Title Loss Amounts and Other Loss Amounts is greater than the sum
of $850,000.00, the Cash Consideration (and, if necessary, the number of
Preferred Shares ) payable to the La/Cal II Parties shall be increased or
decreased, as the case may be, to reflect the amount
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by which such cumulative total exceeds the sum of $850,000.00. Any decrease in
the Cash Consideration resulting from the application of this Section shall be
allocated among the Assets on the basis of a percentage determined by dividing
the Title Loss Amounts and Other Loss Amounts attributable to an Asset by the
total Title Loss Amounts and Other Loss Amounts attributable to all Assets.
The decrease in the Cash Consideration attributable to an Asset shall be
allocated among the La/Cal II Parties or among the partners of La/Cal II, as
the case may be, consistently with Schedule 2.01(a).
ARTICLE IV
COVENANTS
Section 4.01 Preferential Rights to Purchase. The La/Cal II
Parties shall use their best efforts to comply with all preferential right to
purchase provisions relating to the Assets. The La/Cal II Parties shall
promptly notify Acquisition II if any preferential right to purchase is
exercised or if the requisite period has elapsed without said right having been
exercised. If a third party who has been offered an interest in any portion of
the Assets pursuant to a preferential right to purchase elects to purchase any
portion of the Assets pursuant to the aforesaid offer, any amount received by a
La/Cal II Party in respect thereof shall be immediately transferred to
Acquisition II, and, in the event Acquisition II shall have received all of
the amount respecting the exercise of such preferential right as set forth on
Schedule 5.09, the exercise of such preferential right to purchase shall have
no effect on the Cash Consideration or the number of Preferred Shares payable
by Acquisition II hereunder.
Section 4.02 Consents to Assignment. The La/Cal II Parties shall
use their best efforts to obtain all consents to assignment of the Assets prior
to Closing, excluding governmental consents or approvals customarily obtained
post-closing. If any such consent to assignment has not been obtained by the
twentieth day prior to the expected date of Closing, the Adjustment Committee,
utilizing the procedures set forth in Section 3.07, shall determine a value
attributable to the portion of the Assets affected by the unobtained
consent(s), and the amount so determined shall be deducted from the Cash
Consideration to be paid by Acquisition II hereunder (or the number of the
Adjusted Preferred Shares to be delivered hereunder shall be appropriately
reduced), and such reduction shall be applied to the La/Cal II Parties in a
manner consistent with Schedules 2.01(a) and 2.02. If such consent is obtained
thereafter, any reduction of the Cash Consideration (or the number of Adjusted
Preferred Shares) resulting from the lack of such consent shall be paid (or
delivered) by Acquisition II to the appropriate La/Cal II Parties subsequent to
the effectiveness of the contribution of the Assets thereby affected.
Section 4.03 Copies of Contracts. Within seven (7) days from the
date of this Agreement, the La/Cal II Parties shall make available to
Acquisition II true copies of all of the Contracts.
Section 4.04 Conduct of Business Prior to Closing. The La/Cal II
Parties covenant that, from the date hereof to the Closing Date, the La/Cal II
Parties will:
(a) Not, without the prior written consent of Acquisition
II, (i) operate, consent to operate or in any manner deal with, incur
obligations with respect to, or undertake any
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transactions relating to, the Assets other than transactions that are
(A) within the control and determination of the operator under any
operating agreement affecting the Assets for which none of the La/Cal
II Parties is the named operator, or (B) voluntary or discretionary,
from the standpoint of the La/Cal II Parties and in an amount not
exceeding $10,000; (ii) acquire, dispose of, encumber, relinquish or
otherwise transfer any of the Assets; (iii) waive, compromise or
settle any right or claim that would, or could be likely to, adversely
affect the ownership, operation or value of any of the Assets; (iv)
take any action or fail to take any action that could reasonably be
expected to have a material adverse effect on the Assets 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; (v) make capital
expenditures or workover expenditures with respect to the Assets,
unless the expenditure has been approved prior to the date of this
Agreement and the authority for expenditure ("AFE") for such
expenditure is described on Schedule 5.14; (vi) abandon any Well
capable of producing in paying quantities located on the Leases or
release or abandon all or any portion of any of the Leases; (vii)
modify or terminate any of the agreements relating to its Assets
(including gas sales agreements) that extend for a period of more than
thirty (30) days; (viii) enter into any farmout or farm in agreements
relating to the Assets other than in the ordinary course of business;
(ix) encumber, sell or otherwise dispose of any of its Assets, other
than personal property that is replaced by equivalent property or
consumed in the normal operation of the Assets; or (x) agree to do any
of the foregoing.
(b) (i) develop, maintain and operate the Assets in a
good and workmanlike manner; (ii) maintain, or use their best efforts
to cause operators of the Assets to maintain, all insurance now in
force with respect to the Assets and pay or cause to be paid all costs
and expenses incurred in connection therewith; (iii) keep the Leases
and the Contracts in full force and effect, unless Acquisition II
gives prior consent to the termination of any 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 Assets in all material respects; (iv)
maintain the books and records respecting the Assets in the usual,
regular and ordinary course on a basis consistent with prior years;
and (v) preserve the goodwill associated with their business
relationships.
(c) Notify, as reasonably requested by Acquisition II,
all governmental regulatory authorities of the transactions
contemplated hereby and cooperate with Acquisition II in obtaining the
issuance by each such authority of such permits, licenses and
authorizations as may be necessary for Acquisition II to own the
Assets following the consummation of the transactions contemplated in
this Agreement.
(d) Notify Acquisition II of the discovery by the La/Cal
II Parties that any representation or warranty of the La/Cal II
Parties contained in this Agreement is or becomes untrue or will be
untrue on the Closing Date.
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(e) Duly and timely file, or use its best efforts to
cause others to file, with governmental authorities all required
reports and duly observe and comply in all material respects with all
laws, rules, regulations, ordinances and orders relating to such
La/Cal II Party, in each instance where the failure of such filing or
observance and compliance could reasonably be expected to adversely
affect the likelihood of the consummation of the transactions
hereunder contemplated or could now or hereafter affect the ownership
or operation of any of the Assets.
(f) Promptly notify Acquisition II of (i) any suit,
action or other proceeding pending or threatened before any court or
governmental body, authority or agency and any cause of action or
dispute of which such La/Cal II Party has knowledge or has received
notice that directly affects or relates to such La/Cal II Party or any
partner, employee, consultant, agent or other representative thereof
in his capacity as such and that could now or hereafter affect the
ownership or operation of any of the Assets or that could reasonably
be expected to adversely affect the likelihood of the consummation of
the transactions hereunder contemplated, or (ii) any material failure
or reasonably likely inability of such La/Cal II Party to satisfy any
covenant, condition or agreement contained herein.
Section 4.05 No Negotiations. During the period beginning on the
date hereof and ending on the earlier of the Closing Date or the termination of
this Agreement as provided herein, the La/Cal II Parties will not (a) approve
or undertake any merger, consolidation, business combination or any transaction
involving directly or indirectly all or any portion of the Assets or that could
reasonably be expected to adversely affect, directly or indirectly, the
likelihood of consummation of the transactions hereunder contemplated; or (b)
directly or indirectly initiate, encourage, or solicit any inquiries, offers or
proposals by any person other than Acquisition II with respect to, or
participate in, facilitate, or encourage, any effort or attempt by any such
person to do or seek, any transaction described in (a) above, including by way
of furnishing information regarding the Assets to any person other than
Acquisition II and its affiliates and representatives.
Section 4.06 Books, Records and Files. Each La/Cal II Party shall
give Acquisition II, through its officers, attorneys, accountants, petroleum
engineers and authorized representatives ("Acquisition II's Agents"), free and
full access, for the purposes of inspection, review and photocopying, to the
facilities, properties, books, contracts, records and files of the La/Cal II
Parties in the possession of such La/Cal II Party, its agents or attorneys, to
permit Acquisition II to make such investigation as Acquisition II may deem
necessary or desirable. Such La/Cal II Party shall furnish Acquisition II's
Agents during such period with all such information and copies of such
documents concerning the Assets 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 Acquisition II and Acquisition II's
Agents of all material facts affecting the Assets.
Section 4.07 Best Efforts. Upon the terms and subject to the
conditions hereof, each La/Cal II Party agrees to use its reasonable 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
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satisfy its conditions to Closing and to consummate and make effective the
transactions contemplated by this Agreement.
Section 4.08 Appointment of Acquisition II as Operator. The
La/Cal II Parties shall use their reasonable best efforts to cause Acquisition
II or its designee, effective as of the Closing Date, to be appointed the
operator of all the Assets with respect to which a La/Cal II Party was operator
on the date hereof or becomes the operator prior to the Closing Date.
Section 4.09 Amendment of La/Cal II's Partnership Agreement;
Consents. La/Cal II shall not amend its partnership agreement subsequent to
the Effective Date except as otherwise contemplated herein and La/Cal II's
management committee will use its best efforts to obtain all partner and other
consents necessary to the consummation of the transactions hereunder
contemplated.
Section 4.10 Registration or Proxy Statement; Confidential
Memorandum. Acquisition II and Goodrich agree that, except with respect to
information concerning the La/Cal II Parties and furnished by or on behalf of
the La/Cal II Parties specifically for use therein, for which the La/Cal II
Parties shall be responsible, (a) the Registration or Proxy Statement,
whichever is applicable (the "Statement"), at the time the Statement is first
mailed to the stockholders, at the time of the stockholders' meeting, at the
Closing Date and at the time the Statement is declared effective, and (b) the
Confidential Memorandum used to solicit the partners of La/Cal II and the
Working Interest Owners (the "Memorandum"), at the time the Memorandum is
mailed to the partners of La/Cal II and the Working Interest Owners, and at the
time of the partners' meeting, (i) will comply as to form in all material
respects with the requirements 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 (ii) will not contain any untrue statement of
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. Acquisition II and
Goodrich will advise the La/Cal II Parties promptly in writing if, prior to the
Closing Date they shall obtain knowledge of any facts that would make it
necessary to amend or supplement the Statement or the Memorandum in order to
make the statements therein not misleading or to comply with applicable law.
The La/Cal II Parties agree that, except with respect to information concerning
Acquisition II or Goodrich furnished by or on behalf of Acquisition II or
Goodrich specifically for use therein, for which Acquisition II and Goodrich
shall be responsible, (a) the Statement, at the time the Statement is first
mailed to the stockholders, at the time of the stockholder's meeting, at the
Closing Date and at the time the Statement is declared effective, and (b) the
Memorandum, at the time the Memorandum is first mailed to the partners of
La/Cal II and the Working Interest Owners and at the time of the partners'
meeting, (i) 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 (ii) 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. The La/Cal II
Parties will advise Acquisition II and Goodrich promptly in writing, if prior
to the Closing Date the La/Cal II Parties shall obtain knowledge of any facts
that would make it
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necessary to amend or supplement the Statement or the Memorandum in order to
make the statements therein not misleading or to comply with applicable law.
Section 4.11 Covenants of Acquisition II and Goodrich.
Acquisition II and Goodrich shall:
(a) Promptly notify the La/Cal II Parties of (i) the
discovery by either of them that any representation or warranty by
either of them contained in this Agreement is or becomes untrue or
will be untrue on the Closing Date; and (ii) any material failure or
reasonably likely inability of Acquisition II or of Goodrich to
satisfy any covenant, condition or agreement contained herein;
(b) Duly and timely file, or use its best efforts to
cause others to file, with governmental authorities all required
reports and duly observe and comply in all material respects with all
laws, rules, regulations, ordinances and orders relating to
Acquisition II and to Goodrich, in each instance where the failure of
such filing or observance and compliance could reasonably be expected
to adversely affect the likelihood of the consummation of the
transactions hereunder contemplated; and
(c) Upon the terms and subject to the conditions hereof,
use their reasonable 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 satisfy their conditions to Closing
and to consummate and make effective the transactions contemplated by
this Agreement.
ARTICLE V
REPRESENTATIONS OF THE LA/CAL II PARTIES
Each of the La/Cal II Parties severally represents to Acquisition II
that, as of the Effective Date and the Closing Date with respect to that
portion of the Assets owned by such La/Cal II Party:
Section 5.01 Title. No warranty of title is given hereunder even
with respect to the return of the consideration, except for claims arising by,
through or under the La/Cal II Parties. Each La/Cal II Party represents that
there are no claims affecting Good and Marketable Title to the Assets arising
by, through or under such La/Cal II Party.
Section 5.02 Taxes. All ad valorem, property, occupation,
severance, production, gathering, pipeline, gross production, windfall profit,
Btu, energy, excise and other taxes, governmental charges and assessments
imposed, levied, assessed, and due with respect to, measured by, charged
against or attributable to the Assets have been duly paid. No waiver or
agreement is in force for the extension of time for the assessment or payment
of any tax described in the foregoing sentence, except for normal extensions.
Except as set forth on Schedule 5.02, there are no assessed tax deficiencies
against such La/Cal II Party respecting the Assets; 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 such La/Cal II
Party's knowledge, is being proposed, threatened or discussed that could now or
hereafter affect the ownership or operation of any of the Assets
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or that could reasonably be expected to adversely affect the likelihood of the
consummation of the transactions hereunder contemplated.
Section 5.03 Litigation and Claims. Except as is set forth in
Schedule 5.03, no claim, demand, filing, cause of action, administrative
proceeding, lawsuit or other proceeding or litigation has been instituted, is
pending or, to the best knowledge of such La/Cal II Party, being investigated
or threatened that could now or hereafter affect the ownership or operation of
any of the Assets or that could reasonably be expected to adversely affect,
directly or indirectly, the likelihood of consummation of the transactions
hereunder contemplated. Except as set forth Schedule 5.03, such La/Cal II
Party is not 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 that could now or hereafter affect the
ownership or operation of any of the Assets or that could reasonably be
expected to adversely affect the likelihood of the consummation of the
transactions hereunder contemplated. To the best knowledge of such La/Cal II
Party, except as set forth on Schedule 5.03, there is no fact, event or
circumstance that may give rise to any suit, action, claim, investigation or
proceeding that could now or hereafter affect the ownership or operation of any
of the Assets or that could reasonably be expected to adversely affect the
likelihood of the consummation of the transactions hereunder contemplated.
Section 5.04 Lease Maintenance. To the best of such La/Cal II
Party's knowledge, the Leases are in full force and effect as to all lands and
depths described in such Leases and such La/Cal II Party is in full compliance
with the Leases.
Section 5.05 Other Maintenance. All rents and royalties with
respect to the Assets have been properly and timely paid, and, to the best of
such La/Cal II Party's knowledge, all liabilities of any kind or nature
incurred with respect to the Assets have been paid before delinquency; neither
such La/Cal II Party nor, to the best of such La/Cal II Party's knowledge, any
prior owners of the Assets have received any notice of default or claimed
default with respect to any obligations with respect to the Assets or any part
thereof.
Section 5.06 Equipment. To the best of such La/Cal II Party's
knowledge, all Wells, Facilities, and other equipment that constitute part of
the Assets are in good repair and working condition and have been installed and
maintained in accordance with good industry standards and all applicable legal
requirements.
Section 5.07 Gas Matters.
(a) Except as set forth in Schedule 1.01, neither the
Assets nor the Hydrocarbons attributable thereto are subject,
committed or dedicated to any contract, agreement or arrangement
regarding the gathering, transportation, processing, storing,
delivering, sale, use or marketing thereof; such La/Cal II Party has
disclosed in writing to Acquisition II the existence of all such
contracts, arrangements or agreements, in Schedule 1.01, and no third
party has any call, right of first refusal or preferential right to
purchase such Hydrocarbons. Except as set forth in Schedule 1.01,
such La/Cal II Party is not a party to or bound by, and the Assets and
the Hydrocarbons attributable thereto, are not encumbered or affected
by any
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contract, production payment, gas balancing, deferred production, gas
banking or similar agreement or arrangement, and such La/Cal II Party
is not in an "overlift," "over produced," or similar status under any
such agreement or arrangement. Such La/Cal II Party's representation
in this Section 5.07 shall be limited to the best of its knowledge as
to periods of time prior to its ownership of the Assets.
(b) Except as set forth on Schedule 5.07 and except for
gas imbalances between (i) the La/Cal II Parties, and (ii) any third
party working interest owners or third party pipelines relative to the
Wells and Leases (collectively, "Gas Imbalances"), to the knowledge of
such La/Cal II Party, such La/Cal II Party is not obligated by any gas
prepayment arrangement or by any "take-or-pay" requirement to deliver
any gas, or other Hydrocarbons from the Assets, at a future time
without then or thereafter receiving full payment therefor. Schedule
5.07 sets forth all Gas Imbalances affecting the interests of such
La/Cal II Party in and to the Wells and Leases.
Section 5.08 Compliance with Laws. To the best knowledge of such
La/Cal II Party, the Assets have been operated in compliance with all laws,
orders, ordinances, rules and regulations of all governmental authorities
having or asserting jurisdiction relating to the ownership and operation
thereof, including the production of all Hydrocarbons attributable thereto.
All necessary or appropriate certificates, approvals, consents, permits,
licenses or other authorizations from any governmental or similar entity,
agency or subdivision thereof with regard to the ownership or operation of the
Assets have been obtained and no violations exist, have been recorded or are
known by such La/Cal II Party in respect of such licenses, permits or
authorizations, and no proceeding is pending or threatened to revoke or limit
any such permit or license. No application, notice, order, registration,
qualification, waiver, consent, approval or other action is required to be
filed, given, obtained or taken by such La/Cal II Party by virtue of the
execution, delivery and performance of this Agreement or the consummation of
the transactions contemplated hereby, other than the customary approval of the
transfer of interests in Leases on state-owned lands or waterbottoms.
Section 5.09 Consents, Waivers and Preferential Rights. Except as
disclosed on Schedule 5.09, to the best of such La/Cal II Party's knowledge,
there are no consents or waivers of preferential purchase or other rights
necessary to permit the valid contribution to Acquisition II of the Assets
(excluding governmental consents and approvals customarily obtained
post-closing and which are expected to be obtained).
Section 5.10 Environmental. To the best of such La/Cal II Party's
knowledge, such La/Cal II Party has obtained all permits, licenses and other
authorizations that are required under federal, state and local laws,
ordinances or regulations and all material reports have been timely filed under
all applicable federal, state and local laws, ordinances or regulations; and
the Assets are in substantial compliance with each federal, state or local law,
ordinance or regulation relating to the environmental conditions on, under or
about the Assets including, but not limited to, soil and groundwater
conditions, including laws relating to actual or threatened emissions,
discharges or releases of pollutants, raw materials, products, contaminants or
hazardous or toxic materials or hazardous or solid wastes into ambient air,
surface water, groundwater or land, or otherwise relating
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to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants or hazardous or
toxic materials or hazardous or solid wastes, and to the best of such La/Cal II
Party's knowledge, third parties operating the Assets are in compliance in all
material respects with all terms and conditions of such laws, ordinances,
regulations, permits, licenses and authorizations and also are in compliance in
all material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in such laws or contained in any ordinance, regulation, code, plan,
order, decree, judgment, notice or demand letter issued, entered, promulgated
or approved thereunder relating to the Assets, and such La/Cal II Party has not
(and to the best of such La/Cal II Party's knowledge no third party operator
has) received notice of any violation of or investigation relating to any
federal, state or local laws and no notices have been received advising such
La/Cal II Party 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 Assets. Such La/Cal II Party has furnished Acquisition II
copies of all environmental studies and reports prepared or obtained by such
La/Cal II Party relating to the Assets, if any.
Section 5.11 Brokers. No broker or finder is entitled to any
brokerage or finder's fee, or to any commission, based in any way on
agreements, arrangements or understandings made by or on behalf of such La/Cal
II Party for which Acquisition II has or will have any liabilities or
obligations (contingent or otherwise).
Section 5.12 Contracts. To the best knowledge of such La/Cal II
Party, such La/Cal II Party has performed in all material respects all
obligations required to be performed by it and is not in default, or alleged to
be in default, in any material respect under any of the Contracts. Schedule
1.01 sets forth all of the Contracts.
Section 5.13 Adverse Changes. Except as described on Schedule
5.13, since the Effective Date, (i) there has not been any material adverse
change in the assets, business, properties, operation, condition (financial or
otherwise) and future prospects of the Assets, taken as a whole, 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 the La/Cal II
Parties know of no such change that is threatened including, without
limitation, any material adverse change or material reduction in the rate of
production of Hydrocarbons, other than changes in the ordinary course of
operation, changes that result from depletion in the ordinary course of
operation, and changes that result from variances in markets for the
Hydrocarbons; (ii) none of the Assets or the Wells or the reservoirs covered
thereby has suffered any material destruction, damage or loss; (iii) such
La/Cal II Party knows of no such adverse change, destruction, damage, or loss
that is threatened; (iv) such La/Cal II Party has not waived any right of
material value to the Assets; (v) there has not been 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 or grant a security interest
in, any Asset; and (vi) such La/Cal II Party has not been a party to (A) any
agreement to merge, consolidate or combine with any corporation or entity,
insofar as the same may affect the Assets, other than pursuant to this
Agreement, or (B) 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 Assets, other than in the ordinary course of business.
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Section 5.14 Current Commitments. To the best of such La/Cal II
Party's knowledge, Schedule 5.14 contains a true and complete list of (i) all
AFEs to drill or rework Wells or for capital expenditures pursuant to any of
the Contracts that have been proposed by such La/Cal II Party or any other
person on or after the Effective Date, whether or not accepted by such La/Cal
II Party or any other person, and (ii) all AFEs and oral or written commitments
to drill or rework Wells or for other capital expenditures pursuant to any of
the Contracts for which all of the activities anticipated in such AFEs or
commitments have not been completed by the Effective Date. Except as set forth
on Schedule 1.01, no agreement applicable to the Assets 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 Assets.
Section 5.15 Corporate Existence. Each La/Cal II Party that is a
corporation, partnership or limited liability company is duly organized,
validly existing and in good standing under the laws of its state of
organization, is duly qualified and in good standing under the laws of the
State of Louisiana, if required to do so, and has the legal right, power,
authority, and qualifications to conduct its business and own its respective
interest in the Assets.
Section 5.16 Organizational Power. The execution, delivery and
performance by such La/Cal II Party of (i) this Agreement, (ii) the
Contribution Agreement, and (iii) all other instruments to be executed in
connection with the this Agreement and the Contribution Agreement, (all such
other instruments, together with the Contribution Agreement, are collectively
referred to herein as the "Closing Documents") and the consummation of the
transactions hereunder contemplated are within such La/Cal II Party's
corporate, partnership or limited liability company powers, have been duly
authorized by all necessary corporate, partnership or limited liability company
action on the part of such La/Cal II Party and do not and will not (a) violate
or be in conflict with any provision of law or any rule, regulation, order,
judgment, decree, permit, license, consent, approval or determination currently
in effect having applicability to such La/Cal II Party or such La/Cal II
Party's articles of incorporation, bylaws, partnership agreement, articles of
organization, operating agreement or other governing documents, (b) result in
a breach of, constitute or cause a breach or default under any indenture,
credit agreement, operating agreement, or any other agreement or instrument to
which such La/Cal II Party is a party or by which such La/Cal II Party or the
Assets may be currently bound or affected, or (c) result in or require the
creation or imposition of any mortgage, lien, pledge, security interest,
charge, or other encumbrance upon any of the Assets under any such indenture,
credit agreement, operating agreement or other agreement or instrument; and
such La/Cal II Party is not in default under any such order, judgment, decree,
permit, license, consent, approval, determination, indenture, credit agreement,
operating agreement or other agreement, or instrument in any way that now or in
the future will materially adversely affect the ability of such La/Cal II Party
to perform its obligations under this Agreement or the Closing Documents; and
all consents or approvals under such indentures, agreements, and instruments
necessary to permit valid execution, delivery, and performance by such La/Cal
II Party of this Agreement, the Closing Documents and its obligations
thereunder have been obtained. In the case of La/Cal II, each representation
made in this Section 5.16 is subject to the approval of this Agreement by the
partners of La/Cal II pursuant to Section 7.06, below.
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Section 5.17 Due Execution and Enforceability. Subject to the
approval of this Agreement by the partners of La/Cal II pursuant to Section
7.06, below, this Agreement has been duly executed and delivered by such La/Cal
II Party, and as of the Closing, the Closing Documents will have been duly
executed and delivered by such La/Cal II Party, and this Agreement constitutes,
and as of the Closing, the Closing Documents will constitute, the legal, valid,
and binding acts and obligations of such La/Cal II Party enforceable against
such La/Cal II Party in accordance with their terms, subject, however, to
bankruptcy, insolvency, reorganization, and other laws affecting creditors'
rights generally and, with regard to any equitable remedies, to the discretion
of the court before which proceedings to obtain such remedies may be pending.
There are no bankruptcy, insolvency, reorganization, receivership or
arrangement proceedings pending, being contemplated by, or to the best
knowledge of such La/Cal II Party, threatened against such La/Cal II Party.
Section 5.18 Insurance Policies. Schedule 5.18 sets forth a list
of all insurance policies issued in favor of the La/Cal II Parties that relate
to the Assets and all such policies are currently in force and effect. True
and complete copies of all such policies will be made available to Acquisition
II within seven (7) days of the date of this Agreement.
Section 5.19 Wells. During any period operated by the La/Cal II
Parties, as applicable, and to the knowledge of such La/Cal II Party, during
other periods (a) all of the Wells have been drilled and completed within the
boundaries of the area described in the Leases or within the limits otherwise
permitted by contract, pooling or unitization agreement and by applicable law
and (b) all such Wells have been produced in compliance with allowables
allocated thereto by the applicable governmental authority, except as set forth
in Schedule 5.19. All of such scheduled violations, taken together, would not
and could not reasonably be expected to have a Material Adverse Effect on the
Assets. As used herein, 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 Assets, taken as a whole.
Section 5.20 Evaluation Data. The La/Cal II Parties own and have
the right to transfer or have the right to use and the right to transfer such
right of use without any limitations or restrictions adversely affecting the
use of the same in the ordinary conduct of its business, the Files, and this
Agreement (including the consummation of the transactions hereunder
contemplated) has not altered or impaired, nor will alter or impair, any such
rights or has breached, or will breach, any agreements with third party vendors
or has required, or may require (whether in such La/Cal II Party's opinion or
the third party vendor's opinion) payments of additional sums thereto, or has
required, or may require (whether in such La/Cal II Party's opinion or the
third party vendor's opinion) the return of any records or information, except
as set forth in Schedule 5.20. All of such scheduled items, taken together,
would not and could not reasonably be expected to have a Material Adverse
Effect on the Assets. No person has any right to use or obtain access to any
of the Files, and no person has overtly challenged or questioned the validity
or effectiveness of any license or agreement relating to the same or the right
of the La/Cal II Parties, as applicable, to use the same, except as set forth
in Schedule 5.20. All of such scheduled items, taken together, would not and
could not reasonably be expected to have a Material Adverse Effect on the
Assets.
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Section 5.21 Well Status. Except as set forth in Schedule 5.21,
there are no Wells that:
(i) the La/Cal II Parties are currently obligated by law
or contract to plug and abandon;
(ii) the La/Cal II Parties will be obligated by law or
contract to plug and abandon with the lapse of time or notice or both
because the Well is not currently capable of producing in commercial
quantities;
(iii) are subject to exceptions to a requirement to plug
and abandon issued by a regulatory authority having jurisdiction over
the Assets; or
(iv) to the best knowledge of such La/Cal II Party, have
been plugged and abandoned but have not been plugged or reclaimed in
accordance with all applicable requirements of each regulatory
authority having jurisdiction over the Assets.
Section 5.22 Royalties. All royalties, overriding royalties,
compensatory royalties and other payments due with respect to the Assets for
the period prior to the Closing have been properly and correctly paid.
Section 5.23 Reserve Report.
(a) The La/Cal II Parties have delivered to Acquisition
II a copy of the oil and gas reserve report for the Assets prepared by
Coutret & Associates, Inc. ("Reserve Engineers") as of July 1, 1996
(the "Reserve Report"). The factual information provided by the
La/Cal II Parties to the Reserve Engineers was based upon information
contained in the records and files of the La/Cal II Parties kept in
the ordinary course of business. Except with respect to the
corrections and matters set forth at Schedule 5.23, such La/Cal II
Party does not have knowledge of any facts which would make the
factual information provided by the La/Cal II Parties to the Reserve
Engineers, and on which the Reserve Report was based, inaccurate in
any material respect as of its date.
(b) OTHER THAN AS EXPRESSLY SET FORTH ABOVE IN THIS
SECTION 5.23, THE LA/CAL II PARTIES MAKE NO REPRESENTATION OR WARRANTY
REGARDING THE RESERVE REPORT AND HEREBY DISCLAIM ANY REPRESENTATION OR
WARRANTY THAT THE RESERVE ESTIMATES, CASH FLOW ESTIMATES, PRICE
ESTIMATES, OR PRODUCTION OR FLOW RATE ESTIMATES CONTAINED IN THE
RESERVE REPORT OR IN ANY SUPPLEMENT THERETO OR UPDATE THEREOF (OR IN
ANY SIMILAR REPORT) ARE IN ANY WAY COMPLETE, ACCURATE OR NOT
MISLEADING, THE SAME BEING PREDICTIONS AS TO FUTURE EVENTS WHICH ARE
INHERENTLY SUBJECT TO INCOMPLETENESS AND INACCURACY.
Section 5.24 Payout Agreements. There are no Assets with respect
to which the Net Revenue Interests and Working Interests of the La/Cal II
Parties, as shown on Schedule 1.01
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are determined with respect to "Payout" and as to which "Payout" has not
occurred, except as shown on Schedule 1.01.
Section 5.25 Books and Accounts. The Files are complete and
accurate in all material respects, have been maintained on a consistent basis,
and fairly reflect all of the income, expenses, assets, liabilities,
obligations and commitments attributable to the Assets, 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 the Assets for the period ended June 30, 1996 (the "La/Cal II Financial
Statements"), there are, as of the date of such Financial Statements, no
material liabilities or obligations (absolute or contingent) respecting the
Assets. 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
the Assets 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.
Section 5.26 Complete Disclosure. Such La/Cal II Party has not
knowingly provided or made available to Acquisition II any information that is
misleading or inaccurate in any material respect. Such La/Cal II Party has not
knowingly withheld from or failed to disclose to Acquisition II any data,
documents or other information that a responsible seller would consider
necessary for a reasonable evaluation by a prospective purchaser of the Assets,
taken as a whole. There is no fact that such La/Cal II Party has not disclosed
to Acquisition II in writing that materially adversely affects, or so far as
such La/Cal party can now foresee will materially adversely affect, the Assets.
Section 5.27 No Affiliate or Business Limiting Agreements. Except
as otherwise disclosed to Acquisition II in a Schedule hereto, there is no
written agreement, instrument or other arrangement or any material unwritten
agreement, contract, commitment or other arrangement between or among any
La/Cal II Party that affects the Assets. There is no agreement, contract,
arrangement or commitment with any person that will be binding upon Acquisition
II following the Closing that limits the ability of Acquisition II to engage in
any line of business or compete in any location against any person.
Section 5.28 Hydrocarbon Receivables. The accounts receivable
reflected on the books of the La/Cal II Parties as of the Closing Date that are
attributable to any Hydrocarbons produced and sold prior to the Closing Date
(the "La/Cal II Hydrocarbon Receivables"), will represent bona fide amounts due
from debtors for Hydrocarbons delivered or sold on or before the Closing Date
and will not be subject to any valid defenses, counterclaims or rights of
setoff. At least 90% of the La/Cal II Hydrocarbon Receivables (other than
those relating to gas balancing obligations), will be collectible in the
ordinary course of business within 120 days after billing.
Section 5.29 Employees; WARN Act Notices. Any notice required
under the Federal Workers Adjustment and Retraining Notification Act ("WARN
Act") that is, has been or will be required of the La/Cal II Parties to its
employees or former employees by reason of its obligations under the WARN Act
resulting from the transactions contemplated by this
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Agreement has been or will be given by the La/Cal II Parties. As a result of
the transactions contemplated by this Agreement, Acquisition II will not have
any responsibility for any employee benefits, including without limitation,
severance payments that the La/Cal II Parties' employees may be entitled to
receive as a result of such transaction.
Section 5.30. Limitation on Remedial Costs. There are no
conditions relating to the Assets that could reasonably be expected to give
rise to any environmental-related remedial activities that would, in the
aggregate, cost more than $100,000.
Section 5.31 Survival of Representations. Except to the extent
necessary to give effect to the provisions of Section 11.01 (Indemnification),
no representation, warranty, covenant or agreement contained in this Article V
shall survive the Closing.
ARTICLE VI
REPRESENTATIONS OF ACQUISITION II AND GOODRICH
Acquisition II and Goodrich represent to the La/Cal II Parties that,
as of the Effective Date and the Closing Date:
Section 6.01 Corporate Existence of Acquisition II. Acquisition
II is a corporation duly organized, validly existing and in good standing under
the laws of the state of Delaware, will be duly qualified and in good standing
under the laws of the states of Texas and Louisiana, and has the legal right,
power, authority, and qualifications to conduct its business.
Section 6.02 Corporate Power of Acquisition II. The making and
performance by Acquisition II of this Agreement and the Closing Documents to
which it is a party are within Acquisition II's corporate powers, have been
duly authorized by all necessary corporate action on the part of Acquisition
II, except that the issuance of the Preferred Shares will require approval of
Goodrich's stockholders under the Rules of the New York Stock Exchange, and do
not and will not (i) violate any provision of law or any rule, regulation,
order, judgment, or determination currently in effect having applicability to
Acquisition II or Acquisition II's certificate of incorporation, bylaws, or
other governing documents, or (ii) subject to obtaining the consents prior to
Closing listed on Schedule 6.02, result in a breach of or constitute a default
under any indenture, credit agreement, operating agreement, or any other
agreement or instrument to which Acquisition II is a party or by which
Acquisition II may be currently bound or affected; and Acquisition II is not in
default under any such order, judgment, decree, determination, indenture,
credit agreement, operating agreement or other agreement, or instrument in any
way that now or in the future will materially adversely affect the ability of
Acquisition II to perform its obligations under this Agreement or the Closing
Documents; and all consents or approvals under such indentures, agreements, and
instruments necessary to permit valid execution, delivery, and performance by
Acquisition II of this Agreement and the Closing Documents have been obtained
or will be obtained prior to Closing.
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Section 6.03 Due Execution and Enforceability. This Agreement has
been duly executed and delivered by Acquisition II, and, as of the Closing, the
Closing Documents will have been duly executed and delivered by Acquisition II,
and this Agreement constitutes, and as of the Closing, the Closing Documents
will constitute, the legal, valid, and binding acts and obligations of
Acquisition II enforceable against Acquisition II in accordance with their
terms, subject, however, to bankruptcy, insolvency, reorganization, and other
laws affecting creditors' rights generally and, with regard to any equitable
remedies, to the discretion of the court before which proceedings to obtain
such remedies may be pending. There are no bankruptcy, insolvency,
reorganization, receivership or arrangement proceedings pending, being
contemplated by, or to the best knowledge of Acquisition II, threatened against
Acquisition II.
Section 6.04 Brokers. No broker or finder is entitled to any
brokerage or finder's fee, or to any commission, based in any way on
agreements, arrangements or understandings made by or on behalf of Acquisition
II for which the La/Cal II Parties have or will have any liabilities or
obligations (contingent or otherwise).
Section 6.05 Financial Statements of Goodrich. Except as and to
the extent reflected or reserved against in the financial statements for
Goodrich for the period ending December 31, 1995, included in Goodrich's annual
report on Form 10-K for such year (the "Financial Statements") or in Goodrich's
SEC filings or as set forth in Schedule 6.05 attached hereto, Goodrich, as of
the date of such Financial Statements or SEC filings, had 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 Goodrich as of the dates and for the
periods indicated, all such statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis, and, to
the best of Goodrich'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.
Section 6.06 SEC Filings of Goodrich. Since August 15, 1995,
Goodrich has filed all periodic reports required to be filed with the SEC under
the Exchange Act. All such filings made and to be made by Goodrich with the
SEC prior to the Closing do and will, as of the Closing, comply with the
provisions of the Exchange Act and the rules and regulations of the SEC under
the Exchange Act, and did not, during the period of time to which any such
filings relate, (a) contain any untrue statement of material fact; or (b) 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.
Section 6.07 Fairness Opinion. Goodrich has obtained from its
investment banker, Morgan Keegan, a written opinion ("Fairness Opinion"), a
copy of which has been delivered to La/Cal.
Section 6.08 Survival of Representations. No representation,
warranty, covenant or agreement contained in this Article VI shall survive the
Closing.
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ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE LA/CAL II PARTIES
The obligations of the La/Cal II Parties to consummate the
transactions provided for herein are subject, at the option of the La/Cal II
Parties, to the fulfillment on or prior to the Closing Date of each of the
following conditions:
Section 7.01 Representations. All of the representations and
warranties of Acquisition II and Goodrich herein contained shall be true and
correct in all material respects, at the date made and at and as of the Closing
as if such representations and warranties were made at and as of the Closing.
Section 7.02 Performance. Acquisition II and Goodrich shall have
performed, in all material respects, all obligations, covenants and agreements
contained in this Agreement to be performed or complied with by them at or
prior to the Closing.
Section 7.03 Pending Matters. No suit, action or other proceeding
shall be pending or threatened that seeks to restrain, enjoin or otherwise
prohibit the consummation of the transactions contemplated by this Agreement
and the transactions shall not have been blocked by final judicial action.
Section 7.04 Tax Opinion. The La/Cal II Parties shall have
received a written opinion of Andrews & Kurth, L.L.P., in form and substance
reasonably satisfactory to them to the effect that the asset contribution will
generally qualify for nonrecognition treatment under Section 351 of the
Internal Revenue Code of 1986, as amended, and such opinion shall not have been
withdrawn. In rendering such opinions, Andrews & Kurth, L.L.P., shall be
entitled to rely upon representations of the La/Cal II Parties, the partners of
La/Cal II, Acquisition II and Goodrich.
Section 7.05 Registration Rights Agreement. Acquisition II shall
have entered into a Registration Rights Agreement with the La/Cal II Parties,
containing substantially the same terms and provisions as set forth in the form
of Registration Rights Agreement attached hereto as Exhibit C.
Section 7.06 Approval of the Partners of La/Cal II. La/Cal II's
obligation to consummate the transactions contemplated hereby is subject to
La/Cal II having obtained the necessary consent of its partners to the
consummation of such transactions.
Section 7.07 Consummation of the Merger. The Merger shall be
consummated concurrently with the consummation of the transactions contemplated
by this Agreement, on substantially the same terms and provisions as set forth
the form of Certificate of Merger attached hereto as Exhibit D.
Section 7.08 Approval of the Preferred Shares. The shareholders
of Acquisition II and Goodrich shall have given the requisite approval for the
issuance of the Preferred Shares containing substantially the same rights,
preferences, qualifications and limitations and restrictions as set forth
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in the form of Certificate of Designations for Acquisition II Series B
Convertible Preferred Stock attached hereto as Exhibit B.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF ACQUISITION II
The obligations of Acquisition II to consummate the transaction
provided for herein are subject, at the option of Acquisition II, to the
fulfillment on or prior to the Closing Date of each of the following
conditions:
Section 8.01 Representations. All of the representations and
warranties of the La/Cal II Parties herein contained shall be true and correct
in all material respects, at the date made and at and as of the Closing as if
such representations and warranties were made at and as of the Closing.
Section 8.02 Performance. The La/Cal II Parties shall have
performed, in all material respects, all obligations, covenants and agreements
contained in this Agreement to be performed or complied with by them at or
prior to the Closing.
Section 8.03 Pending Matters. No suit, action or other proceeding
shall be pending or threatened that seeks to restrain, enjoin, or otherwise
prohibit the consummation of the transactions contemplated by this Agreement,
the transactions shall not have been blocked by final judicial action, and
there shall be no legal proceedings or environmental proceedings with respect
to the Assets outstanding or threatened, other than those that have been
disclosed, which, either separately or in the aggregate, would materially and
adversely affect the Assets taken as a whole.
Section 8.04 Approval of Shareholders. Goodrich shall have
obtained any necessary consent of its shareholders for the issuance of the
Preferred Shares.
Section 8.05 Fairness Opinion. The Fairness Opinion shall not
have been materially changed or withdrawn.
Section 8.06 La/Cal II Partners' Consent. La/Cal II shall have
obtained all necessary consent of the partners to the transactions contemplated
hereby.
Section 8.07 Registration Rights Agreement. The La/Cal II Parties
shall have entered into a Registration Rights Agreement with Acquisition II,
containing substantially the same terms and provisions as set forth in the form
of Registration Rights Agreement attached hereto as Exhibit C.
Section 8.08 Assets. The La/Cal II Parties shall have transferred
the Assets to Acquisition II in exchange for the Adjusted Preferred Shares and
the other consideration set forth herein.
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Section 8.09 No Adverse Change. Since the date of this Agreement,
no material adverse change shall have occurred in the business, operations or
financial conditions of the Assets, taken as a whole.
Section 8.10 Registration or Proxy Statement. The Statement , if
it includes a registration statement, shall have become effective under the
Securities Act of 1933, as amended; no stop order suspending the effectiveness
of the Statement shall have been issued and no proceedings for that purpose
shall have been initiated or threatened by the SEC; and, in any event, such
Statement, as of 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.
Section 8.11 Financing. Acquisition II shall have received
financing on terms reasonably satisfactory to it in an amount sufficient to
refinance the RIMCO Debt and to pay the Cash Consideration required hereunder.
Section 8.12 Consents of Third Parties. All necessary consents,
permissions, novations and approvals by third parties or governmental
authorities in connection with the transactions hereunder contemplated 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 transactions hereunder contemplated.
Section 8.13 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.
Section 8.14 Subscription Certificates. Each La/Cal II Party
shall have executed and delivered to Acquisition II a Subscription Certificate
in the form attached hereto as Exhibit E.
ARTICLE IX
CLOSING
Section 9.01 Time and Place of Closing. The consummation of the
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of Vinson & Elkins L.L.P., 1001 Fannin, Suite 3600, Houston, Texas
77002, as soon as practicable following the satisfaction or waiver of the
conditions set forth in Articles VII and VIII, above (the "Closing Date").
Section 9.02 Pre-Closing Review of Cash Consideration Adjustments.
The La/Cal II Parties shall deliver to Acquisition II a written detailed
statement at least one week prior to Closing
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evidencing the Cash Consideration Adjustments for Acquisition II's review and
approval. The Parties shall use good faith efforts to agree upon these
adjustments.
Section 9.03 Adjustments to Cash Consideration at Closing.
(a) At Closing, the initial Cash Consideration shall be
increased by the following amounts:
(i) all costs and expenses paid by the La/Cal II
Parties pursuant to applicable operating agreements affecting
the Assets, to the extent such costs are attributable to the
Assets for the period of time from and after the Effective
Time (such calculation, being made in a manner consistent with
the La/Cal Parties' past practices);
(ii) if applicable, any adjustments for Other
Defects pursuant to Article III; and
(iii) any other amount provided for in this
Agreement or agreed upon by the La/Cal II Parties and
Acquisition II.
(b) At Closing, the initial Cash Consideration shall be
decreased by the following amounts:
(i) the amount of all proceeds of production
actually received by the Working Interest Owners that is
attributable to their interests in the Assets for the period
of time from and after the Effective Time;
(ii) the amount of all proceeds of production
actually received by La/Cal II, over and above the debt
service (attributable to the period of time from and after the
Effective Time) paid by La/Cal II on the RIMCO Debt, that is
attributable to its interest in the Assets for the period of
time from and after the Effective Time;
(iii) the portion of the Cash Consideration
attributable to the portion of the Assets owned by any Working
Interest Owner who fails or refuses to become a party hereto;
(iv) if applicable, any adjustments for Title or
Other Defects pursuant to Article III; and
(v) any other amount provided for in this
Agreement or agreed upon by the La/Cal II Parties and
Acquisition II.
(c) At Closing, the initial number of Preferred Shares
(valued at the liquidation preference) shall be decreased by the
following amounts, if any:
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(i) any amount by which the aggregate total of
the adjustments for Title or Other Defects pursuant to Article
III and any other matter for which any adjustment is provided
in Section 9.03(b) exceeds the Adjusted Cash Consideration;
and
(ii) the number of Preferred Shares attributable
to the portion of the Assets owned by any Working Interest
Owner who fails or refuses to become a party hereto;
(d) In the event the total amount of adjustments to be
made hereunder exceeds the Cash Consideration and the liquidation
preference value of the Preferred Shares to be delivered hereunder,
the amount of the RIMCO Debt to be assumed hereunder shall be reduced
by the amount of such excess.
(e) If the parties are unable, in good faith, to agree on
the appropriate adjustments at the time of Closing, the payment of the
amount of the Cash Consideration in dispute shall be deferred until
determined in accordance with Section 9.04.
Section 9.04 Post-Closing Adjustments and Audits.
Promptly after the Closing Date (but not later than 60 days thereafter), the
La/Cal II Parties shall prepare, and shall furnish to Acquisition II, a final
accounting statement setting forth any adjustments provided in Article IX or
elsewhere in this Agreement, allocating such adjustments among the various
La/Cal II Parties, and specifying the persons to whom the Adjusted Cash
Consideration and the Adjusted Preferred Shares should be paid or delivered. As
soon as reasonably practicable thereafter (but not later than 30 days
thereafter), Acquisition II shall deliver to the La/Cal II Parties a written
report containing any changes that Acquisition II proposes be made to such
statement. The Parties shall use good faith efforts to agree on the final
adjustment amount, and such final adjustment amount shall be paid by Acquisition
II or the La/Cal II Parties, as appropriate, not later than 10 days after such
final adjustment. For a period of six (6) months thereafter, Acquisition II may
at its own expense audit the La/Cal II Parties' books, accounts and records
relating to any item that may have affected the adjustments to the consideration
paid hereunder. Such audit shall be conducted so as to cause the least amount
of inconvenience to the La/Cal II Parties as is reasonably possible.
Notwithstanding any other provision of this Agreement, the Closing shall not
relieve either Party of its obligation to account to the other Party after the
Closing with respect to amounts that are received or become due at, before or
after the Closing or that are properly payable or chargeable to either Party
pursuant to any provision of this Agreement. Any matter for which the Parties
cannot reach agreement under this Section 9.04 shall be resolved by arbitration
in accordance with the provisions of Section 3.07.
Section 9.05 Remittance of Certain Payments Received by the La/Cal
II Parties. The amount of all payments received by the La/Cal II Parties (or
any affiliates thereof) relating to the ownership or operation of the Assets
after the Effective Time that have not been taken into account in Section 9.03
or 9.04 shall be remitted to Acquisition II in immediately available funds on a
timely basis.
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Section 9.06 Transfer Taxes. All sales, use or other taxes (other
than taxes on gross income, net income or gross receipts) and duties, levies or
other governmental charges incurred by or imposed with respect to the property
transfers undertaken pursuant to this Agreement shall be the responsibility of,
and shall be paid by, Acquisition II.
Section 9.07 Ad Valorem and Similar Taxes. Ad valorem, property
and similar taxes and assessments based upon or measured by the value of the
Assets and becoming due and payable after the Effective Time shall be the
responsibility of, and shall be paid by, Acquisition II.
Section 9.08 Actions of the La/Cal II Parties at Closing. At the
Closing, the La/Cal II Parties shall:
(a) Execute, acknowledge and deliver to Acquisition II
the Contribution Agreement in the forms set forth in Exhibit A, and
such other instruments, in form and substance reasonably requested by
Acquisition II as may be necessary or desirable to transfer the Assets
to Acquisition II;
(b) Deliver to Acquisition II possession of the Assets;
(c) Execute and deliver letters in lieu of transfer
orders addressed to each purchaser of production from the Assets
instructing such purchasers to make all future payments to Acquisition
II;
(d) Execute and deliver the Registration Rights
Agreement; and
(e) Execute, acknowledge and deliver any other agreements
provided for herein or that are reasonably requested and necessary or
desirable to effectuate the transactions contemplated hereby.
Section 9.09 Actions of Acquisition II at Closing. At the
Closing, Acquisition II shall:
(a) Deliver to the La/Cal II Parties the Adjusted Cash
Consideration by wire transfer;
(b) Deliver to the La/Cal II Parties the Adjusted
Preferred Shares;
(c) Execute, acknowledge and deliver the Contribution
Agreement;
(d) Take possession of the Assets;
(e) Execute and deliver letters in lieu of transfer
orders addressed to each purchaser of production from the Assets
instructing such purchasers to make all future payments to Acquisition
II;
(f) Execute and deliver the Registration Rights
Agreement; and
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(g) Execute, acknowledge and deliver any other agreements
provided for herein or that are reasonably requested and necessary or
desirable to effectuate the transactions contemplated hereby.
Section 9.10 Actions of Goodrich and Acquisition II Sub1 at
Closing. At the Closing, Goodrich and Acquisition II Sub1 will execute,
acknowledge and deliver the Certificate of Merger.
Section 9.11 Further Cooperation. After the Closing Date, each
Party at the request of the other, at its own expense and without additional
consideration, shall execute, acknowledge and deliver, or shall cause to be
executed, acknowledged and delivered from time to time such further
instruments, including, without limitation, instruments of conveyance and
transfer, and shall take such other action as may be necessary or advisable to
carry out its respective obligations under this Agreement and under any
Exhibit, document, certificate or other instrument delivered pursuant thereto
or that the other Party may reasonably request to convey and deliver the Assets
to Acquisition II and to accomplish the orderly transfer of the Assets to
Acquisition II in the manner contemplated by this Agreement. After the
Closing, the Parties will cooperate to have all proceeds received attributable
to the Assets to be paid, as promptly as practicable in immediately available
funds, to the proper Party hereunder and to have all expenditures to be made
with respect to the Assets to be made by the proper Party.
ARTICLE X
TERMINATION
Section 10.01 Right of Termination. This Agreement and the
transactions contemplated hereby may be completely terminated at any time at or
prior to the Closing:
(a) by mutual consent of the Parties;
(b) by the La/Cal II Parties, at their option, if the
conditions set forth in Article VII are not satisfied on or before
March 31, 1997;
(c) by Acquisition II, at its option, if the conditions
set forth in Article VIII are not satisfied on or before March 31,
1997;
(d) by either Acquisition II or the La/Cal II Parties if
the Closing has not occurred by March 31, 1997;
(e) by either Party if any court or governmental agency
shall have issued an order, judgment or decree or taken any other
action challenging, delaying, restraining, enjoining, prohibiting or
invalidating the consummation of any of the transactions contemplated
herein.
Section 10.02 Effect of Termination. In the event that this
Agreement is terminated as a result of either Party exercising its right not to
close pursuant hereto, then this Agreement shall be
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null and void and neither Party shall have any further rights or obligations
under this Agreement, except that nothing herein shall relieve any Party from
liability for any breach hereof. If either Party to this Agreement resorts to
legal proceedings to enforce this Agreement, the prevailing Party in such
proceedings shall be entitled to recover all costs incurred by such Party
including reasonable attorneys' fees, in addition to any other relief to which
such Party may be entitled.
ARTICLE XI
INDEMNIFICATION
Section 11.01 The La/Cal II Parties' Obligation. Each La/Cal II
Party severally agrees to release, indemnify, defend and hold harmless
Acquisition II, its subsidiaries, and their respective officers, directors,
employees and agents, from and against any and all claims, liabilities, losses,
costs and expenses (including, without limitation, damage to property, injury
or death of persons, court costs and reasonable attorneys' fees) caused by,
arising from or attributable to the Assets and arising from operations or other
facts or circumstances existing on or prior to the Effective Time.
Section 11.02 Acquisition II's Obligation. Acquisition II agrees
to release, indemnify, defend and hold harmless each La/Cal II Party and their
respective partners, subsidiaries, officers, directors, members, managers,
employees and agents, from and against any and all claims, liabilities, losses,
costs and expenses (including, without limitation, damage to property, injury
or death of persons, court costs and reasonable attorneys' fees) caused by,
arising from or attributable to the Assets and arising from operations or other
facts or circumstances existing after the Effective Time.
Section 11.03 Indemnitee's Negligence. THE INDEMNIFICATION
OBLIGATIONS IN THIS ARTICLE XI SHALL BE WITHOUT REGARD TO THE INDEMNITEE'S
SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT.
Section 11.04 Limitation on Responsibility for Attorneys' Fees.
Notwithstanding anything to the contrary contained herein, Acquisition II shall
only be responsible for the costs and expenses of one firm of counsel in any
one jurisdiction for all of the La/Cal II Parties.
Section 11.05 Directors', Officers' and Management Committee
Indemnifications.
(a) Acquisition II agrees that all rights to
indemnification and waivers of liability in favor of (i) the members
of the Management Committee of La/Cal II now existing and in effect on
the Closing Date as provided in its partnership agreement, and (ii)
the directors or officers of Goodrich now existing and in effect on
the Closing Date as provided in its charter documents as in effect on
the date hereof, shall survive the transactions contemplated hereby
and the Merger and shall continue in full force and effect.
(b) For a period of five years after the date hereof,
Goodrich, regardless of whether the Merger becomes effective, and
Acquisition II shall indemnify and hold harmless, to the fullest
extent permitted under applicable law and under their respective
certificates of incorporation and bylaws in effect on the date hereof,
each present and former director and
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officer of Goodrich and each member of the Management Committee of
La/Cal II (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
Closing Date with respect to the transactions contemplated by this
Agreement (including, without limitation, actions relating to serving
on a Board of Directors' Committee or on the Adjustment Committee),
provided, however, that any Indemnified Parties shall be advanced any
legal costs and expenses until a final determination of such action,
and such Indemnified Party shall reimburse Acquisition II for any such
costs and expenses if it is ultimately determined that such person is
not entitled to indemnification; 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 thereof. After the Closing Date,
Acquisition II shall also advance expenses as incurred, to the fullest
extent permitted under applicable law, provided the person to whom
expenses are advanced provides and 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 Closing Date),
Goodrich or Acquisition II shall have the right to assume the defense
thereof, except that, if Goodrich or Acquisition II 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 or Acquisition II and the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them, and
Goodrich or Acquisition II, as the case may be, 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 or Acquisition II, 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 nor Acquisition II shall be liable for any settlement
effected without its prior written consent, which consent shall not be
unreasonably withheld, and (iii) neither Goodrich nor Acquisition II
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 11.05, upon learning of any such
claim, action, suit, proceeding or investigation, shall notify
Goodrich and Acquisition II thereof, but the failure to so notify
shall not relieve Goodrich or Acquisition II 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 11.05 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 or Acquisition II and
the Indemnified Party shall contribute to the amount payable in such
proportion as is appropriate to reflect the relative faults and
benefits.
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(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
Closing Date, 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 or Acquisition II or any officer or
director thereof unless Goodrich or Acquisition II has joined in or
consented to the initiation of such claim.
Section 11.06 Survival of Indemnities. The indemnities set forth
in this Article XI shall survive the Closing.
ARTICLE XII
MISCELLANEOUS
Section 12.01 Entire Agreement. This Agreement, the Closing
Documents, and the exhibits attached hereto constitute the entire agreement
between the Parties pertaining to the subject matter hereof and supersede all
prior agreements, understandings, negotiations and discussions, whether oral or
written, of the Parties pertaining to the subject matter hereof. No
supplement, amendment, alteration, modification, waiver or termination of this
Agreement or the Closing Documents shall be binding unless executed in writing
by the Parties and specifically referring to this Agreement.
Section 12.02 Waiver. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar), nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided.
Section 12.03 Publicity. The La/Cal II Parties and Acquisition II
shall consult with each other with regard to all publicity and other releases
concerning this Agreement and the transactions contemplated hereby and, except
as required by applicable law or the applicable rules or regulations of any
governmental body or stock exchange, neither Party shall issue any such
publicity or disclose any aspect of this Agreement or the transactions
contemplated hereby without the prior written consent of the other Party
hereto.
Section 12.04 Captions. The captions in this Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement.
Section 12.05 No Third Party Beneficiaries. Other than with
respect to indemnified parties in Section 11.05, nothing in this Agreement
shall provide any benefit to any third party or entitle any third party to any
claim, cause of action, remedy or right of any kind, it being the intent of the
Parties that this Agreement shall not be construed as a third party beneficiary
contract.
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Section 12.06 Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the Parties hereto and their respective permitted
successors, assigns and legal representatives.
Section 12.07 Governing Law. This Agreement, the Closing Documents
and the legal relations between the Parties shall be governed and construed in
accordance with the laws of the State of Texas, without giving effect to
principles of conflicts of laws.
Section 12.08 Severability. If any term, condition or provision of
this Agreement is invalid, illegal or incapable of being enforced by any
applicable rule of law or public policy, all other terms, conditions and
provisions of this Agreement shall nevertheless remain in full force and
effect.
Section 12.09 Expenses. In the event this Agreement is terminated,
all fees, costs and expenses incurred by the La/Cal II Parties or Acquisition
II or Goodrich 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, accounting, reserve
engineer and investment banker fees, costs and expenses. If this Agreement is
consummated, then all reasonable fees, costs and expenses incurred by the
La/Cal II Parties, including, without limitation, legal, accounting, reserve
engineer and investment banker fees, costs and expenses, up to a maximum of
$50,000.00, shall be paid or reimbursed by Acquisition II.
Section 12.10 Action by and Notice to Acquisition. Any action
or consent to be taken or given by Acquisition II hereunder must be taken or
given by, and any disclosure or notice to be given to Acquisition II hereunder
must be given to, the Special Committee of the Board of Goodrich.
Section 12.11 Notices. Any notice, communication, request,
instruction or other document required or permitted hereunder shall be given in
writing and delivered in person or sent by U.S. Mail postage prepaid, return
receipt requested, or by telex, facsimile or telecopy to the addresses of the
La/Cal II Parties (notice to La/Cal II as set forth below constituting notice
to all La/Cal Parties) and Acquisition II set forth below. Any such notice
shall be effective only upon receipt.
If to the La/Cal II Parties: La/Cal II Energy Partners II
c/o Walter G. Goodrich
333 Texas Street, Suite 1350
Shreveport, Louisiana 71101
Fax Number: (318)429-2339
Telephone Number: (318)429-2300
With a copy to: Scott C. Sinclair
Hargrove, Pesnell & Wyatt
Post Office Box 59
Shreveport, Louisiana 71161-0059
Fax Number: (318)429-7201
Telephone Number: (318)429-7200
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If to Acquisition II: Special Committee of the Board
of Goodrich Petroleum Corporation
c/o Arthur A. Seeligson
c/o Robert C. Turnham
5847 San Felipe, Suite 700
Houston, Texas 77057
Fax Number: (713)780-9254
Telephone Number: (713)780-9494
With a copy to: Gene J. Oshman
Baker & Botts, L.L.P.
3000 One Shell Plaza
910 Louisiana
Houston, Texas 77002
Fax Number: (713)229-1178
Telephone Number: (713)229-1234
And a copy to: Keith R. Fullenweider
Vinson & Elkins, L.L.P.
Suite 2300
1001 Fannin
Houston, Texas 77002
Fax Number: (713)615-5855
Telephone Number: (713)758-2838
Either Party may, by written notice so delivered, change its address for notice
purposes hereunder.
IN WITNESS WHEREOF, the La/Cal II Parties, Acquisition II and Goodrich
have executed and delivered this Agreement as of the date first set forth
above.
La/Cal II ENERGY PARTNERS II
By: /s/ WALTER G. GOODRICH
----------------------------
Walter G. Goodrich,
Management Committee Member
GOODRICH ACQUISITION II, INC.
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<PAGE> 200
By: /s/ ROBERT C. TURNHAM, JR.
---------------------------
Name: Robert C. Turnham, Jr.
--------------------------
Title: Chief Operating Officer
-------------------------
GOODRICH PETROLEUM CORPORATION
By: /s/ ROBERT C. TURNHAM, JR.
----------------------------
Name: Robert C. Turnham, Jr.
--------------------------
Title: Chief Operating Officer
-------------------------
WORKING INTEREST OWNERS
/s/ STUART L. ODEN /s/ LAURA WATTS
- ------------------------------------- --------------------------------
Stuart Oden Laura Watts
Post Office Box 1806 333 Texas Street, Suite 1350
Shreveport, Louisiana 71166 Shreveport, Louisiana 71101
Date: 11-7-96 Date: 11-8-96
------------------------ ------------------------
/s/ JAMES G. MARSTON, III /s/ W. TAYLOR MAY
- ------------------------------------- --------------------------------
James G. Marston, III W. Taylor May
333 Texas Street, Suite 1350 333 Texas Street, Suite 1325
Shreveport, Louisiana 71101 Shreveport, Louisiana 71101
Date: 11-11-96 Date: 11-6-96
------------------------ ------------------------
/s/ KEITH J. EVANS /s/ REBECCA T. DELATIN
- ------------------------------------- --------------------------------
Keith J. Evans Rebecca T. Delatin
333 Texas Street, Suite 1325 333 Texas Street, Suite 1375
Shreveport, Louisiana Shreveport, Louisiana 71101
Date: 11-6-96 Date: 11-6-96
------------------------ ------------------------
/s/ MICHAEL WATTS /s/ R.E. OSBORNE II
- ------------------------------------- --------------------------------
Michael Watts R. E. (Bob) Osborne II
333 Texas Street, Suite 1350 333 Texas Street, Suite 1500
Shreveport, Louisiana 71101 Shreveport, Louisiana 71101
Date: 11-8-96 Date: 11-8-96
------------------------ ------------------------
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/s/ LEO BROMBERG
- ---------------------------------- FIRST AUSTRALIAN RESOURCES, INC.
Leo Bromberg
333 Texas Street, Suite 1350 By: /s/ MICHAEL EVANS
Shreveport, Louisiana 71101 ---------------------------------
Date: 11-6-96 333 Texas Street, Suite 1350
------------------------ Shreveport, Louisiana 71101
Date: 11-8-96
GOODRICH ENERGY, INC. ------------------------
/s/ RICHARD M. WANGER
By: /s/ WALTER G. GOODRICH -------------------------------------
------------------------------- Richard Wanger
333 Texas Street, Suite 1350 333 Texas Street, Suite 1350
Shreveport, Louisiana 71101 Shreveport, Louisiana 71101
Date: 11-6-96 Date: 11-7-96
------------------------ ------------------------
/s/ SHELDON APPEL
WAYNE CREEK RESOURCES-C.L.L.C. -------------------------------------
Sheldon Appel Company
By: /s/ L.R. BRAMMER, JR. 333 Texas Street, Suite 1350
------------------------------- Shreveport, Louisiana 71101
333 Texas Street, Suite 1325 Date: 11-7-96
Shreveport, Louisiana 71101 ------------------------
Date: 11-7-96
------------------------ HGF PARTNERSHIP II
G & P IRREVOCABLE TRUST By: /s/ HENRY GOODRICH
---------------------------------
By: /s/ LEO BROMBERG 333 Texas Street, Suite 1350
-------------------------------- Shreveport, Louisiana 71101
Leo Bromberg, Trustee Date: 11-6-96
333 Texas Street, Suite 1350 ------------------------
Shreveport, Louisiana 71101
Date: 11-6-96 /s/ ALAN SCHLECHTEMIER
------------------------ -------------------------------------
/s/ ROCHELLE RAND Alan Schlichtemier
- ---------------------------------- 368 Fontaine Circle
Rochelle Rand Shreveport, Louisiana 71105
333 Texas Street, Suite 1350 Date: 11-7-96
Shreveport, Louisiana 71101 ------------------------
Date: 11-7-96 /s/ CHARLES RODMAN
------------------------ -------------------------------------
Charles Rodman
333 Texas Street, Suite 1325
Shreveport, Louisiana 71101
Date: 11-7-96
------------------------
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/s/ DAVID HALL
- -------------------------------------
David Hall
333 Texas Street, Suite 1325
Shreveport, Louisiana 71101
Date: 11-6-96
------------------------
/s/ STEVE G. MORAN
- -------------------------------------
Steve G. Moran
333 Texas Street, Suite 1325
Shreveport, Louisiana 71101
Date: 11-6-96
------------------------
/s/ JIM TORGERSON
- -------------------------------------
Jim Torgerson
Post Office Box 2085
Georgetown, Texas 78627
Date: 11-8-96
------------------------
/s/ DANNY YOUNGBLOOD
- -------------------------------------
Danny Youngblood
333 Texas Street, Suite 1325
Shreveport, Louisiana 71101
Date: 11-8-96
------------------------
/s/ WALTER G. GOODRICH
- -------------------------------------
Walter G. Goodrich
333 Texas Street, Suite 1375
Shreveport, Louisiana 71101
Date: 11-6-96
------------------------
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EXHIBIT A
FORM OF
CONTRIBUTION AGREEMENT
<PAGE> 204
UNITED STATES OF AMERICA
STATES OF LOUISIANA and TEXAS
CONTRIBUTION AGREEMENT
THIS AGREEMENT is effective as of 7:00 a.m., _________________
(said date and time hereinafter referred to as the "Effective Date"), by and
between LA/CAL ENERGY PARTNERS II, a Louisiana general partnership, with a
permanent mailing address of 333 Texas Street, Suite 1350, Shreveport,
Louisiana 71101-5319, hereinafter called "ASSIGNOR," and GOODRICH ACQUISITION
II, INC., a Delaware corporation with a permanent mailing address of 333 Texas
Street, Suite 1350, Shreveport, Louisiana 71101-5319, hereinafter called
"ASSIGNEE;"
WITNESSETH:
That for and in consideration of the sum of One Hundred and
no/100 Dollars ($100.00), cash in hand paid, and other valuable consideration,
including the hereinbelow described assumption by ASSIGNEE of certain described
obligations and liabilities, the receipt and sufficiency of which are hereby
acknowledged, ASSIGNOR, subject to the terms, conditions and reservations
hereof, does hereby contribute, transfer, assign, convey, set over and deliver
all of its right, title and interest in and to the following described
interests and properties, hereinafter sometimes collectively referred to as the
"Assets," situated in the States of Louisiana and Texas, to-wit:
A. The oil and gas leases described in Exhibit A
attached hereto (collectively, the "Leases"), including, without
limitation, all overriding royalty interests and working interests,
production payments, net profits interests and the oil and gas wells
located upon the lands covered by the Leases or pooled or unitized
therewith (collectively, the "Wells");
B. All rights, privileges, benefits and powers conferred
upon ASSIGNOR as the holder of any Leases with respect to the use and
occupation of the surface of, and the subsurface depths under, the
land covered by the Leases that may be necessary, convenient or
incidental to the possession and enjoyment of such Leases;
C. All of ASSIGNOR'S rights in any pools or units
including all or any part of any Lease or including any Well (the
"Units"), including all right, title and interest in production from
any Unit;
D. All platforms, water source wells, injection wells,
tubular goods, well equipment, lease equipment, production equipment,
pipelines and all other personal property, fixtures and facilities
appurtenant to or used in connection with the Leases, Units or the
Wells (collectively, the "Facilities");
<PAGE> 205
E. All production sales contracts, transportation
agreements, pooling agreements, unitization agreements, operating
agreements, processing agreements, surface leases, easements, permits,
division orders, purchase orders, invoices, receipts, licenses and
rights-of-way, orders of governmental authorities, and all other
contracts, agreements and instruments related to or utilized in
connection with the Leases, Units, Wells or Facilities, or the
production, storage, treatment, transportation, sale or disposal of
oil, gas, or other hydrocarbons, minerals or substances therefrom and
rights to insurance proceeds, and to the extent assignable, insurance
policies (collectively, the "Contracts"), including, without
limitation, the Contracts listed on Exhibit A;
F. All of ASSIGNOR'S original files, books, records and
data, or copies thereof, regarding the Leases, Units, Wells,
Facilities and Contracts, including without limitation, all abstracts
of title, title opinions, title curative documents, title records,
leases, assignments, contracts, correspondence, geologic, geophysical
and seismic records, data and information, and production records,
logs, core data, pressure data, and decline curve and production curve
data, tax and accounting records, material technology and proprietary
information relating to the Assets and all related items, including,
without limitation, computer disks, tapes and data relating to the
foregoing (collectively, the "Files");
G. All oil, gas, distillate, condensate, casinghead gas
or other liquid or vaporous hydrocarbons, or other minerals
(collectively, the "Hydrocarbons"), produced from or attributable to
the Leases from and after the Effective Date, and all Hydrocarbons
produced prior to the Effective Date and in storage as of the
Effective Date;
H. All rights of way, easements and servitudes used by
ASSIGNOR in connection with the Assets; and
I. All other assets of whatever kind and nature of
ASSIGNOR relating to items A through H, above.
TO HAVE AND TO HOLD unto ASSIGNEE, its successors, sublessees, and assigns
forever, subject to the terms, conditions and reservations hereinbelow
recounted.
1. ASSUMPTION OF OBLIGATIONS AND LIABILITIES.
ASSIGNEE accepts this Contribution Agreement and acknowledges
delivery of the Assets. ASSIGNEE hereby assumes and acknowledges sole
responsibility for satisfaction and discharge, at its sole cost, risk and
expense, of all obligations and liabilities of ASSIGNOR caused by, arising from
or attributable to the Assets and arising from operations or other facts or
circumstances existing after the Effective Date, but specifically excluding all
obligations and liabilities of ASSIGNOR caused by, arising from or attributable
to the Assets and arising from operations or other facts or circumstances
existing on or prior to the Effective Date (except that the accounting and
reporting thereof shall be assumed immediately as of the Effective Date, and
except that any obligation associated with an agreement for
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<PAGE> 206
the supply of material or service shall be assumed only to the extent that the
material or service with respect to which such payment is due is received by
ASSIGNEE after the Effective Date hereof).
Specifically, but not by way of limitation, ASSIGNEE assumes
the following obligations:
1.1 ASSIGNEE shall plug and abandon all wells located on
the lands or waterbottoms subject to the Leases, or on lands or waterbottoms
pooled therewith, whether or not said wells were drilled prior to or subsequent
to the Effective Date hereof. Such plugging and abandonment, shall be
performed by ASSIGNEE within such time as required by, in conformance with, and
satisfying the terms and conditions of the Leases, Contracts, and/or any
permits or agreements pertinent thereto, or as required by law, order, rule or
regulation of any governmental authority having jurisdiction.
1.2 ASSIGNEE shall remove all abandoned or unused
personal property, equipment and facilities located on the lands or
waterbottoms subject to the Leases, or on lands or waterbottoms pooled
therewith, or appurtenant to the wells referred to in Section 1.1 hereinabove,
whether or not said personal property, equipment and facilities were
constructed and/or located on the premises prior to or subsequent to the
Effective Date hereof. ASSIGNEE shall remove such facilities and equipment
within such time as required by, in conformance with, and satisfying the terms
and conditions of the Leases, Contracts and/or any permits or agreements
pertinent thereto, or as required by law, order, rule or regulation of any
governmental authority having jurisdiction.
1.3 ASSIGNEE shall restore associated or affected surface
areas or waterbottoms within such time as required by, in conformance with, and
satisfying the terms and conditions of the Leases, Contracts and/or any permits
or agreements pertinent thereto, or as required by law, order, rule or
regulation of any governmental authority having jurisdiction.
1.4 ASSIGNEE shall pay its prorata share of the costs, as
such costs relate to the Assets herein assigned, of all plugging and
abandonment of wells, all removal of facilities, equipment and pipelines, and
all restoration of lands or waterbottoms, which may be performed by third
parties on any wells, facilities, equipment or pipelines located on the lands
or waterbottoms subject to or affected by the Assets or on lands or
waterbottoms unitized therewith, on the Effective Date hereof or thereafter.
Such plugging and abandonment of wells, removal of facilities
or equipment and restoration of surface areas or waterbottoms by ASSIGNEE shall
be performed in a good and workmanlike manner and in accordance with the rules
and regulations of the Louisiana Commissioner of Conservation, the Texas
Railroad Commission and all other laws, orders, rules and regulations of a
governmental body, agency, or department of competent jurisdiction.
3
<PAGE> 207
1.5 ASSIGNEE shall assume and be fully responsible for
the repayment of all sums, up to the aggregate sum of $7,496,695.96, due to
RIMCO Partners, L. P., RIMCO Partners, L. P. II, RIMCO Partners, L.P. III, and
RIMCO Partners, L.P. IV, pursuant to that certain Note Purchase Agreement,
dated as of July 14, 1995, as heretofore amended or modified (the "RIMCO
Debt").
2. ASSUMPTION OF LEASES AND CONTRACT OBLIGATIONS.
This agreement is made subject to the terms of all Leases, as
listed in Exhibit "A"; existing operating agreements and unit agreements; as
well as any and all other Contracts, whether recorded or unrecorded, affecting
the Leases herein transferred. ASSIGNEE shall assume and be responsible for
all obligations of ASSIGNOR accruing under such Leases and Contracts after the
Effective Date.
3. TAXES.
The 1996 ad valorem taxes on the Assets and any other taxes
(other than taxes on gross income, net income or gross receipts) or
governmental fees associated with this agreement, will be borne by ASSIGNEE.
4
<PAGE> 208
4. WARRANTIES.
ASSIGNOR IS CONTRIBUTING AND ASSIGNING THE ASSETS TO THE
ASSIGNEE ON AN "AS IS, WHERE IS, WITH ALL FAULTS" BASIS, AND ASSIGNOR MAKES NO
WARRANTY WHATSOEVER (EVEN AS TO THE RETURN OF THE CONSIDERATION GIVEN BY
ASSIGNEE), WHETHER EXPRESS OR IMPLIED, IN FACT OR BY LAW, WITH RESPECT TO THE
ASSETS, INCLUDING, BUT NOT LIMITED TO, TITLE (EXCEPT FOR CLAIMS ARISING BY,
THROUGH OR UNDER ASSIGNOR), OPERATING CONDITION, SAFETY, COMPLIANCE WITH
GOVERNMENTAL REGULATIONS, MERCHANTABILITY, OR FITNESS FOR ANY PARTICULAR
PURPOSE.
5. INDEMNIFICATION.
5.1 ASSIGNOR agrees to release, indemnify, defend and
hold harmless ASSIGNEE from and against any and all claims, liabilities,
losses, costs and expenses (including, without limitation, damage to property,
injury or death of persons, court costs and reasonable attorneys' fees) caused
by, arising from or attributable to the Assets and arising from operations or
other facts or circumstances existing on or prior to the Effective Date.
5.2 ASSIGNEE agrees to release, indemnify, defend and
hold harmless ASSIGNOR and each of its partners from and against any and all
claims, liabilities, losses, costs and expenses (including, without limitation,
damage to property, injury or death of persons, court costs and reasonable
attorneys' fees) caused by, arising from or attributable to the Assets and
arising from operations or other facts or circumstances existing after the
Effective Date.
5.3 The indemnification obligations in this Section 5
shall be without regard to the indemnitee's sole, joint or concurrent
negligence, strict liability or other fault.
6. GOVERNING LAW.
This agreement shall be governed by the law of the State of
Texas, without regard to rules concerning conflicts of law.
IN WITNESS WHEREOF, each party hereto has executed this
agreement in the presence of the indicated witnesses, to be effective as of the
Effective Date.
WITNESSES:
LA/CAL ENERGY PARTNERS II
By:
-----------------------------------
Walter G. Goodrich, General Partner
GOODRICH ACQUISITION II, INC.
By:
-----------------------------------
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<PAGE> 209
EXHIBIT B
CERTIFICATE OF DESIGNATIONS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
($1.00 Par Value)
OF
GOODRICH PETROLEUM CORPORATION
------------------
Pursuant to Section 151(g) of the Delaware General Corporation Law
------------------
GOODRICH PETROLEUM CORPORATION, a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), HEREBY CERTIFIES
that the following resolutions were duly adopted by the Board of Directors of
the Corporation pursuant to authority conferred upon the Board of Directors by
the provisions of the Certificate of Incorporation of the Corporation, as
amended (the "Certificate of Incorporation"), which authorizes the issuance of
up to 10,000,000 shares of preferred stock, $1.00 par value per share
("Preferred Stock"), [by unanimous written consent] [at a special meeting] of
the Board of Directors on _____________, 1996
The Board of Directors on ___________, 1996 adopted the following
resolution authorizing the issuance of a series of preferred stock:
RESOLVED, that the issuance of a series of preferred stock, $1.00 par
value per share, which shall consist of 750,000 of the 10,000,000 shares of
preferred stock which the Corporation now has authority to issue, be, and the
same hereby is, authorized, and the powers, designations, preferences and
relative participating, optional and other special rights of the shares of such
series, and the qualifications, limitations and restrictions thereof are hereby
fixed as follows:
1. Number of Shares and Designation. Seven hundred and fifty
thousand (750,000) shares of the Preferred Stock, $1.00 par value per share, of
the Corporation are hereby constituted as a series of the preferred stock
designated as "Series B Convertible Preferred Stock."
2. Definitions. For purposes of the Series B Convertible
Preferred Stock, the following terms shall have the meanings indicated:
<PAGE> 210
"Board of Directors" shall mean the Board of Directors of the
Corporation or any committee authorized by such Board of Directors to
perform any of its responsibilities with respect to the Series B
Convertible Preferred Stock.
"Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the City of New York
are authorized or obligated by law or executive order to close.
"Closing Price" with respect to a particular security on any
day shall mean on such day the last reported sales price, regular way,
for such security or, in case no sale takes place on such day, the
average of the reported closing bid and asked prices, regular way, for
such security in either case as reported on the New York Stock
Exchange, on the principal national securities exchange on which such
security is listed or admitted to trading or, if not listed or
admitted to trading on any national securities exchange, on the
National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ National Market
System") or, if such security is not quoted on the NASDAQ National
Market System, the average of the closing bid and asked prices for
such security in the over-the-counter market as reported by NASDAQ or,
if bid and asked prices for such security on each such date shall not
have been reported by NASDAQ, the average of the bid and asked prices
for such security for such day as furnished by any National
Association of Securities Dealers, Inc. ("NASD") member firm regularly
making a market in such security selected for such purpose by the
board of directors or similar governing body of the issuer of such
security or, if no such quotations are available, the fair market
value of such security furnished by any NASD member firm selected from
time to time by the board of directors or similar governing body of
the issuer of such security for that purpose.
"Common Stock" shall mean the Common Stock of the Corporation,
par value $.20 per share.
"Conversion Price" shall mean the conversion price per share
of Common Stock into which the Series B Convertible Preferred Stock is
convertible, as such Conversion Price may be adjusted pursuant to
Section 7 hereof. The initial Conversion Price will be $[___]
(equivalent to the rate of _______ shares of Common Stock for each
share of Series B Preferred Stock).
"Current Market Price" per share of Common Stock on any date
shall mean the average of the daily Closing Prices for the 30
consecutive Trading Dates commencing 45 Trading Dates before the date
of determination.
"Defaulted Preferred Stock" shall have the meaning set forth
in paragraph (a) of Section 9 hereof.
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<PAGE> 211
"dividend payment date" shall have the meaning set forth in
paragraph (a) of Section 3 hereof.
"dividend payment record date" shall have the meaning set
forth in paragraph (a) of Section 3 hereof.
"Dividend Periods" shall mean quarterly dividend periods
commencing on the first day of January, April, July and October of
each year and ending on and including the day preceding the first day
of the next succeeding Dividend Period (other than the initial
Dividend Period which shall commence on the Issue Date and end on and
include [December 31, 1996]).
"Issue Date" shall mean the first date on which shares of
Series B Preferred Stock are issued.
"Person" shall mean any individual, firm, partnership,
corporation or other entity, and shall include any successor (by
merger or otherwise) of such entity.
"Preferred Stock" means the series of Preferred Stock of the
Corporation designated herein as the Series B Convertible Preferred
Stock.
"Redemption Price" shall have the meaning set forth in
paragraph (a) of Section 5 hereof.
"Securities" shall have the meaning set forth in paragraph
(d)(iii) of Section 7 hereof.
"Trading Date" with respect to any security means (i) if such
security is listed or admitted for trading on the New York Stock
Exchange or another national securities exchange, a day on which such
exchange is open for trading, (ii) if such security is quoted on the
NASDAQ National Market System, or any similar system of automated
dissemination of quotations of securities prices, a day on which
trades may be made on such system, (iii) if not quoted as described in
clause (ii), a day on which quotations are reported by the National
Quotation Bureau Incorporated or (iv) otherwise, any Business Day.
"Transaction" shall have the meaning set forth in paragraph
(e) of Section 7 hereof.
"Transfer Agent" means Harris Trust and Savings Bank, Chicago,
Illinois or such other agent or agents of the Corporation as may be
designated by the Board of Directors as the transfer agent or
conversion agent for the Series B Preferred Stock.
3. Dividends. (a) The holders of shares of the Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available
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<PAGE> 212
therefor, cumulative cash dividends at an annual rate of $0.825 per share of
Preferred Stock. Such dividends shall be cumulative from the Issue Date,
whether or not in any Dividend Period or Periods there shall be funds of the
Corporation legally available for the payment of such dividends and whether or
not such dividends are declared, and shall be payable quarterly, when, as and
if declared by the Board of Directors, on March 31, June 30, September 30 and
December 31 in each year (each a "dividend payment date"), commencing on
[December 31, 1996]. If any dividend payment date shall be on a day other than
a Business Day, then the dividend payment date shall be on the next succeeding
Business Day. Each such dividend shall be payable in arrears to the holders of
record of shares of the Preferred Stock, as they appear on the stock records of
the Corporation at the close of business on those dates (each such date, a
"dividend payment record date"), not less than 10 days nor more than 60 days
preceding the dividend payment dates thereof, as shall be fixed by the Board of
Directors. Dividends on the Preferred Stock shall accrue (whether or not
declared) on a daily basis from the Issue Date and accrued dividends for each
Dividend Period shall accumulate to the extent not paid on the dividend payment
date first following the Dividend Period for which they accrue. As used
herein, the term "accrued" with respect to dividends includes both accrued and
accumulated dividends. Accrued and unpaid dividends for any past Dividend
Periods may be declared and paid at any time, without reference to any regular
dividend payment date, to holders of record on such date, not exceeding 45 days
preceding the payment date thereof, as may be fixed by the Board of Directors.
(b) The amount of dividends payable for each full Dividend Period
for the Preferred Stock shall be computed by dividing the annual dividend
amount by four (rounded down to the nearest cent). The amount of dividends
payable for the initial Dividend Period on the Preferred Stock and any other
period shorter or longer than a full Dividend Period on the Preferred Stock
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months. Holders of shares of Preferred Stock called for redemption on a
redemption date falling between the close of business on a dividend payment
record date and the opening of business on the corresponding dividend payment
date shall, in lieu of receiving such dividend on the dividend payment date
fixed therefor, receive such dividend payment together with all other accrued
and unpaid dividends on the date fixed for redemption (unless such holder
converts such shares in accordance herewith). Holders of shares of Preferred
Stock shall not be entitled to any dividends, whether payable in cash, property
or securities, in excess of cumulative dividends, as herein provided, on the
Preferred Stock. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Preferred Stock
which are in arrears.
(c) So long as any shares of the Preferred Stock are outstanding,
no dividends, except as described in the next succeeding sentence, shall be
declared or paid or set apart for payment on any class or series of stock of
the Corporation ranking, as to dividends, on a parity with the Preferred Stock,
for any period unless full cumulative dividends on all outstanding shares of
Preferred Stock have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for such
payment for all Dividend Periods terminating on or prior to the date of
payment, or setting apart for payment, of such full cumulative dividends on
such parity stock. When dividends are not
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<PAGE> 213
paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, upon the shares of the Preferred Stock and any other class or series
of stock ranking on a parity as to dividends with the Preferred Stock, all
dividends declared upon shares of the Preferred Stock and all dividends
declared upon such other stock shall be declared and paid pro rata so that the
amounts of dividends per share declared and paid on the Preferred Stock and
such other stock shall in all cases bear to each other the same ratio that
accrued and unpaid dividends per share on the shares of the Preferred Stock and
on such other stock bear to each other.
(d) So long as any shares of the Preferred Stock are outstanding,
no other stock of the Corporation ranking on a parity with the Preferred Stock
as to dividends or upon liquidation, dissolution or winding up shall be
redeemed, purchased or otherwise acquired for any consideration (or any moneys
be paid to or made available for a sinking fund or otherwise for the purchase
or redemption of any shares of any such stock) by the Corporation (except by
conversion into or exchange for stock of the Corporation ranking junior to the
Preferred Stock as to dividends and upon liquidation, dissolution or winding
up) unless (i) the full cumulative dividends, if any, accrued on all
outstanding shares of the Preferred Stock shall have been paid or set apart for
payment for all past Dividend Periods and (ii) sufficient funds shall have been
set apart for the payment of the dividend for the current Dividend Period with
respect to the Preferred Stock.
(e) So long as any shares of the Preferred Stock are outstanding,
no dividends (other than dividends or distributions paid in shares of Common
Stock or other stock ranking junior to the Preferred Stock as to dividends and
upon liquidation, dissolution or winding up) shall be declared or paid or set
apart for payment and no other distribution shall be declared or made or set
apart for payment, in each case upon the Common Stock or any other stock of the
Corporation ranking junior to the Preferred Stock as to dividends or upon
liquidation, dissolution or winding up, nor shall any Common Stock nor any
other such stock of the Corporation ranking junior to the Preferred Stock as to
dividends or upon liquidation, dissolution or winding up be redeemed, purchased
or otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund or otherwise for the purchase or redemption of any
shares of any such stock) by the Corporation (except by conversion into or
exchange for stock of the Corporation ranking junior to the Preferred Stock as
to dividends and upon liquidation, dissolution or winding up) unless, in each
case (i) the full cumulative dividends, if any, accrued on all outstanding
shares of the Preferred Stock and any other stock of the Corporation ranking on
a parity with the Preferred Stock as to dividends shall have been paid or set
apart for payment for all past Dividend Periods and all past dividend periods
with respect to such other stock and (ii) sufficient funds shall have been set
apart for the payment of the dividend for the current Dividend Period with
respect to the Preferred Stock and for the current dividend period with respect
to any other stock of the Corporation ranking on a parity with the Preferred
Stock as to dividends.
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<PAGE> 214
4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation (whether capital or surplus)
shall be made to or set apart for the holders of Common Stock or any other
series or class or classes of stock of the Corporation ranking junior to the
Preferred Stock upon liquidation, dissolution or winding up, the holders of the
shares of Preferred Stock shall be entitled to receive $10.00 per share plus an
amount per share equal to all dividends (whether or not earned or declared)
accrued and unpaid thereon to the date of final distribution to such holders;
but such holders shall not be entitled to any further payment. No payment on
account of any liquidation, dissolution or winding up of the Corporation shall
be made to the holders of any class or series of stock ranking on a parity with
the Preferred Stock in respect of the distribution of assets upon dissolution,
liquidation or winding up unless there shall likewise be paid at the same time
to the holders of the Preferred Stock like proportionate amounts determined
ratably in proportion to the full amounts to which the holders of all
outstanding shares of Preferred Stock and the holders of all outstanding shares
of such parity stock are respectively entitled with respect to such
distribution. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation, or proceeds thereof, distributable
among the holders of the shares of Preferred Stock shall be insufficient to pay
in full the preferential amount aforesaid and liquidating payments on any other
shares of stock ranking, as to liquidation, dissolution or winding up, on a
parity with the Preferred Stock, then such assets, or the proceeds thereof,
shall be distributed among the holders of shares of Preferred Stock and any
such other stock ratably in accordance with the respective amounts which would
be payable on such shares of Preferred Stock and any such other stock if all
amounts payable thereon were paid in full. For the purposes of this Section 4,
neither a consolidation or merger of the Corporation with one or more
corporations or other entities nor a sale, lease, exchange or transfer of all
or any part of the Corporation's assets for cash, securities or other property
shall be deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary.
(b) Subject to the rights of the holders of shares of any series
or class or classes of stock ranking on a parity with or prior to the Preferred
Stock upon liquidation, dissolution or winding up, upon any liquidation,
dissolution or winding up of the Corporation, after payment shall have been
made in full to the holders of Preferred Stock, as provided in this Section 4,
any other series or class or classes of stock ranking junior to the Preferred
Stock upon liquidation, dissolution or winding up shall, subject to the
respective terms and provisions (if any) applying thereto, be entitled to
receive any and all assets remaining to be paid or distributed, and the holders
of Preferred Stock shall not be entitled to share therein.
(c) Written notice of any liquidation, dissolution or winding up
of the Corporation, stating the payment date or dates when and the place or
places where the amounts distributable in such circumstances shall be payable,
shall be given by first class mail, postage prepaid, not less than 30 days
prior to any payment date stated therein, to the
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<PAGE> 215
holders of record of the Preferred Stock at their respective addresses as the
same shall appear on the stock records of the Corporation.
5. Redemption at the Option of the Corporation.
(a) Preferred Stock may not be redeemed by the Corporation prior
to the fourth anniversary of the Issue Date. On or after such date the
Corporation, at its option, may redeem the shares of Preferred Stock, in whole
or in part, out of funds legally available therefor, at any time or from time
to time, subject to the notice provisions and provisions for partial redemption
described below, at the redemption price of $10.00 per share, plus an amount
equal to accrued and unpaid dividends, if any, to (and including) the date
fixed for redemption, whether or not earned or declared (the "Redemption
Price").
(b) In the event the Corporation shall redeem shares of Preferred
Stock, notice of such redemption shall be given by first class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the redemption
date, to each holder of record of the shares to be redeemed, at such holder's
address as the same appears on the stock records of the Corporation. Each such
notice shall state: (i) the redemption date; (ii) the number of shares of
Preferred Stock to be redeemed and, if less than all the shares held by such
holder are to be redeemed, the number of such shares to be redeemed from such
holder; (iii) the Redemption Price; (iv) the place or places where certificates
for such shares are to be surrendered for payment of the redemption price; (v)
the then current Conversion Price; and (vi) that dividends on the shares to be
redeemed shall cease to accrue on such redemption date. If, on the date fixed
for redemption, funds necessary for the redemption shall be available therefor
and shall have been irrevocably deposited or set aside, then, notwithstanding
that the certificates evidencing any shares of Preferred Stock so called for
redemption shall not have been surrendered, the dividends with respect to the
shares so called shall cease to accrue after the date fixed for redemption,
such shares shall no longer be deemed outstanding, all rights of the holders of
such shares as stockholders of the Company shall cease, and all rights
whatsoever with respect to the shares so called for redemption (except the
right of the holders to receive the Redemption Price without interest upon
surrender of their certificates therefor) shall terminate.
Upon surrender in accordance with said notice of the certificates for
any such shares so redeemed (properly endorsed or assigned for transfer, if the
Board of Directors shall so require and the notice shall so state), such shares
shall be redeemed by the Corporation at the applicable Redemption Price
aforesaid. If fewer than all the outstanding shares of Preferred Stock are to
be redeemed, shares to be redeemed shall be selected by the Corporation from
outstanding shares of Preferred Stock not previously called for redemption by
lot or pro rata (as near as may be) or by any other method determined by the
Board of Directors of the Corporation in its sole discretion to be equitable.
If fewer than all the shares represented by any certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares without cost to
the holder thereof.
In the event that the Corporation has failed to pay accrued and unpaid
dividends on the Preferred Stock, it may not redeem less than all of the then
outstanding shares of the
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Preferred Stock until all such accrued and unpaid dividends and the then
current quarterly dividends have been paid in full.
Notwithstanding the foregoing, if notice of redemption has been given
pursuant to this Section 5 and any holder of shares of Preferred Stock shall,
prior to the close of business on the fifth business day prior to the
redemption date, give written notice to the Corporation pursuant to Section
7(b) hereof of the conversion of any or all of the shares to be redeemed held
by such holder (accompanied by a certificate or certificates for such shares,
duly endorsed or assigned to the Corporation), then (i) the Corporation shall
not have the right to redeem such shares, (ii) the conversion of such shares to
be redeemed shall become effective as provided in Section 7 and (iii) any funds
which shall have been deposited for the payment of the Redemption Price for
such shares shall be returned to the Corporation immediately after such
conversion (subject to declared dividends payable to holders of shares of
Preferred Stock on the dividend payment record date for such dividends being so
payable, to the extent set forth in Section 7 hereof, regardless of whether
such shares are converted subsequent to such dividend payment record date and
prior to the related dividend payment date).
6. Shares to be Retired. All shares of Preferred Stock
purchased, redeemed, exchanged or converted by the Corporation shall be retired
and canceled and shall be restored to the status of authorized but unissued
shares of preferred stock, without designation as to series, and may thereafter
be reissued.
7. Conversion. Holders of shares of Preferred Stock shall have
the right to convert all or a portion of such shares into shares of Common
Stock, as follows:
(a) Subject to and upon compliance with the provisions of this
Section 7, a holder of shares of Preferred Stock shall have the right, at such
holder's option, at any time to convert all or any of such shares into the
number of fully paid and nonassessable shares of Common Stock (calculated as to
each conversion to the nearest 1/100th of a share) obtained by dividing the
aggregate liquidation preference of the shares to be converted by the
Conversion Price and by surrender of such shares, such surrender to be made in
the manner provided in paragraph (b) of this Section 7; provided, however, that
the right to convert shares called for redemption pursuant to Section 5 hereof
shall terminate at the close of business on the fifth business day prior to the
date fixed for such redemption. No share of Preferred Stock may be converted in
part into Common Stock.
(b) In order to exercise the conversion right, the holder of each
share of Preferred Stock to be converted shall surrender the certificate
representing such share, duly endorsed or assigned to the Corporation or in
blank, at the office of the Transfer Agent in [the Borough of Manhattan, City
of New York], accompanied by written notice to the Corporation that the holder
thereof elects to convert such share of Preferred Stock. Unless the shares
issuable on conversion are to be issued in the same name as the name in which
such share of Preferred Stock is registered, each share surrendered for
conversion shall be accompanied by instruments of transfer, in form
satisfactory to the Corporation, duly executed by the holder or such holder's
duly authorized attorney and an amount sufficient
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to pay any transfer or similar tax (or evidence reasonably satisfactory to the
Corporation demonstrating that such taxes have been paid or are not required to
be paid).
Holders of shares of Preferred Stock at the close of business on a
dividend payment record date shall be entitled to receive the dividend payable
on such shares on the corresponding dividend payment date (except that holders
of shares called for redemption on a redemption date falling between the close
of business on such dividend payment record date and the opening of business on
the corresponding dividend payment date shall, in lieu of receiving such
dividend on the dividend payment date fixed therefor, receive such dividend
payment together with all other accrued and unpaid dividends on the date fixed
for redemption, unless such holders convert such shares called for redemption
pursuant to the Certificate of Designations relating to the Preferred Stock)
notwithstanding the conversion thereof following such dividend payment record
date and prior to such dividend payment date. However, shares of Preferred
Stock surrendered for conversion during the period between the close of
business on any dividend payment record date and the opening of business on the
corresponding dividend payment date (except shares of Preferred Stock called
for redemption on a redemption date during such period) must be accompanied by
payment of an amount equal to the dividend payment with respect to such shares
of Preferred Stock presented for conversion on such dividend payment date. A
holder of shares of Preferred Stock on a dividend payment record date who (or
whose transferee) surrenders any such shares for conversion into shares of
Common Stock on the corresponding dividend payment date will receive the
dividend payable by the Corporation on such shares of Preferred Stock on such
date and the converting holder need not include payment in the amount of such
dividend upon surrender of shares of Preferred Stock for conversion on the
dividend payment date. Except as provided in this paragraph, the Corporation
shall make no payment or allowance for unpaid dividends, whether or not in
arrears, on converted shares of Preferred Stock or for dividends on the shares
of Common Stock issued upon such conversion.
As promptly as practicable after the surrender of certificates for
shares of Preferred Stock as aforesaid, the Corporation shall issue and shall
deliver at such office to such holder, or on such holder's written order, a
certificate or certificates for the number of shares of Common Stock issuable
upon the conversion of such shares in accordance with the provisions of this
Section 7, and any fractional interest in respect of a share of Common Stock
arising upon such conversion shall be settled as provided in paragraph (c) of
this Section 7.
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the certificates for shares
of Preferred Stock shall have been surrendered and such notice received by the
Corporation as aforesaid, and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares represented thereby at such time on such date and such conversion
shall be at the Conversion Price in effect at such time on such date, unless
the stock transfer books of the Corporation shall be closed on that date, in
which event such person or persons shall be deemed to have become such holder
or holders of record at the
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close of business on the next succeeding day on which such stock transfer books
are open, but such conversion shall be at the Conversion Price in effect on the
date upon which such shares shall have been surrendered and such notice
received by the Corporation. All shares of Common Stock delivered upon
conversion of the Preferred Stock will upon delivery be duly and validly issued
and fully paid and nonassessable.
(c) In connection with the conversion of any shares of Preferred
Stock, no fractional shares or scrip representing fractions of shares of Common
Stock shall be issued upon conversion of the Preferred Stock. Instead of any
fractional interest in a share of Common Stock which would otherwise be
deliverable upon the conversion of a share of Preferred Stock, the Corporation
shall pay to the holder of such share an amount in cash (computed to the
nearest cent) equal to the Closing Price of Common Stock on the Trading Date
immediately preceding the date of conversion multiplied by the fraction of a
share of Common Stock represented by such fractional interest. If more than
one share of Preferred Stock shall be surrendered for conversion at one time by
the same holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
shares of Preferred Stock so surrendered.
(d) The Conversion Price shall be adjusted from time to time as
follows:
(i) In case the Corporation shall after the Issue Date
(A) pay a dividend or make a distribution on its Common Stock that is
paid or made (1) in shares of its Common Stock or (2) in rights to
purchase stock or other securities if such rights are not separable
from the Common Stock except upon the occurrence of a contingency, (B)
subdivide or split its outstanding Common Stock into a greater number
of shares, (C) combine its outstanding Common Stock into a smaller
number of shares or (D) issue any shares of capital stock by
reclassification of its Common Stock, the Conversion Price in effect
immediately prior thereto shall be adjusted or (in the case of clause
(A)(2)) other provision shall be made so that the holder of any share
of Preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock of the
Corporation and rights to purchase stock or other securities which
such holder would have owned or have been entitled to receive after
the occurrence of any of the events described above had such share
been surrendered for conversion immediately prior to the occurrence of
such event or the record date therefor, whichever is earlier. In the
event of the redemption of any rights referred to in clause (A), such
holder shall have the right to receive, in lieu of any such rights,
any cash, property or securities paid in respect of such redemption;
provided, however, that if the value of such cash, property or
securities is less than $.05 per share of Common Stock, such holder
shall not be entitled to such cash, property or securities. An
adjustment made pursuant to this subparagraph (i) shall become
effective immediately after the close of business on the record date
for determination of stockholders entitled to receive such dividend or
distribution in the case of a dividend or distribution (except as
provided in paragraph (h) below) and shall become effective
immediately after the close of business on the effective date in the
case of a subdivision, split, combination or reclassification. Any
shares of Common Stock issuable in payment of a dividend shall be
deemed to have been
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issued immediately prior to the close of business on the record date
for such dividend for purposes of calculating the number of
outstanding shares of Common Stock under clauses (ii) and (iii) below.
(ii) In case the Corporation shall issue after the Issue
Date rights or warrants to all holders of Common Stock entitling them
(for a period expiring within 45 days after the issuance date) to
subscribe for or purchase Common Stock at a price per share less than
the Current Market Price per share of Common Stock at the record date
for the determination of stockholders entitled to receive such rights
or warrants, then the Conversion Price in effect immediately prior
thereto shall be adjusted to equal the price determined by multiplying
(A) the Conversion Price in effect immediately prior to the date of
issuance of such rights or warrants by (B) a fraction, the numerator
of which shall be the sum of (1) the number of shares of Common Stock
outstanding on the date of issuance of such rights or warrants
(without giving effect to any such issuance) and (2) the number of
shares which the aggregate proceeds from the exercise of such rights
or warrants for Common Stock would purchase at such Current Market
Price, and the denominator of which shall be the sum of (1) the number
of shares of Common Stock outstanding on the date of issuance of such
rights or warrants (without giving effect to any such issuance) and
(2) the number of additional shares of Common Stock offered for
subscription or purchase. Such adjustment shall be made successively
whenever any such rights or warrants are issued, and shall become
effective immediately after such record date. In determining whether
any rights or warrants entitle the holders of Common Stock to
subscribe for or purchase shares of Common Stock at less than such
Current Market Price, there shall be taken into account any
consideration received by the Corporation upon issuance and upon
exercise of such rights or warrants, the value of such consideration,
if other than cash, to be determined by the Board of Directors (whose
determination shall, if made in good faith, be conclusive).
(iii) In case the Corporation shall pay a dividend or make
a distribution to all holders of its Common Stock after the Issue Date
of any shares of capital stock of the Corporation or its subsidiaries
(other than Common Stock) or evidences of its indebtedness or assets,
including securities (any of the foregoing being hereinafter in this
subparagraph (iii) called the "Securities"), but excluding rights,
warrants, dividends and distributions referred to in subparagraphs (i)
and (ii) above, regular periodic cash dividends payable out of the
Corporation's surplus that may from time to time be fixed by the Board
of Directors and dividends and distributions in connection with the
liquidation, dissolution or winding up of the Corporation, then in
each such case, the Conversion Price shall be adjusted so that it
shall equal the price determined by multiplying (A) the Conversion
Price in effect on the record date mentioned below by (B) a fraction,
the numerator of which shall be the Current Market Price per share of
the Common Stock on the record date mentioned below less the then fair
market value as determined by the Board of Directors (whose
determination shall, if made in good faith, be conclusive) as of such
record date of the portion of the Securities applicable to one share
of Common Stock, and the denominator of which shall be the Current
Market Price per share of the Common
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Stock on such record date; provided, however, that in the event the
then fair market value (as so determined) of the portion of Securities
so distributed applicable to one share of Common Stock is equal to or
greater than the Current Market Price per share of Common Stock on the
record date mentioned above, in lieu of the foregoing adjustment,
adequate provision shall be made so that each holder of shares of
Preferred Stock shall have the right to receive the amount and kind of
Securities such holder would have received had such holder converted
each such share of Preferred Stock immediately prior to the record
date for the distribution of the Securities. Except as provided in
paragraph (h) below, such adjustment shall become effective
immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(iv) Notwithstanding anything in subparagraph (ii) above,
if such rights or warrants shall by their terms provide for an
increase or increases with the passage of time or otherwise in the
price payable to the Corporation upon the exercise thereof, the
Conversion Price upon any such increase becoming effective shall
forthwith be readjusted (but to no greater extent than originally
adjusted by reason of such issuance or sale) to reflect the same.
Upon the expiration or termination of such rights or warrants, if any
such rights or warrants shall not have been exercised, then the
Conversion Price shall forthwith be readjusted and thereafter be the
rate which it would have been had an adjustment been made on the basis
that (A) the only rights or warrants so issued or sold were those so
exercised and they were issued or sold for the consideration actually
received by the Corporation upon such exercise plus the consideration,
if any, actually received by the Corporation for the granting of all
such rights or warrants whether or not exercised and (B) the
Corporation issued and sold a number of shares of Common Stock equal
to those actually issued upon exercise of such rights or warrants, and
such shares were issued and sold for a consideration equal to the
aggregate exercise price in effect under the rights or warrants
actually exercised at the respective dates of their exercise. For
purposes of subparagraph (ii), the aggregate consideration received by
the Corporation in connection with the issuance of shares of Common
Stock or of rights or warrants shall be deemed to be equal to the sum
of the aggregate offering price (before deduction of underwriting
discounts or commissions and expenses payable to third parties) of all
such securities plus the minimum aggregate amount, if any, payable
upon the exercise of such rights or warrants into shares of Common
Stock.
(v) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease
of at least 1% in such price; provided, however, 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; and provided, however, that any adjustment shall be
required and shall be made in accordance with the provisions of this
Section 7 (other than this subparagraph (v)) not later than such time
as may be required in order to preserve the tax-free nature of a
distribution to the holders of shares of Common Stock. All
calculations under this Section 7 shall be made to the nearest cent
(with $.005 being rounded upward) or to the nearest 1/100th of a share
(with .005 of a share being
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rounded upward), as the case may be. Anything in this paragraph (d)
to the contrary notwithstanding, the Corporation shall be entitled, to
the extent permitted by law, to make such reductions in the Conversion
Price, in addition to those required by this paragraph (d), as it in
its discretion shall determine to be advisable in order that any stock
dividend, subdivision of shares, distribution of rights or warrants to
purchase stock or securities, or distribution of other assets or any
other transaction which could be treated as any of the foregoing
transactions pursuant to Section 305 of the Internal Revenue Code of
1986, as amended, hereafter made by the Corporation to its
stockholders shall not be taxable to such stockholders.
(e) In case the Corporation shall be a party to any transaction
(including without limitation a merger, consolidation, statutory share
exchange, sale of all or substantially all of the Corporation's assets or
recapitalization of the Common Stock (each of the foregoing being referred to
as a "Transaction"), in each case as a result of which shares of Common Stock
shall be converted into the right to receive stock, securities or other
property (including cash or any combination thereof), then the Preferred Stock
remaining outstanding will thereafter no longer be subject to conversion into
Common Stock pursuant to Section 7, but instead shall be convertible into the
kind and amount of shares of stock and other securities and property receivable
(including cash) upon the consummation of such Transaction by a holder of that
number of shares or fraction thereof of Common Stock into which one share of
Preferred Stock was convertible immediately prior to such Transaction. The
Corporation shall not be a party to any Transaction unless the terms of such
Transaction are consistent with the provisions of this paragraph (e) and it
shall not consent or agree to the occurrence of any Transaction until the
Corporation has entered into an agreement with the successor or purchasing
entity, as the case may be, for the benefit of the holders of the Preferred
Stock which will contain provisions enabling the holders of the Preferred Stock
which remains outstanding after such Transaction to convert into the
consideration received by holders of Common Stock at the Conversion Price
immediately after such Transaction. In the event that at any time, as a result
of an adjustment made pursuant to this Section 7, the Preferred Stock shall
become subject to conversion into any securities other than shares of Common
Stock, thereafter the number of such other securities so issuable upon
conversion of the shares of 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 with respect to the shares of Preferred Stock contained in this
Section 7. The provisions of this paragraph (e) shall similarly apply to
successive Transactions.
(f) If:
(i) the Corporation shall declare a dividend (or any
other distribution) on the Common Stock that would cause an adjustment
to the Conversion Price of the Preferred Stock pursuant to the terms
of any of the paragraphs above (including such an adjustment that
would occur but for the terms of the first sentence of subparagraph
(d)(v) above);
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(ii) the Corporation shall authorize the granting to the
holders of the Common Stock of rights or warrants to subscribe for or
purchase any shares of any class or any other rights or warrants;
(iii) there shall be any reclassification or change of the
Common Stock (other than an event to which paragraph (d)(i) of this
Section 7 applies) or any consolidation, merger or statutory share
exchange to which the Corporation is a party and for which approval of
any stockholders of the Corporation is required, or the sale or
transfer of all or substantially all of the assets of the Corporation;
or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then, the Corporation shall cause to be filed with the Transfer Agent and shall
cause to be mailed to the holders of shares of the Preferred Stock at their
addresses as shown on the stock records of the Corporation, as promptly as
possible, but at least 30 days prior to the applicable date hereinafter
specified, a notice stating (A) the date on which a record is to be taken for
the purpose of such dividend, distribution 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 or rights or
warrants are to be determined or (B) the date on which such reclassification,
change, consolidation, merger, statutory share exchange, sale, transfer,
dissolution, liquidation or winding up is expected to become effective or
occur, 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, change,
consolidation, merger, statutory share exchange, sale, transfer, dissolution,
liquidation or winding up. Failure to give such notice or any defect therein
shall not affect the legality or validity of the proceedings described in this
Section 7.
(g) Whenever the Conversion Price is adjusted as herein provided,
the Corporation shall promptly file with the Transfer Agent an officers'
certificate signed by the President or a Vice President and the Chief Financial
Officer or the Secretary of the Corporation setting forth the Conversion Price
after such adjustment, the method of calculation thereof and setting forth a
brief statement of the facts requiring such adjustment and upon which such
adjustment is based. If the calculation of the adjustment requires a
determination by the Board of Directors pursuant to paragraph (d)(iii) of this
Section 7 or any similar provision, such certificate shall include a copy of
the resolution of the Board of Directors relating to such determination.
Promptly after delivery of such certificate, the Corporation shall prepare a
notice of such adjustment of the Conversion Price setting forth the adjusted
Conversion Price, the facts requiring such adjustment and upon which such
adjustment is based and the date on which such adjustment becomes effective and
shall mail such notice of such adjustment of the Conversion Price to the holder
of each share of Preferred Stock at such holder's last address as shown on the
stock records of the Corporation.
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(h) In any case in which paragraph (d) of this Section 7 provides
that an adjustment shall become effective immediately after a record date for
an event and the date fixed for conversion pursuant to Section 7 occurs after
such record date but before the occurrence of such event, the Corporation may
defer until the actual occurrence of such event (i) issuing to the holder of
any share of Preferred Stock surrendered for conversion the additional shares
of Common Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock issuable upon such
conversion before giving effect to such adjustment and (ii) paying to such
holder any amount in cash in lieu of any fraction pursuant to paragraph (c) of
this Section 7.
(i) For purposes of this Section 7, the number of shares of Common
Stock at any time outstanding shall not include any shares of Common Stock then
owned or held by or for the account of the Corporation or any corporation
controlled by the Corporation.
(j) If any single action would require adjustment pursuant to more
than one paragraph of this Section 7, only one adjustment shall be made and
such adjustment shall be the amount of adjustment which has the highest
absolute value to the holders of the Preferred Stock.
(k) In case the Corporation shall take any action affecting the
Common Stock, other than action described in this Section 7, which in the
opinion of the Board of Directors would materially adversely affect the
conversion rights of the holders of the shares of Preferred Stock, the
Conversion Price for the Preferred Stock may be adjusted, to the extent
permitted by law, in such manner, if any, and at such time, as the Board of
Directors may determine to be equitable in the circumstances. Subject to the
foregoing, there shall be no adjustment of the Conversion Price in case of the
issuance of any stock of the Corporation in a reorganization, acquisition or
other similar transaction except as specifically set forth in this Section 7.
(l) The Corporation shall at all times reserve and keep available,
free from preemptive rights, out of the aggregate of its authorized but
unissued shares of Common Stock or its issued shares of Common Stock held in
its treasury, or both, for the purpose of effecting conversion of the Preferred
Stock, the full number of shares of Common Stock deliverable upon the
conversion of all outstanding shares of Preferred Stock not theretofore
converted. For purposes of this paragraph (l), the number of shares of Common
Stock which shall be deliverable upon the conversion of all outstanding shares
of Preferred Stock shall be computed as if at the time of computation all such
outstanding shares were held by a single holder.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value of the shares of Common Stock
deliverable upon conversion of the Preferred Stock, the Corporation will take
any corporate action which 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 such adjusted Conversion Price.
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The Corporation will endeavor to make the shares of Common Stock
required to be delivered upon conversion of the Preferred Stock eligible for
trading upon the New York Stock Exchange, upon the NASDAQ National Market
System or upon any national securities exchange upon which the Common Stock
shall then be traded, prior to such delivery.
Prior to the delivery of any securities which the Corporation shall be
obligated to deliver upon conversion of the Preferred Stock, the Corporation
will endeavor to comply with all federal and state laws and regulations
thereunder requiring the registration of such securities with, or any approval
of or consent to the delivery thereof by, any governmental authority.
(m) The Corporation will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or delivery of
the shares of Preferred Stock (or any other securities issued on account of the
Preferred Stock pursuant hereto) or shares of Common Stock on conversion of the
Preferred Stock pursuant hereto; provided, however, that the Corporation shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issue or delivery of shares of Preferred Stock (or any other
securities issued on account of the Preferred Stock pursuant hereto) or shares
of Common Stock in a name other than the name in which the shares of Preferred
Stock with respect to which such Common Stock shares are issued were registered
and the Corporation shall not be required to make any issue or delivery unless
and until the person requesting such issue or delivery has paid to the
Corporation the amount of any such tax or has established, to the reasonable
satisfaction of the Corporation, that such tax has been paid or is not required
to be paid.
(n) The Corporation shall not take any action which results in an
adjustment of the number of shares of Common Stock issuable upon conversion of
a share of Preferred Stock if the total number of shares of Common Stock
issuable after such action upon conversion of the Preferred Stock then
outstanding, together with the total number of shares of Common Stock then
outstanding, would exceed the total number of shares of Common Stock then
authorized under the Certificate of Incorporation. Subject to the foregoing,
the Corporation shall take all such actions as it may deem reasonable under the
circumstances to provide for the issuance of such number of shares of Common
Stock as would be necessary to allow for the conversion from time to time, and
taking into account adjustments as herein provided, of outstanding shares of
the Preferred Stock in accordance with the terms and provisions of the
Certificate of Incorporation.
8. Ranking.
(a) Any class or classes of stock of the Corporation shall be
deemed to rank:
(i) prior to the Preferred Stock, as to dividends or as
to the distribution of assets upon liquidation, dissolution or winding
up, if the holders of such class shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation,
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dissolution or winding up, as the case may be, in preference or
priority to the holders of Preferred Stock;
(ii) on a parity with the Preferred Stock, as to dividends
or as to the distribution of assets upon liquidation, dissolution or
winding up, whether or not the dividend rates, dividend payment dates
or redemption or liquidation prices per share thereof be different
from those of the Preferred Stock, if the holders of such class of
stock and the Preferred Stock shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in proportion to their respective
amounts of accrued and unpaid dividends per share or liquidation
prices, without preference or priority of one over the other; and
(iii) junior to the Preferred Stock, as to dividends or as
to the distribution of assets upon liquidation, dissolution or winding
up, if such stock shall be the Common Stock or if the holders of
Preferred Stock shall be entitled to receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as
the case may be, in preference or priority to the holders of shares of
such stock.
(b) The Preferred Stock shall rank junior to shares of the
Corporation's Series A Convertible Preferred Stock as to dividends and as to
the distribution of assets upon liquidation, dissolution or winding up.
9. Voting.
(a) Except as herein provided or as otherwise from time to time
required by law, holders of Preferred Stock shall have no voting rights.
Whenever, at any time or times, dividends payable on the shares of Preferred
Stock at the time outstanding have not been paid in an aggregate amount equal
to at least four quarterly dividends on such shares (whether or not
consecutive), the holders of Preferred Stock shall have the right, voting
separately as a class with the holders of shares of any one or more other
series of stock ranking on a parity as to dividends with the Preferred Stock
upon which like voting rights have been conferred and are exercisable (the
Preferred Stock and any such other stock, collectively for purposes hereof, the
"Defaulted Preferred Stock"), to elect two directors of the Corporation at the
Corporation's next annual meeting of the stockholders and at each subsequent
annual meeting of stockholders; provided, however, that if such voting rights
shall become vested more than 90 days or less than 20 days before the date
prescribed for the annual meeting of stockholders, thereupon the holders of the
shares of Defaulted Preferred Stock shall be entitled to exercise their voting
rights at a special meeting of the holders of shares of Defaulted Preferred
Stock as set forth herein. At elections for such directors, each holder of
Preferred Stock shall be entitled to one vote for each share held (the holders
of shares of any other series of Defaulted Preferred Stock ranking on such a
parity being entitled to such number of votes, if any, for each share of stock
held as may be granted to them.) Upon the vesting of such right of the holders
of Defaulted Preferred Stock, the then authorized number of members of the
Board of Directors shall automatically be increased by two and the two
vacancies so created shall be filled by vote of the holders of outstanding
Defaulted Preferred Stock as hereinafter set forth. The right of holders of
Defaulted
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Preferred Stock, voting separately as a class, to elect members of the Board of
Directors as aforesaid shall continue until such time as all dividends
accumulated on Defaulted Preferred Stock shall have been paid, or declared and
funds set aside for payment in full, at which time such right shall terminate,
except as herein or by law expressly provided, subject to revesting in the
event of each and every subsequent default of the character above mentioned.
As long as any shares of Preferred Stock shall remain outstanding, the number
of directors of the Corporation (excluding any directors elected by vote of the
holders of shares of Defaulted Preferred Stock) elected at any meeting of
stockholders of the Corporation at which directors are to be elected shall not
be such as would cause the number of directors in office after such meeting
(excluding any directors elected by vote of the holders of shares of Defaulted
Preferred Stock) to exceed the number which is two less than the maximum number
of directors permitted by the Certificate of Incorporation.
(b) Whenever such voting right shall have vested, such right may
be exercised initially either at a special meeting of the holders of shares of
Defaulted Preferred Stock called as hereinafter provided, or at any annual
meeting of stockholders held for the purpose of electing directors, and
thereafter at such meetings, or by the written consent of such holders pursuant
to Section 228 of the General Corporation Law of the State of Delaware.
(c) At any time when such voting right shall have vested in the
holders of shares of Defaulted Preferred Stock entitled to vote thereon, and if
such right shall not already have been initially exercised, an officer of the
Corporation shall, upon the written request of 10% of the holders of record of
shares of such Defaulted Preferred Stock then outstanding, addressed to the
Secretary of the Corporation, call a special meeting of holders of shares of
such Defaulted Preferred Stock. Such meeting shall be held at the earliest
practicable date upon the notice to holders of Defaulted Preferred Stock given
as required for annual meetings of stockholders at the place for holding annual
meetings of stockholders of the corporation or, if none, at a place designated
by the Secretary of the Corporation. If such meeting shall not be called by
the proper officers of the Corporation within 30 days after the personal
service of such written request upon the Secretary of the Corporation, or
within 30 days after mailing the same within the United States, by registered
mail, addressed to the Secretary of the Corporation at its principal office
(such mailing to be evidenced by the registry receipt issued by the postal
authorities), then the holders of record of 10% of the shares of Defaulted
Preferred Stock then outstanding may designate in writing any person to call
such meeting at the expense of the Corporation, and such meeting may be called
by such person so designated upon the notice to holders of Defaulted Preferred
Stock given as required for annual meetings of stockholders and shall be held
at the same place as is elsewhere provided in this paragraph. Any holder of
shares of Defaulted Preferred Stock then outstanding that would be entitled to
vote at such meeting shall have access to the stock books of the Corporation
for the purpose of causing a meeting of stockholders to be called pursuant to
the provisions of this paragraph. Notwithstanding the provisions of this
paragraph, however, no such special meeting shall be called or held during a
period within 45 days immediately preceding the date fixed for the next annual
meeting of stockholders.
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(d) The directors elected as provided herein shall serve until the
next annual meeting or until their respective successors shall be elected and
shall qualify; any director elected by the holders of Defaulted Preferred Stock
may be removed without cause by, and shall not be removed without cause
otherwise than by, the vote of the holders of a majority of the outstanding
shares of the Defaulted Preferred Stock who are entitled to participate in such
election of directors, voting separately as a class, at a meeting called for
such purpose or by written consent as permitted by law and the Certificate of
Incorporation and By-laws of the Corporation. If the office of any director
elected by the holders of Defaulted Preferred Stock, voting separately as a
class, becomes vacant by reason of death, resignation, retirement,
disqualification or removal from office or otherwise, the remaining director
elected by the holders of Defaulted Preferred Stock, voting separately as a
class, may choose a successor who shall hold office for the unexpired term in
respect of which such vacancy occurred. Upon any termination of the right of
the holders of Defaulted Preferred Stock to vote for directors as herein
provided, the term of office of all directors then in office elected by the
holders of Defaulted Preferred Stock, voting separately as a class, shall
terminate immediately. Whenever the terms of office of the directors elected
by the holders of Defaulted Preferred Stock, voting separately as a class,
shall so terminate and the special voting powers vested in the holders of
Defaulted Preferred Stock shall have expired, the number of directors shall be
reduced by the number of directors whose term of office shall have terminated
as provided hereinabove.
(e) So long as any shares of the Preferred Stock remain
outstanding, the affirmative vote or consent of the holders of at least 66-2/3%
of the shares of Preferred Stock outstanding at the time given either by
written consent or in person or by proxy at any special or annual meeting,
shall be necessary to permit, effect or validate any one or more of the
following:
(i) the authorization, creation or issuance, or any
increase in the authorized or issued amount, of any class or series of
stock, or any security convertible into stock of such class or series,
ranking prior to the Preferred Stock as to dividends or the
distribution of assets upon liquidation, dissolution or winding up;
(ii) the amendment, alteration or repeal of any of the
provisions of the Certificate of Incorporation (including the
Certificate of Designations relating to the Preferred Stock) which
would adversely affect any right, preference, privilege or voting
power of the Preferred Stock or of the holders thereof; provided,
however, that any increase in the amount of authorized preferred stock
or the creation and issuance of other series of preferred stock, or
any increase in the amount of authorized shares of any such other
series of preferred stock, in each case ranking on a parity with or
junior to the Preferred Stock with respect to the payment of dividends
and the distribution of assets upon liquidation, dissolution or
winding up, shall not be deemed to adversely affect such rights,
preferences, privileges or voting powers; or
(iii) the authorization of any reclassification of the
Preferred Stock.
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(f) So long as any shares of the Preferred Stock remain
outstanding, the affirmative vote or consent of the holders of at least 50% of
the shares of Preferred Stock outstanding at the time given either by written
consent or in person or by proxy at any special or annual meeting, shall be
necessary to permit, effect or validate any increase in the amount of
authorized Preferred Stock or the creation of additional classes of stock or
the issuance of any series of capital stock ranking on a parity with the
Preferred Stock with respect to the payment of dividends and the distribution
of assets upon liquidation, dissolution and winding up of the Company.
The foregoing voting provisions shall not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of Preferred Stock shall have been
redeemed.
10. Record Holders. The Corporation and the Transfer Agent may
deem and treat the record holder of any shares of Preferred Stock as the true
and lawful owner thereof for all purposes, and neither the Corporation nor the
Transfer Agent shall be affected by any notice to the contrary.
11. Notice. Except as may otherwise be provided by law or
provided for herein, all notices referred to herein shall be in writing, and
all notices hereunder shall be deemed to have been given upon receipt, in the
case of a notice of conversion given to the Corporation as contemplated in
Section 7(b) hereof, or, in all other cases, upon the earlier of receipt of
such notice or three Business Days after the mailing of such notice if sent by
registered mail (unless first-class mail shall be specifically permitted for
such notice under the terms hereof) with postage prepaid, addressed: if to the
Corporation, to its offices at 5847 San Felipe, Suite 700, Houston, Texas 77057
(Attention: Corporate Secretary) or other agent of the Corporation designated
as permitted hereby; or, if to any holder of the Preferred Stock, to such
holder at the address of such holder of the Preferred Stock as listed in the
stock record books of the Corporation (which shall include the records of the
Transfer Agent), or to such other address as the Corporation or holder, as the
case may be, shall have designated by notice similarly given.
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IN WITNESS WHEREOF, this Certificate has been signed on behalf of the
Corporation by its President and attested to by its Secretary, all as of the
____ day of _______, 1996.
GOODRICH PETROLEUM CORPORATION
By:
--------------------------------------
Attest:
By:
-----------------------------------
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EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of _______
__, 1996 by and between Goodrich Petroleum Corporation, a Delaware corporation
(the "Company"), and each of the individuals whose signature appears on the
signature page hereto (individually, a "Stockholder" and collectively, the
"Stockholders").
R E C I T A L S:
WHEREAS, the Stockholders have acquired shares of the Company's Series
B Convertible Preferred Stock, par value $1.00 per share ("Series B Preferred
Stock"), pursuant to the terms of that certain Exchange Agreement dated October
__, 1996 between the Company, La/Cal Energy Partners II and certain of the
Stockholders;
WHEREAS, the shares of Series B Preferred Stock held by the
Stockholders are convertible at the option of the Stockholders into shares of
Common Stock, par value $.20 per share, of the Company ("Common Stock");
WHEREAS, the shares of Series B Preferred Stock held by the
Stockholders are, and any shares of Common Stock issued to the Stockholders
upon the conversion thereof will be, "restricted securities" as such term is
defined in Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act");
WHEREAS, pursuant to the Agreement, the Company has agreed to provide
the Stockholders with certain registration rights relating to any and all
shares of Common Stock issued after the date hereof to the Stockholders upon
conversion of shares of Series B Preferred Stock (such shares of Common Stock
being referred to herein as the "Registrable Shares").
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
REGISTRATION RIGHTS AND OBLIGATIONS
1.1 Demand Registration.
(a) Stockholders collectively owning at least 2,500,000
Registrable Shares (or the equivalent number in the event of a stock split,
reverse stock split, stock dividend or a
<PAGE> 231
reclassification or recapitalization subsequent to the date hereof) shall have
the right, exercisable at any time after the date hereof, on any one occasion,
by written notice to the Company (the "Registration Notice") signed by
Stockholders requesting such registration (the "Requesting Stockholders"), to
require the Company to use its best efforts to register under the Securities
Act, all or part of the Registrable Shares held by the Stockholders (the
"Demand Registration"). The Company, upon receipt of the Registration Notice,
shall use its best efforts to effect the Demand Registration. The Company
shall send written notice of such Demand Registration to the remaining
Stockholders, if any (the "Notification"), within ten days of the Company's
receipt of the Registration Notice. Unless a remaining Stockholder shall
deliver a written request for inclusion in the Demand Registration of a
specified number of his Registrable Shares within ten days of the date of the
Notification by the Company, the right of such remaining Stockholder to
participate in such Demand Registration shall terminate. If such remaining
Stockholder so notifies the Company within the period specified above of his
desire to participate in the Demand Registration, such Stockholder's
Registrable Shares shall be included in the Demand Registration. Each of the
Stockholders participating in any Demand Registration is referred to herein as
a "Selling Stockholder" and collectively, as the "Selling Stockholders."
(b) The Registration Notice shall state whether the registration
shall be an underwritten offering or a shelf offering pursuant to Rule 415 of
the Securities Act. In the event that the shelf registration is requested, the
Company shall use its best efforts to maintain the effectiveness of such
registration for at least 90 days. In connection with such registration, the
Company shall be obligated as soon as practicable (but in any event within 90
days) to prepare and file a registration statement (the "Registration
Statement") upon receipt of any such Registration Notice and shall be further
obligated to have the Registration Statement declared effective under the
Securities Act and the rules and regulations promulgated thereunder, and the
applicable securities or "blue sky" laws of each state, as soon as practicable
after the filing date thereof. The Company shall be deemed to have completed a
Demand Registration if the Registration Statement is declared effective by the
Commission and the Company uses its best efforts to keep such Registration
Statement effective for 90 days or such lesser period of time as is necessary
for the Selling Stockholders to sell all of the Registrable Shares registered
thereunder. The registration rights contained herein with respect to the
Registrable Shares held by a Stockholder shall terminate upon the transfer,
sale or other disposition by a Stockholder of his Registrable Shares so
transferred, sold or disposed of unless such Registrable Shares are
transferred, sold or disposed of to an "affiliate" of a Stockholder, as such
term is defined in the Securities Act, or are transferred by gift or
inheritance in which case the registration rights contained herein shall
automatically be assigned to such affiliate or other transferee.
(c) The Company may include in the Registration Statement referred
to in Section 1(b) above a primary offering by the Company of a number of
shares of Common Stock that the Company proposes to issue and sell for its own
account, not to exceed three hundred percent (300%) of the number of
Registrable Shares included in such Registration Statement.
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(d) In connection with any underwritten registration hereunder, if
the managing underwriter shall advise the Company in writing (with a copy to
the Selling Stockholders) stating that, in its opinion, the number of shares of
Common Stock proposed to be included in such registration exceeds the number
which can be sold in such offering within the price range acceptable to the
Company and the Selling Stockholders (such writing to state the approximate
number of shares of Common Stock that may be included in such offering without
such effect and, if possible, the basis of such opinion), then the Company will
include in such registration, to the extent of the number of shares of Common
Stock that the Company is so advised can be sold in such offering, (i) first,
the Registrable Shares requested by the Selling Stockholders to be registered
pursuant to this Section, and (ii) second, all remaining shares of Common Stock
proposed to be included in such registration.
(e) In the event that the Company's Board of Directors reasonably
determines in good faith that the filing of the Registration Statement would be
significantly disadvantageous to the Company, notwithstanding anything to the
contrary contained herein, the Company may postpone the preparation and filing
of the Registration Statement for a period up to 120 days as the Company shall
in good faith deem necessary.
(f) The Company shall not be obligated to take any action to
effect any such registration, qualification or compliance pursuant to this
Section 1.1 during the period starting with the date 60 days prior to the
Company's estimated date of filing of, and ending on the date 180 days
following the effective date of, any registration statement relating to
securities of the Company (other than a registration statement primarily
relating to an offering of securities to employees or a dividend reinvestment
plan), provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective.
1.2 PIGGYBACK REGISTRATION. If at any time prior to the third
anniversary of the date hereof, the Company proposes to file a registration
statement in connection with the public offering of shares of Common Stock to
be sold by the Company for its own account under the Securities Act (other than
in connection with a merger, acquisition or similar business combination
transaction, an offering of securities primarily to employees or a dividend
reinvestment plan), prior to such filing, the Company shall give the
Stockholders written notice of its intention to file such a registration
statement. Any Stockholder wishing to participate in such offering, within
seven days after such notice, shall deliver to the Company a notice of the
Stockholder's desire to sell Registrable Shares under such registration (a
"Participation Notice"). The Participation Notice shall state the number of
Registrable Shares which such Stockholder wishes to dispose of in such
registration. If the Company receives one or more Participation Notices within
the specified notice period it shall, subject to the provisions of this Section
1.2, use its best efforts to include the number of shares set forth in such
Participation Notices in its registration statement under the Securities Act.
The Company may, at any time prior to the effectiveness of any such
registration statement, in its sole discretion and without the Stockholders's
consent, abandon the proposed offering in which the Stockholder has requested
to participate. Notwithstanding the foregoing, the Company shall not be
obligated to include such
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Registrable Shares in such offering if the Company is advised by the managing
underwriter or underwriters of such offering that such offering would, in its
or their good faith judgment, be materially adversely affected by such
inclusion; provided however, that the Company shall in any case be obligated to
include such number or amount of Registrable Shares in such offering, if any,
as such underwriter or underwriters shall determine will not materially
adversely affect such offering.
ARTICLE II
REGISTRATION PROCEDURE AND EXPENSE
2.1 UNDERWRITER AND DISTRIBUTIONS. In connection with any
underwritten registration under the Securities Act pursuant to this Agreement,
the Company shall have the right, in its absolute discretion, to choose the
underwriter or underwriters (the "Underwriter") and the underwriting syndicate
who shall underwrite any offering of Registrable Shares. The Company shall
have the right to decide with the Underwriter the scope of the distribution
pursuant to any offering.
2.2 REGISTRATION PROCEDURES.
(a) In connection with any registration under the Securities Act
in which a Stockholder is participating pursuant to this Agreement, the Company
will furnish each Selling Stockholder a copy of the Registration Statement and
all amendments thereto and will supply each Selling Stockholder with copies of
any prospectus included therein (and, if necessary, with copies of a prospectus
meeting the requirements of Section 10(a)(3) of the Securities Act; provided,
however, that no such prospectus need be supplied more than 60 days after the
effective date of the Registration Statement) in such quantities as may be
necessary for the purposes of such proposed sale. The Company shall use its
reasonable best efforts to keep the Registration Statement effective under the
Securities Act during the period specified in Section 1.1(b) as may be
reasonably necessary to effect such sale or other disposition (the "Effective
Period"), including the filing of any post-effective amendments or supplements
thereto, and shall immediately notify the Stockholders when such Registration
Statement is no longer effective under the Securities Act.
(b) The Company will also use its best efforts to:
(i) register or qualify the Registrable Shares included
in the Registration Statement under the securities or blue sky laws of such
states as the Selling Stockholders shall reasonably request and shall keep such
registration or qualification in effect for the Effective Period, and do any
and all other acts and things which may be reasonably necessary or advisable to
enable the Selling Stockholders to consummate the disposition in such
jurisdictions of the Registrable Shares; and
(ii) notify each of the Selling Stockholders at any time
during the Effective Period when a prospectus relating thereto is required to
be delivered under the Securities Act
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of the occurrence of any event as a result of which the prospectus included in
a Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing, and at the request of any Selling Stockholder
promptly prepare and furnish to the Selling Stockholder a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing.
2.3 REGISTRATION EXPENSES. The Company shall pay all costs and
expenses incurred in connection with the registration of Registrable Shares
effected pursuant to this Agreement, including the fees and expenses of a
single counsel for the Selling Stockholders, provided that, in no event shall
the Company be responsible for the underwriting discounts and commissions
applicable to the Registrable Shares, which shall be borne by the Selling
Stockholders.
2.4 COOPERATION OF THE STOCKHOLDERS. In connection with any
registration of the Registrable Shares pursuant to this Agreement, each
Stockholder shall furnish the Company with such information concerning such
Selling Stockholder, as the Company may reasonably request for use in the
preparation of the Registration Statement and shall cooperate fully in the
preparation and filing of a Registration Statement. In connection with any
offering, the Company and each of the Selling Stockholders, if requested by the
Underwriter, shall become a party to the Underwriting Agreement, which
agreement shall contain representations and warranties concerning such Selling
Stockholders and the Registrable Shares held by them, covenants and conditions
and such other terms as are customarily contained in agreements of that type,
provided that no Selling Stockholder shall be required to make any
representation or warranty, or indemnify any persons therein concerning the
business or financial results or condition of the Company or regarding any
other Selling Stockholder. In connection therewith, if so requested by the
Underwriter, each Selling Stockholder will agree not to effect any public sale
or distribution of any securities of the Company during the seven days prior to
the date on which any Registration Statement has become effective and up to the
180 days thereafter, except as part of such offering.
2.5 STANDOFF AGREEMENT. Each Stockholder agrees that, if, in
connection with an underwritten public offering of the Company's securities,
the Company or the underwriters managing the offering so request, the
Stockholders shall not sell, make any short sale of a loan, grant any option
for the purchase of or otherwise dispose of any Company securities (other that
those included in the registration) other than intra-family transfers,
transfers to trusts for estate planning purposes, or transfers to affiliates
(in which case such transferee would be bound by the terms of this Section
2.5), without the prior written consent of the Company or such underwriters, as
the case may be, for such period of time
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<PAGE> 235
not to exceed 90 days from the effective date of such registration as may be
requested by the Company or the underwriters.
ARTICLE III
INDEMNIFICATION
3.1 INDEMNIFICATION BY THE SELLING STOCKHOLDERS. (a) It shall be
a condition precedent to any right of registration under this Agreement that
each Selling Stockholder shall furnish to the Company in writing such
information as shall be reasonably requested by the Company concerning each
Selling Stockholder and the Registrable Shares held by him for use in a
Registration Statement or any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement thereto
("Prospectus"), and each Selling Stockholder hereby agrees to indemnify the
Company, its officers and directors, each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act, and each
underwriter or broker of the Registrable Shares registered pursuant to such
request, and each person, if any, who controls such underwriter or broker
within the meaning of Section 15 of the Securities Act against any losses,
claims, expenses, damages or liabilities to which the Company or any such
officer or director or broker or underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
expenses, damages or liabilities (or actions or proceedings, whether commenced
or threatened, in respect thereof) arise out of or are based upon any untrue
(or alleged untrue) statement of any material fact contained in, or any
material fact (necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading) omitted from (or
allegedly omitted from), a Registration Statement or Prospectus covering the
Registrable Shares, in each case to the extent, but only to the extent, that
such statement or omission was made in reliance upon and in conformity with
written information furnished to the Company by such Selling Stockholder
specifically for use in such Registration Statement. Each Selling Stockholder
hereby agrees upon the reasonable request of the Company to execute such
additional documents and instruments that set forth the indemnification
provision contained herein.
3.2 INDEMNIFICATION BY THE COMPANY. The Company hereby agrees to
indemnify, hold harmless and defend each Selling Stockholder and each
underwriter or broker of the Registrable Shares registered pursuant to such
request, and each person, if any, who controls such underwriter or broker
within the meaning of Section 15 of the Securities Act against any losses,
claims, expenses, damages or liabilities to which such Selling Stockholder,
underwriter or broker or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, expenses, damages
or liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue (or alleged untrue)
statement of any material fact contained or incorporated by reference in a
Registration Statement or Prospectus covering the Registrable Shares or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein or incorporated by
reference therein, in light of the circumstances under which they were made,
not
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<PAGE> 236
misleading, except insofar as such untrue (or alleged untrue) statement or
omission (or alleged omission) shall have been based upon information furnished
to the Company in writing by such Selling Stockholder or underwriter or broker
specifically for use in such Registration Statement or Prospectus, and the
Company will reimburse such Selling Stockholder or such underwriter or broker
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such claim, loss, damage, liability, action or
proceedings.
3.3 CONTRIBUTION. If the indemnification provided for in Section
3.1 or 3.2 above is unavailable or insufficient to hold harmless any party
entitled to indemnification thereunder in respect of any losses, claims,
damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof), then such party required to provide
indemnification hereunder ("Contributor") shall, in lieu of indemnifying such
other party entitled to indemnification hereunder ("Contributee"), contribute
to the amount paid or payable by Contributee as a result of such losses,
claims, damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) in such proportion as is appropriate to reflect
the relative fault of the Contributor and the Contributee, in connection with
the statements or omissions (or alleged statements or omissions) that resulted
in such losses, claims, damages or liabilities (or actions or proceedings,
whether commenced or threatened, in respect thereof). The relative fault of
such persons shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact, or omission or
alleged omission to state a material fact, relates to information supplied by
or concerning the Contributor or Contributee and such person's relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 3.3 were determined by pro
rata allocation or by any other allocation that does not take into account the
equitable considerations referred to above in this Section 3.3. No person
guilty of fraudulent misrepresentation within the meaning of the Securities Act
shall be entitled to contribution from any person that is not guilty of such
fraudulent misrepresentation.
ARTICLE IV
MISCELLANEOUS
4.1 CHOICE OF LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of Texas, without regard to its rules
on conflict of laws.
4.2 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof, supersedes
any prior agreement on the subject matter hereof and may not be amended except
by a written agreement signed by all the parties hereto.
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4.3 NO ASSIGNMENT. The registration rights contained herein shall
not be transferable or assignable by any of the Stockholders except by will,
inheritance or intestate succession or to an "affiliate" of a Stockholder, as
such term is defined in the Securities Act, or to a transferee who receives the
Registrable Shares as a gift or charitable contribution.
4.4 NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered by (i) personal
delivery, (ii) expedited overnight delivery service, (iii) certified or
registered mail, postage prepaid or (iv) telecopier. Any such notice shall be
deemed given upon its delivery or its being sent or dispatched, as the case may
be, to the following addresses:
(a) If to the Stockholders, at:
The address set forth on the
signature page hereof
(b) If to the Company, at:
Goodrich Petroleum Corporation
5847 San Felipe, Suite 700
Houston, Texas 77057
Attention: President
with a copy to:
Vinson & Elkins L.L.P.
1001 Fannin
Suite 2300
Houston, TX 77002
Attention: Keith R. Fullenweider
4.5 RELIANCE. The Company shall be entitled to rely on any
Registration Notice received by it and the contents contained therein.
4.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
4.7 AMENDMENT AND WAIVER. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged
or terminated other than by a written instrument signed by the party against
whom enforcement of any such amendment, waiver, discharge or termination is
sought; provided further, however, that any provisions in Article I may be
amended, waived, discharged or terminated upon the written consent of the
Company and the holders of a majority in interest of the aggregate of the
Registrable Shares.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized representative as of the date
first above written.
GOODRICH PETROLEUM CORPORATION
By:
------------------------------------
[_____________], Chairman of the Board
Address:
- --------------------------------
Walter G. Goodrich
- --------------------------------
Address:
- --------------------------------
James G. Marston, III
- --------------------------------
Address: GOODRICH ENERGY, INC.
- --------------------------------
By:
- -------------------------------- -----------------------------------
Walter G. Goodrich, President
Address:
- --------------------------------
J. Michael Watts
- --------------------------------
Address: HGF PARTNERSHIP II
- --------------------------------
- -------------------------------- By:
--------------------------------------
Henry Goodrich, Managing Partner
Address:
- --------------------------------
Rochelle Rand
- --------------------------------
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<PAGE> 239
Address:
- --------------------------------
Leo E. Bromberg
- --------------------------------
Address:
- --------------------------------
Leo E. Bromberg, Trustee for G & P
- --------------------------------
Address: [G & P IRREVOCABLE TRUST]
- --------------------------------
- -------------------------------- By:
--------------------------------------
Address: FIRST AUSTRALIAN RESOURCES, INC.
- --------------------------------
- -------------------------------- By:
--------------------------------------
[Name, Title]
Address: SHELDON APPEL COMPANY
- --------------------------------
- -------------------------------- By:
--------------------------------------
[Name, Title]
Address: BH RESOURCES L.C.
- --------------------------------
- -------------------------------- By:
--------------------------------------
[Name, Title]
Address:
- --------------------------------
Rebecca T. Delatin
- --------------------------------
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Address: RABOIL RESOURCES, L.L.C.
- --------------------------------
- -------------------------------- By:
--------------------------------------
[Name, Title]
Address:
- --------------------------------
Keith J. Evans
- --------------------------------
Address:
- --------------------------------
Roland Frautschi
- --------------------------------
Address:
- --------------------------------
David W. Hall
- --------------------------------
Address: HUNTINGFIELD CORPORATION
- --------------------------------
- -------------------------------- By:
--------------------------------------
[Name, Title]
Address: M & M INVESTMENTS
- --------------------------------
- -------------------------------- By:
--------------------------------------
[Name, Title]
Address:
- --------------------------------
W. Taylor May
- --------------------------------
Address:
- --------------------------------
David Meadows
- --------------------------------
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Address:
- --------------------------------
Steve G. Moran
- --------------------------------
Address:
- --------------------------------
Stuart Oden
- --------------------------------
Address:
- --------------------------------
Robert E. Osborne, II
- --------------------------------
Address:
- --------------------------------
Charles G. Rodman
- --------------------------------
Address:
- --------------------------------
Jim Tennyson
- --------------------------------
Address:
- --------------------------------
Jim E. Torgerson
- --------------------------------
Address: WAYNE CREEK RESOURCES-A, L.L.C.
- --------------------------------
- -------------------------------- By:
---------------------------------------
[Name, Title]
Address: WAYNE CREEK RESOURCES-C, L.L.C.
- --------------------------------
- -------------------------------- By:
---------------------------------------
[Name, Title]
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Address:
- --------------------------------
Danny R. Youngblood
- --------------------------------
Address:
- --------------------------------
Richard Wanger
- --------------------------------
Address:
- --------------------------------
Alan Schlichtemier
- --------------------------------
Address:
- --------------------------------
Laura Goodrich Watts
- --------------------------------
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<PAGE> 243
EXHIBIT D
AGREEMENT AND PLAN
OF MERGER
DATED AS OF _________________, 1996
<PAGE> 244
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
THE MERGER
Section 1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3 Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.4 Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.5 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.6 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.7 Additional Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.8 Conversion of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.9 No Surrender of Certificates; Stock Transfer Books . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II
ACTIONS TO BE TAKEN IN CONNECTION WITH THE MERGER
Section 2.1 Company Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.2 Assumption of Benefit Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.3 Reservation of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III
CONDITIONS OF MERGER
Section 3.1 Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE IV
COVENANTS
Section 4.1 Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.2 Listing of Acquisition Common Stock and Acquisition Series A Preferred Stock 6
Section 4.3 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.4 Change in Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.5 Change of Name of Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
[Section 4.6 Contribution of Treasury Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
[Section 4.7 Repurchase of Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE V
TERMINATION AND AMENDMENT
Section 5.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 5.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 6.2 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 6.3 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Exhibit A -- Certificate of Designations of Series B Preferred Stock
</TABLE>
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<PAGE> 245
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of
____________, 1996, is among Goodrich Petroleum Corporation, a Delaware
corporation (the "Company"), Goodrich Acquisition II, Inc., a Delaware
corporation ("Acquisition") and a direct, wholly owned subsidiary of the
Company, and Goodrich Sub I, Inc., a Delaware corporation (the "Merger Sub")
and a direct, wholly owned subsidiary of Acquisition.
RECITALS
A. As of the date hereof, the Company's authorized capital stock
consists of (i) 100,000,000 shares of common stock, par value $.20 per share
("Company Common Stock"), of which 41,804,510 shares are issued and
outstanding, and (ii) 10,000,000 shares of preferred stock, $1.00 par value, of
which 1,175,000 shares have been designated as the Company's Series A
Convertible Preferred Stock (the "Company Series A Preferred Stock") and
801,147 are issued and outstanding.
B. At the Effective Time (as hereafter defined) of the Merger (as
hereafter defined), Acquisition's authorized capital stock will be identical to
that of the Company, except (i) the Company Common Stock and the Company Series
A Preferred Stock will be named "Acquisition Common Stock" and "Acquisition
Series A Preferred Stock", respectively, and (ii) Acquisition will designate
750,000 shares as Series B Convertible Preferred Stock, $1.00 par value (the
"Acquisition Series B Preferred Stock").
C. The designations, rights and preferences, and the
qualifications, limitations and restrictions of Acquisition Series A Preferred
Stock, and the Acquisition Common Stock are the same as those of the Company
Series A Preferred Stock, and the Company Common Stock.
D. The certificate of incorporation and the bylaws of
Acquisition contain provisions identical to the certificate of incorporation
and bylaws of the Company (other than with respect to matters excepted by
Section 251(g) of the General Corporation Law of the State of Delaware (the
"DGCL")).
E. The directors of the Company immediately prior to the Merger
will be the directors of Acquisition immediately after the Merger.
F. Acquisition and the Merger Sub are newly formed corporations
organized for the purpose of participating in the transactions herein
contemplated.
G. The Company desires to create a new holding company structure
by merging the Merger Sub with and into the Company with the Company being the
surviving corporation, and converting each outstanding share of Company Common
Stock and Company Series A Preferred Stock into a like number of shares of
Acquisition Common Stock and Acquisition Series A Preferred Stock,
respectively, all in accordance with the terms of this Agreement.
H. The Boards of Directors of Acquisition, the Merger Sub and the
Company have
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approved this Agreement and the Merger of the Merger Sub with and into the
Company upon the terms and subject to the conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements contained in this Agreement, and intending to be legally bound
hereby, the Company, Acquisition and the Merger Sub hereby agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. In accordance with Section 251(g) of the
DGCL and subject to and upon the terms and conditions of this Agreement, the
Merger Sub shall, at the Effective Time, be merged with and into the Company,
the separate corporate existence of the Merger Sub shall cease and the Company
shall continue as the surviving corporation. The Company as the surviving
corporation after the Merger is hereinafter sometimes referred to as the
"Surviving Corporation." At the Effective Time, the effect of the Merger shall
be as provided in Section 259 of the DGCL.
Section 1.2 Effective Time. The Merger shall become effective
upon the filing on or before _______________________, of a copy of this
Agreement with the Secretary of State of the State of Delaware (the time of
such filing being referred to herein as the "Effective Time").
Section 1.3 Certificate of Incorporation. From and after the
Effective Time, the Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation of the Surviving Corporation until thereafter amended as provided
by law; provided, however, that, from and after the Effective Time:
(a) Article One thereof shall be amended so as to read in its
entirety as follows:
"First: The name of this Corporation is [________________]"
(b) Article Fourth thereof shall be amended so as to read in its
entirety as follows:
"Fourth: The aggregate number of shares which the Corporation
shall have authority to issue shall be one thousand (1,000),
consisting of one thousand (1,000) shares of Common Stock, par value
$.20 per share."
(c) A new Article [____________] shall be added thereto which
shall be and read in its entirety as follows:
"____________: Any act or transaction by or involving the
Corporation that requires for its adoption under the General
Corporation Law of the State of Delaware or its certificate of
incorporation the approval of the stockholders of the Corporation
shall, by virtue of this reference to Section 251(g) of the General
Corporation Law of the State of Delaware, require, in addition, the
approval of the stockholders of Goodrich Petroleum Corporation, a
Delaware corporation, or any
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<PAGE> 247
successor thereto by merger, so long as such corporation or its
successor is the ultimate parent, directly or indirectly, of this
Corporation, by the same vote that is required by the General
Corporation Law of the State of Delaware and/or the certificate of
incorporation of this Corporation. For the purposes of this Article
___________, the term "parent" shall mean a corporation that owns,
directly or indirectly, at least a majority of the outstanding capital
stock of this Corporation entitled to vote in the election of
directors of this Corporation without regard to the occurrence of any
contingency."
Section 1.4 Bylaws. From and after the Effective Time, the
bylaws of the Company, as in effect immediately prior to the Effective Time,
shall be the bylaws of the Surviving Corporation until thereafter amended as
provided by law; provided, however, that, from and after the Effective Time,
the bylaws shall be amended to provide that the number of directors which shall
constitute the entire Board shall be __________.
Section 1.5 Directors. The directors of the Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation and will hold office from the Effective Time until their
successors are duly elected or appointed and qualified in the manner provided
in the certificate of incorporation and the bylaws of the Surviving Corporation
or as otherwise provided by law.
Section 1.6 Officers. The officers of the Merger Sub immediately
prior to the Effective Time shall be the initial officers of the Surviving
Corporation and will hold office from the Effective Time until their successors
are duly elected or appointed and qualified in the manner provided in the
certificate of incorporation and the bylaws of the Surviving Corporation or as
otherwise provided by law.
Section 1.7 Additional Actions. Subject to the terms of this
Agreement, the parties hereto shall take all such reasonable and lawful action
as may be necessary or appropriate in order to effectuate the Merger. If, at
any time after the Effective Time, the Surviving Corporation shall consider or
be advised that any deeds, bills of sale, assignments, assurances or any other
actions or things are necessary or desirable to vest, perfect or confirm, of
record or otherwise, in the Surviving Corporation its right, title or interest
in, to or under any of the rights, properties or assets of either of the Merger
Sub or the Company acquired or to be acquired by the Surviving Corporation as a
result of, or in connection with, the Merger or otherwise to carry out this
Agreement, the officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of each of the
Merger Sub and the Company, all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of each of the Merger
Sub and the Company or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties or assets in the Surviving
Corporation or otherwise to carry out this Agreement.
Section 1.8 Conversion of Securities. At the Effective Time, by
virtue of the Merger and without any action on the part of Acquisition, Merger
Sub, the Company or the holder of any of the following securities:
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<PAGE> 248
(a) Each share of Company Common Stock and Company Series
A Preferred Stock, issued and outstanding immediately prior to the
Effective Time shall be converted into and thereafter represent one
duly issued, fully paid and nonassessable share of Acquisition Common
Stock and Acquisition Series A Preferred Stock, respectively.
(b) Each share of common stock, par value $.20 per
share, of the Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into and thereafter represent
one duly issued, fully paid and nonassessable share of common stock,
par value $.20 per share, of the Surviving Corporation.
(c) From and after the Effective Time, holders of
certificates formerly evidencing Company Common Stock or Company
Series A Preferred Stock shall be cancelled and cease to have any
rights as stockholders of the Company, except as provided by law;
provided, however, that such holders shall have the rights set forth
in Section 1.9 herein.
Section 1.9 No Surrender of Certificates; Stock Transfer Books.
As a result of the provisions of Section 1.3 herein, in conjunction with the
provisions of a certificate of amendment of certificate of incorporation of
Acquisition to be filed with the Secretary of State of the State of Delaware
and to become effective at the Effective Time, the corporate name of
Acquisition immediately following the Effective Time will be the same as the
corporate name of the Company immediately prior to the Effective Time.
Accordingly, until thereafter surrendered for transfer or exchange in the
ordinary course, each outstanding certificate that, immediately prior to the
Effective Time, evidenced Company Common Stock shall be deemed and treated for
all corporate purposes to evidence the ownership of the number of shares of
Acquisition Common Stock into which such shares of Company Common Stock were
converted pursuant to the provisions of Section 1.8 herein.
ARTICLE II
ACTIONS TO BE TAKEN IN
CONNECTION WITH THE MERGER
Section 2.1 Company Indebtedness.
As of the Effective Time, Acquisition and the Company shall, with
respect to all outstanding indebtedness of the Company, (collectively, the
"Indebtedness") execute, acknowledge and deliver an assumption of liabilities
pursuant to which Acquisition shall assume and agree to perform all obligations
of the Company relating to the Indebtedness.
Section 2.2 Assumption of Benefit Plans. Acquisition hereby
agrees that from and after the Effective Time, Acquisition will assume and
agree to perform all obligations of the Company pursuant to the Goodrich
Petroleum Corporation 1995 Stock Option Plan and the 1995 Goodrich Petroleum
Corporation 1995 Nonemployee Directors Stock Option Plan (the "Benefit Plans")
except that the terms "Company" and "Stock" as used in the Benefit Plans shall,
from and after the Effective Time, be deemed to refer to Acquisition and
Acquisition Company Common Stock, respectively. Acquisition Common Stock into
which shares of Company Common Stock
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<PAGE> 249
issued pursuant to the Benefit Plans are converted shall, to the extent such
Company Common Stock was then subject to restrictions imposed under the Benefit
Plan, also be subject to the same restrictions.
Section 2.3 Reservation of Shares. On or prior to the Effective
Time, Acquisition will reserve sufficient shares of Acquisition Common Stock to
provide for the issuance of Acquisition Common Stock upon exercise of options
outstanding under the Benefit Plan.
ARTICLE III
CONDITIONS OF MERGER
Section 3.1 Conditions Precedent. The obligations of the parties
to this Agreement to consummate the Merger and the transactions contemplated by
this Agreement shall be subject to fulfillment of each of the following
conditions:
(a) Prior to the Effective Time, the Acquisition Common
Stock to be issued pursuant to the Merger shall have been approved for
listing, upon official notice of issuance, by the New York Stock
Exchange and the Acquisition Series A Preferred Stock shall have been
approved for listing, upon official notice of issuance, by the [Nasdaq
Small Cap Market].
(b) Prior to the Effective Time, no order, statute, rule,
regulation, executive order, injunction, stay, decree, judgment or
restraining order shall have been enacted, entered, promulgated or
enforced by any court or governmental or regulatory authority or
instrumentality which prohibits or makes illegal the consummation of
the Merger or the transactions contemplated hereby.
ARTICLE IV
COVENANTS
Section 4.1 Election of Directors. Immediately prior to the
Effective Time, the Company, in its capacity as the sole stockholder of
Acquisition, will remove each of the then directors of Acquisition, will effect
such amendments to the bylaws of Acquisition as are necessary to increase the
number of directors of Acquisition to equal the number of directors of the
Company and will elect each person who is then a member of the board of
directors of the Company as a director of Acquisition, each of whom shall serve
until the next annual meeting of shareholders of Acquisition and until his
successor shall have been elected and qualified. Such actions shall be
effective as of the Effective Time.
Section 4.2 Listing of Acquisition Common Stock and Acquisition
Series A Preferred Stock. Acquisition will use its best efforts to obtain, at
or before the Effective time, authorization to list, upon official notice of
issuance, on the New York Stock Exchange Acquisition Common Stock and on the
Nasdaq Small Cap Market, Acquisition Series A Preferred Stock, issuable
pursuant to the Merger.
Section 4.3 Employee Benefit Plans. The Company and Acquisition
will take or cause
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<PAGE> 250
to be taken all actions necessary or desirable in order for Acquisition to
assume the Benefit Plan and to assume (or become a participating employer in)
each other existing employee benefit plan and agreement of the Company, with or
without amendments, or to adopt comparable plans, all to the extent deemed
appropriate by the Company and Acquisition and permitted under applicable law.
Section 4.4 Change in Capitalization. Prior to the Effective
Time, Acquisition and the Company agree to take all action necessary or
desirable under the DGCL to amend the Certificate of Incorporation of
Acquisition to authorize 10,000,000 shares of Preferred Stock, $1.00 par value,
issuable in series and 100,000,000 shares of Common Stock, par value $.20, and
to designate 1,175,000 shares of Preferred Stock as Series A Convertible
Preferred Stock having terms and provisions substantially similar to those of
the Company's Series A Convertible Participating Preferred Stock and 750,000
shares of Preferred Stock as Series B Convertible Preferred Stock, having terms
and provisions as set forth in the Certificate of Designations attached as
Exhibit A hereto.
Section 4.5 Change of Name of Acquisition. Acquisition and the
Company will take or cause to be taken all such actions as may be necessary or
desirable to effect an amendment to the Certificate of Incorporation of
Acquisition at the Effective Time changing the name of Acquisition to "Goodrich
Petroleum Corporation."
ARTICLE V
TERMINATION AND AMENDMENT
Section 5.1 Termination. This Agreement may be terminated and
the Merger contemplated hereby may be abandoned at any time prior to the
Effective Time by action of the Board of Directors of the Company, Acquisition
or the Merger Sub if it should determine that for any reason the completion of
the transactions provided for herein would be inadvisable or not in the best
interest of such corporation or its stockholders. In the event of such
termination and abandonment, this Agreement shall become void and neither the
Company, Acquisition or the Merger Sub nor their respective stockholders,
directors or officers shall have any liability with respect to such termination
and abandonment.
Section 5.2 Amendment. This Agreement may be supplemented,
amended or modified by the mutual consent of the Boards of Directors of the
parties to this Agreement.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.1 Governing Law. Except with respect to matters
contained herein governed by the DGCL, this Agreement has been executed and
delivered in the State of Texas and shall be governed by and construed and
enforced under the laws of the State of Texas, regardless of the laws that
might otherwise govern under applicable Texas principles of conflicts of law.
Section 6.2 Counterparts. This Agreement may be executed in one
or more counterparts, each of which when executed shall be deemed to be an
original but all of which
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<PAGE> 251
shall constitute one and the same agreement.
Section 6.3 Entire Agreement. This Agreement, including the
documents and instruments referred to herein, constitutes the entire agreement
and supersedes all other prior agreements and undertakings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof.
IN WITNESS WHEREOF, The Company, Acquisition and the Merger Sub have
caused this Agreement to be executed as of the date first written above by
their respective officers thereunto duly authorized.
GOODRICH PETROLEUM CORPORATION
By:
Name:
Title:
GOODRICH ACQUISITION II, INC.
By:
Name:
Title:
GOODRICH SUB I, INC.
By:
Name:
Title:
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<PAGE> 252
EXHIBIT E
SUBSCRIPTION CERTIFICATE
Goodrich Acquisition II, Inc.
Goodrich Petroleum Corporation
5847 San Felipe, Suite 700
Houston, Texas 77057
Ladies and Gentlemen:
Pursuant to that certain Exchange Agreement, dated October 22, 1996,
by and between La/Cal Energy Partners II ("La/Cal"), a Louisiana general
partnership, certain working interest owners named in Schedule I of the
Exchange Agreement (the "Working Interest Owners"), Goodrich Acquisition II,
Inc., a Delaware corporation (the "Company") and wholly owned subsidiary of
Goodrich Petroleum Corporation, a Delaware corporation ("Goodrich"), and
Goodrich (the "Exchange Agreement"), I, the undersigned, being a partner of
La/Cal or a Working Interest Owner, as the case may be, (a "Subscriber")
understand that in return for my consent to the exchange of the Assets I am to
receive, either directly or indirectly as a partner in La/Cal, consideration
consisting, in part, of shares of Company Series B Convertible Preferred Stock
(the "Preferred Shares"). I understand that the aggregate number of Preferred
Shares which I am to receive represents an equity interest in the Company,
subject to certain limitations set forth in the Exchange Agreement and the
Certificate of Designations of Series B Convertible Preferred Stock of Goodrich
Petroleum Corporation (the "Certificate of Designations"). I acknowledge that
the Company's distribution of the Preferred Shares is subject to certain terms
and conditions as set forth in the Company's Private Placement Confidential
Offering Memorandum dated November 4, 1996, as amended and supplemented from
time to time (the "Memorandum").
1. Representations and Warranties of the Subscriber. I hereby
represent and warrant to the Company and Goodrich as follows:
A. I am authorized to enter into this agreement and to
consummate the exchange of assets for the Preferred Shares and the other
consideration described in the Exchange Agreement; I am the sole party in
interest under this agreement and am not acquiring the Preferred Shares as an
agent or otherwise for any other person;
B. All information I have provided to the Company
concerning my investment in the Preferred Shares, including, without
limitation, the information contained herein, is true and correct as of the
date hereof.
C. I have examined before the date hereof all documents
I have requested from the Company to the extent such documents are (i) relevant
to this transaction, and (ii) possessed by the Company or obtainable by the
Company without unreasonable effort or expense.
<PAGE> 253
D. I ACKNOWLEDGE THAT NEITHER THE COMPANY NOR ANY OF ITS
AGENTS, EMPLOYEES OR AFFILIATES HAS MADE ANY REPRESENTATIONS OR WARRANTIES,
ORAL OR OTHERWISE, CONCERNING THE COMPANY OR THE OFFERING, OTHER THAN THOSE
CONTAINED IN THE MEMORANDUM. IN ACCEPTING THE PREFERRED SHARES, I AM NOT
RELYING UPON ANY INFORMATION, OTHER THAN THE RESULTS OF MY OWN INDEPENDENT
REVIEW OF THE MEMORANDUM AND EXHIBITS THERETO, THE EXCHANGE AGREEMENT, THE
CERTIFICATE OF DESIGNATIONS, AND ANY OTHER WRITTEN INFORMATION PROVIDED TO ME
AT MY REQUEST BY THE COMPANY.
E. I have received, analyzed and reviewed the
Memorandum, the Exchange Agreement, the Certificate of Designations and the
documents relating thereto and have had an opportunity to ask questions of and
receive answers from the Company, or a person or persons acting on its behalf,
concerning the terms and conditions of this investment, and all such questions
have been answered to my full satisfaction. I have had an opportunity to
obtain all additional information necessary to verify the accuracy of the
foregoing.
F. The address set forth below my signature is the true
and correct address of my residence and I have no present intention of becoming
a resident of any other state or jurisdiction. I understand that my statements
regarding my state of residence are material to the Company.
G. I agree that I will not attempt to dispose of my
Preferred Shares, or any shares of Common Stock or other securities issuable
upon conversion of the Preferred Shares, or any interest therein, unless and
until such securities have been validly registered under the Securities Act of
1933, as amended (the "Securities Act") or the Company has determined that the
intended disposition is exempt from registration under the Securities Act, the
rules and regulations promulgated thereunder, or any applicable state
securities laws or regulations, and the Company may require me to deliver an
opinion of counsel acceptable to it to such effect. Other than as described in
the Exchange Agreement, I understand that the Company is under no obligation to
me to register such offering under the Securities Act. I understand that in the
event I wish to transfer any interest in the Preferred Shares, or any shares
of Common Stock or other securities issuable upon conversion of the Preferred
Shares, I will be responsible for compliance with all conditions on transfer
imposed by any securities administrator of any state and under the Securities
Act and for any expenses incurred by the Company for legal or accounting
services in connection with reviewing any such proposed transfer or issuing
opinions in connection therewith. I understand that the stock certificates
evidencing the Preferred Shares or any shares of Common Stock or other
securities issuable upon conversion of the Preferred Shares, will bear the
following legend:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. WITHOUT SUCH
<PAGE> 254
REGISTRATION, SUCH SHARES MAY NOT BE SOLD OR DISTRIBUTED, EXCEPT UPON
DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY TO
THE CORPORATION THAT REGISTRATION IS NOT REQUIRED FOR SUCH SALE OR
DISTRIBUTION OR THE SUBMISSION TO COUNSEL FOR THE CORPORATION OF SUCH
OTHER EVIDENCE AS MAY DEMONSTRATE TO THE SATISFACTION OF SAID COUNSEL
THAT ANY SUCH SALE OR DISTRIBUTION WILL NOT VIOLATE THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE APPLICABLE STATE SECURITIES LAWS.
I also understand that stop transfer instructions will be given to the
Company's transfer agent in accordance with such restrictions.
H. I understand that no trading market for the Preferred
Shares currently exists or is likely to exist at any time in the future, that
there are substantial restrictions on the transferability of the Preferred
Shares, and that I must bear the economic risk of this investment for a period
of time because the Preferred Shares are not registered under the Securities
Act, and may not be re-sold unless subsequently registered under the Securities
Act or unless an exemption from such registration is available. I understand
that as a consequence of these limitations it may not be possible for me to
liquidate my investment in the event of an emergency, change in circumstances
or other immediate need for cash.
I. I am acquiring the Preferred Shares for my own
account, for investment only, and not with a view toward the resale or
distribution thereof.
J. I am (and in the case of an investor other than an
individual, each beneficial owner of such investor is) either an "accredited
investor," of the type indicated on the attached Accredited Investor
Certificate, or, if I (or such beneficial owners) do not qualify as an
"accredited investor," I (or such beneficial owners) (i) have knowledge of
finance, securities and investments, generally, and experience and skill in
investments based on actual participation, and (ii) my investment in the
Company does not exceed 20% of my (or such beneficial owner's) net worth (or my
joint net worth with my spouse) at the time of the investment.
K. I acknowledge that I have not purchased the
Preferred Shares as a result of any general solicitation or general advertising
(as those terms are used in Rule 502(a) under the Securities Act);
L. I understand that an investment in the Preferred
Shares represents a high degree of risk and is suitable only for those persons
having a substantial net worth, and who can afford to bear such risk. I have
considered carefully the risk factors discussed in the Memorandum attendant to
the purchase of Preferred Shares, and have consulted my own legal, tax and
financial advisors with respect thereto. I have read and understood all of the
risks discussed in the Memorandum and accept the same knowingly and willingly.
<PAGE> 255
M. Upon the Company's request, I will execute any
documents as may be reasonably requested in connection with my receipt of the
Preferred Shares.
My representations and warranties set forth in this Section 1 shall
survive the receipt of the shares.
2. Indemnification. I hereby agree to indemnify and hold
harmless the Company and Goodrich, any corporation or entity affiliated with
the Company or Goodrich, their respective officers, directors and employees, or
any of their respective professional advisors, from and against any and all
loss, damage, liability or expense (including reasonable attorneys' fees) due
to or arising out of a breach of any of my representations or warranties
contained in this Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Certificate this ____ day of __________, 1996.
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Signature
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Printed Name
Address:
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ACCREDITED INVESTOR CERTIFICATE
The undersigned hereby certifies that he is an Accredited Investor as
that term is defined in Rule 501 of Regulation D adopted pursuant to the
Securities Act of 1933, as amended (the "Act"). The specific category(s) of
Accredited Investor applicable to the undersigned is checked below.
_____ a. a natural person whose individual net worth, or joint net
worth with that individual's spouse, at the time of his
purchase exceeds $1,000,000;
____ b. a natural person who had an individual income in excess of
$200,000 in 1994 and 1995 or joint income with that person's
spouse in excess of $300,000 in each of those years and who
reasonably expects to reach the same income level in 1996.
For purposes of this offering, individual income shall equal
adjusted gross income, as reported in the investor's federal
income tax return, less any income attributable to a spouse or
to property owned by the spouse, and as may be further
adjusted in accordance with the rules, regulations and
releases of the Commission;
____ c. a bank as defined in Section 3(a)(2) of the Act, or a savings
and loan association or other institution as defined in
Section 3(a)(5)(A) of the Act, whether acting in its
individual or fiduciary capacity; a broker or dealer
registered pursuant to section 15 of the Securities Exchange
Act of 1934; an insurance company as defined in Section 2(13)
of the Act; an investment company registered under the
Investment Company Act of 1940 (the "1940 Act") or a business
development company as defined in Section 2(a)(48) of the 1940
Act; a Small Business Investment Company licensed by the U.S.
Small Business Administration under Section 301(c) or (d) of
the Small Business Investment Act of 1958; a plan established
and maintained by a state, its political subdivisions, or any
agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such plan
has total assets in excess of $5,000,000; or an employee
benefit plan within the meaning of the Employee Retirement
Income Security Act of 1974 ("ERISA") if the investment
decision is made by a plan fiduciary, as defined in Section
3(21) of ERISA, which is either a bank, savings and loan
association, insurance company or registered investment
adviser, or if the employee benefit plan has total assets in
excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are
Accredited Investors;
____ d. a private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
____ e. an organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business
trust, or partnership, not formed
<PAGE> 257
for the specific purposes of acquiring the securities offered,
with total assets in excess of $5,000,000;
____ f. A director, executive officer, or general partner of the
issuer of the securities being offered or sold, or any
director, executive officer, or general partner of a general
partner of that issuer; or
____ g. A trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the securities offered,
whose purchase is directed by a sophisticated person as
described in Rule 506(b)(2)(ii) of Regulation D adopted
pursuant to the Act; or
____ h. an entity in which all of the equity owners are Accredited
Investors set forth above.
