<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For Fiscal Year Ended December 31, 1996
Commission file number 1-7940
GOODRICH PETROLEUM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0466913
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
5847 SAN FELIPE, SUITE 700 77057
HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
Registrant's telephone number, including area code is (713) 780-9494
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -----------------------
<S> <C>
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.20 par value..................... New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Series A Preferred Stock, $1.00 par value......... NASDAQ Small Cap
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
At March 3, 1997, there were 41,804,510 shares of Goodrich Petroleum
Corporation common stock outstanding. The aggregate market value of shares of
common stock held by non-affiliates of the registrant as of March 3, 1997 was
approximately $22,081,000 based on a closing price of $0.8125 per share on the
New York Stock Exchange on such date.
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1
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
DOCUMENT PART/ITEM OF INCORPORATION
-------- --------------------------
<C> <S>
Proxy Statement for the Part III, Item 10, 11, 12, 13
1997 Annual Meeting of Shareholders
</TABLE>
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES.
General
Goodrich Petroleum Corporation and subsidiaries ("Goodrich" or "the
Company") is an independent oil and gas company engaged in the exploration,
development, production and acquisition of oil and natural gas properties in
the onshore portions of the United States, primarily the states of Louisiana
and Texas. In addition to its oil and gas activities, Goodrich owns a 20% non-
operated interest in a Texas intrastate natural gas pipeline.
At December 31, 1996, Goodrich had estimated proved reserves on a pro forma
basis (see discussion of acquisition below) of approximately 2,652 Mbbls of
oil and condensate and 21.5 Bcf of natural gas, or an aggregate of 37.4 Bcfe
with a pre-tax present value of future net revenues, discounted at 10% of
$83.17 million, of which approximately 83% are classified as proved developed.
The Company owns working and overriding royalty interests in 87 oil and gas
wells located in 41 active fields.
The Company's principal executive offices are located at 5847 San Felipe,
Suite 700 Houston, Texas 77057. The Company also has offices in Shreveport,
Louisiana. At March 3, 1997, the Company had 11 employees.
Company Background
The Company resulted from 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 properties primarily in Southern Louisiana.
Patrick was a NYSE-listed independent oil and gas company engaged in the
exploration, production, development and acquisition of oil and natural gas
properties 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.
On January 31, 1997, the Company acquired the oil and gas properties of
La/Cal Energy Partners II ("La/Cal II") and certain working interest owners
for a purchase price of $16.5 million ("La/Cal II Acquisition"). The acquired
proved reserves consisted of 1,602,000 barrels of oil and 3,310,000 mcf of gas
with 81% classified as proved developed. The related major fields acquired are
located in South Louisiana and East Texas. The purchase price was comprised of
$1.5 million cash, the assumption of $7.5 million La/Cal II long-term debt and
the issuance of 750,000 shares of Series B convertible preferred stock of the
Company ("Series B Preferred Stock") with an aggregate liquidation value of
$7.5 million. The Series B Preferred Stock accrues dividends at a rate of
8.25% per annum and each share of Series B Preferred Stock is convertible into
8.92 shares of common stock. Such shares are redeemable by the Company after
January 31, 2001 at $10.00 per share.
2
<PAGE>
Oil and Gas Operations and Properties
The following is a summary description of the Company's oil and gas
properties.
Louisiana
Substantially all of the Company's proved natural gas reserves are in the
South 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.
Lake Raccourci Field. The Lake Raccourci Field was discovered by Humble Oil
and Refining Company ("Exxon") in 1949, with the field extended to the South
by Pan American ("Amoco") in 1958. Geologically, the field is a large four-way
dipping closure which is cross-cut by numerous Northeast-Southwest striking
down to the South faults. The field has produced from a minimum of eighteen
different Miocene age sandstones, which range in depth from 9,000' to 16,500'.
These normally and abnormally pressured reservoirs exhibit depletion, water
and combination drive mechanisms, and have produced in excess of 830 billion
cubic feet of gas and 20 million barrels of oil and condensate. There are
currently six producing wells in the field.
Goodrich acquired its working interest in the field through a farmout from
MW Petroleum ("Apache") in July 1996. In October 1996, an agreement was
reached with Exxon whereby they were allowed to participate as a working
interest owner in the drilling of the Goodrich--State Lease 3258 No. 1 well in
return for a contributing acreage to be included in a voluntary unit for the
well. In addition to participating in the well, Exxon agreed to farmout an
additional 320 acres of a separate prospect in the field on State Lease 14589.
The Company currently controls approximately 3,800 acres and has plans to
drill at least three additional wells in the field, including the State Lease
14589 prospect which is scheduled for drilling in the first quarter of 1997.
In December 1996, Goodrich tested the State Lease 3258 No. 1 well in the Bol
6 sand at a rate of 5.3 million cubic feet of gas, 687 barrels of oil, and
zero barrels of water per day on a 10/64 inch choke with a flowing tubing
pressure of 9570# psi. The well encountered five additional productive sands
with a total of approximately 100 feet of net pay. Independent reservoir
engineers have assigned gross proved reserves of 25.9 Bcfe to the well.
Goodrich owns an approximate 16% working interest in the well, with net
reserves to the Company estimated at 3.3 Bcfe.
South Pecan Lake Field. The South Pecan Lake Field was initially developed
in the early 1950's by Amoco. South Pecan Lake Field, located in Cameron
Parish, Louisiana, is a faulted four-way closure separated from the Pecan Lake
Field by a major down to the South, East-West trending fault. The field has
produced predominately gas and gas condensate from multiple Miocene aged sand
reservoirs ranging in depths from 4,000 feet to 15,000 feet. These reservoirs
are generally characterized by strong water drive production mechanisms. The
South Pecan Lake Field has produced in excess of 650 Bcf of gas and nine
million barrels of oil and condensate. In addition to Goodrich Petroleum
Corporation, Apache is a major operator in the South Pecan Lake Field.
3
<PAGE>
Goodrich acquired its interest through leasing approximately 384 acres and
drilled the Miami Corporation 5 No. 1 in September 1996 and has a working
interest of approximately 40%. The well was dually completed and tested at
totals of 2.1 million cubic feet of gas and 192 barrels of oil per day. The
dually completed well was turned to sales during January 1997. A development
well is planned for the second quarter of 1997.
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 870 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
345 Bcf of gas and 622,000 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 No. 1 wells for
approximately $2.1 million. Pecan Lake consists of seven well completions
through four well bores. The Company's working interests range from
approximately 43% to 47%. The Company's average daily production at Pecan Lake
was 30.06 Bbls of oil and and/or condensate and 2.44 Mmcf of natural gas
during 1996. As of December 31, 1996, the Company's interests in the Pecan
Lake Field had proved reserves of 57.00 Mbbls of oil and condensate and 7.13
Bcf of natural gas.
Ada Field. The Ada Field was discovered by Hope Producing Company in 1945.
The field is located in Bienville Parish, in North Louisiana. Geologically,
the field is a turtle feature between two salt domes exhibiting a four-way
anticline with two main horst blocks, a main graben block, and several
compensating faults. The field has produced from numerous Lower Cretaceous
sands and lime facies, with the sands being predominately lenticular in
deposition. The producing interval for the field ranges from 4,500' to
10,000', with the production being primarily a pressure depletion mechanism.
As of December 31, 1996, Ada Field has produced over 654 Bcf of natural gas
and 5.2 MMbbls of oil.
Goodrich acquired its working interest of approximately 40% through a
farmout of various individual working interest owners. In September 1996, the
Youngblood No. 1 was drilled and dually completed. From September 15, 1996,
first date of production, through December 31, 1996, the dually completed well
has produced over 400 Mmcf of natural gas. Goodrich anticipates drilling a
development well during the first quarter of 1997.
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) Sibley Field, located in Webster Parish,
Louisiana and (iii) City of Lake Charles Field, located in Calcasieu Parish,
Louisiana.
As a result of the La/Cal II Acquisition, the Company has added five
additional Louisiana fields to its properties.
Second Bayou Field. The Second Bayou Field is located in Cameron Parish,
Louisiana and was discovered in 1955 by the Sun Texas Company. Goodrich is the
operator and has an average working interest of approximately 29% in 1,395
gross acres. To date, the field has produced over 420 Bcf of natural gas and
two million barrels of oil from multiple Miocene aged sands ranging from 4,000
to 15,200. Goodrich currently has five producing wells and anticipates
drilling an additional development well during the second quarter of 1997.
Other major operators in the area are Fina Oil and Chemical Company and Texaco
Producing Company.
4
<PAGE>
Kings Ridge Field. The Kings Ridge Field is located in Lafourche Parish,
Louisiana, and was discovered in 1957. The field has produced over 82 Bcf of
natural gas and two million barrels of oil. Goodrich is operator and has
approximately a 35% working interest in the current geological unit of 435
gross acres.
Deep Lake Field. The Deep Lake Field is located in Cameron Parish,
Louisiana, and was discovered in 1952 by the Superior Oil Company. The field
has produced over 1 Tcf of natural gas and 4.7 million barrels of oil.
Goodrich is operator and has approximately 42% in 725 gross acres. Other major
operators in the area are Mobil Oil Exploration and Production and Pennzoil
Production Company.
Mosquito Bay Field. The Mosquito Bay Field is located in Terrebonne Parish,
Louisiana, and was discovered in 1961 by Forest Oil Company. The field has
produced over 16 Bcf of natural gas and 200,000 barrels of oil. Goodrich is
operator and has approximately 47% working interest in the current geological
unit of 227 gross acres.
Opelousas/Northcott Field. The Opelousas/Northcott Field is located in St.
Landry Parish, Louisiana, and was discovered in 1960 by Magnolia Petroleum
Company. The field has produced over 200 Bcf of natural gas. Goodrich is
operator and has approximately 53% working interest in 1,023 gross acres.
Texas
Goodrich 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 drilling prospects using three dimensional ("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 square 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.
Sean Andrew Field. 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 262 Bbls of
oil and 110 Mcf of natural gas during 1996. The Sean Andrew Field has produced
in excess of 723,767 barrels of oil and .26 Bcf of gas gross to the interest
owners.
Other. In addition to the Sean Andrew interests, the Company maintains
ownership interests in acreage and wells in several additional fields
including the (i) Ackerly Field, located in Howard County, Texas, (ii) Lamesa
Farms Field, located in Dawson County, Texas, (iii) Carthage (Bethany) Field,
located in Panola County, Texas, (iv) Marhol Field, located in Dawson County,
Texas and Midway Field located in San Patricio County, Texas.
As a result of the La/Cal II Acquisition, the Company has added two
additional Texas fields to its properties.
Mary Blevins Field. The Mary Blevins Field is located in Smith County, Texas
and is a new discovery which is 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 Goodrich as operator having approximately 48% working
interest in approximately 782 gross acres. To date, Hitts Lake has produced
over 14 million barrels of oil and Mary Blevins has produced over 183,000
barrels from the Paluxy which occurs at a depth of approximately 7,300 feet.
Goodrich plans to drill two additional wells during the second quarter of
1997.
East Jacksonville Field. The Jacksonville Field is located in Cherokee
County, Texas and was a new discovery by Goodrich Oil Company in 1994.
Currently there is one producing well with Goodrich as operator having an
approximate 44% working interest in approximately 753 acres. To date, the well
has produced over 53,000 barrels of oil and Goodrich intends to drill an
additional well during the second quarter of 1997.
5
<PAGE>
Oil and Natural Gas Reserves
The following tables set forth summary information with respect to the
Company's proved reserves as of January 1, 1997, on a historical basis and on
a pro forma basis as if the La/Cal II Acquisition had been completed as of
that date, as estimated by the Company by compiling the reserve information
prepared by two engineering firms (primarily Coutret and Associates, Inc.) and
the Company internally.
Historical
<TABLE>
<CAPTION>
NET RESERVES PRESENT VALUE
----------------------- OF FUTURE NET
OIL GAS REVENUES
CATEGORY (MBBLS) (BCF) BCFE (1) (IN MILLIONS)
-------- ------- ----- -------- -------------
<S> <C> <C> <C> <C>
Proved Developed Producing (Pre-tax)..... 798.33 8.90 13.69 $37.68
Proved Developed Non-Producing (Pre-tax). 171.54 5.01 6.04 10.28
Proved Undeveloped (Pre-tax)............. 80.34 4.27 4.76 9.40
-------- ----- ----- ------
Total Proved (Pre-tax)................. 1,050.21 18.18 24.49 $57.36
======== ===== ===== ======
Standardized measure of discounted future
net cash flows.......................... $47.36
======
Pro Forma
<CAPTION>
NET RESERVES PRESENT VALUE
----------------------- OF FUTURE NET
OIL GAS REVENUES
CATEGORY (MBBLS) (BCF) BCFE (1) (IN MILLIONS)
-------- ------- ----- -------- -------------
<S> <C> <C> <C> <C>
Proved Developed Producing (Pre-tax)..... 1,845.89 12.06 23.13 $57.86
Proved Developed Non-Producing (Pre-tax). 312.72 4.73 6.61 11.13
Proved Undeveloped (Pre-tax)............. 493.50 4.71 7.67 14.18
-------- ----- ----- ------
Total Proved (Pre-tax)................. 2,652.11 21.50 37.41 $83.17
======== ===== ===== ======
Standardized measure of discounted future
net cash flows.......................... $68.26
======
</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, 1996 used in such
estimates were $4.17 per Mcf of natural gas (historical) and $23.88 per Bbl of
crude oil/condensate (historical) and $4.07 per Mcf of natural gas (pro forma)
and $23.53 per Bbl (pro forma). Oil and gas prices have subsequently declined
from December 31, 1996 levels.
6
<PAGE>
Productive Wells
The following tables set forth the number of active well bores in which the
Company maintains ownership interests as of December 31, 1996, on a historical
basis and on a pro forma basis as if the La/Cal II Acquisition had been
completed as of that date:
<TABLE>
<CAPTION>
NET
GROSS (1) (2)
Historical -------- -----
<S> <C> <C>
Louisiana--Pecan Lake..................................... 4.00 1.81
Louisiana--Lake Raccourci................................. 1.00 .16
Louisiana--South Pecan Lake............................... 1.00 .40
Louisiana--Ada............................................ 1.00 .40
Texas--Sean Andrew........................................ 7.00 2.52
Other..................................................... 49.00 12.62
----- -----
Total Productive Wells................................ 63.00 17.91
===== =====
<CAPTION>
NET
GROSS (1) (2)
Pro Forma -------- -----
<S> <C> <C>
Louisiana--Pecan Lake..................................... 4.00 1.81
Louisiana--Lake Raccourci................................. 1.00 .16
Louisiana--South Pecan Lake............................... 1.00 .40
Louisiana--Ada............................................ 1.00 .40
Louisiana--Second Bayou................................... 5.00 1.55
Louisiana--Kings Ridge.................................... 1.00 .41
Louisiana--Deep Lake...................................... 1.00 .44
Louisiana--Mosquito Bay................................... 1.00 .46
Louisiana--Opelousas/Northcott............................ 1.00 .53
Texas--Sean Andrew........................................ 7.00 2.52
Texas--Mary Blevins....................................... 3.00 1.56
Texas--East Jacksonville.................................. 1.00 .47
Other..................................................... 49.00 12.62
----- -----
Total Productive Wells................................ 76.00 23.33
===== =====
</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.
7
<PAGE>
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, 1996 on
a historical basis and on a pro forma basis as if the La/Cal II Acquisition
had been completed as of that date. Acreage in which the Company's interest is
limited to royalty or overriding royalty interest is excluded from the table.
<TABLE>
<CAPTION>
GROSS NET
Historical --------- --------
<S> <C> <C>
Developed acreage
Louisiana--Pecan Lake Field.......................... 870.63 400.10
Louisiana--Lake Raccourci Field...................... 900.00 144.00
Louisiana--South Pecan Lake Field.................... 160.00 64.17
Louisiana--Ada Field................................. 160.00 64.00
Texas--Sean Andrew Field............................. 280.00 101.00
Other................................................ 11,388.52 1,332.93
Undeveloped acreage
Louisiana--Lake Raccourci Field...................... 3,220.00 673.00
Louisiana--South Pecan Lake.......................... 224.00 89.84
Other Undeveloped.................................... 2,943.04 1,236.02
--------- --------
Total.............................................. 20,146.19 4,105.06
========= ========
<CAPTION>
GROSS NET
Pro Forma --------- --------
<S> <C> <C>
Developed acreage
Louisiana--Pecan Lake Field.......................... 870.63 400.10
Louisiana--Lake Raccourci Field...................... 900.00 144.00
Louisiana--South Pecan Lake Field.................... 160.00 64.17
Louisiana--Ada Field................................. 160.00 64.00
Louisiana--Second Bayou.............................. 1,394.69 435.35
Louisiana--Kings Ridge............................... 435.02 176.80
Louisiana--Deep Lake................................. 725.18 320.81
Louisiana--Mosquito Bay.............................. 227.29 105.76
Louisiana--Opelousas/Northcott....................... 1,022.86 537.87
Texas--Sean Andrew Field............................. 280.00 101.00
Texas--Mary Blevins.................................. 781.68 407.27
Texas--East Jacksonville............................. 753.15 361.11
Other................................................ 11,388.52 1,332.93
Undeveloped acreage....................................
Louisiana--Lake Raccourci Field...................... 3,220.00 673.00
Louisiana--South Pecan Lake.......................... 224.00 89.84
Other Undeveloped.................................... 2,943.04 1,236.02
--------- --------
Total.............................................. 25,486.06 6,450.03
========= ========
</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.
8
<PAGE>
Operator Activities
Goodrich Petroleum is the operator of record of substantially all of its
wells in the Lake Raccourci, South Pecan Lake, Pecan Lake, Ada and Sean Andrew
Fields. 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. Goodrich is the
operator of all of the wells acquired in the La/Cal II Acquisition.
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>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
--------- --------- ---------
GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Development Wells:
Productive...................................... 1.0 0.4 1.0 0.4 1.0 0.5
Non-Productive.................................. 0.0 0.0 0.0 0.0 1.0 0.4
---- --- --- --- --- ---
Total......................................... 1.0 0.4 1.0 0.4 2.0 0.9
==== === === === === ===
Exploratory Wells:
Productive...................................... 6.0 2.5 1.0 0.2 0.0 0.0
Non-Productive.................................. 3.0 1.3 2.0 0.7 0.0 0.0
---- --- --- --- --- ---
Total......................................... 9.0 3.8 3.0 0.9 0.0 0.0
==== === === === === ===
Total Wells:
Productive...................................... 7.0 2.9 2.0 0.6 1.0 0.5
Non-Productive.................................. 3.0 1.3 2.0 0.7 1.0 0.4
---- --- --- --- --- ---
Total......................................... 10.0 4.2 4.0 1.3 2.0 0.9
==== === === === === ===
</TABLE>
During 1994 and up to the business combination August 15, 1995, La/Cal was
engaged in limited developmental drilling in the Pecan Lake and Lake Charles
Fields and La/Cal did not drill any exploratory wells during those periods.
9
<PAGE>
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 each of the years in
the five-year period ended December 31, 1996 and on a pro forma basis as if
the La/Cal II Acquisition had taken place on January 1, 1996.
<TABLE>
<CAPTION>
PRO FORMA
1996 1996 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Production:
Natural Gas (Mcf).................... 2,390,476 1,623,377 2,213,923 2,386,130
Oil.................................. 285,757 165,964 102,731 36,487
Natural gas equivalents (Mcfe) (1)... 4,105,018 2,619,161 2,830,309 2,605,052
Average Net Daily Production:
Natural gas (Mcf).................... 6,549 4,448 6,065 6,537
Oil (Bbls)........................... 783 455 281 100
Natural gas equivalents (Mcfe)....... 11,247 7,176 7,754 7,137
Average Sales Price Per Unit:
Natural Gas (per Mcf)................ $ 2.60 2.60 1.72 1.85
Oil (per Bbl)........................ 20.79 20.88 16.27 15.99
Other Data:
Lease operating expense (per Mcfe)... $ .39 .46 .22 .15
Oil and gas depreciation, depletion
and amortization
(per Mcfe).......................... 1.05 1.02 .48 .40
</TABLE>
- --------
(1) Estimated by the Company using a conversion ratio of 1.0 Bbl/6.0 Mcf.
Marketing
The Company 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 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, 25% of NGV's share of the 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 50% of the outstanding Seaber common stock, or can choose to
receive the payable in cash.
10
<PAGE>
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.
Sean Andrew Field. Goodrich's oil production is gathered by pipeline and
purchased by Mobil at a premium over the posted price. The gas is purchased by
GPM on a thirty day spot basis.
Natural Gas. Goodrich's natural gas production is sold under spot or market-
sensitive contracts and to various gas purchasers on short-term contracts.
Goodrich's natural gas condensate is sold under short-term rollover agreements
based on current market prices.
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>
YEAR ENDED
DECEMBER 31,
----------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Tenneco Gas Marketing Company.............................. -- -- 41%
Seaber Corporation of Louisiana............................ 35% 55% 48%
Mobil Oil Corporation...................................... 22% 16% --
Mitchell Marketing Company................................. 16% 9% --
</TABLE>
Sales
The year ended December 31, 1996 generated cash proceeds of $325,628 from
the sale of certain oil and gas properties, substantially all in North Dakota.
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 in the year 2000
depending upon the monthly average daily contract quantities taken under the
settlement agreement.
11
<PAGE>
Investment in Marcum Natural Gas Services
The Company presently owns 675,200 shares of the common stock of Marcum
Natural Gas Services ("Marcum"), or approximately 5.5% of the Marcum common
stock outstanding. Marcum is a publicly held diversified provider of products
and services to the natural gas industry.
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
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.
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.
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
12
<PAGE>
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 discussed in Item 3--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 from oil and gas wells and the spacing, plugging and
abandonment of such wells. Such statutes and regulations may limit the rate at
which oil and gas could otherwise be produced from 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 production
rates.)
ITEM 3. 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 Company estimates that the remaining cost of long-term
clean-up of the site will be approximately $3.5 million, with the Company's
percentage of responsibility to be approximately 3.05%. As of December 31,
1996, the Company has paid approximately $135,000 in costs related to this
matter and has $275,000 accrued for the remaining liability. These costs have
not been discounted to their present value. 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. 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 estimated or 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the New York Stock Exchange.
At March 3, 1997, the number of holders of record of the Company's common
stock was 3,702 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
and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
QUARTER ENDED HIGH LOW HIGH LOW
------------- ------ ----- ------ -----
<S> <C> <C> <C> <C>
March 31........................................ $1.125 $.75 N/A N/A
June 30......................................... 1.125 .75 N/A N/A
September 30.................................... .815 .625 $1.375 $.938
December 31..................................... .813 .563 1.25 .75
</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.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
Selected Statement of Operations Data:
<TABLE>
<CAPTION>
PERIOD FROM
HISTORICAL JULY 15, 1993 PERIOD FROM
---------------------------------- (INCEPTION) JANUARY 1, 1993
PRO FORMA YEAR ENDED DECEMBER 31, THROUGH THROUGH YEAR ENDED
----------- ---------------------------------- DECEMBER 31, JULY 14, DECEMBER 31,
1996(E) 1996 1995 1994 1993 1993(C) 1992(C)
----------- ---------- ---------- ---------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $14,370,000 9,857,811 6,174,412 5,013,446 1,068,404 947,000 896,000
Depletion, Depreciation
and Amortization....... 5,420,000 3,788,292 1,785,502 1,156,624 179,476
Exploration............. 1,149,000 1,149,240 193,159 4,240 --
Interest Expense........ 1,593,000 828,394 1,132,488 1,072,098 199,389
Total Costs and
Expenses............... 12,655,000 9,476,366 5,037,101 2,998,628 574,220 137,000 173,000
Extraordinary Item--
Early Extinguishment of
Debt.................. -- -- 482,906 -- --
Net Income.............. 1,715,000 381,445 654,405 2,014,818 494,184
Preferred Stock
Dividends.............. 1,264,000 644,800 254,932
Earnings (Loss)
Applicable to Common
Stock.................. 451,000 (263,355) 399,473
Earnings (Loss) Per
Average Common Share... $ .01 (.01)
Average Common Shares
Outstanding............ 41,804,510 41,804,510
Pro Forma Information:
Pro Forma Income
Taxes(a).............. 402,698 785,779 192,732
Pro Forma Net Income... 251,707 1,229,039 301,452
Pro Forma Earnings
(Loss) Applicable to
Common Stock.......... (3,225) 1,229,039 301,452
Pro Forma Income Before
Extraordinary Item Per
Average Common Share... .02 .06 .02
Extraordinary Item Per
Average Common Share... (.02) -- --
Pro Forma Earnings
(Loss) Per Average
Common Share........... -- .06 .02
Pro Forma Average Common
Shares Outstanding (b). 27,722,543 19,765,226 19,765,226
</TABLE>
Selected Balance Sheet Data:
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
----------- -------------------------------------------
DECEMBER 31,
-------------------------------------------------------
1996(E) 1996 1995 1994 1993
----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Total Assets............ $39,496,000 22,398,984 22,382,716 8,230,496 5,371,000
Long Term Debt.......... 19,000,000 10,000,000 9,750,000 8,250,000 4,700,000
Stockholders' Equity
(Partners' Deficit).... $16,635,000 9,135,200 9,662,812 (2,081,217) (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 year ended December 31, 1992, as well as balance sheet
data as of December 31, 1992, 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 reflects 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.
(e) Amounts are shown on a pro forma basis as if the La/Cal Acquisition had
taken place on January 1, 1996, for statement of operations data, and on
December 31, 1996, for balance sheet data.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Background of Business Combination and Basis of Presentation
The Company was created by the combination of Patrick Petroleum Company
("Patrick") and La/Cal Energy Partners ("La/Cal") in August 1995. The
combination of Patrick and La/Cal was effected primarily by two concurrent
transactions: (a) the contribution by La/Cal of substantially all of its
assets and liabilities to the Company in exchange for 19,765,226 shares of
Common Stock and (b) the merger Patrick and an indirect wholly owned
subsidiary of Patrick (the "Merger") whereby (i) each of the 19,765,226
outstanding shares 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 and (iii) Patrick, the
surviving corporation in the Merger, became a wholly-owned subsidiary of the
Company.
The La/Cal--Patrick business combination was accounted for on the basis of
purchase accounting, with La/Cal deemed to be the acquiror. 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 is significantly impacted by
the combination transactions and, accordingly, will not be 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.
As more fully discussed in "1997 Acquisition," the Company acquired the oil
and gas properties of La/Cal Energy Partners II and certain working interest
owners on January 31, 1997.
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, reflects 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.
Year ended December 31, 1996 versus year ended December 31, 1995--Total
revenues in 1996 increased to $9,858,000 and were $3,684,000 (60%) higher than
total revenues in 1995 due to a full year of the combined entities which
resulted in higher oil and gas sales. Oil and gas sales were $2,211,000 higher
due primarily to increased oil production as a result of the inclusion of
revenues of the combined entities in 1996 along with increased oil prices for
the year. Gas production for 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 compared to 1995. One of
the abandoned wells has recently been completed in an oil reservoir. The
dollar impact of this decrease was more than offset by increased gas prices
received in 1996. In addition, 1996 contains a full year of revenues from the
pipeline joint venture which contributed $1,538,000 compared to $573,000 for
1995.
The following table reflects the production volumes and pricing information
for the periods presented:
<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------------
PRODUCTION AVERAGE PRICE PRODUCTION AVERAGE PRICE
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Gas (Mcf)............... 1,623,377 $ 2.60 2,213,923 $ 1.72
Oil (Bbls).............. 165,964 $20.88 102,731 $16.27
</TABLE>
Lease operating expense and production taxes were $1,615,000 for 1996
compared to $1,030,000 for 1995 or $585,000 higher due to the addition of the
Patrick oil and gas properties. Lease operating expenses per Mcfe
16
<PAGE>
were $.46 in 1996 compared to $.22 in 1995 due to the high level of such
expenses of the Patrick properties versus the La/Cal properties. Depletion,
depreciation and amortization was $3,788,000 versus $1,786,000 due to a full
year of the combined entities, including amortization of the pipeline joint
venture. Oil and gas depletion and depreciation per Mcfe was $1.02 in 1996
versus $.48 in 1995, the increase due to the Patrick properties carrying a
significantly higher rate per Mcfe.
The Company incurred $1,149,000 of exploration expense in 1996 compared to
$193,000 in 1995 due to a full year of the combined entities in 1996 versus
four and one-half months in 1995. Included in the 1996 exploration expense is
$542,000 of costs related to dry holes during the period versus $40,000 of
such costs in 1995.
General and administrative expenses amounted to $2,096,000 for 1996 versus
$739,000 due to the Company providing its own general and administrative
services for the full year in 1996 versus four and one-half months in 1995.
Additionally, as a public company, the Company incurs a higher level of
general and administrative expenses than a privately held company.
Interest expense was $828,000 in 1996 compared to $1,132,000 (27% lower) due
to the Company having lower average debt outstanding and a lower effective
interest rate in 1996 compared to 1995.
The Company's preferred stock dividends amounted to $645,000 for 1996
(twelve months dividends on average of 806,000 shares outstanding) compared to
$255,000 (four and one-half months dividends on average of 849,000 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 slightly 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.
<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>
Lease operating expense and production taxes were $345,000 or 50% higher,
due to the higher production volumes and depletion, depreciation and
amortization was $629,000 or 54% 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 FASB 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.
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.
17
<PAGE>
The statements of operations for both periods 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 discussed below.
In connection with the combination transactions, the Company paid off
La/Cal's General Obligation Notes, and the related unamortized debt financing
costs of $483,000 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.
Liquidity and Capital Resources
Net cash provided by operating activities was $4,373,000 in 1996 compared to
$3,579,000 in 1995 and $2,823,000 in 1994. 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 years
presented.
Net cash used by investing activities amounted to $4,163,000 in 1996
compared to net cash provided by investing activities of $8,877,000 in 1995
and net cash used of $3,720,000 in 1994. The year ended December 31, 1996
amount is substantially comprised of $3,992,000 in capital expenditures. 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 year ended December 31,
1994 reflects $3,720,000 in capital expenditures, due to extensive drilling
and completion activities and acquisition of producing properties by La/Cal
during that year.
Net cash used by financing activities in 1996 totaled $479,000 compared to
$12,553,000 in 1995 and net cash provided by financing activities of $856,000
in 1994. The 1996 amount primarily consists of the borrowing of $1,800,000
against the Company's line of credit partially offset by debt paydowns of
$1,550,000 and the payment of preferred stock dividends of $645,000. 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 ($19,778,000).
The remainder of the loan proceeds were used to provide working capital and
pay accrued interest. The year ended 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 amount consists
of La/Cal borrowings ($5,720,000) used to partially fund the significant
capital expenditures mentioned above. This was offset by partnership
distributions of $3,107,000 and subsequent payments of $1,757,000 on the
borrowings.
The Company has a credit facility with Compass 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
$12,300,000 as of December 31, 1996. 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 weighted average
interest rate at December 31, 1996 was 7.7%. The credit facility requires the
Company to maintain minimum net worth of $8,500,000 plus 50% of net income, as
defined, subsequent to September 30, 1995 and a minimum debt service ratio of
1.25 to 1. The amount outstanding under the credit facility as of December 31,
1996 was $10,000,000. See discussion of 1997 credit facility revisions in
"1997 Acquisition" below.
18
<PAGE>
The Company plans to incur capital expenditures in the amount of
approximately $7,500,000 in calendar year 1997. The Company plans to finance
such expenditures from its operating cash flow.
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 or from the issuance of equity
securities.
1997 Acquisition
On January 31, 1997, the Company acquired the oil and gas properties of
La/Cal Energy Partners II ("La/Cal II") and certain working interest owners
for a purchase price of $16.5 million ("La/Cal II Acquisition"). The purchase
price was comprised of $1.5 million cash, the assumption of $7.5 million
La/Cal II long-term debt and the issuance of 750,000 shares of Series B
convertible preferred stock of the Company ("Series B Preferred Stock") with
an aggregate liquidation value of $7.5 million. In connection with the La/Cal
II Acquisition, the Company increased its borrowing base under its credit
facility to $22.5 million and borrowed an additional $9 million to payoff
La/Cal II's debt and to pay the cash portion of the purchase price. The Series
B Preferred Stock accrues dividends at a rate of 8.25% per annum and each
share of Series B Preferred Stock is convertible into 8.92 shares of common
stock. Such shares are redeemable by the Company after January 31, 2001 at
$10.00 per share.
Disclosure Regarding Forward-Looking Statements
This Annual Report on Form 10-K includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). All statements other than statements of
historical facts included in this Annual Report on Form 10-K regarding reserve
estimates, planned capital expenditures, future oil and gas production and
prices, future drilling activity, the Company's financial position, business
strategy and other plans and objectives for future operations, are forward-
looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. There are numerous
uncertainties inherent in estimating quantities of proved oil and natural gas
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 oil and natural gas that cannot be measured in an exact way,
and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment.
As a result, estimates made by different engineers often vary from one
another. In addition, results of drilling, testing and production subsequent
to the date of an estimate may justify revisions of such estimate and such
revisions, if significant, would change the schedule of any further production
and development drilling. Accordingly, reserve estimates are generally
different from the quantities of oil and natural gas that are ultimately
recovered. Additional important factors that could cause actual results to
differ materially from the Company's expectations include changes in oil and
gas prices, changes in regulatory or environmental policies, production
difficulties, transportation difficulties and future drilling results. All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by such factors.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three year period ended December 31,
1996. 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, 1996 and 1995, and
the results of their operations and their cash flows for each of the years in
the three year period ended December 31, 1996, 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 4, 1997
20
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS 1996 1995
------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents.......................... $ 344,551 $ 613,450
Marketable equity securities....................... 569,700 759,600
Accounts receivable
Trade and other, net of allowance............... 744,221 170,593
Accrued oil and gas revenue...................... 1,482,503 1,014,709
Accrued pipeline joint venture................... 532,000 530,792
Prepaid insurance.................................. 235,578 302,113
Other.............................................. 4,888 33,532
----------- -----------
Total current assets............................. 3,913,441 3,424,789
----------- -----------
PROPERTY AND EQUIPMENT
Oil and gas properties............................. 19,129,512 16,262,033
Furniture, fixtures and equipment.................. 107,056 101,333
----------- -----------
19,236,568 16,363,366
Less accumulated depletion, depreciation and
amortization...................................... (4,918,856) (2,217,425)
----------- -----------
Total property and equipment..................... 14,317,712 14,145,941
----------- -----------
OTHER ASSETS
Investment in pipeline joint venture, net.......... 3,616,360 4,676,500
Deferred charges and other investments............. 551,471 135,486
----------- -----------
4,167,831 4,811,986
----------- -----------
TOTAL ASSETS................................... $22,398,984 $22,382,716
=========== ===========
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
------------------------------------ ------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long term debt....................... $ -- $ --
Accounts payable........................................ 1,108,534 656,886
Accrued liabilities..................................... 1,994,730 1,740,028
----------- -----------
Total current liabilities............................. 3,103,264 2,396,914
----------- -----------
LONG TERM DEBT............................................ 10,000,000 9,750,000
OTHER LIABILITIES......................................... 160,520 572,990
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00 per share; authorized
10,000,000 shares; issued 801,149 at and 734,859 shares
(liquidating preference $10 per share, aggregating to
$8,011,490 and $7,348,590)............................. 801,149 734,859
Common stock, par value--$0.20 per share; authorized
100,000,000 shares; issued and outstanding 41,804,510
shares................................................. 8,360,902 8,360,902
Additional paid-in capital.............................. 1,059,493 1,200,140
Accumulated deficit..................................... (896,444) (633,089)
Unrealized loss on marketable equity securities......... (189,900) --
----------- -----------
Total stockholders' equity............................ 9,135,200 9,662,812
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......... $22,398,984 $22,382,716
=========== ===========
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Oil and gas sales........................ $ 7,687,748 5,477,208 4,995,663
Pipeline joint venture................... 1,537,806 573,393 --
Other.................................... 632,257 123,811 17,783
----------- ---------- ----------
Total revenues......................... 9,857,811 6,174,412 5,013,446
----------- ---------- ----------
COSTS AND EXPENSES
Lease operating expense and production
taxes................................... 1,614,584 1,029,501 684,131
Depletion, depreciation and amortization. 3,788,292 1,785,502 1,156,624
Exploration.............................. 1,149,240 193,159 4,240
Impairment of oil and gas properties..... -- 157,000 --
Interest expense......................... 828,394 1,132,488 1,072,098
General and administrative............... 2,095,856 739,451 81,535
----------- ---------- ----------
Total costs and expenses............... 9,476,366 5,037,101 2,998,628
----------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM AND INCOME
TAXES..................................... 381,445 1,137,311 2,014,818
Income Taxes............................. -- -- --
----------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM........... 381,445 1,137,311 2,014,818
Extraordinary item-early extinguishment
of debt................................. -- (482,906) --
----------- ---------- ----------
NET INCOME................................. 381,445 654,405 2,014,818
==========
Preferred stock dividends................ 644,800 254,932
----------- ----------
EARNINGS (LOSS) APPLICABLE TO COMMON STOCK. $ (263,355) 399,473
=========== ==========
LOSS PER AVERAGE COMMON SHARE.............. $ (.01)
===========
AVERAGE COMMON SHARES OUTSTANDING.......... $41,804,510
===========
PRO FORMA INFORMATION (UNAUDITED):
Income before extraordinary item and income
taxes..................................... $1,137,311 2,014,818
Pro forma income taxes*.................... 402,698 785,779
---------- ----------
734,613 1,229,039
Extraordinary item-early extinguishment
of debt................................. (482,906) --
---------- ----------
Pro forma net income..................... 251,707 1,229,039
Preferred stock dividends................ 254,932 --
---------- ----------
Pro forma earnings (loss) available to
common stock.............................. $ (3,225) 1,229,039
========== ==========
Pro forma income before extraordinary item
per average common share.................. $ .02 .06
Pro forma extraordinary item per average
common share.............................. (.02) --
---------- ----------
Pro forma earnings (loss) per average
common share.............................. $ -- .06
========== ==========
Pro forma weighted average common shares
outstanding**............................. 27,722,543 19,765,226
========== ==========
</TABLE>
- --------
* As described in Noted D, no provision for income taxes is included in the
consolidated statements of operations for the period from January 1, 1995
through August 14, 1995 and for the year ended December 31, 1994, 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.
23
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
----------- ------------ -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................... $ 381,445 654,405 2,014,818
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depletion, depreciation and
amortization...................... 3,788,292 1,785,502 1,156,624
Amortization of leasehold costs.... 195,027 84,174 --
Amortization of deferred debt
financing costs................... 72,329 101,531 112,530
Gain on Sale of oil and gas
properties........................ (88,428) -- --
Extraordinary item-early
extinguishment of debt............ -- 482,906 --
Capital expenditures charged to
income............................ 678,213 108,985 4,240
Impairment of oil and gas
properties........................ -- 157,000 --
Payment of other liabilities....... (364,100) (130,010) --
Other.............................. (11,714) -- --
----------- ------------ -----------
4,651,064 3,244,493 3,288,212
Net change in:
Accounts receivable.............. (1,042,630) (28,773) (454,610)
Prepaid insurance and other...... 95,179 (319,043) --
Accounts payable................. 451,648 493,343 (72,846)
Accrued liabilities.............. 218,045 188,905 61,831
----------- ------------ -----------
Net cash provided by operating
activities.................... 4,373,306 3,578,925 2,822,587
----------- ------------ -----------
INVESTING ACTIVITIES
Sale of investment................... -- 9,600,000 --
Purchase of other investment......... (250,000) -- --
Proceeds from sales of oil and gas
properties.......................... 325,628 1,514,336 --
Cash paid in connection with business
combinations........................ (234,378) (1,088,432) --
Overdraft bank balances assumed in
business combination................ -- (451,414) --
Capital expenditures................. (3,992,374) (649,604) (3,719,782)
Other................................ (11,668) (47,883) --
----------- ------------ -----------
Net cash provided by (used in)
investing activities.......... (4,162,792) 8,877,003 (3,719,782)
----------- ------------ -----------
FINANCING ACTIVITIES
Proceeds from bank borrowings........ 1,800,000 21,000,000 5,719,933
Principal payments of bank
borrowings.......................... (1,550,000) (31,942,841) (1,756,856)
Partnership distributions............ -- (1,132,735) (3,107,258)
Payment of debt financing costs...... (10,256) (114,771) --
Retirement of preferred stock........ (74,357) -- --
Preferred stock dividends............ (644,800) (362,893) --
----------- ------------ -----------
Net cash provided by (used in)
financing activities.......... (479,413) (12,553,240) 855,819
----------- ------------ -----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS........................... (268,899) (97,312) (41,376)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD............................. 613,450 710,762 752,138
----------- ------------ -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................. $ 344,551 613,450 710,762
=========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK TOTAL
PARTNERS' -------------------- --------------------- ADDITIONAL UNREALIZED LOSS STOCKHOLDERS'
CAPITAL NUMBER NUMBER PAID-IN ACCUMULATED ON MARKETABLE EQUITY
(DEFICIT) OF SHARES PAR VALUE OF SHARES PAR VALUE CAPITAL DEFICIT EQUITY SECURITIES (DEFICIT)
----------- --------- --------- ---------- ---------- ---------- ----------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 ($.30
per share)..... -- -- -- -- -- -- (254,932) -- (254,932)
Net income...... -- -- -- -- -- 1,032,562 (378,157) -- 654,405
----------- --------- --------- ---------- ---------- ---------- --------- --------- -----------
BALANCE AT
DECEMBER 31,
1995........... -- 734,859 734,859 41,804,510 8,360,902 1,200,140 (633,089) -- 9,662,812
Net income...... -- -- -- -- -- -- 381,445 -- 381,445
Unrealized
depreciation of
marketable
securities
available for
sale........... -- -- -- -- -- -- -- (189,900) (189,900)
Preferred stock
dividends ($.80
per share)..... -- -- -- -- -- -- (644,800) -- (644,800)
Retirement of
preferred
stock.......... -- (10,000) (10,000) -- -- (64,357) -- -- (74,357)
Reinstatement of
preferred stock
under appraisal
rights......... -- 76,290 76,290 -- -- (76,290) -- -- --
----------- --------- --------- ---------- ---------- ---------- --------- --------- -----------
BALANCE AT
DECEMBER 31,
1996........... $ -- 801,149 $ 801,149 41,804,510 $8,360,902 $1,059,493 $(896,444) $(189,900) $ 9,135,200
=========== ========= ========= ========== ========== ========== ========= ========= ===========
</TABLE>
See notes to consolidated financial statements.
25
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE A--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 B--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 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 C--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 D--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The consolidated financial statements include
the financial statements of Goodrich Petroleum Corporation, its wholly-owned
subsidiary, and its wholly-owned subsidiary's four wholly-owned subsidiaries.
Significant intercompany balances and transactions have been eliminated in
consolidation.
Oil and gas revenues--Oil and gas revenues are recorded using the accrual
method of accounting.
26
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
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 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 amount of such loss is measured based on the difference
between the discounted value of such net future cash flows and the carrying
value of the asset. 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
amounted to $1,060,000 and $403,000 for the years ended December 31, 1996 and
1995,
27
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
respectively. The Company records its equity in joint venture earnings as
revenues in the statement of operations in the periods when the contract
payments are earned.
Income Taxes--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 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.
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.
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 for 1995 and 1994 has been presented on a pro forma basis to
reflect such information as if La/Cal had been operated as a corporation prior
to August 15, 1995.
The Company's Series A convertible preferred stock, stock options and common
stock warrants are common stock equivalents, however, fully diluted earnings
per share have not been presented, as the conversion or exercise of such
instruments would be anti-dilutive.
Stock Based Compensation--Prior to January 1, 1996, the Company accounted
for its stock option plans in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. In the fourth quarter of 1996, the
Company adopted SFAS No. 123, Accounting for Stock-Based Compensation, which
permits entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant. Alternatively, SFAS No.
123 also allows entities to continue to apply the provisions of APB Opinion
No. 25 and provide pro forma net income and pro forma earnings per share
disclosures for employee stock options grants made in 1995 and future years as
if the fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure provisions of SFAS No. 123.
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.
28
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
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, 1996 and 1995.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------- -------------------
CARRYING CARRYING FAIR
AMOUNT FAIR VALUE AMOUNT VALUE
----------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Financial asset--
Marketable equity securities...... $ 569,700 569,700 759,600 759,600
Financial liabilities--
Other liabilities................. 517,572 503,161 959,990 869,575
Long-term debt (including current
maturities)...................... $10,000,000 10,000,000 9,750,000 9,750,000
</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.
NOTE F--ACCRUED LIABILITIES
Accrued liabilities as of December 31, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Current portion--consulting agreement contracts............ $ 357,052 387,000
Advanced billings.......................................... 315,081 --
Environmental contingency.................................. 275,000 400,000
Accrued interest........................................... 238,969 80,702
Liability to shareholders of acquired company.............. 177,585 195,695
Prior years' state income and franchise tax assessment..... 175,000 200,000
Taxes other than income.................................... 109,000 160,000
Other...................................................... 347,043 316,631
---------- ---------
$1,994,730 1,740,028
========== =========
</TABLE>
NOTE G--LONG TERM DEBT
Long-term debt at December 31, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Borrowings under credit facility, interest, at prime or
LIBOR plus 2%
(see below)(weighted average rate at December 31, 1996--
7.7%);
principal due June 1, 1998.............................. $10,000,000 9,750,000
Less current portion..................................... -- --
----------- ---------
Long-term debt, excluding current portion................ $10,000,000 9,750,000
=========== =========
</TABLE>
29
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
The Company has a credit facility with Compass 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 $12,300,000. 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 credit facility requires the
Company to maintain minimum net worth of $8,500,000 plus 50% of net income, as
defined, subsequent to September 30, 1995. Under such restriction, the Company
had $1,766 available for the payment of dividends at December 31, 1996. The
credit facility also requires a minimum debt service ratio of 1.25 to 1. The
amount outstanding under the credit facility as of December 31, 1996 was
$10,000,000. As described in Note S, the borrowing base and minimum net worth
requirements were revised as a result of the January 31, 1997 acquisition to
$22,500,000 and $14,500,000 plus net income, as defined, subsequent to
December 31, 1996, respectively.
Substantially all of the Company's assets are pledged to secure this credit
facility.
Interest paid during 1996, 1995, and 1994 amounted to $562,593, $968,190 and
$1,051,927 respectively.
NOTE H--STOCKHOLDERS' EQUITY
Common Stock--At December 31, 1996, unissued shares of Goodrich common stock
were reserved in the amount of 2,667,826 shares for the conversion of
convertible preferred stock, 2,841,534 shares for stock option plans and
800,000 shares for the exercise of warrants.
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
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. Outstanding shares as
of December 31, 1996 were 801,149.
30
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
Warrants--In conjunction with 10.75% subordinated collateralized notes sold
on May 10, 1990, by Patrick, the Company has outstanding warrants to acquire
800,000 shares of the Company's $.20 per value Common Stock at exercise prices
from $3.00 to $6.16 per share, to three institutional investors. These
warrants expire on May 10, 1997.
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.
The Goodrich Petroleum plans authorize grants of options to purchase up to a
combined total of 3,500,000 shares of authorized but unissued common stock.
Stock options are generally granted with an exercise price equal to the
stock's fair market value at the date of grant and all stock options granted
under the 1995 Stock Option Plan generally have ten year terms and five year
pro rata vesting.
The per share weighted-average fair value of stock options granted during
1996 and 1995 was $ .382 and $ .485 on the date of grant using the Black
Scholes option-pricing model with the following weighted-average assumptions:
1996--expected dividend yield 0%, risk-free interest rate of 7.5%, and an
expected life of 6 years; 1995--expected dividend yield 0%, risk-free interest
rate of 7.5%, and an expected life of 6 years; expected volatility of stock
over expected life of the options--35%.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based
on the fair value at the grant date for its stock options under SFAS No. 123,
the Company's net income would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C> <C>
Net income.............. As reported $381,445 654,405
Pro forma 225,135 464,885
Earnings (loss)
applicable to common
stock.................. As reported (263,355) 399,473
Pro forma (419,665) 209,953
Earnings (loss) per
average common share... As reported (.01) *
Pro forma $ (.01) *
</TABLE>
Pro forma net income and earnings per share reflect only options granted in
1996 and 1995. Therefore, the full impact of calculating compensation costs
for stock options under SFAS No. 123 is not reflected in the pro forma net
income amounts presented above because compensation costs are reflected over
the options' vesting period of approximately 5 years and compensation for
options granted prior to January 1, 1995 is not considered.
- --------
* Not calculated due to entity not being in corporate form during a portion of
1995.
31
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
Stock option transactions during 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
AVERAGE RANGE OF REMAINING
NUMBER OF EXERCISE EXERCISE CONTRACTUAL
OPTIONS PRICE PRICE LIFE
--------- -------- --------- -----------
<S> <C> <C> <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 $.97-3.00 5.5 years
Granted--1995 Stock Option Plan.... 395,000 .76
Granted--1995 Non-Employee Director
Stock Option Plan................. 90,000 .94
Expiration of Options.............. (319,068) 2.25
---------
Outstanding December 31, 1996........ 2,841,534 1.56 $.75-3.00 5.9 years
=========
Exercisable December 31, 1994........ -- --
Exercisable December 31, 1995........ 1,795,602 2.15
Exercisable December 31, 1996........ 1,755,034 $1.95
</TABLE>
NOTE I--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 Company has estimated that the remaining cost of long-
term clean-up of the site will be approximately $3.5 million with the
Company's percentage of responsibility to be approximately 3.05%. As of
December 31, 1996, the Company has paid approximately $135,000 in costs
related to this matter and has $275,000 accrued for the remaining liability.
These costs have not been discounted to their present value. 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. 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 estimated or 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, liquidity or results of operations.
32
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
NOTE J--INCOME TAXES
Income tax expense for the year ending December 31, 1996 and the period from
August 15, 1995 through December 31, 1995 consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
Year Ended December 31, 1996:
U.S. Federal.................................. $ -- -- --
State......................................... -- -- --
------ ------- ---
-- -- --
====== ======= ===
Period from August 15, 1995 through December 31,
1995:
U.S. Federal.................................. 25,000 (25,000) --
State......................................... -- -- --
------ ------- ---
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 year ended
December 31, 1996 and the period from August 15, 1995 through December 31,
1995:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
U.S. Statutory Income Tax Rate........................... 35.0 % (35.0)%
Increase in deductible temporary differences for which no
benefit recorded........................................ -- 28.2
Change in the beginning of the year balance of the
valuation allowance allocated to income tax income
expense................................................. (35.5) --
Nondeductible expenses................................... .5 6.8
----- -----
-- --
===== =====
</TABLE>
The significant components of deferred income tax expense for the year ended
December 31, 1996 and the period from August 15, 1995 through December 31,
1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <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>
33
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1996 and 1995 are presented below.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Deferred tax assets:
Differences between book and tax basis of:
Property and equipment........................... $ 31,026 307,025
Marketable equity securities..................... 206,621 140,156
Contingent liabilities........................... 229,044 254,962
Consulting agreement contracts................... 181,150 335,997
Other............................................ 59,949 70,306
Operating loss carryforwards....................... 13,523,211 12,364,772
Statutory depletion carryforward................... 5,376,361 4,943,209
AMT Tax credit carryforward........................ 1,446,226 1,392,176
Investment tax credit carryforward................. 747,378 1,242,725
------------ ------------
Total gross deferred tax assets.................... 21,800,966 21,051,328
Less valuation allowance........................... (20,729,196) (19,461,294)
------------ ------------
Net deferred tax assets............................ 1,071,770 1,590,034
------------ ------------
Deferred tax liability:
Differences between book and tax basis of
investment in Pecos pipeline...................... (1,046,770) (1,565,034)
------------ ------------
Total gross deferred liability..................... (1,046,770) (1,565,034)
------------ ------------
Net deferred tax asset............................. $ 25,000 25,000
============ ============
</TABLE>
The valuation allowance for deferred tax assets increased $1,267,902 for the
year ended December 31, 1996 and $658,000 for the period from August 15, 1995
through December 31, 1995, which, in both years, 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, 1996. The amount of the deferred tax assets
considered realizable, however, could be reduced in the near term if estimates
of future taxable income during the carryforward period are reduced.
34
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
The following table summarizes the amounts and expiration dates of operating
loss and investment tax credit carryforwards:
<TABLE>
<S> <C> <C> <C>
OPERATING LOSS CARRYFORWARDS INVESTMENT TAX CREDIT CARRYFORWARDS
-------------------------------- ---------------------------------------
AMOUNT EXPIRES AMOUNT EXPIRES
---------------- ------------ ------------------ -------
$ 8,632,645 2003 $ 558,042 1998
4,331,292 2004 22,591 1999
1,080,772 2005 68,171 2000
7,093,823 2006 96,466 2001
8,860,622 2007 2,108 2002
4,285,746 2008
3,224,939 2009
1,127,906 2011
---------------- ------------------
$ 38,637,745 $ 747,378
================ ==================
</TABLE>
As a result of the August 15, 1995 business combination, the Company's
annual utilization of its net operating and statutory depletion carryforwards
generated prior to the business combination are limited under Internal Revenue
Code Section 382. Such limitation is determined annually and is comprised of a
base amount of $1,682,797 plus any recognized "built in gains" existing at
August 15, 1995. Such limitation amounted to $9,100,000 in 1995 and is
estimated to be $8,800,000 in 1996.
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.
The Company paid income taxes of $107,237 and $0 in 1996 and 1995,
respectively.
NOTE K--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, the only
activities of these plans subsequent to August 15, 1995 were related to their
termination. At December 31, 1996, the Patrick Petroleum Corporation of
Michigan Defined Benefit Plan and Trust held assets of approximately
$1,700,000. The Plan is fully funded and these assets are expected to be
distributed to the participants during February 1997.
NOTE L--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
35
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
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.
During 1996 and 1995, the Company paid Goodrich Oil Company $0 and $222,530
for the repayment of advances for business combination expenses and, $118,775
and $50,132 for general and administrative expenses. Amounts receivable from
Goodrich Oil Company were $0 and $3,947 and payable to Goodrich Oil Company
were $19,783 and $12,726 at December 31, 1996 and 1995.
The Company paid $150,000 and $58,250 to the Company's Chairman, Mr. Henry
Goodrich during 1996 and 1995, respectively, 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.
NOTE M--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, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Proved properties.................................. $17,908,303 15,271,879
Unproved properties................................ 1,221,209 990,154
----------- ----------
19,129,512 16,262,033
Less accumulated depreciation and depletion........ 4,885,687 2,209,924
----------- ----------
Net property and equipment....................... $14,243,825 14,052,109
=========== ==========
</TABLE>
The following table reflects certain data with respect to natural gas and oil
property acquisitions, exploration and development activities:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Property acquisition costs
Proved.............................. $ 7,068 10,680,422(a) 2,112,308
Unproved............................. 231,053 274,329 --
Exploration costs...................... 3,395,178 21,964 4,240
Development costs...................... 359,075 353,311 1,600,235
</TABLE>
- --------
(a) Properties acquired from Patrick.
36
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
Results of operations for natural gas and oil producing activities follow:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Sales to unaffiliated customers................ $7,687,748 5,477,208 4,995,663
Production costs (lease operating expense and
taxes)........................................ 1,614,584 1,029,501 684,131
Exploration expenses........................... 1,149,240 193,159 4,240
Impairment of oil and gas properties........... -- 157,000 --
Depreciation, depletion and amortization....... 2,684,494 1,356,060 1,138,635
---------- ---------- ---------
5,448,318 2,735,720 1,827,006
---------- ---------- ---------
Results of operations (before pro forma income
taxes in 1995 and 1994)....................... $2,239,430 2,741,488 3,168,657
==========
Pro forma income taxes (Unaudited)............. 970,703 1,235,776
---------- ---------
Pro forma results of operations (Unaudited).... $1,770,785 1,932,881
========== =========
</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 and gas
operations as adjusted for pro forma income taxes are 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 above for the
Company for the periods subsequent to the August 15, 1995, business
combination due to its estimate that net operating loss and statutory
depletion loss carryforwards will be utilized to offset future taxable income.
NOTE N--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>
YEAR ENDED
DECEMBER 31,
----------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Tenneco Gas Marketing Company.............................. -- -- 41%
Seaber Corporation of Louisiana............................ 35% 55% 48%
Mobil Oil Corporation...................................... 22% 16% --
Mitchell Marketing Company................................. 16% 9% --
</TABLE>
37
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
NOTE O--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 1,175,000 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 P--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 Q--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 R--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
----------- -----------
<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>
38
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
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 S--SUBSEQUENT EVENT (UNAUDITED)
On January 31, 1997, the Company acquired the oil and gas properties of
La/Cal Energy Partners II ("La/Cal II") and certain working interest owners
for a purchase price of $16.5 million ("La/Cal II Acquisition"). The purchase
price was comprised of $1.5 million cash, the assumption of $7.5 million
La/Cal II long-term debt and the issuance of 750,000 shares of Series B
convertible preferred stock of the Company ("Series B Preferred Stock") with
an aggregate liquidation value of $7.5 million. In connection with the La/Cal
II Acquisition, the Company increased its borrowing base to $22.5 million and
borrowed an additional $9 million to payoff La/Cal II's debt and to pay the
cash portion of the purchase price. The Series B Preferred Stock rate of 8.25%
per annum and each share of Series B Preferred Stock is convertible into 8.92
shares of common stock. Such shares are redeemable by the Company after
January 31, 2001 at $10.00 per share.
Selected results of operations on a pro forma basis as if the Acquisition
had occurred on January 1, 1996 are as follows:
<TABLE>
<S> <C>
Revenues..................................................... $14,370,000
Net Income................................................... 1,715,000
Earnings applicable to common stock.......................... 451,000
Earnings per average common share............................ $ .01
</TABLE>
NOTE T--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
properties owned by La/Cal subsequent to formation but prior to the business
combination with Patrick (year ended December 31, 1994 and period form January
1, 1995 through August 14, 1995) and properties of the combined entities
subsequent to the business combination with Patrick (period from August 15,
1995 through December 31, 1995 and year ended December 31, 1996).
Additionally, certain pro forma reserve information is presented as of
December 31, 1996 as if the acquisition described in Note S had been completed
as of December 31, 1996. 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 two (but primarily Coutret and Associates, Inc.) engineering
firms and the Company internally for the year ended December 31, 1996, by
several engineering firms and the Company internally for the year ended
December 31, 1995, and by Coutret and Associates, Inc., and H. J. Gruy and
Associates, Inc. for the year ended December 31, 1994.
39
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
Many assumptions and judgmental decisions are required to estimate reserves.
Quantities reported are considered reasonable, but they are subject to future
revisions, some of which may be substantial, as additional information becomes
available. Such additional knowledge may be gained as the result of reservoir
performance, new geological and geophysical data, additional drilling,
technological advancements, price changes, and other factors.
Regulations published by the Securities and Exchange Commission define
proved reserves as those volumes of crude oil, condensate, and natural gas
liquids and natural gas that geological and engineering data demonstrate with
reasonable certainty are recoverable from known reservoirs under existing
economic and operating conditions. Proved developed reserves are those volumes
expected to be recovered through existing wells with existing equipment and
operating methods. Proved undeveloped reserves are those volumes expected to
be recovered as a result of making additional investment by drilling new wells
on acreage offsetting productive units or recompleting existing wells.
Schedule 3--Standardized Measure of Discounted Future Net Cash Flows 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
each year, were used for this calculation, and were $23.88 per Bbl and $4.17
per Mcf, respectively as of December 31, 1996, and $17.90 per Bbl and $2.01
per Mcf, respectively as of December 31, 1995. On a pro forma basis as of
December 31, 1996 such average prices were $4.07 per Mcf and $23.53 per Bbl.
Oil and gas prices have subsequently declined from December 31, 1996 levels.
No income tax effect has been provided in the amounts below as of December
31, 1994 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, 1996.
40
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
SCHEDULE 1--ESTIMATED NET PROVED GAS RESERVES (MCF)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------- ----------
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Proved:
Balance, beginning of period. 18,887,189 21,983,004 17,550,038
Revisions of previous
estimates................... (3,995,021) (5,727,528) (702,870)
Purchase of minerals in
place....................... 3,594 5,324,607 4,380,429
Extensions, discoveries, and
other additions............. 4,961,754 375,800 3,141,537
Production................... (1,618,090) (2,213,923) (2,386,130)
Sales of minerals in place... (54,688) (854,771) --
---------- ---------- ----------
Balance, end of period....... 18,184,738 18,887,189 21,983,004 21,495,027
========== ========== ==========
Proved developed:
Beginning of period.......... 13,815,905 18,839,882 13,729,911
End of period................ 13,911,003 13,815,905 18,839,882 16,785,503
SCHEDULE 2--ESTIMATED NET PROVED OIL RESERVES (BARRELS)
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------- ----------
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Proved:
Balance, beginning of period. 940,147 523,722 209,941
Revisions of previous
estimates................... 44,689 (236,934) (23,246)
Purchase of minerals in
place....................... -- 938,465 47,482
Extensions, discoveries, and
other additions............. 278,129 3,389 326,033
Production................... (165,673) (102,731) (36,488)
Sale of minerals in place.... (47,082) (185,764) --
---------- ---------- ----------
Balance, end of period....... 1,050,210 940,147 523,722 2,652,114
========== ========== ==========
Proved, developed:
Beginning of period.......... 920,557 504,908 174,641
End of period................ 969,868 920,557 504,908 2,158,609
SCHEDULE 3-- STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATED
TO PROVED OIL AND GAS RESERVES
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------- ----------
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994 1996
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Future cash inflows............ $ 96,668 51,615 44,878 142,112
Future production and
development costs............. (11,031) (8,267) (3,803) (16,391)
Future income tax expense...... (13,624) (4,150) -- (20,462)
---------- ---------- ---------- ----------
Future net cash flows.......... 72,013 39,198 41,075 105,259
10% annual discount for
estimated timing of cash
flows......................... (24,656) (12,316) (13,559) (36,997)
---------- ---------- ---------- ----------
Standardized measure of
discounted future net cash
flows......................... $ 47,357 26,882 27,516 68,262
========== ========== ========== ==========
</TABLE>
41
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
The following are the principal sources of change in the standardized
measure of discounted net cash flows for the years shown:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
-----------------------
1996 1995 1994
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Net changes in prices and production costs related to
future production.................................... $24,061 829 (2,978)
Sales and transfers of oil and gas produced, net of
production costs..................................... (6,073) (4,448) (4,312)
Net change due to revisions in quantity estimates..... (8,730) (8,848) (921)
Net change due to extensions, discoveries and improved
recovery............................................. 15,532 521 5,583
Net change due to purchase and sales of minerals-in-
place................................................ (792) 11,090 5,105
Development costs incurred during the period.......... 359 -- 1,600
Net change in income taxes............................ (6,524) (3,475) --
Accretion of discount................................. 3,036 2,752 2,143
Change in production rates (timing) and other......... (394) 945 (137)
------- ------ ------
$20,475 (634) 6,083
======= ====== ======
</TABLE>
42
<PAGE>
GOODRICH PETROLEUM CORPORATION
CONSOLIDATED QUARTERLY INCOME INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER TOTAL
---- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues................ $2,650,788 2,162,719 2,193,449 2,850,855 9,857,811
Costs and Expenses...... 2,374,423 2,445,198 2,082,413 2,574,332 9,476,366
Net income (loss)....... 276,365 (282,479) 111,036 276,523 381,445
Preferred stock
dividends.............. 162,230 162,190 160,190 160,190 644,800
Income (loss) applicable
to common stock........ 114,135 (444,669) (49,154) 116,333 (263,355)
Earnings (loss) per
average common share... $ -- (.01) -- -- (.01)
<CAPTION>
1995
----
<S> <C> <C> <C> <C> <C>
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 before
extraordinary item..... 458,052 478,783 253,537 (53,061) 1,137,311
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
Income (loss) applicable
to common stock........ 458,052 478,783 (337,329) (200,033) 399,473
Earnings (loss) 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 statement of operations.
As noted in Note C to the consolidated financial statements, the Company's
operational financial results reflect the operations solely of La/Cal 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 where as such amounts
for the third quarter of 1995 reflect the operations solely of La/Cal 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 since August 15,
1995 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 fourth quarter of 1995 and the first, second,
third and fourth quarters of 1996 were approximately $459,000, $582,000,
$244,000, $267,000 and $445,000 and $289,000, $392,000 $174,000, $174,000 and
$319,000 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 1996 cost
and expense amount contains $244,000 in accelerated depletion on three wells.
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
43
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
*
ITEM 11. EXECUTIVE COMPENSATION.
*
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
*
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
*
*Reference is made to information under the captions "Election of Directors",
"Executive Compensation", "Security Ownership of Certain Beneficial Owners and
Management", and "Certain Relationships and Related Transactions", in the
Company's Proxy Statement for the 1997 Annual Meeting of Stockholders.
44
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)1.Financial Statements
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
The following consolidated financial statements of Goodrich
Petroleum Corporation are included in Part II, Item 8:
Independent Auditors' Report...................................... 32
Consolidated Balance Sheets--December 31, 1996 and 1995........... 33-34
Consolidated Statements of Operations--Years ended December 31,
1996, 1995 and 1994.............................................. 35
Consolidated Statements of Cash Flows--Years ended December 31,
1996, 1995 and 1994.............................................. 36
Consolidated Statements of Stockholders' Equity--Years ended
December 31, 1996, 1995 and 1994................................. 37
Notes to Consolidated Financial Statements--Years ended December
31, 1996, 1995 and 1994.......................................... 38-54
Consolidated Quarterly Income Information (Unaudited)............. 55
</TABLE>
2.Financial Statement Schedules
The schedules for which provision is made in Regulation S-X are not
required under the instructions contained therein, are inapplicable, or
the information is included in the footnotes to the financial
statements.
(b)Reports on Form 8-K
None
(c)Exhibits
<TABLE>
<C> <S>
2. Exchange Agreement between La/Cal Energy Partners II and Certain Other
Parties Named Herein, Goodrich Acquisition II, Inc. and Goodrich
Petroleum Corporation (Incorporated by reference to Exhibit 2 of the
Company's Report on Form 8-K dated October 22, 1996)
3. (i) Amended and Restated Certificate of Incorporation of the Company
dated August 15, 1995, and filed with the Secretary of State of the State
of Delaware on August 15, 1995 (Incorporated by reference
to Exhibit 3.1 of the Company's Quarterly Report filed on Form 10-Q for
the three months ended September 30, 1995).
(ii)Bylaws of the Company, as amended and restated (Incorporated by
reference to Exhibit 3.2 of the Company's Quarterly Report filed on Form
10-Q for the three months ended September 30, 1995).
4.1 Credit Agreement between Goodrich Petroleum Company of Louisiana and
Compass Bank-Houston dated August 15, 1995 and First Amendment thereto
dated December 15, 1995. (Incorporated by reference to Exhibit 4.1 of the
Company's Annual Report filed on Form 10-K for the year ended December
31, 1995)
4.2 Second Amendment to Credit Agreement between Goodrich Petroleum Company
of Louisiana and Compass Bank dated June 1, 1996 (Incorporated by
reference to Exhibit 4 of the Company's Quarterly report filed on Form
10-Q for the three months ended June 30, 1996.)
4.3 Third Amendment to Credit Agreement between Goodrich Petroleum Company of
Louisiana, GPC, Inc. of Louisiana and Compass Bank dated January 31,
1997.
4.4 Specimen Common Stock Certificate. (Incorporated by reference to Exhibit
4.6 of the Company's Registration Statement filed February 20, 1996 on
Form S-8 (File No. 33-01077)).
4.5 Certificate of Designations of Series B Convertible Preferred Stock of
Goodrich Petroleum Corporation.
10.1 Goodrich Petroleum Corporation 1995 Stock Option Plan (Incorporated by
reference to Exhibit 10.21 to the Company's Registration Statement filed
June 13, 1995 on Form S-4 (File No. 33-58631)).
</TABLE>
45
<PAGE>
<TABLE>
<C> <S>
10.2 Goodrich Petroleum Corporation 1995 Nonemployee Director Stock Option
Plan (Incorporated by reference to Exhibit 10.22 to the Company's
Registration Statement filed June 13, 1995 on Form S-4 (File 33-58631)).
10.3 Patrick Petroleum Company 1993 Stock Option Plan (Incorporated by
reference to Exhibit 10.11 to the Company's Registration Statement filed
June 13, 1995 on Form S-4 (File No. 33-58631)).
10.4 Form of Joint Participation Agreement between the Company and Goodrich
Oil Company (Incorporated by reference to Exhibit 10.18 to the Company's
Registration Statement filed June 13, 1993 on Form S-4 (File No. 33-
58631)).
10.5 Form of Marketing Agreement between the Company and Natural Gas
Ventures, L.L.C. (Incorporated by reference to Exhibit 10.19 to the
Company's Registration Statement filed June 13, 1993 on Form S-4 (File
No. 33-58631)).
10.6 Natural Gas Marketing Joint Venture Agreement between Seaber Corporation
and Natural Gas Ventures, L.L.C. (Incorporated by reference to Exhibit
10.20 to the Company's Registration Statement filed
June 13, 1993 on Form S-4 (File No. 33-58631)).
10.7 Form of Consulting Services Agreement between the Company and Henry
Goodrich (Incorporated by reference to Exhibit 10.23 to the Company's
Registration Statement filed June 13, 1993 on Form S-4 (File No. 33-
58631)).
10.8 Form of Employment Agreement between the Company and Walter G. Goodrich
(Incorporated by reference to Exhibit 10.24 to the Company's
Registration Statement filed June 13, 1993 on Form S-4 (File No. 33-
58631)).
10.9 Consulting Agreement with U.E. Patrick (Incorporated by reference to
Exhibit 10.25 to the Company's Registration Statement filed June 13,
1993 on Form S-4 (File No. 33-58631)).
10.10 Consulting Services Agreement between Leo E. Bromberg and Goodrich
Petroleum Corporation (Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report filed on Form 10-Q for the three months ended
September 30, 1995).
21 Subsidiaries of the Registrant
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule, included elsewhere herein
</TABLE>
46
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
GOODRICH PETROLEUM CORPORATION
(Registrant)
/s/ Walter G. Goodrich
Date: March 20, 1997 By:__________________________________
Walter G. Goodrich, President,
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:
Date: March 20, 1997
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Walter G. Goodrich
- -------------------------------------------
Walter G. Goodrich Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Roland L. Frautschi
- -------------------------------------------
Roland L. Frautschi Senior Vice President, Treasurer and Chief
Financial Officer (Principal Financial
Officer)
/s/ Glynn E. Williams, Jr.
- -------------------------------------------
Glynn E. Williams, Jr. Vice President (Principal Accounting
Officer)
</TABLE>
<TABLE>
<S> <C>
/s/ Sheldon Appel
- -------------------------------------------
Sheldon Appel Director
/s/ Basil M. Briggs
- -------------------------------------------
Basil M. Briggs Director
/s/ Benjamin F. Edwards, II
- -------------------------------------------
Benjamin F. Edwards, II Director
/s/ Henry Goodrich
- -------------------------------------------
Henry Goodrich Director
- -------------------------------------------
James R. Jenkins Director
- -------------------------------------------
Wayne G. Kees Director
- -------------------------------------------
John C. Napley Director
/s/ J. Michael Watts
- -------------------------------------------
J. Michael Watts Director
- -------------------------------------------
Arthur A. Seeligson Director
</TABLE>
47
<PAGE>
EXHIBIT 4.3
THIRD AMENDMENT TO
CREDIT AGREEMENT
between
GOODRICH PETROLEUM COMPANY OF LOUISIANA
GPC, INC. OF LOUISIANA
and
COMPASS BANK
Effective as of
January 31, 1997
<PAGE>
THIRD AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
This THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is made and
entered into effective as of January 31, 1997, by and between GOODRICH PETROLEUM
COMPANY OF LOUISIANA ("GPCL"), a Nevada corporation, formerly known as American
National Petroleum Company, successor by merger to Patrick Petroleum Corporation
of Michigan, a Michigan corporation GPC, INC. OF LOUISIANA ("GPC"), a Nevada
corporation (collectively with GPCL, the "Borrower"), GOODRICH PETROLEUM
CORPORATION, a Delaware corporation, ("Goodrich), and COMPASS BANK, a Texas
state chartered banking corporation formerly known as Compass Bank--Houston
(the "Lender").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, GPCL, the Lender, and Goodrich are parties to the Credit
Agreement dated August 16, 1995, as amended by First Amendment to Credit
Agreement dated as of December 15, 1995, and Letter Amendment dated March 26,
1996, and Second Amendment to Credit Agreement dated as of June 1, 1996, and
Letter Amendment dated November 12, 1996 (as amended, the "Agreement"), pursuant
to which the Lender has extended credit to GPCL and Goodrich has guaranteed the
payment and performance of certain indebtedness and other obligations of GPCL to
the Lender; and
WHEREAS, the parties hereto desire to amend the Agreement as hereinafter
set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in the Agreement and this Amendment, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
------------------------------
1.1 Terms Defined Above. As used herein, each of the terms
"Agreement," "Amendment," "Borrower," "GPC", "GPCL", "Goodrich," and "Lender"
shall have the meaning assigned to such term hereinabove.
1.2 Terms Defined in Agreement. As used herein, each term defined
in the Agreement shall have the meaning assigned thereto in the Agreement,
unless expressly provided herein to the contrary.
1.3 References. References in this Amendment to Article or Section
numbers shall be to Articles and Sections of this Amendment, unless expressly
stated to the contrary. References in this Amendment to "hereby," "herein,"
"hereinafter," "hereinabove,"
<PAGE>
"hereinbelow," "hereof," and "hereunder" shall be to this Amendment in its
entirety and not only to the particular Article or Section in which such
reference appears.
1.4 Articles and Sections. This Amendment, for convenience only,
has been divided into Articles and Sections and it is understood that the
rights, powers, privileged, duties, and other legal relations of the parties
hereto shall be determined from this Amendment as an entirety and without regard
to such division into Articles and Sections and without regard to headings
prefixed to such Articles and Sections.
1.5 Number and Gender. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural and
likewise the plural shall be understood to include the singular. Words denoting
sex shall be construed to include the masculine, feminine, and neuter, when such
construction is appropriate, and specific enumeration shall not exclude the
general, but shall be construed as cumulative. Definitions of terms defined in
the singular and plural shall be equally applicable to the plural or singular,
as the case may be.
ARTICLE II
AMENDMENT TO AGREEMENT
----------------------
The Agreement is hereby amended as follows:
2.1 Amendment of Section 1.2. Section 1.2 of the Agreement is
hereby amended as follows:
The following definition is amended to read as follows:
"Commitment Amount" shall mean the amount of the Borrowing Base
as set forth in Section 2.7(a)".
2.2 Amendment of Section 2.7(a). The first sentence of Section
2.7(a) of the Agreement is hereby amended to read as follows:
"Effective December 1, 1996, the Borrowing Base shall be
$12,300,000 until June 1, 1997. Effective upon GPC's acquisition of the
oil and gas properties of La/Cal Energy Partners II and certain Oil and
Gas Properties identified as "Group A Properties" in the reserve report
forwarded to the Lender, the Borrowing Base shall be increased to
$22,500,000 until June 1, 1997. "
2.3 Amendment of Section 6.11. Also effective upon such acquisition
GPC will become a Co-Borrower and will pledge such Oil and Gas Properties to the
Lender and Section 6.11 shall be amended to read as follows:
2
<PAGE>
"6.11 Consolidated Tangible Net Worth. Permit Consolidated
Tangible Net Worth at any time to be less than $14,500,000 plus, for all
fiscal quarters ending subsequent to December 31, 1996, 50% of positive
Consolidated Net Income and 100% of all cash equity proceeds, net of
expenses incurred in connetion with the offering transaction."
ARTICLE III
CONDITIONS
----------
The obligation of the Lender to amend the Agreement as provided herein
is subject to the fulfillment of the following conditions precedent:
3.1 Receipt of Documents and Other Items. The Lender shall have
received, reviewed, and approved the following documents and other items,
appropriately executed when necessary and in form and substance satisfactory to
the Lender:
(a) multiple counterparts of this Amendment executed by the Borrower
and Goodrich, as requested by the Lender;
(b) a Mortgage from GPC, Inc. of Louisiana pledging Oil & Gas
Properties reviewed by the Lender and used for increasing the
Borrowing Base;
(c) new Guaranty of Goodrich Petroleum Corporation; and
(d) new Note executed by the Borrower.
3.2 Accuracy of Representations and Warranties. The representations
and warranties contained in Article IV of the Agreement and in any other Loan
Document shall be true and correct, except as affected by the transactions
contemplated in the Agreement and this Amendment.
3.3 Matters Satisfactory to Lender. All matters incident to the
consummation of the transactions contemplated hereby shall be satisfactory to
the Lender.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
Each of the Borrower and Goodrich hereby expressly re-makes, in favor of
the Lender, all of the representations and warranties set forth in Article IV of
the Agreement and
3
<PAGE>
set forth in any other Loan Document to which it is a party, and represents and
warrants that all such representations and warranties remain true and
unbreached, except as affected by the transactions contemplated in the Agreement
and this Amendment.
ARTICLE V
RATIFICATION
------------
Each of the parties hereto does hereby adopt, ratify, and confirm the
Agreement and the other Loan Documents to which it is a party, in all things in
accordance with the terms and provisions thereof, as amended by this Amendment
and the documents executed in connection herewith.
ARTICLE VI
MISCELLANEOUS
-------------
6.1 Scope of Amendment. The scope of this Amendment is expressly
limited to the matters addressed herein and this Amendment shall not operate as
a waiver of any past, present, or future breach, Default, or Event of Default
under the Agreement, except to the extent, if any, that any such breach,
Default, or Event of Default is remedied by the effect of this Amendment.
6.2 Agreement as Amended. All references to the Agreement in any
document heretofore or hereafter executed in connection with the transactions
contemplated in the Agreement shall be deemed to refer to the Agreement as
amended by this Amendment.
6.3 Parties in Interest. All provisions of this Amendment shall be
binding upon and shall inure to the benefit of the Borrower, the Lender,
Goodrich, and their respective successors and permitted assigns.
6.4 Rights of Third Parties. All provisions herein are imposed
solely and exclusively for the benefit of the parties hereto and their
respective successors and permitted assigns. No other Person shall have
standing to require satisfaction of such provisions in accordance with their
terms and any or all of such provisions may be freely waived in whole or in part
by the Lender at any time if in its sole discretion it deems it advisable to do
so.
6.5 Entire Agreement. THIS AMENDMENT CONSTITUTES THE ENTIRE
AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND
SUPERSEDES ANY PRIOR AGREEMENT, WHETHER WRITTEN OR ORAL, AMONG SUCH PARTIES
REGARDING THE SUBJECT HEREOF. FURTHERMORE IN THIS REGARD, THIS AMENDMENT, THE
AGREEMENT, AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE
FINAL AGREEMENT AMONG THE PARTIES THERETO AND
4
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MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG
SUCH PARTIES.
6.6 Governing Law. THIS AMENDMENT AND ALL ISSUES ARISING IN
CONNECTION HEREWITH AND THE TRANSACTIONS CONTEMPLATED HEREBY SHALL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING
EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW.
6.7 Jurisdiction and Venue. ALL ACTIONS OR PROCEEDINGS WITH RESPECT
TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO OR
FROM THIS AMENDMENT, THE AGREEMENT, OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED,
AT THE SOLE DISCRETION AND ELECTION OF THE LENDER, IN COURTS HAVING SITUS IN
HOUSTON, HARRIS COUNTY, TEXAS. EACH OF THE BORROWER AND GOODRICH HEREBY SUBMITS
TO THE JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED IN HOUSTON,
HARRIS COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR
CHANGE THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST IT BY THE
LENDER IN ACCORDANCE WITH THIS SECTION.
6.8 Waiver of Rights to Jury Trial. EACH OF THE BORROWER, GOODRICH,
AND THE LENDER HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY, AND
UNCONDITIONALLY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT,
PROCEEDING, COUNTERCLAIM, OR OTHER LITIGATION THAT RELATES TO OR ARISES OUT OF
THIS AMENDMENT, THE AGREEMENT, OR ANY OTHER LOAN DOCUMENT OR THE ACTS OR
OMISSIONS OF THE LENDER IN THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF
THIS AMENDMENT, THE AGREEMENT, OR ANY OTHER LOAN DOCUMENT OR OTHERWISE WITH
RESPECT THERETO. THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT FOR
THE LENDER ENTERING INTO THIS AMENDMENT.
IN WITNESS WHEREOF, this Amendment is executed effective as of the date
first hereinabove written.
BORROWER:
GOODRICH PETROLEUM COMPANY OF
LOUISIANA
By: /s/ Walter G. Goodrich
----------------------------
Walter G. Goodrich
President
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GPC, INC. OF LOUISIANA
By: /s/ Walter G. Goodrich
---------------------------
Walter G. Goodrich
President
GUARANTOR:
GOODRICH PETROLEUM CORPORATION
By: /s/ Walter G. Goodrich
----------------------------
Walter G. Goodrich
President
COMPASS BANK
By: /s/ Dorothy Marchand Wilson
-----------------------------
Dorothy Marchand Wilson
Vice President
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EXHIBIT 4.5
CERTIFICATE OF DESIGNATIONS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
($1.00 Par Value)
OF
GOODRICH AQUISITION II, INC.
___________________
Pursuant to Section 151(g) of the Delaware General Corporation Law
___________________
GOODRICH ACQUISITION II, INC., 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 Restated 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 of the Board of Directors on
January 30, 1997.
The Board of Directors on January 30, 1997 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:
"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.
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"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 $1.12 (equivalent to the rate of 8.92
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.
"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 March 31, 1997).
"Issue Date" shall mean the first date on which shares of Series B
Preferred Stock are issued.
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"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 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 March 31, 1997. 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.
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(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 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
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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.
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
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<PAGE>
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 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.
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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 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 Chicago, Illinois, 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 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).
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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 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
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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 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
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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 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
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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 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
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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);
(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
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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.
(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,
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<PAGE>
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.
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, dissolution or winding up, as the
case may be, in preference or priority to the holders of Preferred Stock;
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(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 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
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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.
(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
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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.
(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
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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
30th day of January, 1997.
GOODRICH ACQUISITION II, INC.
By:/s/ Robert C. Turnham
---------------------
Attest:
By:/s/ Robert C. Turnham
---------------------
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EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
GPC Inc. of Louisiana-incorporated in the state of Nevada
Goodrich Petroleum Company of Louisiana-incorporated in state of Nevada
Subsidiaries of Goodrich Petroleum Company of Louisiana
Drilling & Workover Company, Inc.-incorporated in state of Louisiana
LECE, Inc.-incorporated in the state of Texas
National Market Company-incorporated in state of Delaware
Pecos Pipeline & Producing Company-incorporated in the state of Texas
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Goodrich Petroleum Corporation:
We consent to the incorporation by reference in the registration statement
(No. 33-01077) on Form S-8 of Goodrich Petroleum Corporation of our report
dated March 4, 1997, relating to the consolidated balance sheets of Goodrich
Petroleum Corporation and subsidiaries as of December 31, 1996 and 1995 and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1996, which report appears in the December 31, 1996, annual report on Form 10-
K of Goodrich Petroleum Corporation. Our report dated March 4, 1997, refers to
a change in 1995 in the method of accounting for the impairment of long-lived
assets.
KMPG PEAT MARWICK LLP
Shreveport, Louisiana
March 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
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0
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