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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---- EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---- EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-7796 ----------------- -----------------
TIPPERARY CORPORATION
(Exact name of registrant as specified in its charter)
Texas 75-1236955
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
633 Seventeenth Street, Suite 1550
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 293-9379
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which
Common Stock, $.02 par value registered
American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 /X/.
Aggregate market value of voting stock held by non-affiliates of the registrant
as of December 1, 1997, was $41,054,000.
Shares of the registrant's Common Stock outstanding as of December 1, 1997:
13,119,605 shares.
Documents incorporated by reference and the Part of the Form 10-K into which the
document is incorporated: Definitive Proxy Statement for the 1998 Annual
Meeting of Shareholders filed within 120 days after the fiscal year ended
September 30, 1997 (Part III).
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PART I
ITEMS 1 AND 2. DESCRIPTION OF BUSINESS AND PROPERTIES
GENERAL
Tipperary Corporation and its subsidiaries (the "Company") are principally
engaged in the exploration for and development and production of crude oil and
natural gas. The Company was organized as a Texas corporation in January 1967.
Its executive offices are located at 633 Seventeenth Street, Suite 1550, Denver,
Colorado 80202. The Company's major areas of operations are in the Permian
Basin, the Rocky Mountain and Mid-Continent areas of the United States, and in
Queensland, Australia, where it is involved in a coalbed methane project. The
Company seeks to increase its oil and gas reserves through exploration,
exploitation and development projects and occasionally through the purchase of
producing properties. The Company's capital expenditures since fiscal 1993 have
been directed toward exploitation, exploration and development projects
discussed herein, and the acquisition of additional interests in the Comet Ridge
coalbed methane project in Queensland, Australia.
STRATEGY
The Company's domestic strategy is to acquire undeveloped leasehold acreage with
the intent of identifying exploratory prospects and then initiating drilling
programs with industry partners. The focus area of this strategy over the past
few fiscal years has been the Williston Basin of Montana and North Dakota.
Numerous prospects were identified in fiscal 1995 and 1996, and in fiscal 1996
the Company secured funding for one of its two major projects through the sale
of partial interests to two industry partners which are participating in the
exploration activities. In fiscal 1997, the Company participated in drilling
certain of these prospects as well as prospects in other locations in the
Williston Basin. During fiscal 1996, the Company also attempted to add reserves
through development drilling and through exploitation projects on its existing
producing wells. The exploitation activities involved efforts to enhance value
through various techniques such as recompletion, deepening and stimulation
projects. These projects, as well as exploratory and development drilling
opportunities, are evaluated based upon estimated rates of return as well as
estimated potential reserves and associated risk levels. In fiscal 1996 and
1997, exploitation and exploration projects have resulted in incremental
production volumes which have mitigated natural production declines and
production volumes lost due to property sales.
The Company's international exploration and development efforts, and the
majority of its capital investment over the past few fiscal years, have been
focused on the Comet Ridge coalbed methane project in Queensland, Australia,
in which the Company holds a non-operating interest. During fiscal 1996 and
1997, the Company's strategy was to increase its ownership interest in the
project and, together with its co-venturers, construct a gathering system,
initiate gas contract negotiations and obtain financing proposals. During
fiscal 1996 and 1997, the Company increased its interest in the project from
30% to 50.75%, and subsequent to September 30, 1997, the Company acquired an
additional 5% capital-bearing interest. During fiscal 1997, the Company also
funded its share of costs to install gathering lines and compression
facilities in order to connect nine wells in the core Fairview area to the
PG&E Gas Transmission - Australia ("PG&E") pipeline system. PG&E completed
construction of a new 17 mile extension of its system into the producing area
in September 1997. The Company is in the process of negotiating gas
contracts and anticipates selling gas in the near term. The Company's
strategy with respect to this project during the next several years is to
participate with its co-venturers in drilling and connecting additional
development wells and conducting further exploration activities.
EXPLORATION AND DEVELOPMENT ACTIVITIES
INTERNATIONAL - COMET RIDGE COALBED METHANE PROJECT. In April 1992, the
Company acquired its original non-operating interest in the Comet Ridge coalbed
methane project in the Bowen Basin located in Queensland, Australia. As of
September 30, 1997, the co-venturers conducting the project (the "Group") held
an Authority to Prospect ("ATP") granted by the Queensland government covering
approximately 1,088,000 acres. The holder of an ATP may be granted petroleum
leases upon establishing to the satisfaction of the Queensland government that
commercial deposits of petroleum have been discovered. During fiscal 1996, the
Group was granted petroleum leases covering approximately 167,000 acres in the
area known as "Fairview," which is in the southern portion of the ATP. The
Group's ATP currently extends through October 31, 2000, and requires certain
minimum expenditures, based on current exchange rates, of approximately
$380,000, $380,000, and $680,000 in years ending October 31, 1998, 1999 and
2000, respectively. The Company will be responsible for its pro rata share of
these expenditures.
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In January 1997, the Company increased its ownership in the rights under the
Joint Operating Agreement covering the Comet Ridge project from 45.75% to
50.75% with the acquisition of an additional 5% interest from an unaffiliated
interest holder for approximately $2,300,000. The purchase of the additional
interest was financed through a loan from an affiliate of the Company's
largest shareholder. As of September 30, 1997, the Company's interest was
50.75% of capital costs and 47.58% of operating expenses and its net revenue
interest was 42.35% prior to project payout. Subsequent to fiscal 1997, the
Company acquired an additional 5% interest in the project. The Company's
interest in the project is now 55.75% of capital costs and 52.50% of
operating expenses, and its net revenue interest is 46.22% prior to project
payout. Subsequent to project payout, the Company's interest is 45.35% of
capital and operating expenses, and its net revenue interest is 39.99%. This
interest was acquired using cash on hand of $2,000,000 and a note payable of
$885,000, including principal and interest, due January 31, 1998. The
Company will also be responsible for certain capital costs incurred by the
seller prior to closing, which are expected to be approximately $200,000.
As of September 30, 1997, the Group had drilled 19 wells on its ATP acreage,
of which 18 are in the Fairview area in the southern portion of the ATP and
one well is shut in pending completion in the Dawson area in the northern
portion of the ATP. During fiscal 1997, PG&E constructed a 17-mile spur line
which connects the core Fairview area wells to the existing PG&E Queensland
Gas Pipeline. The Group has constructed a gathering system to transport the
gas from certain of the individual wells to the PG&E connecting pipeline.
There are currently nine wells in the core Fairview area that are connected
to the gathering system. Additional wells will be connected to this system
or new gathering systems when constructed. The Company has entered into gas
contract negotiations with companies interested in purchasing gas from the
property and anticipates selling gas in the near term. PG&E has announced
that it plans to construct a 296 mile pipeline from an area near the Group's
ATP to the Brisbane area. Assuming completion of this new pipeline, the
Group's gas could be transported to both the Gladstone and Brisbane market
areas on the PG&E system.
During fiscal 1997, the Company retained an international investment banking
firm to serve as its agent in seeking equity and debt financing for the
project. This firm identified both equity and debt financing sources, and the
Company has had ongoing discussions with such sources. Proceeds from any
such financing would be used to develop the project and potentially repay the
$2,300,000 related party note. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
DOMESTIC - MISSOURI RIVER PROJECT. The Company owns an average 76% undivided
interest in approximately 45,000 acres in its Missouri River project area in
the Williston Basin of Montana. During fiscal 1995, a three-dimensional
("3-D") seismic survey was conducted over approximately 30% of the project
area resulting in the identification of several prospects. The Company
drilled a dry hole on the first prospect tested in February 1996. As of
September 30, 1996, the Company's investment in the project totaled
approximately $2,420,000. An additional $50,000 was incurred during fiscal
1997, bringing the total investment to $2,470,000 as of September 30, 1997.
During fiscal 1997, the Company entered into a joint seismic program with
another oil and gas company covering 4,000 acres in the project area. The
Company also drilled a test well (0.60 net) with industry partners on a
previously defined 3-D seismic anomaly on the eastern portion of the project
acreage. This well was completed subsequent to September 30, 1997, and is
currently producing. The Company plans to drill additional exploratory and
development wells in the project area with industry partners, subject to the
availability of sufficient capital.
DIVIDE PROJECT. During fiscal 1996, the Company assembled a 30,000 acre
leasehold position in Divide County, North Dakota, and subsequently entered
into exploration agreements with two industry partners. The agreements
included the sale of a total of 75% of the Company's working interest for
$975,000 in cash and $256,000 in "carried" capital costs and provided for the
three parties to jointly pursue exploration activities on the acreage,
including the acquisition of 3-D seismic data and exploratory drilling. The
parties have identified numerous prospects in the Divide Project area, which
is located in a multi-pay area of the Williston Basin. Seismic data
acquisition commenced in November 1996 and drilling operations began in the
fourth quarter of fiscal 1997. One well (0.25 net) has been completed and is
currently undergoing production tests to determine whether it is commercially
productive. Drilling operations on a second prospect were commenced
subsequent to September 30, 1997. The Company is also involved in conducting
additional 3-D seismic surveys and is processing seismic data from other
surveys. During fiscal 1997, the Company incurred approximately $475,000 in
net expenditures to acquire additional acreage and 3-D seismic data in Divide
County.
OTHER WILLISTON BASIN PROJECTS. During the third quarter of fiscal 1997, the
Company participated with industry partners in a three-well drilling program
with an option to participate in up to five additional wells. The Company's
interest in each of the three wells was 12.5%. Two wells are currently
producing, and the third well is awaiting a recompletion
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attempt in a different formation after an unsuccessful attempt to complete in
the primary target formation. The Company's share of costs for the
three-well program was $538,000. A fourth well is expected to be drilled in
the second quarter of fiscal 1998, subject to the availability of sufficient
capital. The Company continues to evaluate and acquire leasehold interests
in new project areas and will seek to bring in outside partners to fund 3-D
seismic surveys and possibly conduct new exploratory drilling as it has in
the Divide and Missouri River projects.
DRILLING ACTIVITIES
Information concerning the number of gross and net wells drilled by the Company
during fiscal 1997, 1996, and 1995 is as follows:
<TABLE>
<CAPTION>
United States Australia Total
Gross Net Gross Net Gross Net
<S> <C> <C> <C> <C> <C> <C>
September 30, 1997
Exploratory
Productive 2 0.25 - - 2 0.25
Dry - - - - - -
Development
Productive 4 0.69 3 1.52 7 2.21
Dry 3 0.11 - - 3 0.11
Total
Productive 6 0.94 3 1.52 9 2.46
Dry 3 0.11 - - 3 0.11
September 30, 1996
Exploratory
Productive 2 0.07 - - 2 0.07
Dry 2 0.95 - - 2 0.95
Development
Productive 5 0.36 - - 5 0.36
Dry - - - - - -
Total
Productive 7 0.43 - - 7 0.43
Dry 2 0.95 - - 2 0.95
September 30, 1995
Exploratory
Productive 2 0.21 2 0.60 4 0.81
Dry 6 1.37 - - 6 1.37
Development
Productive 10 0.91 12 3.60 22 4.51
Dry - - - - - -
Total
Productive 12 1.12 14 4.20 26 5.32
Dry 6 1.37 - - 6 1.37
</TABLE>
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MAJOR PRODUCING PROPERTIES
The following is a brief description of the Company's major producing areas:
UNITED STATES
WILLISTON BASIN. From fiscal 1991 to 1993, the Company expended
approximately $14 million for the acquisition of producing properties in the
Williston Basin of North Dakota and Montana where it now operates 31 wells.
Subsequent to these acquisitions, the Company has established additional
reserves through recompletions in different formations in existing wellbores
and continues to evaluate these properties for further behind-pipe and
in-fill development potential. With discounted future net revenues of
approximately $6,516,000, the Company's Williston Basin assets comprise
approximately 20% of the Company's total domestic reserve value at September
30, 1997, and account for 32% of the Company's daily oil production and 10%
of its daily gas production volumes. Exploitation projects in this area
during fiscal 1996 resulted in additional proved reserves of 186,000 barrels
of oil equivalent ("BOE") with a discounted future net revenue value of
$972,000 as of September 30, 1996. During fiscal 1997, the Company
participated in a three-well drilling program in this area, with a 12.5%
interest in each of the three wells. Two of the wells added proved reserves
of 30,000 BOE with a discounted future net revenue value of $245,000 as of
September 30, 1997, net to the company's interest. The third well is awaiting
a recompletion attempt in a different formation after an unsuccessful attempt
to complete in the primary target formation. The Company commenced drilling
operations on two exploratory wells (0.85 net) prior to September 30, 1997.
Both wells have been completed; one well is producing and one well is being
evaluated to determine whether it is commercially productive. The Company
believes further exploration potential exists on its existing properties, and
is currently reviewing other prospects in the Williston Basin projects.
POWDER RIVER BASIN. The Powder River Basin in northeastern Wyoming has been
an area of Company activity since October 1991, when it joined with three
other companies to acquire both producing properties and undeveloped acreage.
The Company's Powder River Basin reserves as of September 30, 1997, had
discounted future net revenues of $4,257,000, or 13% of the Company's total
domestic reserve value. Net production from the Powder River Basin accounts
for approximately 22% of the Company's daily oil production. The Company
owns non-operating interests in seven waterflood projects in this area.
EAST TEXAS. The West Buna Field in Jasper and Hardin Counties represents a
significant percentage of the Company's Texas reserves. The Company's
non-operating interest in this field was acquired in 1993. Discounted future
net revenues from the property were $9,073,000, approximately 28% of the
Company's domestic total, as of September 30, 1997. Of this total,
$3,943,000 was attributable to proved undeveloped reserves. During fiscal
1997, net oil and gas production from this field was approximately 5% and
14%, respectively, of the Company's total production volumes.
PERMIAN BASIN. The Company commenced oil and gas operations in Lea County,
New Mexico in 1969 when it first acquired interests in the North Bagley
Field. After purchasing additional interests throughout the field in 1984,
North Bagley became and today remains the Company's largest single
concentration of operated properties. As of September 30, 1997, the
Company's North Bagley properties had discounted future net revenues of
$3,424,000, representing approximately 11% of the Company's total domestic
reserve value. The Company's current net daily production from the North
Bagley Field is distributed among 38 wells operated by the Company, and
represents approximately 10% and 28%, respectively, of the Company's total
daily oil and gas production volumes. In addition to North Bagley, the
Company owns and operates properties in several other Lea County fields,
including the Mescalero and Shipp fields.
AUSTRALIA
BOWEN BASIN. The Company has a non-operating interest in the Comet Ridge
coalbed methane project in the Bowen Basin located in Queensland, Australia.
The Company and its co-venturers have drilled 19 wells, of which 18 are
producing or capable of producing and nine wells are connected to a pipeline
system. The Company is in the process of negotiating gas contracts and
anticipates selling gas in the near term. See the discussion of the Comet
Ridge coalbed methane project in "Exploration and Development Activities -
International."
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PRODUCTION
The Company's net oil and gas production for fiscal 1997, 1996 and 1995 was
as follows:
<TABLE>
<CAPTION>
Oil Gas
(Bbl) (Mcf)
----- -----
<S> <C> <C>
1997 481,000 1,565,000
1996 470,000 1,550,000
1995 565,000 2,061,000
</TABLE>
AVERAGE PRICES AND AVERAGE LIFTING COSTS
The following table presents certain average price and lifting cost
information for each of the years in the three-year period ended September
30, 1997:
<TABLE>
<CAPTION>
Average price Price range
------------- --------------------------------
Oil Gas Average lifting
Oil Gas --------------- -------------- cost per
(Bbl) (Mcf) High Low High Low Equivalent Bbl
------ ----- ------ ------ ----- ----- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 $19.36 $2.22 $22.63 $14.70 $3.73 $1.68 $7.21
1996 $17.76 $1.68 $20.45 $14.57 $1.91 $1.35 $7.30
1995 $15.43 $1.43 $17.70 $12.23 $1.64 $1.14 $6.14
</TABLE>
PRODUCING WELLS AND ACREAGE
The following table sets forth information with respect to the Company's
producing wells and acreage as of September 30, 1997:
<TABLE>
<CAPTION>
Producing wells Acreage
Oil Gas Producing Undeveloped
------------------------------- ------------------------------------
State/Country Gross Net Gross Net Gross Net Gross Net
- ------------- ----- --- ----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alabama 9 0.41 - - 2,320 124 1,758 490
Alaska(1) - - - - - - 3,783 173
Colorado 54 2.08 - - 3,031 206 63,481 62,769
Indiana - - - - - - 9,448 826
Louisiana - - 7 0.59 3,893 413 - -
Montana 47 5.82 - - 7,811 1,273 44,138 38,346
Nebraska 8 1.70 - - 1,719 365 640 123
New Mexico 72 42.00 213 8.46 15,209 4,689 4,879 907
North Dakota 85 16.54 - - 16,920 3,537 57,813 21,253
Oklahoma 8 2.40 19 1.14 7,783 1,767 215 79
Texas 39 4.32 39 7.38 15,180 1,939 1,326 383
Wyoming 50 5.05 - - 15,240 1,335 19,741 3,098
Australia(2) - - 18 9.14 5,000 2,538 162,000 82,215
--- ----- ----- ----- ------ ------ ------- -------
Total 372 80.32 296 26.71 94,106 18,186 369,222 210,662
--- ----- ----- ----- ------ ------ ------- -------
--- ----- ----- ----- ------ ------ ------- -------
</TABLE>
(1) The Company owns 129 net working interest acres (173 net acres including
additional overriding royalty interests) in the Point Thomson Unit located
on the Alaska North Slope. The Company's interest represents less than 1%
of the total unit, which is operated by a major oil and gas company.
Although engineering studies and production tests of wells drilled within
the unit boundaries have confirmed the existence of substantial oil and
gas reserves, the Company has excluded these reserves from its proved
reserves reflected in Note 9 to the Company's Consolidated Financial
Statements due to the lack of a current market and/or pipeline facilities.
Working interest owners continue to evaluate the economics of the property
and periodically file updated "Plans of Development" with the
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State of Alaska, but it is not known when, if ever, market conditions
will justify the economics of constructing pipeline facilities to the
property.
(2) As of September 30, 1997, the Company owned rights to a non-operating
interest in an Authority to Prospect ("ATP") covering approximately
1,088,000 acres in the Bowen Basin of Queensland, Australia, of which
167,000 acres are covered by petroleum leases. The 18 producing wells
are in the Fairview area in the southern portion of the ATP.
The Company's domestic undeveloped leases have various primary terms ranging
from one to ten years. The expiration of any leasehold interest or interests
would not have a material adverse financial effect on the Company.
Substantially all of the Company's domestic oil and gas properties either
have been or may be pledged as security for bank debt. While mortgages have
not been filed against many of the properties, additional mortgages will be
filed as the Company's bank requires. See Note 4 to the Company's
Consolidated Financial Statements.
SALES CONTRACTS
In the United States, the Company sells its domestic oil and gas production
to numerous purchasers, generally under short-term contracts. While certain
gas sales are dedicated to gas processing plants for longer terms, a
substantial portion of residue gas and plant liquids are typically sold by
the plants on a short-term basis. Since numerous purchasers compete to
purchase both oil and gas from the Company's properties, the Company does not
believe that the loss of any single existing purchaser would have a material
adverse effect on its financial condition or results of operations. The
Company is not obligated to provide a fixed and determinable quantity of oil
or gas in the future under existing contracts and agreements. In Australia,
the Company is in the process of negotiating gas contracts and anticipates
selling gas in the near term. See the discussion above in - "Exploration and
Development Activities - International."
PRICING
Of the Company's total fiscal 1997 oil and gas revenues, approximately 73%
was attributable to crude oil sales. Both oil and natural gas prices are
subject to significant fluctuations. Natural gas prices fluctuate based
primarily upon weather patterns and regional supply and demand, and crude oil
prices fluctuate based primarily on worldwide supply and demand. The
majority of the Company's gas sales are through "percentage of proceeds"
contracts with gas processing plant owners, whereby the Company receives
various percentages of both residue gas and plant liquids sales proceeds.
Residue gas sold by the respective gas processing plant owner under these
contracts may be sold at "spot" prices or longer term contract prices. The
Company has in recent years hedged significant portions of its crude oil
sales and a lesser amount of gas sales through both "swap" agreements and put
options with financial institutions and direct contracts in the New York
Mercantile Exchange ("NYMEX"). Under swap agreements, the Company usually
receives a floor price, but retains 50% of price increases above the floor.
Under put options, the Company has the right, but not the obligation, to
exercise the option and receive the strike price for the volume of oil or gas
subject to the option agreement. See the discussion of hedging activities in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources," and Note 1 to the Company's
Consolidated Financial Statements.
COMPETITION AND OTHER RISKS
The Company competes for available leasehold acreage with companies which are
substantially larger and may have greater financial resources.
Notwithstanding such competition, the Company believes that its current
leasehold position, in combination with leasing in areas currently being
pursued, will provide an adequate inventory of prospects for the exploratory
activity the Company expects to carry on for the next two to three years.
This report contains certain statements of future business plans and
objectives and statements in "Management's Discussion and Analysis of
Financial Condition and Results of Operations," which may be considered
forward looking. These forward looking statements are subject to risks and
uncertainties. Although the Company believes that its expectations are based
on reasonable assumptions, it can give no assurance that its goals will be
achieved. The operations of the Company, both domestically and
internationally, are subject to risks including, but not limited to, all of
the risks that are encountered in the drilling and completing of wells, along
with standard risks of oil and gas
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operations, uninsured hazards, volatile prices and uncertain markets and
governmental regulation. The Company's efforts to finance operations in
Australia will be subject to the uncertainties set forth in "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
For a discussion of these and other risks which relate to the forward looking
statements contained herein, please see "Risk Factors" in the Company's
Registration Statement on Form S-8, SEC File No. 333-40589, which discussion
is incorporated herein by reference, along with other cautionary statements
in this report.
OTHER BUSINESS PROPERTIES
In addition to these primary business activities, the Company has options,
which are currently being disputed, to acquire licensing rights to oil spill
cleanup technology; a royalty interest in an Australia bauxite deposit; and a
discovered but undeveloped oil and gas property in Alaska. None of these
assets currently generates revenues and management anticipates the Company
will not be devoting any significant efforts or expenditures on these
projects during fiscal 1998. During fiscal 1997, the Company sold its entire
interest in an Alabama natural gas liquids fractionating plant. See the
discussion of this investment in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 8 to the Company's
Consolidated Financial Statements.
PROVED OIL AND GAS RESERVES
Information concerning the Company's estimated proved oil and gas reserves
and discounted future net cash flows applicable thereto for fiscal 1997, 1996
and 1995 is included in Note 9 to the Company's Consolidated Financial
Statements. In fiscal 1997, information concerning portions of the Company's
estimated proved oil and gas reserves was also provided to the U.S.
Department of Energy.
SEGMENT INFORMATION AND MAJOR CUSTOMERS
The Company has one business segment: Oil and Gas Exploration, Production and
Development. The Company had sales in excess of 10% of total revenues to
three unaffiliated oil and gas customers during fiscal 1997 totaling 41%,
three unaffiliated oil and gas customers during fiscal 1996 totaling 42%, and
three unaffiliated oil and gas customers during fiscal 1995 totaling 40%.
The Company does not believe that the loss of any existing purchaser would
have a material adverse impact on its ability to sell its production to
another purchaser at similar prices.
UNITED STATES REGULATIONS
GENERAL. The production, transmission and sale of crude oil and natural gas
in the United States is affected by numerous state and federal regulations
with respect to allowable well spacing, rates of production, bonding,
environmental matters and reporting. Future regulations may change allowable
rates of production or the manner in which oil and gas operations may be
lawfully conducted. Although oil and gas may currently be sold at
unregulated prices, such sales prices have been regulated in the past by the
federal government and may be again in the future.
NATURAL GAS PRICING. Historically, the Natural Gas Policy Act of 1978
("NGPA") established maximum prices for certain categories of natural gas
sold in either interstate or intrastate commerce and was designed to effect
deregulation of the sales price for certain categories of natural gas.
Substantially all of the Company's natural gas production falls into
categories of gas which were deregulated under the NGPA, so that the NGPA's
ceiling prices were largely inapplicable. The Natural Gas Wellhead Decontrol
Act of 1989 provided for the elimination of all price regulation under the
NGPA effective January 1, 1993. During fiscal 1992, the Federal Energy
Regulatory Commission ("FERC") issued FERC Order No. 636 and subsequent
related Orders (the "Order"), which is intended to ensure that pipelines
provide transportation service that is equal in quality for all gas supplies,
whether the customer purchases the gas from the pipeline or from a different
supplier.
STATE REGULATION. Oil and gas operations are subject to a wide variety of
state regulations. Administrative agencies in such jurisdictions may
promulgate and enforce rules and regulations relating to virtually all
aspects of the oil and gas business.
ENVIRONMENTAL MATTERS. The Company's business activities are subject to
changing federal, state and local environmental laws and regulations. The
existence of such regulations has had no material effect on the Company's
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operations and the cost of such compliance has not been material to date.
Recently adopted regulations have, however, resulted in the Company's
election to expend additional funds in its continuing effort to comply in all
respects with applicable environmental legislation and regulations. During
fiscal 1994, the Company voluntarily converted its Lea County, New Mexico
saltwater disposal system from surface disposal to subsurface disposal. The
state-authorized discharge and safety monitoring system discharged produced
formation water into a naturally occurring surface playa lake. Although the
Company was not cited for any violations, it was aware that the Environmental
Protection Agency had initiated efforts to eliminate surface disposal of
produced saltwater in certain instances. The Company incurred approximately
$271,000 in costs to effect the conversion. During fiscal 1995 and 1996, the
Company incurred approximately $44,000 and $6,000, respectively, in further
costs for remediation of previously used facilities. In fiscal 1997, the
Company incurred $185,000 to remediate and close ten earthen disposal pits.
Although the Company expects to incur additional environmental clean-up
expenditures in the future, at this time it is not aware of any such
expenditures that would have a material adverse effect on its financial
condition or results of operations.
AUSTRALIA REGULATIONS
COMMONWEALTH OF AUSTRALIA REGULATIONS. The regulation of the petroleum
industry in Australia is similar to that of the United States, in that
regulatory controls are imposed at both the state and commonwealth levels.
Specific commonwealth regulations impose environmental, cultural heritage and
native title restrictions on accessing resources in Australia. These
regulations are in addition to any state level regulations. Native title
legislation was enacted in 1993 in order to provide a statutory framework for
deciding questions such as where native title exists, who holds native title
and the nature of native title which were left unanswered by a 1992
Australian High Court ("Court") decision. The Commonwealth and Queensland
State governments are currently considering amendments to this legislation
because of additional uncertainty in relation to the evolving native title
legal regime in Australia created by the decision in a 1996 Court case. In
light of this new decision, however, each authority to prospect, petroleum
lease and pipeline license must be examined individually in order to
determine validity and native title claim vulnerability.
STATE OF QUEENSLAND REGULATIONS. The regulation of exploration and recovery
of petroleum resources within a state is governed by state level legislation.
This legislation regulates access to the resource, construction of pipelines
and the royalties payable. There is also specific legislation governing
cultural heritage, native title and environmental issues. Environmental
matters are highly regulated at the state level, with most states having in
place comprehensive pollution and conservation regulations. In particular,
petroleum operations in Queensland must comply with the new Environmental
Protection Act and associated Environmental Protection Policy for mining and
any tenure condition requiring compliance with the Australian Petroleum
Production and Exploration Association Code of Practice. The cost to comply
with the foregoing regulations cannot be estimated at this time, although
management believes that costs will not significantly hinder or delay the
Company's plans in Australia.
AUSTRALIA CRUDE OIL AND GAS MARKETS. The Australia and Queensland onshore
crude oil and gas markets are deregulated, with prices being determined
exclusively by market forces. A national regulatory framework for the
natural gas market in Australia is expected to commence operation in 1998.
The National Gas Access Regime (the "Regime") is being developed by a group
of government and oil and gas industry representatives. Among the objectives
of the Regime are to provide a process for establishing third party access to
natural gas pipelines, to facilitate the development and operation of a
national natural gas market, to promote a competitive market for gas in which
customers are able to choose their supplier, and to provide a right of access
to transmission and distribution networks on fair and reasonable terms and
conditions.
OFFICE FACILITIES
The principal executive offices of the Company are located at 633 Seventeenth
Street, Suite 1550, Denver, Colorado 80202, where it leases approximately
11,000 square feet of office space from an unaffiliated party.
EMPLOYEES
At September 30, 1997, the Company employed a total of 23 persons, including
its officers. None of the Company's employees are represented by unions.
The Company considers its relationship with its employees to be excellent.
8
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ITEM 3. LEGAL PROCEEDINGS
Information concerning legal proceedings involving the Company is included in
Note 7 to the Company's Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of its security holders
during the fourth quarter of its fiscal year ended September 30, 1997.
9
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is listed and has been trading on the American
Stock Exchange since April 16, 1992. As of December 1, 1997, there were
approximately 2,200 holders of record of the Company's common stock. The
table below sets forth the high and low closing prices for the common stock
of the Company for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Fiscal
Quarter ended 1997 1996
------------- --------------- ---------------
High Low High Low
----- ----- ----- -----
<S> <C> <C> <C> <C>
December 31 $5.06 $3.63 $5.25 $3.75
March 31 $4.94 $4.38 $6.63 $4.38
June 30 $5.19 $3.63 $5.75 $4.00
September 30 $5.00 $4.00 $4.75 $3.63
</TABLE>
The Company has not paid any cash dividends on its common stock and does not
expect to pay any dividends in the foreseeable future. The Company's bank
credit facility provides that dividends may not be paid by the Company
without the prior approval of the bank. The Company intends to retain its
earnings to provide funds for operations and expansion of its business.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data (in thousands, except per share data) for each of the
years in the five-year period ended September 30, 1997, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues from continuing operations $ 12,951 $ 11,136 $ 11,837 $ 13,884 $ 9,499
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Income (loss) from:
Continuing operations $ 472 $ (790) $ (1,284) $ (1,638)(1) $ 1,308
Discontinued operations - - - (214) 675
Extraordinary items - - - - 881(3)
Cumulative effect of
accounting change - - - 3,000(2) -
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 472 $ (790) $ (1,284) $ 1,148 $ 2,864
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Primary income (loss) per
common share:
Continuing operations $ .04 $ (.07) $ (.11) $ (.15) $ .13
Discontinued operations - - - (.02) .07
Extraordinary items - - - - .09
Cumulative effect of
accounting change - - - .27 -
---------- ---------- ---------- ---------- ----------
Net income (loss) $ .04 $ (.07) $ (.11) $ .10 $ .29
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Weighted average shares
outstanding 13,050 11,807 11,190 11,311 9,982
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total assets $ 54,995 $ 52,098 $ 47,044 $ 48,253 $ 48,862
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total long-term debt $ 13,844 $ 13,994 $ 15,746 $ 15,746 $ 17,696
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Working capital $ 1,381 $ 4,011 $ 5,455 $ 4,965 $ 4,081
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Working capital provided
by operations $ 5,201 $ 3,285 $ 3,917 $ 5,097 $ 5,050
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Stockholders' equity $ 36,488 $ 36,016 $ 29,818 $ 31,031 $ 29,678
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
- ----------
(1) Includes $2,021 write-down of oil and gas properties.
(2) Change in method of accounting for income taxes.
(3) Represents tax benefit of net operating loss carryforwards.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
During the past three fiscal years, the Company's primary focus has been
directed toward exploratory and development drilling activities in both the
United States and in Queensland, Australia. In the United States during this
period, the Company has acquired undeveloped leasehold acreage, identified
exploratory prospects and participated in exploratory and development
drilling and exploitation projects that have added reserves of approximately
853,000 barrels of oil equivalent, mitigating natural production declines and
production volumes lost due to property sales. In Australia during the past
three fiscal years, the Company has increased its interest in the Comet Ridge
coalbed methane project from 30% to 50.75% and has participated in the
drilling of 17 wells. As of September 30, 1997, the Company recorded 117 Bcf
of total proved gas reserves net to its interest in the project. Subsequent
to September 30, 1997, the Company acquired an additional 5% interest in this
project, bringing its current ownership interest in the project to 55.75%.
At September 30, 1997, total proved oil and gas reserves were 2,916,000
barrels and 128 Bcf, respectively. Using prices in effect at such time and a
discount rate of 10% as prescribed by Securities and Exchange Commission
rules, total discounted future after tax net revenues were $54,627,000.
Proved oil and gas reserves in the United States decreased by 1,126,000
barrels and 1.7 Bcf, respectively, from September 30, 1996 reserves
calculated using prices then in effect. This decrease is attributable to
normal production with minimal replacement of the reserves, revisions of
previous estimates of reserve volumes and production rates and to a lower oil
price as of September 30, 1997, compared to September 30, 1996. The increase
in proved gas reserves, total proved reserves and total discounted future
after tax net revenues is due to the addition as of September 30, 1997, of
117 Bcf attributable to the Comet Ridge project in Queensland, Australia.
LIQUIDITY AND CAPITAL RESOURCES
For the three years ended September 30, 1997, 1996 and 1995, the Company's
primary sources of liquidity have been operating cash flows, sales of
non-core producing properties and other assets, and short-term borrowings.
During this period, the Company used these funds primarily for the
exploration and development of its oil and gas properties. The Company also
invested in an Alabama natural gas liquids ("NGL") fractionating plant, its
interest in which was sold on September 30, 1997, and made principal payments
on its bank debt. Cash flows from operating activities for fiscal 1997, 1996
and 1995 were $5,657,000, $3,955,000 and $5,158,000, respectively.
During fiscal 1997, the Company obtained a loan of $2,300,000 from an
affiliate of its largest shareholder. The proceeds were used to acquire an
additional 5% capital-bearing interest in the Comet Ridge project. The
Company also received proceeds of $1,800,000 from the sale of its interest in
the Alabama NGL fractionating plant, $638,000 from the sale of common stock
in United States Exploration Inc. ("UXP") and $39,000 from the sale of
miscellaneous oil and gas properties. These sales proceeds, along with cash
on hand and cash flows from operating activities, were used to retire
$150,000 of bank debt, invest $265,000 in the Alabama NGL fractionating plant
and to fund capital expenditures of $9,435,000, of which $5,736,000 was
expended on the Comet Ridge project, $849,000 was incurred in domestic
exploration, and $2,850,000 was expended on development drilling and other
capital items. The Comet Ridge project expenditures of $5,736,000 included
approximately $2,300,000 for the acquisition of an additional 5% interest in
the project, as well as the Company's share of costs to drill and complete
three wells, construct the gas gathering system and compression facilities,
and de-water and produce the Fairview area wells.
During fiscal 1996, the Company received $6,988,000 from the issuance of
common stock, of which approximately $6,091,000 was from the sale of common
stock to two institutional investors. See Note 5 to the Consolidated
Financial Statements. Proceeds from other issuances of stock of
approximately $897,000 were pursuant to the exercise of warrants and options.
The Company sold 75% of its working interest in approximately 30,000
leasehold acres in Divide County, North Dakota for approximately $1,231,000;
the Company received $975,000 in cash at closing and had $256,000 applied to
its share of capital expenditures in the project. Sales of non-core oil and
gas properties generated proceeds of $372,000. In connection with the
disposition of convertible preferred stock in UXP on September 30, 1996, the
Company received approximately $796,000. The $6,091,000 proceeds from the
sale of common stock were used to acquire from an unaffiliated interest
holder an additional 15.75% working interest in the Comet Ridge project. The
remaining cash proceeds, along with cash on hand and cash flows from
operating activities, were used to retire
12
<PAGE>
$1,752,000 of bank debt, invest $1,095,000 in the Alabama NGL fractionating
plant and fund other capital expenditures of $5,013,000, of which $774,000
was expended on the acquisition of undeveloped acreage in the Williston
Basin, $2,134,000 was incurred in exploration costs, including $1,507,000 in
Australia, and $2,105,000 was expended on development drilling, exploitation
projects and other capital items.
During fiscal 1995, the Company sold producing oil and gas properties in two
separate transactions generating net cash sales proceeds of approximately
$5,100,000. These funds in combination with cash flows from operations were
utilized primarily to fund capital expenditures of approximately $7,253,000.
Of this total, $4,312,000 was expended on the Comet Ridge project, $807,000
on the Missouri River project in the Williston Basin, with the balance
attributable primarily to development drilling. The Company invested
$1,138,000 in the Alabama NGL fractionating plant during fiscal 1995.
At September 30, 1997, the Company had cash and short-term investments
totaling $3,529,000 and total long-term debt of $13,844,000. Subsequent to
September 30, 1997, the Company acquired an additional 5% capital-bearing
interest in the Comet Ridge project for $2,000,000 in cash and a note,
including principal and interest, for $885,000 due January 31, 1998. The
Company will be responsible for certain capital costs incurred by the seller
prior to closing, which are expected to be approximately $200,000. Also
subsequent to fiscal 1997, the Company received $1,450,000 from the sale of
non-core producing properties. The Company intends to use its current cash
position and monthly operating cash flows to pay the $885,000 note and
related capital cost reimbursement of approximately $200,000, fund ongoing
domestic and international oil and gas exploration programs, and possibly to
reduce outstanding debt.
In November 1996, the Company retained an international investment banking
firm to serve as its agent in seeking equity and debt financing for the Comet
Ridge project. This firm identified both equity and debt financing sources,
and the Company has had ongoing discussions with such sources. Proceeds from
any such financing would be used to develop the project and potentially repay
the $2,300,000 related party note. This note was due January 24, 1997, but
the Company has received an extension of the due date to October 31, 1998.
There are currently nine wells in the core Fairview area that are connected
to the PG&E Gas Transmission - Australia pipeline system. The Company has
entered into gas contract negotiations with companies interested in
purchasing gas from the property and anticipates selling gas in the near
term. The Company's plans with respect to this project include
participating with its co-venturers in drilling and connecting additional
development wells and conducting further exploration activities, the timing
and amount of which will depend upon available financing. The Company's pro
rata share of minimum expenditure requirements related to the Authority to
Prospect granted by the Queensland government, based on current exchange
rates, is approximately $210,000, $210,000, and $379,000 in years ending
October 31, 1998, 1999 and 2000, respectively. The Company's interest in the
project after the acquisition of a 5% interest subsequent to year end is
55.75% of capital costs and 52.5% of operating expenses, and its net revenue
interest is 46.22% prior to project payout. Subsequent to project payout,
the Company's interest is 45.35% of capital and operating expenses, and its
net revenue interest is 39.99%.
The Company's domestic exploration programs are focused on the Williston
Basin of Montana and North Dakota. Subsequent to September 30, 1997, the
Company, together with industry partners, completed two wells, one of which
is producing and one of which is currently being evaluated. In November 1997,
the Company and industry partners commenced drilling operations on another
prospect. The Company incurred approximately $538,000 in a three-well
drilling program with industry partners during fiscal 1997. Two of the wells
are producing oil and the Company expects to recomplete the third well in the
first quarter of fiscal 1998. A fourth well is anticipated to be spudded in
the second quarter of fiscal 1998, subject to the availability of sufficient
capital. The Company continues to evaluate and acquire leasehold interests
in new project areas of the Williston Basin and will seek to bring in outside
partners to fund 3-D seismic surveys and participate in exploratory drilling
in each of its project areas.
The Company's bank credit agreement (the "agreement") provides a maximum loan
facility of $40,000,000 subject to borrowing base limitations described
below. The agreement contains provisions for both fixed rate and variable
rate borrowings. At the Company's option, interest on the revolver, which is
the variable rate portion, is payable at either the London Interbank Offered
Rate ("LIBOR") plus 1.5%, or the bank's Base Rate. The LIBOR-based option may
be selected for periods not exceeding 90 days. The outstanding loan balance
at September 30, 1997, was $13,844,000 under LIBOR/Base Rate loans with a
weighted average interest rate of 7.19%. The outstanding loan balance at
September 30, 1996, was $13,994,000; $10,000,000 under a fixed rate loan and
$3,994,000 under LIBOR/Base Rate loans with a weighted average interest rate
of 6.96%. The fixed rate loan of $10,000,000, with interest at 5.92% payable
monthly, matured on September 30, 1996. The fixed rate loan converted to a
LIBOR/Base Rate loan under the terms of the revolver with interest payable at
LIBOR plus 1.5%. Upon expiration of the revolver (the "Conversion Date"),
the
13
<PAGE>
principal balance will convert to a four-year term loan. During the first
quarter of fiscal 1998, the Conversion Date was extended by the bank from
October 5, 1998, to October 5, 1999. It may be extended again, although the
Company has no such guarantee.
Certain of the Company's domestic oil and gas properties have been pledged as
security for the bank loan, and the bank has the option to place additional
liens on other unencumbered properties. The maximum borrowing base is
determined solely by the bank and is based upon its assessment of the value
of the Company's properties. This bank valuation is based upon the bank's
assumptions about reserve quantities, oil and gas prices, operating expenses
and other assumptions, all of which may change from time to time and which
may differ from the Company's assumptions. At September 30, 1997, the
borrowing base was $14,500,000. Should the outstanding loan balance ever
exceed the borrowing base, the Company is required to either make a cash
payment to the bank equal to or greater than such excess or provide
additional collateral to the bank to increase the borrowing base by the
amount of the deficit. In the event oil prices or natural gas prices were to
decline by a significant amount, the Company's borrowing base could be
reduced to an amount less than the loan balance, resulting in the Company
having to fulfill the foregoing requirements. The Company is obligated to pay
a commitment fee of 3/8% per annum on the difference between the average
outstanding loan balance and the borrowing base. The agreement provides that
the Company may not pay dividends or incur additional debt without the prior
approval of the bank.
The Company currently has minimal remaining unused borrowing capacity. The
Company anticipates that in order to complete its capital projects and
sustain growth, internal cash flow will have to be supplemented with project
financing and/or additional corporate debt or equity offerings. During
fiscal 1998, the Company intends to focus its efforts primarily on its major
domestic and international projects previously discussed. By utilizing a
portion of projected fiscal 1998 cash flows, the Company hopes to establish
new proved oil and gas reserves and additional cash flow. In addition to
these sources of capital, the Company expects to raise capital to fund the
activities on the Comet Ridge project and repay the $2,300,000 loan from an
affiliate of its largest shareholder. However, there can be no assurance
that additional funding commitments will be secured or, if secured, that
capital will be obtained on terms beneficial to the Company or on a basis
that meets the Company's objectives. The Company has received an extension
of the due date to October 31, 1998, on the $2,300,000 related party note
payable. If funding is not obtained, the Company may consider sales of
existing assets or the issuance of common stock that would dilute the
ownership of existing stockholders.
Adverse events such as product price decreases will negatively impact the
Company's cash flows and the value of its reserve base. The Company
typically uses hedging techniques to reduce the effects of such price
decreases. The Company periodically hedges a portion of its crude oil and
gas production through several methods. The Company has in recent years
hedged significant portions of its crude oil and to a lesser extent its gas
sales through both "swap" agreements and put options traded on the New York
Mercantile Exchange ("NYMEX"). Under swap agreements, the Company usually
receives a floor price, but retains 50% of price increases above the floor.
Under put options, the Company has the right, but not the obligation, to
exercise the option and receive the strike price for the volume of oil or gas
subject to the option. During fiscal 1997, the Company hedged an average of
20,000 barrels per month (approximately 50%) of its oil production. The
difference between the Company's actual price received at the wellhead and
the NYMEX price varies according to location and quality of oil sold. During
fiscal 1997, the wellhead price averaged $1.99 per barrel below the NYMEX
price. In April 1997, the Company closed out a hedge position covering
70,000 MMBtu of its natural gas production through a put option with a strike
price of $2.10 per MMBtu. Net payments pursuant to the Company's hedging
activities for fiscal 1997, 1996 and 1995 were $205,000, $387,000 and
$183,000, respectively.
For fiscal 1998, the Company has entered into swap agreements and put options
which in combination provide a hedge on approximately 49% of its projected
oil production through April 1998. The swap agreements cover an average of
approximately 14,000 barrels of oil per month from October 1997 through March
1998 and provide for the Company to receive an average NYMEX floor price of
$20.19 per barrel plus 50% of price increases above $20.19. The put options
cover 5,000 barrels of oil per month from November 1997 through April 1998 at
a NYMEX option strike price of $20.00 per barrel. The difference between the
Company's net price received at the wellhead and the NYMEX price will
continue to vary based on location and quality of oil sold. Payments made by
the Company subsequent to September 30, 1997, for the put options totaled
approximately $10,000, with no additional payments required. As of December
15, 1997, none of the Company's gas production was hedged for periods
subsequent to September 30, 1997.
14
<PAGE>
Notwithstanding the Company's hedging positions, decreases in oil and gas
prices subsequent to September 30, 1997, could cause a significant reduction
in cash flows available for exploratory and development drilling and bank
debt service and could negatively impact the Company's efforts to secure new
financing sources.
The Company does not expect to pay significant federal income tax in the near
term due to its net operating loss ("NOL") carryforwards. The utilization of
these carryforwards reduces the Company's effective federal tax rate from
approximately 35% to approximately 2% in years when the Company generates
taxable income. The carryforwards total approximately $46.9 million as of
September 30, 1997, and expire over the period from fiscal 1998 through
fiscal 2012. These carryforwards would be subjected to a significant annual
limitation should there be a change of over 50% in the stock ownership of the
Company during any three-year period. At September 30, 1997, the Company had
gross deferred tax assets aggregating $21.4 million relating to net operating
loss carryforwards, statutory depletion carryforwards which do not expire,
future tax deductions and tax credit carryforwards. Management believes that
sufficient uncertainty exists regarding the realizability of the gross
deferred tax asset that it recorded a valuation allowance of $18.4 million.
The ultimate realization of the net deferred tax asset is primarily dependent
upon the Company generating approximately $9 million of future taxable
income. Although realization is not assured, management believes it is more
likely than not that the net deferred tax asset will be realized. The amount
of the deferred tax asset considered realizable, however, could be reduced in
the near term if estimates of future taxable income during the carryforward
period are reduced or if the statutory depletion carryforwards are not
expected to be utilized.
The year 2000 compliance issue, which is common to most companies, concerns
the inability of computerized information systems to properly recognize and
process date sensitive information as the year 2000 approaches. The
financial impact to the Company to ensure year 2000 compliance is not
anticipated to be material to its financial position, results of operations
or cash flow.
The Company does not believe that inflation has had a material adverse effect
on its operations during the last three years.
RESULTS OF OPERATIONS
COMPARISON OF THE FISCAL YEARS ENDED SEPTEMBER 30, 1997 AND 1996
The Company reported net income of $472,000 in fiscal 1997 versus a net loss
of $790,000 in fiscal 1996. The gross profit from oil and gas sales
increased $1,790,000, or 32%, to $7,436,000 from $5,646,000 due to both
higher production volumes and higher realized oil and gas prices. Operating
income increased $1,672,000 to $1,873,000 from $201,000. If the $538,000
write-down of the investment in the NGL fractionator were excluded, the
increase in operating income would have been $2,210,000. Following are
detailed comparisons of the components for the respective periods.
Operating revenues increased $1,815,000, or 16%, to $12,951,000 in fiscal
1997 from $11,136,000 in fiscal 1996. Oil volumes increased 2% to 481,000
barrels in fiscal 1997 from 470,000 barrels in fiscal 1996, resulting in a
$195,000 revenue increase. Gas volumes increased 1% to 1,565,000 Mcf in
fiscal 1997 from 1,550,000 Mcf in fiscal 1996, resulting in a $25,000 revenue
increase. These volume increases are a result of new production resulting
from exploitation and development drilling projects completed in the fourth
quarter of fiscal 1996 and exploration projects in fiscal 1997 that more than
offset natural production declines during the year. The average oil price
increased 9% to $19.36 in fiscal 1997 from $17.76 in fiscal 1996, resulting
in a revenue increase of $770,000. The average gas price increased 32% to
$2.22 in fiscal 1997 from $1.68 in fiscal 1996, resulting in an $845,000
revenue increase. Changes in other revenues accounted for a $20,000 decrease
in total revenues.
Operating expenses remained relatively flat, decreasing $42,000, or 1%, to
$5,505,000 in fiscal 1997 from $5,547,000 in fiscal 1996. The Company's
average lifting cost per equivalent barrel produced also decreased 1% to
$7.21 in fiscal 1997 from $7.30 in fiscal 1996.
General and administrative expenses decreased $158,000, or 10%, to $1,503,000
in fiscal 1997 from $1,661,000 in fiscal 1996, primarily due to a decrease in
payroll costs. Salaries expense in fiscal 1996 included a $324,000 charge
associated with the exercise of warrants by a former officer of the Company.
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<PAGE>
Depreciation, depletion and amortization ("DD&A") expense decreased $195,000,
or 5%, to $3,532,000 in fiscal 1997 from $3,727,000 in fiscal 1996. The
decrease is attributable to a lower DD&A rate per equivalent barrel.
Operating income for fiscal 1997 includes a loss from impairment of the
Company's investment in the NGL fractionating plant. The Company recorded a
non-cash charge to operating income of $538,000 when it wrote down its
investment to the selling price of $1,800,000. No impairment losses or other
write-downs were reported in fiscal 1996.
Interest income decreased $117,000, or 54%, to $99,000 in fiscal 1997 from
$216,000 in fiscal 1996. This decrease was due to a decrease in the average
balance of cash and cash equivalents during fiscal 1997 as compared to fiscal
1996.
Dividend income decreased to $0 during fiscal 1997, from $89,000 in the
fiscal 1996. Dividend income was accrued during fiscal 1996 on 354,000
shares of convertible preferred stock of UXP and received in the form of
common stock during fiscal 1997. The convertible preferred stock was
exchanged for common stock of UXP on September 30, 1996. All of the common
stock of UXP was sold during fiscal 1997.
Interest expense decreased $91,000, or 10%, to $840,000 in fiscal 1997 from
$931,000 in fiscal 1996. When capitalized interest is included, interest
expense increased by $122,000. The increase is primarily attributable to an
increase in debt and to higher interest rates.
Other income (expense) for the year ended September 30, 1997, includes a loss
of $258,000 from the disposition of common stock of UXP. Included in other
income (expense) for fiscal 1996 is a loss of $273,000 on the disposition of
preferred stock of UXP. See Note 8 to the Company's Consolidated Financial
Statements.
Research and development expense for oil spill cleanup research decreased to
$0 in fiscal 1997, from $23,000 in fiscal 1996. The Company met its
contractual funding commitment in the fourth quarter of fiscal 1994, but made
voluntary payments for third party consulting services during fiscal 1995 and
1996.
Income tax expense increased $7,000 to an expense of $1,000 in fiscal 1997
from a benefit of $6,000 in fiscal 1996. Both the benefit in fiscal 1996 and
the expense in fiscal 1997 are due to adjustments for prior period taxes.
The equity interest in the net loss of the NGL fractionator increased
$326,000 to a loss of $401,000 in fiscal 1997 from a loss of $75,000 in
fiscal 1996. The increase in the loss is attributable to a lower profit
margin on NGL products, production interruption caused by two lightning
strikes on the plant and an increase in depreciation expense and other
expenses. The Company sold its entire interest in the NGL fractionator on
September 30, 1997. See Note 8 to the Company's Consolidated Financial
Statements.
COMPARISON OF THE FISCAL YEARS ENDED SEPTEMBER 30, 1996 AND 1995
The Company reported a net loss of $790,000 in fiscal 1996 versus a net loss
of $1,284,000 in fiscal 1995. Following are detailed comparisons of the
components for the respective periods.
Operating revenues decreased $701,000, or 6%, to $11,136,000 in fiscal 1996
from $11,837,000 in fiscal 1995. Oil volumes decreased 17% to 470,000
barrels in fiscal 1996 from 565,000 barrels in fiscal 1995, resulting in a
$1,466,000 revenue decrease. Gas volumes decreased 25% to 1,550,000 Mcf in
fiscal 1996 from 2,061,000 Mcf in fiscal 1995, resulting in a $731,000
revenue decrease. These volume decreases are attributable to both the sale of
producing properties and to natural declines in oil and gas production rates.
The average oil price increased 15% to $17.76 in fiscal 1996 from $15.43 in
fiscal 1995, resulting in a revenue increase of $1,095,000. The average gas
price increased 17% to $1.68 in fiscal 1996 from $1.43 in fiscal 1995,
resulting in a $388,000 revenue increase. Changes in other revenues
accounted for an additional $13,000 increase in total revenues.
Operating expenses decreased $289,000, or 5%, to $5,547,000 in fiscal 1996
from $5,836,000 in fiscal 1995. The decrease was primarily attributable to
the sale of producing properties. The Company's average lifting cost per
equivalent barrel produced, however, increased 19% to $7.30 in fiscal 1996
from $6.14 in fiscal 1995. This increase was attributable primarily to
declining production rates and maintenance work performed on mature
properties. In addition, certain gas properties with low lifting costs were
sold in fiscal 1995, resulting in higher average lifting costs on the
remaining properties in fiscal 1996.
16
<PAGE>
General and administrative expenses increased $364,000, or 28%, to $1,661,000
in fiscal 1996 from $1,297,000 in fiscal 1995, primarily due to a $324,000
charge associated with the exercise of warrants by a former officer of the
Company.
DD&A expense decreased $1,470,000, or 28%, to $3,727,000 in fiscal 1996 from
$5,197,000 in fiscal 1995, primarily due to the sale of producing properties
and to lower production volumes.
Interest income increased $56,000, or 35%, to $216,000 in fiscal 1996 from
$160,000 in fiscal 1995. This increase was due to an increase in the average
balance of cash and cash equivalents during fiscal 1996 as compared to fiscal
1995.
Interest expense decreased $45,000, or 5%, to $931,000 in fiscal 1996 from
$976,000 in fiscal 1995. When capitalized interest is included, interest
expense decreased by $41,000. The decrease is primarily attributable to
reductions in long-term debt. See Note 4 to the Company's Consolidated
Financial Statements.
Other income (expense) for fiscal 1996 included a non-cash charge of $273,000
on the disposition of preferred stock of UXP. See Note 8 to the Company's
Consolidated Financial Statements.
Research and development expenses incurred by the Company during fiscal 1996
pursuant to its agreement with Texas Tech University decreased $17,000 to
$23,000 from $40,000 in fiscal 1995 because the Company fulfilled its
contractual funding commitment during the fourth quarter of fiscal 1994.
Expenditures incurred since such fulfillment have been voluntary.
Income tax expense decreased $30,000, or 125%, to a benefit of $6,000 in
fiscal 1996 from an expense of $24,000 in fiscal 1995. This decrease is due
to gains from property sales in fiscal 1995, which were taxed at an effective
alternative minimum tax rate of 2%, and losses from property sales in fiscal
1996.
Net income for fiscal 1996 includes a loss of $75,000 representing the
Company's equity interest in the net loss of the Alabama NGL fractionating
plant. No such income or loss was included in fiscal 1995 net income.
Information herein contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, which can be identified
by words such as "may," "will," "expect," "anticipate," "estimate" or
"continue," or comparable words. In addition, all statements other than
statements of historical facts that address activities that the Company
expects or anticipates will or may occur in the future are forward-looking
statements. Readers are encouraged to read the SEC reports of the Company,
particularly its Form S-8, File 333-40589, for meaningful cautionary language
disclosing why actual results may vary materially from those anticipated by
management.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128") and Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure" ("SFAS 129"). These
statements are effective for financial statements issued for periods ending
after December 15, 1997, and will be adopted by the Company effective October
1, 1997. SFAS 128 simplifies the computation of earnings per share by
replacing primary and fully diluted presentations with new "basic" and
"diluted" disclosures. SFAS 129 requires entities that issue securities
other than ordinary common stock to make specified disclosures. Since the
Company's issued stock consists solely of common stock, the adoption of SFAS
128 and SFAS 129 should have little, if any, impact on the Company's
financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"), which establishes
standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. SFAS 130
is effective for fiscal periods beginning after December 15, 1997, at which
time the provisions will be adopted by the Company. The Company does not
believe that adoption of this statement will have a material impact on its
financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for disclosures regarding
operating segments in both interim and annual financial statements issued to
shareholders and requires related disclosures about products and services,
geographic areas and major customers. SFAS 131 is effective for periods
beginning after
17
<PAGE>
December 15, 1997, at which time the provisions will be adopted
by the Company. The Company does not expect SFAS 131 to have a material effect
on its financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements and supplementary financial data
follow page 22 and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
The Company hereby undertakes on or before 120 days after September 30, 1997, to
file with the Commission a Definitive Proxy Statement pursuant to Regulation 14A
with respect to the Company's Annual Meeting of Shareholders, which Proxy
Statement will contain the information required by Part III. Such information
is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of the report:
For a list of financial statements and financial statement schedules, see
"Index to Consolidated Financial Statements" which is part of the Financial
Statements and Supplementary Data which follow page 22 and are incorporated
herein by reference.
(b) During the last quarter of the Company's fiscal year ended September 30,
1997, the Company filed no reports on Form 8-K.
(c) Exhibits:
For a list of exhibits, see "Exhibits" which follows page 19 and is
incorporated herein by reference.
18
<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.
TIPPERARY CORPORATION
Date December 17, 1997 By /s/ David L. Bradshaw
-------------------- ----------------------------------
David L. Bradshaw, President,
Chief Executive Officer and
Chairman of the Board of Directors
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.
/s/ David L. Bradshaw President, Chief Executive December 17, 1997
- --------------------- Officer and Chairman of the
David L. Bradshaw Board of Directors
/s/ Paul C. Slevin Chief Financial Officer December 17, 1997
- ---------------------
Paul C. Slevin
/s/ Wayne W. Kahmeyer Controller and Principal December 17, 1997
- --------------------- Accounting Officer
Wayne W. Kahmeyer
/s/ Kenneth L. Ancell Director December 17, 1997
- ---------------------
Kenneth L. Ancell
/s/ Eugene I. Davis Director December 17, 1997
- ---------------------
Eugene I. Davis
/s/ Douglas Kramer Director December 17, 1997
- ---------------------
Douglas Kramer
/s/ Marshall D. Lees Director December 17, 1997
- ---------------------
Marshall D. Lees
19
<PAGE>
EXHIBITS
Number Description
- ------ -----------
3.9 Restated Articles of Incorporation of Tipperary Corporation
adopted May 6, 1993, filed as Exhibit 3.9 to Amendment No. 1 to
Registration Statement on Form S-1 filed with the Commission on
June 29, 1993, and incorporated herein by reference.
3.10 Restated Corporate Bylaws of Tipperary Corporation adopted June
28, 1993, filed as Exhibit 3.10 to Amendment No. 1 to Registration
Statement on Form S-1 filed with the Commission on June 29, 1993,
and incorporated herein by reference.
4.37 Second Amendment to Credit Agreement dated September 27, 1991, by
and between Tipperary Petroleum Company and Central Bank, National
Association, filed as Exhibit 4.37 to Form 10-K dated September
30, 1991, and incorporated herein by reference.
4.39 Revolving Credit and Term Loan Agreement dated March 30, 1992, by
and between Central Bank, N.A. and Tipperary Petroleum Company,
Tipperary Corporation and Tipperary Oil & Gas Corporation, filed
as Exhibit 4.39 to Form 10-Q dated March 31, 1992, and
incorporated herein by reference.
4.40 Third Amended and Restated Mortgage, Deed of Trust, Assignment of
Proceeds, Security Agreement and Financing Statement from
Tipperary Petroleum Company and Tipperary Oil and Gas Corporation
to Central Bank, N.A. dated March 30, 1992, filed as Exhibit 4.40
to Form 10-Q dated March 31, 1992, and incorporated herein by
reference.
4.41 Revolving Note dated March 30, 1992, in the amount of $40,000,000
between Tipperary Petroleum Company, Tipperary Corporation and
Tipperary Oil and Gas Corporation (makers) and Central Bank, N.A.,
filed as Exhibit 4.41 to Form 10-Q dated March 31, 1992, and
incorporated herein by reference.
4.42 Term Note dated March 30, 1992, in the amount of $40,000,000
between Tipperary Petroleum Company, Tipperary Corporation and
Tipperary Oil and Gas Corporation (makers) and Central Bank, N.A.,
filed as Exhibit 4.42 to Form 10-Q dated March 31, 1992, and
incorporated herein by reference.
4.43 Amendment of Revolving Credit and Term Loan Agreement dated
September 30, 1993, by and among Tipperary Corporation, Tipperary
Oil & Gas Corporation and Colorado National Bank, filed as Exhibit
4.43 to Form 10-K dated September 30, 1993, and incorporated
herein by reference.
4.44 Second Amendment of Revolving Credit and Term Loan Agreement dated
March 31, 1994, by and among Colorado National Bank f/k/a/ Central
Bank, N.A., Tipperary Corporation and Tipperary Oil & Gas
Corporation, filed as Exhibit 4.44 to Form 10-Q dated March 31,
1994, and incorporated herein by reference.
4.45 Negative Pledge Agreement dated March 31, 1994, by and among
Colorado National Bank, Tipperary Corporation and Tipperary Oil &
Gas Corporation, filed as Exhibit 4.45 to Form 10-Q dated March
31, 1994, and incorporated herein by reference.
4.46 Third Amendment of Revolving Credit and Term Loan Agreement dated
March 31, 1995, by and among Colorado National Bank f/k/a Central
Bank, N.A., Tipperary Corporation and Tipperary Oil & Gas
Corporation filed as Exhibit 4.46 to Form 10-Q dated March 31,
1995, and incorporated herein by reference.
4.47 Fourth Amendment of Revolving Credit and Term Loan Agreement dated
as of March 31, 1996, by and among Tipperary Corporation,
Tipperary Oil & Gas Corporation, and Colorado National Bank f/k/a
Central Bank, N.A., filed as Exhibit 4.47 to Form 10-Q dated March
31, 1996, and incorporated herein by reference.
4.48 Promissory Note dated December 20, 1996, in the amount of
$2,300,000 between Registrant and Slough Parks Incorporated, filed
as Exhibit 4.48 to Form 10-Q dated December 31, 1996, and
incorporated herein by reference.
20
<PAGE>
EXHIBITS
Number Description
- ------ -----------
4.49 Subordination Agreement dated December 20, 1996, by and between
Slough Parks Incorporated and Colorado National Bank, filed as
Exhibit 4.49 to Form 10-Q dated December 31, 1996, and
incorporated herein by reference.
4.50 Fifth Amendment of Revolving Credit and Term Loan Agreement dated
March 3, 1997, by and among Tipperary Corporation, Tipperary Oil &
Gas Corporation, and Colorado National Bank, a national banking
association, filed as Exhibit 4.50 to Form 10-Q dated March 31,
1997, and incorporated herein by reference.
4.51 Addendum to Mortgage - Collateral Real Estate Mortgage dated as of
May 27, 1997, executed by Colorado National Bank, Tipperary
Corporation and Tipperary Oil & Gas Corporation filed as Exhibit
4.51 to Form 10-Q dated June 30, 1997, and incorporated herein by
reference.
10.13 Warrant to purchase the Registrant's common stock dated October
29, 1990, issued to James A. McAuley, filed as Exhibit 10.13 to
Form 10-K dated September 30, 1990, and incorporated herein by
reference.
10.36 Warrant to Purchase the Registrant's common stock dated April 26,
1994, issued to Eugene I. Davis, filed as Exhibit 10.36 to Form
10-Q dated March 31, 1994, and incorporated herein by reference.
10.37 United States Exploration, Inc. 1994 Series A Convertible
Preferred Stock and 1994 Series B Convertible Preferred Stock
Purchase Agreement by United States Exploration, Inc. and
Tipperary Corporation, dated July 18, 1994, and Exhibits filed as
Exhibit 10.37 to Form 10-Q dated June 30, 1994, and incorporated
herein by reference.
10.39 Amended Warrant to Purchase the Registrant's common stock dated
February 1, 1995, issued to James A. McAuley filed as Exhibit
10.39 to Form 10-Q dated March 31, 1995, and incorporated herein
by reference.
10.40 Warrant to Purchase the Registrant's common stock dated April 1,
1996, issued to David L. Bradshaw, filed as Exhibit 10.40 to Form
10-K dated September 30, 1996, and incorporated herein by
reference.
10.41 Warrant to Purchase the Registrant's common stock dated July 11,
1996, issued to Kenneth L. Ancell, filed as Exhibit 10.41 to Form
10-K dated September 30, 1996, and incorporated herein by
reference.
10.42 Agreement for Conversion of Preferred Stock, Sale of Common Stock
and Settlement of Preferred Stock Dividends, by and among the
Registrant, United States Exploration, Inc., Dale Jensen, Jerome
N. Fenna and Betty A. Fenna dated September 30, 1996, filed as
Exhibit 10.42 to Form 10-K dated September 30, 1996, and
incorporated herein by reference.
10.45 Divide Exploration Agreement entered into August 22, 1996, between
Tipperary Oil & Gas Corporation and Lyco Energy Corporation, filed
as Exhibit 10.45 to Form 10-K dated September 30, 1996, and
incorporated herein by reference.
10.46 Purchase and Sale Agreement between Cavell Energy (U.S.)
Corporation and Tipperary Oil & Gas Corporation dated September
19, 1996, filed as Exhibit 10.46 to Form 10-K dated September 30,
1996, and incorporated herein by reference.
10.47 Agreement concerning the addition of Cavell Energy (U.S.)
Corporation as a party to the Exploration Agreement and Operating
Agreement and certain amendments to such agreements by and among
Tipperary Oil & Gas Corporation, Cavell Energy (U.S.) Corporation
and Lyco Energy Corporation, dated September 19, 1996, filed as
Exhibit 10.47 to Form 10-K dated September 30, 1996, and
incorporated herein by reference.
21
<PAGE>
EXHIBITS
Number Description
- ------ -----------
10.48 Purchase and Sale Agreement dated June 28, 1996, between Tipperary
Oil & Gas Corporation and Clovelly Oil Co., Inc., filed as Exhibit
10.48 to Form 10-K dated September 30, 1996, and incorporated
herein by reference.
10.49 Purchase and Sale Agreement dated January 29, 1997, between
NationsBank of Texas, N.A., as Trustee for Trusts #1190 and #1191
("Seller") and Tipperary Oil & Gas Corporation ("Buyer"), filed as
Exhibit 10.49 to Form 10-Q dated December 31, 1996, and
incorporated herein by reference.
10.50 Purchase and Sale Agreement dated January 29, 1997, between
NationsBank of Texas, N.A., as Trustee for Trusts #1362, #1363 and
#1364 ("Seller") and Tipperary Oil & Gas Corporation ("Buyer"),
filed as Exhibit 10.50 to Form 10-Q dated December 31, 1996, and
incorporated herein by reference.
10.51 Tipperary Corporation 1997 Long-Term Incentive Plan filed as
Exhibit A to the Registrant's Proxy Statement for its Annual
Meeting of Shareholders held on January 28, 1997, and incorporated
herein by as Exhibit 10.51 to Form 10-Q dated December 31, 1996,
and incorporated herein by reference.
10.52 Warrant to Purchase the Registrant's common stock dated August 26,
1997, issued to David L. Bradshaw, filed as Exhibit 10.52 to Form
10-Q dated December 31, 1996, filed herewith.
10.53 Warrant to Purchase the Registrant's common stock dated August 26,
1997, issued to Kenneth L. Ancell, filed herewith.
10.54 Warrant to Purchase the Registrant's common stock dated August 26,
1997, issued to Eugene I. Davis, filed herewith.
10.55 Warrant to Purchase the Registrant's common stock dated August 26,
1997, issued to Marshall D. Lees, filed herewith.
10.56 Stock Purchase Agreement dated September 30, 1997 by and among
Tipperary Corporation, Milmac Operating Company and James A.
McAuley, filed herewith.
10.57 Purchase and Sale Agreement dated October 31, 1997, effective as
of the 1st day of January, 1997, by and between Amerind Oil
Company, Ltd. as Seller and Tipperary Oil & Gas Corporation, as
Buyer, filed herewith.
11.1 Calculation of per share earnings, filed herewith.
21.1 List of subsidiaries, filed herewith.
23.1 Consent of Price Waterhouse LLP, filed herewith.
27 Financial Data Schedule
22
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements
Report of Independent Accountants F-2
Consolidated Balance Sheet
September 30, 1997 and 1996 F-3
Consolidated Statement of Operations
Years ended September 30, 1997, 1996 and 1995 F-4
Consolidated Statement of Stockholders' Equity
Years ended September 30, 1997, 1996 and 1995 F-5
Consolidated Statement of Cash Flows
Years ended September 30, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Tipperary Corporation
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Tipperary Corporation and its subsidiaries at September 30, 1997
and 1996, and the results of their operations and their cash flows for each
of the three years in the period ended September 30, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Denver, Colorado
December 15, 1997
F-2
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
September 30, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,529 $ 3,575
Receivables 1,966 2,154
Inventory 197 190
Current portion of deferred income taxes, net 229 57
Other current assets 123 123
---------- ----------
Total current assets 6,044 6,099
---------- ----------
Property, plant and equipment, at cost:
Oil and gas properties, full cost method 131,578 122,360
Other property and equipment 2,476 2,336
---------- ----------
134,054 124,696
Less accumulated depreciation, depletion and amortization (88,708) (85,215)
---------- ----------
Property, plant and equipment, net 45,346 39,481
---------- ----------
Noncurrent portion of deferred income taxes, net 2,962 3,134
Investment in NGL fractionating plant - 2,474
Investment in stock - 707
Other noncurrent assets 643 203
---------- ----------
$ 54,995 $ 52,098
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ - $ -
Note payable - related party 2,300 -
Accounts payable 1,275 1,539
Advances from joint owners 468 -
Accrued liabilities 288 215
Production taxes payable 159 186
Royalties payable 173 148
---------- ----------
Total current liabilities 4,663 2,088
---------- ----------
Long-term debt 13,844 13,994
Commitments and contingencies (Note 7)
Stockholders' equity
Common stock; par value $.02; 20,000,000 shares
authorized; 13,078,071 issued and 13,050,271
outstanding in 1997 and 1996 262 262
Capital in excess of par value 105,375 105,375
Accumulated deficit (69,078) (69,550)
Treasury stock, at cost; 27,800 shares (71) (71)
---------- ----------
Total stockholders' equity 36,488 36,016
---------- ----------
$ 54,995 $ 52,098
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Consolidated Statement of Operations
Years ended September 30, 1997, 1996 and 1995
(in thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Revenues $ 12,951 $ 11,136 $ 11,837
Costs and expenses:
Operating 5,505 5,547 5,836
General and administrative 1,503 1,661 1,297
Depreciation, depletion and amortization 3,532 3,727 5,197
Loss on sale of investment in
NGL fractionating plant 538 - -
----------- ----------- -----------
Total costs and expenses 11,078 10,935 12,330
----------- ----------- -----------
Operating income (loss) 1,873 201 (493)
----------- ----------- -----------
Other income (expense):
Interest income 99 216 160
Dividend income - 89 89
Interest expense (840) (931) (976)
Loss on disposition of stock (258) (273) -
Research and development expense - (23) (40)
----------- ----------- -----------
Total other expense (999) (922) (767)
----------- ----------- -----------
Income (loss) before income taxes 874 (721) (1,260)
----------- ----------- -----------
Current income tax benefit (expense) (1) 6 (24)
----------- ----------- -----------
Income (loss) before equity in loss of
NGL fractionating plant 873 (715) (1,284)
Equity in loss of NGL fractionating plant (401) (75) -
----------- ----------- -----------
Net income (loss) $ 472 $ (790) $ (1,284)
=========== =========== ===========
Net income (loss) per share $ .04 $ (.07) $ (.11)
=========== =========== ===========
Weighted average shares outstanding 13,050 11,807 11,190
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Years ended September 30, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
Common Stock Capital in Treasury Stock
----------------- excess of Accumulated ---------------
Shares Amount par value Deficit Shares Amount Total
------ ------- --------- ------------ ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance September 30, 1994 11,188 $ 224 $ 98,354 $ (67,476) 28 $ (71) $ 31,031
Net loss - - - (1,284) - - (1,284)
Exercise of stock options and
warrants 22 1 59 - - - 60
Tax benefit of non-qualified
stock option exercise - - 11 - - - 11
------ ------- --------- ------------ ------ ------ ---------
Balance September 30, 1995 11,210 225 98,424 (68,760) 28 (71) 29,818
Net loss - - - (790) - - (790)
Common stock issuance 1,400 28 6,063 - - - 6,091
Exercise of stock options and
warrants 440 9 888 - - - 897
------ ------- --------- ------------ ------ ------ ---------
Balance September 30, 1996 13,050 262 105,375 (69,550) 28 (71) 36,016
Net income - - - 472 - - 472
------ ------- --------- ------------ ------ ------ ---------
Balance September 30, 1997 13,050 $ 262 $ 105,375 $ (69,078) 28 $ (71) $ 36,488
====== ======= ========= ============ ====== ====== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Years ended September 30, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 472 $ (790) $(1,284)
Adjustments to reconcile net income to net cash -------- -------- --------
provided by operating activities:
Depreciation, depletion and amortization 3,532 3,727 5,197
Income tax effect of stock option exercise - - 11
Loss on sale of investment in NGL fractionating 538 - -
Equity in loss of NGL fractionating plant 401 75 -
Loss on disposition of stock 258 273 -
Other - - (7)
Change in assets and liabilities:
Decrease in receivables 188 201 984
(Increase) in inventory (7) - -
Decrease in other current assets - 53 212
Increase (decrease) in accounts payable,
accrued liabilities and income taxes payable (191) 743 117
Increase in advances from joint owners 468 - -
Increase (decrease) in royalties payable 25 (64) (76)
(Decrease) in production taxes payable (27) (71) (30)
Other - (192) 34
-------- -------- -------
5,185 4,745 6,442
-------- -------- -------
Net cash provided by operating activities 5,657 3,955 5,158
-------- -------- -------
Cash flows from investing activities:
Proceeds from sale of assets 39 1,603 5,058
Proceeds from sale of common stock 638 796 -
Proceeds from sale of investment in NGL fractionating plant 1,800 - -
Capital expenditures (9,435) (11,113) (7,253)
Investment in NGL fractionating plant (265) (1,095) (1,138)
-------- -------- -------
Net cash used in investing activities (7,223) (9,809) (3,333)
-------- -------- -------
Cash flows from financing activities:
Proceeds from borrowing 2,300 - -
Principal repayments (150) (1,752) -
Proceeds from issuance of stock - 6,988 60
Payments for other financing activities (630) - -
-------- -------- -------
Net cash provided by financing activities 1,520 5,236 60
-------- -------- -------
Net increase (decrease) in cash and cash equivalents (46) (618) 1,885
Cash and cash equivalents at beginning of year 3,575 4,193 2,308
-------- -------- -------
Cash and cash equivalents at end of year $ 3,529 $ 3,575 $ 4,193
-------- -------- -------
-------- -------- -------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 831 $ 942 $ 1,056
Income taxes $ 1 $ 23 $ -
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Tipperary Corporation and its subsidiaries (the "Company") are principally
engaged in the exploration for and development and production of crude oil
and natural gas. The Company was organized as a Texas corporation in January
1967. The Company entered the oil and gas business in 1969 when it acquired
its Permian Basin oil and gas properties located in Lea County, New Mexico.
The Company has since expanded its activities to other areas of the United
States, predominantly the Rocky Mountain and Mid-Continent areas, and also to
Queensland, Australia, where it is involved in exploration for and
development of coalbed methane gas.
USE OF ESTIMATES AND SIGNIFICANT RISKS
The Company is subject to a number of risks and uncertainties inherent in the
oil and gas industry. Among these are risks related to fluctuating oil and
gas prices, uncertainties related to the estimation of oil and gas reserves
and the value of such reserves, effects of competition and extensive
environmental regulation, risks associated with the search for and the
development of oil and gas reserves, uncertainties related to foreign
operations, and many other factors, many of which are beyond the Company's
control. The Company's financial condition and results of operations depend
significantly upon the prices received for crude oil and natural gas. These
prices are subject to fluctuations in response to changes in supply, market
uncertainty and a variety of additional factors that are beyond the control
of the Company.
PARTNERSHIPS AND OTHER EQUITY INVESTMENTS
The consolidated financial statements include the Company's proportionate
share of the assets, liabilities, revenues and expenses of its oil and gas
partnership interests. The Company's investments in limited liability
companies over which it exercises significant influence have been accounted
for under the equity method.
RECLASSIFICATION
Certain amounts reported for prior fiscal years have been reclassified to
correspond to the fiscal year 1997 presentation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity
of three months or less to be cash equivalents.
CONCENTRATIONS OF CREDIT RISK
The Company maintains demand deposit accounts with one bank in Denver,
Colorado and invests cash in bank money market accounts and other money
market funds which the Company believes have minimal risk of loss.
As an operator of jointly owned oil and gas properties, the Company sells oil
and gas production to numerous oil and gas purchasers and pays vendors for
oil and gas services. The risk of non-payment by the purchasers is
considered minimal and the Company does not obtain collateral for sales to
them. Joint interest receivables are subject to collection under the terms
of operating agreements which provide lien rights, and the Company considers
the risk of loss likewise to be minimal.
FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH AND SHORT-TERM INVESTMENTS
The carrying amount approximates fair value because of the short maturity of
these instruments.
F-7
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
INVESTMENT IN COMMON STOCK
The carrying value of the common stock in United States Exploration, Inc.
("UXP") at September 30, 1996, approximated fair market value as evidenced by
quoted market prices on that date.
INVENTORY
Inventory is composed of tubular goods and supplies and is valued at the
lower of average cost or market.
PROPERTY, PLANT AND EQUIPMENT
The Company follows the full cost method to account for its oil and gas
exploration and development activities. Under the full cost method, all
costs incurred which are directly related to oil and gas exploration and
development are capitalized and subjected to depreciation and depletion.
Depletable costs also include estimates of future development costs of proved
reserves. Costs related to undeveloped oil and gas properties may be
excluded from depletable costs until such properties are evaluated as either
proved or unproved. The net capitalized costs are subject to a ceiling
limitation. See Note 3. Gains or losses upon disposition of oil and gas
properties are treated as adjustments to capitalized costs, unless the
disposition represents a significant portion of the Company's proved
reserves. A separate cost center is maintained for expenditures applicable
to each country in which the Company conducts exploration and/or production
activities.
Repairs and maintenance are expensed; renewals and betterments are
capitalized. Certain indirect costs, including general and administrative
expense, have been capitalized to property, plant and equipment.
Interest costs for the construction of certain long term assets and for the
investment in significant unproved properties and development projects are
capitalized and amortized over the related assets' estimated useful life.
The Company capitalized $297,000, $84,000 and $80,000 of interest costs in
fiscal 1997, 1996 and 1995, respectively.
Upon sale or retirement of property, plant and equipment other than oil
and gas properties, the applicable costs and accumulated depreciation are
removed from the accounts and gain or loss is recognized.
DEPRECIATION, DEPLETION AND AMORTIZATION
Depreciation and depletion of oil and gas properties is provided using the
units-of-production method computed using proved oil and gas reserves.
Depreciation and amortization of other property, plant and equipment and
other assets is provided using the straight-line method computed over
estimated useful lives ranging from three to fifteen years.
INCOME TAXES
Deferred income taxes are provided on the difference between the tax basis of
an asset or liability and its reported amount in the financial statements.
This difference will result in taxable income or deductions in future years
when the reported amount of the asset or liability is recovered or settled,
respectively.
CRUDE OIL AND NATURAL GAS HEDGING
The Company periodically hedges a portion of its crude oil and natural gas
production through several methods. In cases where direct investments are
made in futures contracts, gains or losses on the hedges are deferred and
recognized in income as the hedged commodity is produced. The Company has in
recent years hedged significant portions of its crude oil and gas sales
primarily through both "swap" agreements and put options with financial
institutions based upon prices quoted by the New York Mercantile Exchange
("NYMEX"). Under swap agreements, the Company usually receives a floor price
but retains 50% of price increases above the floor. Under put options, the
Company has the right, but not the obligation,
F-8
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
to exercise the option and receive the strike price for the volume of oil
subject to the option. During fiscal 1997, the Company hedged an average of
20,000 barrels per month (approximately 50%) of its oil production. The
Company's actual price received at the wellhead averaged $1.99 per barrel
below NYMEX prices during fiscal 1997, due to differences in location and
quality of oil sold. Net payments pursuant to the Company's hedging
activities for fiscal 1997, 1996 and 1995 were $205,000, $387,000 and
$183,000, respectively.
The Company has entered into swap agreements and put options which in
combination provide a hedge on approximately 49% of its projected oil
production through April 1998. The swap agreements cover an average of
approximately 14,000 barrels of oil per month from October 1997 through March
1998 and provide for the Company to receive an average NYMEX floor price of
$20.19 per barrel plus 50% of price increases above $20.19. The put options
cover 5,000 barrels of oil per month from November 1997 through April 1998 at
a NYMEX option strike price of $20.00 per barrel. The difference between the
Company's net price received at the wellhead and the NYMEX price will
continue to vary based on location and quality of oil sold. Payments made by
the Company subsequent to September 30, 1997, for the put options totaled
approximately $10,000, with no additional payments required. None of the
Company's gas production is currently hedged for periods subsequent to
September 30, 1997.
EARNINGS (LOSS) PER SHARE
Primary earnings (loss) per share has been computed based on the weighted
average number of common and common equivalent shares outstanding during each
of the applicable periods using the treasury stock method. Effect has been
given to common stock warrants and options when their effect would be
dilutive.
SIGNIFICANT CUSTOMERS
The Company had sales in excess of 10% of total revenues to three
unaffiliated oil and gas customers during fiscal 1997 totaling 41%, three
unaffiliated oil and gas customers during fiscal 1996 totaling 42%, and three
unaffiliated oil and gas customers during fiscal 1995 totaling 40%. The
Company does not believe that the loss of any existing purchaser would have a
material adverse impact on its ability to sell its production to another
purchaser at similar prices.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128") and Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure" ("SFAS 129"). These
statements are effective for financial statements issued for periods ending
after December 15, 1997, and will be adopted by the Company effective October
1, 1997. SFAS 128 simplifies the computation of earnings per share by
replacing primary and fully diluted presentations with new "basic" and
"diluted" disclosures. SFAS 129 requires entities that issue securities
other than ordinary common stock to make specified disclosures. Since the
Company's issued stock consists solely of common stock, the adoption of SFAS
128 and SFAS 129 should have little, if any, impact on the Company's
financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which establishes
standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. SFAS 130
is effective for fiscal periods beginning after December 15, 1997, at which
time the provisions will be adopted by the Company. The Company does not
believe that adoption of this statement will have a material impact on its
financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for disclosures
regarding operating segments in both interim and annual financial statements
issued to shareholders and requires related disclosures about products and
services, geographic areas and major customers. SFAS 131 is effective for
periods beginning after December 15, 1997, at which time the provisions will
be adopted by the Company. The Company does not expect SFAS 131 to have a
material effect on its financial statements.
F-9
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 2 - RELATED PARTY TRANSACTIONS
In January 1997, the Company obtained a loan of $2,300,000 from Slough Parks
Incorporated, an affiliate of the Company's largest shareholder. The note is
due January 24, 1998, and bears interest at 8.5% per annum payable in
calendar quarter installments. The Company has received an extension of the
due date to October 31, 1998. The note is secured by a 10% interest in the
Company's rights under the Joint Operating Agreement covering the Comet Ridge
project in Queensland, Australia, and is subject to the terms and provisions
of a subordination agreement with the Company's bank. Proceeds from the loan
were used to acquire an additional 5% interest in the project. During the
fiscal year ended September 30, 1997, the Company paid approximately $214,000
in interest on this note.
During fiscal 1994, James A. McAuley, who served on the Company's Board of
Directors until July 1996, personally acquired an interest in a Utah limited
liability company of which the Company was also a member. The limited
liability company was formed for the purpose of constructing a natural gas
liquids ("NGL") fractionating plant in Alabama. Mr. McAuley negotiated and
contracted independently with third parties, as did the Company. In November
1996, a corporation which Mr. McAuley controls became the operator of the
plant pursuant to a vote of the co-owners of the plant. On September 30,
1997, Mr. McAuley's corporation exercised a preferential purchase right and
acquired all of the Company's interests in the NGL fractionating plant. The
sales price of $1,800,000 was the price offered from an unrelated third party
during the quarter ended June 30, 1997. See Note 8.
NOTE 3 - OIL AND GAS FULL COST POOLS
UNITED STATES
The Company's domestic full cost pool includes capital costs incurred in
domestic property acquisition, exploration and development. The total book
value of the United States full cost pool as of September 30, 1997, was
$25,931,000. Included in this total are $3,417,000 of acquisition costs
attributable to nonproducing oil and gas leases, primarily in the Williston
Basin, that have been excluded from depletable costs pending further
evaluation. Under the full cost method of accounting, capitalized oil and gas
property costs, less accumulated amortization and related deferred income
taxes, may not exceed the present value of future net revenues from proved
reserves, plus the lower of cost or market value of unproved properties, less
related income tax effects. This "ceiling test" must be performed on a
quarterly basis.
Subsequent to September 30, 1997, the Company sold its interest in non-core
oil and gas producing properties for $1,450,000. Under the full cost method
of accounting, no gain or loss was recognized on the property sales; the
proceeds were credited to the full cost pool, thereby reducing the book value
of the Company's domestic oil and gas properties.
AUSTRALIA
The Company's Australia full cost pool includes acquisition, drilling and
completion costs, seismic and de-watering costs, and costs to construct a gas
gathering system. The Company holds a non-operating interest in the Comet
Ridge coalbed methane project in Queensland. As of September 30, 1997, the
capitalized cost applicable to the Australia full cost pool was $18,460,000.
All of the associated reserves are classified as proved developed
nonproducing, and capitalized costs will be subject to depletion and
depreciation when the property generates revenue. Nine wells are currently
connected to a pipeline system. The Company has entered into gas contract
negotiations with companies interested in purchasing gas from the property
and anticipates selling gas in the near term.
Subsequent to September 30, 1997, the Company acquired an additional 5%
capital-bearing interest in the Comet Ridge project, increasing its interest
to 55.75% from 50.75% as of September 30, 1997. This interest was acquired
using cash on hand of $2,000,000 and a note payable of $885,000, including
principal and interest, due January 31, 1998. The Company will also be
responsible for certain capital costs incurred by the seller prior to
closing, which are expected to be approximately $200,000.
F-10
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 4 - LONG-TERM DEBT
The Company's bank credit agreement (the "agreement") provides a maximum loan
facility of $40,000,000 subject to borrowing base limitations described
below. The agreement contains provisions for both fixed rate and variable
rate borrowings. At the Company's option, interest on the revolver, which is
the variable rate portion, is payable at either the London Interbank Offered
Rate ("LIBOR") plus 1.5%, or the bank's Base Rate. The LIBOR-based option may
be selected for periods not exceeding 90 days. The outstanding loan balance
at September 30, 1997, was $13,844,000 under LIBOR/Base Rate loans with a
weighted average interest rate of 7.19%. The outstanding loan balance at
September 30, 1996, was $13,994,000; $10,000,000 under a fixed rate loan and
$3,994,000 under LIBOR/Base Rate loans with a weighted average interest rate
of 6.96%. The fixed rate loan of $10,000,000, with interest at 5.92% payable
monthly, matured on September 30, 1996. The fixed rate loan converted to a
LIBOR/Base Rate loan under the terms of the revolver with interest payable at
LIBOR plus 1.5%. Upon expiration of the revolver (the "Conversion Date"),
the principal balance will convert to a four-year term loan. During the
first quarter of fiscal 1998, the Conversion Date was extended by the bank
from October 5, 1998, to October 5, 1999. It may be extended again, although
the Company has no such guarantee.
Certain of the Company's domestic oil and gas properties have been pledged as
security for the bank loan, and the bank has the option to place additional
liens on other unencumbered properties. The maximum borrowing base is
determined solely by the bank and is based upon its assessment of the value
of the Company's properties. This bank valuation is based upon the bank's
assumptions about reserve quantities, oil and gas prices, operating expenses
and other assumptions, all of which may change from time to time and which
may differ from the Company's assumptions. At September 30, 1997, the
borrowing base was $14,500,000. Should the outstanding loan balance ever
exceed the borrowing base, the Company is required to either make a cash
payment to the bank equal to or greater than such excess or provide
additional collateral to the bank to increase the borrowing base by the
amount of the deficit. In the event oil prices or natural gas prices were to
decline by a significant amount, the Company's borrowing base could be
reduced to an amount less than the loan balance, resulting in the Company
having to fulfill the foregoing requirements. The Company is obligated to pay
a commitment fee of 3/8% per annum on the difference between the average
outstanding loan balance and the borrowing base. The agreement provides that
the Company may not pay dividends or incur additional debt without the prior
approval of the bank.
Pursuant to the terms of the loan agreement, $3,461,000 is projected to
mature in each fiscal year from 2000 through 2003.
NOTE 5 - STOCKHOLDERS' EQUITY
Stockholders' equity at September 30, 1997, and 1996 consisted of the
following (in thousands, except number of shares):
1997 1996
------ ------
Preferred stock:
Cumulative, $1.00 par value. Authorized
10,000,000 shares; none issued $ - $ -
Non-cumulative, $1.00 par value. Authorized
10,000,000 shares; none issued - -
Common stock, $.02 par value. Authorized 20,000,000
shares; 13,078,071 issued and 13,050,271 outstanding
as of September 30, 1997 and 1996 262 262
Capital in excess of par value 105,375 105,375
Accumulated deficit (69,078) (69,550)
Treasury stock, at cost; 27,800 shares (71) (71)
---------- ----------
Total stockholders' equity $ 36,488 $ 36,016
---------- ----------
---------- ----------
F-11
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
COMMON STOCK ISSUANCES
During fiscal 1995, the Company issued 21,600 shares of common stock at $2.75
per share to employees pursuant to the exercise of incentive stock options.
Net proceeds to the Company were approximately $60,000. During fiscal 1996,
the Company issued 1,400,000 shares of common stock to two institutional
investors. The proceeds of $6,091,000 were used to acquire an additional
15.75% interest in the Comet Ridge coalbed methane project in Queensland,
Australia. During fiscal 1996, the Company also issued 420,000 and 16,667
shares at $2.00 and $2.75 per share, respectively, to a former officer
pursuant to the exercise of warrants and 4,000 shares at $2.75 per share to
an employee pursuant to the exercise of incentive stock options. Net
proceeds to the Company during fiscal 1996 from the exercise of stock options
and warrants were approximately $897,000. No common stock was issued during
fiscal 1997. Subsequent to September 30, 1997, the Company issued 50,000
shares at $2.00 per share to a former director pursuant to the exercise of
warrants.
TREASURY STOCK
On May 13, 1994, the Company's Board of Directors approved the repurchase of
up to 100,000 shares of the Company's common stock on the open market.
During fiscal 1994, the Company acquired 27,800 shares at a total cost of
$71,000.
STOCK INCENTIVE PLANS
In 1987, the Company adopted the 1987 Employee Stock Option Plan (the "1987
Plan") that provided for grant of a maximum of 383,000 options to employees
of the Company to purchase shares of the Company's common stock. The 1987
Plan expired December 31, 1996. The 351,650 options currently outstanding
under this plan have a term of ten years, an exercise price equal to the fair
market value of the stock on the date of grant and qualify as incentive stock
options as defined in the Internal Revenue Code of 1986 ("the Code"). These
options remain in full force and effect pursuant to each option's terms.
Pursuant to a shareholder vote in January 1997, the 1997 Long-Term Incentive
Plan (the "1997 Plan") was adopted to replace the expired 1987 Plan. The
1997 Plan reserves 250,000 shares of common stock for issuance for a period
of ten years. Any shares that are the subject of an award which has lapsed
or expired unexercised or unissued will automatically become available for
reissue under the 1997 Plan. The 1997 Plan provides that participants may be
granted awards in the form of incentive stock options, non-qualified
options as defined in the Code, stock appreciation rights ("SARs"),
performance awards related to the Company's operations, or restricted stock
upon payment of consideration not less than the par value of the restricted
stock issued. During the fiscal year ended September 30, 1997, the Company
issued under this plan options to acquire 37,500 shares of the Company's
common stock.
The following table represents a summary of stock option transactions under
both the 1987 Plan and the 1997 Plan for the three years ended September 30,
1997:
1987 Plan 1997 Plan Price Range per Share
--------- --------- ---------------------
As of September 30, 1994 266,250 - $2.75 to $5.13
Granted in fiscal 1995 15,000 - $3.69
Forfeited in fiscal 1995 - - -
Exercised in fiscal 1995 (21,600) - $2.75
--------- ---------
As of September 30, 1995 259,650 - $2.75 to $5.13
--------- ---------
Granted in fiscal 1996 111,000 - $4.63 to $4.75
Forfeited in fiscal 1996 (100,000) - $2.75
Exercised in fiscal 1996 (4,000) - $2.75
--------- ---------
As of September 30, 1996 266,650 - $2.75 to $5.13
--------- ---------
Granted in fiscal 1997 85,000 37,500 $3.63 to $4.56
Forfeited in fiscal 1997 - - -
Exercised in fiscal 1997 - - -
--------- ---------
As of September 30, 1997 351,650 37,500 $2.75 to $5.13
--------- ---------
--------- ---------
Exercisable as of September 30, 1997 187,650 - $2.75 to $5.13
--------- ---------
--------- ---------
F-12
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Options under both plans vest ratably over three years, except for options
covering 15,000 shares under the 1987 Plan at an exercise price of $5.13,
which vest ratably over five years.
NONQUALIFIED STOCK OPTIONS AND WARRANTS
Nonqualified option and warrant transactions for the three years ended
September 30, 1997 are as follows:
Shares Price Range per Share
------ ---------------------
As of September 30, 1994 and 1995 875,000 $2.00 to $6.00
Granted in fiscal 1996 100,000 $4.31 to $4.63
Expired in fiscal 1996 (133,333) $2.75 to $6.00
Exercised in fiscal 1996 (436,667) $2.00 to $2.75
--------
As of September 30, 1996 405,000 $2.00 to $4.63
--------
Granted in fiscal 1997 105,000 $4.25
Expired in fiscal 1997 - -
Exercised in fiscal 1997 - -
--------
As of September 30, 1997 510,000 $2.00 to $4.63
--------
--------
Exercisable as of September 30, 1997 338,334 $2.00 to $4.63
--------
--------
The Company applies Accounting Principles Board Opinion No. 25 , Accounting
for Stock Issued to Employees, ("APB 25") and related interpretations to
account for its stock option plans. Under APB 25 expense for a stock option
is recorded as the difference between the market price of the stock and the
exercise price on the date of grant. No compensation expense has been
recognized for grants of stock options or warrants, since the plans provide
that the exercise price shall be equal to or greater than the market price of
the stock on the date of grant. In 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 encourages, but does
not require, companies to adopt a method of accounting for stock compensation
awards based on the estimated fair value at the date the awards were granted.
Companies may decide not to adopt the fair value method but rather to
disclose in the notes to the financial statements the pro forma effect on net
income and earnings per share had the fair value method been adopted. The
fair value of options and warrants granted of $179,000 and $76,000 for fiscal
1997 and 1996, respectively, were estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
1997 1996
------ ------
Expected life (in years). . . . . . 6.00 6.00
Expected volatility . . . . . . . . 67.71% 74.40%
Risk-free interest rate . . . . . . 6.20% 5.90%
Expected dividends. . . . . . . . . $ - $ -
Had compensation cost for the Company's plans been determined based on the
fair value at the grant dates for awards under these plans consistent with
the method of SFAS 123, the Company's net income (loss) and earnings (loss)
per share would have been reduced (increased) to the pro forma amounts
indicated below:
1997 1996
------ ------
Net income (loss) As Reported $472,000 $(790,000)
Pro forma $293,000 (866,000)
Income (loss) per share As Reported $ .04 $ (.07)
Pro forma $ .02 $ (.07)
F-13
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 6 - INCOME TAXES
The net deferred tax asset is comprised of the following at September 30, 1997
and 1996:
1997 1996
------ ------
Deferred tax assets:
Federal and state net operating
loss carryforwards $ 16,749 $ 16,913
Statutory depletion carryforwards 2,437 2,559
Property, plant and equipment 1,463 1,570
Tax credit carryforwards 588 1,123
Capital loss carryforward 204 -
Other 2 2
------- -------
Gross deferred tax assets 21,443 22,167
------- -------
Valuation allowance (18,252) (18,976)
------- -------
Net deferred tax asset $ 3,191 $ 3,191
------- -------
------- -------
The principal differences between recognition of taxable income (loss) for
federal income tax and financial reporting purposes relate to intangible
drilling costs, dry hole and abandonment costs, accelerated depreciation and
asset write-downs.
Income tax expense (benefit) is different than the expected amount computed
using the applicable federal statutory income tax rates of 35%. The reasons
for and effects of such differences (in thousands) are as follows:
1997 1996 1995
------ ------ ------
Expected amount $ 165 $(279) $(441)
Increase (decrease) from:
Increase (decrease) in valuation allowance (724) (446) 846
Adjustments to and expiration of carryforwards 1,127 817 (285)
Permanent differences between financial
statement income and taxable income (568) (84) (92)
State taxes, net of federal benefit, and other 1 (14) (4)
------ ------ -------
Total income tax expense (benefit) $ 1 $ (6) $ 24
------ ------- -------
------ ------- -------
The Company has approximate net operating loss, capital loss and investment tax
credit carryfowards (in thousands) available at September 30, 1997, as follows:
Expiration Year Net Operating Loss Capital Loss Investment Tax Credit
--------------- ------------------ ------------ ---------------------
1998 $ 7,918 $ - $216
1999 12,252 - 112
2000 13,701 - 31
2001 4,817 95 14
2002 - 488 -
2003 991 - -
2004 3,360 - -
2009 1,391 - -
2011 1,142 - -
2012 1,375 - -
------ ---- ----
Total $46,947 $583 $373
------ ---- ----
------ ---- ----
F-14
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company also has statutory depletion carryforwards of approximately
$6,962,000 and minimum tax credit carryforwards of approximately $215,000
which do not expire. The Company's net operating loss carryforwards would be
subject to an annual limitation should there be a change of over 50% in the
stock ownership of the Company during any three-year period after 1986. As
of September 30, 1997, no such ownership change had occurred.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
On March 14, 1997, the Company filed a complaint along with several other
plaintiffs in BTA OIL PRODUCERS, ET AL. V. MDU RESOURCES GROUP, INC., ET AL.
in Stark County Court in the Southwest Judicial District of North Dakota.
The plaintiffs are suing the defendants for breach of gas sales contracts,
unjust enrichment, implied trust and related business torts. The case
concerns the sale by plaintiffs and certain predecessors of natural gas
processed at the McKenzie Gas Processing Plant in North Dakota to Koch
Hydrocarbons Company. It also concerns the contracts for resale of that gas
to MDU Resources Group, Inc. and Williston Basin Interstate Pipeline Company.
The defendants have answered the complaint denying the claims, and discovery
is in process.
The Company entered into an amendment to its office lease agreement in
Denver, Colorado effective September 1, 1993. The amended lease covers
11,000 square feet for a term of five years. During the term of the lease,
rent is payable in the amount of $116,000 base rent per year, plus expense
recovery amounts. During each of the fiscal years ended September 30, 1997,
1996 and 1995, the Company paid approximately $116,000 in office rent.
The Company is subject to various possible contingencies which arise
primarily from interpretation of federal and state laws and regulations
affecting the oil and gas industry. Although management believes it has
complied with the various laws and regulations, administrative rulings and
interpretations thereof, adjustments could be required as new interpretations
and regulations are issued.
NOTE 8 - SALE OF INVESTMENTS
During the quarter ended June 30, 1997, the Company received an offer from an
unrelated party to purchase the Company's interest in the Alabama natural gas
liquids ("NGL") fractionating plant for $1,800,000. Upon the receipt of the
offer to purchase the interest, the Company notified the other members of the
venture pursuant to preferential purchase right provisions in agreements to
which the Company was a party. A corporation owned by a former director of
the Company (see Note 2) exercised this preferential purchase right and
purchased the interest on September 30, 1997, for $1,800,000 in cash,
resulting in a loss of $538,000. The Company's equity interest in the net
loss of the plant during fiscal 1997 and 1996, respectively, was $401,000 and
$75,000, respectively.
During the third and fourth quarters of fiscal 1997, the Company sold all of
its common stock of United States Exploration, Inc. ("UXP"), recognizing a
loss of $258,000. The Company acquired 150,000 shares of common stock of UXP
and approximately $796,000 in cash in exchange for its 354,000 shares of
convertible preferred stock of UXP on September 30, 1996. During fiscal
1997, the Company received 40,587 shares of UXP common stock in payment of
approximately $190,000 in accrued dividends. The Company recognized a loss
of approximately $273,000 from the disposition of the preferred stock during
fiscal 1996.
F-17
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 9 - SUPPLEMENTARY INFORMATION ON OIL AND GAS OPERATIONS (UNAUDITED)
Certain historical costs and operating information relating to the Company's
oil and gas producing activities for fiscal 1997, 1996 and 1995 (in
thousands) are as follows:
<TABLE>
<CAPTION>
CAPITALIZED COSTS:
United States Australia Total
------------- ----------- ---------
<S> <C> <C> <C>
September 30, 1997:
Proved oil and gas properties $103,600 $18,460 $122,060
Unproved oil and gas properties 9,518 - 9,518
------------- ----------- ---------
113,118 18,460 131,578
Less accumulated depletion (87,187) - (87,187)
------------- ----------- ---------
Net capitalized costs $ 25,931 $18,460 $ 44,391
------------- ----------- ---------
------------- ----------- ---------
September 30, 1996:
Proved oil and gas properties $100,882 $ - $100,882
Unproved oil and gas properties 8,716 12,724 21,440
------------- ----------- ---------
109,598 12,724 122,322
Less accumulated depletion (83,881) - (83,881)
------------- ----------- ---------
Net capitalized costs $ 25,717 $12,724 $ 38,441
------------- ----------- ---------
------------- ----------- ---------
September 30, 1995:
Proved oil and gas properties $100,082 $ - $100,082
Unproved oil and gas properties 7,943 5,125 13,068
------------- ----------- ---------
108,025 5,125 113,150
Less accumulated depletion (80,338) - (80,338)
------------- ----------- ---------
Net capitalized costs $ 27,687 $ 5,125 $ 32,812
------------- ----------- ---------
------------- ----------- ---------
</TABLE>
Total capitalized costs for fiscal 1996 and 1995 do not include $38,000 of
costs incurred for a prospect-generating joint venture in China. These costs
were written off in fiscal 1997.
<TABLE>
COSTS INCURRED:
United States Australia Total
------------- --------- --------
<S> <C> <C> <C>
September 30, 1997:
Property acquisition costs:
Proved oil and gas properties $ - $ - $ -
Unproved oil and gas properties 802 2,309 3,111
------- ------- --------
802 2,309 3,111
------- ------- --------
Exploration costs 849 - 849
Development costs 1,908 3,427 5,335
------- ------- --------
Total costs incurred $3,559 $5,736 $ 9,295
------- ------- --------
------- ------- --------
September 30, 1996:
Property acquisition costs:
Proved oil and gas properties $ 13 $ - $ 13
Unproved oil and gas properties 774 6,092 6,866
------- ------- --------
787 6,092 6,879
------- ------- --------
Exploration costs 627 - 627
Development costs 1,763 1,507 3,270
------- ------- --------
Total costs incurred $3,177 $7,599 10,776
------- ------- --------
------- ------- --------
</TABLE>
F-16
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
COSTS INCURRED (Continued):
<TABLE>
United States Australia Total
------------- --------- --------
<S> <C> <C> <C>
September 30, 1995:
Property acquisition costs:
Proved oil and gas properties $ 207 $ - $ 207
Unproved oil and gas properties 992 300 1,292
------- ------- --------
1,199 300 1,499
------- ------- --------
Exploration costs 330 133 463
Development costs 1,202 3,879 5,081
------- ------- --------
Total costs incurred $2,731 $4,312 $7,043
------- ------- --------
------- ------- --------
</TABLE>
Depletion rates per equivalent barrel of production for the years ended
September 30, 1997, 1996 and 1995 were $4.51, $4.87 and $5.54, respectively.
Costs of $3,417,000, $2,589,000 and $1,815,000 related to domestic unproved
oil and gas properties which have not yet been evaluated were excluded from
depletable costs in fiscal 1997, fiscal 1996 and fiscal 1995, respectively.
RESULTS OF OPERATIONS:
The results of operations for petroleum producing activities (all of which
were in the United States), excluding corporate overhead and interest costs,
for each of the three years in the period ended September 30, 1997, (in
thousands) are as follows:
<TABLE>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenue from sale of oil and gas $12,791 $10,965 $11,673
Production costs (5,499) (5,463) (5,726)
Depreciation, depletion and amortization
including impairment (3,345) (3,543) (5,032)
Income tax expense (80) (39) (18)
-------- -------- --------
Operating income from petroleum
producing activities $ 3,867 $ 1,920 $ 897
-------- -------- --------
-------- -------- --------
</TABLE>
Revenues of $160,000, $171,000 and $164,000 were not included above for 1997,
1996 and 1995, respectively, which represent revenues received primarily for
saltwater disposal. Production costs of $144,000 were included above for each
of 1997, 1996 and 1995, which represent costs paid or payable to other
affiliates in the consolidated group. Costs associated with the saltwater
disposal revenue and other costs of $150,000, $228,000 and $254,000 were not
included above for 1997, 1996 and 1995, respectively. Income tax expense is
computed using the Company's overall effective tax rate for each respective
year.
F-17
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
ESTIMATES OF PROVED OIL AND GAS RESERVES:
The following table presents the Company's estimates of its proved oil and
gas reserves. The Company emphasizes that reserve estimates are inherently
imprecise and that estimates of new discoveries are more imprecise than those
of mature producing oil and gas properties. Accordingly, the estimates are
expected to change as future information becomes available. Reserve
estimates are prepared by the Company, and independent petroleum engineers:
Heinle & Associates, Inc.; Forrest A. Garb & Associates, Inc.; and S.A.
Holditch & Associates, Inc. The volumes presented on the following pages are
in thousands of barrels for oil and thousands of Mcf for gas.
<TABLE>
<CAPTION>
United States Australia Total
------------------ ---------------- ------------------
Oil Gas Oil Gas Oil Gas
Bbls Mcf Bbls Mcf Bbls Mcf
------- ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
September 30, 1997:
Total proved reserves:
Beginning of year 4,042 13,052 - - 4,042 13,052
Revisions of previous estimates (708) (199) - - (708) (199)
Extensions, discoveries
and other additions 63 36 - 116,949 63 116,985
Purchases of reserves in place - - - - - -
Sale of reserves in place - - - - - -
Production (481) (1,565) - - (481) (1,565)
------- -------- ----- --------- ------- ----------
End of Year 2,916 11,324 - 116,949 2,916 128,273
------- -------- ----- --------- ------- ----------
------- -------- ----- --------- ------- ----------
Proved developed reserves:
Beginning of year 3,657 11,116 - - 3,657 11,116
------- -------- ----- --------- ------- ----------
------- -------- ----- --------- ------- ----------
End of Year 2,631 9,473 - 48,396 2,631 57,869
------- -------- ----- --------- ------- ----------
------- -------- ----- --------- ------- ----------
September 30, 1996:
Total proved reserves:
Beginning of year 3,419 13,061 - - 3,419 13,061
Revisions of previous estimates 835 1,556 - - 835 1,556
Extensions, discoveries
and other additions 288 193 - - 288 193
Purchases of reserves in place 12 18 - - 12 18
Sale of reserves in place (42) (226) - - (42) (226)
Production (470) (1,550) - - (470) (1,550)
------- -------- ----- --------- ------- ----------
End of Year 4,042 13,052 - - 4,042 13,052
------- -------- ----- --------- ------- ----------
------- -------- ----- --------- ------- ----------
Proved developed reserves:
Beginning of year 2,952 10,798 - - 2,952 10,798
------- -------- ----- --------- ------- ----------
------- -------- ----- --------- ------- ----------
End of Year 3,657 11,116 - - 3,657 11,116
------- -------- ----- --------- ------- ----------
------- -------- ----- --------- ------- ----------
F-18
</TABLE>
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
ESTIMATES OF PROVED OIL AND GAS RESERVES (Continued):
<TABLE>
<CAPTION>
United States Australia Total
------------------ ---------------- ------------------
Oil Gas Oil Gas Oil Gas
Bbls Mcf Bbls Mcf Bbls Mcf
------- ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
September 30, 1995:
Total proved reserves:
Beginning of year 3,685 15,645 - - 3,685 15,645
Revisions of previous estimates (31) 1,361 - - (31) 1,361
Extensions, discoveries
and other additions 343 723 - - 343 723
Purchases of reserves in place 24 15 - - 24 15
Sale of reserves in place (37) (2,622) - - (37) (2,622)
Production (565) (2,061) - - (565) (2,061)
------- -------- ----- --------- ------- --------
End of Year 3,419 13,061 - - 3,419 13,061
------- -------- ----- --------- ------- --------
------- -------- ----- --------- ------- --------
Proved developed reserves:
Beginning of year 3,423 13,839 - - 3,423 13,839
------- -------- ----- --------- ------- --------
------- -------- ----- --------- ------- --------
End of Year 2,952 10,798 - - 2,952 10,798
------- -------- ----- --------- ------- --------
------- -------- ----- --------- ------- --------
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS:
Information with respect to the Company's estimated discounted future net cash
flows from its oil and gas properties for fiscal 1997, 1996 and 1995 (in
thousands) follows:
<TABLE>
United States Australia Total
-------------- ---------- --------
<S> <C> <C> <C>
September 30, 1997:
Future revenues $ 92,359 $159,953 $252,312
Future production costs (37,309) (47,670) (84,979)
Future development costs (1,460) (8,463) (9,923)
Future income tax expense (2,739) (33,067) (35,806)
---------- --------- ---------
Future net cash flow 50,851 70,753 121,604
10% annual discount (20,600) (46,377) (66,977)
---------- --------- ---------
Discounted future net cash flows $ 30,251 $ 24,376 $ 54,627
---------- --------- ---------
---------- --------- ---------
September 30, 1996:
Future revenues $115,708 - $115,708
Future production costs (48,297) - (48,297)
Future development costs (2,215) - (2,215)
Future income tax expense (2,607) - (2,607)
---------- --------- ---------
Future net cash flow 62,589 - 62,589
10% annual discount (24,652) - (24,652)
---------- --------- ---------
Discounted future net cash flows $ 37,937 $ - $ 37,937
---------- --------- ---------
---------- --------- ---------
September 30, 1995:
Future revenues $ 74,482 $ - $ 74,482
Future production costs (33,026) - (33,026)
Future development costs (2,840) - (2,840)
Future income tax expense (431) - (431)
---------- --------- ---------
Future net cash flow 38,185 - 38,185
10% annual discount (13,985) - (13,985)
---------- --------- ---------
Discounted future net cash flows $ 24,200 $ - $ 24,200
---------- --------- ---------
---------- --------- ---------
</TABLE>
F-19
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Principal changes in the Company's estimated discounted future net cash flows
for each of the three years in the period ended September 30, 1997 (in
thousands) are as follows:
<TABLE>
<CAPTION>
United States Australia Total
------------- --------- -----------
<S> <C> <C> <C>
September 30, 1997:
Beginning of year $ 37,937 $ - $ 37,937
Oil and gas sales, net of production costs (7,436) - (7,436)
Net change in prices and production costs 1,554 - 1,554
Extensions and discoveries, less related costs 441 24,376 24,817
Change in estimated development costs 720 - 720
Revision of previous quantity estimates (4,523) - (4,523)
Accretion of discount 3,794 - 3,794
Net change in income taxes (276) - (276)
Changes in production rates and other (1,960) - (1,960)
---------- ---------- -----------
End of year $ 30,251 $ 24,376 $ 54,627
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
At September 30, 1997, average oil and gas prices used in the determination of
future cash flows for domestic reserves were $19.01 per barrel and $3.26 per
Mcf, respectively. The average gas price used in the determination of future
cash flows for foreign reserves was $1.37 per Mcf; the Company has not
entered into a gas contract, but believes this price is representative of
general market conditions as of September 30, 1997.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
September 30, 1996:
Beginning of year $ 24,200 $ - $ 24,200
Oil and gas sales, net of production costs (5,646) - (5,646)
Net change in prices and production costs 10,185 - 10,185
Extensions and discoveries, less related costs 2,006 - 2,006
Purchases of reserves in place, net 89 - 89
Sales of reserves in place, net (247) - (247)
Change in estimated development costs 596 - 596
Revision of previous quantity estimates 4,735 - 4,735
Accretion of discount 2,420 - 2,420
Net change in income taxes (1,114) - (1,114)
Changes in production rates and other 713 - 713
---------- ---------- -----------
End of year $ 37,937 $ - $ 37,937
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
At September 30, 1996 average oil and gas prices used in the determination of
future cash flows were $22.48 per barrel and $1.90 per Mcf, respectively.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
September 30, 1995:
Beginning of year $ 29,021 $ - $ 29,021
Oil and gas sales, net of production costs (6,091) - (6,091)
Net change in prices and production costs (440) - (440)
Extensions and discoveries, less related costs 1,274 - 1,274
Purchases of reserves in place, net 99 - 99
Sales of reserves in place, net (1,581) - (1,581)
Change in estimated development costs (1,117) - (1,117)
Revision of previous quantity estimates 906 - 906
Accretion of discount 2,902 - 2,902
Net change in income taxes 56 - 56
Changes in production rates and other (829) - (829)
---------- ---------- -----------
End of year $ 24,200 $ - $ 24,200
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
At September 30, 1995 average oil and gas prices used in the determination of
future cash flows were $15.45 per barrel and $1.64 per Mcf, respectively.
F-20
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 10 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for
the fiscal years ended September 30, 1997 and 1996 (in thousands, except per
share data):
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------
December 31, March 31, June 30, September 30,
1996 1997 1997 1997 Total
------------ ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Fiscal 1997
- -----------
Revenues $ 4,112 $ 3,064 $ 3,020 $ 2,755 $ 12,951
---------- ---------- ----------- ---------- ------------
---------- ---------- ----------- ---------- ------------
Gross profit $ 2,642 $ 1,618 $ 1,742 $ 1,444 $ 7,446
---------- ---------- ----------- ---------- ------------
---------- ---------- ----------- ---------- ------------
Net income (loss) $ 978 $ 185 $ (587)(1) $ (104) $ 472
---------- ---------- ----------- ---------- ------------
---------- ---------- ----------- ---------- ------------
Net income (loss) per common
share $ .07 $ .01 $ (.04) $ .00 $ .04
---------- ---------- ----------- ---------- ------------
---------- ---------- ----------- ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------
December 31, March 31, June 30, September 30,
1995 1996 1996 1996 Total
------------ ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Fiscal 1996
- -----------
Revenues $ 2,631 $ 2,686 $ 3,084 $ 2,735 $ 11,136
---------- ---------- ----------- ---------- ------------
---------- ---------- ----------- ---------- ------------
Gross profit $ 1,333 $ 1,286 $ 1,680 $ 1,290 $ 5,589
---------- ---------- ----------- ---------- ------------
---------- ---------- ----------- ---------- ------------
Net income (loss) $ (241) $ (171) $ 145 $ (523) $ (790)
---------- ---------- ----------- ---------- ------------
---------- ---------- ----------- ---------- ------------
Net income (loss) per common
share $ (.02) $ (.02) $ .01 $ (.04) $ (.07)
---------- ---------- ----------- ---------- ------------
---------- ---------- ----------- ---------- ------------
</TABLE>
(1) Includes $467 writedown of investment in NGL fractionator and $258 loss
on disposition of UXP common stock.
F-21
<PAGE>
THIS WARRANT AND THE RIGHTS REPRESENTED HEREBY SHALL NOT BE TRANSFERABLE AT
ANY TIME UNLESS (I) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, AS AMENDED, SHALL BE IN EFFECT WITH RESPECT TO THIS WARRANT OR THE
SHARES ISSUABLE HEREUNDER AT SUCH TIME, OR (II) THE TRANSFER IS MADE IN
COMPLIANCE WITH THE PROVISIONS OF SECTION 5.
NUMBER: 50,000 SHARES
WARRANT
TO PURCHASE SHARES
OF
TIPPERARY CORPORATION
This certifies that, for value received, David L. Bradshaw, an
individual residing in Denver, Colorado ("Bradshaw"), or his registered
assigns, is entitled to purchase from TIPPERARY CORPORATION, a Texas
corporation (the "Company"), fifty thousand (50,000) Shares, at the price of
Four Dollars and 25/100 ($4.25) per Share (as defined in Section 3) at any
time, or in part from time to time in accordance with the following Vesting
Schedule ("Vesting Schedule"):
Date: Total Shares Subject to Exercise
From and after August 26, 1998 16,667
From and after August 26, 1999 16,667
From and after August 26, 2000 16,666
This Warrant shall expire, if not exercised prior thereto, two (2) years
after the resignation or removal of Bradshaw as an employee of the Company.
If Bradshaw should resign or be removed as an employee from the Company, then
this Warrant shall be vested only to the extent vested on such date of
resignation or removal according to the Vesting Schedule. The provisions as
to adjustment of the initial exercise price set forth above and the number of
Shares to be issued upon the occurrence of certain events (the Provisions as
to Adjustment) are more fully set forth in Annex I hereto. (Hereinafter, the
initial exercise price set forth above in this paragraph for the purchase of
Shares upon the exercise of this Warrant, as adjusted pursuant to the
Provisions as to Adjustment, is referred to as the "Exercise Price"). This
Warrant is subject to the following provision, terms and conditions:
1. EXERCISE OF WARRANT.
(a) The rights represented by this Warrant may be exercised by the
holder hereof, in whole or in part, (but not as to a fractional Share), by
the surrender of this Warrant at the Company's principal office located in
Denver, Colorado (or such other office or agency of the Company as the
Company may designate by notice in writing to the holder hereof at the
address of such holder appearing on the books of the Company at any time
within the period above named) and delivery of a completed subscription form
in the form attached to this Warrant as EXHIBIT A, and upon payment to the
Company of the Exercise Price for such Shares.
<PAGE>
(b) Payment of the Exercise Price shall be made by a combination of any
one or more of the following:
(i) By application, to the extent permitted by applicable law, of
Shares or other securities of the Company owned by the holder
hereof, the value of which for such purpose shall be the fair
market value thereof determined in good faith by the Company and
the holder hereof at the time of such exercise; provided,
however, that in order to apply such Shares or other securities
of the Company in the exercise hereof, each of the following
conditions must be met:
(A) Such Shares or other securities of the Company shall have
been owned, without material encumbrance, contingency or
risk of forfeiture relating to the ownership rights, for at
least six months and at all times during said six month
period by the holder hereof, and within said six month
period such Shares or other securities of the Company shall
not have been obtained through exercise of any option,
warrant or right to obtain such Shares of other securities
or through the conversion of any other security; and
(B) Such Shares or other securities shall not be or include: (1)
options, warrants or similar rights to acquire Shares or
other securities of the Company by the holder hereof; or (2)
securities owned by the holder hereof which are convertible
in whole or in part into Shares or other securities of the
Company.
(ii) in cash or by certified check or bank draft in New York Clearing
House funds.
(c) The Company agrees that any Shares so purchased by the exercise of
this Warrant shall be deemed to be issued to the holder hereof as the record
owner of such Shares as of the close of business on the date on which this
Warrant shall have been surrendered, the completed subscription form
delivered, and payment in full is made and delivered to the Company for such
Shares as aforesaid.
(d) Stock certificates evidencing Shares so purchased shall be
delivered to the holder hereof as promptly as practicable, after the rights
represented by this Warrant shall have been so exercised. If this Warrant
shall have been exercised only in part, and unless this Warrant has expired,
a new Warrant representing the number of Shares with respect to which this
Warrant shall not then have been exercised shall also be delivered to the
holder hereof within such time. Notwithstanding the foregoing, however, the
Company shall not be required to deliver any stock certificate evidencing
Shares upon exercise of this Warrant except in accordance with the
provisions, and subject to the limitations, of Section 5. The Company will
pay all expenses and charges payable
Page 2 - Warrant to Purchase Shares
<PAGE>
in connection with the preparation, execution and delivery of stock certificates
and any new Warrants or promissory notes.
2. CERTAIN COVENANTS OF THE COMPANY. The Company covenants and agrees as
follows:
(a) All Shares which may be issued upon the exercise of the rights
represented by this Warrant (all such Shares, whether previously issued or
subject to issuance upon the exercise of this Warrant, are from time to time
referred to herein as "Warrant Shares") will, upon issuance, be duly authorized
and issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof.
(b) During the period within which the rights represented by this
Warrant may be exercised, and only insofar as the Vesting Schedule herein
permits the exercise of this Warrant, the Company will at all times have
authorized and reserved free of preemptive or other rights for the exclusive
purpose of issuance upon exercise of the purchase rights evidenced by this
Warrant, a sufficient number of Shares to provide for the exercise of rights
represented by this Warrant.
(c) The Company will not, by amendment or restatement of the Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, issuance or sale of securities or otherwise, avoid or take any action
which would have the effect of avoiding the performance of any of the terms to
be performed hereunder by the Company, but will at all times in good faith carry
out all of the provisions of this Warrant and take all such action as may be
necessary or appropriate to protect the rights of the holder hereof against
dilution or other impairment and, in particular, will not permit the par value
of any Share to be or become greater than the then effective Exercise Price.
3. DEFINITION OF SHARES. As used herein, the term "Shares" shall mean
and include shares of the Common Stock, par value $.02 per share, of the Company
as are constituted and exist on the date hereof, and shall also include any
other class of the capital stock of the Company hereafter authorized which shall
neither be limited to a fixed sum or percentage of par value in respect to the
rights of the holders thereof to receive dividends and to participate in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company, nor be subject at any time to
redemption by the Company; provided that the Shares receivable upon exercise of
this Warrant shall include only Shares of the type as are constituted and exist
on the date hereof or Shares resulting from any reclassification of the Shares
as provided for in paragraph (C) of the Provisions as to Adjustment.
4. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof as such to any rights whatsoever, including, without
limitation, voting rights, as a holder of Shares of the Company. No provisions
hereof, in the absence of affirmative action by the holder hereof to purchase
Shares, and no mere enumeration herein of the rights or privileges of such
holder, shall give rise to any liability of such holder as a holder of Shares of
the Company, regardless of who may assert such liability.
Page 3 - Warrant to Purchase Shares
<PAGE>
5. RESTRICTIONS ON TRANSFER.
(a) This Warrant shall not be exercisable by a transferee hereof and/or
transferable and the Warrant Shares shall not be transferable except upon the
conditions specified in this Section 5, which conditions are intended, among
other things, to ensure compliance with the provisions of the Securities Act of
1933, as amended, and the rules and regulations of the Securities and Exchange
Commission (the "Commission") thereunder (collectively the "Securities Act"), in
respect of the exercise and/or transfer of this Warrant and/or transfer of such
Warrant Shares.
(b) This Warrant and the Warrant Shares shall not be transferable (except
for a transfer of this Warrant or the Warrant Shares in an offering registered
under the Securities Act, including, without limitation, a transfer in a
registered offering effected pursuant to Section 6, and any subsequent transfer)
unless, prior to any transfer, the holder hereof shall have received from its
transferee reasonable assurances that such person is aware that this Warrant and
the Warrant Shares have not been registered under the Securities Act and that
such person is acquiring this Warrant or the Warrant Shares for investment only
and not with the view to the disposition or public offering thereof (unless in
an offering registered under the Securities Act of 1933 or exempt therefrom),
and that such person is aware that the stock certificates evidencing the Warrant
Shares shall bear a legend restricting transfer and disposition thereof in
accordance with the Securities Act unless, in the opinion of counsel to the
Company, such legend may be omitted. In the event of any transfer of this
Warrant (other than a transfer in an offering registered under the Securities
Act, including, without limitation, a transfer in a registered offering effected
pursuant to Section 6, and any subsequent transfer), the holder hereof shall
provide an opinion of counsel, who shall be reasonably satisfactory to the
Company, that an exemption from the registration requirements of the Securities
Act is available.
(c) Any permitted subsequent holder of this Warrant shall be subject to
all the terms and conditions herein, and shall acknowledge, in writing, upon
receipt of this Warrant his or her acceptance of the terms and conditions
herein.
(d) To facilitate sales by a holder of this Warrant or Warrant Shares in
transactions qualifying under Rule 144 promulgated by the Commission under the
Securities Act, if available, the Company agrees to satisfy the current public
information requirements of said Rule 144, for as long as the Shares remain
registered under the Securities Exchange Act of 1934, as amended, and the rules
and regulations of the Commission thereunder (collectively the "Exchange Act"),
and to provide said holder upon request with such other information as such
holder may require for compliance with the provisions of said Rule 144.
6. REGISTRATION UNDER SECURITIES ACT.
(a) If the Company at any time proposes to register any issuance of its
securities under the Securities Act (other than a registration on Form S-8 in
connection with an employee stock purchase or option plan or on Form S-4 in
connection with mergers, acquisitions or exchange
Page 4 - Warrant to Purchase Shares
<PAGE>
offerings), the Company will at such time give prompt written notice to the
holder hereof and to the holders of all other Warrant Shares issuable from any
outstanding Warrants (such holders are hereinafter referred to as the
"Prospective Sellers") of its intention to do so. Upon the written request of a
Prospective Seller, given within 30 days after receipt of any such notice (which
request shall state the intended method of disposition of the Warrant Shares to
be transferred by such Prospective Seller), the Company shall use its best
efforts to cause all Warrant Shares, the holders of which (or of the Warrants to
which the same are related), to the extent vested in accordance with the Vesting
Schedule, shall have so requested registration of the transfer thereof, to be
registered under the Securities Act, all to the extent requisite to permit the
sale or other disposition (in accordance with the intended method thereof as
aforesaid) by the Prospective Sellers of such Warrant Shares. The rights
granted pursuant to this Section 6(a) shall not be effective with respect to the
Prospective Seller in the case of an underwritten public offering of securities
of the Company by the Company unless each Prospective Seller agrees to the terms
and conditions, including underwriting discounts and allowances, specified by
the managing underwriter of such offering with respect to such Warrant Shares.
The Company shall have the right to reduce the number of Warrant Shares of the
Prospective Sellers to be included in a registration statement pursuant to the
exercise of the rights granted by this Section 6(a) if, and to the extent, that
the managing underwriter of such offering is of the good faith opinion,
supported by written reasons therefor, that the inclusion of such Warrant Shares
would materially adversely affect the marketing of the securities of the Company
to be offered; provided, that any such reduction of the number of Warrant Shares
the transfer of which is to be registered on behalf of the Prospective Sellers
shall be made on the basis of a pro rata reduction of all Warrant Shares of all
Prospective Sellers.
(b) If and whenever the Company is required by the provisions of this
Section 6 to use its best efforts to effect the registration of any transfer of
Warrant Shares under the Securities Act, the Company will, as expeditiously as
possible,
(i) prepare and file with the Commission a registration statement
with respect to such transfer and use its best efforts to cause
such registration statement to become and remain effective, but
not for any period longer than nine months;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such
registration statement effective, and to comply with the
provisions of the Securities Act with respect to the transfer of
all securities covered by such registration statement, including,
without limitation, taking all necessary actions whenever the
Prospective Sellers of the Warrant Shares covered by such
registration statement shall desire to dispose of the same;
(iii) furnish to each Prospective Seller such number of copies of a
prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, and such other
documents, as such Prospective Seller may
Page 5 - Warrant to Purchase Shares
<PAGE>
reasonably request in order to facilitate the disposition of the
Warrant Shares owned by such Prospective Seller and covered by
such registration statement;
(iv) use its best efforts to register or qualify the securities
covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each
Prospective Seller shall request, and use its best efforts to do
any and all other acts and things which may be reasonably
necessary to enable such Prospective Seller to consummate the
disposition in such jurisdiction of the Warrant Shares owned by
such Prospective Seller and covered by such registration
statement; provided that, notwithstanding the foregoing, the
Company shall not be required to register in any jurisdiction as
a broker or dealer of securities or to grant its consent to
service of process in any such jurisdiction solely on account of
such intended disposition by such Prospective Seller;
(v) furnish to the Prospective Sellers whose intended dispositions
are registered a signed copy of an opinion of counsel for the
Company, in form and substance acceptable to such Prospective
Sellers, to the effect that: (A) a registration statement
covering such dispositions of Warrant Shares has been filed with
the Commission under the Securities Act and has been made
effective by order of the Commission, (B) such registration
statement and the prospectus contained therein and any amendments
or supplements thereto comply as to form in all material respects
with the requirements of the Securities Act, and nothing has come
to such counsel's attention which would cause him to believe that
the registration statement or such prospectus, amendment or
supplement, at the time such registration statement or amendment
became effective or such supplement was filed with the
Commission, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein (in the case of such
prospectus, amendment or supplement, in the light of the
circumstances under which they were made) not misleading
(provided that such counsel need not render any opinion with
respect to the financial statements and other financial,
engineering and statistical data included therein), and (C) to
the best of such counsel's knowledge, no stop order has been
issued by the Commission suspending the effectiveness of such
registration statement and no proceedings for the issuance of
such a stop order are threatened or contemplated;
(vi) furnish to the Prospective Sellers whose intended dispositions
are required a blue sky survey in the form and of the substance
customarily prepared by counsel for the Company and accepted by
sellers of securities in similar offerings, discussing and
describing the application provisions of the securities or blue
sky laws of each state or jurisdiction in which the Company
Page 6 - Warrant to Purchase Shares
<PAGE>
shall be required, pursuant to Section 6(c)(iv), to register or
qualify such intended dispositions of such Warrant Shares, or, in
the event counsel for the underwriters in such offering shall be
preparing a blue sky survey, cause such counsel to furnish such
survey to, and to allow reliance thereon by, such Prospective
Sellers;
(vii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission under the Securities Act
and the Exchange Act, insofar as they relate to such registration
and such registration statement; and
(viii) use its best efforts to list such Warrant Shares on any
securities exchange on which any securities of the Company are
then listed or to admit such Warrant Shares for trading in any
national market system in which any securities of the Company are
then admitted for trading, if the listing or admission of such
securities is then permitted under the rules of such exchange or
system.
(c) With respect to the registration by the Company of transfers of
Warrant Shares under the Securities Act pursuant to Section 6(a), the Company
shall pay all expenses incurred by it in complying with this Section 6
(including, without limitation, all registration and filing fees, printing
expenses, blue sky fees and expenses, costs and expenses of audits, and
reasonable fees and disbursements of counsel for the Company and special counsel
designated by Prospective Sellers owning a majority of the Warrant Shares
covered by such registration, but specifically excluding any underwriting
discounts and allowances that are allocable to the Warrant Shares being sold by,
and which shall be paid by, the Prospective Sellers; provided, however, that if
any registration statement filed with the Commission by the Company under
Section 6(a) shall not be declared effective by the Commission, such attempted
registration shall not constitute a registration under this Section 6(c).
(d) It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Section 6 that each Prospective Seller, the
transfer of whose Warrant Shares is registered or to be registered under each
such registration, shall furnish to the Company such written information
regarding the securities held by such Prospective Seller as the Company shall
reasonably request and as shall be required in connection with the action to be
taken by the Company.
(e) (i) In the event of any registration of any transfer of Warrant
Shares under the Securities Act pursuant to this Section 6, the Company will
indemnify and hold harmless each Prospective Seller of such securities, each of
its officers, directors and partners, and each other person, if any, who
controls such Prospective Seller within the meaning of the Securities Act, and
each underwriter, if any, who participates in the offering of such securities,
against any losses, claims, damages or liabilities (or actions in respect
thereof), joint or several, to which each Prospective Seller, officer, director
or partner, controlling person or underwriter may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained, on
the effective date thereof, in any registration statement
Page 7 - Warrant to Purchase Shares
<PAGE>
under which such transfer of securities was registered under the Securities
Act, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation by the Company of the Securities Act, and will reimburse such
Prospective Seller and each of its officers, directors and partners, and each
such controlling person or underwriter, for any legal or any other expenses
reasonably incurred by such Prospective Seller or its officers, directors and
partners or controlling persons or by each such underwriter, in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, preliminary
prospectus or prospectus or such amendment or supplement in reliance upon and
in conformity with written information furnished to the Company through an
instrument duly executed by such Prospective Seller specifically for use in
the preparation thereof. In the event of any registration by the Company or
any transfer of securities under the Securities Act pursuant to this Section
6, each Prospective Seller of Warrant Shares covered by such registration
will indemnify and hold harmless the Company, each other person, if any, who
controls the Company within the meaning of the Securities Act and each
officer and director of the Company and the other Prospective Sellers to the
same extent that the Company agrees to indemnify it, but only with respect to
the written information relating to such Prospective Seller furnished to the
Company by such Prospective Seller aforesaid.
(ii) Each indemnified party shall, as promptly as practicable upon
receipt of notice of the commencement of any action against such indemnified
party or its officers, directors or partners, or any controlling person of
such indemnified party, in respect of which indemnity may be sought from an
indemnifying party on account of the indemnity agreement contained in Section
6(e)(i), notify the indemnifying party in writing of the commencement
thereof. The omission of such indemnified party to so notify the indemnifying
party of any such action shall not relieve the indemnifying party from any
liability which it may have on account of the indemnity agreement contained
in Section 6(e)(i) to the extent that the failure to receive such notice
within a reasonable period of time shall not have caused harm, loss or damage
to the indemnifying party, provided that, conversely, if such failure to
receive notice shall have caused any harm, loss or damage to the indemnifying
party, such failure shall constitute a defense to any liability which such
indemnifying party may have on account of such agreement to the extent of the
harm, loss or damage so caused. In case any such action shall be brought
against any indemnified party, its officers, directors and partners, or any
such controlling person, and such indemnified party shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in (and, to the extent that the indemnifying party
shall wish, to direct) the defense thereof at the indemnifying party's own
expense, in which event the defense shall be conducted by recognized counsel
chosen by the indemnifying party and approved by the indemnified party (whose
approval shall not unreasonably be withheld) and the indemnified party may
participate in such defense at its own expense (unless it is advised by
counsel that actual or potential differing interests or defenses exist or may
exist, in which case such expenses shall be paid by the indemnifying party,
provided that the
Page 8 - Warrant to Purchase Shares
<PAGE>
indemnifying party shall not be required to pay the expenses for more than
one counsel for all such indemnified parties).
7. TRANSFER; OWNERSHIP. Subject to Section 5, this Warrant and all
rights hereunder are transferable, in whole or in part, at the office or
agency of the Company referred to in Section 1 by the holder hereof in person
or by a duly authorized attorney, upon surrender of this Warrant, with an
assignment, acceptable to the Company, duly completed, at which time a new
Warrant shall be made and delivered by the Company, of the same tenor as this
Warrant but registered in the name of the transferee. The holder of this
Warrant, by taking or holding the same, consents and agrees that this
Warrant, when endorsed in blank, shall be deemed negotiable, and that the
holder hereof, when this Warrant shall have been so endorsed, may be treated
by the Company and all other persons dealing with this Warrant as the
absolute owner hereof for any purpose and as the person entitled to exercise
the rights represented by this Warrant and to transfer this Warrant on the
books of the Company, any notice to the contrary notwithstanding; but until
such transfer on such books, the Company may treat the registered holder
hereof as the owner hereof for all purposes. Any transfer of this Warrant
shall be made in compliance with the Securities Act and any applicable
statute securities or blue sky laws.
8. EXCHANGE AND REPLACEMENT. Subject to Section 7, this Warrant is
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Section 1, for new Warrants of like
tenor and date representing in the aggregate the right to purchase the number
of Shares which may be purchased hereunder, each of such new Warrants to
represent the right to purchase such number of Shares as shall be designated
by said holder hereof at the time of such surrender. Upon receipt by the
Company at the office or agency referred to in Section 1 of evidence
reasonably satisfactory to it of the loss, theft or destruction of this
Warrant and of indemnity or security reasonably satisfactory to it (provided
that the written indemnity of the holder hereof shall be deemed reasonably
satisfactory to the Company for such purposes), the Company will deliver a
new Warrant of like tenor and date in replacement of this Warrant. This
Warrant shall be promptly canceled by the Company upon the surrender hereof
in connection with any transfer, exchange or replacement. The Company will
pay all expenses and charges payable in connection with the preparation,
execution and delivery of Warrants pursuant to Section 7 and this Section 8.
9. NOTICES. Any notice or other document required or permitted to be
given or delivered to the holder hereof shall be delivered at, or sent by
certified or registered mail to, David L. Bradshaw, 8998 West Brandt Drive,
Littleton, Colorado 80123, or to such other address as shall have been
furnished to the Company in writing by the holder hereof. Any notice or
other document required or permitted to be given or delivered to the Company
shall be delivered at, or sent by certified or registered mail to, 633
Seventeenth, Suite 1550, Denver, Colorado 80202, or to such other address as
shall have been furnished in writing to the holder hereof by the Company.
Any notice so addressed and mailed by registered or certified mail or
otherwise delivered, shall be deemed to be given when actually received by
the addressee.
Page 9 - Warrant to Purchase Shares
<PAGE>
10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
11. MISCELLANEOUS. This Warrant will be binding upon any entity
succeeding to the Company by consolidation or acquisition of all or
substantially all of the Company's assets, and upon any successor or assign
of the holder hereto. This Warrant and any provision hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by
the party (or any predecessor in interest thereof) against whom enforcement
of the same is sought. The headings in this Warrant are for purposes of
reference only and shall not affect the meaning or construction of any of the
provisions hereon.
IN WITNESS WHEREOF, Tipperary Corporation has caused this Warrant to be
signed by its duly authorized officers, under its corporate seal, to be dated
October 21, 1997.
TIPPERARY CORPORATION
BY: /s/ Paul C. Slevin
----------------------------------------------
ITS: Chief Financial Officer
(CORPORATE SEAL)
ATTEST: /s/ Elaine R. Treece
----------------------------
ITS: Secretary
Page 10 - Warrant to Purchase Shares
<PAGE>
Annex 1
TIPPERARY CORPORATION
PROVISIONS AS TO ADJUSTMENT OF
EXERCISE PRICE AND NUMBER OF SHARES
ISSUED UPON OCCURRENCE OF CERTAIN EVENTS
The Exercise Price and the number of Shares issuable upon the exercise
of the annexed Warrant to purchase shares of TIPPERARY CORPORATION, a Texas
corporation (herein and in this Warrant referred to as the "Company"), shall
be subject to adjustment from time to time as hereinafter provided; that in
no event shall the Exercise Price be increased to a price greater than Four
Dollars and 25/100 ($4.25) per Share, except as provided by paragraph (C).
Upon each adjustment of the Exercise Price, the holder of this Warrant shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of Shares obtained by multiplying the number of Shares
purchasable pursuant hereto immediately prior to such adjustment by a
fraction, the numerator of which is the Exercise Price in effect immediately
prior to such adjustment and the denominator of which is the Exercise Price
resulting from such adjustment. In making the adjustments to the Exercise
Price and the number of Shares issuable upon the exercise of this Warrant,
the following provisions shall be applicable:
(A) If and whenever the Company shall issue or sell any Shares for
consideration per Share that is less than the Exercise Price in effect
immediately prior to the time of such issue or sale at less than the Market
Price (as hereinafter defined) of such Shares on the date of such issue or
sale, then forthwith upon such issue or sale the Exercise Price in effect
immediately prior thereto shall be adjusted to an amount (calculated to the
nearest cent) determined by dividing (i) an amount equal to the sum of (a)
the number of Shares outstanding immediately prior to such issue or sale
multiplied by the Exercise Price in effect immediately prior to such issue or
sale, and (b) the consideration, if any, received by the Company upon such
issue or sale by (ii) the total number of Shares outstanding immediately
after such issue or sale; provided, however, that no adjustment shall be made
hereunder by reason of:
(i) the grant of this Warrant or the issuance of Shares upon the
exercise of this Warrant or any other outstanding Warrant;
(ii) the grant by the Company of options to purchase shares in
connection with any purchase or option plan for the benefit of
employees of the Company, or any affiliates or subsidiaries
thereof; or
iii) the issuance (whether directly or by assumption in a merger or
otherwise) or sale (including any issuance or sale to holders of
Shares) of any securities convertible into or exchangeable for
Shares (such convertible or
<PAGE>
exchangeable securities are herein referred to as "Convertible
Securities"), or the grant of rights to subscribe for or to
purchase, or of options for the purchase of (including any grant
of such rights or options to holders of shares, other than
pursuant to a dividend on Shares), Shares of Convertible
Securities, regardless of whether the right to convert or
exchange such Convertible Securities or such rights or options
are immediately exercisable.
No adjustment of the Exercise Price shall be required to be made by the
Company and no notice hereunder must be given if the amount of any required
adjustment is less than 5% of the Exercise Price. In such case any such
adjustment shall be carried forward and shall be made (and notice thereof
shall be given hereunder) at the time of and together with the next
subsequent adjustment which, together with any adjustment so carried forward,
shall amount to not less than 5% of the Exercise Price.
(B) For the purposes of paragraph (A), the following provisions (i)
through (vi), inclusive, shall also be applicable:
(i) If, at the time Shares are issued and sold upon the conversion or
exchange of Convertible Securities or upon the exercise of rights
or options previously granted by the Company, the price per Share
for which such Shares are issued (determined by dividing (a) the
total amount, if any, received by the Company as consideration
for such Convertible Securities or for the granting of such
rights or options, plus the aggregate amount of additional
consideration paid to the Company upon the conversion or exchange
of such Convertible Securities (which, if so provided in such
Convertible Securities, shall be deemed to be equal to the
outstanding principal amount of the indebtedness represented by
such Convertible Securities) or upon the exercise of such rights
or options, by (b) the total number of Shares issued upon the
conversion or exchange of such Convertible Securities or upon the
exercise of such rights or options) shall be less than the
Exercise Price in effect immediately prior to such issue, sale or
exercise, then the adjustments provided for by the first
paragraph of this Annex 1 and paragraph (A) shall be made. In
making the adjustment of the Exercise Price provided for by
paragraph (A), the amount described in clause (a) of this
paragraph (B)(i) shall be considered the consideration received
by the Company upon the issue or sale of the Shares for purposes
of clause (i)(b) of paragraph (A).
(ii) In case at any time any Shares or Convertible Securities or any
rights or options to purchase any Shares or Convertible
Securities shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by
the Company therefor without deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or
allowed by the Company in connection therewith. In case any
Shares or
Page 2 - Annex 1
<PAGE>
Convertible Securities or any rights or options to purchase any
Shares or Convertible Securities shall be issued or sold, in
whole or in part, for consideration other than cash, the amount
of the consideration other than cash received by the Company in
exchange for the issue or sale of such Convertible Securities
shall be deemed to be the fair value of such consideration as
determined in good faith by the board of directors of the
Company, without deduction therefrom of any expenses incurred or
any underwriting commissions or concessions paid or allowed by
the Company in connection therewith; provided that if the holder
or holders of at least 66-2/3% of the Warrant Shares purchasable
under this Warrant shall request in writing, the value of such
consideration shall be determined by an independent expert
selected by such holders, the costs and expenses of which shall
be borne by the Company, and, if the value of such consideration
as so determined is less than the value determined by the board
of directors of the Company, the lesser value shall be utilized
in calculating the consideration per Share received by the
Company for purposes of making the adjustment provided by
paragraph (A). In the event of any merger or consolidation of
the Company in which the Company is not the surviving corporation
or in the event of any sale of all or substantially all of the
assets of the Company for stock or other securities of any
corporation, the Company shall be deemed to have issued a number
of Shares for stock or securities of such other corporation
computed on the basis of the actual exchangeratio on which the
transaction was predicated and for consideration that is equal to
the fair market value on the date of such transaction of such
stock or securities of the other corporation, and if any such
calculation results in adjustment of the Exercise Price, the
determination of the number of Shares issuable upon exercise of
this Warrant immediately prior to such merger, consolidation or
sale, for purposes of paragraph (A), shall be made after giving
effect to such adjustment of the Exercise Price.
(iii) The number of Shares outstanding at any given time shall not
include Shares that have been redeemed by the Company and not
canceled, if any, and that are thus owned or held by or for the
account of the Company, and the disposition of any such Shares
shall be considered an issue or sale of Shares for purposes of
paragraph (A).
(iv) "Market Price" shall mean the lower of (a) the average closing
sales prices of Shares recorded on the principal national
securities exchange on which the Shares are listed or in a
national market system for securities in which the Shares are
admitted to trading or (b) the average of the closing bid and
asked prices of Shares reported in the domestic over-the-counter
market, for the 20 trading days immediately prior to the day as
of which the Market Price is being determined. If the Shares are
not listed on any national securities
Page 3 - Annex 1
<PAGE>
exchange or admitted for trading in any national market system or
traded in the domestic over-the-counter market, the Market Price
shall be the higher of (y) the book value of the Shares as
determined by a firm of independent public accountants of
recognized standing selected by the board of directors of the
Company as of the last day of any month ending within 60 days
preceding the date as of which the determination is to be made or
(z) the fair market value of the Shares determined in good faith
by the board of directors of the Company, provided that if the
holder or holders of at least 66-2/3% of the Warrant Shares
purchasable under the Warrant shall request in writing, the fair
market value of the Shares shall be determined by an independent
investment banking firm or other independent expert selected by
such holders and reasonably satisfactory to the Company, which
determination shall be as of a date which is within 15 days of
the date as of which the determination is to be made.
(v) Anything herein to the contrary notwithstanding, in case the
Company shall issue any Shares in connection with the acquisition
by the Company of the stock or assets of any other corporation or
the merger of any other corporation into the Company under
circumstances where, on the date of the issuance of such Shares,
the consideration received for such Shares is less than the
Market Price of the Shares, but on the date the number of Shares
was determined, the consideration received for such Shares would
not have been less than the Market Price thereof, such Shares
shall not be deemed to have been issued for less than the Market
Price.
(vi) Anything in clause (ii) of this paragraph (B) to the contrary
notwithstanding, in the case of an acquisition where all or part
of the purchase price is payable in Shares or Convertible
Securities but is stated as a dollar amount, where the Company
upon making the acquisition pays only part of a maximum dollar
purchase price which is payable in Shares or Convertible
Securities and where the balance of such purchase price is
deferred or is contingently payable under a formula related to
earnings over a period of time, (a) the consideration received
for any Shares or Convertible Securities delivered at the time of
the acquisition shall be deemed to be such part of the total
consideration as the portion of the dollar purchase price then
paid in Shares or Convertible Securities bears to the total
maximum dollar purchase price payable in Shares or Convertible
Securities and (b) in connection with each issuance of additional
Shares or Convertible Securities pursuant to the terms of the
agreement relating to such acquisition, the consideration
received shall be deemed to be such part of the total
consideration as the portion of the dollar purchase price then
and theretofore paid in Shares or Convertible Shares bears to the
total maximum dollar purchase price payable in Shares or
Convertible Securities multiplied by a fraction, the numerator of
which shall
Page 4 - Annex 1
<PAGE>
be the number of Shares (or in the case of Convertible Securities
other than capital stock of the Company, the aggregate principal
amount of such Convertible Securities) then issued and the
denominator of which shall be the total number of shares (or in
the case of Convertible Securities other than capital stock of
the Company, the aggregate principal amount of such Convertible
Securities) then and theretofore issued under such acquisition
agreement. In the event only a part of the purchase price for an
acquisition is paid in Shares or Convertible Securities in the
manner referred to in this clause (vi), the term "total
consideration" as used in this clause (vi) shall mean that part
of the aggregate consideration as is fairly allocable to the
purchase price paid in Shares or Convertible Securities in the
manner referred to in this clause (vi), as determined by the
board of directors of the Company.
(C) In the case at any time the Company shall subdivide its outstanding
Shares into a greater number of Shares, then from and after the record date
for such subdivision the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Shares
purchasable upon the exercise of this Warrant shall be correspondingly
increased, and, conversely, in case the outstanding Shares shall be combined
into a smaller number of Shares, then from and after the record date for such
combination the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of Shares
purchasable upon the exercise of this Warrant shall be correspondingly
decreased.
(D) Unless the provisions of paragraph (E) apply, if any capital
reorganization or reclassification of the capital stock of the Company, or
consolidation or merger of the Company with another corporation, or sale of
all or substantially all of its assets to another corporation, shall be
effected in such a way that holders of Shares (or any other securities of the
Company then issuable upon the exercise of this Warrant) shall be entitled to
receive stock, securities or assets with respect to or exchange for Shares
(or such other securities) then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provision shall be made whereby the holder hereof shall thereafter have the
right to purchase and receive upon the basis and upon the terms and
conditions specified in this Warrant and in lieu of the Shares (or other
securities) of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby, such shares of stock,
securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding Shares (or other securities) equal to
the number of Shares (or other securities) immediately theretofore so
purchasable and receivable had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case
appropriate provision shall be made with respect to the rights and interests
of the holder of this Warrant to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Exercise
Price and of the number of Shares (or other securities) purchasable upon the
exercise of this Warrant and for the registration thereof as provided in
Section 6 of this Warrant) shall thereafter be applicable, as nearly as may
be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof (including an immediate adjustment, by
reason of such consolidation, merger or sale, of the Exercise Price to the
value of the Shares (or other
Page 5 - Annex 1
<PAGE>
securities) reflected by the terms of such consolidation, merger or sale if
the value so reflected is less than the Exercise Price in effect immediately
prior to such consolidation, merger or sale). In the event of a
consolidation or merger of the Company with or into another corporation as a
result of which a greater or lesser number of securities of the surviving
corporation are issuable to holders of Shares in respect of the number of
Shares outstanding immediately prior to such consolidation or merger, then
the Exercise Price in effect immediately prior to such consolidation or
merger shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding Shares. The Company shall not
effect any such consolidation, merger or sale, unless prior to or
simultaneously with the consummation thereof the surviving or successor
corporation (if other than the Company) resulting from such consolidation or
merger of the corporation purchasing such assets shall assume, by written
instrument executed and mailed to the registered holder hereof at the last
address of such holder appearing on the books of the Company, the obligation
to deliver to such holder such Shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
purchase, and containing the express assumption of such surviving or
successor corporation of the due performance of every provision of this
Warrant to be performed by the Company and of all liabilities and obligations
of the Company hereunder.
(E) In the event of a change in control of the Company, as defined in
this paragraph (E), then the Board of Directors shall accelerate the exercise
date of the Warrant or make this Warrant fully vested and exercisable and, in
its sole discretion, may take any or all of the following actions: (a) grant
a cash bonus award to any holder of this Warrant in an amount necessary to
pay the Exercise Price of all or any portion of the Warrant then held by such
person; (b) pay cash to any holder of this Warrant in exchange for the
cancellation of the holder's Warrant in an amount equal to the difference
between the Exercise Price of such Warrant and the greater of the tender
offer price for the underlying Shares or the Market Price of the Shares on
the date of the cancellation of the Warrant; and (c) make any other
adjustments or amendments to this Warrant. For purposes of this paragraph
(E), a "change in control" shall be deemed to have occurred if (a) any
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended ("1934 Act"), other than a
trustee or other fiduciary holding securities under an employee benefit plan
of the Company is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the 1934 Act), directly or indirectly, of more than 50% of the then
outstanding voting stock of the Company; or (b) at any time during any period
of three consecutive years after the date of this Warrant, individuals who at
the beginning of such period constitute the Board (and any new director whose
election by the Board or whose nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors
then still in office who either were directors at the beginning of such
period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority thereof; or (c) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least 50% of the
combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation.
Page 6 - Annex 1
<PAGE>
(F) In case at any time the Company shall pay any dividend on or make
any other distribution with respect to Shares (or any other securities of the
Company then issuable upon the exercise of the Warrant) that is payable in
Shares, Convertible Securities, any other securities of the Company or other
stock, securities or assets, other than cash, then thereafter, and in lieu of
any adjustment of the Exercise Price and the number of Shares issuable upon
the exercise of this Warrant, the holder of this Warrant, upon any exercise
of the rights represented hereby, shall be entitled to receive the number of
Shares (or other securities) being purchased upon such exercise and, in
addition to and without further payment, the Shares, Convertible Securities,
other securities of any company or other stock, securities or assets which
the holder of this Warrant would have received by way of such distributions
if continuously since the date of the Warrant (or, if this Warrant shall have
been issued pursuant to Section 7 of this Warrant, the date of the
predecessor Warrant to which this Warrant relates) such holder had been the
record holder of the number of Shares (or other securities), then being
purchased and had retained all such Shares, Convertible Securities, other
securities of the Company or other stock, securities or assets distributable
with respect to such Shares (or other securities) and, furthermore, all cash,
stock, securities or assets payable as dividends or distributions with
respect to the foregoing and originating directly or indirectly therefrom.
The Company shall reserve and retain in escrow from any such dividend or
distribution of Shares, Convertible Securities, other securities of the
Company or other stock, securities or assets, and from any such dividends or
distributions with respect thereto and originating directly or indirectly
therefrom, such Shares, Convertible Securities, other securities of the
Company and other stock, securities, assets and cash as shall be necessary to
fulfill its obligations to the holder hereof pursuant to this paragraph (F).
(G) If at any time conditions arise by reason of action taken by the
Company, which in the good faith opinion of the board of directors of the
Company, are not adequately covered by the provisions of this Annex 1, and
which might materially adversely affect the rights of the holder of this
Warrant, the Company shall appoint a firm of independent public accountants
of recognized standing (which may be the regular accountants or auditors of
the Company), which shall give their opinion as to the adjustments, if any,
in the Exercise Price and the number of Shares purchasable upon the exercise
of this Warrant, or other change in the rights of the holder hereof, on a
basis consistent with the other provisions of this Annex 1, necessary to
preserve without diminution the rights of the holder hereof. Upon receipt of
such opinion, the Company shall forthwith make the adjustments described
therein.
(H) (i) Within ten (10) days of any adjustment of the Exercise Price or
change in the number of Shares purchasable upon the exercise of
this Warrant made pursuant to paragraphs (A), (B), (C) , or (F)
or any change in the rights of the holder of this Warrant by
reason of the occurrence of events described in paragraphs (D),
(E), or (F), the Company shall give written notice by certified
or registered mail to the registered holder of this Warrant at
the address of such holder as shown on the books of the Company,
which notice shall describe the event requiring such adjustments
(with respect to any adjustment made pursuant to paragraphs (C),
(D), (E) or (F), the Exercise Price resulting
Page 7 - Annex 1
<PAGE>
from such adjustment, the increase or decrease, if any, in the
number of Shares purchasable upon the exercise of this Warrant,
or the other change in the rights of such holder, and set forth
in reasonable detail the method of calculation of such
adjustments and the facts upon which such calculations are based.
Within two (2) days of receipt from the holder of this Warrant
upon the surrender hereof for exercise pursuant to Section 1 of
this Warrant, and within three (3) days of receipt from the
holder hereof a written request therefor (which request shall not
be made more than once each calendar quarter), the Company shall
give written notice by certified or registered mail to such
holder at his address as shown on the books of the Company of the
Exercise Price in effect as of the date of receipt by the Company
of this Warrant for exercise, or the date of receipt of such
written request, and the number of Shares purchasable or the
number or amount of other shares of stock, securities or assets
receivable as of such date, and set forth in reasonable detail
the method of calculation of such numbers; provided that no
further adjustments to the Exercise Price or the number of Shares
purchasable or number or amount of shares, securities or assets
receivable on exercise of this Warrant shall be made after
receipt of this Warrant by the Company for exercise.
(ii) Upon each adjustment of the Exercise Price and each change in the
number of Shares purchasable upon the exercise of this Warrant,
and change in the rights of the holder of this Warrant by reason
of the occurrence of other events herein set forth, then and in
each case, upon written request of the holder of this Warrant
(which request shall be made not more often than once each
calendar year), the Company will at its expense promptly obtain
an opinion of independent public accountants reasonably
satisfactory to each holder stating the then effective Exercise
Price and the number of Shares then purchasable, or specifying
the other shares of stock, securities or assets and the amount
thereof then receivable, and setting forth in reasonable detail
the method of calculation of such numbers and the facts upon
which such calculations are based. The Company will promptly
mail a copy of such opinion to the registered holder hereof.
(I) In case at any time:
(i) The Company shall pay any dividend payable in capital stock on
its outstanding Shares or make any distribution (other than
regular cash dividends) to the holders of Shares;
(ii) The Company shall offer for subscription pro rata to the holders
of Shares any additional capital stock or other rights;
Page 8 - Annex 1
<PAGE>
(iii) There shall be authorized any capital reorganization or
reclassification of the capital stock of the Company, or
consolidation or merger of the Company with, or sale of all or
substantially all of its assets to, another corporation; or
(iv) There shall be authorized or commence a voluntary or involuntary
dissolution, liquidation or winding up of the Company.
then, in one or more of said cases, the Company shall given written notice by
certified or registered mail to Bradshaw at the address of Bradshaw as shown
on the books of the Company on the date on which (1) the books of the Company
shall close or a record shall be taken for such dividend, distribution, or
subscription rights, or (2) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up shall
take place or be voted upon by the shareholders of the Company, as the case
may be. Such notice shall also specify the date as of which the holders of
record of Shares shall participate in such dividend, distribution or
subscription rights, or shall be entitled to exchange their Shares for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. Such written notice shall be given at least
thirty (30) days prior to the action in question and no less than thirty (30)
days prior to the record date or the date on which the Company's books are
closed in respect thereto.
Page 9 - Annex 1
<PAGE>
EXHIBIT A
- ---------
SUBSCRIPTION FORM
To be Executed by the Registered Holder
Desiring to Exercise the Within Warrant of
TIPPERARY CORPORATION
The undersigned registered holder hereby exercises the right to purchase
___________ Shares covered by the within Warrant according to the conditions
thereof, and herewith makes payment of the Exercise Price of such Shares,
$_______________.
Name of Registered Holder:
-----------------------------------------------------
Signature:
---------------------------------------------------------------------
Title of Signing Officer
or Agent (if any):
------------------------------------------------------------
Address of Registered Holder:
-------------------------------------------------
Tax I.D. No.:
----------------------------------------------------------------
Dated: , 19 .
------------------- ----
<PAGE>
THIS WARRANT AND THE RIGHTS REPRESENTED HEREBY SHALL NOT BE TRANSFERABLE AT ANY
TIME UNLESS (I) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, SHALL BE IN EFFECT WITH RESPECT TO THIS WARRANT OR THE SHARES ISSUABLE
HEREUNDER AT SUCH TIME, OR (II) THE TRANSFER IS MADE IN COMPLIANCE WITH THE
PROVISIONS OF SECTION 5.
NUMBER: 15,000 SHARES
WARRANT
TO PURCHASE SHARES
OF
TIPPERARY CORPORATION
This certifies that, for value received, Kenneth L. Ancell, an
individual residing in Houston, Texas ("Ancell"), or his registered assigns,
is entitled to purchase from TIPPERARY CORPORATION, a Texas corporation (the
"Company"), fifteen thousand (15,000) Shares, at the price of Four Dollars
and 25/100 ($4.25) per Share (as defined in Section 3) at any time, or in
part from time to time in accordance with the following Vesting Schedule
("Vesting Schedule"):
Date: Total Shares Subject to Exercise
From and after August 26, 1998 5,000
From and after August 26, 1999 5,000
From and after August 26, 2000 5,000
This Warrant shall expire, if not exercised prior thereto, two (2) years
after the resignation or removal of Ancell as a director of the Company. If
Ancell should resign or be removed as a director from the Company, then this
Warrant shall be vested only to the extent vested on such date of resignation
or removal according to the Vesting Schedule. The provisions as to
adjustment of the initial exercise price set forth above and the number of
Shares to be issued upon the occurrence of certain events (the Provisions as
to Adjustment) are more fully set forth in Annex I hereto. (Hereinafter, the
initial exercise price set forth above in this paragraph for the purchase of
Shares upon the exercise of this Warrant, as adjusted pursuant to the
Provisions as to Adjustment, is referred to as the "Exercise Price"). This
Warrant is subject to the following provision, terms and conditions:
1. EXERCISE OF WARRANT.
(a) The rights represented by this Warrant may be exercised by the holder
hereof, in whole or in part, (but not as to a fractional Share), by the
surrender of this Warrant at the Company's principal office located in Denver,
Colorado (or such other office or agency of the Company as the Company may
designate by notice in writing to the holder hereof at the address of such
holder appearing on the books of the Company at any time within the period above
named) and delivery of a completed subscription form in the form attached to
this Warrant as Exhibit A, and upon payment to the Company of the Exercise Price
for such Shares.
<PAGE>
(b) Payment of the Exercise Price shall be made by a combination of any
one or more of the following:
(i) By application, to the extent permitted by applicable law, of
Shares or other securities of the Company owned by the holder
hereof, the value of which for such purpose shall be the fair
market value thereof determined in good faith by the Company and
the holder hereof at the time of such exercise; provided,
however, that in order to apply such Shares or other securities
of the Company in the exercise hereof, each of the following
conditions must be met:
(A) Such Shares or other securities of the Company shall have
been owned, without material encumbrance, contingency or
risk of forfeiture relating to the ownership rights, for at
least six months and at all times during said six month
period by the holder hereof, and within said six month
period such Shares or other securities of the Company shall
not have been obtained through exercise of any option,
warrant or right to obtain such Shares of other securities
or through the conversion of any other security; and
(B) Such Shares or other securities shall not be or include: (1)
options, warrants or similar rights to acquire Shares or
other securities of the Company by the holder hereof; or (2)
securities owned by the holder hereof which are convertible
in whole or in part into Shares or other securities of the
Company.
(ii) in cash or by certified check or bank draft in New York Clearing
House funds.
(c) The Company agrees that any Shares so purchased by the exercise of
this Warrant shall be deemed to be issued to the holder hereof as the record
owner of such Shares as of the close of business on the date on which this
Warrant shall have been surrendered, the completed subscription form
delivered, and payment in full is made and delivered to the Company for such
Shares as aforesaid.
(d) Stock certificates evidencing Shares so purchased shall be
delivered to the holder hereof as promptly as practicable, after the rights
represented by this Warrant shall have been so exercised. If this Warrant
shall have been exercised only in part, and unless this Warrant has expired,
a new Warrant representing the number of Shares with respect to which this
Warrant shall not then have been exercised shall also be delivered to the
holder hereof within such time. Notwithstanding the foregoing, however, the
Company shall not be required to deliver any stock certificate evidencing
Shares upon exercise of this Warrant except in accordance with the
provisions, and subject to the limitations, of Section 5. The Company will
pay all expenses and charges payable
Page 2 - Warrant to Purchase Shares
<PAGE>
in connection with the preparation, execution and delivery of stock certificates
and any new Warrants or promissory notes.
2. CERTAIN COVENANTS OF THE COMPANY. The Company covenants and agrees as
follows:
(a) All Shares which may be issued upon the exercise of the rights
represented by this Warrant (all such Shares, whether previously issued or
subject to issuance upon the exercise of this Warrant, are from time to time
referred to herein as "Warrant Shares") will, upon issuance, be duly
authorized and issued, fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issuance thereof.
(b) During the period within which the rights represented by this
Warrant may be exercised, and only insofar as the Vesting Schedule herein
permits the exercise of this Warrant, the Company will at all times have
authorized and reserved free of preemptive or other rights for the exclusive
purpose of issuance upon exercise of the purchase rights evidenced by this
Warrant, a sufficient number of Shares to provide for the exercise of rights
represented by this Warrant.
(c) The Company will not, by amendment or restatement of the Articles
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, issuance or sale of securities or otherwise, avoid or
take any action which would have the effect of avoiding the performance of
any of the terms to be performed hereunder by the Company, but will at all
times in good faith carry out all of the provisions of this Warrant and take
all such action as may be necessary or appropriate to protect the rights of
the holder hereof against dilution or other impairment and, in particular,
will not permit the par value of any Share to be or become greater than the
then effective Exercise Price.
3. DEFINITION OF SHARES. As used herein, the term "Shares" shall mean
and include shares of the Common Stock, par value $.02 per share, of the
Company as are constituted and exist on the date hereof, and shall also
include any other class of the capital stock of the Company hereafter
authorized which shall neither be limited to a fixed sum or percentage of par
value in respect to the rights of the holders thereof to receive dividends
and to participate in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding up of the Company, nor be
subject at any time to redemption by the Company; provided that the Shares
receivable upon exercise of this Warrant shall include only Shares of the
type as are constituted and exist on the date hereof or Shares resulting from
any reclassification of the Shares as provided for in paragraph (C) of the
Provisions as to Adjustment.
4. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof as such to any rights whatsoever, including,
without limitation, voting rights, as a holder of Shares of the Company. No
provisions hereof, in the absence of affirmative action by the holder hereof
to purchase Shares, and no mere enumeration herein of the rights or
privileges of such holder, shall give rise to any liability of such holder as
a holder of Shares of the Company, regardless of who may assert such
liability.
Page 3 - Warrant to Purchase Shares
<PAGE>
5. RESTRICTIONS ON TRANSFER.
(a) This Warrant shall not be exercisable by a transferee hereof and/or
transferable and the Warrant Shares shall not be transferable except upon the
conditions specified in this Section 5, which conditions are intended, among
other things, to ensure compliance with the provisions of the Securities Act
of 1933, as amended, and the rules and regulations of the Securities and
Exchange Commission (the "Commission") thereunder (collectively the
"Securities Act"), in respect of the exercise and/or transfer of this Warrant
and/or transfer of such Warrant Shares.
(b) This Warrant and the Warrant Shares shall not be transferable
(except for a transfer of this Warrant or the Warrant Shares in an offering
registered under the Securities Act, including, without limitation, a
transfer in a registered offering effected pursuant to Section 6, and any
subsequent transfer) unless, prior to any transfer, the holder hereof shall
have received from its transferee reasonable assurances that such person is
aware that this Warrant and the Warrant Shares have not been registered under
the Securities Act and that such person is acquiring this Warrant or the
Warrant Shares for investment only and not with the view to the disposition
or public offering thereof (unless in an offering registered under the
Securities Act of 1933 or exempt therefrom), and that such person is aware
that the stock certificates evidencing the Warrant Shares shall bear a legend
restricting transfer and disposition thereof in accordance with the
Securities Act unless, in the opinion of counsel to the Company, such legend
may be omitted. In the event of any transfer of this Warrant (other than a
transfer in an offering registered under the Securities Act, including,
without limitation, a transfer in a registered offering effected pursuant to
Section 6, and any subsequent transfer), the holder hereof shall provide an
opinion of counsel, who shall be reasonably satisfactory to the Company, that
an exemption from the registration requirements of the Securities Act is
available.
(c) Any permitted subsequent holder of this Warrant shall be subject to
all the terms and conditions herein, and shall acknowledge, in writing, upon
receipt of this Warrant his or her acceptance of the terms and conditions
herein.
(d) To facilitate sales by a holder of this Warrant or Warrant Shares
in transactions qualifying under Rule 144 promulgated by the Commission under
the Securities Act, if available, the Company agrees to satisfy the current
public information requirements of said Rule 144, for as long as the Shares
remain registered under the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder (collectively the
"Exchange Act"), and to provide said holder upon request with such other
information as such holder may require for compliance with the provisions of
said Rule 144.
6. REGISTRATION UNDER SECURITIES ACT.
(a) If the Company at any time proposes to register any issuance of its
securities under the Securities Act (other than a registration on Form S-8 in
connection with an employee stock
Page 4 - Warrant to Purchase Shares
<PAGE>
purchase or option plan or on Form S-4 in connection with mergers,
acquisitions or exchange offerings), the Company will at such time give
prompt written notice to the holder hereof and to the holders of all other
Warrant Shares issuable from any outstanding Warrants (such holders are
hereinafter referred to as the "Prospective Sellers") of its intention to do
so. Upon the written request of a Prospective Seller, given within 30 days
after receipt of any such notice (which request shall state the intended
method of disposition of the Warrant Shares to be transferred by such
Prospective Seller), the Company shall use its best efforts to cause all
Warrant Shares, the holders of which (or of the Warrants to which the same
are related), to the extent vested in accordance with the Vesting Schedule,
shall have so requested registration of the transfer thereof, to be
registered under the Securities Act, all to the extent requisite to permit
the sale or other disposition (in accordance with the intended method thereof
as aforesaid) by the Prospective Sellers of such Warrant Shares. The rights
granted pursuant to this Section 6(a) shall not be effective with respect to
the Prospective Seller in the case of an underwritten public offering of
securities of the Company by the Company unless each Prospective Seller
agrees to the terms and conditions, including underwriting discounts and
allowances, specified by the managing underwriter of such offering with
respect to such Warrant Shares. The Company shall have the right to reduce
the number of Warrant Shares of the Prospective Sellers to be included in a
registration statement pursuant to the exercise of the rights granted by this
Section 6(a) if, and to the extent, that the managing underwriter of such
offering is of the good faith opinion, supported by written reasons therefor,
that the inclusion of such Warrant Shares would materially adversely affect
the marketing of the securities of the Company to be offered; provided, that
any such reduction of the number of Warrant Shares the transfer of which is
to be registered on behalf of the Prospective Sellers shall be made on the
basis of a pro rata reduction of all Warrant Shares of all Prospective
Sellers.
(b) If and whenever the Company is required by the provisions of this
Section 6 to use its best efforts to effect the registration of any transfer
of Warrant Shares under the Securities Act, the Company will, as
expeditiously as possible,
(i) prepare and file with the Commission a registration statement
with respect to such transfer and use its best efforts to cause
such registration statement to become and remain effective, but
not for any period longer than nine months;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such
registration statement effective, and to comply with the
provisions of the Securities Act with respect to the transfer of
all securities covered by such registration statement, including,
without limitation, taking all necessary actions whenever the
Prospective Sellers of the Warrant Shares covered by such
registration statement shall desire to dispose of the same;
(iii) furnish to each Prospective Seller such number of copies of a
prospectus, including a preliminary prospectus, in conformity
with the requirements of
Page 5 - Warrant to Purchase Shares
<PAGE>
the Securities Act, and such other documents, as such Prospective
Seller may reasonably request in order to facilitate the
disposition of the Warrant Shares owned by such Prospective
Seller and covered by such registration statement;
(iv) use its best efforts to register or qualify the securities
covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each
Prospective Seller shall request, and use its best efforts to do
any and all other acts and things which may be reasonably
necessary to enable such Prospective Seller to consummate the
disposition in such jurisdiction of the Warrant Shares owned by
such Prospective Seller and covered by such registration
statement; provided that, notwithstanding the foregoing, the
Company shall not be required to register in any jurisdiction as
a broker or dealer of securities or to grant its consent to
service of process in any such jurisdiction solely on account of
such intended disposition by such Prospective Seller;
(v) furnish to the Prospective Sellers whose intended dispositions
are registered a signed copy of an opinion of counsel for the
Company, in form and substance acceptable to such Prospective
Sellers, to the effect that: (A) a registration statement
covering such dispositions of Warrant Shares has been filed with
the Commission under the Securities Act and has been made
effective by order of the Commission, (B) such registration
statement and the prospectus contained therein and any amendments
or supplements thereto comply as to form in all material respects
with the requirements of the Securities Act, and nothing has come
to such counsel's attention which would cause him to believe that
the registration statement or such prospectus, amendment or
supplement, at the time such registration statement or amendment
became effective or such supplement was filed with the
Commission, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein (in the case of such
prospectus, amendment or supplement, in the light of the
circumstances under which they were made) not misleading
(provided that such counsel need not render any opinion with
respect to the financial statements and other financial,
engineering and statistical data included therein), and (C) to
the best of such counsel's knowledge, no stop order has been
issued by the Commission suspending the effectiveness of such
registration statement and no proceedings for the issuance of
such a stop order are threatened or contemplated;
(vi) furnish to the Prospective Sellers whose intended dispositions
are required a blue sky survey in the form and of the substance
customarily prepared by counsel for the Company and accepted by
sellers of securities in similar offerings, discussing and
describing the application provisions of the
Page 6 - Warrant to Purchase Shares
<PAGE>
securities or blue sky laws of each state or jurisdiction in
which the Company shall be required, pursuant to Section
6(c)(iv), to register or qualify such intended dispositions of
such Warrant Shares, or, in the event counsel for the
underwriters in such offering shall be preparing a blue sky
survey, cause such counsel to furnish such survey to, and to
allow reliance thereon by, such Prospective Sellers;
(vii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission under the Securities Act
and the Exchange Act, insofar as they relate to such registration
and such registration statement; and
(viii) use its best efforts to list such Warrant Shares on any
securities exchange on which any securities of the Company are
then listed or to admit such Warrant Shares for trading in any
national market system in which any securities of the Company are
then admitted for trading, if the listing or admission of such
securities is then permitted under the rules of such exchange or
system.
(c) With respect to the registration by the Company of transfers of
Warrant Shares under the Securities Act pursuant to Section 6(a), the Company
shall pay all expenses incurred by it in complying with this Section 6
(including, without limitation, all registration and filing fees, printing
expenses, blue sky fees and expenses, costs and expenses of audits, and
reasonable fees and disbursements of counsel for the Company and special
counsel designated by Prospective Sellers owning a majority of the Warrant
Shares covered by such registration, but specifically excluding any
underwriting discounts and allowances that are allocable to the Warrant
Shares being sold by, and which shall be paid by, the Prospective Sellers;
provided, however, that if any registration statement filed with the
Commission by the Company under Section 6(a) shall not be declared effective
by the Commission, such attempted registration shall not constitute a
registration under this Section 6(c).
(d) It shall be a condition precedent to the obligations of the Company
to take any action pursuant to this Section 6 that each Prospective Seller,
the transfer of whose Warrant Shares is registered or to be registered under
each such registration, shall furnish to the Company such written information
regarding the securities held by such Prospective Seller as the Company shall
reasonably request and as shall be required in connection with the action to
be taken by the Company.
(e) (i) In the event of any registration of any transfer of Warrant
Shares under the Securities Act pursuant to this Section 6, the Company will
indemnify and hold harmless each Prospective Seller of such securities, each
of its officers, directors and partners, and each other person, if any, who
controls such Prospective Seller within the meaning of the Securities Act,
and each underwriter, if any, who participates in the offering of such
securities, against any losses, claims, damages or liabilities (or actions in
respect thereof), joint or several, to which each Prospective Seller,
officer, director or partner, controlling person or underwriter may become
subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or
(Page 7 - Warrant to Purchase Shares
<PAGE>
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained, on the
effective date thereof, in any registration statement under which such
transfer of securities was registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation by the Company of the Securities Act, and will reimburse such
Prospective Seller and each of its officers, directors and partners, and each
such controlling person or underwriter, for any legal or any other expenses
reasonably incurred by such Prospective Seller or its officers, directors and
partners or controlling persons or by each such underwriter, in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, preliminary
prospectus or prospectus or such amendment or supplement in reliance upon and
in conformity with written information furnished to the Company through an
instrument duly executed by such Prospective Seller specifically for use in
the preparation thereof. In the event of any registration by the Company or
any transfer of securities under the Securities Act pursuant to this Section
6, each Prospective Seller of Warrant Shares covered by such registration
will indemnify and hold harmless the Company, each other person, if any, who
controls the Company within the meaning of the Securities Act and each
officer and director of the Company and the other Prospective Sellers to the
same extent that the Company agrees to indemnify it, but only with respect to
the written information relating to such Prospective Seller furnished to the
Company by such Prospective Seller aforesaid.
(ii) Each indemnified party shall, as promptly as practicable upon
receipt of notice of the commencement of any action against such indemnified
party or its officers, directors or partners, or any controlling person of
such indemnified party, in respect of which indemnity may be sought from an
indemnifying party on account of the indemnity agreement contained in Section
6(e)(i), notify the indemnifying party in writing of the commencement
thereof. The omission of such indemnified party to so notify the indemnifying
party of any such action shall not relieve the indemnifying party from any
liability which it may have on account of the indemnity agreement contained
in Section 6(e)(i) to the extent that the failure to receive such notice
within a reasonable period of time shall not have caused harm, loss or damage
to the indemnifying party, provided that, conversely, if such failure to
receive notice shall have caused any harm, loss or damage to the indemnifying
party, such failure shall constitute a defense to any liability which such
indemnifying party may have on account of such agreement to the extent of the
harm, loss or damage so caused. In case any such action shall be brought
against any indemnified party, its officers, directors and partners, or any
such controlling person, and such indemnified party shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in (and, to the extent that the indemnifying party
shall wish, to direct) the defense thereof at the indemnifying party's own
expense, in which event the defense shall be conducted by recognized counsel
chosen by the indemnifying party and approved by the indemnified party (whose
approval shall not unreasonably be withheld) and the indemnified party may
participate in such defense at its own
Page 8 - Warrant to Purchase Shares
<PAGE>
expense (unless it is advised by counsel that actual or potential differing
interests or defenses exist or may exist, in which case such expenses shall
be paid by the indemnifying party, provided that the indemnifying party shall
not be required to pay the expenses for more than one counsel for all such
indemnified parties).
7. TRANSFER; OWNERSHIP. Subject to Section 5, this Warrant and all
rights hereunder are transferable, in whole or in part, at the office or
agency of the Company referred to in Section 1 by the holder hereof in person
or by a duly authorized attorney, upon surrender of this Warrant, with an
assignment, acceptable to the Company, duly completed, at which time a new
Warrant shall be made and delivered by the Company, of the same tenor as this
Warrant but registered in the name of the transferee. The holder of this
Warrant, by taking or holding the same, consents and agrees that this
Warrant, when endorsed in blank, shall be deemed negotiable, and that the
holder hereof, when this Warrant shall have been so endorsed, may be treated
by the Company and all other persons dealing with this Warrant as the
absolute owner hereof for any purpose and as the person entitled to exercise
the rights represented by this Warrant and to transfer this Warrant on the
books of the Company, any notice to the contrary notwithstanding; but until
such transfer on such books, the Company may treat the registered holder
hereof as the owner hereof for all purposes. Any transfer of this Warrant
shall be made in compliance with the Securities Act and any applicable
statute securities or blue sky laws.
8. EXCHANGE AND REPLACEMENT. Subject to Section 7, this Warrant is
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Section 1, for new Warrants of like
tenor and date representing in the aggregate the right to purchase the number
of Shares which may be purchased hereunder, each of such new Warrants to
represent the right to purchase such number of Shares as shall be designated
by said holder hereof at the time of such surrender. Upon receipt by the
Company at the office or agency referred to in Section 1 of evidence
reasonably satisfactory to it of the loss, theft or destruction of this
Warrant and of indemnity or security reasonably satisfactory to it (provided
that the written indemnity of the holder hereof shall be deemed reasonably
satisfactory to the Company for such purposes), the Company will deliver a
new Warrant of like tenor and date in replacement of this Warrant. This
Warrant shall be promptly canceled by the Company upon the surrender hereof
in connection with any transfer, exchange or replacement. The Company will
pay all expenses and charges payable in connection with the preparation,
execution and delivery of Warrants pursuant to Section 7 and this Section 8.
9. NOTICES. Any notice or other document required or permitted to be
given or delivered to the holder hereof shall be delivered at, or sent by
certified or registered mail to, Kenneth L. Ancell, 1155 Dairy Ashford, Suite
206, Houston, Texas 77079, or to such other address as shall have been
furnished to the Company in writing by the holder hereof. Any notice or
other document required or permitted to be given or delivered to the Company
shall be delivered at, or sent by certified or registered mail to, 633
Seventeenth, Suite 1550, Denver, Colorado 80202, or to such other address as
shall have been furnished in writing to the holder hereof by the Company. Any
Page 9 - Warrant to Purchase Shares
<PAGE>
notice so addressed and mailed by registered or certified mail or otherwise
delivered, shall be deemed to be given when actually received by the addressee.
10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
11. MISCELLANEOUS. This Warrant will be binding upon any entity
succeeding to the Company by consolidation or acquisition of all or
substantially all of the Company's assets, and upon any successor or assign
of the holder hereto. This Warrant and any provision hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by
the party (or any predecessor in interest thereof) against whom enforcement
of the same is sought. The headings in this Warrant are for purposes of
reference only and shall not affect the meaning or construction of any of the
provisions hereon.
IN WITNESS WHEREOF, Tipperary Corporation has caused this Warrant to be
signed by its duly authorized officers, under its corporate seal, to be dated
October 21, 1997.
TIPPERARY CORPORATION
BY: /s/ David L. Bradshaw
-----------------------------------------------
ITS: President
(CORPORATE SEAL)
ATTEST: /s/ Elaine R. Treece
---------------------------
ITS: Secretary
Page 10 - Warrant to Purchase Shares
<PAGE>
Annex 1
TIPPERARY CORPORATION
PROVISIONS AS TO ADJUSTMENT OF
EXERCISE PRICE AND NUMBER OF SHARES
ISSUED UPON OCCURRENCE OF CERTAIN EVENTS
The Exercise Price and the number of Shares issuable upon the exercise of the
annexed Warrant to purchase shares of TIPPERARY CORPORATION, a Texas
corporation (herein and in this Warrant referred to as the "Company"), shall
be subject to adjustment from time to time as hereinafter provided; that in
no event shall the Exercise Price be increased to a price greater than Four
Dollars and 25/100 ($4.25) per Share, except as provided by paragraph (C).
Upon each adjustment of the Exercise Price, the holder of this Warrant shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of Shares obtained by multiplying the number of Shares
purchasable pursuant hereto immediately prior to such adjustment by a
fraction, the numerator of which is the Exercise Price in effect immediately
prior to such adjustment and the denominator of which is the Exercise Price
resulting from such adjustment. In making the adjustments to the Exercise
Price and the number of Shares issuable upon the exercise of this Warrant,
the following provisions shall be applicable:
(A) If and whenever the Company shall issue or sell any Shares for
consideration per Share that is less than the Exercise Price in effect
immediately prior to the time of such issue or sale at less than the Market
Price (as hereinafter defined) of such Shares on the date of such issue or
sale, then forthwith upon such issue or sale the Exercise Price in effect
immediately prior thereto shall be adjusted to an amount (calculated to the
nearest cent) determined by dividing (i) an amount equal to the sum of (a)
the number of Shares outstanding immediately prior to such issue or sale
multiplied by the Exercise Price in effect immediately prior to such issue or
sale, and (b) the consideration, if any, received by the Company upon such
issue or sale by (ii) the total number of Shares outstanding immediately
after such issue or sale; provided, however, that no adjustment shall be made
hereunder by reason of:
(i) the grant of this Warrant or the issuance of Shares upon the
exercise of this Warrant or any other outstanding Warrant;
(ii) the grant by the Company of options to purchase shares in
connection with any purchase or option plan for the benefit of
employees of the Company, or any affiliates or subsidiaries
thereof; or
(iii) the issuance (whether directly or by assumption in a merger or
otherwise) or sale (including any issuance or sale to holders of
Shares) of any securities convertible into or exchangeable for
Shares (such convertible or exchangeable securities are herein
referred to as "Convertible Securities"), or the grant of rights
to subscribe for or to purchase, or of options for the purchase
of (including any grant of such rights or options to holders of
<PAGE>
shares, other than pursuant to a dividend on Shares), Shares of
Convertible Securities, regardless of whether the right to
convert or exchange such Convertible Securities or such rights or
options are immediately exercisable.
No adjustment of the Exercise Price shall be required to be made by the
Company and no notice hereunder must be given if the amount of any required
adjustment is less than 5% of the Exercise Price. In such case any such
adjustment shall be carried forward and shall be made (and notice thereof
shall be given hereunder) at the time of and together with the next
subsequent adjustment which, together with any adjustment so carried forward,
shall amount to not less than 5% of the Exercise Price.
(B) For the purposes of paragraph (A), the following provisions (i)
through (vi), inclusive, shall also be applicable:
(i) If, at the time Shares are issued and sold upon the conversion or
exchange of Convertible Securities or upon the exercise of rights
or options previously granted by the Company, the price per Share
for which such Shares are issued (determined by dividing (a) the
total amount, if any, received by the Company as consideration
for such Convertible Securities or for the granting of such
rights or options, plus the aggregate amount of additional
consideration paid to the Company upon the conversion or exchange
of such Convertible Securities (which, if so provided in such
Convertible Securities, shall be deemed to be equal to the
outstanding principal amount of the indebtedness represented by
such Convertible Securities) or upon the exercise of such rights
or options, by (b) the total number of Shares issued upon the
conversion or exchange of such Convertible Securities or upon the
exercise of such rights or options) shall be less than the
Exercise Price in effect immediately prior to such issue, sale or
exercise, then the adjustments provided for by the first
paragraph of this Annex 1 and paragraph (A) shall be made. In
making the adjustment of the Exercise Price provided for by
paragraph (A), the amount described in clause (a) of this
paragraph (B)(i) shall be considered the consideration received
by the Company upon the issue or sale of the Shares for purposes
of clause (i)(b) of paragraph (A).
(ii) In case at any time any Shares or Convertible Securities or any
rights or options to purchase any Shares or Convertible
Securities shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by
the Company therefor without deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or
allowed by the Company in connection therewith. In case any
Shares or Convertible Securities or any rights or options to
purchase any Shares or Convertible Securities shall be issued or
sold, in whole or in part, for consideration other than cash, the
amount of the consideration other than cash
Page 2 - Annex 1
<PAGE>
received by the Company in exchange for the issue or sale of such
Convertible Securities shall be deemed to be the fair value of
such consideration as determined in good faith by the board of
directors of the Company, without deduction therefrom of any
expenses incurred or any underwriting commissions or concessions
paid or allowed by the Company in connection therewith; provided
that if the holder or holders of at least 66-2/3% of the Warrant
Shares purchasable under this Warrant shall request in writing,
the value of such consideration shall be determined by an
independent expert selected by such holders, the costs and
expenses of which shall be borne by the Company, and, if the
value of such consideration as so determined is less than the
value determined by the board of directors of the Company, the
lesser value shall be utilized in calculating the consideration
per Share received by the Company for purposes of making the
adjustment provided by paragraph (A). In the event of any merger
or consolidation of the Company in which the Company is not the
surviving corporation or in the event of any sale of all or
substantially all of the assets of the Company for stock or other
securities of any corporation, the Company shall be deemed to
have issued a number of Shares for stock or securities of such
other corporation computed on the basis of the actual exchange
ratio on which the transaction was predicated and for
consideration that is equal to the fair market value on the date
of such transaction of such stock or securities of the other
corporation, and if any such calculation results in adjustment of
the Exercise Price, the determination of the number of Shares
issuable upon exercise of this Warrant immediately prior to such
merger, consolidation or sale, for purposes of paragraph (A),
shall be made after giving effect to such adjustment of the
Exercise Price.
(iii) The number of Shares outstanding at any given time shall not
include Shares that have been redeemed by the Company and not
canceled, if any, and that are thus owned or held by or for the
account of the Company, and the disposition of any such Shares
shall be considered an issue or sale of Shares for purposes of
paragraph (A).
(iv) "Market Price" shall mean the lower of (a) the average closing
sales prices of Shares recorded on the principal national
securities exchange on which the Shares are listed or in a
national market system for securities in which the Shares are
admitted to trading or (b) the average of the closing bid and
asked prices of Shares reported in the domestic over-the-counter
market, for the 20 trading days immediately prior to the day as
of which the Market Price is being determined. If the Shares are
not listed on any national securities exchange or admitted for
trading in any national market system or traded in the domestic
over-the-counter market, the Market Price shall be the higher of
(y) the book value of the Shares as determined by a firm of
independent
Page 3 - Annex 1
<PAGE>
public accountants of recognized standing selected by the board
of directors of the Company as of the last day of any month
ending within 60 days preceding the date as of which the
determination is to be made or (z) the fair market value of the
Shares determined in good faith by the board of directors of the
Company, provided that if the holder or holders of at least
66-2/3% of the Warrant Shares purchasable under the Warrant shall
request in writing, the fair market value of the Shares shall be
determined by an independent investment banking firm or other
independent expert selected by such holders and reasonably
satisfactory to the Company, which determination shall be as of a
date which is within 15 days of the date as of which the
determination is to be made.
(v) Anything herein to the contrary notwithstanding, in case the
Company shall issue any Shares in connection with the acquisition
by the Company of the stock or assets of any other corporation or
the merger of any other corporation into the Company under
circumstances where, on the date of the issuance of such Shares,
the consideration received for such Shares is less than the
market price of the Shares, but on the date the number of Shares
was determined, the consideration received for such Shares would
not have been less than the Market Price thereof, such Shares
shall not be deemed to have been issued for less than the Market
Price;
(vi) Anything in clause (ii) of this paragraph (B) to the contrary
notwithstanding, in the case of an acquisition where all or part
of the purchase price is payable in Shares or Convertible
Securities but is stated as a dollar amount, where the Company
upon making the acquisition pays only part of a maximum dollar
purchase price which is payable in Shares or Convertible
Securities and where the balance of such purchase price is
deferred or is contingently payable under a formula related to
earnings over a period of time, (a) the consideration received
for any Shares or Convertible Securities delivered at the time of
the acquisition shall be deemed to be such part of the total
consideration as the portion of the dollar purchase price then
paid in Shares or Convertible Securities bears to the total
maximum dollar purchase price payable in Shares or Convertible
Securities and (b) in connection with each issuance of additional
Shares or Convertible Securities pursuant to the terms of the
agreement relating to such acquisition, the consideration
received shall be deemed to be such part of the total
consideration as the portion of the dollar purchase price then
and theretofore paid in Shares or Convertible Shares bears to the
total maximum dollar purchase price payable in Shares or
Convertible Securities multiplied by a fraction, the numerator of
which shall be the number of Shares (or in the case of
Convertible Securities other than capital stock of the Company,
the aggregate principal amount of such Convertible Securities)
then issued and the denominator of which shall be the
Page 4 - Annex 1
<PAGE>
total number of shares (or in the case of Convertible Securities
other than capital stock of the Company, the aggregate principal
amount of such Convertible Securities) then and theretofore
issued under such acquisition agreement. In the event only a
part of the purchase price for an acquisition is paid in Shares
or Convertible Securities in the manner referred to in this
clause (vi), the term "total consideration" as used in this
clause (vi) shall mean that part of the aggregate consideration
as is fairly allocable to the purchase price paid in Shares or
Convertible Securities in the manner referred to in this clause
(vi), as determined by the board of directors of the Company.
(C) In the case at any time the Company shall subdivide its outstanding
Shares into a greater number of Shares, then from and after the record date for
such subdivision the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Shares
purchasable upon the exercise of this Warrant shall be correspondingly
increased, and, conversely, in case the outstanding Shares shall be combined
into a smaller number of Shares, then from and after the record date for such
combination the Exercise Price in effect immediately prior to such combination
shall be proportionately increased and the number of Shares purchasable upon the
exercise of this Warrant shall be correspondingly decreased.
(D) Unless the provisions of paragraph (E) apply, if any capital
reorganization or reclassification of the capital stock of the Company, or
consolidation or merger of the Company with another corporation, or sale of all
or substantially all of its assets to another corporation, shall be effected in
such a way that holders of Shares (or any other securities of the Company then
issuable upon the exercise of this Warrant) shall be entitled to receive stock,
securities or assets with respect to or exchange for Shares (or such other
securities) then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provision shall be made
whereby the holder hereof shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the Shares (or other securities) of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of outstanding
Shares (or other securities) equal to the number of Shares (or other securities)
immediately theretofore so purchasable and receivable had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in any such
case appropriate provision shall be made with respect to the rights and
interests of the holder of this Warrant to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Exercise Price
and of the number of Shares (or other securities) purchasable upon the exercise
of this Warrant and for the registration thereof as provided in Section 6 of
this Warrant) shall thereafter be applicable, as nearly as may be, in relation
to any shares of stock, securities or assets thereafter deliverable upon the
exercise hereof (including an immediate adjustment, by reason of such
consolidation, merger or sale, of the Exercise Price to the value of the Shares
(or other securities) reflected by the terms of such consolidation, merger or
sale if the value so reflected is less than the Exercise Price in effect
immediately prior to such consolidation, merger or sale). In the event of a
consolidation or merger of the Company with or into another corporation as a
result of
Page 5 - Annex 1
<PAGE>
which a greater or lesser number of securities of the surviving corporation are
issuable to holders of Shares in respect of the number of Shares outstanding
immediately prior to such consolidation or merger, then the Exercise Price in
effect immediately prior to such consolidation or merger shall be adjusted in
the same manner as though there were a subdivision or combination of the
outstanding Shares. The Company shall not effect any such consolidation, merger
or sale, unless prior to or simultaneously with the consummation thereof the
surviving or successor corporation (if other than the Company) resulting from
such consolidation or merger of the corporation purchasing such assets shall
assume, by written instrument executed and mailed to the registered holder
hereof at the last address of such holder appearing on the books of the Company,
the obligation to deliver to such holder such Shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may be
entitled to purchase, and containing the express assumption of such surviving or
successor corporation of the due performance of every provision of this Warrant
to be performed by the Company and of all liabilities and obligations of the
Company hereunder.
(E) In the event of a change in control of the Company, as defined in this
paragraph (E), then the Board of Directors shall accelerate the exercise date of
the Warrant or make this Warrant fully vested and exercisable and, in its sole
discretion, may take any or all of the following actions: (a) grant a cash bonus
award to any holder of this Warrant in an amount necessary to pay the Exercise
Price of all or any portion of the Warrant then held by such person; (b) pay
cash to any holder of this Warrant in exchange for the cancellation of the
holder's Warrant in an amount equal to the difference between the Exercise Price
of such Warrant and the greater of the tender offer price for the underlying
Shares or the Market Price of the Shares on the date of the cancellation of the
Warrant; and (c) make any other adjustments or amendments to this Warrant. For
purposes of this paragraph (E), a "change in control" shall be deemed to have
occurred if (a) any "person" or "group" (within the meaning of Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, as amended ("1934 Act"),
other than a trustee or other fiduciary holding securities under an employee
benefit plan of the Company is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the 1934 Act), directly or indirectly, of more than 50% of the
then outstanding voting stock of the Company; or (b) at any time during any
period of three consecutive years after the date of this Warrant, individuals
who at the beginning of such period constitute the Board (and any new director
whose election by the Board or whose nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority thereof; or (c) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 50% of the combined
voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation.
(F) In case at any time the Company shall pay any dividend on or make any
other distribution with respect to Shares (or any other securities of the
Company then issuable upon the
Page 6 - Annex 1
<PAGE>
exercise of the Warrant) that is payable in Shares, Convertible Securities, any
other securities of the Company or other stock, securities or assets, other than
cash, then thereafter, and in lieu of any adjustment of the Exercise Price and
the number of Shares issuable upon the exercise of this Warrant, the holder of
this Warrant, upon any exercise of the rights represented hereby, shall be
entitled to receive the number of Shares (or other securities) being purchased
upon such exercise and, in addition to and without further payment, the Shares,
Convertible Securities, other securities of any company or other stock,
securities or assets which the holder of this Warrant would have received by way
of such distributions if continuously since the date of the Warrant (or, if this
Warrant shall have been issued pursuant to Section 7 of this Warrant, the date
of the predecessor Warrant to which this Warrant relates) such holder had been
the record holder of the number of Shares (or other securities), then being
purchased and had retained all such Shares, Convertible Securities, other
securities of the Company or other stock, securities or assets distributable
with respect to such Shares (or other securities) and, furthermore, all cash,
stock, securities or assets payable as dividends or distributions with respect
to the foregoing and originating directly or indirectly therefrom. The Company
shall reserve and retain in escrow from any such dividend or distribution of
Shares, Convertible Securities, other securities of the Company or other stock,
securities or assets, and from any such dividends or distributions with respect
thereto and originating directly or indirectly therefrom, such Shares,
Convertible Securities, other securities of the Company and other stock,
securities, assets and cash as shall be necessary to fulfill its obligations to
the holder hereof pursuant to this paragraph (F).
(G) If at any time conditions arise by reason of action taken by the
Company, which in the good faith opinion of the board of directors of the
Company, are not adequately covered by the provisions of this Annex 1, and which
might materially adversely affect the rights of the holder of this Warrant, the
Company shall appoint a firm of independent public accountants of recognized
standing (which may be the regular accountants or auditors of the Company),
which shall give their opinion as to the adjustments, if any, in the Exercise
Price and the number of Shares purchasable upon the exercise of this Warrant, or
other change in the rights of the holder hereof, on a basis consistent with the
other provisions of this Annex 1, necessary to preserve without diminution the
rights of the holder hereof. Upon receipt of such opinion, the Company shall
forthwith make the adjustments described therein.
(H) (i) Within ten (10) days of any adjustment of the Exercise Price or
change in the number of Shares purchasable upon the exercise of
this Warrant made pursuant to paragraphs (A), (B), (C) , or (F)
or any change in the rights of the holder of this Warrant by
reason of the occurrence of events described in paragraphs (D),
(E), or (F), the Company shall give written notice by certified
or registered mail to the registered holder of this Warrant at
the address of such holder as shown on the books of the Company,
which notice shall describe the event requiring such adjustments
(with respect to any adjustment made pursuant to paragraphs (C),
(D), (E) or (F), the Exercise Price resulting from such
adjustment, the increase or decrease, if any, in the number of
Shares purchasable upon the exercise of this Warrant, or the
other change in
Page 7 - Annex 1
<PAGE>
the rights of such holder, and set forth in reasonable detail the
method of calculation of such adjustments and the facts upon
which such calculations are based. Within two (2) days of
receipt from the holder of this Warrant upon the surrender hereof
for exercise pursuant to Section 1 of this Warrant, and within
three (3) days of receipt from the holder hereof a written
request therefor (which request shall not be made more than once
each calendar quarter), the Company shall give written notice by
certified or registered mail to such holder at his address as
shown on the books of the Company of the Exercise Price in effect
as of the date of receipt by the Company of this Warrant for
exercise, or the date of receipt of such written request, and the
number of Shares purchasable or the number or amount of other
shares of stock, securities or assets receivable as of such date,
and set forth in reasonable detail the method of calculation of
such numbers; provided that no further adjustments to the
Exercise Price or the number of Shares purchasable or number or
amount of shares, securities or assets receivable on exercise of
this Warrant shall be made after receipt of this Warrant by the
Company for exercise.
(ii) Upon each adjustment of the Exercise Price and each change in the
number of Shares purchasable upon the exercise of this Warrant,
and change in the rights of the holder of this Warrant by reason
of the occurrence of other events herein set forth, then and in
each case, upon written request of the holder of this Warrant
(which request shall be made not more often than once each
calendar year), the Company will at its expense promptly obtain
an opinion of independent public accountants reasonably
satisfactory to each holder stating the then effective Exercise
Price and the number of Shares then purchasable, or specifying
the other shares of stock, securities or assets and the amount
thereof then receivable, and setting forth in reasonable detail
the method of calculation of such numbers and the facts upon
which such calculations are based. The Company will promptly
mail a copy of such opinion to the registered holder hereof.
(I) In case at any time:
(i) The Company shall pay any dividend payable in capital stock on
its outstanding Shares or make any distribution (other than
regular cash dividends) to the holders of Shares;
(ii) The Company shall offer for subscription pro rata to the holders
of Shares any additional capital stock or other rights;
Page 8 - Annex 1
<PAGE>
(iii) There shall be authorized any capital reorganization or
reclassification of the capital stock of the Company, or
consolidation or merger of the Company with, or sale of all or
substantially all of its assets to, another corporation; or
(iv) There shall be authorized or commence a voluntary or involuntary
dissolution, liquidation or winding up of the Company.
then, in one or more of said cases, the Company shall given written notice by
certified or registered mail to Ancell at the address of Ancell as shown on the
books of the Company on the date on which (1) the books of the Company shall
close or a record shall be taken for such dividend, distribution, or
subscription rights, or (2) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up shall take
place or be voted upon by the shareholders of the Company, as the case may be.
Such notice shall also specify the date as of which the holders of record of
Shares shall participate in such dividend, distribution or subscription rights,
or shall be entitled to exchange their Shares for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be. Such written
notice shall be given at least thirty (30) days prior to the action in question
and no less than thirty (30) days prior to the record date or the date on which
the Company's books are closed in respect thereto.
Page 9 - Annex 1
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
To be Executed by the Registered Holder
Desiring to Exercise the Within Warrant of
TIPPERARY CORPORATION
The undersigned registered holder hereby exercises the right to purchase
__________ Shares covered by the within Warrant according to the conditions
thereof, and herewith makes payment of the Exercise Price of such Shares,
$__________.
Name of Registered Holder:
----------------------------------------------------
Signature:
---------------------------------------------------------------------
Title of Signing Officer
or Agent (if any):
------------------------------------------------------------
Address of Registered Holder:
-------------------------------------------------
Tax I.D. No.:
-----------------------------------------------------------------
Dated: , 19 .
-------------- ---
<PAGE>
THIS WARRANT AND THE RIGHTS REPRESENTED HEREBY SHALL NOT BE TRANSFERABLE AT
ANY TIME UNLESS (I) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, AS AMENDED, SHALL BE IN EFFECT WITH RESPECT TO THIS WARRANT OR THE
SHARES ISSUABLE HEREUNDER AT SUCH TIME, OR (II) THE TRANSFER IS MADE IN
COMPLIANCE WITH THE PROVISIONS OF SECTION 5.
NUMBER: 15,000 SHARES
WARRANT
TO PURCHASE SHARES
OF
TIPPERARY CORPORATION
This certifies that, for value received, Eugene I. Davis, an individual
residing in Livingston, New Jersey ("Davis"), or his registered assigns, is
entitled to purchase from TIPPERARY CORPORATION, a Texas corporation (the
"Company"), fifteen thousand (15,000) Shares, at the price of Four Dollars
and 25/100 ($4.25) per Share (as defined in Section 3) at any time, or in
part from time to time in accordance with the following Vesting Schedule
("Vesting Schedule"):
<TABLE>
Date: Total Shares Subject to Exercise
<S> <C>
From and after August 26, 1998 5,000
From and after August 26, 1999 5,000
From and after August 26, 2000 5,000
</TABLE>
This Warrant shall expire, if not exercised prior thereto, two (2) years
after the resignation or removal of Davis as a director of the Company. If
Davis should resign or be removed as a director from the Company, then this
Warrant shall be vested only to the extent vested on such date of resignation
or removal according to the Vesting Schedule. The provisions as to
adjustment of the initial exercise price set forth above and the number of
Shares to be issued upon the occurrence of certain events (the Provisions as
to Adjustment) are more fully set forth in Annex I hereto. (Hereinafter, the
initial exercise price set forth above in this paragraph for the purchase of
Shares upon the exercise of this Warrant, as adjusted pursuant to the
Provisions as to Adjustment, is referred to as the "Exercise Price"). This
Warrant is subject to the following provision, terms and conditions:
1. EXERCISE OF WARRANT.
(a) The rights represented by this Warrant may be exercised by the
holder hereof, in whole or in part, (but not as to a fractional Share), by
the surrender of this Warrant at the Company's principal office located in
Denver, Colorado (or such other office or agency of the Company as the
Company may designate by notice in writing to the holder hereof at the
address of such holder appearing on the books of the Company at any time
within the period above named) and delivery of a completed subscription form
in the form attached to this Warrant as EXHIBIT A, and upon payment to the
Company of the Exercise Price for such Shares.
<PAGE>
(b) Payment of the Exercise Price shall be made by a combination of any
one or more of the following:
(i) By application, to the extent permitted by applicable law, of
Shares or other securities of the Company owned by the holder
hereof, the value of which for such purpose shall be the fair
market value thereof determined in good faith by the Company and
the holder hereof at the time of such exercise; provided,
however, that in order to apply such Shares or other securities
of the Company in the exercise hereof, each of the following
conditions must be met:
(A) Such Shares or other securities of the Company shall have
been owned, without material encumbrance, contingency or
risk of forfeiture relating to the ownership rights, for at
least six months and at all times during said six month
period by the holder hereof, and within said six month
period such Shares or other securities of the Company shall
not have been obtained through exercise of any option,
warrant or right to obtain such Shares of other securities
or through the conversion of any other security; and
(B) Such Shares or other securities shall not be or include: (1)
options, warrants or similar rights to acquire Shares or
other securities of the Company by the holder hereof; or (2)
securities owned by the holder hereof which are convertible
in whole or in part into Shares or other securities of the
Company.
(ii) in cash or by certified check or bank draft in New York Clearing
House funds.
(c) The Company agrees that any Shares so purchased by the exercise of
this Warrant shall be deemed to be issued to the holder hereof as the record
owner of such Shares as of the close of business on the date on which this
Warrant shall have been surrendered, the completed subscription form
delivered, and payment in full is made and delivered to the Company for such
Shares as aforesaid.
(d) Stock certificates evidencing Shares so purchased shall be
delivered to the holder hereof as promptly as practicable, after the rights
represented by this Warrant shall have been so exercised. If this Warrant
shall have been exercised only in part, and unless this Warrant has expired,
a new Warrant representing the number of Shares with respect to which this
Warrant shall not then have been exercised shall also be delivered to the
holder hereof within such time. Notwithstanding the foregoing, however, the
Company shall not be required to deliver any stock certificate evidencing
Shares upon exercise of this Warrant except in accordance with the
provisions, and subject to the limitations, of Section 5. The Company will
pay all expenses and charges payable
Page 2 - Warrant to Purchase Shares
<PAGE>
in connection with the preparation, execution and delivery of stock
certificates and any new Warrants or promissory notes.
2. CERTAIN COVENANTS OF THE COMPANY. The Company covenants and agrees
as follows:
(a) All Shares which may be issued upon the exercise of the rights
represented by this Warrant (all such Shares, whether previously issued or
subject to issuance upon the exercise of this Warrant, are from time to time
referred to herein as "Warrant Shares") will, upon issuance, be duly
authorized and issued, fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issuance thereof.
(b) During the period within which the rights represented by this
Warrant may be exercised, and only insofar as the Vesting Schedule herein
permits the exercise of this Warrant, the Company will at all times have
authorized and reserved free of preemptive or other rights for the exclusive
purpose of issuance upon exercise of the purchase rights evidenced by this
Warrant, a sufficient number of Shares to provide for the exercise of rights
represented by this Warrant.
(c) The Company will not, by amendment or restatement of the Articles
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, issuance or sale of securities or otherwise, avoid or
take any action which would have the effect of avoiding the performance of
any of the terms to be performed hereunder by the Company, but will at all
times in good faith carry out all of the provisions of this Warrant and take
all such action as may be necessary or appropriate to protect the rights of
the holder hereof against dilution or other impairment and, in particular,
will not permit the par value of any Share to be or become greater than the
then effective Exercise Price.
3. DEFINITION OF SHARES. As used herein, the term "Shares" shall mean
and include shares of the Common Stock, par value $.02 per share, of the
Company as are constituted and exist on the date hereof, and shall also
include any other class of the capital stock of the Company hereafter
authorized which shall neither be limited to a fixed sum or percentage of par
value in respect to the rights of the holders thereof to receive dividends
and to participate in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding up of the Company, nor be
subject at any time to redemption by the Company; provided that the Shares
receivable upon exercise of this Warrant shall include only Shares of the
type as are constituted and exist on the date hereof or Shares resulting from
any reclassification of the Shares as provided for in paragraph (C) of the
Provisions as to Adjustment.
4. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof as such to any rights whatsoever, including,
without limitation, voting rights, as a holder of Shares of the Company. No
provisions hereof, in the absence of affirmative action by the holder hereof
to purchase Shares, and no mere enumeration herein of the rights or
privileges of such holder, shall give rise to any liability of such holder as
a holder of Shares of the Company, regardless of who may assert such
liability.
Page 3 - Warrant to Purchase Shares
<PAGE>
5. RESTRICTIONS ON TRANSFER.
(a) This Warrant shall not be exercisable by a transferee hereof and/or
transferable and the Warrant Shares shall not be transferable except upon the
conditions specified in this Section 5, which conditions are intended, among
other things, to ensure compliance with the provisions of the Securities Act
of 1933, as amended, and the rules and regulations of the Securities and
Exchange Commission (the "Commission") thereunder (collectively the
"Securities Act"), in respect of the exercise and/or transfer of this Warrant
and/or transfer of such Warrant Shares.
(b) This Warrant and the Warrant Shares shall not be transferable
(except for a transfer of this Warrant or the Warrant Shares in an offering
registered under the Securities Act, including, without limitation, a
transfer in a registered offering effected pursuant to Section 6, and any
subsequent transfer) unless, prior to any transfer, the holder hereof shall
have received from its transferee reasonable assurances that such person is
aware that this Warrant and the Warrant Shares have not been registered under
the Securities Act and that such person is acquiring this Warrant or the
Warrant Shares for investment only and not with the view to the disposition
or public offering thereof (unless in an offering registered under the
Securities Act of 1933 or exempt therefrom), and that such person is aware
that the stock certificates evidencing the Warrant Shares shall bear a legend
restricting transfer and disposition thereof in accordance with the
Securities Act unless, in the opinion of counsel to the Company, such legend
may be omitted. In the event of any transfer of this Warrant (other than a
transfer in an offering registered under the Securities Act, including,
without limitation, a transfer in a registered offering effected pursuant to
Section 6, and any subsequent transfer), the holder hereof shall provide an
opinion of counsel, who shall be reasonably satisfactory to the Company, that
an exemption from the registration requirements of the Securities Act is
available.
(c) Any permitted subsequent holder of this Warrant shall be subject to
all the terms and conditions herein, and shall acknowledge, in writing, upon
receipt of this Warrant his or her acceptance of the terms and conditions
herein.
(d) To facilitate sales by a holder of this Warrant or Warrant Shares
in transactions qualifying under Rule 144 promulgated by the Commission under
the Securities Act, if available, the Company agrees to satisfy the current
public information requirements of said Rule 144, for as long as the Shares
remain registered under the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder (collectively the
"Exchange Act"), and to provide said holder upon request with such other
information as such holder may require for compliance with the provisions of
said Rule 144.
6. REGISTRATION UNDER SECURITIES ACT.
(a) If the Company at any time proposes to register any issuance of its
securities under the Securities Act (other than a registration on Form S-8 in
connection with an employee stock purchase or option plan or on Form S-4 in
connection with mergers, acquisitions or exchange
Page 4 - Warrant to Purchase Shares
<PAGE>
offerings), the Company will at such time give prompt written notice to the
holder hereof and to the holders of all other Warrant Shares issuable from
any outstanding Warrants (such holders are hereinafter referred to as the
"Prospective Sellers") of its intention to do so. Upon the written request
of a Prospective Seller, given within 30 days after receipt of any such
notice (which request shall state the intended method of disposition of the
Warrant Shares to be transferred by such Prospective Seller), the Company
shall use its best efforts to cause all Warrant Shares, the holders of which
(or of the Warrants to which the same are related), to the extent vested in
accordance with the Vesting Schedule, shall have so requested registration of
the transfer thereof, to be registered under the Securities Act, all to the
extent requisite to permit the sale or other disposition (in accordance with
the intended method thereof as aforesaid) by the Prospective Sellers of such
Warrant Shares. The rights granted pursuant to this Section 6(a) shall not
be effective with respect to the Prospective Seller in the case of an
underwritten public offering of securities of the Company by the Company
unless each Prospective Seller agrees to the terms and conditions, including
underwriting discounts and allowances, specified by the managing underwriter
of such offering with respect to such Warrant Shares. The Company shall have
the right to reduce the number of Warrant Shares of the Prospective Sellers
to be included in a registration statement pursuant to the exercise of the
rights granted by this Section 6(a) if, and to the extent, that the managing
underwriter of such offering is of the good faith opinion, supported by
written reasons therefor, that the inclusion of such Warrant Shares would
materially adversely affect the marketing of the securities of the Company to
be offered; provided, that any such reduction of the number of Warrant Shares
the transfer of which is to be registered on behalf of the Prospective
Sellers shall be made on the basis of a pro rata reduction of all Warrant
Shares of all Prospective Sellers.
(b) If and whenever the Company is required by the provisions of this
Section 6 to use its best efforts to effect the registration of any transfer
of Warrant Shares under the Securities Act, the Company will, as
expeditiously as possible,
(i) prepare and file with the Commission a registration statement
with respect to such transfer and use its best efforts to cause
such registration statement to become and remain effective, but
not for any period longer than nine months;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such
registration statement effective, and to comply with the
provisions of the Securities Act with respect to the transfer of
all securities covered by such registration statement, including,
without limitation, taking all necessary actions whenever the
Prospective Sellers of the Warrant Shares covered by such
registration statement shall desire to dispose of the same;
(iii) furnish to each Prospective Seller such number of copies of a
prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, and such other
documents, as such Prospective Seller may
Page 5 - Warrant to Purchase Shares
<PAGE>
reasonably request in order to facilitate the disposition of the
Warrant Shares owned by such Prospective Seller and covered by
such registration statement;
(iv) use its best efforts to register or qualify the securities
covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each
Prospective Seller shall request, and use its best efforts to do
any and all other acts and things which may be reasonably
necessary to enable such Prospective Seller to consummate the
disposition in such jurisdiction of the Warrant Shares owned by
such Prospective Seller and covered by such registration
statement; provided that, notwithstanding the foregoing, the
Company shall not be required to register in any jurisdiction as
a broker or dealer of securities or to grant its consent to
service of process in any such jurisdiction solely on account of
such intended disposition by such Prospective Seller;
(v) furnish to the Prospective Sellers whose intended dispositions
are registered a signed copy of an opinion of counsel for the
Company, in form and substance acceptable to such Prospective
Sellers, to the effect that: (A) a registration statement
covering such dispositions of Warrant Shares has been filed with
the Commission under the Securities Act and has been made
effective by order of the Commission, (B) such registration
statement and the prospectus contained therein and any amendments
or supplements thereto comply as to form in all material respects
with the requirements of the Securities Act, and nothing has come
to such counsel's attention which would cause him to believe that
the registration statement or such prospectus, amendment or
supplement, at the time such registration statement or amendment
became effective or such supplement was filed with the
Commission, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein (in the case of such
prospectus, amendment or supplement, in the light of the
circumstances under which they were made) not misleading
(provided that such counsel need not render any opinion with
respect to the financial statements and other financial,
engineering and statistical data included therein), and (C) to
the best of such counsel's knowledge, no stop order has been
issued by the Commission suspending the effectiveness of such
registration statement and no proceedings for the issuance of
such a stop order are threatened or contemplated;
(vi) furnish to the Prospective Sellers whose intended dispositions
are required a blue sky survey in the form and of the substance
customarily prepared by counsel for the Company and accepted by
sellers of securities in similar offerings, discussing and
describing the application provisions of the securities or blue
sky laws of each state or jurisdiction in which the Company
Page 6 - Warrant to Purchase Shares
<PAGE>
shall be required, pursuant to Section 6(c)(iv), to register or
qualify such intended dispositions of such Warrant Shares, or, in
the event counsel for the underwriters in such offering shall be
preparing a blue sky survey, cause such counsel to furnish such
survey to, and to allow reliance thereon by, such Prospective
Sellers;
(vii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission under the Securities Act
and the Exchange Act, insofar as they relate to such registration
and such registration statement; and
(viii) use its best efforts to list such Warrant Shares on any
securities exchange on which any securities of the Company are
then listed or to admit such Warrant Shares for trading in any
national market system in which any securities of the Company are
then admitted for trading, if the listing or admission of such
securities is then permitted under the rules of such exchange or
system.
(c) With respect to the registration by the Company of transfers of
Warrant Shares under the Securities Act pursuant to Section 6(a), the Company
shall pay all expenses incurred by it in complying with this Section 6
(including, without limitation, all registration and filing fees, printing
expenses, blue sky fees and expenses, costs and expenses of audits, and
reasonable fees and disbursements of counsel for the Company and special
counsel designated by Prospective Sellers owning a majority of the Warrant
Shares covered by such registration, but specifically excluding any
underwriting discounts and allowances that are allocable to the Warrant
Shares being sold by, and which shall be paid by, the Prospective Sellers;
provided, however, that if any registration statement filed with the
Commission by the Company under Section 6(a) shall not be declared effective
by the Commission, such attempted registration shall not constitute a
registration under this Section 6(c).
(d) It shall be a condition precedent to the obligations of the Company
to take any action pursuant to this Section 6 that each Prospective Seller,
the transfer of whose Warrant Shares is registered or to be registered under
each such registration, shall furnish to the Company such written information
regarding the securities held by such Prospective Seller as the Company shall
reasonably request and as shall be required in connection with the action to
be taken by the Company.
(e) (i) In the event of any registration of any transfer of Warrant
Shares under the Securities Act pursuant to this Section 6, the Company will
indemnify and hold harmless each Prospective Seller of such securities, each
of its officers, directors and partners, and each other person, if any, who
controls such Prospective Seller within the meaning of the Securities Act,
and each underwriter, if any, who participates in the offering of such
securities, against any losses, claims, damages or liabilities (or actions in
respect thereof), joint or several, to which each Prospective Seller,
officer, director or partner, controlling person or underwriter may become
subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained, on the effective date thereof, in any registration
statement
Page 7 - Warrant to Purchase Shares
<PAGE>
under which such transfer of securities was registered under the Securities
Act, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation by the Company of the Securities Act, and will reimburse such
Prospective Seller and each of its officers, directors and partners, and each
such controlling person or underwriter, for any legal or any other expenses
reasonably incurred by such Prospective Seller or its officers, directors and
partners or controlling persons or by each such underwriter, in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, preliminary
prospectus or prospectus or such amendment or supplement in reliance upon and
in conformity with written information furnished to the Company through an
instrument duly executed by such Prospective Seller specifically for use in
the preparation thereof. In the event of any registration by the Company or
any transfer of securities under the Securities Act pursuant to this Section
6, each Prospective Seller of Warrant Shares covered by such registration
will indemnify and hold harmless the Company, each other person, if any, who
controls the Company within the meaning of the Securities Act and each
officer and director of the Company and the other Prospective Sellers to the
same extent that the Company agrees to indemnify it, but only with respect to
the written information relating to such Prospective Seller furnished to the
Company by such Prospective Seller aforesaid.
(ii) Each indemnified party shall, as promptly as practicable upon
receipt of notice of the commencement of any action against such indemnified
party or its officers, directors or partners, or any controlling person of
such indemnified party, in respect of which indemnity may be sought from an
indemnifying party on account of the indemnity agreement contained in Section
6(e)(i), notify the indemnifying party in writing of the commencement
thereof. The omission of such indemnified party to so notify the indemnifying
party of any such action shall not relieve the indemnifying party from any
liability which it may have on account of the indemnity agreement contained
in Section 6(e)(i) to the extent that the failure to receive such notice
within a reasonable period of time shall not have caused harm, loss or damage
to the indemnifying party, provided that, conversely, if such failure to
receive notice shall have caused any harm, loss or damage to the indemnifying
party, such failure shall constitute a defense to any liability which such
indemnifying party may have on account of such agreement to the extent of the
harm, loss or damage so caused. In case any such action shall be brought
against any indemnified party, its officers, directors and partners, or any
such controlling person, and such indemnified party shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in (and, to the extent that the indemnifying party
shall wish, to direct) the defense thereof at the indemnifying party's own
expense, in which event the defense shall be conducted by recognized counsel
chosen by the indemnifying party and approved by the indemnified party (whose
approval shall not unreasonably be withheld) and the indemnified party may
participate in such defense at its own expense (unless it is advised by
counsel that actual or potential differing interests or defenses exist or may
exist, in which case such expenses shall be paid by the indemnifying party,
provided that the
Page 8 - Warrant to Purchase Shares
<PAGE>
indemnifying party shall not be required to pay the expenses for more than
one counsel for all such indemnified parties).
7. TRANSFER; OWNERSHIP. Subject to Section 5, this Warrant and all
rights hereunder are transferable, in whole or in part, at the office or
agency of the Company referred to in Section 1 by the holder hereof in person
or by a duly authorized attorney, upon surrender of this Warrant, with an
assignment, acceptable to the Company, duly completed, at which time a new
Warrant shall be made and delivered by the Company, of the same tenor as this
Warrant but registered in the name of the transferee. The holder of this
Warrant, by taking or holding the same, consents and agrees that this
Warrant, when endorsed in blank, shall be deemed negotiable, and that the
holder hereof, when this Warrant shall have been so endorsed, may be treated
by the Company and all other persons dealing with this Warrant as the
absolute owner hereof for any purpose and as the person entitled to exercise
the rights represented by this Warrant and to transfer this Warrant on the
books of the Company, any notice to the contrary notwithstanding; but until
such transfer on such books, the Company may treat the registered holder
hereof as the owner hereof for all purposes. Any transfer of this Warrant
shall be made in compliance with the Securities Act and any applicable
statute securities or blue sky laws.
8. EXCHANGE AND REPLACEMENT. Subject to Section 7, this Warrant is
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Section 1, for new Warrants of like
tenor and date representing in the aggregate the right to purchase the number
of Shares which may be purchased hereunder, each of such new Warrants to
represent the right to purchase such number of Shares as shall be designated
by said holder hereof at the time of such surrender. Upon receipt by the
Company at the office or agency referred to in Section 1 of evidence
reasonably satisfactory to it of the loss, theft or destruction of this
Warrant and of indemnity or security reasonably satisfactory to it (provided
that the written indemnity of the holder hereof shall be deemed reasonably
satisfactory to the Company for such purposes), the Company will deliver a
new Warrant of like tenor and date in replacement of this Warrant. This
Warrant shall be promptly canceled by the Company upon the surrender hereof
in connection with any transfer, exchange or replacement. The Company will
pay all expenses and charges payable in connection with the preparation,
execution and delivery of Warrants pursuant to Section 7 and this Section 8.
9. NOTICES. Any notice or other document required or permitted to be
given or delivered to the holder hereof shall be delivered at, or sent by
certified or registered mail to, Eugene I. Davis, Five Canoe Brook Drive,
Livingston, New Jersey 07039, or to such other address as shall have been
furnished to the Company in writing by the holder hereof. Any notice or
other document required or permitted to be given or delivered to the Company
shall be delivered at, or sent by certified or registered mail to, 633
Seventeenth, Suite 1550, Denver, Colorado 80202, or to such other address as
shall have been furnished in writing to the holder hereof by the Company.
Any notice so addressed and mailed by registered or certified mail or
otherwise delivered, shall be deemed to be given when actually received by
the addressee.
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<PAGE>
10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
11. MISCELLANEOUS. This Warrant will be binding upon any entity
succeeding to the Company by consolidation or acquisition of all or
substantially all of the Company's assets, and upon any successor or assign
of the holder hereto. This Warrant and any provision hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by
the party (or any predecessor in interest thereof) against whom enforcement
of the same is sought. The headings in this Warrant are for purposes of
reference only and shall not affect the meaning or construction of any of the
provisions hereon.
IN WITNESS WHEREOF, Tipperary Corporation has caused this Warrant to be
signed by its duly authorized officers, under its corporate seal, to be dated
October 21, 1997.
TIPPERARY CORPORATION
BY: /s/ David L. Bradshaw
---------------------------------------------
ITS: President
(CORPORATE SEAL)
ATTEST: /s/ Elaine R. Treece
---------------------------------
ITS: Secretary
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<PAGE>
Annex 1
TIPPERARY CORPORATION
PROVISIONS AS TO ADJUSTMENT OF
EXERCISE PRICE AND NUMBER OF SHARES
ISSUED UPON OCCURRENCE OF CERTAIN EVENTS
The Exercise Price and the number of Shares issuable upon the exercise
of the annexed Warrant to purchase shares of TIPPERARY CORPORATION, a Texas
corporation (herein and in this Warrant referred to as the "Company"), shall
be subject to adjustment from time to time as hereinafter provided; that in
no event shall the Exercise Price be increased to a price greater than Four
Dollars and 25/100 ($4.25) per Share, except as provided by paragraph (C).
Upon each adjustment of the Exercise Price, the holder of this Warrant shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of Shares obtained by multiplying the number of Shares
purchasable pursuant hereto immediately prior to such adjustment by a
fraction, the numerator of which is the Exercise Price in effect immediately
prior to such adjustment and the denominator of which is the Exercise Price
resulting from such adjustment. In making the adjustments to the Exercise
Price and the number of Shares issuable upon the exercise of this Warrant,
the following provisions shall be applicable:
(A) If and whenever the Company shall issue or sell any Shares for
consideration per Share that is less than the Exercise Price in effect
immediately prior to the time of such issue or sale at less than the Market
Price (as hereinafter defined) of such Shares on the date of such issue or
sale, then forthwith upon such issue or sale the Exercise Price in effect
immediately prior thereto shall be adjusted to an amount (calculated to the
nearest cent) determined by dividing (i) an amount equal to the sum of (a)
the number of Shares outstanding immediately prior to such issue or sale
multiplied by the Exercise Price in effect immediately prior to such issue or
sale, and (b) the consideration, if any, received by the Company upon such
issue or sale by (ii) the total number of Shares outstanding immediately
after such issue or sale; provided, however, that no adjustment shall be made
hereunder by reason of:
(i) the grant of this Warrant or the issuance of Shares upon the
exercise of this Warrant or any other outstanding Warrant;
(ii) the grant by the Company of options to purchase shares in
connection with any purchase or option plan for the benefit of
employees of the Company, or any affiliates or subsidiaries
thereof; or
(iii) the issuance (whether directly or by assumption in a merger or
otherwise) or sale (including any issuance or sale to holders of
Shares) of any securities convertible into or exchangeable for
Shares (such convertible or
<PAGE>
exchangeable securities are herein referred to as "Convertible
Securities"), or the grant of rights to subscribe for or to
purchase, or of options for the purchase of (including any grant
of such rights or options to holders of shares, other than
pursuant to a dividend on Shares), Shares of Convertible
Securities, regardless of whether the right to convert or
exchange such Convertible Securities or such rights or options
are immediately exercisable.
No adjustment of the Exercise Price shall be required to be made by the
Company and no notice hereunder must be given if the amount of any required
adjustment is less than 5% of the Exercise Price. In such case any such
adjustment shall be carried forward and shall be made (and notice thereof
shall be given hereunder) at the time of and together with the next
subsequent adjustment which, together with any adjustment so carried forward,
shall amount to not less than 5% of the Exercise Price.
(B) For the purposes of paragraph (A), the following provisions (i)
through (vi), inclusive, shall also be applicable:
(i) If, at the time Shares are issued and sold upon the conversion or
exchange of Convertible Securities or upon the exercise of rights
or options previously granted by the Company, the price per Share
for which such Shares are issued (determined by dividing (a) the
total amount, if any, received by the Company as consideration
for such Convertible Securities or for the granting of such
rights or options, plus the aggregate amount of additional
consideration paid to the Company upon the conversion or exchange
of such Convertible Securities (which, if so provided in such
Convertible Securities, shall be deemed to be equal to the
outstanding principal amount of the indebtedness represented by
such Convertible Securities) or upon the exercise of such rights
or options, by (b) the total number of Shares issued upon the
conversion or exchange of such Convertible Securities or upon the
exercise of such rights or options) shall be less than the
Exercise Price in effect immediately prior to such issue, sale or
exercise, then the adjustments provided for by the first
paragraph of this Annex 1 and paragraph (A) shall be made. In
making the adjustment of the Exercise Price provided for by
paragraph (A), the amount described in clause (a) of this
paragraph (B)(i) shall be considered the consideration received
by the Company upon the issue or sale of the Shares for purposes
of clause (i)(b) of paragraph (A).
(ii) In case at any time any Shares or Convertible Securities or any
rights or options to purchase any Shares or Convertible
Securities shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by
the Company therefor without deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or
allowed by the Company in connection therewith. In case any
Shares or
Page 2 - Annex 1
<PAGE>
Convertible Securities or any rights or options to purchase any
Shares or Convertible Securities shall be issued or sold, in
whole or in part, for consideration other than cash, the amount
of the consideration other than cash received by the Company in
exchange for the issue or sale of such Convertible Securities
shall be deemed to be the fair value of such consideration as
determined in good faith by the board of directors of the
Company, without deduction therefrom of any expenses incurred or
any underwriting commissions or concessions paid or allowed by
the Company in connection therewith; provided that if the holder
or holders of at least 66-2/3% of the Warrant Shares purchasable
under this Warrant shall request in writing, the value of such
consideration shall be determined by an independent expert
selected by such holders, the costs and expenses of which shall
be borne by the Company, and, if the value of such consideration
as so determined is less than the value determined by the board
of directors of the Company, the lesser value shall be utilized
in calculating the consideration per Share received by the
Company for purposes of making the adjustment provided by
paragraph (A). In the event of any merger or consolidation of
the Company in which the Company is not the surviving corporation
or in the event of any sale of all or substantially all of the
assets of the Company for stock or other securities of any
corporation, the Company shall be deemed to have issued a number
of Shares for stock or securities of such other corporation
computed on the basis of the actual exchange ratio on which the
transaction was predicated and for consideration that is equal to
the fair market value on the date of such transaction of such
stock or securities of the other corporation, and if any such
calculation results in adjustment of the Exercise Price, the
determination of the number of Shares issuable upon exercise of
this Warrant immediately prior to such merger, consolidation or
sale, for purposes of paragraph (A), shall be made after giving
effect to such adjustment of the Exercise Price.
(iii) The number of Shares outstanding at any given time shall not
include Shares that have been redeemed by the Company and not
canceled, if any, and that are thus owned or held by or for the
account of the Company, and the disposition of any such Shares
shall be considered an issue or sale of Shares for purposes of
paragraph (A).
(iv) "Market Price" shall mean the lower of (a) the average closing
sales prices of Shares recorded on the principal national
securities exchange on which the Shares are listed or in a
national market system for securities in which the Shares are
admitted to trading or (b) the average of the closing bid and
asked prices of Shares reported in the domestic over-the-counter
market, for the 20 trading days immediately prior to the day as
of which the Market Price is being determined. If the Shares are
not listed on any national securities
Page 3 - Annex 1
<PAGE>
exchange or admitted for trading in any national market system or
traded in the domestic over-the-counter market, the Market Price
shall be the higher of (y) the book value of the Shares as
determined by a firm of independent public accountants of
recognized standing selected by the board of directors of the
Company as of the last day of any month ending within 60 days
preceding the date as of which the determination is to be made or
(z) the fair market value of the Shares determined in good faith
by the board of directors of the Company, provided that if the
holder or holders of at least 66-2/3% of the Warrant Shares
purchasable under the Warrant shall request in writing, the fair
market value of the Shares shall be determined by an independent
investment banking firm or other independent expert selected by
such holders and reasonably satisfactory to the Company, which
determination shall be as of a date which is within 15 days of
the date as of which the determination is to be made.
(v) Anything herein to the contrary notwithstanding, in case the
Company shall issue any Shares in connection with the acquisition
by the Company of the stock or assets of any other corporation or
the merger of any other corporation into the Company under
circumstances where, on the date of the issuance of such Shares,
the consideration received for such Shares is less than the
Market Price of the Shares, but on the date the number of Shares
was determined, the consideration received for such Shares would
not have been less than the Market Price thereof, such Shares
shall not be deemed to have been issued for less than the Market
Price.
(vi) Anything in clause (ii) of this paragraph (B) to the contrary
notwithstanding, in the case of an acquisition where all or part
of the purchase price is payable in Shares or Convertible
Securities but is stated as a dollar amount, where the Company
upon making the acquisition pays only part of a maximum dollar
purchase price which is payable in Shares or Convertible
Securities and where the balance of such purchase price is
deferred or is contingently payable under a formula related to
earnings over a period of time, (a) the consideration received
for any Shares or Convertible Securities delivered at the time of
the acquisition shall be deemed to be such part of the total
consideration as the portion of the dollar purchase price then
paid in Shares or Convertible Securities bears to the total
maximum dollar purchase price payable in Shares or Convertible
Securities and (b) in connection with each issuance of additional
Shares or Convertible Securities pursuant to the terms of the
agreement relating to such acquisition, the consideration
received shall be deemed to be such part of the total
consideration as the portion of the dollar purchase price then
and theretofore paid in Shares or Convertible Shares bears to the
total maximum dollar purchase price payable in Shares or
Convertible Securities multiplied by a fraction, the numerator of
which shall
Page 4 - Annex 1
<PAGE>
be the number of Shares (or in the case of Convertible Securities
other than capital stock of the Company, the aggregate principal
amount of such Convertible Securities) then issued and the
denominator of which shall be the total number of shares (or in
the case of Convertible Securities other than capital stock of
the Company, the aggregate principal amount of such Convertible
Securities) then and theretofore issued under such acquisition
agreement. In the event only a part of the purchase price for an
acquisition is paid in Shares or Convertible Securities in the
manner referred to in this clause (vi), the term "total
consideration" as used in this clause (vi) shall mean that part
of the aggregate consideration as is fairly allocable to the
purchase price paid in Shares or Convertible Securities in the
manner referred to in this clause (vi), as determined by the
board of directors of the Company.
(C) In the case at any time the Company shall subdivide its outstanding
Shares into a greater number of Shares, then from and after the record date for
such subdivision the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Shares
purchasable upon the exercise of this Warrant shall be correspondingly
increased, and, conversely, in case the outstanding Shares shall be combined
into a smaller number of Shares, then from and after the record date for such
combination the Exercise Price in effect immediately prior to such combination
shall be proportionately increased and the number of Shares purchasable upon the
exercise of this Warrant shall be correspondingly decreased.
(D) Unless the provisions of paragraph (E) apply, if any capital
reorganization or reclassification of the capital stock of the Company, or
consolidation or merger of the Company with another corporation, or sale of all
or substantially all of its assets to another corporation, shall be effected in
such a way that holders of Shares (or any other securities of the Company then
issuable upon the exercise of this Warrant) shall be entitled to receive stock,
securities or assets with respect to or exchange for Shares (or such other
securities) then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provision shall be made
whereby the holder hereof shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the Shares (or other securities) of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of outstanding
Shares (or other securities) equal to the number of Shares (or other securities)
immediately theretofore so purchasable and receivable had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in any such
case appropriate provision shall be made with respect to the rights and
interests of the holder of this Warrant to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Exercise Price
and of the number of Shares (or other securities) purchasable upon the exercise
of this Warrant and for the registration thereof as provided in Section 6 of
this Warrant) shall thereafter be applicable, as nearly as may be, in relation
to any shares of stock, securities or assets thereafter deliverable upon the
exercise hereof (including an immediate adjustment, by reason of such
consolidation, merger or sale, of the Exercise Price to the value of the Shares
(or other
Page 5 - Annex 1
<PAGE>
securities) reflected by the terms of such consolidation, merger or sale if the
value so reflected is less than the Exercise Price in effect immediately prior
to such consolidation, merger or sale). In the event of a consolidation or
merger of the Company with or into another corporation as a result of which a
greater or lesser number of securities of the surviving corporation are issuable
to holders of Shares in respect of the number of Shares outstanding immediately
prior to such consolidation or merger, then the Exercise Price in effect
immediately prior to such consolidation or merger shall be adjusted in the same
manner as though there were a subdivision or combination of the outstanding
Shares. The Company shall not effect any such consolidation, merger or sale,
unless prior to or simultaneously with the consummation thereof the surviving or
successor corporation (if other than the Company) resulting from such
consolidation or merger of the corporation purchasing such assets shall assume,
by written instrument executed and mailed to the registered holder hereof at the
last address of such holder appearing on the books of the Company, the
obligation to deliver to such holder such Shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holder may be entitled to
purchase, and containing the express assumption of such surviving or successor
corporation of the due performance of every provision of this Warrant to be
performed by the Company and of all liabilities and obligations of the Company
hereunder.
(E) In the event of a change in control of the Company, as defined in this
paragraph (E), then the Board of Directors shall accelerate the exercise date of
the Warrant or make this Warrant fully vested and exercisable and, in its sole
discretion, may take any or all of the following actions: (a) grant a cash bonus
award to any holder of this Warrant in an amount necessary to pay the Exercise
Price of all or any portion of the Warrant then held by such person; (b) pay
cash to any holder of this Warrant in exchange for the cancellation of the
holder's Warrant in an amount equal to the difference between the Exercise Price
of such Warrant and the greater of the tender offer price for the underlying
Shares or the Market Price of the Shares on the date of the cancellation of the
Warrant; and (c) make any other adjustments or amendments to this Warrant. For
purposes of this paragraph (E), a "change in control" shall be deemed to have
occurred if (a) any "person" or "group" (within the meaning of Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, as amended ("1934 Act"),
other than a trustee or other fiduciary holding securities under an employee
benefit plan of the Company is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the 1934 Act), directly or indirectly, of more than 50% of the
then outstanding voting stock of the Company; or (b) at any time during any
period of three consecutive years after the date of this Warrant, individuals
who at the beginning of such period constitute the Board (and any new director
whose election by the Board or whose nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority thereof; or (c) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 50% of the combined
voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation.
Page 6 - Annex 1
<PAGE>
(F) In case at any time the Company shall pay any dividend on or make any
other distribution with respect to Shares (or any other securities of the
Company then issuable upon the exercise of the Warrant) that is payable in
Shares, Convertible Securities, any other securities of the Company or other
stock, securities or assets, other than cash, then thereafter, and in lieu of
any adjustment of the Exercise Price and the number of Shares issuable upon the
exercise of this Warrant, the holder of this Warrant, upon any exercise of the
rights represented hereby, shall be entitled to receive the number of Shares (or
other securities) being purchased upon such exercise and, in addition to and
without further payment, the Shares, Convertible Securities, other securities of
any company or other stock, securities or assets which the holder of this
Warrant would have received by way of such distributions if continuously since
the date of the Warrant (or, if this Warrant shall have been issued pursuant to
Section 7 of this Warrant, the date of the predecessor Warrant to which this
Warrant relates) such holder had been the record holder of the number of Shares
(or other securities), then being purchased and had retained all such Shares,
Convertible Securities, other securities of the Company or other stock,
securities or assets distributable with respect to such Shares (or other
securities) and, furthermore, all cash, stock, securities or assets payable as
dividends or distributions with respect to the foregoing and originating
directly or indirectly therefrom. The Company shall reserve and retain in
escrow from any such dividend or distribution of Shares, Convertible Securities,
other securities of the Company or other stock, securities or assets, and from
any such dividends or distributions with respect thereto and originating
directly or indirectly therefrom, such Shares, Convertible Securities, other
securities of the Company and other stock, securities, assets and cash as shall
be necessary to fulfill its obligations to the holder hereof pursuant to this
paragraph (F).
(G) If at any time conditions arise by reason of action taken by the
Company, which in the good faith opinion of the board of directors of the
Company, are not adequately covered by the provisions of this Annex 1, and which
might materially adversely affect the rights of the holder of this Warrant, the
Company shall appoint a firm of independent public accountants of recognized
standing (which may be the regular accountants or auditors of the Company),
which shall give their opinion as to the adjustments, if any, in the Exercise
Price and the number of Shares purchasable upon the exercise of this Warrant, or
other change in the rights of the holder hereof, on a basis consistent with the
other provisions of this Annex 1, necessary to preserve without diminution the
rights of the holder hereof. Upon receipt of such opinion, the Company shall
forthwith make the adjustments described therein.
(H) (i) Within ten (10) days of any adjustment of the Exercise Price or
change in the number of Shares purchasable upon the exercise of
this Warrant made pursuant to paragraphs (A), (B), (C) , or (F)
or any change in the rights of the holder of this Warrant by
reason of the occurrence of events described in paragraphs (D),
(E), or (F), the Company shall give written notice by certified
or registered mail to the registered holder of this Warrant at
the address of such holder as shown on the books of the Company,
which notice shall describe the event requiring such adjustments
(with respect to any adjustment made pursuant to paragraphs (C),
(D), (E) or (F), the Exercise Price resulting
Page 7 - Annex 1
<PAGE>
from such adjustment, the increase or decrease, if any, in the
number of Shares purchasable upon the exercise of this Warrant,
or the other change in the rights of such holder, and set forth
in reasonable detail the method of calculation of such
adjustments and the facts upon which such calculations are
based. Within two (2) days of receipt from the holder of this
Warrant upon the surrender hereof for exercise pursuant to
Section 1 of this Warrant, and within three (3) days of receipt
from the holder hereof a written request therefor (which request
shall not be made more than once each calendar quarter), the
Company shall give written notice by certified or registered
mail to such holder at his address as shown on the books of the
Company of the Exercise Price in effect as of the date of
receipt by the Company of this Warrant for exercise, or the date
of receipt of such written request, and the number of Shares
purchasable or the number or amount of other shares of stock,
securities or assets receivable as of such date, and set forth in
reasonable detail the method of calculation of such numbers;
provided that no further adjustments to the Exercise Price or the
number of Shares purchasable or number or amount of shares,
securities or assets receivable on exercise of this Warrant shall
be made after receipt of this Warrant by the Company for
exercise.
(ii) Upon each adjustment of the Exercise Price and each change in the
number of Shares purchasable upon the exercise of this Warrant,
and change in the rights of the holder of this Warrant by reason
of the occurrence of other events herein set forth, then and in
each case, upon written request of the holder of this Warrant
(which request shall be made not more often than once each
calendar year), the Company will at its expense promptly obtain
an opinion of independent public accountants reasonably
satisfactory to each holder stating the then effective Exercise
Price and the number of Shares then purchasable, or specifying
the other shares of stock, securities or assets and the amount
thereof then receivable, and setting forth in reasonable detail
the method of calculation of such numbers and the facts upon
which such calculations are based. The Company will promptly
mail a copy of such opinion to the registered holder hereof.
(I) In case at any time:
(i) The Company shall pay any dividend payable in capital stock on
its outstanding Shares or make any distribution (other than
regular cash dividends) to the holders of Shares;
(ii) The Company shall offer for subscription pro rata to the holders
of Shares any additional capital stock or other rights;
Page 8 - Annex 1
<PAGE>
(iii) There shall be authorized any capital reorganization or
reclassification of the capital stock of the Company, or
consolidation or merger of the Company with, or sale of all or
substantially all of its assets to, another corporation; or
(iv) There shall be authorized or commence a voluntary or involuntary
dissolution, liquidation or winding up of the Company.
then, in one or more of said cases, the Company shall given written notice by
certified or registered mail to Davis at the address of Davis as shown on the
books of the Company on the date on which (1) the books of the Company shall
close or a record shall be taken for such dividend, distribution, or
subscription rights, or (2) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up shall take
place or be voted upon by the shareholders of the Company, as the case may be.
Such notice shall also specify the date as of which the holders of record of
Shares shall participate in such dividend, distribution or subscription rights,
or shall be entitled to exchange their Shares for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be. Such written
notice shall be given at least thirty (30) days prior to the action in question
and no less than thirty (30) days prior to the record date or the date on which
the Company's books are closed in respect thereto.
Page 9 - Annex 1
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
To be Executed by the Registered Holder
Desiring to Exercise the Within Warrant of
TIPPERARY CORPORATION
The undersigned registered holder hereby exercises the right to purchase
__________ Shares covered by the within Warrant according to the conditions
thereof, and herewith makes payment of the Exercise Price of such Shares,
$_____________.
Name of Registered Holder:
----------------------------------------------------
Signature:
---------------------------------------------------------------------
Title of Signing Officer
or Agent (if any):
-------------------------------------------------------------
Address of Registered Holder:
-------------------------------------------------
Tax I.D. No.
-------------------------------------------------------------------
Dated: , 19 .
----------------------- ---
<PAGE>
THIS WARRANT AND THE RIGHTS REPRESENTED HEREBY SHALL NOT BE TRANSFERABLE AT
ANY TIME UNLESS (I) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, AS AMENDED, SHALL BE IN EFFECT WITH RESPECT TO THIS WARRANT OR THE
SHARES ISSUABLE HEREUNDER AT SUCH TIME, OR (II) THE TRANSFER IS MADE IN
COMPLIANCE WITH THE PROVISIONS OF SECTION 5.
NUMBER: 25,000 SHARES
WARRANT
TO PURCHASE SHARES
OF
TIPPERARY CORPORATION
This certifies that, for value received, Marshall D. Lees, an individual
residing in Wilmette, Illinois ("Lees"), or his registered assigns, is
entitled to purchase from TIPPERARY CORPORATION, a Texas corporation (the
"Company"), twenty-five thousand (25,000) Shares, at the price of Four
Dollars and 25/100 ($4.25) per Share (as defined in Section 3) at any time,
or in part from time to time in accordance with the following Vesting
Schedule ("Vesting Schedule"):
Date: Total Shares Subject to Exercise
From and after August 26, 1998 8,334
From and after August 26, 1999 8,333
From and after August 26, 2000 8,333
This Warrant shall expire, if not exercised prior thereto, two (2) years
after the resignation or removal of Lees as a director of the Company. If
Lees should resign or be removed as a director from the Company, then this
Warrant shall be vested only to the extent vested on such date of resignation
or removal according to the Vesting Schedule. The provisions as to
adjustment of the initial exercise price set forth above and the number of
Shares to be issued upon the occurrence of certain events (the Provisions as
to Adjustment) are more fully set forth in Annex I hereto. (Hereinafter, the
initial exercise price set forth above in this paragraph for the purchase of
Shares upon the exercise of this Warrant, as adjusted pursuant to the
Provisions as to Adjustment, is referred to as the "Exercise Price"). This
Warrant is subject to the following provision, terms and conditions:
1. EXERCISE OF WARRANT.
(a) The rights represented by this Warrant may be exercised by the
holder hereof, in whole or in part, (but not as to a fractional Share), by
the surrender of this Warrant at the Company's principal office located in
Denver, Colorado (or such other office or agency of the Company as the
Company may designate by notice in writing to the holder hereof at the
address of such holder appearing on the books of the Company at any time
within the period above named) and delivery of a completed subscription form
in the form attached to this Warrant as Exhibit A, and upon payment to the
Company of the Exercise Price for such Shares.
<PAGE>
(b) Payment of the Exercise Price shall be made by a combination of any
one or more of the following:
(i) By application, to the extent permitted by applicable law, of
Shares or other securities of the Company owned by the holder
thereof, the value of which for such purpose shall be the fair
market value thereof determined in good faith by the Company and
the holder hereof at the time of such exercise; provided,
however, that in order to apply such Shares or other securities
of the Company in the exercise hereof, each of the following
conditions must be met:
(A) Such Shares or other securities of the Company shall have
been owned, without material encumbrance, contingency or
risk of forfeiture relating to the ownership rights, for at
least six months and at all times during said six month
period by the holder hereof, and within said six month
period such Shares or other securities of the Company shall
not have been obtained through exercise of any option,
warrant or right to obtain such Shares of other securities
or through the conversion of any other security; and
(B) Such Shares or other securities shall not be or include: (1)
options, warrants or similar rights to acquire Shares or
other securities of the Company by the holder hereof; or (2)
securities owned by the holder hereof which are convertible
in whole or in part into Shares or other securities of the
Company.
(ii) in cash or by certified check or bank draft in New York Clearing
House funds.
(c) The Company agrees that any Shares so purchased by the exercise of
this Warrant shall be deemed to be issued to the holder hereof as the record
owner of such Shares as of the close of business on the date on which this
Warrant shall have been surrendered, the completed subscription form
delivered, and payment in full is made and delivered to the Company for such
Shares as aforesaid.
(d) Stock certificates evidencing Shares so purchased shall be
delivered to the holder hereof as promptly as practicable, after the rights
represented by this Warrant shall have been so exercised. If this Warrant
shall have been exercised only in part, and unless this Warrant has expired,
a new Warrant representing the number of Shares with respect to which this
Warrant shall not then have been exercised shall also be delivered to the
holder hereof within such time. Notwithstanding the foregoing, however, the
Company shall not be required to deliver any stock certificate evidencing
Shares upon exercise of this Warrant except in accordance with the
provisions, and subject to the limitations, of Section 5. The Company will
pay all expenses and charges payable
Page 2 - Warrant to Purchase Shares
<PAGE>
in connection with the preparation, execution and delivery of stock
certificates and any new Warrants or promissory notes.
2. CERTAIN COVENANTS OF THE COMPANY. The Company covenants and agrees
as follows:
(a) All Shares which may be issued upon the exercise of the rights
represented by this Warrant (all such Shares, whether previously issued or
subject to issuance upon the exercise of this Warrant, are from time to time
referred to herein as "Warrant Shares") will, upon issuance, be duly
authorized and issued, fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issuance thereof.
(b) During the period within which the rights represented by this
Warrant may be exercised, and only insofar as the Vesting Schedule herein
permits the exercise of this Warrant, the Company will at all times have
authorized and reserved free of preemptive or other rights for the exclusive
purpose of issuance upon exercise of the purchase rights evidenced by this
Warrant, a sufficient number of Shares to provide for the exercise of rights
represented by this Warrant.
(c) The Company will not, by amendment or restatement of the Articles
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, issuance or sale of securities or otherwise, avoid or
take any action which would have the effect of avoiding the performance of
any of the terms to be performed hereunder by the Company, but will at all
times in good faith carry out all of the provisions of this Warrant and take
all such action as may be necessary or appropriate to protect the rights of
the holder hereof against dilution or other impairment and, in particular,
will not permit the par value of any Share to be or become greater than the
then effective Exercise Price.
3. DEFINITION OF SHARES. As used herein, the term "Shares" shall mean
and include shares of the Common Stock, par value $.02 per share, of the
Company as are constituted and exist on the date hereof, and shall also
include any other class of the capital stock of the Company hereafter
authorized which shall neither be limited to a fixed sum or percentage of par
value in respect to the rights of the holders thereof to receive dividends
and to participate in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding up of the Company, nor be
subject at any time to redemption by the Company; provided that the Shares
receivable upon exercise of this Warrant shall include only Shares of the
type as are constituted and exist on the date hereof or Shares resulting from
any reclassification of the Shares as provided for in paragraph (C) of the
Provisions as to Adjustment.
4. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof as such to any rights whatsoever, including,
without limitation, voting rights, as a holder of Shares of the Company. No
provisions hereof, in the absence of affirmative action by the holder hereof
to purchase Shares, and no mere enumeration herein of the rights or
privileges of such holder, shall give rise to any liability of such holder as
a holder of Shares of the Company, regardless of who may assert such
liability.
Page 3 - Warrant to Purchase Shares
<PAGE>
5. RESTRICTIONS ON TRANSFER.
(a) This Warrant shall not be exercisable by a transferee hereof and/or
transferable and the Warrant Shares shall not be transferable except upon the
conditions specified in this Section 5, which conditions are intended, among
other things, to ensure compliance with the provisions of the Securities Act
of 1933, as amended, and the rules and regulations of the Securities and
Exchange Commission (the "Commission") thereunder (collectively the
"Securities Act"), in respect of the exercise and/or transfer of this Warrant
and/or transfer of such Warrant Shares.
(b) This Warrant and the Warrant Shares shall not be transferable
(except for a transfer of this Warrant or the Warrant Shares in an offering
registered under the Securities Act, including, without limitation, a
transfer in a registered offering effected pursuant to Section 6, and any
subsequent transfer) unless, prior to any transfer, the holder hereof shall
have received from its transferee reasonable assurances that such person is
aware that this Warrant and the Warrant Shares have not been registered under
the Securities Act and that such person is acquiring this Warrant or the
Warrant Shares for investment only and not with the view to the disposition
or public offering thereof (unless in an offering registered under the
Securities Act of 1933 or exempt therefrom), and that such person is aware
that the stock certificates evidencing the Warrant Shares shall bear a legend
restricting transfer and disposition thereof in accordance with the
Securities Act unless, in the opinion of counsel to the Company, such legend
may be omitted. In the event of any transfer of this Warrant (other than a
transfer in an offering registered under the Securities Act, including,
without limitation, a transfer in a registered offering effected pursuant to
Section 6, and any subsequent transfer), the holder hereof shall provide an
opinion of counsel, who shall be reasonably satisfactory to the Company, that
an exemption from the registration requirements of the Securities Act is
available.
(c) Any permitted subsequent holder of this Warrant shall be subject to
all the terms and conditions herein, and shall acknowledge, in writing, upon
receipt of this Warrant his or her acceptance of the terms and conditions
herein.
(d) To facilitate sales by a holder of this Warrant or Warrant Shares
in transactions qualifying under Rule 144 promulgated by the Commission under
the Securities Act, if available, the Company agrees to satisfy the current
public information requirements of said Rule 144, for as long as the Shares
remain registered under the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder (collectively the
"Exchange Act"), and to provide said holder upon request with such other
information as such holder may require for compliance with the provisions of
said Rule 144.
6. REGISTRATION UNDER SECURITIES ACT.
(a) If the Company at any time proposes to register any issuance of its
securities under the Securities Act (other than a registration on Form S-8 in
connection with an employee stock purchase or option plan or on Form S-4 in
connection with mergers, acquisitions or exchange
Page 4 - Warrant to Purchase Shares
<PAGE>
offerings), the Company will at such time give prompt written notice to the
holder hereof and to the holders of all other Warrant Shares issuable from
any outstanding Warrants (such holders are hereinafter referred to as the
"Prospective Sellers") of its intention to do so. Upon the written request
of a Prospective Seller, given within 30 days after receipt of any such
notice (which request shall state the intended method of disposition of the
Warrant Shares to be transferred by such Prospective Seller), the Company
shall use its best efforts to cause all Warrant Shares, the holders of which
(or of the Warrants to which the same are related), to the extent vested in
accordance with the Vesting Schedule, shall have so requested registration of
the transfer thereof, to be registered under the Securities Act, all to the
extent requisite to permit the sale or other disposition (in accordance with
the intended method thereof as aforesaid) by the Prospective Sellers of such
Warrant Shares. The rights granted pursuant to this Section 6(a) shall not
be effective with respect to the Prospective Seller in the case of an
underwritten public offering of securities of the Company by the Company
unless each Prospective Seller agrees to the terms and conditions, including
underwriting discounts and allowances, specified by the managing underwriter
of such offering with respect to such Warrant Shares. The Company shall have
the right to reduce the number of Warrant Shares of the Prospective Sellers
to be included in a registration statement pursuant to the exercise of the
rights granted by this Section 6(a) if, and to the extent, that the managing
underwriter of such offering is of the good faith opinion, supported by
written reasons therefor, that the inclusion of such Warrant Shares would
materially adversely affect the marketing of the securities of the Company to
be offered; provided, that any such reduction of the number of Warrant Shares
the transfer of which is to be registered on behalf of the Prospective
Sellers shall be made on the basis of a pro rata reduction of all Warrant
Shares of all Prospective Sellers.
(b) If and whenever the Company is required by the provisions of this
Section 6 to use its best efforts to effect the registration of any transfer
of Warrant Shares under the Securities Act, the Company will, as
expeditiously as possible,
(i) prepare and file with the Commission a registration statement
with respect to such transfer and use its best efforts to cause
such registration statement to become and remain effective, but
not for any period longer than nine months;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such
registration statement effective, and to comply with the
provisions of the Securities Act with respect to the transfer of
all securities covered by such registration statement, including,
without limitation, taking all necessary actions whenever the
Prospective Sellers of the Warrant Shares covered by such
registration statement shall desire to dispose of the same;
(iii) furnish to each Prospective Seller such number of copies of a
prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, and such other
documents, as such Prospective Seller may
Page 5 - Warrant to Purchase Shares
<PAGE>
reasonably request in order to facilitate the disposition of the
Warrant Shares owned by such Prospective Seller and covered by
such registration statement;
(iv) use its best efforts to register or qualify the securities
covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each
Prospective Seller shall request, and use its best efforts to do
any and all other acts and things which may be reasonably
necessary to enable such Prospective Seller to consummate the
disposition in such jurisdiction of the Warrant Shares owned by
such Prospective Seller and covered by such registration
statement; provided that, notwithstanding the foregoing, the
Company shall not be required to register in any jurisdiction as
a broker or dealer of securities or to grant its consent to
service of process in any such jurisdiction solely on account of
such intended disposition by such Prospective Seller;
(v) furnish to the Prospective Sellers whose intended dispositions
are registered a signed copy of an opinion of counsel for the
Company, in form and substance acceptable to such Prospective
Sellers, to the effect that: (A) a registration statement
covering such dispositions of Warrant Shares has been filed with
the Commission under the Securities Act and has been made
effective by order of the Commission, (B) such registration
statement and the prospectus contained therein and any amendments
or supplements thereto comply as to form in all material respects
with the requirements of the Securities Act, and nothing has come
to such counsel's attention which would cause him to believe that
the registration statement or such prospectus, amendment or
supplement, at the time such registration statement or amendment
became effective or such supplement was filed with the
Commission, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein (in the case of such
prospectus, amendment or supplement, in the light of the
circumstances under which they were made) not misleading
(provided that such counsel need not render any opinion with
respect to the financial statements and other financial,
engineering and statistical data included therein), and (C) to
the best of such counsel's knowledge, no stop order has been
issued by the Commission suspending the effectiveness of such
registration statement and no proceedings for the issuance of
such a stop order are threatened or contemplated;
(vi) furnish to the Prospective Sellers whose intended dispositions
are required a blue sky survey in the form and of the substance
customarily prepared by counsel for the Company and accepted by
sellers of securities in similar offerings, discussing and
describing the application provisions of the securities or blue
sky laws of each state or jurisdiction in which the Company
Page 6 - Warrant to Purchase Shares
<PAGE>
shall be required, pursuant to Section 6(c)(iv), to register or
qualify such intended dispositions of such Warrant Shares, or, in
the event counsel for the underwriters in such offering shall be
preparing a blue sky survey, cause such counsel to furnish such
survey to, and to allow reliance thereon by, such Prospective
Sellers;
(vii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission under the Securities Act
and the Exchange Act, insofar as they relate to such registration
and such registration statement; and
(viii) use its best efforts to list such Warrant Shares on any
securities exchange on which any securities of the Company are
then listed or to admit such Warrant Shares for trading in any
national market system in which any securities of the Company are
then admitted for trading, if the listing or admission of such
securities is then permitted under the rules of such exchange or
system.
(c) With respect to the registration by the Company of transfers of
Warrant Shares under the Securities Act pursuant to Section 6(a), the Company
shall pay all expenses incurred by it in complying with this Section 6
(including, without limitation, all registration and filing fees, printing
expenses, blue sky fees and expenses, costs and expenses of audits, and
reasonable fees and disbursements of counsel for the Company and special
counsel designated by Prospective Sellers owning a majority of the Warrant
Shares covered by such registration, but specifically excluding any
underwriting discounts and allowances that are allocable to the Warrant
Shares being sold by, and which shall be paid by, the Prospective Sellers;
provided, however, that if any registration statement filed with the
Commission by the Company under Section 6(a) shall not be declared effective
by the Commission, such attempted registration shall not constitute a
registration under this Section 6(c).
(d) It shall be a condition precedent to the obligations of the Company
to take any action pursuant to this Section 6 that each Prospective Seller,
the transfer of whose Warrant Shares is registered or to be registered under
each such registration, shall furnish to the Company such written information
regarding the securities held by such Prospective Seller as the Company shall
reasonably request and as shall be required in connection with the action to
be taken by the Company.
(e) (i) In the event of any registration of any transfer of Warrant
Shares under the Securities Act pursuant to this Section 6, the Company will
indemnify and hold harmless each Prospective Seller of such securities, each
of its officers, directors and partners, and each other person, if any, who
controls such Prospective Seller within the meaning of the Securities Act,
and each underwriter, if any, who participates in the offering of such
securities, against any losses, claims, damages or liabilities (or actions in
respect thereof), joint or several, to which each Prospective Seller,
officer, director or partner, controlling person or underwriter may become
subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue
Page 7 - Warrant to Purchase Shares
<PAGE>
statement of any material fact contained, on the effective date thereof, in
any registration statement under which such transfer of securities was
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of the
Securities Act, and will reimburse such Prospective Seller and each of its
officers, directors and partners, and each such controlling person or
underwriter, for any legal or any other expenses reasonably incurred by such
Prospective Seller or its officers, directors and partners or controlling
persons or by each such underwriter, in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, preliminary prospectus or
prospectus or such amendment or supplement in reliance upon and in conformity
with written information furnished to the Company through an instrument duly
executed by such Prospective Seller specifically for use in the preparation
thereof. In the event of any registration by the Company or any transfer of
securities under the Securities Act pursuant to this Section 6, each
Prospective Seller of Warrant Shares covered by such registration will
indemnify and hold harmless the Company, each other person, if any, who
controls the Company within the meaning of the Securities Act and each
officer and director of the Company and the other Prospective Sellers to the
same extent that the Company agrees to indemnify it, but only with respect to
the written information relating to such Prospective Seller furnished to the
Company by such Prospective Seller aforesaid.
(ii) Each indemnified party shall, as promptly as practicable upon
receipt of notice of the commencement of any action against such indemnified
party or its officers, directors or partners, or any controlling person of
such indemnified party, in respect of which indemnity may be sought from an
indemnifying party on account of the indemnity agreement contained in Section
6(e)(i), notify the indemnifying party in writing of the commencement
thereof. The omission of such indemnified party to so notify the indemnifying
party of any such action shall not relieve the indemnifying party from any
liability which it may have on account of the indemnity agreement contained
in Section 6(e)(i) to the extent that the failure to receive such notice
within a reasonable period of time shall not have caused harm, loss or damage
to the indemnifying party, provided that, conversely, if such failure to
receive notice shall have caused any harm, loss or damage to the indemnifying
party, such failure shall constitute a defense to any liability which such
indemnifying party may have on account of such agreement to the extent of the
harm, loss or damage so caused. In case any such action shall be brought
against any indemnified party, its officers, directors and partners, or any
such controlling person, and such indemnified party shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in (and, to the extent that the indemnifying party
shall wish, to direct) the defense thereof at the indemnifying party's own
expense, in which event the defense shall be conducted by recognized counsel
chosen by the indemnifying party and approved by the indemnified party (whose
approval shall not unreasonably be withheld) and the indemnified party may
participate in such defense at its own expense (unless it is advised by
counsel that actual or potential differing interests or defenses exist
Page 8 - Warrant to Purchase Shares
<PAGE>
or may exist, in which case such expenses shall be paid by the indemnifying
party, provided that the indemnifying party shall not be required to pay the
expenses for more than one counsel for all such indemnified parties).
7. TRANSFER; OWNERSHIP. Subject to Section 5, this Warrant and all
rights hereunder are transferable, in whole or in part, at the office or
agency of the Company referred to in Section 1 by the holder hereof in person
or by a duly authorized attorney, upon surrender of this Warrant, with an
assignment, acceptable to the Company, duly completed, at which time a new
Warrant shall be made and delivered by the Company, of the same tenor as this
Warrant but registered in the name of the transferee. The holder of this
Warrant, by taking or holding the same, consents and agrees that this
Warrant, when endorsed in blank, shall be deemed negotiable, and that the
holder hereof, when this Warrant shall have been so endorsed, may be treated
by the Company and all other persons dealing with this Warrant as the
absolute owner hereof for any purpose and as the person entitled to exercise
the rights represented by this Warrant and to transfer this Warrant on the
books of the Company, any notice to the contrary notwithstanding; but until
such transfer on such books, the Company may treat the registered holder
hereof as the owner hereof for all purposes. Any transfer of this Warrant
shall be made in compliance with the Securities Act and any applicable
statute securities or blue sky laws.
8. EXCHANGE AND REPLACEMENT. Subject to Section 7, this Warrant is
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Section 1, for new Warrants of like
tenor and date representing in the aggregate the right to purchase the number
of Shares which may be purchased hereunder, each of such new Warrants to
represent the right to purchase such number of Shares as shall be designated
by said holder hereof at the time of such surrender. Upon receipt by the
Company at the office or agency referred to in Section 1 of evidence
reasonably satisfactory to it of the loss, theft or destruction of this
Warrant and of indemnity or security reasonably satisfactory to it (provided
that the written indemnity of the holder hereof shall be deemed reasonably
satisfactory to the Company for such purposes), the Company will deliver a
new Warrant of like tenor and date in replacement of this Warrant. This
Warrant shall be promptly canceled by the Company upon the surrender hereof
in connection with any transfer, exchange or replacement. The Company will
pay all expenses and charges payable in connection with the preparation,
execution and delivery of Warrants pursuant to Section 7 and this Section 8.
9. NOTICES. Any notice or other document required or permitted to be
given or delivered to the holder hereof shall be delivered at, or sent by
certified or registered mail to, Marshall D. Lees, 533 Forest Avenue,
Wilmette, Illinois 60091, or to such other address as shall have been
furnished to the Company in writing by the holder hereof. Any notice or
other document required or permitted to be given or delivered to the Company
shall be delivered at, or sent by certified or registered mail to, 633
Seventeenth, Suite 1550, Denver, Colorado 80202, or to such other address as
shall have been furnished in writing to the holder hereof by the Company.
Any notice so addressed and mailed by registered or certified mail or
otherwise delivered, shall be deemed to be given when actually received by
the addressee.
Page 9 - Warrant to Purchase Shares
<PAGE>
10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
11. MISCELLANEOUS. This Warrant will be binding upon any entity
succeeding to the Company by consolidation or acquisition of all or
substantially all of the Company's assets, and upon any successor or assign of
the holder hereto. This Warrant and any provision hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party (or any predecessor in interest thereof) against whom enforcement of the
same is sought. The headings in this Warrant are for purposes of reference only
and shall not affect the meaning or construction of any of the provisions
hereon.
IN WITNESS WHEREOF, Tipperary Corporation has caused this Warrant to be
signed by its duly authorized officers, under its corporate seal, to be dated
October 21, 1997.
TIPPERARY CORPORATION
BY: /s/ David L. Bradshaw
----------------------------------------------
ITS: President
(CORPORATE SEAL)
ATTEST:
/s/ Elaine R. Treece
-------------------------------
ITS: Secretary
Page 10 - Warrant to Purchase Shares
<PAGE>
Annex 1
TIPPERARY CORPORATION
PROVISIONS AS TO ADJUSTMENT OF
EXERCISE PRICE AND NUMBER OF SHARES
ISSUED UPON OCCURRENCE OF CERTAIN EVENTS
The Exercise Price and the number of Shares issuable upon the exercise of the
annexed Warrant to purchase shares of TIPPERARY CORPORATION, a Texas corporation
(herein and in this Warrant referred to as the "Company"), shall be subject to
adjustment from time to time as hereinafter provided; that in no event shall the
Exercise Price be increased to a price greater than Four Dollars and 25/100
($4.25) per Share, except as provided by paragraph (C). Upon each adjustment of
the Exercise Price, the holder of this Warrant shall thereafter be entitled to
purchase, at the Exercise Price resulting from such adjustment, the number of
Shares obtained by multiplying the number of Shares purchasable pursuant hereto
immediately prior to such adjustment by a fraction, the numerator of which is
the Exercise Price in effect immediately prior to such adjustment and the
denominator of which is the Exercise Price resulting from such adjustment. In
making the adjustments to the Exercise Price and the number of Shares issuable
upon the exercise of this Warrant, the following provisions shall be applicable:
(A) If and whenever the Company shall issue or sell any Shares for
consideration per Share that is less than the Exercise Price in effect
immediately prior to the time of such issue or sale at less than the Market
Price (as hereinafter defined) of such Shares on the date of such issue or sale,
then forthwith upon such issue or sale the Exercise Price in effect immediately
prior thereto shall be adjusted to an amount (calculated to the nearest cent)
determined by dividing (i) an amount equal to the sum of (a) the number of
Shares outstanding immediately prior to such issue or sale multiplied by the
Exercise Price in effect immediately prior to such issue or sale, and (b) the
consideration, if any, received by the Company upon such issue or sale by (ii)
the total number of Shares outstanding immediately after such issue or sale;
provided, however, that no adjustment shall be made hereunder by reason of:
(i) the grant of this Warrant or the issuance of Shares upon the
exercise of this Warrant or any other outstanding Warrant;
(ii) the grant by the Company of options to purchase shares in
connection with any purchase or option plan for the benefit of
employees of the Company, or any affiliates or subsidiaries
thereof; or
(iii) the issuance (whether directly or by assumption in a merger or
otherwise) or sale (including any issuance or sale to holders of
Shares) of any securities convertible into or exchangeable for
Shares (such convertible or exchangeable securities are herein
referred to as "Convertible Securities," or the grant of rights
to subscribe for or to purchase, or of options for the
<PAGE>
purchase of (including any grant of such rights or options to
holders of shares, other than pursuant to a dividend on Shares),
Shares of Convertible Securities, regardless of whether the right
to convert or exchange such Convertible Securities or such rights
or options are immediately exercisable.
No adjustment of the Exercise Price shall be required to be made by the Company
and no notice hereunder must be given if the amount of any required adjustment
is less than 5% of the Exercise Price. In such case any such adjustment shall
be carried forward and shall be made (and notice thereof shall be given
hereunder) at the time of and together with the next subsequent adjustment
which, together with any adjustment so carried forward, shall amount to not less
than 5% of the Exercise Price.
(B) For the purposes of paragraph (A), the following provisions (i)
through (vi), inclusive, shall also be applicable:
(i) If, at the time Shares are issued and sold upon the conversion or
exchange of Convertible Securities or upon the exercise of rights
or options previously granted by the Company, the price per Share
for which such Shares are issued (determined by dividing (a) the
total amount, if any, received by the Company as consideration
for such Convertible Securities or for the granting of such
rights or options, plus the aggregate amount of additional
consideration paid to the Company upon the conversion or exchange
of such Convertible Securities (which, if so provided in such
Convertible Securities, shall be deemed to be equal to the
outstanding principal amount of the indebtedness represented by
such Convertible Securities) or upon the exercise of such rights
or options, by (b) the total number of Shares issued upon the
conversion or exchange of such Convertible Securities or upon the
exercise of such rights or options) shall be less than the
Exercise Price in effect immediately prior to such issue, sale or
exercise, then the adjustments provided for by the first
paragraph of this Annex 1 and paragraph (A) shall be made. In
making the adjustment of the Exercise Price provided for by
paragraph (A), the amount described in clause (a) of this
paragraph (B)(i) shall be considered the consideration received
by the Company upon the issue or sale of the Shares for purposes
of clause (i)(b) of paragraph (A).
(ii) In case at any time any Shares or Convertible Securities or any
rights or options to purchase any Shares or Convertible
Securities shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by
the Company therefor without deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or
allowed by the Company in connection therewith. In case any
Shares or Convertible Securities or any rights or options to
Purchase any Shares or Convertible Securities shall be issued or
sold, in whole or in part, for
Page 2 - Annex 1
<PAGE>
consideration other than cash, the amount of the consideration
other than cash received by the Company in exchange for the issue
or sale of such Convertible Securities shall be deemed to be the
fair value of such consideration as determined in good faith by
the board of directors of the Company, without deduction
therefrom of any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Company in
connection therewith; provided that if the holder or holders of
at least 66-2/3% of the Warrant Shares purchasable under this
Warrant shall request in writing, the value of such consideration
shall be determined by an independent expert selected by such
holders, the costs and expenses of which shall be borne by the
Company, and, if the value of such consideration as so determined
is less than the value determined by the board of directors of
the Company, the lesser value shall be utilized in calculating
the consideration per Share received by the Company for purposes
of making the adjustment provided by paragraph (A). In the event
of any merger or consolidation of the Company in which the
Company is not the surviving corporation or in the event of any
sale of all or substantially all of the assets of the Company for
stock or other securities of any corporation, the Company shall
be deemed to have issued a number of Shares for stock or
securities of such other corporation computed on the basis of the
actual exchange ratio on which the transaction was predicated and
for consideration that is equal to the fair market value on the
date of such transaction of such stock or securities of the other
corporation, and if any such calculation results in adjustment of
the Exercise Price, the determination of the number of Shares
issuable upon exercise of this Warrant immediately prior to such
merger, consolidation or sale, for purposes of paragraph (A),
shall be made after giving effect to such adjustment of the
Exercise Price.
(iii) The number of Shares outstanding at any given time shall not
include Shares that have been redeemed by the Company and not
canceled, if any, and that are thus owned or held by or for the
account of the Company, and the disposition of any such Shares
shall be considered an issue or sale of Shares for purposes of
paragraph (A).
(iv) "Market Price" shall mean the lower of (a) the average closing
sales prices of Shares recorded on the principal national
securities exchange on which the Shares are listed or in a
national market system for securities in which the Shares are
admitted to trading or (b) the average of the closing bid and
asked prices of Shares reported in the domestic over-the-counter
market, for the 20 trading days immediately prior to the day as
of which the Market Price is being determined. If the Shares are
not listed on any national securities exchange or admitted for
trading in any national market system or traded in the domestic
over-the-counter market, the Market Price shall be the higher of
Page 3 - Annex 1
<PAGE>
(y) the book value of the Shares as determined by a firm of
independent public accountants of recognized standing selected by
the board of directors of the Company as of the last day of any
month ending within 60 days preceding the date as of which the
determination is to be made or (z) the fair market value of the
Shares determined in good faith by the board of directors of the
Company, provided that if the holder or holders of at least
66-2/3% of the Warrant Shares purchasable under the Warrant shall
request in writing, the fair market value of the Shares shall be
determined by an independent investment banking firm or other
independent expert selected by such holders and reasonably
satisfactory to the Company, which determination shall be as of a
date which is within 15 days of the date as of which the
determination is to be made.
(v) Anything herein to the contrary notwithstanding, in case the
Company shall issue any Shares in connection with the acquisition
by the Company of the stock or assets of any other corporation or
the merger of any other corporation into the Company under
circumstances where, on the date of the issuance of such Shares,
the consideration received for such Shares is less than the
Market Price of the Shares, but on the date the number of Shares
was determined, the consideration received for such Shares would
not have been less than the Market Price thereof, such Shares
shall not be deemed to have been issued for less than the Market
Price.
(vi) Anything in clause (ii) of this paragraph (B) to the contrary
notwithstanding, in the case of an acquisition where all or part
of the purchase price is payable in Shares or Convertible
Securities but is stated as a dollar amount, where the Company
upon making the acquisition pays only part of a maximum dollar
purchase price which is payable in Shares or Convertible
Securities and where the balance of such purchase price is
deferred or is contingently payable under a formula related to
earnings over a period of time, (a) the consideration received
for any Shares or Convertible Securities delivered at the time of
the acquisition shall be deemed to be such part of the total
consideration as the portion of the dollar purchase price then
paid in Shares or Convertible Securities bears to the total
maximum dollar purchase price payable in Shares or Convertible
Securities and (b) in connection with each issuance of additional
Shares or Convertible Securities pursuant to the terms of the
agreement relating to such acquisition, the consideration
received shall be deemed to be such part of the total
consideration as the portion of the dollar purchase price then
and theretofore paid in Shares or Convertible Shares bears to the
total maximum dollar purchase price payable in Shares or
Convertible Securities multiplied by a fraction, the numerator of
which shall be the number of Shares (or in the case of
Convertible Securities other than capital stock of the Company,
the aggregate principal amount of such
Page 4 - Annex 1
<PAGE>
Convertible Securities) then issued and the denominator of which
shall be the total number of shares (or in the case of
Convertible Securities other than capital stock of the Company,
the aggregate principal amount of such Convertible Securities)
then and theretofore issued under such acquisition agreement. In
the event only a part of the purchase price for an acquisition is
paid in Shares or Convertible Securities in the manner referred
to in this clause (vi), the term "total consideration" as used in
this clause (vi) shall mean that part of the aggregate
consideration as is fairly allocable to the purchase price paid
in Shares or Convertible Securities in the manner referred to in
this clause (vi), as determined by the board of directors of the
Company.
(C) In the case at any time the Company shall subdivide its outstanding
Shares into a greater number of Shares, then from and after the record date for
such subdivision the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Shares
purchasable upon the exercise of this Warrant shall be correspondingly
increased, and, conversely, in case the outstanding Shares shall be combined
into a smaller number of Shares, then from and after the record date for such
combination the Exercise Price in effect immediately prior to such combination
shall be proportionately increased and the number of Shares purchasable upon the
exercise of this Warrant shall be correspondingly decreased.
(D) Unless the provisions of paragraph (E) apply, if any capital
reorganization or reclassification of the capital stock of the Company, or
consolidation or merger of the Company with another corporation, or sale of all
or substantially all of its assets to another corporation, shall be effected in
such a way that holders of Shares (or any other securities of the Company then
issuable upon the exercise of this Warrant) shall be entitled to receive stock,
securities or assets with respect to or exchange for Shares (or such other
securities) then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provision shall be made
whereby the holder hereof shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the Shares (or other securities) of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of outstanding
Shares (or other securities) equal to the number of Shares (or other securities)
immediately theretofore so purchasable and receivable had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in any such
case appropriate provision shall be made with respect to the rights and
interests of the holder of this Warrant to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Exercise Price
and of the number of Shares (or other securities) purchasable upon the exercise
of this Warrant and for the registration thereof as provided in Section 6 of
this Warrant) shall thereafter be applicable, as nearly as may be, in relation
to any shares of stock, securities or assets thereafter deliverable upon the
exercise hereof (including an immediate adjustment, by reason of such
consolidation, merger or sale, of the Exercise Price to the value of the Shares
(or other securities) reflected by the terms of such consolidation, merger or
sale if the value so reflected is less than the Exercise Price in effect
immediately prior to such consolidation, merger or sale). In the
Page 5 - Annex 1
<PAGE>
event of a consolidation or merger of the Company with or into another
corporation as a result of which a greater or lesser number of securities of the
surviving corporation are issuable to holders of Shares in respect of the number
of Shares outstanding immediately prior to such consolidation or merger, then
the Exercise Price in effect immediately prior to such consolidation or merger
shall be adjusted in the same manner as though there were a subdivision or
combination of the outstanding Shares. The Company shall not effect any such
consolidation, merger or sale, unless prior to or simultaneously with the
consummation thereof the surviving or successor corporation (if other than the
Company) resulting from such consolidation or merger of the corporation
purchasing such assets shall assume, by written instrument executed and mailed
to the registered holder hereof at the last address of such holder appearing on
the books of the Company, the obligation to deliver to such holder such Shares
of stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to purchase, and containing the express assumption
of such surviving or successor corporation of the due performance of every
provision of this Warrant to be performed by the Company and of all liabilities
and obligations of the Company hereunder.
(E) In the event of a change in control of the Company, as defined in this
paragraph (E), then the Board of Directors shall accelerate the exercise date of
the Warrant or make this Warrant fully vested and exercisable and, in its sole
discretion, may take any or all of the following actions: (a) grant a cash bonus
award to any holder of this Warrant in an amount necessary to pay the Exercise
Price of all or any portion of the Warrant then held by such person; (b) pay
cash to any holder of this Warrant in exchange for the cancellation of the
holder's Warrant in an amount equal to the difference between the Exercise Price
of such Warrant and the greater of the tender offer price for the underlying
Shares or the Market Price of the Shares on the date of the cancellation of the
Warrant; and (c) make any other adjustments or amendments to this Warrant. For
purposes of this paragraph (E), a "change in control" shall be deemed to have
occurred if (a) any "person" or "group" (within the meaning of Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, as amended ("1934 Act"),
other than a trustee or other fiduciary holding securities under an employee
benefit plan of the Company is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the 1934 Act), directly or indirectly, of more than 50% of the
then outstanding voting stock of the Company; or (b) at any time during any
period of three consecutive years after the date of this Warrant, individuals
who at the beginning of such period constitute the Board (and any new director
whose election by the Board or whose nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority thereof; or (c) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 50% of the combined
voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation.
Page 6 - Annex 1
<PAGE>
(F) In case at any time the Company shall pay any dividend on or make any
other distribution with respect to Shares (or any other securities of the
Company then issuable upon the exercise of the Warrant) that is payable in
Shares, Convertible Securities, any other securities of the Company or other
stock, securities or assets, other than cash, then thereafter, and in lieu of
any adjustment of the Exercise Price and the number of Shares issuable upon the
exercise of this Warrant, the holder of this Warrant, upon any exercise of the
rights represented hereby, shall be entitled to receive the number of Shares (or
other securities) being purchased upon such exercise and, in addition to and
without further payment, the Shares, Convertible Securities, other securities of
any company or other stock, securities or assets which the holder of this
Warrant would have received by way of such distributions if continuously since
the date of the Warrant (or, if this Warrant shall have been issued pursuant to
Section 7 of this Warrant, the date of the predecessor Warrant to which this
Warrant relates) such holder had been the record holder of the number of Shares
(or other securities), then being purchased and had retained all such Shares,
Convertible Securities, other securities of the Company or other stock,
securities or assets distributable with respect to such Shares (or other
securities) and, furthermore, all cash, stock, securities or assets payable as
dividends or distributions with respect to the foregoing and originating
directly or indirectly therefrom. The Company shall reserve and retain in
escrow from any such dividend or distribution of Shares, Convertible Securities,
other securities of the Company or other stock, securities or assets, and from
any such dividends or distributions with respect thereto and originating
directly or indirectly therefrom, such Shares, Convertible Securities, other
securities of the Company and other stock, securities, assets and cash as shall
be necessary to fulfill its obligations to the holder hereof pursuant to this
paragraph (F).
(G) If at any time conditions arise by reason of action taken by the
Company, which in the good faith opinion of the board of directors of the
Company, are not adequately covered by the provisions of this Annex 1, and which
might materially adversely affect the rights of the holder of this Warrant, the
Company shall appoint a firm of independent public accountants of recognized
standing (which may be the regular accountants or auditors of the Company),
which shall give their opinion as to the adjustments, if any, in the Exercise
Price and the number of Shares purchasable upon the exercise of this Warrant, or
other change in the rights of the holder hereof, on a basis consistent with the
other provisions of this Annex 1, necessary to preserve without diminution the
rights of the holder hereof. Upon receipt of such opinion, the Company shall
forthwith make the adjustments described therein.
(H) (i) Within ten (10) days of any adjustment of the Exercise Price or
change in the number of Shares purchasable upon the exercise of
this Warrant made pursuant to paragraphs (A), (B), (C) , or (F)
or any change in the rights of the holder of this Warrant by
reason of the occurrence of events described in paragraphs (D),
(E), or (F), the Company shall give written notice by certified
or registered mail to the registered holder of this Warrant at
the address of such holder as shown on the books of the Company,
which notice shall describe the event requiring such adjustments
(with respect to any adjustment made pursuant to paragraphs (C),
(D), (E) or (F), the Exercise Price resulting
Page 7 - Annex 1
<PAGE>
from such adjustment, the increase or decrease, if any, in the
number of Shares purchasable upon the exercise of this Warrant,
or the other change in the rights of such holder, and set forth
in reasonable detail the method of calculation of such
adjustments and the facts upon which such calculations are based.
Within two (2) days of receipt from the holder of this Warrant
upon the surrender hereof for exercise pursuant to Section 1 of
this Warrant, and within three (3) days of receipt from the
holder hereof a written request therefor (which request shall not
be made more than once each calendar quarter), the Company shall
give written notice by certified or registered mail to such
holder at his address as shown on the books of the Company of the
Exercise Price in effect as of the date of receipt by the Company
of this Warrant for exercise, or the date of receipt of such
written request, and the number of Shares purchasable or the
number or amount of other shares of stock, securities or assets
receivable as of such date, and set forth in reasonable detail
the method of calculation of such numbers; provided that no
further adjustments to the Exercise Price or the number of Shares
purchasable or number or amount of shares, securities or assets
receivable on exercise of this Warrant shall be made after
receipt of this Warrant by the Company for exercise.
ii) Upon each adjustment of the Exercise Price and each change in the
number of Shares purchasable upon the exercise of this Warrant,
and change in the rights of the holder of this Warrant by reason
of the occurrence of other events herein set forth, then and in
each case, upon written request of the holder of this Warrant
(which request shall be made not more often than once each
calendar year), the Company will at its expense promptly obtain
an opinion of independent public accountants reasonably
satisfactory to each holder stating the then effective Exercise
Price and the number of Shares then purchasable, or specifying
the other shares of stock, securities or assets and the amount
thereof then receivable, and setting forth in reasonable detail
the method of calculation of such numbers and the facts upon
which such calculations are based. The Company will promptly
mail a copy of such opinion to the registered holder hereof.
(I) In case at any time:
(i) The Company shall pay any dividend payable in capital stock
on its outstanding Shares or make any distribution (other
than regular cash dividends) to the holders of Shares;
(ii) The Company shall offer for subscription pro rata to the
holders of Shares any additional capital stock or other
rights;
Page 8 - Annex 1
<PAGE>
(iii) There shall be authorized any capital reorganization or
reclassification of the capital stock of the Company, or
consolidation or merger of the Company with, or sale of all
or substantially all of its assets to, another corporation;
or
(iv) There shall be authorized or commence a voluntary or involuntary
dissolution, liquidation or winding up of the Company.
then, in one or more of said cases, the Company shall given written notice by
certified or registered mail to Lees at the address of Lees as shown on the
books of the Company on the date on which (1) the books of the Company shall
close or a record shall be taken for such dividend, distribution, or
subscription rights, or (2) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up shall take
place or be voted upon by the shareholders of the Company, as the case may be.
Such notice shall also specify the date as of which the holders of record of
Shares shall participate in such dividend, distribution or subscription rights,
or shall be entitled to exchange their Shares for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be. Such written
notice shall be given at least thirty (30) days prior to the action in question
and no less than thirty (30) days prior to the record date or the date on which
the Company's books are closed in respect thereto.
Page 9 - Annex 1
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
To be Executed by the Registered Holder
Desiring to Exercise the Within Warrant of
TIPPERARY CORPORATION
The undersigned registered holder hereby exercises the right to purchase
__________ Shares covered by the within Warrant according to the conditions
thereof, and herewith makes payment of the Exercise Price of such Shares,
$__________.
Name of Registered Holder:
----------------------------------------------------
Signature:
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Title of Signing Officer
or Agent (if any):
------------------------------------------------------------
Address of Registered Holder:
-------------------------------------------------
Tax I.D. No.:
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Dated: , 19 .
------------------ ---
<PAGE>
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 30th day of September 1997 by and among
Tipperary Corporation, a Texas corporation ("Seller), Milmac Operating Company,
an Oklahoma corporation ("Purchaser"), and James A. McAuley, an individual and
director, officer and principal shareholder of Purchaser ("McAuley").
EXPLANATORY STATEMENT
A. Seller is the sole shareholder of Monroe Fractionating, Inc., an
Alabama corporation ("Monroe"), and Claiborne Gas, Inc., an Alabama corporation
("Claiborne"). Monroe and Claiborne together shall be referred to as the
"Subsidiaries." Each of Subsidiaries has issued 100 shares of its $.01 par
value common stock, which is all of the issued and outstanding capital stock of
Subsidiaries. The foregoing 200 shares of common stock (100 shares issued by
Monroe plus 100 shares issued by Claiborne) shall be referred to as the
"Shares."
B. Seller formed Subsidiaries in 1996 for the exclusive purpose of
holding its interests in two limited liability companies, Frisco City
Fractionating LLC, a Utah limited liability company ("Frisco City"), and D-GAS
LLC, an Alabama limited liability company ("D-GAS"). The business of Frisco
City and D-GAS at all times has related to the construction and operation of a
natural gas liquids fractionating plant (the "Plant") in Monroe County, Alabama.
D-GAS is the owner of the Plant, and Frisco City is a member of D-GAS. Since
October 1996, Purchaser has been the operator of the Plant pursuant to that
certain Plant Operating Agreement, dated October 31, 1996, between Purchaser and
D-GAS.
C. In 1996, in exchange for the foregoing 100 shares of common stock of
Monroe, Seller assigned and transferred all of its interests in Frisco City to
Monroe. Monroe became a substituted member of Frisco City. In addition to its
interests as a member of Frisco City, Tipperary assigned and transferred to
Monroe all other rights and obligations of Tipperary associated with Frisco
City, including but not limited to certain security interests (the "Security
Interests") and the "60% Loan," both set forth in that certain Agreement dated
May 14, 1996 (the "May 1996 Agreement") among all of the members of Frisco City,
and contractual rights and obligations. Immediately prior to the execution of
this Agreement Seller assigned the 60% Loan to Purchaser.
D. In 1996, in exchange for the foregoing 100 shares of common stock of
Claiborne, Seller assigned and transferred all of its interests in D-GAS to
Claiborne. Claiborne became a substituted member of D-GAS. In addition to its
interests as a member of D-GAS, Tipperary assigned and transferred to Claiborne
all other rights and obligations of Tipperary associated with D-GAS, including
but not limited to certain contractual rights and obligations.
E. Purchaser desires to purchase and Seller desires to sell the Shares
subject to the terms and conditions set forth below.
AGREEMENT
1. PURCHASE AND SALE OF THE SHARES.
1.1. PURCHASE AND SALE. On the terms set forth in this Agreement, at
the Closing (as defined below), Seller shall sell and assign to Purchaser, and
Purchaser shall purchase from Seller, the Shares.
<PAGE>
1.2. PURCHASE PRICE; TRANSFER OF SECURITIES.
1.2.1. The entire and aggregate purchase price for the Shares,
which shall be paid at the Closing, shall be One Million Eight Hundred Thousand
Dollars ($1,800,000) (the "Purchase Price") in immediately available funds. At
the Closing, the Purchase Price shall be deposited by wire transfer into an
account designated by Seller.
1.2.2. Seller shall deliver to Purchaser at the Closing,
concurrently with the payment of the Purchase Price, stock certificates
representing the Shares, with appropriate legends indicating that the Shares
have not been registered under the securities laws, duly endorsed.
1.2.3. Upon Closing, (a) Seller shall transfer its records of
and relating to Monroe and Claiborne (including any records relating to D-GAS);
and (b) the officers and directors of Subsidiaries shall tender their
resignations effective as of the transfer of the Shares.
1.2.4. Purchaser shall cause the arbitration action filed on
July 25, 1997 with the American Arbitration Association, No. 77 168 00169 97,
captioned MILMAC OPERATING COMPANY V. TIPPERARY CORPORATION, to be dismissed
promptly, but in no event later than three business days, with prejudice
following execution of this Agreement, each party to bear its own costs and
expenses.
2. CLOSING. The closing of the purchase and sale of the Shares (the
"Closing") shall take place at the law offices of Jones & Keller, P.C.
simultaneously with the execution of this Agreement.
3. REPRESENTATIONS AND WARRANTIES.
3.1. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller represents and
warrants to Purchaser as follows:
3.1.1. OWNERSHIP OF THE SHARES. Seller is the sole and
exclusive record and beneficial owner of the Shares and owns the Shares free and
clear of any and all security interests, agreements, restrictions, claims,
liens, pledges and encumbrances of any nature or kind. Seller has the sole
right to sell and assign the Shares to Purchaser in accordance with the terms of
this Agreement. The ownership and issued and outstanding stock of Subsidiaries
is as stated in Paragraph A of the Explanatory Statement above. The Shares are
fully paid and non-assessable.
3.1.2. DUE ORGANIZATION; GOOD STANDING; AUTHORITY. Seller is
duly organized and in good standing under the laws of the State of Texas. Each
of Subsidiaries is a corporation duly organized and in good standing under the
laws of the State of Alabama. Seller has provided to Purchaser a true and
correct copy of each of Monroe's and Claiborne's respective Articles of
Incorporation and Bylaws.
3.1.3. VALIDITY OF AGREEMENT. Seller has the legal capacity
and authority to enter into this Agreement. All necessary action of the Board
of Directors and shareholders of the Seller, Monroe and Claiborne in authorizing
and entering into this Agreement have been taken. This Agreement is a valid and
legally binding obligation of Seller and is fully enforceable against Seller in
accordance with its terms, except as such enforceability may be limited by
general principles of equity, bankruptcy, insolvency, moratorium and similar
laws relating to creditors' rights generally.
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<PAGE>
3.1.4. OPTIONS, WARRANTS AND OTHER RIGHTS AND AGREEMENTS
AFFECTING THE SHARES. There are no authorized or outstanding options, warrants,
calls, subscriptions, rights, convertible securities or other securities, except
for the Shares, or any commitments, agreements, arrangements or understandings
of any kind or nature obligating either of Subsidiaries to issue any capital
stock or other securities.
3.1.5. AGREEMENT NOT IN CONFLICT. To the best of Seller's
knowledge, the execution, acknowledgment, sealing, delivery, and performance of
this Agreement by Seller and the consummation of the transactions as provided by
this Agreement will not (a) violate or require any registration, qualification,
consent, approval, or filing under, (i) any law, statute, ordinance, rule or
regulation (collectively referred to as "Laws") of any government or any agency,
bureau, commission or instrumentality of any government ("collectively referred
to as "Governmental Authorities"), or (ii) any judgment, injunction or order of
any court or Governmental Authorities by which Seller or Subsidiaries are bound;
(b) conflict with or result in the breach of any of Seller's or Subsidiaries'
obligations under, (i) any contract or agreement to which Seller or either of
Subsidiaries is a party or by which Seller or Subsidiaries are bound other than
possible claims of members of D-GAS and Frisco City, of which Purchaser is
indemnifying Seller pursuant to a separate agreement of even date herewith, or
(ii) any judgment, injunction or order of any court or Governmental Authorities
by which Seller or Subsidiaries are bound. To the best of Seller's knowledge,
the interests of the members of Frisco City and D-GAS are as set forth in the
respective operating agreements of Frisco City and D-GAS, except that Anbay,
Ltd. is a successor in interest to Flahive Oil and Gas LLC, Monroe is a
successor to Seller's interest in Frisco City and Claiborne is a successor to
Hamilton Refining Company in D-GAS.
3.1.6. CONDUCT IN COMPLIANCE. To the best of Seller's
knowledge, Subsidiaries have conducted and are conducting their affairs in
compliance with all applicable Laws of all Governmental Agencies. Seller is not
aware of any failure of D-GAS in conducting its affairs in material compliance
with all applicable Laws of all Governmental Agencies.
3.1.7. LEGAL PROCEEDINGS. To the best of Seller's knowledge,
there is no action, suit or claim by any person pending or, to the best of
Seller's knowledge, threatened (i) to which any of Subsidiaries or D-GAS is a
party, (ii) challenging or relating to the transactions contemplated by this
Agreement, or (iii) asserting any right with respect to any of the Shares,
except for that certain arbitration action referenced in Section 1.2.4.
3.1.8. FINANCIAL STATEMENTS; ASSETS AND LIABILITIES. Seller
has provided to Purchaser an unaudited balance sheet of each of Subsidiaries
dated August 31, 1997, which is fairly stated in all material respects. D-GAS
has provided Purchaser with an unaudited balance sheet as of August 31, 1997,
which was prepared by Monroe in its capacity as controller of D-GAS solely upon
information provided to it by Purchaser as Plant operator. In reliance on
Purchaser's providing accurate, complete, and necessary financial information
prepared in accordance with generally accepted accounting principles to Monroe,
and with the exception of assets and liabilities relating in any manner to
Dufour Petroleum, Inc. (including possible demurrage charges), Monroe is not
aware that the August 31, 1997 balance sheet of D-GAS is misstated in any
material respect. Capital stock and additional paid-in capital of Monroe and
Claiborne include the respective book balances of investments, respectively, in
Frisco City and D-GAS, at the time the respective capital stock of Monroe and
Claiborne was issued, additional cash contributions from Tipperary on behalf of
Monroe and Claiborne to fund additional contributions, as required, to Frisco
City and D-GAS, capitalized expenses on Monroe's and Claiborne's books, and
minor expense amounts. The respective deficit retained earnings balances of
Monroe and Claiborne consist of the respective allocations of Frisco City and
D-GAS losses based on the applicable sharing ratios, minor expense
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<PAGE>
amounts and write-downs of the investments. To the best of Seller's knowledge,
neither Monroe nor Claiborne are indebted to any third parties or to Seller in
any amount pursuant to any loans or trade payables, and Monroe's and Claiborne's
financial liabilities are such as may be owed or relating to the other members
of Frisco City and D-GAS and to Frisco City and D-GAS, if any, and such taxes
and fees as may be imposed on Monroe and Claiborne by Governmental Authorities.
Except for extraordinary operational issues disclosed and discussed in meetings
of members of Frisco City and in correspondence with Purchaser, Monroe and
Claiborne have conducted their operations, for their own accounts and in their
managerial capacities, in the ordinary course of business since the above
balance sheet date.
3.1.9. TAX MATTERS. Subsidiaries have duly and timely filed
with all appropriate Governmental Authorities all tax returns, information
returns, and reports and paid all taxes, assessments and other amounts
associated therewith. There are no taxes attributable, in accordance with the
accounting methods and practices of Seller and its subsidiaries, to periods up
to and including the Closing, for which Purchaser or McAuley may be held liable
which have not been or will not be paid by Seller. Neither Seller nor either of
Subsidiaries is a party to, and Seller is not aware of, any pending or
threatened action, suit, proceeding, or assessment relating to either of
Subsidiaries for the collection of taxes by any Governmental Authorities, except
for pending assessments by Monroe County, Alabama, of the corporate shares tax.
Seller is not aware of any failures by D-GAS to duly and timely file with all
appropriate Governmental Authorities all tax returns, information returns and
reports. There are no tax sharing agreements among Seller and Subsidiaries.
3.1.10. EMPLOYEES. Except for their respective officers, none
of which have received any compensation from Subsidiaries and all of which have
been, while officers of Subsidiaries, employed on a full time basis by Seller,
neither of Subsidiaries has or has ever had any employees and neither has
entered into any agreement or obligation to make any contribution to any
"employee benefit plan" as such term is defined under the Employee Retirement
and Income Security Act.
3.1.11. NO BROKERAGE. Neither Seller nor either of
Subsidiaries has incurred any obligation or liability, contingent or otherwise,
for brokerage fees, finder's fees, agent's commissions, or the like in
connection with this Agreement or the transactions contemplated hereby, which
could in any manner be payable by Purchaser or McAuley.
3.1.12. OFFICERS AND DIRECTORS. Schedule 3.1.12 lists all
current directors and officers of Monroe and Claiborne.
3.1.13. SECURITY INTERESTS. The Security Interests were filed
pursuant to Section 4 of the May 1996 Agreement, and neither Seller nor Monroe
has since entered into any agreement or filed any document in the public records
to further amend the Security Interests or impair the Security Interests.
Seller will file all assignments and statements necessary to assign the Security
Interests as Purchaser may direct.
3.1.14. ACCOUNTS AT FINANCIAL INSTITUTIONS. Neither Monroe nor
Claiborne has any account or safe deposit box at any financial institution.
3.1.15. BOOKS AND RECORDS. The books and records of Monroe and
Claiborne, including organizational documents, have been maintained properly and
in accordance with good business practices in view of the business operations
and affairs of Subsidiaries being wholly-owned by Seller. Monroe, as controller
of D-GAS, during the time it was controller, kept the books and records of
D-GAS, as it related to controller duties, in accordance with good business
practices in reliance upon information provided to it solely from the Purchaser
as Plant operator.
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<PAGE>
3.1.16. MONROE AS MANAGING MEMBER. Monroe is the Managing
Member of Frisco City and, to the best of Seller's knowledge, no actions have
been commenced or threatened to remove Monroe as Managing Member. Seller shall
cooperate with any reasonable requests by Purchaser with respect to the
execution or filing of any documents necessary, because of the sale of the
shares of Monroe pursuant to this Agreement, to maintain Monroe as Managing
Member of Frisco City and controller of D-GAS. Monroe is the controller of
D-GAS and, to the best of Seller's knowledge, no actions have been commenced or
threatened to remove Monroe as controller. To the best of Seller's knowledge,
it is not aware of any contracts of Subsidiaries which have not been provided to
Purchaser.
3.1.17. KNOWLEDGE OF ENVIRONMENTAL ACTIONS. To the best of
Seller's knowledge, there are no pending or threatened legal proceedings or
notices of any governmental entities relating to hazardous materials liability
regarding the D-GAS site or environmental laws relating to the D-GAS site.
3.2. PURCHASER'S AND MCAULEY'S REPRESENTATIONS AND WARRANTIES.
Purchaser and McAuley represent and warrant to Seller that:
3.2.1. DUE ORGANIZATION; GOOD STANDING; POWER. Purchaser is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Oklahoma. Purchaser has all requisite corporate power to
enter into this Agreement and to perform its obligations hereunder.
3.2.2. AUTHORIZATION AND VALIDITY OF DOCUMENTS. The
execution, acknowledgment, sealing, delivery, and performance of this Agreement
by Purchaser and McAuley, and the consummation by Purchaser of the transactions
contemplated hereby, has been duly and validly authorized by Purchaser and
McAuley. This Agreement has been duly executed, acknowledged, sealed and
delivered by Purchaser and McAuley and is a legal, valid, and binding obligation
of Purchaser and McAuley, enforceable against them in accordance with its terms,
except as such enforceability may be limited by general principles of equity,
bankruptcy, insolvency, moratorium and similar laws relating to creditors'
rights generally.
3.2.3. INVESTMENT INTENT. Except as set forth on Schedule
3.2.3, Purchaser is acquiring the Shares for investment only, for Purchaser's
own account, and not with a view to, for offer for sale or for sale in
connection with, the distribution or transfer thereof. The Shares are not being
purchased for subdivision or fractionalization thereof; and neither Purchaser
nor McAuley has any contract, undertaking, agreement or arrangement with any
person to sell, hypothecate, pledge, donate or otherwise transfer (with or
without consideration) to any such person any of the Shares which Purchaser is
acquiring hereunder, and neither Purchaser nor McAuley has any present plans or
intention to enter into any such contract, undertaking, agreement or
arrangement.
3.2.4. DUE DILIGENCE; AVAILABILITY OF FUNDS FOR PURCHASE
PRICE. As of the date of this Agreement, Purchaser has completed its due
diligence procedures, and neither Purchaser nor McAuley knows of any material
contingency or condition which would prevent the Closing as provided herein.
Purchaser has full legal right and access to funds equal to the Purchase Price
necessary to consummate Purchaser's purchase of the Shares on the date set for
the Closing, assuming the provisions of this Agreement are otherwise met and
complied with.
3.2.5. NO BROKERAGE. Neither Purchaser nor McAuley has
incurred any obligation or liability, contingent or otherwise, for brokerage
fees, finder's fees, agent's commissions, or the like in connection with this
Agreement or the transactions contemplated hereby.
-5-
<PAGE>
3.2.6. AGREEMENT NOT IN CONFLICT. To the best of Purchaser's
and McAuley's knowledge, the execution, acknowledgment, sealing, delivery, and
performance of this Agreement by Purchaser and McAuley and the consummation of
the transactions as provided by this Agreement will not (a) violate or require
any registration, qualification, consent, approval, or filing under, (i) any
law, statute, ordinance, rule or regulation (collectively referred to as "Laws")
of any government or any agency, bureau, commission or instrumentality of any
government ("collectively referred to as "Governmental Authorities"), or (ii)
any judgment, injunction or order of any court or Governmental Authorities by
which Purchaser or McAuley is bound; (b) conflict with or result in the breach
of any of Purchaser's or McAuley's obligations under, (i) any contract or
agreement to which Purchaser or McAuley is a party or by which Purchaser or
McAuley is bound, or (ii) any judgment, injunction or order of any court or
Governmental Authorities by which Purchaser or McAuley is bound.
3.2.7. CONDUCT IN COMPLIANCE. To the best of Purchaser's and
McAuley' knowledge, Purchaser has conducted and is conducting its affairs in
compliance with all applicable Laws of all Governmental Agencies.
3.2.8. LEGAL PROCEEDINGS. To the best of Purchaser's and
McAuley's knowledge, there is no action, suit or claim by any person pending or,
to the best of Purchaser's knowledge, threatened (i) to which Purchaser is a
party, (ii) challenging or relating to the transactions contemplated by this
Agreement, or (iii) asserting any right with respect to any of the Shares,
except for that certain arbitration action referenced in Section 1.2.4.
4. COVENANTS. The Parties agree as follows with respect to the period
between the execution of this Agreement and the Closing.
4.1. GENERAL. Each of the Parties will use his or its best efforts to
take all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth
herein).
4.2. ORDINARY COURSE OF BUSINESS. Seller will not cause or permit
Subsidiaries to engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business of Subsidiaries except with
respect to Seller's contemplated sale of the Shares. Without limiting the
generality of the foregoing, the Seller will not cause or permit Subsidiaries to
(i) issue or enter into any agreement to issue any additional or other
securities of Subsidiaries, (ii) declare, set aside, or pay any dividend or make
any distribution with respect to its equity securities or redeem, purchase, or
otherwise acquire any of its equity securities, or (iii) pay or incur payables
outside the Ordinary Course of Business. For purposes of this Agreement,
"Ordinary Course of Business" shall mean the ordinary course of business
consistent with past custom and practice.
4.3. NOTICE OF DEVELOPMENTS. Each party hereto agrees to give prompt
written notice to the other parties of any breach, by such party or another
party, of any representations or warranties herein or any breach of any other
provision of this Agreement by such party or another party, or of any
development, occurrence or circumstance which would cause any representations or
warranties of any party to be untrue. The duty to give notice under this
Section 4.3 shall arise whenever a party has knowledge of such a breach,
development, occurrence or circumstance or has reasonable grounds to believe
that such a breach, development, occurrence or circumstance exists or has
occurred.
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<PAGE>
5. CONDITIONS TO CLOSING. The following shall be conditions precedent to
the respective or mutual performance of the parties, as the case may be:
5.1. SATISFACTION OF REPRESENTATIONS AND WARRANTIES. The respective
representations and warranties of the parties shall be met and fulfilled in all
material respects.
6. INDEMNIFICATION.
6.1. INDEMNIFICATION BY SELLER. Seller shall defend, indemnify and
hold harmless Purchaser, its officers, directors and employees, from and against
any and all claims, liabilities, losses, costs and expenses (including
reasonable attorneys fees and costs) arising out of, resulting from, or in
connection with any misrepresentation, omission or breach by Seller of any
representation or warranty contained in this Agreement.
6.2. INDEMNIFICATION BY PURCHASER AND MCAULEY. Purchaser and McAuley,
jointly and severally, shall defend, indemnify and hold harmless Seller, its
officers, directors and employees, from and against any and all claims,
liabilities, losses, costs and expenses (including reasonable attorneys fees and
costs) arising out of, resulting from, or in connection with any
misrepresentation, omission or breach by Purchaser or McAuley of any
representation or warranty contained in this Agreement.
7. MISCELLANEOUS.
7.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND AGREEMENTS. All of
the representations, warranties and agreements of the parties contained in this
Agreement (or in any document delivered or to be delivered pursuant to this
Agreement or in connection with the Closing) shall survive the execution of this
Agreement and the consummation of the transactions contemplated hereby.
7.2. FAIR MEANING. The parties acknowledge that this Agreement is the
product of arms-length negotiations among persons with substantially equal
bargaining power and shall not be construed against the party which accepts
primary responsibility for drafting this Agreement. The language in this
Agreement shall in all cases be construed as a whole according to its fair
meaning, and not strictly for or against any party.
7.3. NOTICES. All notices, requests, demands, consents, and other
communications which are required or may be given under this Agreement
(collectively, the "Notices") shall be in writing and shall be given either (a)
by personal delivery against a receipted copy or other reasonable verification
of delivery, or (b) by certified or registered United States mail, return
receipt requested, postage prepaid, to the following addresses:
(i) If to Seller:
Tipperary Corporation
attn: David L Bradshaw, President
633 Seventeenth Street, Suite 1550
Denver, Colorado 80202
-7-
<PAGE>
with a copy to:
Nathan D. Simmons, Esquire
Jones & Keller, P.C.
1625 Broadway, Suite 1600
Denver, Colorado 80202
(iii) If to Purchaser or McAuley:
Milmac Operating Company
James A. McAuley, President
1125 East Loop 289
Lubbock, Texas 79403
with a copy to:
Craig A. Umbaugh, Esq.
Hogan & Hartson L.L.P.
1200 Seventeenth Street, Suite 1500
Denver, Colorado 80202
or to such other address of which written notice in accordance with this Section
7.3 shall have been provided by such party. Notices may be given only in the
manner hereinabove described in this Section 7.3 and shall be deemed received
upon delivery or three business days following the deposit of the notice in the
United States mail as provided above.
7.4. ENTIRE AGREEMENT. This Agreement constitutes the full, entire
and integrated agreement between the parties hereto with respect to the subject
matter hereof, and supersedes all prior negotiations, correspondence,
understandings and agreements among the parties hereto respecting the subject
matter hereof, including the provisions of any prior agreements for the
resolution of any disputes among the parties hereto relating in any respect to
the subject matter hereof, including the Shares and any interests in Frisco City
or D-GAS.
7.5. ASSIGNABILITY. This Agreement shall not be assignable by any
party hereto without the prior written consent of the other parties hereto.
7.6. BINDING EFFECT; BENEFIT. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, each other person who is
indemnified under any provision of this Agreement, and their respective heirs,
personal and legal representatives, guardians, successors and permitted assigns.
Nothing in this Agreement, express or implied, is intended to confer upon any
other person any rights, remedies, obligations, or liabilities.
7.7. AMENDMENT; WAIVER. No provision of this Agreement may be
amended, waived, or otherwise modified without the prior written consent of all
of the parties hereto. The waiver by any party hereto of a breach of any
provision or condition contained in this Agreement shall not operate or be
construed as a waiver of any subsequent breach or of any other conditions
hereof.
7.9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument. Copies of
signatures, including facsimile copies, shall have the same force and effect as
original signatures.
-8-
<PAGE>
7.10. APPLICABLE LAW; JURISDICTION AND VENUE; SERVICE OF PROCESS.
This Agreement shall be deemed to have been made in the State of Colorado; the
parties agree that Colorado has the most significant relationship to this
Agreement; and this Agreement shall be governed by, construed, interpreted and
enforced in accordance with the laws of the State of Colorado. All suits,
proceedings and other actions relating to, arising out of or in connection with
this Agreement shall be submitted to the in personam jurisdiction of the courts
of the State of Colorado or the Federal Courts in the District of Colorado, and
venue for all such suits, proceedings and other actions shall be in Denver,
Colorado. The parties hereby waive any claim against or objection to in
personam jurisdiction and venue in the Federal or state courts in Denver,
Colorado.
7.11. ATTORNEYS' FEES. In the event of a dispute among the parties
that results in litigation, the prevailing party shall be entitled to an award
of attorneys fees and costs.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the date first above written.
SELLER: PURCHASER:
TIPPERARY CORPORATION MILMAC OPERATING COMPANY
By: s/b David L. Bradshaw By: s/b James A. McAuley
--------------------------- -----------------------------------
David L. Bradshaw President James A. McAuley, President
S/b James A. McAuley
---------------------------------------
James A. McAuley, Individually
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<PAGE>
SCHEDULE 3.1.12
OFFICERS AND DIRECTORS
(Name and Title)
Name Monroe Claiborne
- ---- ------ ---------
David L. Bradshaw President, Director President, Director
Paul C. Slevin Secretary-Treasurer, Director Secretary-Treasurer, Director
<PAGE>
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT, effective as of the 1st day of January, 1997, is made
and entered into by and between AMERIND OIL COMPANY, LTD., as Seller
("Seller") and TIPPERARY OIL & GAS CORPORATION, as Buyer ("Buyer").
1. BASIS OF AGREEMENT. Seller and Buyer are parties to that certain
Joint Operating Agreement dated May 15, 1992 between Tri-Star Petroleum
Company, as Operator, and Buyer, Seller and others as Non-operators, (the
"Operating Agreement"), relative to the development of the area known as the
Comet Ridge Project, State of Queensland, Australia. The Operating Agreement
is attached hereto as Exhibit "A" and incorporated herein by reference for
all purposes. Subject to the Reserved Right (hereinafter defined), Seller
desires to sell all of its contractual and other rights, title and interest,
of any nature whatsoever, arising under or created by the Operating
Agreement, including, without limitation, all contract rights and any
undivided interest in any real or personal property which Seller owns or has
the right to acquire under the terms of the Operating Agreement presently or
in the future, and Buyer desires to purchase all of Seller's contractual and
other rights, title and interest of any nature whatsoever arising under or
created by the Operating Agreement, including, without limitation, all
contract rights and any undivided interest in any real or personal property
which Seller owns or has the right to acquire under the terms of the
Operating Agreement presently or in the future, all in accordance with the
terms and conditions of this Purchase and Sale Agreement (the "Agreement").
2. ASSETS TO BE PURCHASED AND SOLD. Subject to the terms set forth in
this Agreement, the reservation of interest described below, and the terms
and conditions of the Operating Agreement, Seller agrees to sell to Buyer and
Buyer agrees to buy from Seller the following undivided percentage of
interest in the assets and properties hereinafter described, as follows:
<TABLE>
<CAPTION>
A. B. C.
In Acquisition,
In Leasehold Drilling, Development
In Ownership & Lease Workover &
Production Operating Expenses Capital Costs
(%) (%) (%)
<S> <C> <C> <C>
Before Project Payout 4.4296875000 4.921875000 5.00
After Project Payout 4.275000 4.75000 4.75000
</TABLE>
(a) Seller's undivided interest, if any, in and to, and/or Seller's
right to acquire an undivided interest in and to the Authority to
Prospect 526 attached as Exhibit "B" hereto, and the ATP attached as
Exhibit "B" to the
<PAGE>
Operating Agreement, and any extension, renewal or replacement of any
ATP, howsoever denominated (the "ATP");
(b) Seller's rights, if any, to reacquire any acreage which had
comprised a part of the ATP but was relinquished by the Operator as a
part of, or in connection with, a scheduled contraction of the ATP,
and/or any other acreage which was at any time a part of the ATP but
lapsed or was relinquished for any reason;
(c) Seller's undivided interest, if any, in and to, and Seller's
right to acquire an undivided interest in and to the petroleum leases
and applications for petroleum leases listed and described on Exhibit
"C" attached hereto (the "Leases") and applications for petroleum
leases;
(d) Seller's undivided interest, if any, in and to, and Seller's
right to acquire an undivided interest in and to Pipeline License No.
27 described on Exhibit "D" and attached hereto and any connecting
pipeline and/or gas gathering systems;
(e) Seller's undivided interest, if any, in and to, and Seller's
right to acquire an undivided interest in and to all permits,
licenses, leases, servitudes, rights-of-way, easements, pipeline
licenses and any other tenements or similar rights associated with the
ATP and Leases and the operation of the ATP and Leases, whether
presently existing, applied for, pending, created, issued or accrued,
or applied for, created, issued or accrued in the future;
(f) Seller's undivided interest, if any, in and to, and Seller's
right to acquire an undivided interest in and to the wells listed
and described on Exhibit "E" (the "Wells") and attached hereto,
including all formations and depths within or below the wellbore,
whether or not presently productive;
(g) Seller's right, if any, to acquire an interest in any wells to be
drilled in the future on the acreage described by the ATP or any
extension, renewal or replacement of the ATP, howsoever denominated;
(h) Seller's undivided interest, if any, in and to, and Seller's
right to acquire an undivided interest in and to, all personal and
mixed property located on the lands covered by the ATP and Leases and
used in operations conducted on same, whether located on or off the
wellsites, the Leases or the acreage described by the ATP;
(i) Seller's undivided interest in and to, and the right to acquire
an undivided interest in and to, any and all gas purchase and sale
agreements,
2
<PAGE>
crude purchase and sale agreements, gas pipeline agreements,
volumetric or other production payments of any nature, leases of
equipment or facilities and any and all other agreements and rights
which are (i) appurtenant to the ATP, Leases or Wells, or (ii) used or
held for use in connection with the ownership or operation of the
Wells or with the production, treatment, sale or disposal of water,
hydrocarbons, or associated substances produced, used or disposed of
in connection with the Wells, ATP or the Leases;
(j) To the extent that such may be lawfully transferred, all of
Seller's tax benefits or tax deductions under the laws of Australia,
the State of Queensland or any municipality thereof, whether or not
presently accrued, owned by or vested in Seller, including, without
limitation, any tax benefits or deductions which may be lawfully
transferred to Buyer under Australia's Income Tax Assessment Act 1997,
or any applicable predecessor to such Act. This shall be a continuing
obligation;
(k) Seller's full right of subrogation to enforce the covenants and
warranties, if any, which Seller is entitled to enforce against
Seller's predecessors-in-title;
(l) All of Seller's contract rights or other rights under the
Operating Agreement of any nature whatsoever, whether express or
implied, whether presently existing or vested in Seller or arising in
the future, whether specifically enumerated above, including, but not
limited to, all choses-in-action.
The rights and interests described in paragraphs (a) through (l) above are
collectively referred to in this Agreement as the "Assets."
3. CONTRACTUAL RESERVATION OF SELLER. Seller, for itself, its
successors and assigns, hereby excepts and reserves and shall retain a
contractual right (the "Reserved Right") to be paid by Buyer, its successors
or assigns, in United States dollars, an amount equal to ten percent (10%) of
the gross proceeds of the oil and gas actually produced and sold, less
gathering, compression and transportation costs, and less any severance taxes
(if any) due upon removal of the hydrocarbons by production and attributable
to Seller's before payout net revenue interest of 4.4296875000% and after
payout net revenue interest of 4.275000%, i.e., the Reserved Right shall
equal .44296887500% of gross proceeds before payout and .427500% of gross
proceeds after payout, until such time as only 10% of the economically
recoverable reserves of oil and gas underlying the Comet Ridge Project remain
in place; provided however, that should the interest actually conveyed to
Buyer be less than the amounts set out above, the Reserved Right shall be
proportionately reduced to reflect that reduced ownership interest.
3
<PAGE>
For the purposes of this contractual reservation, "gross proceeds of oil
and gas actually received," shall mean the actual proceeds of sale received
for oil or gas produced and sold, and any other things of value actually
received in exchange for produced oil or gas. "Gross proceeds of oil and gas
actually received" will also include payments made with regard to oil or gas
to be produced or delivered in the future. "Gross proceeds of oil and gas
actually received" will not include loans made against the security of oil or
gas to be produced in the future unless oil or gas is actually delivered in
repayment of any such loan, in which event the payment due Seller by Buyer
will be based upon the actual fair market value of the oil or gas actually
delivered in repayment. For this purpose, "gathering compression and
transportation costs" will not include any capital costs (including costs of
installation of any items used in gathering, compressing, or transporting),
depreciation on owned assets, operating expenses or costs, exploratory
expenses or costs, overhead costs or charges under the Operating Agreement or
otherwise, or any other costs or expenses whatsoever other than the actual
cost of gathering the produced gas from the wellheads and compressing and
transporting it to market. For this purpose, "production and severance
taxes" shall include taxes assessed relating to production or severance of
hydrocarbons and not any income taxes assessed against Buyer relating to its
income.
4. THE EFFECTIVE DATE. The effective date of the purchase and sale,
for all purposes, shall be January 1, 1997, at 12:01 a.m., Greenwich Mean
Time plus ten, local time, Brisbane, Australia ("Effective Date").
5. PURCHASE PRICE AND CLOSING DATE. The purchase price for the Assets
shall be TWO MILLION NINE HUNDRED TWENTY FIVE THOUSAND DOLLARS AND 00/100
($2,925,000.00), plus an amount equal to all joint interest billings,
pre-billings and cash calls actually paid by Seller after the Effective Date,
for work done or actually performed pursuant to the Operating Agreement on
and after the Effective Date and before the Closing Date, less any revenues
(if any) attributable to the interest conveyed by Seller to Buyer as of the
Closing Date, whether or not actually received by Seller as of the Closing
Date ("Purchase Price"), adjusted as set forth in the post-closing
adjustment. The sale shall be completed at the offices of Hammett & Taylor,
4140 NationsBank Center, 700 Louisiana St. Houston, Texas, 77002, or some
other location as agreed by Buyer and Seller, on or before October 31, 1997
(the "Closing Date"). At the closing, Seller shall deliver to Buyer a fully
executed assignment and conveyance in the form attached hereto as Exhibit
"F." The purchase price, less forty thousand dollars ($40,000) previously
paid by Buyer to Seller, the receipt of which is hereby acknowledged, shall
be paid to Seller as follows: TWO MILLION DOLLARS AND 00/100 ($2,000,000.00)
at closing and the execution and delivery to Seller of Buyer's promissory
note in the original principal sum of EIGHT HUNDRED EIGHTY FIVE THOUSAND
DOLLARS AND 00/100 ($885,000.00), payable in full on January 31, 1998, in the
form attached hereto as Exhibit "G" (the "Note"). The Note shall be secured
by a security agreement in the form attached hereto as "H" and Buyer shall
execute the UCC-1 Financing Statements attached hereto as Exhibit "I."
Amounts due Seller representing the joint interest billings, pre-billings and
cash calls as described above
4
<PAGE>
shall be determined and paid as part of the post-closing adjustment. Payment
of funds at closing shall be wire transfer unless otherwise agreed by the
parties. Notwithstanding the above, however, should the percentage of
interest actually conveyed to Buyer be less than the percentage of interest
set out in paragraph 2, above, the Purchase Price shall be proportionately
reduced.
6. POST-CLOSING ADJUSTMENTS. On or before January 31, 1998, the
parties shall undertake to agree with respect to the adjustments or payments
that were not fully and finally determined as of the Closing Date, and the
amount due from Buyer to Seller, or Seller to Buyer, as the case may be.
Seller shall provide Buyer access to such of Seller's records as may be
reasonably necessary to a determination of post-closing adjustments. Payment
by Buyer or Seller shall be made in immediately available funds within five
(5) business days of agreement. If the post-closing adjustment has not been
agreed upon within the time period set forth herein, either party may seek to
enforce any rights it claims hereunder.
7. MUTUAL REPRESENTATIONS AND WARRANTIES. Buyer and Seller each
represents and warrants to the other that:
(a) The person executing this Agreement and the transactions
contemplated hereby has all authority necessary to enter into this
Agreement and to perform all of the obligations hereunder;
(b) The execution, delivery and performance of this Agreement and the
transactions contemplated hereby will not:
(i) violate or conflict with any provision of any Certificate of
Incorporation, Corporate By-Laws, partnership agreement or
limited partnership agreement or other governing document of any
nature;
(ii) result in the breach of any term or condition of, or
constitute a default or cause the acceleration of any obligation
under any agreement or instrument to which it is a party or by
which it is bound;
(iii) violate or conflict with any applicable judgment, decree,
order, permit, law, rule or regulation, state or federal, of the
United States of America.
(c) This Agreement has been duly executed and delivered on its
behalf, and at the closing all documents and instruments required
hereunder will have been duly executed and delivered. This Agreement,
and all such documents and instruments shall constitute legal, valid
and binding obligations enforceable in accordance with their
respective terms,
5
<PAGE>
except to the extent enforceability may be impacted by bankruptcy,
reorganization, insolvency or similar laws affecting creditors rights
generally;
(d) No legal or administrative proceeding in or of the United States
of America is pending or threatened that would prohibit it from
entering into or consummating this Agreement; and
(e) Each of the representations made by Buyer and Seller herein shall
be true as of the Effective Date with the same force and effect as if
made on said date.
8. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller hereby represents
and warrants to Buyer that:
(a) It will convey, assign and transfer to Buyer its contract,
property and other rights in the Assets;
(b) There is no action, suit, proceeding, claim or investigation by
any persons, entities, administrative agency or governmental body
pending or threatened against Seller that may adversely affect
Seller's title, and the ability to transfer the Assets to Buyer;
(c) It will, for itself, its successors and assigns, warrant and
defend the title of Buyer, its successors and assigns to the Assets,
interests and properties against every person whomsoever claiming the
same or any party thereof by, through and under Seller, but not
otherwise; however
WITH RESPECT TO THE WELLS, EQUIPMENT AND OTHER ITEMS OF PERSONALTY
WHICH MAY BE COVERED HEREBY, THE SAME ARE USED AND ARE SOLD ON AN "AS
IS" AND "WHERE IS" BASIS WITH ALL FAULTS, IF ANY. SELLER SHALL HAVE
NO LIABILITY TO BUYER FOR ANY CLAIMS, LOSS, OR DAMAGE CAUSED OR
ALLEGED TO BE CAUSED DIRECTLY OR INDIRECTLY, INCIDENTALLY OR
CONSEQUENTIALLY BY SAID WELLS, EQUIPMENT OR PERSONAL PROPERTY, BY ANY
INADEQUACY THEREOF OR THEREWITH, ARISING IN STRICT LIABILITY OR
OTHERWISE, OR IN ANY WAY RELATED TO OR ARISING OUT OF THIS AGREEMENT.
SELLER MAKES NO EXPRESS OR IMPLIED WARRANTIES OF ANY KIND, INCLUDING
THOSE OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO SAID WELLS, EQUIPMENT AND PERSONAL PROPERTY AND EXPRESSLY
DISCLAIMS ANY WARRANTIES WITH RESPECT THERETO; and
6
<PAGE>
(d) The interests which Buyer shall receive shall include production
or the right to proceeds of production from each well located on the
ATP and the Leases in an amount which is not less than the percentage
net revenue interest set forth in Paragraph 2 above. In addition,
Seller represents that the interest to be conveyed, assigned and
transferred to Buyer shall not require Buyer to bear a greater
percentage of costs and expenses than the percentage interest set
forth in paragraph 2, above. This representation of warranty is by,
through and under Seller, but not otherwise; and
(e) To the extent of the interest described in paragraph 2, above,
Seller has full and complete ownership of the Assets conveyed,
assigned and transferred hereunder, and that the Assets to be
purchased by Buyer are free and clear of all liens, judgments,
mortgages and other burdens or encumbrances created by Seller.
Provided however, Seller's interest is subject to that certain
Settlement Agreement between Seller and Tri-Star Petroleum Company
dated effective the 14th day of May, 1997, a copy of which has been
furnished to Buyer; and
(f) Seller's contract rights and/or title to undivided interest in
the Assets has not been forfeited under the terms of the Operating
Agreement covering the interests, and that it is not in arrears with
respect to any joint interest billing account;
(g) Any credit to the joint operating agreement, resulting from any
audit of that account, shall accrue to the benefit of Buyer without
regard to whether the credit relates to periods of time before or
after the Effective Date; and
(h) Upon request by Buyer, Seller will execute and return to Buyer a
Notice under the Income Tax Assessment Act of 1997 as amended, section
330-235, formerly a 124AB Notice under Australia's Income Assessment
Act.
9. ALLOCATION OF LIABILITY AND INDEMNIFICATIONS.
(a) DEFINITIONS.
The term "BUYER'S ASSUMED LIABILITIES" shall mean and include:
(i) All costs, expenses, liabilities and obligations or
otherwise agreed to be paid by Buyer pursuant to the terms of
this Agreement; and
7
<PAGE>
(ii) All costs, expenses, liabilities, claims and obligations
arising out of, in connection with, or resulting directly or
indirectly from the ownership or operation of the Assets
(excluding Seller's Retained Liabilities), insofar as such claims
relate to periods of time subsequent to the Effective Date.
The term "SELLER's RETAINED LIABILITIES" shall mean and include:
(i) All costs, expenses, liabilities and obligations or
otherwise agreed to be paid by Seller pursuant to the terms of
this Agreement; and
(ii) All costs, expenses, liabilities, claims and obligations
arising out of, in connection with, or resulting directly or
indirectly from the ownership or operation of the Assets, insofar
as such claims relate to periods of time prior to the Effective
Date.
(iii) All legal fees charged to the joint account and
attributable to the interests purchased and sold hereunder prior
to the Effective Date;
(iv) Any final and incontestable charge to the joint operating
account, resulting from any audit of the joint operating account,
for periods of time prior to the Effective Date.
(b) LIABILITIES. Buyer agrees to assume, pay, perform, fulfill,
discharge and be liable for all of Buyer' Assumed Liabilities, and
Seller agrees to retain, perform, fulfill, discharge and be and remain
liable for all of Seller' Retained Liabilities.
(c) SELLER'S INDEMNITY. SUBJECT TO THE PROVISIONS OF THE SECTION
8(a), ABOVE, SELLER AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS
BUYER, ITS OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES, OR ANY OF THEM,
FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, SUITS, CONTROVERSIES,
LIABILITIES AND EXPENSES (INCLUDING, WITHOUT LIMITATION, COURT COSTS,
REASONABLE EXPENSES OF LITIGATION AND REASONABLE ATTORNEY'S FEES)
ARISING DIRECTLY OUT OF SELLER'S OWNERSHIP OR USE OF THE INTEREST IN
THE ASSETS TO BE PURCHASED HEREUNDER; PROVIDED, HOWEVER, THAT THIS
INDEMNITY SHALL BE LIMITED TO THOSE CLAIMS, RIGHTS, DEMANDS AND CAUSES
OF ACTION ARISING FROM ACTIVITY OCCURRING PRIOR TO THE EFFECTIVE DATE
OF THE SALE.
8
<PAGE>
(d) BUYER'S INDEMNITY. BUYER AGREES TO DEFEND, INDEMNIFY AND HOLD
HARMLESS SELLER, ITS OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES, OR ANY
OF THEM, FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, SUITS,
CONTROVERSIES, LIABILITIES AND EXPENSES (INCLUDING, WITHOUT
LIMITATION, COURT COSTS, REASONABLE EXPENSES OF LITIGATION AND
REASONABLE ATTORNEY'S FEES) ARISING DIRECTLY OUT OF BUYER'S OWNERSHIP
OR USE OF THE INTEREST IN THE ASSETS TO BE PURCHASED HEREUNDER;
PROVIDED, HOWEVER, THAT THIS INDEMNITY SHALL BE LIMITED TO THOSE
CLAIMS, RIGHTS, DEMANDS AND CAUSES OF ACTION ARISING FROM ACTIVITY
OCCURRING AFTER THE EFFECTIVE DATE OF THE SALE.
10. REVIEW AND INSPECTION OF THE ASSETS. Prior to the Closing, Buyer
shall have the rights to perform due diligence review and inspection of the
Assets. Seller shall make available to Buyer, both before and after Closing,
all information and data relating to the Assets as they may have and as
reasonably requested by Buyer, including, but not limited to the following:
(a) financial and accounting records; (b) production, engineering, geological
and geophysical data and reports for the Leases; (c) copies of engineering,
geological and geophysical studies, subject to any license and non-disclosure
requirements; (d) copies of seismic data across any of the Leases (subject to
any license restriction and non-disclosure requirements); (e) title records,
including, but not limited to, copies of the Leases; (f) material and
relevant information concerning pending litigation (excluding information
subject to attorney-client or attorney work product privilege); (g)
regulatory compliance; (h) contracts between Seller and third parties with
regard to the Asset; and (i) all permits and licenses pertaining to the
Assets. Nothing contained in this paragraph shall obligate Seller to take
any action or expend any money to acquire anything for Buyer which Seller
does not already have in its possession. Seller does not warrant the accuracy
of any such material.
11. WAIVER. Seller and Buyer certify that they are not "Consumers"
within the meaning of the Texas Deceptive Trade Practices - Consumer
Protection Act, Subchapter E of the Chapter 17, Sections 17.41 et seq., of
the Texas Business and Commerce Code, as amended (the "DTPA"). The parties
covenant, for themselves and on behalf of any successors and assignees, that
if the DTPA is applicable (a) the parties are "business consumers"
thereunder, (b) each party hereby waives and releases all of its rights and
remedies thereunder (other than Section 17.555, Texas Business and Commerce
Code) as applicable to the other party and its successors, and (c) each party
shall defend and indemnify the other from and against any and all claims,
demands, or causes of action of or by that party or any successor or any of
its affiliates based in whole or in part on the DTPA, arising out of or in
connection with the transaction set forth in this Agreement.
9
<PAGE>
WAIVER OF CONSUMER RIGHTS
PURCHASER WAIVES ITS RIGHTS UNDER THE DECEPTIVE TRADE PRACTICES -
CONSUMER PROTECTION ACT, SECTION 17.41 ET SEQ., BUSINESS & COMMERCE
CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS.
AFTER CONSULTATION WITH AN ATTORNEY OF PURCHASER'S OWN SELECTION,
PURCHASER VOLUNTARILY CONSENTS TO THIS WAIVER.
12. NOTICES. All communications required or permitted under this
Agreement shall be in writing and communications or delivery hereunder shall
be deemed to have been fully made in actually delivered, or if mailed by
registered or certified mail, postage prepaid, return receipt requested, to
the address as set forth below:
SELLER:
Amerind Oil Company, Ltd.
Suite 500, Wilco Building
415 West Wall Street
Midland, Texas 79701-4467
Attention: Mr. Robert C. Leibrock, General Partner
Telephone: (915) 682-8217
Telecopier: (915) 686-0747
BUYER:
Tipperary Oil & Gas Corporation
633 Seventeenth St., Suite 1550
Denver, Colorado 80202
Attention: Mr. David L. Bradshaw, President
Telephone: (303) 293-9379
Telecopier: (303) 292-3428
13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCLUDING, HOWEVER, ANY
PROVISION OF THE TEXAS LAW THAT WOULD REQUIRE THE APPLICATION OF THE LAW OF A
DIFFERENT JURISDICTION.
14. FURTHER ASSURANCES. Incidental and subsequent to Closing, each of
the parties shall execute, acknowledge, and deliver to the other such further
instruments (including any stamp duty or other form necessary for, or
incident to, the notation,
10
<PAGE>
sanction, approval or transfer to Buyer of any title or interest in either
the Assets or the Operating Agreement), and to take such other actions as may
be reasonably necessary to carry out the provisions of this Agreement. Buyer
will notify all appropriate governmental agencies in Australia that its
ownership of the Assets is subject to the security interest of Amerind until
the Note is paid in full, as and when Tipperary communicates with such
agencies to register its ownership of interests regarding the Comet Ridge
Prospect.
15. GOVERNMENT APPROVALS. Seller will cooperate with Buyer, in a
timely manner (both before and after closing), in obtaining any necessary or
desired consents or approvals of the Government of Australia or any state
thereof, including, without limitation, the execution of any documents
necessary (in the opinion of Buyer and its counsel) to obtain any consent or
approval of interests arising under the Operating Agreement, or to perfect
the title of Buyer or Seller in the Assets and/or to obtain any necessary
governmental sanction of the Operating Agreement.
16. INFORMATION AND MATERIALS. To the extent that it does not violate
any confidentiality agreement previously executed or agreed to by Buyer,
Buyer will provide Seller with all information and materials which other
parties to the Operating Agreement receive from the operator of the Comet
Ridge Project. To the extent that Buyer has the ability to do so, Seller
will be invited to attend all technical and other meetings of the parties to
Operating Agreement, as a guest of Buyer or as an additional representative
of Buyer.
17. EXPENSES. Whether or not the transactions contemplated by this
Agreement are consummated, each of the parties hereto shall pay its own fees
and expenses incident to the negotiation, preparation and execution of this
Agreement, including attorney's and accountant's fees.
18. EXISTING RELATIONSHIP. Seller and Buyer are co-signatories to the
JOA and co-owners in the various rights, interests, contracts and agreements
which, as to Seller's interests, constitute the Assets. As a result of this
relationship, Buyer and Seller jointly acknowledge that they are familiar
with the condition of the Assets and interests and properties to be purchased
and sold hereunder, and that they have personal knowledge of all operations
which have been conducted by the owners on, and with respect to, the
interests and properties which are the subject of this Agreement. Seller
acknowledges that it is experienced and knowledgeable in the oil and gas
industry, and has relied solely on its own legal, tax and other professional
counsel concerning this Agreement.
19. ARBITRATION. Seller and Buyer agree that all disputes or
disagreements arising under the terms of this Agreement or arising with
respect to any obligations assumed by the parties hereto shall be submitted
to binding arbitration subject to the rules of the American Arbitration
Association, except as to the choice of arbitrators. The arbitrators shall
be chosen by each party choosing an arbitrator who shall select a third
11
<PAGE>
arbitrator. If the chosen arbitrators fail to agree on a third arbitrator,
either party may petition any District Court in Midland County, Texas to
select a third arbitrator.
20. EXHIBITS. All exhibits to this Agreement are incorporated herein
by reference.
21. SUCCESSORS AND ASSIGNS. The terms, covenants and conditions hereof
bind and inure to the benefit of Buyer and Seller and their respective
successors and assigns.
22. CONFLICTS. In the event of a conflict between this Agreement and
the terms and conditions of the Operating Agreement, the provisions of the
Operating Agreement shall prevail. In all other respects, this Agreement
shall supersede all prior agreements between the parties hereto regarding the
subject matter hereof, whether written or oral.
23. SURVIVAL. The covenants, obligations, indemnities, representations
and warranties included in this Agreement shall survive the Closing and
remain actionable thereafter.
24. PRODUCT OF NEGOTIATION. This Agreement is the product of
negotiation between Buyer and Seller. No fiduciary duty, if any, owed by
Buyer and Seller in any prior agreement shall apply to the process of
negotiation of this Agreement.
12
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties
before the undersigned competent witnesses on the dates indicated below.
SELLER: BUYER:
AMERIND OIL COMPANY, LTD. TIPPERARY OIL & GAS CORPORATION
By: s/b Robert C. Leibrock By: s/b David L. Bradshaw
---------------------------- -----------------------------------------
Robert C. Leibrock David L. Bradshaw
General Partner President
ATTEST: ATTEST:
By: s/b Harris E. Kerr By: s/b Elaine R. Treece
---------------------------- ------------------------------------------
Secretary
13
<PAGE>
STATE OF TEXAS S
S
COUNTY OF HARRIS S
The foregoing instrument was acknowledged before me on this the 31st day
of October, 1997 by Robert C. Leibrock, General Partner of Amerind Oil
Company, Ltd. on behalf of said partnership.
Witness my hand and official seal.
s/b Patricia L. Gunning
--------------------------------------------------
Notary Public
THE STATE OF TEXAS
My Commission Expires:
6-22-98
- ----------------------
STATE OF COLORADO S
S
COUNTY OF DENVER S
The foregoing instrument was acknowledge before me on this the 31st day
of October, 1997 by David L. Bradshaw, President of Tipperary Oil & Gas
Corporation, on behalf of said corporation.
Witness my hand and official seal.
s/b Michelle R. S. Sullivan
--------------------------------------------------
Notary Public - Michelle R. S Sullivan
THE STATE OF COLORADO
My Commission Expires:
December 19, 1998
- ----------------------
14
<PAGE>
TIPPERARY CORPORATION AND SUBSIDIARIES
Calculation of Weighted Average Number of Shares Outstanding
Years Ended September 30, 1995, 1996 and 1997
(in thousands)
<TABLE>
<CAPTION>
Description of Transaction Number Weighting Weighted
of Shares Factor Average
------------ ------------ -----------
<S> <C> <C> <C>
Years ended September 30, 1995:
Primary Shares
Beginning of period 11,188 365/365 11,188
Shares issued upon exercise
of options and warrants 22 35/365 2
Common stock equivalents(1) 467 N/A 0
------------ -----------
End of period 11,677 11,190
------------ -----------
------------ -----------
Years ended September 30, 1996:
Primary Shares
Beginning of period 11,210 365/365 11,210
Common stock issuance 1,400 137/365 525
Shares issued upon exercise
of options and warrants 440 60/365 72
Common stock equivalents(1) 233 0
------------ -----------
End of period 13,283 11,807
------------ -----------
------------ -----------
Years ended September 30, 1997:
Primary Shares
Beginning of period 13,050 365/365 13,050
Common stock equivalents(2) 0 0
------------ -----------
End of period 13,050 13,050
------------ -----------
------------ -----------
</TABLE>
(1) Antidilutive and therefore excluded from computation of weighted average
shares outstanding.
(2) Common stock equivalents are not included since primary earnings per
share would be reduced by less than 3%.
<PAGE>
Exhibit 21.1
TIPPERARY CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Corporation State or Other Jurisdiction of Incorporation
- ------------------------------------------- --------------------------------------------
<S> <C>
Tipperary Corporation Texas
Tipperary Oil & Gas Corporation Texas
Tipperary Oil & Gas (Australia) Pty Limited Queensland, Australia
Burro Pipeline Corporation New Mexico
Monroe Fractionating, Inc. Alabama
Claiborne Gas, Inc. Alabama
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference of our report
dated December 15, 1997, appearing on page F-2 of Tipperary Corporation's
Annual Report on Form 10-K for the year ended September 30, 1997, in the
following:
(a) Registration Statement on Form S-8 (No. 333-40589) with respect to
Tipperary Corporation Common Stock Issued Pursuant to the 1995
Compensatory Warrant.
(b) Prospectus constituting part of the Registration Statement on Form
S-3 (No. 333-5653) with respect to Tipperary Corporation Common Stock
Issued to the Heartland Small Cap Contrarian Fund and The Acorn Fund.
(c) Registration Statement on Form S-8 (No. 33-61017) with respect to
the Tipperary Corporation Common Stock Issued Pursuant to the 1987
Employee Stock Option Plan.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Denver, Colorado
December 17, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOUND ON
PAGES F-3, F-4 AND F-5 OF THE COMPANY'S FORM 10-K FOR THE YEAR ENDED SEPTEMBER
30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 3,529
<SECURITIES> 0
<RECEIVABLES> 1,966
<ALLOWANCES> 0
<INVENTORY> 197
<CURRENT-ASSETS> 6,044
<PP&E> 134,054
<DEPRECIATION> 88,708
<TOTAL-ASSETS> 54,995
<CURRENT-LIABILITIES> 4,663
<BONDS> 13,844
0
0
<COMMON> 262
<OTHER-SE> 36,226
<TOTAL-LIABILITY-AND-EQUITY> 54,995
<SALES> 12,951
<TOTAL-REVENUES> 12,951
<CGS> 5,505
<TOTAL-COSTS> 11,078
<OTHER-EXPENSES> 159
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 840
<INCOME-PRETAX> 874
<INCOME-TAX> 1
<INCOME-CONTINUING> 472<F1>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 472
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
<FN>
<F1>INCLUDES $538,000 LOSS ON SALE OF INVESTMENT IN AND $401,000 EQUITY INTEREST IN
NET LOSS OF NGL FRACTIONATING PLANT AND $258,000 LOSS ON DISPOSITION OF STOCK.
</FN>
</TABLE>
