1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 5, 1997
REGISTRATION NO. 333-20257
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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LOMAK PETROLEUM, INC.
LOMAK OPERATING COMPANY LOMAK GAS COMPANY
LOMAK PRODUCTION COMPANY LOMAK ENERGY COMPANY
LOMAK RESOURCES COMPANY LPI ACQUISITION, INC.
BUFFALO OILFIELD SERVICES, INC. LOMAK PRODUCTION I, L.P.
LOMAK ENERGY SERVICES COMPANY LOMAK RESOURCES, L.L.C.
LOMAK GATHERING & PROCESSING COMPANY LOMAK OFFSHORE L.P.
LOMAK PIPELINE SYSTEMS, L.P. LPI OPERATING COMPANY
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
DELAWARE 34-1312571
OHIO 34-1198756
DELAWARE 75-1722213
DELAWARE 34-1772901
OHIO 34-1458616
DELAWARE 75-2423912
DELAWARE APPLIED FOR
TEXAS APPLIED FOR
DELAWARE APPLIED FOR
DELAWARE 52-1996729
TEXAS 34-1704962
TEXAS 75-2672382
OKLAHOMA 73-1504725
OHIO APPLIED FOR
OHIO 34-1570492
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
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500 THROCKMORTON STREET
FORT WORTH, TEXAS 76102
(817) 870-2601
(Address, including zip code, and telephone number,
including area code, of Registrants' principal executive offices)
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JOHN H. PINKERTON
LOMAK PETROLEUM, INC.
500 THROCKMORTON STREET
FORT WORTH, TEXAS 76102
(817) 870-2601
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies To:
J. MARK METTS GARY L. SELLERS
VINSON & ELKINS L.L.P. SIMPSON THACHER & BARTLETT
1001 FANNIN, SUITE 2300 425 LEXINGTON AVENUE
HOUSTON, TEXAS 77002-6760 NEW YORK, NEW YORK 10017-3954
(713) 758-2222 (212) 455-2000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
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EXPLANATORY NOTE
This Registration Statement contains two forms of Prospectus, one to be
used in connection with the offering of % Senior Subordinated Notes due 2007
(the "Notes Prospectus") and one to be used in a concurrent offering of Common
Stock (the "Common Stock Prospectus"). The closings of the Common Stock Offering
and the Notes Offering are contingent upon each other. The form of Common Stock
Prospectus immediately follows this page and is followed by alternate pages of
the form of Notes Prospectus. In addition to the section captioned "Description
of the Notes," the form of Notes Prospectus contains the same sections as the
Common Stock Prospectus (modified as reflected in the alternate pages), except
that the form of Notes Prospectus does not contain the section "Price Range of
Common Stock and Dividend Policy."
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Issued March 5 1997
4,000,000 Shares
LOMAK PETROLEUM LOGO
COMMON STOCK
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ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY (THE "SHARES") ARE BEING SOLD
BY LOMAK PETROLEUM, INC. ("LOMAK" OR THE "COMPANY"). THE COMPANY'S COMMON
STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "LOM." ON
MARCH 3, 1997, THE REPORTED LAST SALE PRICE OF THE COMMON STOCK ON THE NEW
YORK STOCK EXCHANGE WAS $16 3/4 PER SHARE. SEE "PRICE RANGE OF COMMON
STOCK AND DIVIDEND POLICY."
THE OFFERING OF THE SHARES (THE "COMMON STOCK OFFERING") IS BEING CONDUCTED
CONCURRENTLY WITH AN OFFERING (THE "NOTES OFFERING") OF $100,000,000 AGGREGATE
PRINCIPAL AMOUNT OF % SENIOR SUBORDINATED NOTES DUE 2007 (THE "NOTES") OF
THE COMPANY. THE PROCEEDS OF THE COMMON STOCK OFFERING AND THE NOTES
OFFERING (COLLECTIVELY, THE "OFFERINGS") WILL BE USED TO REPAY CERTAIN
INDEBTEDNESS INCURRED TO FUND A PORTION OF THE PURCHASE PRICE OF THE
COMETRA ACQUISITION DESCRIBED HEREIN. THE CLOSINGS OF THE COMMON
STOCK OFFERING AND THE NOTES OFFERING ARE CONTINGENT UPON EACH
OTHER.
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SEE "RISK FACTORS" BEGINNING ON PAGE 10 HEREOF FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE $ A SHARE
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
--------------------- --------------------- ---------------------
Per Share......................... $ $ $
Total(3).......................... $ $ $
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to an aggregate of 600,000
additional Shares of Common Stock at the price to public less
underwriting discounts and commissions, for the purpose of covering
over-allotments, if any. If the Underwriters exercise such option in
full, the total price to public, underwriting discounts and commissions
and proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
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The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Simpson Thacher & Bartlett, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about , 1997, at the
office of Morgan Stanley & Co. Incorporated, New York, New York, against payment
therefor in immediately available funds.
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MORGAN STANLEY & CO.
Incorporated
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
A.G. EDWARDS & SONS, INC.
MCDONALD & COMPANY
Securities, Inc.
, 1997
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[MAP]
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE COMMON STOCK
OFFERING, AND MAY BID FOR AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN
MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR SINCE THE DATES AS OF WHICH INFORMATION IS SET FORTH HEREIN. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
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TABLE OF CONTENTS
PAGE
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Available Information....................................... 4
Incorporation of Certain Information by Reference........... 4
Prospectus Summary.......................................... 5
Risk Factors................................................ 10
Forward-Looking Information................................. 16
Cometra Acquisition......................................... 17
Notes Offering.............................................. 18
Use of Proceeds............................................. 18
Capitalization.............................................. 19
Price Range of Common Stock and Dividend Policy............. 20
Unaudited Pro Forma Consolidated Financial Statements....... 21
Selected Consolidated Financial Data........................ 25
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 26
Business.................................................... 31
Management.................................................. 41
Principal Stockholders and Share Ownership of Management.... 44
Description of Capital Stock and Indebtedness............... 45
Underwriting................................................ 48
Legal Matters............................................... 49
Experts..................................................... 49
Glossary.................................................... 50
Index to Financial Statements............................... F-1
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities of the Commission, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as the following regional offices: 7 World Trade
Center, Suite 1300, New York, New York 10048; and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies can be obtained
by mail at prescribed rates. Requests for copies should be directed to the
Commission's Public Reference Section, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission also maintains a Website
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. In addition, reports, proxy statements and other information
concerning the Company can be inspected and copied at the offices of the New
York Stock Exchange, Inc. (the "NYSE"), 20 Broad Street, New York, New York
10005, on which the Common Stock is listed.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Common Stock being offered by this
Prospectus and the Notes which are being offered by a separate prospectus. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits thereto. For further information with respect to the
Company and the Common Stock being offered hereby, reference is made to the
Registration Statement and the exhibits thereto. Statements contained in this
Prospectus concerning the provisions of documents filed with the Registration
Statement as exhibits are necessarily summaries of such documents, and each such
statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission. All of these documents may be
inspected without charge at the offices of the Commission, the addresses of
which are set forth above, and copies may be obtained therefrom at prescribed
rates.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents and information heretofore filed with the
Commission by the Company are hereby incorporated by reference into this
Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
2. The Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 1996, June 30, 1996 and September 30, 1996.
3. The Company's Current Report on Form 8-K, dated April 19, 1996, and Form
8-K/A, dated May 31, 1996.
4. The Company's Current Report on Form 8-K dated February 26, 1997.
5. The description of the Common Stock contained in the Registration
Statement on Form 8-A declared effective by the Commission on October 8,
1996.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the Common
Stock Offering shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus. The Company will provide without charge
to each person, including any beneficial owner, to whom a copy of this
Prospectus is delivered, upon the written or oral request of any such person, a
copy of any document described above (other than exhibits). Requests for such
copies should be directed to Lomak Petroleum, Inc., 500 Throckmorton Street,
Fort Worth, Texas 76102, Attn: Corporate Secretary, Telephone No. (817)
870-2601.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere, or incorporated by reference, in this
Prospectus. Unless the context otherwise requires all references herein to
"Lomak" or the "Company" include Lomak Petroleum, Inc. and its consolidated
subsidiaries. Certain industry terms are defined in the Glossary. Pro forma
information gives effect to the Cometra Acquisition (as defined herein) and the
related financings (including the Offerings) and certain other acquisitions and
financings consummated in 1996, as described in the notes to the Unaudited Pro
Forma Consolidated Financial Statements. Unless otherwise indicated, the
information set forth herein assumes the Underwriters' over-allotment option
with respect to the Common Stock Offering will not be exercised.
THE COMPANY
Lomak is an independent energy company engaged in oil and gas development,
exploration and acquisition primarily in three core areas: the Midcontinent,
Appalachia and the Gulf Coast. Over the past five years, the Company has
significantly increased its reserves and production through acquisitions and, to
a growing extent, development and exploration of its properties. On a pro forma
basis as of December 31, 1996, the Company had proved reserves of 644 Bcfe with
a Present Value of $974 million. On an Mcfe basis, the reserves were 63%
developed and 77% natural gas, with a reserve life in excess of 13 years.
Properties operated by the Company accounted for 94% of its pro forma Present
Value. The Company also owns over 2,000 miles of gas gathering systems and a gas
processing plant in proximity to its principal gas properties. On a pro forma
basis in 1996, the Company had revenues of $173 million and EBITDA of $104
million.
From 1991 through 1996, the Company has made 63 acquisitions, including the
Cometra Acquisition, for an aggregate purchase price of approximately $635
million and has spent $39 million on development and exploration activities.
These activities have added approximately 719 Bcfe of reserves at an average
cost of $0.76 per Mcfe. As a result, the Company has achieved substantial growth
since 1991.
THE COMETRA ACQUISITION
The Company recently acquired oil and gas properties located in West Texas,
South Texas and the Gulf of Mexico (the "Cometra Properties") from American
Cometra, Inc. ("Cometra") for a purchase price of $385 million (the "Cometra
Acquisition"). The Cometra Acquisition increased the Company's proved reserves
at December 31, 1996 by 68% to 644 Bcfe and increased its Present Value by 98%
to $974 million. The Cometra Properties, located primarily in the Company's core
operating areas, include 515 producing wells, 401 proven development projects
and substantial additional development and exploration potential on
approximately 150,000 gross acres (90,000 net acres). In addition, the Cometra
Properties include 265 miles of gas pipelines, a 25,000 Mcf/d gas processing
plant and an above-market gas contract with a major Texas gas utility covering
approximately 30% of the December 1996 production from the Cometra Properties.
BUSINESS STRATEGY
The Company's objective is to maximize shareholder value through aggressive
growth in its reserves, production, cash flow and earnings through a balanced
program of development drilling and acquisitions, as well as a growing
exploration effort. Management believes that the Cometra Acquisition has
substantially enhanced the Company's ability to increase its production and
reserves through drilling activities. The Cometra Acquisition substantially
increased the Company's inventory of proven drilling locations and, to an even
greater degree, its exploration and exploitation drilling potential. The Company
has over 1,100 proven recompletion and development drilling projects. As a
result of the Cometra Acquisition, the Company believes that it can achieve
significant growth in reserves, production, cash flow and earnings over the next
several years, even if no future acquisitions are consummated. The Company
currently plans to spend $160 million over the next three years on the further
development and exploration of its properties. Consequently, while acquisitions
are expected to continue to play an important role in the Company's future
growth, the primary emphasis will shift towards exploiting the potential of the
Company's larger property base.
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In order to most effectively implement its operating strategy, the Company
has concentrated its activities in selected geographic areas. In each core area,
the Company has established separate acquisition, engineering, geological,
operating and other technical expertise. The Company believes that this
geographic focus provides it with a competitive advantage in sourcing and
evaluating new business opportunities within these areas, as well as providing
economies of scale in developing and operating properties.
FINANCING THE COMETRA ACQUISITION
The purchase price for the Cometra Acquisition was approximately $385
million, consisting of $355 million in cash and 1,410,106 shares of Common
Stock. The Company financed the cash portion of the purchase price with $221
million of borrowings under a recently expanded bank credit facility (the
"Credit Agreement") and the issuance to Cometra of a $134 million non-interest
bearing promissory note due March 31, 1997, which is secured by a bank letter of
credit. The promissory note will be repaid at maturity through borrowings under
the Credit Agreement. The Credit Agreement permits the Company to obtain
revolving credit loans and issue letters of credit from time to time in an
aggregate amount not to exceed $400 million initially. Availability under the
Credit Agreement will be reduced to $325 million on the earlier of August 13,
1997 or the consummation of the Offerings, unless otherwise agreed to by the
lenders. Upon consummation of the Offerings, approximately $220.1 million will
be outstanding under the Credit Agreement.
The Company maintains its corporate headquarters at 500 Throckmorton
Street, Fort Worth, Texas 76102 and its telephone number is (817) 870-2601.
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THE OFFERING
Common Stock Offered by the Company........................ 4,000,000 shares
Common Stock Outstanding prior to the Offering............. 16,220,936 shares(1)(2)
Common Stock to be Outstanding after the Offering.......... 20,220,936 shares(1)(2)
Notes Offering............................................. Concurrently with the Common Stock Offering, the
Company is offering $100 million aggregate
principal amount of Notes to the public in the
Notes Offering. The closings of the Common Stock
Offering and the Notes Offering are contingent upon
each other. See "Notes Offering."
Use of Proceeds............................................ The Company will use the proceeds of the Common
Stock Offering and the Notes Offering to repay a
portion of the indebtedness incurred to fund the
purchase price for the Cometra Properties. See "Use
of Proceeds."
NYSE Symbol................................................ "LOM"
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(1) As of February 14, 1997. Excludes 1,236,232 shares reserved for issuance
upon the exercise of outstanding options and warrants, of which 523,632 are
currently exercisable; 3,026,316 shares issuable upon conversion of the
$2.03 Convertible Exchangeable Preferred Stock, Series C (the "$2.03
Convertible Preferred Stock"); and 2,857,143 shares issuable upon conversion
of the 6% Convertible Subordinated Debentures Due 2007 ("6% Convertible
Subordinated Debentures"). See "Description of Capital Stock and
Indebtedness."
(2) Includes 1,410,106 shares issued to Cometra as partial consideration for the
Cometra Properties.
RISK FACTORS
Prior to making an investment decision, prospective investors should
carefully consider, together with the other information contained in this
Prospectus, the risk factors discussed under the caption "Risk Factors," which
include risks relating to: (i) the volatility of oil and gas prices; (ii) the
uncertainty of estimates of reserves and future net revenues; (iii) the ability
of the Company to find or acquire additional oil and gas reserves that are
economically recoverable; (iv) the ability of the Company to obtain commercial
production through development and exploration activities; (v) the ability of
the Company to successfully integrate the Cometra Acquisition; (vi) the effects
of leverage on the Company's operating activities and ability to obtain
additional financing in the future; and (vii) the availability of capital for
acquisitions and development projects.
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following tables set forth certain (i) historical and pro forma
financial data and (ii) reserve and operating data. The pro forma financial,
operating and reserve information includes the Cometra Acquisition and the
related financings and certain other acquisitions and financings consummated in
1996, as described in the notes to the Unaudited Pro Forma Consolidated
Financial Statements. The historical data should be read in conjunction with the
historical Consolidated Financial Statements and Notes thereto included herein.
See also "Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The pro forma
information should be read in conjunction with the Unaudited Pro Forma
Consolidated Financial Statements included herein. Neither the historical nor
the pro forma results are necessarily indicative of future results.
YEAR ENDED DECEMBER 31,
-----------------------------------------------
PRO FORMA
1994 1995 1996 1996
-------- -------- -------- -----------
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and gas sales......................................... $ 24,461 $ 37,417 $ 68,054 $130,508
Field services............................................ 7,667 10,097 14,223 14,463
Gas transportation and marketing.......................... 2,195 3,284 5,575 24,326
Interest and other........................................ 471 1,317 3,386 3,386
-------- -------- -------- --------
34,794 52,115 91,238 172,683
Expenses:
Direct operating.......................................... 10,019 14,930 24,456 39,394
Field services............................................ 5,778 6,469 10,443 10,443
Gas transportation and marketing.......................... 490 849 1,674 13,152
Exploration............................................... 359 512 1,460 1,460
General and administrative................................ 2,478 2,736 3,966 5,616
Interest.................................................. 2,807 5,584 7,487 29,480
Depletion, depreciation and amortization.................. 10,105 14,863 22,303 44,389
-------- -------- -------- --------
32,036 45,943 71,789 143,934
-------- -------- -------- --------
Income before taxes......................................... 2,758 6,172 19,449 28,749
Income taxes................................................ 139 1,782 6,834 10,062
-------- -------- -------- --------
Net income.................................................. $ 2,619 $ 4,390 $ 12,615 $ 18,687
======== ======== ======== ========
Earnings per common share................................... $ 0.25 $ 0.31 $ 0.69 $ 0.80
======== ======== ======== ========
Cash dividends per common share............................. $ 0.00 $ 0.01 $ 0.06 N/A
======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA (a).................................................. $ 16,029 $ 27,131 $ 50,699 $104,078
Net cash provided by operations............................. 11,241 16,561 38,445 N/A
Net cash used in investing.................................. (29,536) (76,113) (69,666) N/A
Net cash provided by financing.............................. 21,173 57,702 36,700 N/A
Capital expenditures........................................ 70,024 88,530 79,390 N/A
Ratios:
EBITDA to interest expense................................ 5.7x 4.9x 6.8x 3.5x
Earnings to fixed charges (b)............................. 2.0x 2.1x 3.6x 2.0x
Total debt to EBITDA...................................... 3.9x 3.1x 2.3x 3.8x
BALANCE SHEET DATA (END OF PERIOD):
Cash and equivalents........................................ $ 4,897 $ 3,047 $ 8,625 $ 8,625
Total assets................................................ 141,768 214,788 282,547 670,847
Long-term debt (c).......................................... 62,592 83,088 116,806 399,606
Stockholders' equity........................................ 43,248 99,367 117,529 223,029
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(a) EBITDA represents net income plus income taxes, exploration expense,
interest expense and depletion, depreciation and amortization expense.
EBITDA is not presented as an indicator of the Company's operating
performance, an indicator of cash available for discretionary spending or as
a measure of liquidity. EBITDA may not be comparable to other similarly
titled measures of other companies. The Company's Credit Agreement requires
the maintenance of certain EBITDA ratios. See "Description of Capital Stock
and Indebtedness -- Credit Agreement."
(b) For the purpose of determining the ratio of earnings to fixed charges,
earnings are defined as income before taxes plus fixed charges. Fixed
charges consist of interest expense.
(c) Long-term debt includes current portion.
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SUMMARY RESERVE AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
YEAR ENDED DECEMBER 31,
-----------------------------------------------
PRO FORMA
1994 1995 1996 1996
-------- -------- -------- ---------
(UNAUDITED)
PROVED RESERVES (A):
Natural gas (Mmcf)........................................ 149,370 232,887 295,594 497,600
Oil and NGLs (Mbbls)...................................... 8,449 10,863 14,675 24,405
Natural gas equivalents (Mmcfe)........................... 200,064 298,065 383,644 644,030
Percent natural gas....................................... 75% 78% 77% 77%
Percent proved developed.................................. 68% 77% 71% 63%
PRODUCTION VOLUMES:
Natural gas (Mmcf)........................................ 6,996 12,471 21,231 38,157
Oil and NGLs (Mbbls)...................................... 640 913 1,068 1,890
Natural gas equivalents (Mmcfe)........................... 10,836 17,949 27,641 49,497
RESERVE LIFE INDEX (YEARS) (B).............................. 18.5 16.6 13.9 13.0
PRODUCT PRICES (AT DECEMBER 31) (A):
Natural gas (per Mcf)..................................... $ 2.07 $ 2.28 $ 3.54 $ 3.99
Oil and NGLs (per Bbl).................................... 16.14 18.14 23.58 23.23
FUTURE NET CASH FLOWS (A):
Undiscounted.............................................. $270,974 $412,638 $941,393 $1,790,768
Present Value............................................. 150,536 229,238 492,172 973,663
RESERVE ADDITIONS (MMCFE):
Acquisitions.............................................. 103,292 106,283 109,326 369,710
Extensions, discoveries and revisions..................... 7,415 10,943 16,543 16,543
-------- -------- -------- ----------
Net additions............................................. 110,707 117,226 125,869 386,253
COSTS INCURRED:
Acquisition............................................... $ 59,501 $ 69,244 $ 63,579 $ 316,579
Development and exploration............................... 9,710 10,184 14,561 14,561
-------- -------- -------- ----------
Total costs incurred...................................... $ 69,211 $ 79,428 $ 78,140 $ 331,140
FINDING COSTS (PER MCFE) (C)................................ $ 0.63 $ 0.68 $ 0.62 $ 0.86
RESERVE REPLACEMENT (D)..................................... 1,022% 653% 455% 1,397%
WELLS DRILLED:
Gross..................................................... 71.0 62.0 63.0 N/A
Net....................................................... 58.2 39.6 51.9 N/A
Success rate (net)........................................ 97% 99% 89% N/A
PER MCFE DATA:
Oil and gas sales......................................... $ 2.26 $ 2.08 $ 2.46 $ 2.64
Direct operating expense (e).............................. 0.75 0.63 0.75 0.71
General and administrative expense........................ 0.23 0.15 0.14 0.11
-------- -------- -------- ----------
Operating margin (f)...................................... $ 1.28 $ 1.30 $ 1.57 $ 1.82
======== ======== ======== ==========
- ---------------
(a) Proved reserves and future net cash flows were estimated in accordance with
the Commission's guidelines. Prices and costs at December 31 for each of the
years 1994 through 1996 were used in the calculation of proved reserves and
future net cash flows and were held constant through the periods of
estimated production, except as otherwise provided by contract, in
accordance with the Commission's guidelines.
(b) The reserve life index is calculated as proved reserves (on an Mcfe basis)
divided by annual production.
(c) Finding costs are calculated as costs incurred divided by net reserve
additions. The pro forma cost incurred for 1996 excludes $62 million
attributable to unproved reserves ($0.16 per Mcfe impact). However, the pro
forma cost incurred for 1996 includes the value attributable to an
above-market gas contract of $38 million ($0.10 per Mcfe impact).
(d) Reserve replacement is calculated as net reserve additions divided by the
Company's actual production for the period, both on an Mcfe basis.
(e) Direct operating expense per Mcfe is net of the Company's operating margin
realized on its field service activities. The net operating margin realized
on its field services activities is related primarily to reimbursements that
the Company receives as operator of its properties. The Company intends to
conform its financial statements for periods after December 31, 1996 to this
presentation.
(f) Operating margin is calculated as oil and gas sales less direct operating
expense and general and administrative expense.
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RISK FACTORS
Prior to making an investment decision, prospective investors should
carefully consider, together with the other information contained in this
Prospectus, the following risk factors:
VOLATILITY OF OIL AND GAS PRICES
The Company's financial condition, operating results and future growth and
the carrying value of its oil and gas properties are substantially dependent on
prevailing prices of, and demand for, oil and gas. The Company's ability to
maintain or increase its borrowing capacity and to obtain additional capital on
attractive terms is also substantially dependent upon oil and gas prices.
Historically the markets for oil and gas have been volatile and are likely to
continue to be volatile in the future. Prices for oil and gas are subject to
large fluctuations in response to relatively minor changes in the supply of and
demand for oil and gas, market uncertainty and a variety of additional factors
beyond the control of the Company. These factors include weather conditions in
the United States and elsewhere, the economic conditions in the United States
and elsewhere, the actions of the Organization of Petroleum Exporting Countries
("OPEC"), governmental regulation, political stability in the Middle East and
elsewhere, the supply and demand of oil and gas, the price of foreign imports
and the availability and prices of alternate fuel sources. Any substantial and
extended decline in the price of oil or gas would have an adverse effect on the
Company's carrying value of its proved reserves, borrowing capacity, the
Company's ability to obtain additional capital, and its financial condition,
revenues, profitability and cash flows from operations.
Volatile oil and gas prices make it difficult to estimate the value of
producing properties for acquisition and often cause disruption in the market
for oil and gas producing properties, as buyers and sellers have difficulty
agreeing on such value. Price volatility also makes it difficult to budget for
and project the return on acquisitions and development and exploitation
projects.
UNCERTAINTY OF ESTIMATES OF RESERVES AND FUTURE NET REVENUES
This Prospectus contains estimates of the Company's oil and gas reserves
and the future net revenues from those reserves which have been prepared by the
Company and certain independent petroleum consultants. Reserve engineering is a
subjective process of estimating the recovery from underground accumulations of
oil and gas that cannot be measured in an exact manner, and the accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. Estimates of
economically recoverable oil and gas reserves and of future net cash flows
necessarily depend upon a number of variable factors and assumptions, such as
historical production from the area compared with production from other
producing areas, the assumed effects of regulations by governmental agencies and
assumptions concerning future oil and gas prices, future operating costs,
severance and excise taxes, development costs and workover and remedial costs,
all of which may in fact vary considerably from actual results. Because all
reserve estimates are to some degree speculative, the quantities of oil and gas
that are ultimately recovered, production and operation costs, the amount and
timing of future development expenditures and future oil and gas sales prices
may all vary from those assumed in these estimates and such variances may be
material. In addition, different reserve engineers may make different estimates
of reserve quantities and cash flows based upon the same available data.
The present value of estimated future net cash flows referred to in this
Prospectus should not be construed as the current market value of the estimated
proved oil and gas reserves attributable to the Company's properties. In
accordance with applicable requirements of the Commission, the estimated
discounted future net cash flows from proved reserves are generally based on
prices and costs as of the date of the estimate, whereas actual future prices
and costs may be materially higher or lower. The calculation of the Present
Value of the Company's oil and gas reserves were based on prices on December 31,
1996. Average product prices at December 31, 1996 were $23.58 per barrel of oil
and $3.54 per Mcf of gas and pro forma average product prices at December 31,
1996 were $23.23 per barrel of oil and $3.99 per Mcf of gas, which prices were
substantially higher than historical prices used by the Company to calculate
Present Value in recent years. The closing price on the New York Mercantile
Exchange ("NYMEX") for the prompt month
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contract delivered at Henry Hub on December 31, 1996 and January 31, 1997 was
$2.76 and $2.39, respectively. The closing price on NYMEX for the prompt month
contract delivered for West Texas Intermediate Crude Oil on December 31, 1996
and January 31, 1997 was $25.92 and $24.15, respectively. In addition, the
calculation of the present value of the future net revenues using a 10% discount
as required by the Commission is not necessarily the most appropriate discount
factor based on interest rates in effect from time to time and risks associated
with the Company's reserves or the oil and gas industry in general. Furthermore,
the Company's reserves may be subject to downward or upward revision based upon
actual production, results of future development, supply and demand for oil and
gas, prevailing oil and gas prices and other factors. See "Business -- Oil and
Gas Reserves."
FINDING AND ACQUIRING ADDITIONAL RESERVES
The Company's future success depends upon its ability to find or acquire
additional oil and gas reserves that are economically recoverable. Except to the
extent the Company conducts successful exploration or development activities or
acquires properties containing proved reserves, the proved reserves of the
Company will generally decline as they are produced. There can be no assurance
that the Company's planned development projects and acquisition activities will
result in significant additional reserves or that the Company will have success
drilling productive wells at economic returns. If prevailing oil and gas prices
were to increase significantly, the Company's finding costs to add new reserves
could increase. The drilling of oil and gas wells involves a high degree of
risk, especially the risk of dry holes or of wells that are not sufficiently
productive to provide an economic return on the capital expended to drill the
wells. The cost of drilling, completing and operating wells is uncertain, and
drilling or production may be curtailed or delayed as a result of many factors.
The Company's business is capital intensive. To maintain its base of proved
oil and gas reserves, a significant amount of cash flow from operations must be
reinvested in property acquisitions, development or exploration activities. To
the extent cash flow from operations is reduced and external sources of capital
become limited or unavailable, the Company's ability to make the necessary
capital investments to maintain or expand its asset base would be impaired.
Without such investment, the Company's oil and gas reserves would decline.
DEVELOPMENT AND EXPLORATION RISKS
The Company intends to increase its development and exploration activities.
Exploration drilling, and to a lesser extent development drilling, involve a
high degree of risk that no commercial production will be obtained or that the
production will be insufficient to recover drilling and completion costs. The
cost of drilling, completing and operating wells is uncertain. The Company's
drilling operations may be curtailed, delayed or canceled as a result of
numerous factors, including title problems, weather conditions, compliance with
governmental requirements and shortages or delays in the delivery of equipment.
Furthermore, completion of a well does not assure a profit on the investment or
a recovery of drilling, completion and operating costs. See
"Business -- Development Activities" and " -- Exploration Activities."
ACQUISITION RISKS
The Company intends to continue acquiring oil and gas properties. It
generally is not feasible to review in detail every individual property involved
in an acquisition. Ordinarily, review efforts are focused on the higher-valued
properties. However, even a detailed review of all properties and records may
not reveal existing or potential problems nor will it permit the Company to
become sufficiently familiar with the properties to assess fully their
deficiencies and capabilities. Inspections are not always performed on every
well, and environmental problems, such as groundwater contamination, are not
necessarily observable even when an inspection is undertaken. See
"Business -- Acquisition Activities."
The Cometra Acquisition substantially increases the Company's reserves,
cash flow and production. The Company's ability to achieve any advantages from
the Cometra Acquisition will depend in large part on successfully integrating
the Cometra Properties into the operations of the Company. No assurances can be
made that the Company will be able to achieve such integration successfully.
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EFFECTS OF LEVERAGE
On a pro forma basis giving effect to the Cometra Acquisition and the
related financings, at December 31, 1996, the Company's outstanding indebtedness
would have been $400 million and the Company's ratio of total debt to total
capitalization would have been 64%. In 1994, 1995, 1996 and on a pro forma basis
for 1996, the Company's ratio of earnings to fixed charges was 2.0x, 2.1x, 3.6x
and 2.0x, respectively. The principal payment obligations of the Company's pro
forma debt for 1997, 1998 and 1999 amount to $26,000, $413,000 and $12,000
respectively. The Company's level of indebtedness will have several important
effects on its future operations, including (i) a substantial portion of the
Company's cash flow from operations must be dedicated to the payment of interest
on its indebtedness and will not be available for other purposes, (ii) covenants
contained in the Company's debt obligations will require the Company to meet
certain financial tests, and other restrictions will limit its ability to borrow
additional funds or to dispose of assets and may affect the Company's
flexibility in planning for, and reacting to, changes in its businesses,
including possible acquisition activities and (iii) the Company's ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may be
impaired. The Company's ability to meet its debt service obligations and to
reduce its total indebtedness will be dependent upon the Company's future
performance, which will be subject to oil and gas prices, the Company's level of
production, general economic conditions and to financial, business and other
factors affecting the operations of the Company, many of which are beyond its
control. There can be no assurance that the Company's future performance will
not be adversely affected by some or all of these factors. In addition, the
Credit Agreement and the Indenture for the Notes contain restrictions on the
Company's ability to pay dividends on capital stock. Under the most restrictive
of these provisions, the Company could have paid $5,000,000 of dividends as of
December 31, 1996. See "Forward-Looking Information."
CAPITAL AVAILABILITY
The Company's strategy of acquiring and developing oil and gas properties
is dependent upon its ability to obtain financing for such acquisitions and
development projects. The Company expects to utilize the Credit Agreement among
the Company and several banks (the "Banks") to borrow a portion of the funds
required for any given transaction or project. If funds under the Credit
Agreement are not available to fund acquisition and development projects, the
Company would seek to obtain such financing from the sale of equity securities
or other debt financing. There can be no assurance that any such other financing
would be available on terms acceptable to the Company. Should sufficient capital
not be available, the Company may not be able to continue to implement its
strategy.
The Credit Agreement limits the amounts the Company may borrow to amounts,
determined by the Banks, in their sole discretion, based upon a variety of
factors including the discounted present value of the Company's estimated future
net cash flow from oil and gas production (the "Borrowing Base"). At February
14, 1997, the Borrowing Base was $400 million, of which the Company had
borrowings of $258.3 million outstanding. The Borrowing Base will be reduced to
$325 million on the earlier of August 13, 1997 or upon consummation of the
Offerings, unless otherwise agreed to by the Banks. If oil or gas prices decline
below their current levels, the availability of funds and the ability to pay
outstanding amounts under the Credit Agreement could be materially adversely
affected. The Indenture for the Notes also contains restrictions on the
Company's ability to incur additional indebtedness, and other contractual
arrangements to which the Company may become subject to in the future could
contain similar restrictions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
OPERATING HAZARDS AND UNINSURED RISKS; PRODUCTION CURTAILMENTS
The oil and gas business involves a variety of operating risks, including,
but not limited to, unexpected formations or pressures, uncontrollable flows of
oil, gas, brine or well fluids into the environment (including groundwater
contamination), blowouts, cratering, fires, explosions, pipeline ruptures or
spills, pollution and other risks, any of which could result in personal
injuries, loss of life, damage to properties, environmental pollution,
suspension of operations and substantial losses. Although the Company carries
insurance which it
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believes is reasonable, it is not fully insured against all risks. The Company
does not carry business interruption insurance. Losses and liabilities arising
from uninsured or under-insured events could have a material adverse effect on
the financial condition and results of operations of the Company.
From time to time, due primarily to contract terms, pipeline interruptions
or weather conditions, the producing wells in which the Company owns an interest
have been subject to production curtailments. The curtailments vary from a few
days to several months. In most cases the Company is provided only limited
notice as to when production will be curtailed and the duration of such
curtailments. The Company is currently not curtailed on any of its production.
Certain of the Cometra Properties are offshore operations in the Gulf of
Mexico which are subject to a variety of operating risks peculiar to the marine
environment, such as hurricanes or other adverse weather conditions, more
extensive governmental regulation, including regulations that may, in certain
circumstances, impose strict liability for pollution damage, and to interruption
or termination of operations by governmental authorities based on environmental
or other considerations.
HEDGING RISKS
From time to time, the Company hedges a portion of its physical oil and
natural gas production by entering short positions through fixed price swaps or
options. The Company does not generally trade directly utilizing NYMEX futures.
The Company currently has one oil fixed price swap relating to 80,000 Bbls in
each of January, February and March 1997 and 60,000 Bbls in April 1997. The
settlement is determined by the difference between the Company's fixed price and
the average of the daily prompt NYMEX WTI contract during each corresponding
month. The Company had one fixed price natural gas swap during January 1997
relating to 155,000 MmBtu. As of March 4, 1997, there are no other hedge
positions.
The Company's Vice-President -- Gas Management has the responsibility for
implementing approved hedge strategies. The hedge program provides for oversight
and reporting requirements, hedge goals and how strategies will be developed.
The above described hedges represent approximately 12% of the Company's
combined oil and gas production through April 1997, and there are none
thereafter. The production that is hedged represents 51% of the Company's oil
production and 1% of the Company's gas production through April 1997. None of
the production sold pursuant to fixed price gas sales contracts is hedged.
These hedges have in the past involved fixed price arrangements and other
price arrangements at a variety of prices, floors and caps. The Company may in
the future enter into oil and natural gas futures contracts, options and swaps.
The Company's hedging activities, while intended to reduce the Company's
sensitivity to changes in market prices of oil and gas, are subject to a number
of risks including instances in which (i) production is less than expected, (ii)
there is a widening of price differentials between delivery points required by
fixed price delivery contracts to the extent they differ from those of the
Company's production or (iii) the Company's customers or the counterparties to
its futures contracts fail to purchase or deliver the contracted quantities of
oil or natural gas. Additionally, the fixed price sales and hedging contracts
limit the benefits the Company will realize if actual prices rise above the
contract prices. In the future, the Company may increase the percentage of its
production covered by hedging arrangements.
GAS CONTRACT RISK
A significant portion of the Company's production is subject to fixed price
contracts. On a pro forma basis, approximately 47% of average gas production for
December 1996 was sold subject to fixed price sales contracts (including a
contract relating to the Cometra Properties described below and excluding the
hedging activities described above). These fixed price contracts are at prices
ranging from $2.15 to $3.70 per Mcf. The fixed price contracts with terms of
less than one year, between one and five years and greater than five years
constitute approximately 31%, 65% and 4%, respectively, of the volume sold under
fixed price contracts. The fixed price sales contracts limit the benefits the
Company will realize if actual prices rise above the contract prices.
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As part of the Cometra Acquisition, the Company acquired a gas sales
contract covering 20,000 acres currently producing approximately 20,000 Mcf/d.
The price paid pursuant to the contract was $3.70 per Mcf at December 31, 1996
(65% higher than average 1996 natural gas prices received by the Company) and
escalates at $0.05 per Mcf per annum. The contract is with a large gas utility
and expires in June 2000. This contract represents 15% of the Company's pro
forma December 1996 production on an Mcfe basis.
The gas contract contains language that requires the purchaser to purchase
all of the gas legally produced on the designated acreage. The contract also
contains language that may be read to provide that the purchaser is not required
to purchase more than 80% of the Company's delivery capacity (up to a delivery
capacity of 20,000 Mcf/d). However, since the commencement of the contract in
1990 through the date hereof, the purchaser has purchased all of the gas
produced on the designated acreage.
The Company believes that these fixed price contracts are enforceable and
it has not received any notice or other indication from any of the
counterparties that they intend to cease performing any of their obligations
under these contracts. However, there can be no assurance that one or more of
these counterparties will not attempt to totally or partially mitigate their
obligations under these contracts. If any of the purchasers under the contracts
should be successful in doing so, then the Company could be required to market
its production on less attractive terms, which could have a material adverse
effect on the Company's financial condition, results of operations and cash
flow.
GAS GATHERING, PROCESSING AND MARKETING
The Company's gas gathering, processing and marketing operations depend in
large part on the ability of the Company to contract with third party producers
to produce their gas, to obtain sufficient volumes of committed natural gas
reserves, to maintain throughput in the Company's processing plant at optimal
levels, to replace production from declining wells, to assess and respond to
changing market conditions in negotiating gas purchase and sale agreements and
to obtain satisfactory margins between the purchase price of its natural gas
supply and the sales price for such residual gas volumes and the natural gas
liquids processed. In addition, the Company's operations are subject to changes
in regulations relating to gathering and marketing of oil and gas. The inability
of the Company to attract new sources of third party natural gas or to promptly
respond to changing market conditions or regulations in connection with its
gathering, processing and marketing operations could materially adversely affect
the Company's financial condition and results of operations.
LAWS AND REGULATIONS
The Company's operations are affected by extensive regulation pursuant to
various federal, state and local laws and regulations relating to the
exploration for and development, production, gathering, marketing,
transportation and storage of oil and gas. These regulations, among other
things, control the rate of oil and gas production, and control the amount of
oil that may be imported. The Company's operations are subject to numerous laws
and regulations governing plugging and abandonment, the discharge of materials
into the environment or otherwise relating to environmental protection. These
laws and regulations require the acquisition of a permit before drilling
commences, restrict the types, quantities and concentration of various
substances that can be released into the environment in connection with drilling
and production activities, limit or prohibit drilling activities on certain
lands lying within wilderness, wetlands and other protected areas, and impose
substantial liabilities for pollution which might result from the Company's
operations. The Company may also be subject to substantial clean-up costs for
any toxic or hazardous substance that may exist under any of its properties.
Moreover, the recent trend toward stricter standards in environmental
legislation and regulation is likely to continue. For instance, legislation has
been proposed in Congress from time to time that would reclassify certain crude
oil and natural gas exploration and production wastes as "hazardous wastes"
which would make the reclassified wastes subject to much more stringent
handling, disposal and clean-up requirements. If such legislation were to be
enacted, it could have a significant impact on the operating costs of the
Company, as well as the oil and gas industry in general. Initiatives to further
regulate the disposal of crude oil and natural gas wastes are also pending in
certain states, and these various initiatives could have a similar impact on the
Company. The Company could incur substantial costs to comply with environmental
laws and regulations.
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COMPETITION
The Company encounters substantial competition in acquiring properties,
marketing oil and gas, securing equipment and personnel and operating its
properties. The competitors in acquisitions, development, exploration and
production include major oil companies, numerous independent oil and gas
companies, individual proprietors and others. Many of these competitors have
financial and other resources which substantially exceed those of the Company
and have been engaged in the energy business for a much longer time than the
Company. Therefore, competitors may be able to pay more for desirable leases and
to evaluate, bid for and purchase a greater number of properties or prospects
than the financial or personnel resources of the Company will permit.
DEPENDENCE ON KEY PERSONNEL
The Company depends, and will continue to depend in the foreseeable future,
on the services of its officers and key employees with extensive experience and
expertise in evaluating and analyzing producing oil and gas properties and
drilling prospects, maximizing production from oil and gas properties and
marketing oil and gas production, including John H. Pinkerton, the Company's
President and Chief Executive Officer. However, the Company does not have
employment contracts with any of its officers or key employees. The ability of
the Company to retain its officers and key employees is important to the
continued success and growth of the Company. The loss of key personnel could
have a material adverse effect on the Company. The Company does not maintain key
man life insurance on any of its officers or key employees. See "Management."
CERTAIN BUSINESS INTERESTS OF CHAIRMAN
Thomas J. Edelman, Chairman of the Company, is also the Chairman, President
and Chief Executive Officer of Patina Oil & Gas Company ("Patina"), a publicly
traded oil and gas company. The Company currently has no existing business
relationships with Patina, and Patina does not own any of the Company's
securities. However, as a result of Mr. Edelman's position in Patina, conflicts
of interests may arise between them. The Company has board policies that require
Mr. Edelman to give notification of any potential conflicts that may arise
between the Company and Patina. There can be no assurance, however, that the
Company will not compete with Patina for the same acquisition or encounter other
conflicts of interest. See "Management."
DILUTION
Upon consummation of the Common Stock Offering, holders of shares of Common
Stock will experience dilution in the Company's earnings per share on a pro
forma basis. As a result of the Offerings, the Company's pro forma earnings per
share will decrease to $0.80 for 1996 after giving effect to the Cometra
Acquisition and the Offerings, as compared to $0.92 for 1996 after giving effect
to the Cometra Acquisition but not the Offerings. See Unaudited Pro Forma
Consolidated Financial Statements.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market
subsequent to the Common Stock Offering could adversely affect the market price
of the Common Stock. Upon consummation of the Offerings, the Company will have
20,220,936 shares of Common Stock outstanding (20,820,936 shares if the
Underwriters overallotment option is exercised in full). Of these shares,
20,011,436 shares will be eligible for immediate sale without restriction under
the Securities Act (except for shares held by affiliates of the Company whose
shares may be sold subject to volume limitations and certain other requirements
of Rule 144 under the Securities Act), and 209,500 are restricted securities
that may not be resold unless such resale is registered under the Securities Act
or is made under Rule 144 or another exemption from registration under the
Securities Act. The holders of 1,703,617 shares of Common Stock have agreed not
to sell such shares for a period of 90 days after the date of this Prospectus
without the prior written consent of Morgan Stanley & Co. Incorporated. Cometra
has agreed not to sell the 1,410,106 shares it received pursuant to the Cometra
Acquisition until March 31, 1997. In addition to the shares currently
outstanding, 1,236,232 shares are
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reserved for issuance upon exercise of outstanding options and warrants,
3,026,316 shares are issuable upon conversion of the $2.03 Convertible Preferred
Stock and 2,857,143 shares are issuable upon conversion of the 6% Convertible
Subordinated Debentures.
FORWARD-LOOKING INFORMATION
Information included in this Prospectus, including information incorporated
by reference herein, contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act, including
projections, estimates and expectations. Those statements by their nature are
subject to certain risks, uncertainties and assumptions and will be influenced
by various factors. Should one or more of these statements or their underlying
assumptions prove to be incorrect, actual results could vary materially.
Although the Company believes that such projections, estimates and expectations
are based on reasonable assumptions, it can give no assurance that such
projections, estimates and expectations will be achieved. Important factors that
could cause actual results to differ materially from those in the
forward-looking statements herein include political and economic developments in
the United States and foreign countries, federal and state regulatory
developments, the timing and extent of changes in commodity prices, the extent
of success in acquiring oil and gas properties and in discovering, developing
and producing reserves and conditions of the capital markets and equity markets
during the periods covered by the forward-looking statements. See "Risk Factors"
for further information with respect to certain of such factors. In addition,
certain of such projections and expectations are based on historical results,
which may not be indicative of future performance. See "Unaudited Pro Forma
Consolidated Financial Statements."
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COMETRA ACQUISITION
GENERAL
The Company recently acquired the Cometra Properties for a purchase price
of $385 million, consisting of $355 million in cash and 1,410,106 shares of
Common Stock. The Company financed the cash portion of the purchase price with
$221 million of borrowings under the Credit Agreement and the issuance to
Cometra of a $134 million non-interest bearing promissory note due March 31,
1997, which is secured by a bank letter of credit. As a result of the Cometra
Acquisition, the Company has significantly expanded its inventory of both
development and exploration projects, increased its proved reserves at December
31, 1996 by 68% to 644 Bcfe and increased the Company's Present Value at
December 31, 1996 by 98% to $974 million.
COMETRA PROPERTIES
The Cometra Properties include 150,000 gross acres (90,000 net) located
within the Company's core operating areas in West Texas, South Texas and the
Gulf of Mexico. Netherland, Sewell & Associates, Inc., independent petroleum
consultants, estimated that at December 31, 1996, the Cometra Properties had
proved reserves of 202 Bcf of gas and 9.7 Mmbbls of oil with a Present Value of
$481 million. In December 1996, the Cometra Properties produced at a rate of 66
Mmcfe/d through 515 wells. The Cometra Properties include 265 miles of gas
pipelines and a 25,000 Mcf/d capacity gas processing plant.
The West Texas properties are located in the Val Verde and Permian Basins
and account for 81% of the acquired reserves on a Present Value basis. The South
Texas/Gulf of Mexico properties account for 19% of the acquired reserves on a
Present Value basis. All of the Cometra Properties, except for the Gulf of
Mexico properties, are within the Company's existing core operating areas. As a
result, the Company expects to be able to quickly integrate the properties and
begin exploitation activities. To facilitate the integration, the Company plans
to offer positions to substantially all of Cometra's field and technical staff
associated with these properties.
On a Present Value basis, 95% and 70%, respectively, of the West Texas and
South Texas/Gulf of Mexico properties are operated by the Company. The offshore
properties are operated by experienced third parties. Although the Company has
no definitive plans to do so at this time, the Company has previously announced
that it may elect to sell all or part of the Gulf of Mexico properties because
they are not located in the Company's core areas.
RESERVES
The following table sets forth summary information with respect to the
proved reserves of the Cometra Properties by region at December 31, 1996:
PRESENT VALUE NATURAL
----------------- NATURAL GAS
AMOUNT OIL & NGLS GAS EQUIV.
(THOUSANDS) % (MBBLS) (MMCF) (MMCFE)
----------- --- ---------- ------- -------
West Texas................................... $387,852 81% 8,271 174,339 223,965
South Texas/Gulf of Mexico................... 93,639 19 1,459 27,667 36,422
-------- --- ----- ------- -------
Total.............................. $481,491 100% 9,730 202,006 260,387
======== === ===== ======= =======
The West Texas properties consist of 450 producing wells on 99,000 gross
acres (70,000 net) located principally in the Val Verde and Permian Basins. The
Company operates 95% of the properties on a Present Value basis and the
pipelines and gas processing plant. Existing production ranges in depth from
3,000 to 7,000 feet. The Company has identified 365 proven recompletion and
development drilling projects in this area. In the Val Verde Basin, the Company
benefits from a $3.70 per Mcf gas sales contract covering 20,000 acres currently
producing approximately 20,000 Mcf/d. The contract is with a large gas utility
and expires in June 2000.
The South Texas/Gulf of Mexico properties consist of 65 producing wells on
51,000 gross acres (20,000 net). The Company operates 70% of the properties on a
Present Value basis, primarily in South Texas. The Gulf of Mexico properties
include 14 producing wells on seven offshore platforms, all of which are
operated by
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third parties, including affiliates of National Fuel Gas Co., Noble Affiliates,
Inc. and British Borneo Petroleum Syndicate plc. Total net daily production from
the South Texas/Gulf of Mexico properties currently is 22,300 Mcfe. Onshore,
production comes from depths ranging from 1,000 to 12,000 feet, and has an
estimated reserve life in excess of seven years. In the Gulf of Mexico,
production ranges in depth from 8,000 to 14,000 feet, while water depths vary
from 50 to 220 feet. The Company has identified a total of 36 development
projects. Both shallower and deeper horizons hold potential exploration
opportunities, which the Company expects to evaluate further with the assistance
of 3-D seismic technology.
GAS PLANTS AND PIPELINES
As part of the Cometra Acquisition, the Company has acquired 265 miles of
gas pipelines and a 25,000 Mcf/d capacity gas processing plant in the Permian
Basin. The gas plant, located outside Sterling City, Texas, was constructed in
1995 and is currently processing gas, approximately 50% of which is attributable
to Company operated wells, at the rate of 20,000 Mcf/d. The Company believes
that the plant's capacity could be expanded to 35,000 Mcf/d for an additional
capital expenditure of approximately $4.0 million.
NOTES OFFERING
Concurrently with the Common Stock Offering, the Company is offering $100
million aggregate principal amount of its % Senior Subordinated Notes due
2007. The closings of the Common Stock Offering and the Notes Offering are
contingent upon each other. The Notes will be unconditionally guaranteed on an
unsecured, senior subordinated basis, by each of the Company's Restricted
Subsidiaries (as defined in the Indenture for the Notes), provided that such
guarantees will terminate under certain circumstances. The Indenture for the
Notes will contain certain covenants, including, but not limited to, covenants
with respect to the following matters: (i) limitation on restricted payments;
(ii) limitation on the incurrence of indebtedness and issuance of Disqualified
Stock (as defined in the Indenture for the Notes); (iii) limitation on liens;
(iv) limitation on disposition of proceeds of asset sales; (v) limitation on
transactions with affiliates; (vi) limitation on dividends and other payment
restrictions affecting restricted subsidiaries; (vii) restrictions on mergers,
consolidations and transfers of assets; and (viii) limitation on "layering"
indebtedness.
USE OF PROCEEDS
The net proceeds of the Common Stock Offering are estimated to be
approximately $75.5 million (assuming an offering price of $20 per share) and
the net proceeds of the Notes Offering are estimated to be approximately $96.7
million, after deducting underwriting discounts and estimated expenses. The
Company intends to use all of such net proceeds to repay certain indebtedness
incurred under the Credit Agreement to fund a portion of the cash purchase price
for the Cometra Properties. See "Cometra Acquisition" and "Notes Offering." At
February 11, 1997, indebtedness under the Credit Agreement, which expires in
February 2002, had a weighted average interest rate of 6.5%. For additional
information with respect to the interest rates, maturity and covenants related
to the Credit Agreement, see "Description of Capital Stock and Indebtedness
- -- Credit Agreement."
18
21
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1996, and the pro forma capitalization of the Company at December
31, 1996, giving effect to the Cometra Acquisition and the related financings
(including the application of the net proceeds from the Offerings as described
in "Use of Proceeds") as if such transactions occurred on December 31, 1996.
This table should be read in conjunction with the Consolidated Financial
Statements and Unaudited Pro Forma Consolidated Financial Statements and Notes
thereto included herein, and "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
DECEMBER 31, 1996
----------------------
ACTUAL PRO FORMA
-------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Current portion of debt..................................... $ 26 $ 26
======== ========
Long-term debt:
Revolving credit facility................................. $ 61,355 $244,155
% Senior Subordinated Notes............................. -- 100,000
6% Convertible Subordinated Debentures (1)................ 55,000 55,000
Other long-term debt...................................... 425 425
-------- --------
Total long-term debt.............................. $116,780 $399,580
======== ========
Stockholders' equity:
Preferred Stock, $1 par value, 4,000,000 shares
authorized:
$2.03 Convertible Preferred Stock, 1,150,000 shares
outstanding ($28,750,000 liquidation preference)(2).... 1,150 1,150
Common Stock, $.01 par value, 35,000,000 shares
authorized:
14,750,537 issued and outstanding; 20,160,643 shares
issued and outstanding pro forma (3)................... 148 202
Capital in excess of par value............................ 110,248 215,694
Retained earnings......................................... 5,291 5,291
Unrealized gain on marketable securities.................. 692 692
-------- --------
Total stockholders' equity........................ 117,529 223,029
-------- --------
Total capitalization......................... $234,309 $622,609
======== ========
- ---------------
(1) The 6% Convertible Subordinated Debentures were issued on December 27, 1996.
See "Description of Capital Stock and Indebtedness."
(2) The $2.03 Convertible Preferred Stock, may, at the election of the Company,
be exchanged for an aggregate of $28,750,000 principal amount of 8.125%
Convertible Subordinated Notes due December 31, 2005. See "Description of
Capital Stock and Indebtedness."
(3) The pro forma column includes the 1,410,106 shares issued to Cometra as
partial consideration for the Cometra Properties.
19
22
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock was listed on the NYSE on October 11, 1996 under the
symbol "LOM." Prior to listing on the NYSE, the Common Stock was listed on the
Nasdaq National Market under the symbol "LOMK." At February 14, 1997, 16,220,936
shares were held by approximately 4,300 stockholders of record.
The following table sets forth the high and low sales prices as reported on
the NYSE Composite Transaction Tape or the Nasdaq National Market, as
applicable, on a quarterly basis for the periods indicated.
COMMON STOCK
HIGH LOW DIVIDENDS
------- ------- ------------
1997
First Quarter (through February 13)............. $23.500 $17.125 (a)
1996
Fourth Quarter.................................. $17.375 $13.125 $ .02
Third Quarter................................... 14.875 12.750 .02
Second Quarter.................................. 15.500 11.625 .01
First Quarter................................... 12.125 9.560 .01
1995
Fourth Quarter.................................. $ 7.500 $ 5.500 $ .01
Third Quarter................................... 9.250 7.250 --
Second Quarter.................................. 8.188 7.250 --
First Quarter................................... 7.375 5.500 --
- ---------------
(a) Since the fourth quarter of 1995, dividends have been declared at the
beginning of the last month of each calendar quarter and have been paid at
the end of such calendar quarter.
Dividends on the Common Stock were initiated in December 1995 and have been
paid in each successive quarter. The $2.03 Convertible Preferred Stock receives
cumulative quarterly dividends at the annual rate of $2.03 per share. If there
is any arrearage in dividends on the $2.03 Convertible Preferred Stock, the
Company may not pay dividends on the Common Stock. The Company has never been in
arrears in the payment of dividends on the $2.03 Convertible Preferred Stock.
See "Description of Capital Stock and Indebtedness."
The payment of dividends is subject to declaration by the Board of
Directors and may depend upon earnings, capital expenditures and market factors
existing from time to time. The Credit Agreement and the Indenture for the Notes
contain restrictions on the Company's ability to pay dividends on capital stock.
Under the most restrictive of these provisions, the Company could have paid
$5,000,000 of dividends as of December 31, 1996.
20
23
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited pro forma consolidated financial statements give
effect to: (i) the purchase by the Company of certain oil and gas properties
from Bannon Energy Incorporated (the "Bannon Acquisition") in April 1996 for $37
million, (ii) the Cometra Acquisition, (iii) the private placements of 600,000
shares of Common Stock and $55 million of 6% Convertible Subordinated Debentures
(collectively referred to as the "Private Placements"), (iv) the Offerings and
(v) the application of the estimated net proceeds from the Private Placements
and the Offerings. The unaudited pro forma consolidated statement of income for
the year ended December 31, 1996 was prepared as if the Bannon Acquisition, the
Cometra Acquisition, the Private Placements and the Offerings (collectively, the
"Transactions") had occurred on January 1, 1996. The accompanying unaudited pro
forma consolidated balance sheet of the Company as of December 31, 1996 has been
prepared as if the Transactions had occurred as of that date. The historical
information provided in the statement of income for the year ended December 31,
1996, includes results for the properties acquired in the Bannon Acquisition for
the period from January 1, 1996 until its purchase on March 31, 1996. The
historical information provided in the statement of income of the Company for
the year ended December 31, 1996 includes results for the properties acquired in
the Bannon Acquisition for the period from April 1, 1996 through December 31,
1996.
This information is not necessarily indicative of future consolidated
results of operations and it should be read in conjunction with the separate
historical statements and related notes of the respective entities appearing
elsewhere in this Registration Statement or incorporated by reference herein.
21
24
LOMAK PETROLEUM, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
PRO FORMA
BANNON COMETRA PRO FORMA PRE-OFFERING OFFERING PRO FORMA
LOMAK ACQUISITION ACQUISITION ADJUSTMENTS LOMAK ADJUSTMENTS LOMAK
------- ----------- ----------- ----------- ------------ ----------- ---------
REVENUES
Oil and gas sales.......... $68,054 $1,703 $60,751 $ $130,508 $ $130,508
Field services............. 14,223 -- -- 240(a) 14,463 14,463
Gas transportation and
marketing................ 5,575 -- 7,273 11,478(a) 24,326 24,326
Interest and other......... 3,386 -- -- 3,386 3,386
------- ------ ------- -------- --------
91,238 1,703 68,024 172,683 172,683
------- ------ ------- -------- --------
EXPENSES
Direct operating........... 24,456 562 14,376 39,394 39,394
Field services............. 10,443 -- -- 10,443 10,443
Gas transportation and
marketing................ 1,674 -- -- 11,478(a) 13,152 13,152
Exploration................ 1,460 -- -- 1,460 1,460
General and
administrative........... 3,966 -- -- 1,650(a) 5,616 5,616
Interest................... 7,487 -- -- 23,991(b) 31,478 (1,998)(e) 29,480
Depletion, depreciation and
amortization............. 22,303 -- -- 22,086(c) 44,389 44,389
------- ------ ------- -------- --------
71,789 562 14,376 145,932 143,934
------- ------ ------- -------- --------
Income before taxes.......... 19,449 1,141 53,648 26,751 28,749
INCOME TAXES
Current.................... (729) -- -- (74)(d) (803) (59)(f) (862)
Deferred................... (6,105) -- -- (2,455)(d) (8,560) (640)(f) (9,200)
------- ------ ------- -------- --------
Net income................... $12,615 $1,141 $53,648 $ 17,388 $ 18,687
======= ====== ======= ======== ========
Net income applicable to
common shares.............. $10,161 $ 15,084 $ 16,383
======= ======== ========
Earnings per common share.... $ 0.69 $ 0.92 $ 0.80
======= ======== ========
Weighted average shares
outstanding................ 14,812 1,583 16,395 4,000 20,395
======= ======== ========
See notes to pro forma combined financial statements
22
25
LOMAK PETROLEUM, INC.
PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
PRO FORMA
PRO FORMA PRE-OFFERING OFFERING PRO FORMA
LOMAK ADJUSTMENTS LOMAK ADJUSTMENTS LOMAK
-------- ----------- ------------ ----------- ---------
ASSETS
Current assets
Cash and equivalents......... $ 8,625 $ $ 8,625 $ $ 8,625
Accounts receivable.......... 18,121 18,121 18,121
Marketable securities........ 7,658 7,658 7,658
Inventory and other.......... 799 799 799
-------- -------- --------
Total current assets...... 35,203 35,203 35,203
-------- -------- --------
Oil and gas properties......... 282,519 325,000(g) 607,519 607,519
Accumulated depletion and
amortization............ (53,102) (53,102) (53,102)
-------- -------- --------
229,417 554,417 554,417
-------- -------- --------
Gas transportation and field
service assets............... 21,139 60,000(g) 81,139 81,139
Accumulated
depreciation............ (4,997) (4,997) (4,997)
-------- -------- --------
16,142 76,142 76,142
-------- -------- --------
Other assets................... 1,785 1,785 3,300(h) 5,085
-------- -------- --------
$282,547 $667,547 $670,847
======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Accounts payable............. $ 14,433 $ $ 14,433 $ $ 14,433
Accrued liabilities.......... 4,603 4,603 4,603
Accrual payroll and benefit
costs..................... 3,245 3,245 3,245
Current portion of debt...... 26 26 26
-------- -------- --------
Total current
liabilities............. 22,307 22,307 22,307
-------- -------- --------
(96,700)(h) )
Revolving credit facility...... 61,355 355,000(g) 416,355 (75,500)(i) ) 244,155
% Senior subordinated notes... -- -- 100,000(h) ) 100,000
6% Convertible subordinated
debentures................... 55,000 55,000 55,000
Other long-term debt........... 425 425 425
-------- -------- --------
116,780 471,780 399,580
-------- -------- --------
Deferred income taxes.......... 25,931 25,931 25,931
Stockholders' equity
$2.03 Preferred stock, $1 par
value..................... 1,150 1,150 1,150
Common Stock, $.01 par
value..................... 148 14(g) 162 40(i) 202
Capital in excess of par
value..................... 110,248 29,986(g) 140,234 75,460(i) 215,694
Retained earnings
(deficit)................. 5,291 5,291 5,291
Unrealized gain on marketable
securities................ 692 692 692
-------- -------- --------
Total stockholders'
equity.................. 117,529 147,529 223,029
-------- -------- --------
$282,547 $667,547 $670,847
======== ======== ========
See notes to pro forma combined financial statements
23
26
LOMAK PETROLEUM, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE (1) PRO FORMA ADJUSTMENTS FOR THE TRANSACTIONS -- FOR THE YEAR ENDED
DECEMBER 31, 1996
The accompanying unaudited pro forma consolidated statement of income for
the year ended December 31, 1996 has been prepared as if the Transactions had
occurred on January 1, 1996 and reflects the following adjustments:
(a) To adjust historical field services revenues for income increases and
costs reclassifications and general and administrative expenses for
cost increases due to integration of the Bannon Acquisition and the
Cometra Acquisition.
(b) To adjust interest expense for the estimated amount that would have
been incurred on the incremental borrowings for the Bannon Acquisition
and the Cometra Acquisition, net of proceeds received from the Private
Placements and the Offerings. A 1/8% per annum increase in interest
rate would decrease the Company's income before taxes by $392,000.
(c) To record depletion expense for the Bannon Acquisition and the Cometra
Acquisition at a rate of $0.87 per Mcfe, which would have been the rate
in effect for 1996 had such acquisitions taken place at January 1,
1996. Additionally, to record depreciation expense on the gas
processing plant purchased in the Cometra Acquisition.
(d) To adjust the provision for income taxes for the change in taxable
income resulting from the Bannon Acquisition, the Cometra Acquisition
and the Private Placements and the effect on deferred taxes recorded at
January 1, 1996 as if such Transactions had taken place at that time.
(e) To adjust interest expense for the estimated amounts that would have
been repaid with the net proceeds from the Offerings. Because the net
proceeds from the Offerings will be used to repay debt, a 1/8% per
annum increase in interest rate would increase the Company's income
before taxes by $92,000.
(f) To adjust the provision for income taxes for the change in taxable
income resulting from interest adjustments made to reflect the amounts
of borrowings repaid with the net proceeds from the Offerings and the
effect on deferred taxes recorded at January 1, 1996 as if the
Offerings had taken place at that time.
NOTE (2) PRO FORMA ADJUSTMENTS FOR THE COMETRA ACQUISITION AND THE
OFFERINGS -- AS OF DECEMBER 31, 1996
(g) To record the Cometra Acquisition.
(h) To record the Notes Offering, net of offering costs and the application
of proceeds therefrom.
(i) To record the Common Stock Offering, net of offering costs and the
application of proceeds therefrom.
24
27
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables present selected consolidated financial data covering
the five years ended December 31, 1996. Such data has been derived from, and
should be read in conjunction with, the audited Consolidated Financial
Statements and Notes thereto for each of the five years ended December 31, 1996,
the Unaudited Pro Forma Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included herein.
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
PRO FORMA
1992 1993 1994 1995 1996 1996
-------- -------- -------- -------- -------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and gas sales............................... $ 7,703 $ 11,132 $ 24,461 $ 37,417 $ 68,054 $130,508
Field services.................................. 5,283 6,966 7,667 10,097 14,223 14,463
Gas transportation and marketing................ 332 559 2,195 3,284 5,575 24,326
Interest and other.............................. 577 418 471 1,317 3,386 3,386
-------- -------- -------- -------- -------- --------
13,895 19,075 34,794 52,115 91,238 172,683
Expenses:
Direct operating................................ 3,039 4,438 10,019 14,930 24,456 39,394
Field services.................................. 3,951 5,712 5,778 6,469 10,443 10,443
Gas transportation and marketing................ -- 13 490 849 1,674 13,152
Exploration..................................... 36 86 359 512 1,460 1,460
General and administrative...................... 1,915 2,049 2,478 2,736 3,966 5,616
Interest........................................ 952 1,120 2,807 5,584 7,487 29,480
Depletion, depreciation and amortization........ 3,124 4,347 10,105 14,863 22,303 44,389
-------- -------- -------- -------- -------- --------
13,017 17,765 32,036 45,943 71,789 143,934
-------- -------- -------- -------- -------- --------
Income before taxes.............................. 878 1,310 2,758 6,172 19,449 28,749
Income taxes..................................... 192 (81) 139 1,782 6,834 10,062
-------- -------- -------- -------- -------- --------
Net income....................................... $ 686 $ 1,391 $ 2,619 $ 4,390 $ 12,615 $ 18,687
======== ======== ======== ======== ======== ========
Earnings per common share........................ $ 0.08 $ 0.18 $ 0.25 $ 0.31 $ 0.69 $ 0.80
======== ======== ======== ======== ======== ========
Cash dividends per common share.................. $ 0.00 $ 0.00 $ 0.00 $ 0.01 $ 0.06 N/A
======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA (a)....................................... $ 4,990 $ 6,863 $ 16,029 $ 27,131 $ 50,699 $104,078
Net cash provided by operations.................. 5,168 4,305 11,241 16,561 38,445 N/A
Net cash used in investing....................... (4,210) (43,459) (29,536) (76,113) (69,666) N/A
Net cash provided by financing................... 126 38,912 21,173 57,702 36,700 N/A
Capital expenditures............................. 5,920 48,240 70,024 88,530 79,390 N/A
Ratios:
EBITDA to interest expense...................... 5.2x 6.1x 5.7x 4.9x 6.8x 3.5x
Earnings to fixed charges (b)................... 1.9x 2.2x 2.0x 2.1x 3.6x 2.0x
Total debt to EBITDA............................ 2.6x 4.5x 3.9x 3.1x 2.3x 3.8x
BALANCE SHEET DATA (END OF PERIOD):
Cash and equivalents............................. $ 2,261 $ 2,019 $ 4,897 $ 3,047 $ 8,625 $ 8,625
Total assets..................................... 28,328 76,333 141,768 214,788 282,547 670,847
Long-term debt (c)............................... 13,127 31,108 62,592 83,088 116,806 399,606
Stockholders' equity............................. 9,504 32,263 43,248 99,367 117,529 223,029
- ---------------
(a) EBITDA represents net income plus income taxes, exploration expense,
interest expense and depletion, depreciation, and amortization expense.
EBITDA is not presented as an indicator of the Company's operating
performance, an indicator of cash available for discretionary spending or as
a measure of liquidity. EBITDA may not be comparable to other similarly
titled measures of other companies. The Company's Credit Agreement requires
the maintenance of certain EBITDA ratios. See "Description of Capital Stock
and Indebtedness -- Credit Agreement."
(b) For the purpose of determining the ratio of earnings to fixed charges,
earnings are defined as income before taxes plus fixed charges. Fixed
charges consist of interest expense.
(c) Long-term debt includes current portion.
25
28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto and the Selected
Consolidated Financial Data included elsewhere herein.
RESULTS OF OPERATIONS
The Company has experienced significant growth in reserves, production,
cash flow and earnings over the past three years. The following tables set forth
selected financial and operating information as well as the annual percentage
change for each of the past three years:
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT
PRICE DATA)
Revenues.............................................. $34,794 $52,115 $91,238
Expenses.............................................. 32,036 45,943 71,789
Net Income............................................ 2,619 4,390 12,615
EBITDA(1)............................................. 16,029 27,131 50,699
Production Volumes:
Natural Gas (Mmcf).................................. 6,996 12,471 21,231
Oil and NGLs (Mbbls)................................ 640 913 1,068
Natural Gas Equivalents (Mmcfe)..................... 10,836 17,949 27,641
Average Prices:
Natural Gas (per Mcf)............................... $ 2.10 $ 1.79 $ 2.24
Oil and NGLs (per Bbl).............................. 15.23 16.57 19.12
Natural Gas Equivalents (per Mcfe).................. 2.26 2.08 2.46
PERCENTAGE CHANGE
FROM PRIOR PERIOD
------------------
YEAR ENDED
DECEMBER 31,
------------------
1995 1996
----- -----
Revenues....................................................... 50% 75%
Expenses....................................................... 43 56
Net Income..................................................... 68 187
EBITDA (1)..................................................... 69 87
Production Volumes:
Natural Gas.................................................. 78 70
Oil and NGLs................................................. 43 17
Natural Gas Equivalents...................................... 66 54
Average Prices:
Natural Gas (per Mcf)........................................ (15) 25
Oil and NGLs (per Bbl)....................................... 9 15
Natural Gas Equivalents (per Mcfe)........................... (8) 18
- ---------------
(1) EBITDA represents net income plus income taxes, exploration expense,
interest expense and depletion, depreciation and amortization expense.
EBITDA is not presented as an indicator of the Company's operating
performance or as a measure of liquidity.
26
29
Comparison of 1996 to 1995
The Company reported net income for the year ended December 31, 1996 of
$12.6 million, a 187% increase over 1995. The increase is the result of (i)
higher production volumes, over 60% of which is attributable to acquisitions and
the remainder is attributable to development activities; (ii) increased prices
received from the sale of oil and gas products and (iii) gains from asset sales.
During the year, oil and gas production volumes increased 54% to 27.6 Bcfe, an
average of 75,522 Mcfe/d. The increased revenues recognized from production
volumes were aided by an 18% increase in the average price received per Mcfe of
production to $2.46. The average oil price increased 15% to $19.12 per barrel
while average gas prices increased 25% to $2.24 per Mcf. As a result of the
Company's larger base of producing properties and production, oil and gas
production expenses increased 64% to $24.5 million in 1996 versus $14.9 million
in 1995. The average operating cost per Mcfe produced increased 6% from $0.83 in
1995 to $0.88 in 1996 due to unsuccessful recompletion costs and increases in
personnel costs.
Gas transportation and marketing revenues increased 70% to $5.6 million
versus $3.3 million in 1995 principally due to production growth. Gas
transportation and marketing expenses increased 97% to $1.7 million versus $0.8
million in 1995. The increase in expenses was due to production growth, as well
as the increase in gas transportation and marketing expense and higher
administrative costs associated with the growth in gas marketing.
Field services revenues increased 41% in 1996 to $14.2 million. The higher
revenues were due primarily to a larger base of operated properties. Field
services expenses increased 61% in 1996 to $10.4 million versus $6.5 million.
The increase is attributed to the cost of operating a larger base of properties
and lower overall margins on Oklahoma well servicing. In December 1996, the
Company sold its brine disposal and well servicing activities in Oklahoma for
$2.7 million and recorded a gain of approximately $1.2 million, which is
included in interest and other income.
Exploration expense increased 185% to $1.5 million due to the Company's
increased involvement in seismic and exploratory drilling. The Company
participated in 11 exploratory wells in 1996 versus 7 exploratory wells in 1995.
General and administrative expenses increased 45% from $2.7 million in 1995
to $3.9 million in 1996. As a percentage of revenues, general and administrative
expenses were 4% in 1996 as compared to 5% in 1995. This decreasing trend
reflects the spreading of administrative costs over a growing asset base.
Interest and other income rose 157% to $3.4 million primarily due to $1.4
million on gains from sale of marketable securities (which were not related to
hedging activities), and $1.2 million from the gain on the sale of the Oklahoma
well servicing assets. Interest expense increased 34% to $7.5 million as
compared to $5.6 million in 1995. This was primarily as a result of the higher
average outstanding debt balance during the year due to the financing of capital
expenditures. The average outstanding balances on the Credit Agreement were
$73.3 million and $107.2 million for 1995 and 1996, respectively. The weighted
average interest rate on these borrowings were 7.3% and 6.7% for the years ended
December 31, 1995 and 1996, respectively.
Depletion, depreciation and amortization increased 50% compared to 1995 as
a result of increased production volumes during the year. The Company-wide
depletion rate was $0.73 per Mcfe in 1995 and 1996.
Comparison of 1995 to 1994
The Company reported net income for the year ended December 31, 1995 of
$4.4 million, a 68% increase over 1994. This increase is the result of higher
production volumes attributable to acquisition and development activities.
During the year, oil and gas production volumes increased 66% to 17.9 Bcfe,
an average of 49.2 Mmcfe/d. The increased revenues recognized from production
volumes were partially offset by an 8% decrease in the average price received
per Mcfe of production to $2.08. The average oil price increased 9% to $16.57
per barrel while average gas prices dropped 15% to $1.79 per Mcf. As a result of
the Company's larger base of producing properties and production, oil and gas
production expenses increased 49% to $14.9 million in 1995 versus $10.0 million
in 1994. However, the average operating cost per Mcfe produced decreased 11%
from $0.93 in 1994 to $0.83 in 1995.
27
30
Gas transportation and marketing revenues increased 50% to $3.3 million
versus $2.2 million in 1994. Coupled with this increase in gas transportation
and marketing revenues was a 73% increase in associated expenses for the year.
These increases were due primarily to the acquisition of several pipeline
systems, as well as the expansion of the gas marketing efforts.
Field services revenues increased 32% in 1995 to $10.1 million, despite the
September 1994 sale of virtually all well servicing and brine disposal assets in
Ohio. The decrease in activities due to this sale was more than offset by an
increase in well servicing and brine disposal activities in Oklahoma and well
operations on acquired properties. Field services expenses increased 12% in 1995
to $6.5 million versus $5.8 million. The increase is attributed to the Oklahoma
well servicing and the cost of operating a larger base of properties. The
increase in well operating costs was offset to a great extent by the disposal in
September 1994 of the Company's lower margin well servicing and brine hauling
and disposal businesses.
Exploration expense increased 43% to $0.5 million due to the Company's
increased involvement in exploration projects. These costs include delay
rentals, seismic and exploratory drilling activities.
General and administrative expenses increased 10% from $2.5 million in 1994
to $2.7 million in 1995. As a percentage of revenues, general and administrative
expenses were 5% in 1995 as compared to 7% in 1994. This improvement reflects
the spreading of administrative costs over a growing asset base.
Interest and other income rose 180% primarily due to higher sales of
non-strategic properties. Interest expense increased 99% to $5.6 million as
compared to $2.8 million in 1994. This was primarily as a result of the higher
average outstanding debt balance during the year due to the financing of capital
expenditures. The average outstanding balances on the Credit Agreement were
$42.0 million and $73.3 million for 1994 and 1995, respectively. The weighted
average interest rate on these borrowings was 6.3% and 7.3% for the years ended
December 31, 1994 and 1995, respectively.
Depletion, depreciation and amortization increased 47% compared to 1994 as
a result of increased production volumes during the year. The increased
depletion of oil and gas properties was partially offset by the reduction of
depreciation of field services assets due to the 1994 sale of field service
assets. The Company-wide depletion rate for 1995 was $0.73 per Mcfe versus $0.82
per Mcfe in 1994 due to the addition of properties at lower than historical Mcfe
costs.
Discussion of Pro Forma 1996
The Company had pro forma net income for the year ended December 31, 1996
of $18.7 million. During the year, pro forma oil and gas production volumes
averaged 135.6 Mmcfe/d, while average prices were $18.79 per barrel and $2.49
per Mcf. On a pro forma basis, the average price was $2.64 per Mcfe. The average
pro forma operating cost incurred in 1996 per Mcfe produced was $0.80.
Gas transportation and marketing revenues realized in 1996 on a pro forma
basis were $24.3 million, of which $18.7 million can be attributed to activities
related to the Cometra Properties. Pro forma gas transportation and marketing
expenses were $13.2 million for the year, of which $11.5 million can be
attributed to the Cometra Properties.
General and administrative expenses in 1996 on a pro forma basis totaled
$5.6 million. These costs increased over historical general and administrative
expenses due primarily to increased personnel necessary to integrate the Cometra
Properties into the Company's operations.
Interest expense totaled $29.5 million in 1996 on a pro forma basis. The
average outstanding balance under the Credit Agreement in 1996 on a pro forma
basis was $289.8 million. The weighted average interest rate on these borrowings
was 6.7% for the year ended December 31, 1996.
Depletion, depreciation and amortization totaled $44.4 million in 1996 on a
pro forma basis. The Company-wide depletion rate was $0.87 per Mcfe in 1996.
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31
LIQUIDITY AND CAPITAL RESOURCES
General
Working capital at December 31, 1996 was $12.9 million, representing an
$8.3 million increase over the corresponding amount at December 31, 1995. At
December 31, 1996, the Company had $8.6 million in cash and total assets of
$282.5 million. During 1996, long-term debt rose from $83.0 million to $116.8
million.
At December 31, 1996, capitalization totaled approximately $234 million, of
which approximately 50% was represented by stockholders' equity and 50% by
long-term debt. Approximately $61.4 million of the long-term debt at that date
was comprised of borrowings under the Credit Agreement, $55 million being
comprised of 6% Convertible Subordinated Debentures and the remaining $500,000
comprised of other indebtedness. The Credit Agreement currently provides for
quarterly payments of interest with principal due in February 2002.
In December 1996, the Company sold $55 million of 6% Convertible
Subordinated Debentures in a private placement. Net proceeds to the Company of
approximately $53 million were used, together with internally generated funds,
to reduce the amount outstanding under the Credit Agreement to $61.4 million at
December 31, 1996. The 6% Convertible Subordinated Debentures are redeemable by
the Company after February 1, 2000 and are convertible at the option of the
holder into Common Stock at any time prior to maturity or redemption at a
conversion price of $19.25 per share, subject to adjustment in certain
circumstances.
Cash Flow
The Company has three principal operating sources of cash: (i) sales of oil
and gas; (ii) revenues from field services and (iii) revenues from gas
transportation and marketing. The Company's cash flow is highly dependent upon
oil and gas prices. Decreases in the market price of oil or gas could result in
reductions of both cash flow and the borrowing base under the Credit Agreement
which would result in decreased funds available, including funds intended for
planned capital expenditures.
The Company's net cash provided by operations for the years ended December
31, 1994, 1995 and 1996 was $11.2 million, $16.6 million and $38.4 million,
respectively. The consistent increases in the Company's cash flow from
operations can be attributed to its growth primarily through acquisitions and
development.
The Company's net cash used in investing for the years ended December 31,
1994, 1995 and 1996 was $29.5 million, $76.1 million and $69.7 million,
respectively. Investing activities for these periods are comprised primarily of
additions to oil and gas properties through acquisitions and development and, to
a lesser extent, exploitation and additions of field service assets. These uses
of cash have historically been partially offset through the Company's policy of
divesting those properties that it deems to be marginal or outside the Company's
core areas of operations. The Company's acquisition and development activities
have been financed through a combination of operating cash flow, bank borrowings
and capital raised through equity and debt offerings.
The Company's net cash provided by financing for the years ended December
31, 1994, 1995 and 1996 was $21.2 million, $57.7 million and $36.8 million,
respectively. Sources of financing used by the Company have been primarily
borrowings under its Credit Agreement and capital raised through equity and debt
offerings.
Capital Requirements
In 1996, $12.5 million and $2.0 million of expenses were incurred for
development activities and exploration activities, respectively. Although these
expenditures are principally discretionary, the Company is currently projecting
that it will spend approximately $160 million on development, exploitation and
exploration activities, which includes approximately $45 million on exploitation
and exploration expenditures, through 1999. Internally generated funds are
expected to be sufficient to fund development and exploration expenditures. See
"Business -- Development Activities" and "-- Exploration Activities."
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32
Credit Agreement
In connection with the financing of the Cometra Acquisition, the Company
and its subsidiaries expanded the existing credit facility with the bank
lenders. The Credit Agreement permits the Company to obtain revolving credit
loans and to issue letters of credit for the account of the Company from time to
time in an aggregate amount not to exceed $400 million (of which not more than
$150 million may be represented by letters of credit). The Borrowing Base, which
is initially $400 million, will be reduced to $325 million on the earlier of
August 13, 1997 or the consummation of the Offerings, unless otherwise agreed by
the lenders. The Borrowing Base is subject to semi-annual determination and
certain other redeterminations based upon a variety of factors, including the
discounted present value of estimated future net cash flow from oil and gas
production.
The Company is required to make a mandatory prepayment of all amounts
outstanding under the Credit Agreement in excess of $325 million on August 13,
1997. At the Company's option, loans may be prepaid, and revolving credit
commitments may be reduced, in whole or in part at any time in certain minimum
amounts.
The obligations of the Company under the Credit Agreement are
unconditionally and irrevocably guaranteed by each of the Company's direct and
indirect domestic subsidiaries (collectively, the "Bank Guarantors"). In
addition, the Credit Agreement is secured by first priority security interests
in (i) existing mortgaged oil and gas properties of the Company, including the
Cometra Properties, (ii) all accounts receivable, inventory and intangibles of
the Company and the Bank Guarantors, and (iii) all of the capital stock of the
Company's direct or indirect subsidiaries. Substantially all of the assets of
the Company will be pledged as collateral if, on May 15, 1997, the Borrowing
Base and amounts outstanding under the Credit Agreement have not been reduced to
$325 million. Such security interests will be released upon the (i) reduction of
the amounts outstanding under the Credit Agreement to $325 million (or the then
determined Borrowing Base) and (ii) issuance of $75 million of Common Stock
and/or the sale of Company assets in excess of the Borrowing Base value
attributable to such assets as agreed by the lenders (the "Trigger Event").
At the Company's option, the applicable interest rate per annum is either
the Eurodollar loan rate plus a margin ranging from 0.625% to 1.125% or the
Alternate Base Rate (as defined) plus a margin ranging from 0% to 0.25%. The
Alternate Base Rate is the higher of (a) the agent banks' reference rate and (b)
the federal funds effective rate plus 0.5%. Until the occurrence of the Trigger
Event, the interest rate margins will be increased by 50 basis points prior to
March 31, 1997 and 100 basis points thereafter.
On February 14, 1997, approximately $392.3 million was outstanding
(including $134 million of then outstanding letters of credit to secure the
promissory note issued to Cometra as part of the purchase price in the Cometra
Acquisition) under the Credit Agreement. Upon consummation of the Offerings,
approximately $220.1 million will be outstanding under the Credit Agreement.
Furthermore, if the Common Stock is sold in the Common Stock Offering for at
least $20 per share (or at least $17.50 per share if the over-allotment option
applicable to the Common Stock Offering is exercised), the Company will receive
at least $75 million in net proceeds from the Common Stock Offering, resulting
in the occurrence of the Trigger Event. On February 13, 1997, the closing price
of the Common Stock on the New York Stock Exchange Composite Tape was $19.00 per
share.
Hedging Activities
Periodically, the Company enters into futures, option and swap contracts to
reduce the effects of fluctuations in crude oil and natural gas prices. At
December 31, 1996, the Company had open contracts for oil and gas price swaps of
300,000 barrels of oil at average prices ranging from $22.10 to $22.76 per
barrel of oil and 155,000 Mcf of gas at $2.04 per Mcf. While these transactions
have no carrying value, the Company's mark-to-market exposure under these
contracts at December 31, 1996 was a net loss of $1.1 million. These contracts
expire monthly through April 1997. The gains or losses on the Company's hedging
transactions is determined as the difference between the contract price and a
reference price, generally closing prices on the NYMEX. The resulting
transaction gains and losses are determined monthly and are included in the
period the hedged production or inventory is sold. Net gains or losses relating
to these derivatives for the years ended December 31, 1994, 1995 and 1996
approximated $0, $217,000 and $(724,000), respectively.
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33
BUSINESS
GENERAL
Lomak is an independent energy company engaged in oil and gas development,
exploration and acquisition primarily in three core areas: the Midcontinent,
Appalachia and the Gulf Coast. Over the past five years, the Company has
significantly increased its reserves and production through acquisitions and, to
a growing extent, development and exploration of its properties. On a pro forma
basis as of December 31, 1996, the Company had proved reserves of 644 Bcfe with
a Present Value of $974 million. On an Mcfe basis, the reserves were 63%
developed and 77% natural gas, with a reserve life in excess of 13 years.
Properties operated by the Company accounted for 94% of its pro forma Present
Value. The Company also owns over 2,000 miles of gas gathering systems and a gas
processing plant in proximity to its principal gas properties. On a pro forma
basis in 1996, the Company had revenues of $173 million and EBITDA of $104
million.
From 1991 through 1996, the Company has made 63 acquisitions, including the
Cometra Acquisition, for an aggregate purchase price of approximately $635
million and has spent $39 million on development and exploration activities. The
Company's acquisition activities were financed with $380 million of debt, $216
million of equity and $38 million of operating cash flow. These activities have
added approximately 719 Bcfe at an average cost of $0.76 per Mcfe. As a result,
the Company has achieved the following since 1991, on a pro forma basis:
- Reserves increased from 20 Bcfe in 1991 to 644 Bcfe in 1996;
- Production increased from 2 Bcfe in 1991 to 49 Bcfe in 1996;
- EBITDA increased from $4 million in 1991 to $104 million in 1996;
- Net income increased from $427,000 in 1991 to $19 million in 1996; and
- Earnings per share increased from $0.01 in 1991 to $0.80 in 1996.
The Company emphasizes strict cost controls in all aspects of its business.
As a result, combined direct operating and administrative costs have been
reduced from $1.42 per Mcfe in 1991 to $0.82 per Mcfe in 1996 on a pro forma
basis. Consequently, while the average price realized by the Company has not
increased significantly over the last five years, operating margins have
increased from $1.17 per Mcfe in 1991 to $1.82 per Mcfe in 1996 on a pro forma
basis.
BUSINESS STRATEGY
The Company's objective is to maximize shareholder value through aggressive
growth in its reserves, production, cash flow and earnings through a balanced
program of development drilling and acquisitions, as well as a growing
exploration effort. Management believes that the Cometra Acquisition has
substantially enhanced the Company's ability to increase its production and
reserves through drilling activities. The Cometra Acquisition substantially
increased the Company's inventory of proven drilling locations and, to an even
greater degree, its exploration and exploitation drilling potential. Including
the Cometra Properties, the Company has over 1,100 proven recompletion and
development drilling locations. As a result of the Cometra Acquisition, the
Company believes that it can achieve significant growth in reserves, production,
cash flow and earnings over the next several years, even if no future
acquisitions are consummated. The Company currently plans to spend $160 million
over the next three years on the further development and exploration of its
properties. Consequently, while acquisitions are expected to continue to play an
important role in the Company's future growth, the primary emphasis will shift
towards exploiting the potential of the Company's larger property base.
In order to most effectively implement its operating strategy, the Company
has concentrated its activities in selected geographic areas. In each core area,
the Company has established separate acquisition, engineering, geological,
operating and other technical expertise. The Company believes that this
geographic focus provides it with a competitive advantage in sourcing and
evaluating new business opportunities within these areas, as well as providing
economies of scale in developing and operating properties.
Lomak believes the competitive strengths described below will greatly
enhance its ability to achieve its long-term goals and objectives.
- Diversified, Long Lived Reserve Base. Lomak has compiled a diversified
group of predictable, long lived properties. The Company's oil and gas
reserves are attributable to 7,280 producing wells that have
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34
a reserve life index in excess of 13 years. The reserves are concentrated in
seven basins and are geographically and geologically diversified.
- Substantial Inventory of Development and Exploration Projects. Lomak has
over 1,100 proven development projects and a substantial number of
exploration and exploitation drilling projects located within core
operating areas in which the Company has significant operating and
technical expertise.
- Successful Acquisition Record. The Company's primary strength has
historically been to identify and acquire properties that have increased
reserves, production, cash flow and earnings. Excluding the Cometra
Acquisition, since 1991 the Company has completed 62 acquisitions for an
aggregate purchase price of $249 million, of which $237 million was
attributable to proved oil and gas properties. These acquisitions have
added proved reserves of approximately 396 Bcfe at an average acquisition
cost of $0.60 per Mcfe.
- Significant Operational Control. Lomak operates properties representing
nearly 94% of its Present Value. This allows the Company to directly
control operating and drilling costs and also allows it to dictate the
timing of development and exploration activities.
- High Operating Margins. The Company's low cost structure, coupled with
the premium gas price it receives for a significant portion of its
production, creates high operating margins. In 1996 on a pro forma basis,
Lomak generated operating margins, after deducting direct operating and
administrative costs, of $1.82 per Mcfe.
- Experienced, Incentivized Management Team. The Company's board of
directors, executive officers, technical staff and administrative
personnel have considerable industry experience and will own,
collectively, shares representing approximately 11% of the outstanding
shares of Common Stock, after giving effect to the Cometra Acquisition
and the Common Stock Offering. Over 75% of Lomak's employees either own,
or hold options to acquire, shares of Common Stock.
DEVELOPMENT ACTIVITIES
The Company's development activities include recompletions of existing
wells, infill drilling and installation of secondary recovery projects.
Development projects are generated within core operating areas where the Company
has significant operational and technical expertise. Currently, as described
below, the Company has 1,163 proven development projects in inventory. These
projects are geographically diverse, vary between oil and gas and are balanced
with regard to risk. The following table sets forth information pertaining to
the Company's proven development inventory at December 31, 1996.
PROVEN DEVELOPMENT INVENTORY
NUMBER OF PROJECTS
-----------------------------------
DRILLING
RECOMPLETIONS LOCATIONS TOTAL
------------- --------- -----
Midcontinent Region
Permian Basin.................................... 85 129 214
Val Verde Basin.................................. 76 134 210
Anadarko Basin................................... 117 86 203
San Juan Basin................................... 18 29 47
--- --- -----
Subtotal................................. 296 378 674
Appalachian Region................................. 43 320 363
Gulf Coast Region.................................. 79 47 126
--- --- -----
Total.................................... 418 745 1,163
=== === =====
The Company currently anticipates that it will initiate 175 to 200
development projects in 1997. Assuming that 200 projects are initiated per year,
the Company currently has more than a five year inventory of proven development
projects. Lomak expects to spend approximately $115 million over the next three
years for development.
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EXPLORATION ACTIVITIES
The Company has a large inventory of moderate risk/moderate reward
exploitation drilling opportunities, as well as higher risk/higher reward
exploration projects. Lomak has identified 267 exploitation drilling projects on
the Cometra Properties, principally consisting of step-out drilling from
existing proved or proved undeveloped locations. In addition, the Company has
identified numerous other exploitation drilling opportunities within its
existing properties. Current exploration projects target deeper horizons within
existing Company-operated fields, as well as establishing new fields in
exploration trend areas in which Lomak's technical staff has experience. The
Company has not previously, and does not currently, plan to participate in
wildcat exploratory drilling outside its core operating areas.
Lomak's strategy is based on limiting its risk by allocating no more than
10% of its cash flow to higher risk exploration activities and by participating
in a variety of projects with differing characteristics. The Company's existing
inventory of exploration projects and leads varies in risk and reward based on
their depth, location and geology. A significant portion of the existing, as
well as future, exploration projects will be enhanced by use of advanced
technology including 3-D seismic and improved completion techniques.
In each of its core operating areas, the Company's geological and
geophysical staff generate both exploitation and exploration projects with the
assistance of the Company's reservoir engineers, landmen and production
engineers. The Company currently estimates that it will spend $25 million on
exploitation activities and $20 million on exploration activities over the next
three years. Existing exploitation and exploration project inventory is
described below.
Midcontinent. Exploitation projects in the Midcontinent region include 116
infill or step-out drilling locations on leasehold acreage held by currently
producing wells adjacent to the Company's production in the Sterling area of the
Permian Basin, as well as 134 infill or step-out locations on leasehold acreage
held by currently producing wells primarily in the Oakridge and Francis Hill
Fields in the Val Verde Basin. In the Big Lake area of the Permian Basin, the
Company is conducting an analysis to determine the potential for recovery of
additional reserves through increased density drilling. Based on the initial
results of the study, the Company believes there is potential for 200 economic
drill sites on its Big Lake area acreage.
Current exploration projects include deeper drilling to the Ellenburger and
Fussleman formations in the Permian and Val Verde Basins. Several projects
targeting the Red Fork, Morrow and Hunton formations are in various stages of
development in the Anadarko Basin. In the San Juan Basin, the Company's acreage
holds exploration potential for production from the Pictured Cliffs, Gallup and
Dakota formations.
Appalachia. In the Appalachian region, the Company has identified
approximately 100 infill or step-out drilling projects on existing leasehold
acreage. In addition, the Company has identified several hundred additional
potential locations near Company-owned gathering systems on acreage the Company
believes will be available for leasing in the future. The Company believes that
the location of its pipelines will provide it with a competitive advantage in
leasing this acreage, which is currently unleased. These locations target the
blanket Clinton and Medina sandstones. Exploration activity in Appalachia
centers around the drilling of deeper formations from leasehold acreage
generally being held by existing production from shallower production. The
targeted formations are in the Knox Sequence trend, which includes the Rose Run,
Beekmantown and Trempealeau formations. Lomak currently owns leasehold acreage
aggregating over 250,000 net acres in the Knox Sequence trend area. With the
assistance of higher quality 2-D seismic as well as 3-D seismic, Lomak believes
the Knox Sequence trend area could generate substantial reserves over the next
five years.
Gulf Coast. Exploitation projects in the Gulf Coast region include 34
infill or step-out drilling locations for the Yegua and Frio formations in South
Texas and the Wilcox and Carrizo formations in East Texas. Deeper, higher risk
exploratory projects have been generated in South Texas targeting the Wilcox and
Vicksburg formations. On the offshore properties, 11 exploitation and
exploration projects have been identified to the Lenticulina and Marginulina
sands. There are four exploration projects targeting the Taylor sand of the
Cotton Valley formation in East Texas.
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ACQUISITION ACTIVITIES
The Company seeks to acquire properties that are expected to be immediately
accretive to cash flow and earnings and provide long-term growth in reserves and
production. The Company focuses on acquisitions that generally meet the
following criteria.
- Location. The Company targets potential acquisitions located in its core
operating areas which typically contain many small operators and where
the major oil companies are less active.
- Operating Efficiency. The Company targets potential acquisitions in
which it believes direct operating cost reductions and administrative
cost efficiencies can be achieved.
- Potential for Increasing Reserves. The Company pursues properties that
it believes have the potential for increased reserves and production
through development and exploration activities.
- Potential for Incremental Purchases. The Company seeks acquisitions
where opportunities to purchase additional interests in the same or
adjoining properties exist.
- Complex Transactions. The Company often pursues transactions which are
more complex as a result of ownership issues or financial structure as it
believes such transactions will attract fewer potential buyers.
The following table sets forth information pertaining to acquisitions
completed during the period January 1, 1991 through December 31, 1996 (including
the Cometra Acquisition):
PURCHASE
NUMBER OF PRICE(1) MMCFE COST
PERIOD TRANSACTIONS (IN THOUSANDS) ACQUIRED PER MCFE(2)
------ ------------ -------------- -------- -----------
1991 9 $ 11,189 14,602 $0.75
1992 7 6,884 12,513 0.41
1993 12 40,527 64,552 0.59
1994 17 63,354 92,851 0.67
1995 9 71,074 103,849 0.61
1996 9 441,812 369,986 0.84
-- -------- ------- -----
Total 63 $634,840 658,353 $0.74
== ======== ======= =====
- ---------------
(1) Includes purchase price for proved reserves as well as other acquired
assets, including gas gathering systems and a processing plant, undeveloped
leasehold acreage and field service assets.
(2) Includes purchase price for proved reserves only. For the Cometra
Acquisition, the purchase price for proved reserves includes the amount
attributable to the above-market gas contract. If the cost per Mcfe was
adjusted for the above-market gas contract, the 1996 cost per Mcfe would be
reduced from $0.84 to $0.74 and the total cost per Mcfe would be reduced
from $0.74 to $0.69.
RECENT SIGNIFICANT ACQUISITIONS
In addition to the Cometra Acquisition, the Company completed a number of
significant acquisitions in 1995 and 1996 as described below. See "Cometra
Acquisition" for a description of the Cometra Acquisition.
Bannon Interests. In April 1996, the Company acquired interests in
approximately 270 producing wells and 108 proven recompletion and development
drilling opportunities for $37.0 million. After giving effect to a subsequent
sale of certain Rocky Mountain region interests for $6.5 million, the acquired
properties were estimated to contain approximately 71 Bcfe of proved reserves.
Also included were 17,300 net undeveloped acres located in east and south Texas.
Red Eagle Resources Corporation. Through a series of transactions effected
in late 1994 and early 1995, the Company acquired Red Eagle Resources
Corporation for $29.6 million in cash and $16.9 million of Common Stock. Red
Eagle's assets included interests in approximately 370 producing wells located
primarily in the Okeene Field of Oklahoma's Anadarko Basin. Subsequently, the
Company acquired additional interests in over 100 Red Eagle wells for $3.9
million.
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Eastern Petroleum Company. In January 1996, the Company acquired proved
oil and gas reserves and 40 miles of gas gathering lines in Ohio for $13.7
million. In the second quarter of 1996, the Company initiated a program
extending purchase offers to other interest owners in these properties. Through
September 30, 1996, interests in 61 wells had been purchased for approximately
$100,000.
Transfuel Interests. In September 1995, the Company acquired proved oil
and gas reserves, 1,100 miles of gas gathering lines and 175,000 undeveloped
acres in Ohio, Pennsylvania and New York from Transfuel, Inc. for $21.0 million.
Parker & Parsley Interests. In August 1995, the Company purchased proved
oil and gas reserves, 300 miles of gas gathering lines and 16,400 undeveloped
acres in Pennsylvania and West Virginia from Parker & Parsley Petroleum Company
for $20.2 million.
SIGNIFICANT PROPERTIES
At December 31, 1996, on a pro forma basis, 98% of the Company's reserves
were located in the Midcontinent, Appalachian and Gulf Coast regions. At
December 31, 1996, the Company's properties included, on a pro forma basis,
working interests in 7,280 gross (5,586 net) productive oil and gas wells and
royalty interests in 310 additional wells. The Company also held interests in
243,100 gross (166,700 net) undeveloped acres on a pro forma basis at December
31, 1996. The following table sets forth summary information with respect to the
Company's estimated proved oil and gas reserves on a pro forma basis at December
31, 1996.
PRESENT VALUE
-------------------------- OIL & NATURAL NATURAL
AMOUNT NGLS GAS GAS EQUIV.
(IN THOUSANDS) % (MBBLS) (MMCF) (MMCFE)
-------------- -------- ------- -------- ----------
Midcontinent Region
Permian Basin.............. $218,201 22% 12,468 54,833 129,642
Val Verde Basin............ 208,613 21 34 126,579 126,783
Anadarko Basin............. 125,143 13 1,964 71,065 82,851
San Juan Basin............. 43,845 5 3,082 16,836 35,326
-------- --- ------- -------- --------
Subtotal........... 595,802 61 17,548 269,313 374,602
Appalachian Region........... 201,215 21 1,189 181,325 188,456
Gulf Coast Region............ 160,353 16 4,179 46,403 71,477
Other........................ 16,293 2 1,489 559 9,495
-------- --- ------- -------- --------
Total.............. $973,663 100% 24,405 497,600 644,030
======== === ======= ======== ========
MIDCONTINENT REGION
The Company's Midcontinent properties are situated in the Permian Basin of
west Texas, the Val Verde Basin of west Texas, the Anadarko Basin of western
Oklahoma and the Texas panhandle and the San Juan Basin of New Mexico. Reserves
in these basins represent 61% of total Present Value. Midcontinent proved
reserves total 375 Bcfe, of which approximately 57% are developed. On an Mcfe
basis, 72% of the reserves are natural gas. Combined net daily production from
these properties currently averages 3,300 barrels of oil and 52 Mmcf of natural
gas. At December 31, 1996, the Midcontinent properties had an inventory of 674
proven development projects.
Permian Basin. The Permian Basin properties contain 130 Bcfe of proved
reserves, or 22% of total Present Value. Net daily production currently averages
2,500 barrels of oil and 9 Mmcf of gas. Producing wells total 842 (617 net), of
which the Company operates 88% on a Present Value basis. Major producing
properties include the Sterling area and the Big Lake area. The Sterling area
properties produce gas from Canyon/Cisco sub-marine sand deposits at 4,000 to
8,000 feet and oil from Silurian Fussleman carbonates. The Sterling area
properties are complemented by a 25,000 Mcf/d gas plant, which processes gas
from the Company's operated properties, as well as gas produced by third
parties. The Big Lake area properties produce primarily oil from approximately
2,500 feet in various sequences of the San Andres/Grayburg formations. At
December 31, 1996, the Permian Basin properties contained 85 proven
recompletions and 129 development drilling locations.
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Val Verde Basin. The Val Verde Basin properties contain 127 Bcfe of proved
reserves, or 21% of total Present Value. From 205 gross wells (163 net), the
Company currently produces 27 Mmcf/d of natural gas. The Company operates 89% of
the wells on a Present Value basis. Production is from 15 different deltaic
Canyon/Cisco sandstones with complex stratigraphic traps at depths ranging from
2,600 to 6,000 feet. On a Present Value basis, the Oakridge and Francis Hill
Fields contribute 91% of the Val Verde Basin reserves. At December 31, 1996, the
Company had an inventory of 76 proven recompletions and 134 development drilling
locations.
Anadarko Basin. The Anadarko Basin properties contain 83 Bcfe of proved
reserves, or 13% of total Present Value. The 431 gross wells (345 net), of which
65% are operated by the Company on a Present Value basis. Net daily production
averages 440 barrels of oil and 14 Mmcf of natural gas. Over 250 operated wells
in the Okeene Field account for 55% of the reserves on a Present Value basis.
The Anadarko Basin wells produce from a variety of sands and carbonates in both
structural and stratigraphic traps in the Hunton, Red Fork and Morrow formations
at depths ranging from 6,000 to 12,000 feet. At December 31, 1996, 117 proven
recompletions and 86 development drilling locations had been identified with
respect to the Anadarko Basin properties.
San Juan Basin. The San Juan Basin properties contain 35 Bcfe of proved
reserves, or 5% of total Present Value. The properties consist of 122 gross
wells (116 net) located in the southeastern portion of the basin, all of which
are Company operated. On an Mcfe basis, 52% of the reserves are oil and natural
gas liquids. Current daily production averages 350 barrels of oil and natural
gas liquids and 2 Mmcf of gas. Producing depths range from 2,000 to 8,000 feet
in the tight blanket sands of the Gallup and Pictured Cliffs zones, as well as
the Dakota formation. These properties have an inventory of 18 proven
recompletions and 29 development drilling locations.
APPALACHIAN REGION
The Appalachian properties contain 188 Bcfe of proved reserves, or 21% of
total Present Value. The reserves are attributable to 5,326 gross wells (4,417
net wells) located in Pennsylvania, Ohio, West Virginia and New York. The
Company operates 94% of these wells. The reserves, which on an Mcfe basis are
96% natural gas, produce principally from the Medina, Clinton and Rose Run
formations at depths ranging from 2,500 to 7,000 feet. Net daily production
currently totals 400 barrels of oil and 32 Mmcf of gas. After initial flush
production, these properties are characterized by gradual decline rates. Gas
production is transported through 1,900 miles of Company owned gas gathering
systems and is sold primarily to utilities and industrial end-users.
GULF COAST REGION
The Gulf Coast region consists of onshore properties located in the East
Texas Basin and in South Texas, as well as offshore properties located in the
Gulf of Mexico. Reserves in these areas represent 16% of the Company's total
Present Value. Gulf Coast properties contain 71 Bcfe of proved reserves, of
which approximately 63% are developed. On an Mcfe basis, 65% of the reserves are
natural gas. Current net daily production from these properties averages 1,800
barrels of oil and 21 Mmcf of natural gas. At December 31, 1996, the Gulf Coast
properties were estimated to contain 126 proven development projects.
South Texas/Gulf of Mexico. The South Texas/Gulf of Mexico properties
contain 54 Bcfe of proved reserves, or 13% of total Present Value. On an Mcfe
basis, gas makes up 79% of the reserves. Current net daily production from the
South Texas/Gulf of Mexico properties totals 1,200 barrels of oil and 21 Mmcf of
gas. Onshore South Texas, these fields range in location from Brooks County in
deep South Texas to Galveston County, near Houston. Significant fields include
Hagist Ranch, Alta Mesa, Riverside, Keeran/Welder and Moses Bayou. These fields
produce from the Wilcox, Frio, Yegua, Vicksburg and Miocene at depths ranging
from 1,000 to 10,000 feet. In total, the onshore fields include 179 gross wells
(153 net), of which 92% are Company operated. The offshore properties in the
Gulf of Mexico include seven platforms offshore Texas and Louisiana in water
depths ranging from 50 to 220 feet. All 15 gross wells (4 net) are operated by
experienced third parties. The Company's working interest in these wells ranges
from 11% to 33%. The offshore properties produce from the Miocene and
Pleistocene age formations, at depths ranging from 8,000 to 14,000 feet. With
multiple producing horizons, untested formations and complex faulting, the South
Texas/Gulf of Mexico
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properties contain substantial development and exploration potential, including
the continued use of 3-D seismic technology. At December 31, 1996, these
properties are estimated to contain 15 proven recompletions and 24 development
drilling locations.
East Texas Basin. The East Texas properties contain 18 Bcfe of proved
reserves accounting for 3% of total Present Value. On an Mcfe basis, 79% of the
reserves are oil. Gross wells total 126 (110 net), of which 74% are Company
operated. Current net daily production averages 620 barrels of oil and 150 Mcf
of gas. Production ranges from the shallow Carrizo section of the Wilcox
formation at a depth of approximately 1,600 feet to the tight Cotton Valley
Taylor blanket sands at approximately 12,000 feet. Approximately 79% of the
Present Value of the East Texas properties is ascribed to 64 operated wells in
the Laura LaVelle Field. At December 31, 1996, 64 proven recompletions and 23
development drilling locations had been identified in the East Texas properties.
OIL AND GAS RESERVES
The following table sets forth estimated proved reserves for each year in
the five-year period ended December 31, 1996 and pro forma for the Cometra
Acquisition.
DECEMBER 31, PRO
---------------------------------------------------- FORMA
1992 1993 1994 1995 1996 1996
-------- -------- -------- -------- -------- --------
Natural gas (Mmcf)
Developed............................... 13,171 38,373 97,251 174,958 207,601 311,350
Undeveloped............................. 4,444 36,190 52,119 57,929 87,993 186,250
------ ------- ------- ------- ------- -------
Total........................... 17,615 74,563 149,370 232,887 295,594 497,600
------ ------- ------- ------- ------- -------
Oil and NGLs (Mbbls)
Developed............................... 1,643 3,344 6,431 8,880 10,703 15,298
Undeveloped............................. 337 1,195 2,018 1,983 3,972 9,107
------ ------- ------- ------- ------- -------
Total........................... 1,980 4,539 8,449 10,863 14,675 24,405
------ ------- ------- ------- ------- -------
Total equivalents (Mmcfe)................. 29,495 101,797 200,064 298,065 383,644 644,030
====== ======= ======= ======= ======= =======
In connection with the evaluation of its reserves, the Company has engaged
the following independent petroleum consultants: Netherland, Sewell &
Associates, Inc. (Cometra Properties), Wright & Company, Inc. (Appalachia), H.J.
Gruy and Associates, Inc. (Midcontinent and Gulf Coast), Huddleston & Co., Inc.
(Midcontinent) and Clay, Holt & Klammer (Appalachia). These engineers have been
employed primarily based on geographic expertise as well as their history in
engineering certain of the acquired properties. At December 31, 1996,
approximately 95% of the proved reserves set forth above were evaluated by
independent petroleum consultants, while the remainder were evaluated by the
Company's engineering staff. All estimates of oil and gas reserves are subject
to significant uncertainty. See "Risk Factors -- Uncertainty of Estimates of
Reserves and Future Net Revenues."
The following table sets forth on a pro forma basis at December 31, 1996
the estimated future net cash flow from and the present value of the proved
reserves. Future net cash flow represents future gross cash flow from the
production and sale of proved reserves, net of production costs (including
production taxes, ad valorem taxes and operating expenses) and future
development costs. Such calculations, which are prepared in accordance with the
Statement of Financial Accounting Standards No. 69 "Disclosures about Oil and
Gas Producing Activities" are based on constant cost and price factors. Average
product prices at December 31, 1996 were $23.58 per barrel of oil and $3.54 per
Mcf of gas and pro forma average product prices at December 31, 1996 were $23.23
per barrel of oil and $3.99 per Mcf of gas. These prices were substantially
higher than historical prices used by the Company to calculate Present Value in
recent years. A decline in prices relative to year end 1996 would cause a
substantial decline in Present Value. For example, a $0.10 decline in gas
prices, holding all other variables constant, would decrease Present Value by
1.9% or $18.7 million and a $1.00 decline in oil and NGL prices world decrease
Present Value by 1.7% or $16.6 million. Furthermore, there can be no assurance
that the proved reserves will be developed within the periods indicated and it
is likely that actual prices received in the future will vary from those used in
deriving
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this information. There are numerous uncertainties inherent in estimating
reserves and related information and different reservoir engineers often arrive
at different estimates for the same properties.
DEVELOPED UNDEVELOPED TOTAL
---------- -------------- ----------
(IN THOUSANDS)
Estimated future net cash flow.............. $1,138,704 $652,064 $1,790,768
Present Value............................... 658,121 315,541 973,663
Standardized Measure........................ N/A N/A 665,035
PRODUCING WELLS
The following table sets forth certain information relating to productive
wells at December 31, 1996 on a pro forma basis. The Company owns royalty
interests in an additional 310 wells. Wells are classified as oil or gas
according to their predominant production stream.
AVERAGE
GROSS NET WORKING
WELLS WELLS INTEREST
----- ----- --------
Oil...................................................... 1,510 816 54%
Natural gas.............................................. 5,770 4,770 83%
----- ----- ---
Total............................................... 7,280 5,586 77%
===== ===== ===
ACREAGE
The following table sets forth the developed and undeveloped gross and net
acreage held at December 31, 1996 on a pro forma basis.
AVERAGE
WORKING
GROSS NET INTEREST
------- ------- --------
Developed............................................ 659,619 461,999 70%
Undeveloped.......................................... 243,088 166,725 69%
------- ------- ---
Total........................................... 902,707 628,724 70%
======= ======= ===
DRILLING RESULTS
The following table summarizes actual drilling activities for the three
years ended December 31, 1996. The drilling results below do not reflect the
Cometra Acquisition (or any other acquisitions).
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1994 1995 1996
-------------- -------------- --------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- ----- ----- -----
Exploratory wells:
Productive........................ 3.0 0.1 5.0 0.4 7.0 3.4
Dry............................... 6.0 1.5 2.0 0.2 4.0 1.1
Development wells:
Productive........................ 61.0 56.3 53.0 38.8 49.0 45.2
Dry............................... 1.0 0.3 2.0 0.2 3.0 2.2
----- ----- ----- ----- ----- -----
Total.......................... 71.0 58.2 62.0 39.6 63.0 51.9
===== ===== ===== ===== ===== =====
POSSIBLE DISPOSITION OF NON-STRATEGIC ASSETS
In the ordinary course of its business, the Company regularly considers
transactions involving the disposition of non-strategic oil and gas assets.
Negotiations are currently in progress with respect to the possible disposition
of assets having a historical cost of approximately $5.0 million. Such assets
would be exchanged for approximately 20% of the common stock of a small publicly
traded company. The properties being considered for disposition are located
primarily outside the Company's core operating areas, with the largest portion
located in the state of Utah. There can be no assurance that any transaction
will be effected.
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GAS GATHERING AND PROCESSING
The Company's natural gas gathering and processing assets are primarily
comprised of (i) its Sterling system, which consists of 265 miles of gas
gathering pipelines and a gas processing plant in the Sterling area of the
Permian Basin, and (ii) over 1,900 miles of gas gathering pipelines in
Appalachia. The Sterling plant is a refrigerated turbo-expander cryogenic gas
plant that was placed in service in early 1995. The plant, designed for
approximately 25,000 Mcf/d, is currently operating at 87% of capacity. The
Company estimates that the plant's capacity can be increased to 35,000 Mcf/d for
approximately $4.0 million in additional capital expenditures.
The Appalachian gas gathering systems serve to transport a majority of the
Company's Appalachian gas production as well as third party gas to major
trunklines and directly to industrial end-users. This affords the Company
considerable control and flexibility in marketing its Appalachian production.
Third parties who transport their gas through the systems are charged a
gathering fee ranging from $0.20 to $0.32 per Mcf.
OIL AND GAS MARKETING
In order to handle more efficiently the sale of its natural gas, the
Company began to market its own gas production in 1993. On a pro forma basis,
the Company is currently marketing 173 Mmcf/d for its own account as well as
additional volumes for third party producers. The Company's gas production is
sold primarily to utilities and directly to industrial users.
The Company has managed the impact of potential price declines by
developing a balanced portfolio of fixed price and market sensitive contracts
and commodity hedging. On a pro forma basis, approximately 47% of average gas
production at December 31, 1996 was sold subject to fixed price sales contracts.
These fixed price contracts are at prices ranging from $2.15 to $3.70 per Mcf.
The fixed price contracts with terms of less than one year, between one and five
years and greater than five years constitute approximately 31%, 65% and 4%,
respectively, of the volume sold under fixed price contracts.
From time to time, the Company enters into oil and natural gas price hedges
to reduce its exposure to commodity price fluctuations. At December 31, 1996,
approximately 12% on an Mcfe basis of the Company's monthly production for the
period January 1997 to April 1997 was hedged under such arrangements. No
production after this period was hedged. In the future, the Company may hedge a
larger percentage of its production.
Approximately 30% of the Company's pro forma December 1996 gas production
on an Mcfe basis was attributable to Appalachia. Gas production in Appalachia
has historically received a higher price, due to its proximity to the
northeastern gas markets.
The Company's oil production is sold at the well site at posted field
prices tied to the spot oil markets. Oil purchasers are selected on the basis of
price and service.
As part of the Cometra Acquisition, the Company acquired a gas contract,
which expires June 30, 2000, with a major Texas gas utility company representing
17% of the Company's pro forma December 1996 production on an Mcfe basis. The
price paid pursuant to the contract was $3.70 per Mcf at December 31, 1996 (55%
higher than average 1996 natural gas prices received by the Company) and
escalates at $0.05 per Mcf per annum. No other purchaser of the Company's oil or
gas during 1996 exceeded 10% of the Company's total revenues.
FACILITIES
The Company owns a 24,000 square foot facility located on approximately
seven acres near Hartville, Ohio. The facility houses certain operating and
administrative personnel. The Company leases approximately 33,000 square feet in
Fort Worth and Oklahoma City under standard office lease arrangements that
expire at various times through March 2004. All facilities are adequate to meet
the Company's existing needs and can be expanded with minimal expense.
The Company owns various rolling stock and other equipment which is used in
its field operations. Such equipment is believed to be in good repair and, while
such equipment is important to its operations, it can be readily replaced as
necessary.
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EMPLOYEES
As of February 14, 1997, the Company had approximately 300 full-time
employees, of whom approximately 190 were field personnel. None are covered by a
collective bargaining agreement and management believes that its relationship
with its employees is good.
LEGAL PROCEEDINGS
The Company is involved in various legal actions and claims arising in the
ordinary course of business. In the opinion of management, such litigation and
claims will be resolved without a material adverse effect on the Company's
financial position.
The Company recently received notice from two parties, each of whom claims
that it is entitled to fees from the Company based upon a Yemen oil concession
that they claim Red Eagle Resources Corporation received in August 1992, which
was prior to the acquisition of Red Eagle by the Company. Based upon the
Company's examination of the available documentation relevant to such claims,
the Company believes that the claims are without merit because the claimed oil
concession was never obtained in Yemen. The Company has requested further
documentation from the two parties with respect to their claims but no such
documentation has yet been provided. The claims are for approximately $4.0
million in the aggregate (including the value of approximately 70,000 shares of
Common Stock that would be required to be issued if the oil concession had been
obtained). To date, no proceedings have been commenced with respect to either of
these claims.
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MANAGEMENT
The current executive officers and Directors of the Company are listed
below, together with a description of their experience and certain other
information. Each of the Directors was re-elected for a one-year term at the
Company's 1996 annual meeting of stockholders. Executive officers are appointed
by the Board of Directors.
HELD
NAME AGE OFFICE SINCE POSITION WITH COMPANY
---- --- ------------ ---------------------
Thomas J. Edelman 45 1988 Chairman and Chairman of the Board
John H. Pinkerton 42 1988 President, Chief Executive Officer and Director
Robert E. Aikman 64 1990 Director
Anthony V. Dub 46 1995 Director
Allen Finkelson 50 1994 Director
Ben A. Guill 45 1995 Director
C. Rand Michaels 59 1976 Vice Chairman and Director
Jeffery A. Bynum 42 1985 Vice President-Land
Steven L. Grose 48 1980 Vice President-Appalachia Region
Chad L. Stephens 41 1990 Vice President-Midcontinent Region
Thomas W. Stoelk 41 1994 Vice President-Finance and
Chief Financial Officer
Danny W. Sowell 46 1996 Vice President-Gas Management
John R. Frank 41 1990 Controller
Geoffrey T. Doke 30 1996 Treasurer
Thomas J. Edelman holds the office of Chairman and is Chairman of the Board
of Directors. Mr. Edelman joined the Company in 1988 and served as its Chief
Executive Officer until 1992. From 1981 to February 1997, Mr. Edelman served as
a director and President of Snyder Oil Corporation ("SOCO"), an independent,
publicly traded oil and gas company. Mr. Edelman currently serves as an employee
of SOCO. In 1996, Mr. Edelman was appointed Chairman, President and Chief
Executive Officer of Patina Oil & Gas Corporation, a publicly traded affiliate
of SOCO. Prior to 1981, Mr. Edelman was a Vice President of The First Boston
Corporation. From 1975 through 1980, Mr. Edelman was with Lehman Brothers Kuhn
Loeb Incorporated. Mr. Edelman received his Bachelor of Arts Degree from
Princeton University and his Masters Degree in Finance from Harvard University's
Graduate School of Business Administration. Mr. Edelman is also a director of
Petroleum Heat & Power Co., Inc., a Connecticut-based fuel oil distributor, Star
Gas Corporation, a private company, which is the general partner of Star Gas
Partners, L.P., a publicly-traded master limited partnership, which distributes
propane gas.
John H. Pinkerton, President, Chief Executive Officer and a Director,
joined the Company in 1988. He was appointed President in 1990 and Chief
Executive Officer in 1992. Previously, Mr. Pinkerton was a Senior Vice
President-Acquisitions of SOCO. Prior to joining SOCO in 1980, Mr. Pinkerton was
with Arthur Andersen & Co. Mr. Pinkerton received his Bachelor of Arts Degree in
Business Administration from Texas Christian University and his Master of Arts
Degree in Business Administration from the University of Texas. Mr. Pinkerton is
also director of North Coast Energy, Inc. ("North Coast"), an exploration and
production company in which Lomak acquired an approximately 50% interest in
1996.
Robert E. Aikman, a Director, joined the Company in 1990. Mr. Aikman has
more than 40 years experience in petroleum and natural gas exploration and
production throughout the United States and Canada. From 1984 to 1994 he was
Chairman of the Board of Energy Resources Corporation. From 1979 through 1984,
he was the President and principal shareholder of Aikman Petroleum, Inc. From
1971 to 1977, he was President of Dorchester Exploration Inc. and from 1971 to
1980, he was a Director and a member of the Executive Committee of Dorchester
Gas Corporation. Mr. Aikman is also Chairman of Provident Trade Company,
President of EROG, Inc., and President of The Hawthorne Company, an entity which
organizes joint ventures and provides advisory services for the acquisition of
oil and gas properties, including the financial restructuring, reorganization
and sale of companies. He was President of Enertec Corporation which was
reorganized under Chapter 11 of the Bankruptcy Code in December 1994. In
addition, Mr. Aikman is a director of the Panhandle Producers and Royalty Owners
Association and a member of the Independent
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44
Petroleum Association of America, Texas Independent Producers and Royalty Owners
Association and American Association of Petroleum Landmen. Mr. Aikman graduated
from the University of Oklahoma in 1952.
Anthony V. Dub was elected to serve as a Director of the Company in 1995.
Mr. Dub is Managing Director-Senior Advisor of Credit Suisse First Boston, an
international investment banking firm with headquarters in New York City. Mr.
Dub joined Credit Suisse First Boston in 1971 and was named a Managing Director
in 1981. Mr. Dub received his Bachelor of Arts Degree from Princeton University
in 1971.
Allen Finkelson was appointed a Director in 1994. Mr. Finkelson has been a
partner at Cravath, Swaine & Moore since 1977, with the exception of the period
from September 1983 through August 1985, when he was a managing director of
Lehman Brothers Kuhn Loeb Incorporated. Mr. Finkelson was first employed by
Cravath, Swaine & Moore as an associate in 1971. Mr. Finkelson received his
Bachelor of Arts Degree from St. Lawrence University and his Doctor of Laws
Degree from Columbia University School of Law.
Ben A. Guill was elected to serve as a Director of the Company in 1995. Mr.
Guill is a Partner and Managing Director of Simmons & Company International, an
investment banking firm located in Houston, Texas focused exclusively on the oil
service and equipment industry. Mr. Guill has been with Simmons & Company since
1980. Prior to joining Simmons & Company, Mr. Guill was with Blyth Eastman
Dillon & Company from 1978 to 1980. Mr. Guill received his Bachelor of Arts
Degree from Princeton University and his Masters Degree in Finance from the
Wharton Graduate School of Business at the University of Pennsylvania.
C. Rand Michaels, who holds the office of Vice Chairman and is a Director,
served as President and Chief Executive Officer of the Company from 1976 through
1988 and Chairman of the Board from 1984 through 1988, when he became Vice
Chairman. Mr. Michaels received his Bachelor of Science Degree from Auburn
University and his Master of Business Administration Degree from the University
of Denver. Mr. Michaels is also a director of American Business Computers
Corporation of Akron, Ohio, a public company serving the beverage dispensing and
fast food industries, and North Coast.
Jeffery A. Bynum, Vice President-Land and Secretary, joined the Company in
1985. Previously, Mr. Bynum was employed by Crystal Oil Company and Kinnebrew
Energy Group of Shreveport, Louisiana. Mr. Bynum holds a Professional
Certification with American Association of Petroleum Landmen and attended
Louisiana State University in Baton Rouge, Louisiana and Centenary College in
Shreveport, Louisiana.
Steven L. Grose, Vice President-Appalachia Region, joined the Company in
1980. Previously, Mr. Grose was employed by Halliburton Services, Inc. as a
Field Engineer from 1971 until 1974. In 1974, he was promoted to District
Engineer and in 1978, was named Assistant District Superintendent based in
Pennsylvania. Mr. Grose is a member of the Society of Petroleum Engineers and a
trustee of The Ohio Oil and Gas Association. Mr. Grose received his Bachelor of
Science Degree in Petroleum Engineering from Marietta College. Mr. Grose is also
a director of North Coast.
Chad L. Stephens, Vice President-Midcontinent Region, joined the Company in
1990. Previously, Mr. Stephens was a landman with Duer Wagner & Co., an
independent oil and gas producer, since 1988. Prior thereto, Mr. Stephens was an
independent oil operator in Midland, Texas for four years. From 1979 to 1984,
Mr. Stephens was a landman for Cities Service Company and HNG Oil Company. Mr.
Stephens received his Bachelor of Arts Degree in Finance and Land Management
from the University of Texas.
Thomas W. Stoelk, Vice President-Finance and Chief Financial Officer,
joined the Company in 1994. Mr. Stoelk is a Certified Public Accountant and was
a Senior Manager with Ernst & Young LLP. Prior to rejoining Ernst & Young LLP in
1986 he was with Partners Petroleum, Inc. Mr. Stoelk received his Bachelor of
Science Degree in Industrial Administration from Iowa State University.
Danny M. Sowell, Vice President-Gas Management, joined the Company in 1996.
Previously, Mr. Sowell was Chief Executive Officer and President of Jay Gas
Marketing, which Lomak acquired May 1, 1996. Prior to founding Jay Gas, Mr.
Sowell was Director of Marketing for a subsidiary of Oklahoma Gas & Electric
42
45
Company. Mr. Sowell received his Master and Bachelor of Science Degrees in
Mathematics from Lamar University.
John R. Frank, Controller and Chief Accounting Officer, joined the Company
in 1990. From 1989 until he joined Lomak in 1990, Mr. Frank was Vice President
Finance of Appalachian Exploration, Inc. Prior thereto, he held the positions of
Internal Auditor and Treasurer with Appalachian Exploration, Inc. beginning in
1977. Mr. Frank received his Bachelor of Arts Degree in Accounting and
Management from Walsh College and attended graduate studies at the University of
Akron.
Geoffrey T. Doke, Treasurer, joined the Company in 1991. He was appointed
Treasurer in 1996. Previously, Mr. Doke served in the accounting department of
Edisto Resources Corporation. Mr. Doke received his Bachelor of Business
Administration Degree in Finance and International Business from Baylor
University and his Master of Business Administration Degree from Case Western
Reserve University.
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PRINCIPAL STOCKHOLDERS AND SHARE OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding (i) the share
ownership of the Company by each person known to the Company to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock, (ii)
the share ownership of the Company by each Director, (iii) the share ownership
of the Company by certain executive officers and (iv) the share ownership of the
Company by all Directors and executive officers as a group, in each case as of
February 14, 1997 and on a pro forma basis giving effect to the Offerings. The
business address of each officer and Director listed below is: c/o Lomak
Petroleum, Inc., 500 Throckmorton Street, Fort Worth, Texas 76102.
ACTUAL PRO FORMA
----------------------------- -----------------------------
NUMBER OF SHARES NUMBER OF SHARES
BENEFICIALLY PERCENTAGE BENEFICIALLY PERCENTAGE
OWNED OF CLASS OWNED OF CLASS
---------------- ---------- ---------------- ----------
Thomas J. Edelman............................. 979,541(1) 5.99% 979,541(1) 4.81%
John H. Pinkerton............................. 494,093(2) 3.01% 494,093(2) 2.42%
C. Rand Michaels.............................. 296,598(3) 1.82% 296,598(3) 1.46%
Robert E. Aikman.............................. 83,776(4) 0.52% 83,776(4) 0.41%
Anthony V. Dub................................ 64,165(5) 0.40% 64,165(5) 0.32%
Allen Finkelson............................... 6,000(6) 0.04% 6,000(6) 0.03%
Ben A. Guill.................................. 52,400(7) 0.32% 52,400(7) 0.26%
Chad L. Stephens.............................. 111,651(8) 0.69% 111,651(8) 0.55%
Thomas W. Stoelk.............................. 33,500(9) 0.21% 33,500(9) 0.17%
All Directors and executive officers as a
group (14 persons).......................... 2,348,299(10) 13.92% 2,348,299(10) 11.25%
Public Employees Retirement System of Ohio
(11)........................................ 1,350,000 8.32% 1,350,000 6.68%
Cometra Energy, L.P. (12) .................... 1,410,106 8.69% 1,410,106 6.97%
- ---------------
(1) Includes 145,000 shares which may be purchased under currently exercisable
stock options or options that are exercisable within 60 days; 113,333
shares held under IRA, KEOGH and pension plan accounts; 29,916 shares owned
by Mr. Edelman's spouse; and 91,200 shares owned by Mr. Edelman's minor
children, to which Mr. Edelman disclaims beneficial ownership.
(2) Includes 171,667 shares which may be purchased under currently exercisable
stock options or options that are exercisable within 60 days; 115,899
shares held under IRA and pension plan accounts; 1,572 shares owned by Mr.
Pinkerton's minor children; and 743 shares owned by Mr. Pinkerton's spouse,
to which Mr. Pinkerton disclaims beneficial ownership.
(3) Includes 55,666 shares which may be purchased under currently exercisable
stock options or options that are exercisable within 60 days; 1,804 shares
held under the IRA account; 107,011 shares owned by Mr. Michael's spouse;
and 19,460 shares owned by Mr. Michael's minor children, to which Mr.
Michaels disclaims beneficial ownership.
(4) Includes 21,000 shares which may be purchased under currently exercisable
stock options or options that are exercisable within 60 days; 7,566 shares
owned by Mr. Aikman's spouse; and 10,010 shares owned by Mr. Aikman's minor
children, to which Mr. Aikman disclaims beneficial ownership.
(5) Includes 2,400 shares which may be purchased under currently exercisable
stock options or options that are exercisable within 60 days.
(6) Includes 6,000 shares which may be purchased under currently exercisable
stock options or options that are exercisable within 60 days.
(7) Includes 2,400 shares which may be purchased under currently exercisable
stock options or options that are exercisable within 60 days.
(8) Includes 56,167 shares which may be purchased under currently exercisable
stock options or options that are exercisable within 60 days; 10,000 shares
owned by Mr. Stephens' spouse; and 3,879 shares owned by Mr. Stephens'
minor children, to which Mr. Stephens disclaims beneficial ownership.
(9) Includes 32,500 shares which may be purchased under currently exercisable
stock options or options that are exercisable within 60 days.
(10) Includes 644,682 shares which may be purchased under currently exercisable
stock options or options that are exercisable within 60 days.
(11) Such stockholder's address is 227 East Town Street, Columbus, Ohio 43215.
(12) Such stockholder's address is 500 Throckmorton, Suite 2500, Fort Worth,
Texas 76102.
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47
DESCRIPTION OF CAPITAL STOCK AND INDEBTEDNESS
The authorized capital stock of the Company consists of (i) 4,000,000
shares of serial preferred stock, $1.00 par value and (ii) 35,000,000 shares of
Common Stock, $.01 par value. As of February 14, 1997, the Company had
outstanding 16,220,936 shares of Common Stock and 1,150,000 shares of $2.03
Convertible Preferred Stock.
COMMON STOCK
Holders of Common Stock are entitled to receive dividends if, when and as
declared by the Board of Directors of the Company out of funds legally available
therefor (however, the Indenture for the Notes and the Credit Agreement contain
certain restrictions on the payment of cash dividends. If there is any arrearage
in the payment of dividends on any preferred stock, the Company may not pay
dividends upon, repurchase or redeem shares of its Common Stock. All shares of
Common Stock have equal voting rights on the basis of one vote per share on all
matters to be voted upon by stockholders. Cumulative voting for the election of
directors is not permitted. Shares of Common Stock have no preemptive,
conversion, sinking fund or redemption provisions and are not liable for further
call or assessment. Each share of Common Stock is entitled to share on a pro
rata basis in any assets available for distribution to the holders of the Common
Stock upon liquidation of the Company after satisfaction of any liquidation
preference on any series of the Company's preferred stock. All outstanding
shares of Common Stock have been, and all shares offered in the Common Stock
Offering will be when issued, validly issued, fully paid and nonassessable.
OPTIONS
The Company's stock option plan, which is administered by the Compensation
Committee, provides for the granting of options to purchase shares of Common
Stock to key employees and certain other persons who are not employees for
advice or other assistance or services to the Company. The plan permits the
granting of options to acquire up to 2,000,000 shares of Common Stock subject to
a limitation of 10% of the outstanding Common Stock on a fully diluted basis. At
February 14, 1997, a total of 1,216,232 options had been granted under the plan
of which options to purchase 503,632 shares were exercisable at that date. The
options outstanding at February 14, 1997 were granted at an exercise price of
$3.38 to $13.88 per share. The exercise price of all such options was equal to
the fair market value of the Common Stock on the date of grant. All were options
granted for a term of five years, with 30% of the options becoming exercisable
after one year, an additional 30% becoming exercisable after two years and the
remaining options becoming exercisable after three years.
WARRANTS
Warrants to acquire 20,000 shares of Common Stock at a price of $12.88 per
share were outstanding at February 14, 1997. These warrants expire in May 1999.
The warrants were issued in a private placement not registered under the
Securities Act, and the shares of Common Stock underlying such warrants have not
been registered under the Securities Act.
PREFERRED STOCK
The Board of Directors of the Company, without action by stockholders, is
authorized to issue shares of serial preferred stock in one or more series and,
within certain limitations, to determine the voting rights (including the right
to vote as a series on particular matters), preferences as to dividends and the
liquidation, conversion, redemption and other rights of each such series. The
Board of Directors could issue a series with rights more favorable with respect
to dividends, liquidation and voting than those held by the holders of its
Common Stock. At February 14, 1997, 1,150,000 shares of Preferred Stock were
outstanding, designated as $2.03 Convertible Preferred Stock.
The $2.03 Convertible Preferred Stock bears an annual dividend rate of
$2.03 payable quarterly. If dividends have not been paid on the $2.03
Convertible Preferred Stock, the Company cannot redeem or pay dividends on
shares of stock ranking junior to the $2.03 Convertible Preferred Stock. No new
serial preferred
45
48
stock can be created with rights superior to those of the $2.03 Convertible
Preferred Stock, as to dividends and liquidation rights, without the approval of
the holders of a majority of the $2.03 Convertible Preferred Stock. In addition,
the holders of the $2.03 Convertible Preferred Stock are entitled to one vote
for each share owned. Additionally, if dividends remain unpaid for six full
quarterly periods, or if any future class of preferred stockholders is entitled
to elect members of the Board of Directors based on actual missed and unpaid
dividends, the number of members of the Board of Directors will be increased to
such number as may be necessary to entitle the holders of the $2.03 Convertible
Preferred Stock and such other future preferred stockholders, voting as a single
class, to elect one-third of the members of the Board of Directors. The $2.03
Convertible Preferred Stock has liquidation rights of $25 per share. The Company
may exchange the $2.03 Convertible Preferred Stock for an aggregate of
$28,750,000 principal amount of its 8.125% Convertible Subordinated Notes due
December 31, 2005. Each share of $2.03 Convertible Preferred Stock is
convertible into Common Stock at a conversion price of $9.50 per share, subject
to adjustment under certain circumstances. The conversion price will be reduced
for a limited period (but to not less than $5.21) if a change in control or
fundamental change in the Company occurs at a time that the market price of the
Common Stock is less than the conversion price. The Company may redeem the $2.03
Convertible Preferred Stock at any time after November 1, 1998, at redemption
prices declining from $26.50 to $25.00 per share, plus cumulative unpaid
dividends.
6% CONVERTIBLE SUBORDINATED DEBENTURES
On December 27, 1996, the Company sold $55,000,000 aggregate principal
amount of 6% Convertible Subordinated Debentures in a private offering not
registered under the Securities Act. The 6% Convertible Subordinated Debentures
are convertible at any time prior to maturity, unless previously redeemed or
repurchased, into shares of Common Stock, at a conversion price of $19.25 per
share, subject to adjustment under certain circumstances. The 6% Convertible
Subordinated Debentures are unsecured and subordinate to all senior and senior
subordinated indebtedness and do not restrict the incurrence of additional
indebtedness by the Company or any of its subsidiaries. The 6% Convertible
Subordinated Debentures will mature on February 1, 2007. The Company may redeem
the 6% Convertible Subordinated Debentures, in whole or in part, on or after
February 1, 2000, at certain redemption prices, plus accrued but unpaid interest
at the date fixed for redemption. Upon certain changes of control of the
Company, the Company is required to offer to repurchase each holder's 6%
Convertible Subordinated Debentures at a purchase price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest to the date of
repurchase.
Pursuant to a Registration Rights Agreement between the Company and the
initial purchasers of the 6% Convertible Subordinated Debentures, the Company
has agreed to file a shelf registration statement (the "Shelf Registration
Statement") relating to the resale of the 6% Convertible Subordinated Debentures
and the shares of Common Stock issuable upon conversion of the 6% Convertible
Subordinated Debentures. The Company will use its reasonable best efforts to
maintain the effectiveness of the Shelf Registration Statement until the third
anniversary of the issuance of the 6% Convertible Subordinated Debentures,
except that it shall be permitted to suspend the use of the Shelf Registration
Statement during certain periods under certain circumstances. If the Company
fails to meet certain of its obligations under the Shelf Registration Statement,
then a supplemental payment will be made to the holders of the 6% Convertible
Subordinated Debentures or shares of Common Stock actually issued upon
conversion of the 6% Convertible Subordinated Debentures. During the first 90
days of such a default, the supplemental payment will be $0.05 per week per
$1,000 principal amount of the 6% Convertible Subordinated Debentures and
$0.0005 per week per share of such Common Stock. The amount of such supplemental
payment will increase over time if the default continues, subject to a maximum
supplemental payment of $0.20 per week per $1,000 principal amount of 6%
Convertible Subordinated Debentures and $0.002 per week per share of Common
Stock.
CREDIT AGREEMENT
In connection with the financing of the Cometra Acquisition, the Company
and its subsidiaries expanded the existing credit facility with the bank
lenders. The Credit Agreement permits the Company to obtain revolving credit
loans and to issue letters of credit for the account of the Company from time to
time in an
46
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aggregate amount not to exceed $400 million (of which not more than $150 million
may be represented by letters of credit). The Borrowing Base, which is initially
$400 million under the expanded facility, will be reduced to $325 million on the
earlier of August 13, 1997 or the consummation of the Offerings, unless
otherwise agreed by the lenders. The Borrowing Base is subject to semi-annual
determination and certain other redeterminations based upon a variety of
factors, including the discounted present value of estimated future net cash
flow from oil and gas production.
The Company will be required to make a mandatory prepayment of all amounts
outstanding under the Credit Agreement in excess of $325 million on the earlier
of August 13, 1997 or the consummation of the Offerings. At the Company's
option, loans may be prepaid, and revolving credit commitments may be reduced,
in whole or in part at any time in certain minimum amounts. The Credit Agreement
matures in February 2002.
The obligations of the Company under the Credit Agreement are
unconditionally and irrevocably guaranteed by the Bank Guarantors. In addition,
the Credit Agreement is secured by first priority security interests in (i)
existing mortgaged oil and gas properties of the Company and the Cometra
Properties, (ii) all accounts receivable, inventory and intangibles of the
Company and the Bank Guarantors, and (iii) all of the capital stock of the
Company's direct or indirect subsidiaries. Substantially all of the assets of
the Company will be pledged as collateral if, on May 15, 1997, the Borrowing
Base and amounts outstanding under the Credit Agreement have not been reduced to
$325 million. Such security interests will be released upon the (i) reduction of
the amounts outstanding under the Credit Agreement to $325 million (or the then
determined Borrowing Base) and (ii) issuance of $75 million of Common Stock
and/or the sale of Company assets in excess of the Borrowing Base value
attributable to such assets as agreed by the lenders (the "Trigger Event").
At the Company's option, the applicable interest rate per annum is either
the Eurodollar loan rate plus a margin ranging from 0.625% to 1.125% or the
Alternate Base Rate (as defined) plus a margin ranging from 0% to 0.25%. The
Alternate Base Rate is the higher of (a) the agent banks' reference rate and (b)
the federal funds effective rate plus 0.5%. Until the occurrence of the Trigger
Event, the interest rate margins will be increased by 50 basis points prior to
March 31, 1997 and 100 basis points thereafter.
Immediately following the Cometra Acquisition, approximately $392.3 million
was outstanding (including $134 million of then outstanding letters of credit to
secure the promissory note issued to Cometra as part of the purchase price in
the Cometra Acquisition) under the Credit Agreement. Upon consummation of the
Offerings, approximately $220.1 million will be outstanding under the Credit
Agreement. Furthermore, if the Common Stock is sold in the Common Stock Offering
for at least $20 per share (or at least $17.50 per share if the over-allotment
option applicable to the Common Stock Offering is exercised), the Company will
receive at least $75 million in net proceeds from the Common Stock Offering,
resulting in the occurrence of the Trigger Event. On February 13, 1997, the
closing price of the Common Stock on the New York Stock Exchange Composite Tape
was $19.00 per share.
The Credit Agreement includes various covenants that require, among other
things, that the Company (i) maintain a minimum consolidated tangible net worth
of at least $100 million plus 90% of the net proceeds from the Common Stock
Offering and 50% of the net proceeds from any subsequent equity offering; (ii)
maintain a ratio of EBITDA to consolidated interest expense on total debt for
each period of four consecutive fiscal quarters of at least 2.5 to 1.0; and
(iii) not make restricted payments (defined as dividends, distributions or
guarantees to third parties or the retirement, repurchase or prepayment prior to
the scheduled maturity of its subordinated debt) in an aggregate amount in any
one fiscal year in excess of $5 million plus 50% of the net proceeds from equity
offerings subsequent to the Common Stock Offering and 50% of the Company's
consolidated net income earned after January 1, 1997. In addition, the Credit
Agreement will restrict the ability of the Company to dispose of assets, incur
additional indebtedness, repay other indebtedness or amend other debt
instruments, create liens on assets, make investments or acquisitions, engage in
mergers or consolidations, make capital expenditures or engage in certain
transactions with affiliates.
47
50
UNDERWRITING
Subject to the terms and subject to the conditions contained in an
Underwriting Agreement dated the date hereof, the Underwriters named below, for
whom Morgan Stanley & Co. Incorporated, PaineWebber Incorporated, Smith Barney
Inc., A.G. Edwards & Sons, Inc. and McDonald & Company Securities, Inc. are
serving as Representatives, have severally agreed to purchase, and the Company
has agreed to sell to the Underwriters, an aggregate of 4,000,000 shares of
Common Stock. The number of shares of Common Stock that each Underwriter has
agreed to purchase is set forth opposite its name below:
NAME NUMBER OF SHARES
---- ----------------
Morgan Stanley & Co. Incorporated ..........................
PaineWebber Incorporated....................................
Smith Barney Inc. ..........................................
A.G. Edwards & Sons, Inc. ..................................
McDonald & Company Securities, Inc. ........................
---------
Total............................................. 4,000,000
=========
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all of the shares of Common Stock offered hereby (other than those covered
by the over-allotment option described below) if any are taken.
The Underwriters propose to offer part of the shares directly to the public
at the public offering price set forth on the cover page hereof and part to
certain dealers at a price which represents a concession not in excess of
$ per share under the public offering price. The Underwriters may
allow, and such dealers may reallow, a concession not in excess on $
per share to certain other dealers.
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 600,000 additional shares of Common Stock at the
public offering price set forth on the cover page hereof, less underwriting
discounts and commissions. The Underwriters may exercise such option to purchase
solely for the purpose of covering over-allotments, if any, made in connection
with the Common Stock Offering. To the extent such option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such Underwriter's name in the preceding table bears to the total
number of shares of Common Stock offered hereby.
In order to facilitate the Common Stock Offering, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price of
the Common Stock. Specifically, the Underwriters may overallot in connection
with the Common Stock Offering, creating a short position in the Common Stock
for their own account. In addition, to cover overallotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Common Stock in the Common Stock Offering, if the syndicate repurchases
previously distributed Common Stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise.
48
51
Any of these activities may stabilize or maintain the market price of the Common
Stock above independent market levels. The Underwriters are not required to
engage in these activities, and may end any of these activities at any time.
The Company, each of its directors, certain of its officers and certain
other stockholders of the Company have agreed with the Underwriters not to sell,
offer to sell, grant any option for the sale of or otherwise dispose of any
shares of or enter into any agreement to sell Common Stock for a period of 90
days after the date of this Prospectus without the prior written consent of
Morgan Stanley & Co. Incorporated for the Underwriters, except that the Company
may issue shares of Common Stock and options to purchase Common Stock under its
existing stock purchase and stock option plans or upon conversion or exercise of
currently outstanding convertible securities and warrants. Cometra has agreed
with the Company not to sell or otherwise dispose of the 1,410,106 shares it
received pursuant to the Cometra Acquisition until March 31, 1997.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the valid issuance, due
authorization, full payment and nonassessability of the Common Stock offered
hereby will be passed upon for the Company by Vinson & Elkins L.L.P., 2300 First
City Tower, Houston, Texas 77002-6760, and for the Underwriters by Simpson
Thacher & Bartlett (a partnership which includes professional corporations), 425
Lexington Avenue, New York, New York 10017-3909.
EXPERTS
The Consolidated Financial Statements of the Company, as of December 31,
1995 and 1996 and for the three years then ended, included and incorporated by
reference in this Prospectus, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto included and incorporated by reference in this Prospectus in reliance
upon the authority of said firm as experts in giving said reports.
The statements of revenues and direct operating expenses of the American
Cometra Interests (referred to herein as the Cometra Properties) for the years
ended December 31, 1994, 1995 and 1996, included in the Registration Statement
have been audited by Coopers & Lybrand L.L.P., independent accountants, and are
included herein in reliance upon the authority of that firm as experts in
accounting and auditing.
The financial statements of the Bannon Interests as of December 31, 1995
and for the year then ended, have been incorporated by reference herein and in
the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
Certain information with respect to the gas and oil reserves of the Company
derived from the respective reports of Netherland, Sewell & Associates, Inc.,
Wright & Company, Inc., H. J. Gruy and Associates, Inc., Huddleston & Co., Inc.
and Clay, Holt & Klammer, each of which is a firm of independent petroleum
consultants, has been included and incorporated herein and elsewhere in the
Registration Statement in reliance upon the authority of said firm as experts
with respect to the matters contained in their respective reports.
49
52
GLOSSARY
The terms defined in this glossary are used throughout this Prospectus.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein in
reference to crude oil or other liquid hydrocarbons.
Bcf. One billion cubic feet.
Bcfe. One billion cubic feet of natural gas equivalents, based on a ratio of 6
Mcf for each barrel of oil, which reflects the relative energy content.
Development well. A well drilled within the proved area of an oil or natural
gas reservoir to the depth of a stratigraphic horizon known to be productive.
Dry hole. A well found to be incapable of producing either oil or natural gas
in sufficient quantities to justify completion as an oil or gas well.
Exploratory well. A well drilled to find and produce oil or gas in an unproved
area, to find a new reservoir in a field previously found to be productive of
oil or gas in another reservoir, or to extend a known reservoir.
Gross acres or gross wells. The total acres or wells, as the case may be, in
which a working interest is owned.
Infill well. A well drilled between known producing wells to better exploit the
reservoir.
Mbbl. One thousand barrels of crude oil or other liquid hydrocarbons.
Mcf. One thousand cubic feet.
Mcfe. One thousand cubic feet of natural gas equivalents, based on a ratio of 6
Mcf for each barrel of oil, which reflects the relative energy content.
Mmbbl. One million barrels of crude oil or other liquid hydrocarbons.
Mmcf. One million cubic feet.
Mmcfe. One million cubic feet of natural gas equivalents.
Net acres or net wells. The sum of the fractional working interests owned in
gross acres or gross wells.
Net oil and gas sales. Oil and natural gas sales less oil and natural gas
production expenses.
Present Value. The pre-tax present value, discounted at 10%, of future net cash
flows from estimated proved reserves, calculated holding prices and costs
constant at amounts in effect on the date of the report (unless such prices or
costs are subject to change pursuant to contractual provisions) and otherwise in
accordance with the Commission's rules for inclusion of oil and gas reserve
information in financial statements filed with the Commission.
Productive well. A well that is producing oil or gas or that is capable of
production.
Proved developed non-producing reserves. Reserves that consist of (i) proved
reserves from wells which have been completed and tested but are not producing
due to lack of market or minor completion problems which are expected to be
corrected and (ii) provided reserves currently behind the pipe in existing wells
and which are expected to be productive due to both the well log characteristics
and analogous production in the immediate vicinity of the wells.
Proved developed producing reserves. Proved reserves that can be expected to be
recovered from currently producing zones under the continuation of present
operating methods.
Proved developed reserves. Proved reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.
50
53
Proved reserves. The estimated quantities of crude oil, natural gas and natural
gas liquids which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions.
Proved undeveloped reserves. Proved reserves that are expected to be recovered
from new wells on undrilled acreage, or from existing wells where a relatively
major expenditure is required for recompletion.
Recompletion. The completion for production of an existing wellbore in another
formation from that in which the well has previously been completed.
Royalty interest. An interest in an oil and gas property entitling the owner to
a share of oil and natural gas production free of costs of production.
Standardized Measure. The present value, discounted at 10%, of future net cash
flows from estimated proved reserves after income taxes calculated holding
prices and costs constant at amounts in effect on the date of the report (unless
such prices or costs are subject to change pursuant to contractual provisions)
and otherwise in accordance with the Commission's rules for inclusion of oil and
gas reserve information in financial statements filed with the Commission.
Working interest. The operating interest that gives the owner the right to
drill, produce and conduct operating activities on the property and a share of
production, subject to all royalties, overriding royalties and other burdens and
to all costs of exploration, development and operations and all risks in
connection therewith.
51
54
INDEX TO FINANCIAL STATEMENTS
PAGE
NUMBER
------
LOMAK PETROLEUM, INC. CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants.................. F-2
Consolidated balance sheets at December 31, 1995 and
1996................................................... F-3
Consolidated statements of income for the years ended
December 31, 1994, 1995 and 1996....................... F-4
Consolidated statements of stockholders' equity for the
years ended December 31, 1994, 1995 and 1996........... F-5
Consolidated statements of cash flows for the years ended
December 31, 1994, 1995 and 1996....................... F-6
Notes to consolidated financial statements................ F-7
COMETRA INTERESTS FINANCIAL STATEMENTS:
Report of Independent Accountants......................... F-21
Statement of revenues and direct operating expenses for
the years ended December 31, 1994, 1995 and 1996....... F-22
Notes to the statement of revenues and direct operating
expenses............................................... F-23
F-1
55
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Lomak Petroleum, Inc.
We have audited the accompanying consolidated balance sheets of Lomak
Petroleum, Inc. (a Delaware corporation) as of December 31, 1995 and 1996, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lomak Petroleum, Inc. as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
February 14, 1997
F-2
56
LOMAK PETROLEUM, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31,
---------------------
1995 1996
-------- --------
ASSETS
Current assets:
Cash and equivalents...................................... $ 3,047 $ 8,625
Accounts receivable....................................... 14,109 18,121
Marketable securities..................................... 953 7,658
Inventory and other....................................... 1,114 799
-------- --------
19,223 35,203
-------- --------
Oil and gas properties, successful efforts method........... 210,073 282,519
Accumulated depletion..................................... (33,371) (53,102)
-------- --------
176,702 229,417
-------- --------
Gas transportation and field service assets................. 23,167 21,139
Accumulated depreciation.................................. (4,304) (4,997)
-------- --------
18,863 16,142
-------- --------
Other....................................................... -- 1,785
-------- --------
$214,788 $282,547
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 9,084 $ 14,433
Accrued liabilities....................................... 3,761 4,603
Accrued payroll and benefit costs......................... 1,762 3,245
Current portion of debt (Note 4).......................... 53 26
-------- --------
14,660 22,307
-------- --------
Long-term debt (Note 4)..................................... 83,035 116,780
Deferred taxes (Note 10).................................... 17,726 25,931
Commitments and contingencies (Note 6)......................
Stockholders' equity (Notes 7 and 8)
Preferred stock, $1 par, 2,000,000 shares authorized,
7 1/2% convertible preferred, 200,000 issued
(liquidation preference $5,000,000).................... 200 --
$2.03 convertible preferred, 1,150,000 issued
(liquidation preference $28,750,000)................... 1,150 1,150
Common stock, $.01 par, 20,000,000 shares authorized,
13,322,738 and 14,750,537 issued....................... 133 148
Capital in excess of par value............................ 101,773 110,248
Retained earnings (deficit)............................... (4,013) 5,291
Unrealized gain on marketable securities.................. 124 692
-------- --------
99,367 117,529
-------- --------
$214,788 $282,547
======== ========
See accompanying notes.
F-3
57
LOMAK PETROLEUM, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- ------- -------
Revenues
Oil and gas sales......................................... $24,461 $37,417 $68,054
Field services............................................ 7,667 10,097 14,223
Gas transportation and marketing.......................... 2,195 3,284 5,575
Interest and other........................................ 471 1,317 3,386
------- ------- -------
34,794 52,115 91,238
------- ------- -------
Expenses
Direct operating.......................................... 10,019 14,930 24,456
Field services............................................ 5,778 6,469 10,443
Gas transportation and marketing.......................... 490 849 1,674
Exploration............................................... 359 512 1,460
General and administrative................................ 2,478 2,736 3,966
Interest.................................................. 2,807 5,584 7,487
Depletion, depreciation and amortization.................. 10,105 14,863 22,303
------- ------- -------
32,036 45,943 71,789
------- ------- -------
Income before taxes......................................... 2,758 6,172 19,449
Income taxes
Current................................................... 21 86 729
Deferred.................................................. 118 1,696 6,105
------- ------- -------
139 1,782 6,834
------- ------- -------
Net income.................................................. $ 2,619 $ 4,390 $12,615
======= ======= =======
Earnings per common share................................... $ 0.25 $ 0.31 $ 0.69
======= ======= =======
Weighted average shares outstanding......................... 9,051 11,841 14,812
======= ======= =======
See accompanying notes.
F-4
58
LOMAK PETROLEUM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
PREFERRED STOCK COMMON STOCK
---------------- --------------- CAPITAL IN RETAINED
PAR PAR EXCESS OF EARNINGS
SHARES VALUE SHARES VALUE PAR VALUE (DEFICIT)
------ ------ ------ ----- ---------- ---------
Balance, December 31, 1993......... 200 $ 200 8,309 $ 83 $ 41,768 $ (9,788)
Preferred dividends.............. -- -- -- -- -- (375)
Common issued.................... -- -- 1,504 15 9,220 --
Common repurchased............... -- -- (59) (1) (493) --
Net income....................... -- -- -- -- -- 2,619
----- ------ ------ ---- -------- --------
Balance, December 31, 1994......... 200 200 9,754 97 50,495 (7,544)
Preferred dividends.............. -- -- -- -- -- (731)
Common dividends................. -- -- -- -- -- (128)
Common issued.................... -- -- 3,609 36 24,953 --
Common repurchased............... -- -- (40) -- (332) --
$2.03 preferred issued........... 1,150 1,150 -- -- 26,657 --
Net income....................... -- -- -- -- -- 4,390
----- ------ ------ ---- -------- --------
Balance, December 31, 1995......... 1,350 1,350 13,323 133 101,773 (4,013)
Preferred dividends.............. -- -- -- -- -- (2,454)
Common dividends................. -- -- -- -- -- (857)
Common issued.................... -- -- 887 9 8,687 --
Common repurchased............... -- -- (36) -- (406) --
Conversion of 7 1/2% preferred... (200) (200) 577 6 194 --
Net income....................... -- -- -- -- -- 12,615
----- ------ ------ ---- -------- --------
Balance, December 31, 1996......... 1,150 $1,150 14,751 $148 $110,248 $ 5,291
===== ====== ====== ==== ======== ========
See accompanying notes.
F-5
59
LOMAK PETROLEUM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
Cash flows from operations:
Net income............................................... $ 2,619 $ 4,390 $ 12,615
Adjustments to reconcile net income to net cash provided
by operations:
Depletion, depreciation and amortization.............. 10,105 14,863 22,303
Deferred income taxes................................. 118 1,335 6,105
Changes in working capital net of effects of purchases
of businesses:
Accounts receivable................................. 3,106 (5,247) (494)
Marketable securities............................... (534) (296) (5,264)
Inventory and other................................. (45) 278 137
Accounts payable.................................... (2,126) 663 5,385
Accrued liabilities and payroll and benefit costs... (1,531) 1,778 781
Gain on sale of assets and other...................... (471) (1,203) (3,123)
-------- -------- --------
Net cash provided by operations............................ 11,241 16,561 38,445
Cash flows from investing:
Acquisition of businesses, net of cash................... (9,399) -- (13,950)
Oil and gas properties................................... (22,251) (69,992) (59,137)
Additions to property and equipment...................... (813) (9,102) (1,250)
Proceeds on sale of assets............................... 2,927 2,981 4,671
-------- -------- --------
Net cash used in investing................................. (29,536) (76,113) (69,666)
Cash flows from financing:
Proceeds from indebtedness............................... 22,235 21,304 85,201
Repayments of indebtedness............................... (1,024) (808) (53,268)
Preferred stock dividends................................ (375) (731) (2,454)
Common stock dividends................................... -- (128) (857)
Proceeds from Common stock issuance...................... 830 10,590 8,315
Repurchase of Common stock............................... (493) (332) (138)
Proceeds from Preferred stock issuance................... -- 27,807 --
-------- -------- --------
Net cash provided by financing............................. 21,173 57,702 36,799
-------- -------- --------
Change in cash............................................. 2,878 (1,850) 5,578
Cash and equivalents at beginning of period................ 2,019 4,897 3,047
-------- -------- --------
Cash and equivalents at end of period...................... $ 4,897 $ 3,047 $ 8,625
======== ======== ========
Supplemental disclosures of non-cash investing and
financing activities
Purchase of property and equipment financed with common
stock................................................. $ 7,694 $ 14,299 $ --
Conversion of 10% Convertible Subordinated Notes......... 464 -- --
Common stock issued in connection with benefit plans..... 228 100 381
See accompanying notes.
F-6
60
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND NATURE OF BUSINESS
Lomak Petroleum, Inc. ("Lomak" or the "Company") is an independent oil and
gas company engaged in development, exploration and acquisition primarily in
three core areas: the Midcontinent, Appalachia and the Gulf Coast. Historically,
the Company has increased its reserves and production through acquisitions,
development and exploration of its properties. Over the past six years, 62
acquisitions have been consummated at a total cost of $249 million and
approximately $37 million has been expended on development and exploration
activities. As a result, proved reserves and production have each grown during
this period at compounded rates of 90% and 70% per annum, respectively. At
December 31, 1996, proved reserves totaled 384 Bcfe, having a pre-tax present
value at constant prices on that date of $492 million and a reserve life index
of nearly 14 years.
Effective January 1997, the Company acquired oil and gas properties from
American Cometra, Inc. for a purchase price of $385 million, subject to
adjustment. This transaction is more fully described in Note 15 Cometra
Acquisition.
Lomak's objective is to maximize shareholder value through growth in its
reserves, production, cashflow and earnings through a balanced program of
development drilling and acquisitions, as well as, to a growing extent,
exploration effort. In order to effectively implement its operating strategy,
the Company has concentrated its activities in selected geographic areas. In
each core area, the Company has established separate acquisition, engineering,
geological, operating and other technical expertise. The Company believes that
this geographic focus provides it with a competitive advantage in sourcing and
evaluating new business opportunities within these areas, as well as providing
economies of scale in developing and operating its properties.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements include the accounts of the Company,
all majority owned subsidiaries and its pro rata share of the assets,
liabilities, income and expenses of certain oil and gas partnerships and joint
ventures. Highly liquid temporary investments with an initial maturity of ninety
days or less are considered cash equivalents.
Oil and Gas Properties
The Company follows the successful efforts method of accounting for oil and
gas properties. Exploratory costs which result in the discovery of reserves and
the cost of development wells are capitalized. Geological and geophysical costs,
delay rentals and costs to drill unsuccessful exploratory wells are expensed.
Depletion is provided on the unit-of-production method. Oil is converted to Mcfe
at the rate of six Mcf per barrel. The depletion rates per Mcfe were $.74, $.73
and $.73 in 1994, 1995 and 1996, respectively. Approximately $4.3 million, $12.2
million and $22.8 million of oil and gas properties were not subject to
amortization as of December 31, 1994, 1995 and 1996, respectively. These costs
are assessed periodically to determine whether their value has been impaired,
and if impairment is indicated, the excess costs are charged to expense.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," which establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill. SFAS No. 121 requires a review for impairment whenever
circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing the review for recoverability, the Company would
estimate future cash flows (undiscounted and without interest charges) expected
to result from the use of an asset and its eventual disposition. Impairment is
recognized only if the carrying amount of an asset is greater
F-7
61
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
than its expected future cash flows. The amount of the impairment is based on
the estimated fair value of the asset.
Gas Imbalances
The Company uses the sales method to account for gas imbalances. Under the
sales method, revenue is recognized based on cash received rather than the
proportionate share of gas produced. Gas imbalances at year end 1996 and 1995
were not material.
Gas Transportation and Field Services Assets
The Company owns and operates approximately 1,900 miles of gas gathering
lines in proximity to its principal gas properties. Depreciation is calculated
on the straight-line method based on estimated useful lives ranging from four to
fifteen years.
The Company receives fees for providing field related services. These fees
are recognized as earned. Depreciation on field service assets is calculated on
the straight-line method based on estimated useful lives ranging from one to six
years, except for buildings which are being depreciated over ten to fifteen year
periods.
During 1996 the majority of the Company's brine disposal and well servicing
activities were based in Oklahoma. In December 1996, the Company sold its brine
disposal and well servicing activities in Oklahoma for $2.7 million and recorded
a gain on sale of approximately $1.2 million which is included in interest and
other income. In 1994, the Company sold substantially all of its brine disposal
and well servicing assets located in Appalachia for approximately $1.8 million.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Nature of Business
The Company operates in an environment with many financial and operating
risks, including, but not limited to, the ability to find or acquire additional
economically recoverable oil and gas reserves, the inherent risks of the search
for, development of and production of oil and gas, the ability to sell oil and
gas at prices which will provide attractive rates of return, the highly
competitive nature of the industry and worldwide economic conditions. The
Company's ability to expand its reserve base and diversify its operations is
also dependent upon the Company's ability to obtain the necessary capital
through operating cash flow, borrowings or the issuance of additional equity.
Marketable Securities
The Company has adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities." Under
Statement No. 115, debt and marketable equity securities are required to be
classified in one of three categories: trading, available-for-sale, or held to
maturity. The Company's equity securities qualify under the provisions of
Statement No. 115 as available-for-sale. Such securities are recorded at fair
value, and unrealized holding gains and losses, net of the related tax effect,
are reflected as a separate component of stockholders' equity. A decline in the
market value of an available-for-sale security that is deemed other than
temporary is charged to earnings and results in the establishment of a
F-8
62
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
new cost basis for the security. Realized gains and losses are determined on the
specific identification method and are reflected in income.
Debt Issuance Costs
Expenses associated with the issuance of the 6% Convertible Subordinated
Debentures Due 2007 are included in Other Assets on the accompanying balance
sheet and are being amortized on the interest method over the term of the
debentures.
Earnings per Common Share
Net income per share is computed by subtracting preferred dividends from
net income and dividing by the weighted average number of common and common
equivalent shares outstanding. The calculation of fully diluted earnings per
share assumes conversion of convertible securities when the result would be
dilutive. Outstanding options and warrants are included in the computation of
net income per common share when their effect is dilutive.
Reclassifications
Certain reclassifications have been made to prior period presentation to
conform with current period classifications.
(3) ACQUISITION AND DEVELOPMENT
All of the Company's acquisitions have been accounted for as purchases. The
purchase prices were allocated to the assets acquired based on the fair value of
such assets and liabilities at the respective acquisition dates. The
acquisitions were funded by working capital, advances under a revolving credit
facility and the issuance of equity.
During 1996, the Company acquired oil and gas properties, equipment and
acreage from Bannon Energy, Incorporated for approximately $37.0 million and
acquired Eastern Petroleum Company for approximately $13.7 million. The Bannon
interests included 270 producing properties located in Texas, Oklahoma, New
Mexico and Wyoming. Eastern Petroleum Company owned interests in oil and gas
properties, equipment and acreage in Ohio.
In 1995, the Company acquired oil and gas properties, equipment and acreage
from Transfuel, Inc. for $21 million, which included cash and approximately
$800,000 of Common Stock, and from Parker & Parsley Petroleum Company for $20.2
million. The Transfuel interests included developed and undeveloped properties
in Ohio, Pennsylvania and New York. The Parker & Parsley interests included
developed and undeveloped properties in Pennsylvania and Ohio.
In 1994, the Company acquired Red Eagle Resources Corporation for $46.5
million. Included in this amount were 2.8 million shares of Common Stock valued
at approximately $16.9 million to the acquired company's shareholders. Red
Eagle's assets included 370 producing wells, equipment and acreage located
primarily in the Okeene Field of Oklahoma's Anadarko Basin. In addition, the
Company purchased Grand Banks Energy Company for $3.7 million and Gillring Oil
Company for $11.5 million. Grand Bank's assets included interests in 182
producing properties located in west Texas and Gillring's assets included $5.2
million of working capital and interests in 106 producing properties located in
south Texas.
F-9
63
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Unaudited Pro Forma Financial Information
The following table presents unaudited, pro forma operating results as if
the transactions had occurred at the beginning of each period presented. The pro
forma operating results include the following acquisitions, all of which were
accounted for as purchase transactions; (i) the purchase of certain oil and gas
properties from a subsidiary of Parker & Parsley Petroleum Company (ii) the
purchase of certain oil and gas properties from Transfuel, Inc., (iii) the
purchase of certain oil and gas properties from Bannon Energy Incorporated, (iv)
the private placement of 1.15 million shares of Convertible Preferred Stock and
the application of the net proceeds therefrom and (v) the private placement of
1.8 million shares of Common Stock and (vi) the private placement of $55 million
of 6% Convertible Subordinated Debentures Due 2007 and the application of the
net proceeds therefrom.
YEAR ENDED DECEMBER 31,
------------------------
1995 1996
---------- ----------
(IN THOUSANDS EXCEPT PER
SHARE DATA)
Revenues............................................... $ 69,664 $ 92,823
Net income............................................. 6,808 12,481
Earnings per share..................................... 0.31 0.68
Total assets........................................... 252,442 282,547
Stockholders' equity................................... 99,367 117,529
The pro forma operating results have been prepared for comparative purposes
only. They do not purport to present actual operating results that would have
been achieved had the acquisitions and financings been made at the beginning of
each period presented or to necessarily be indicative of future results of
operations.
(4) INDEBTEDNESS
The Company had the following debt outstanding as of the dates shown.
Interest rates at December 31, 1996 are shown parenthetically:
DECEMBER 31,
-------------------
1995 1996
------- --------
(IN THOUSANDS)
Bank credit facility (6.7%)................................. $83,035 $ 61,355
6% Convertible Subordinated Debentures Due 2007............. -- 55,000
Other (5.9%-7.0%)........................................... 53 451
------- --------
83,088 116,806
Less amounts due within one year............................ 53 26
------- --------
Long-term debt, net......................................... $83,035 $116,780
======= ========
The Company maintains a $250 million revolving bank credit facility. The
facility provides for a borrowing base which is subject to semi-annual
redeterminations. At December 31, 1996, the borrowing base on the credit
facility was $150 million. The facility bears interest at prime rate or LIBOR
plus 0.75% to 1.25% depending upon the percentage of the borrowing base drawn.
Interest is payable quarterly and the loan is payable in sixteen quarterly
installments beginning February 1, 1999. A commitment fee of 3/8% of the
undrawn balance is payable quarterly. It is the Company's policy to extend the
term period of the credit facility annually.
As described in Note 15, the revolving bank credit facility was amended and
expanded in connection with the financing of the Cometra Acquisition (the
"Amended Credit Facility"). The Amended Credit Facility is secured by first
priority security interests in (i) existing mortgaged oil and gas properties of
the Company,
F-10
64
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
including the Cometra Properties, (ii) all accounts receivable, inventory and
intangibles of the Company and the subsidiaries guaranteeing the Amended Credit
Facility, and (iii) all of the capital stock of the Company's direct or indirect
subsidiaries. Substantially all of the assets of the Company will be pledged as
collateral if, on May 15, 1997, the Borrowing Base and amounts outstanding under
the Amended Credit Facility have not been reduced to $325 million. Such security
interests will be released upon the (i) reduction of the amounts outstanding
under the Amended Credit Facility to $325 million (or the then determined
Borrowing Base) and (ii) issuance of $75 million of Common Stock and/or the sale
of Company assets in excess of the Borrowing Base value attributable to such
assets as agreed by the lenders.
The 6% Convertible Subordinated Debentures Due 2007 (the "Debentures") are
convertible at the option of the holder at any time prior to maturity into
shares of the Company's Common Stock, at a conversion price of $19.25 per share,
subject to adjustment in certain events. Interest is payable semi-annually. The
Debentures will mature in 2007 and are not redeemable prior to February 1, 2000.
The Debentures are unsecured general obligations of the Company subordinated to
all senior indebtedness, as defined.
The debt agreements contain various covenants relating to net worth,
working capital maintenance and financial ratio requirements. The Company is in
compliance with these various covenants as of December 31, 1996. Interest paid
during the years ended December 31, 1994, 1995 and 1996 totaled $2.8 million,
$4.9 million and $7.5 million, respectively.
Maturities of indebtedness as of December 31, 1996 were as follows (in
thousands):
1997.............................................. $ 26
1998.............................................. 413
1999.............................................. 15,354
2000.............................................. 15,339
2001.............................................. 15,339
Remainder......................................... 70,335
--------
$116,806
========
(5) FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
The Company's financial instruments include cash and equivalents, accounts
receivable, accounts payable, debt obligations, commodity and interest rate
futures, options and swaps. The book value of cash and equivalents, accounts
receivable and payable and short term debt are considered to be representative
of fair value because of the short maturity of these instruments. The Company
believes that the carrying value of its borrowings under its bank credit
facility approximates their fair value as they bear interest at rates indexed to
LIBOR. The Company's accounts receivable are concentrated in the oil and gas
industry. The Company does not view such a concentration as an unusual credit
risk. The Company has recorded an allowance for doubtful accounts of $306,000
and $450,000 at December 31, 1995 and 1996, respectively.
A portion of the Company's crude oil and natural gas sales are periodically
hedged against price risks through the use of futures, option or swap contracts.
The gains and losses on these instruments are included in the valuation of the
production being hedged in the contract month and are included as an adjustment
to oil and gas revenue. The Company also manages interest rate risk on its
credit facility through the use of interest rate swap agreements. Gains and
losses on swap agreements are included as an adjustment to interest expense.
F-11
65
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the book value and estimated fair values of
the Company's financial instruments:
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------------- -----------------------
(IN THOUSANDS)
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
---------- ---------- ---------- ----------
Cash and equivalents.................... $ 3,047 $ 3,047 $ 8,625 $ 8,625
Marketable securities................... 829 953 6,966 7,658
Long-term debt.......................... (83,088) (83,088) (116,806) (116,806)
Commodity swaps......................... -- 93 -- (1,051)
Interest rate swaps..................... -- 375 -- 81
At December 31, 1996, the Company had open contracts for oil and gas price
swaps of 300,000 barrels and 155,000 Mcfs. The swap contracts are designed to
set average prices ranging from $22.10 to $22.76 per barrel and $2.04 per Mcf.
While these transactions have no carrying value, their fair value, represented
by the estimated amount that would be required to terminate the contracts, was a
net cost of approximately $1,051,000 at December 31, 1996. These contracts
expire monthly through April 1997. The gains or losses on the Company's hedging
transactions is determined as the difference between the contract price and the
reference price, generally closing prices on the New York Mercantile Exchange.
The resulting transaction gains and losses are determined monthly and are
included in net income in the period the hedged production or inventory is sold.
Net gains or (losses) relating to these derivatives for the years ended December
31, 1994, 1995 and 1996 approximated $-0-, $217,000 and $(724,000),
respectively.
Interest rate swap agreements, which are used by the Company in the
management of interest rate exposure, are accounted for on the accrual basis.
Income and expense resulting from these agreements are recorded in the same
category as expense arising from the related liability. Amounts to be paid or
received under interest rate swap agreements are recognized as an adjustment to
expense in the periods in which they accrue. At December 31, 1996, the Company
had $60 million of borrowings subject to three interest rate swap agreements at
rates of 5.25%, 5.49% and 5.64% through July 1997, October 1997 and October
1998, respectively. The interest rate swaps may be extended at the
counterparties' option for two years. The agreements require that the Company
pay the counterparty interest at the above fixed swap rates and require the
counterparties to pay the Company interest at the 30-day LIBOR rate. The closing
30-day LIBOR rate on December 31, 1996 was 5.53%. The fair value of the interest
rate swap agreements at December 31, 1996, is based upon current quotes for
equivalent agreements.
These hedging activities are conducted with major financial or commodities
trading institutions which management believes entail acceptable levels of
market and credit risks. At times such risks may be concentrated with certain
counterparties or groups of counterparties. The credit worthiness of
counterparties is subject to continuing review and full performance is
anticipated.
(6) COMMITMENTS AND CONTINGENCIES
The Company is involved in various other legal actions and claims arising
in the ordinary course of business. In the opinion of management, such
litigation and claims will be resolved without material adverse effect on the
Company's financial position.
The Company recently received notice from two parties, each of whom claims
that it is entitled to fees from the Company based upon a Yemen oil concession
that they claim Red Eagle Resources Corporation received in August 1992, which
was prior to the acquisition of Red Eagle by the Company. Based upon the
Company's examination of the available documentation relevant to such claims,
the Company believes that the claims are without merit because the claimed oil
concession was never obtained in Yemen. The Company has requested further
documentation from the two parties with respect to their claims but no such
F-12
66
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
documentation has yet been provided. The claims are for approximately $4.0
million in the aggregate (including the value of approximately 70,000 shares of
Common Stock that would be required to be issued if the oil concession had been
obtained). To date, no proceedings have been commenced with respect to either of
these claims.
The Company leases certain office space and equipment under cancelable and
non-cancelable leases, most of which expire within 10 years and may be renewed
by the Company. Rent expense under such arrangements totaled $202,000, $335,000
and $208,000 in 1994, 1995 and 1996, respectively. Future minimum rental
commitments under non-cancelable leases are as follows (in thousands):
1997........................................................ $ 270
1998........................................................ 270
1999........................................................ 233
2000........................................................ 195
2001........................................................ 210
2002 and thereafter......................................... 270
------
$1,448
======
(7) EQUITY SECURITIES
In 1993, $5,000,000 of 7 1/2% cumulative convertible exchangeable preferred
stock (the "7 1/2% Preferred Stock") was privately placed. In April and May
1996, the Company exercised its option and converted the 7 1/2% Preferred Stock
into 576,945 shares of Common Stock.
In November 1995, the Company sold 1,150,000 shares of $2.03 convertible
exchangeable preferred stock (the "$2.03 Preferred Stock") for $28.8 million.
The $2.03 Preferred Stock is convertible into the Company's Common Stock at a
conversion price of $9.50 per share, subject to adjustment in certain events.
The $2.03 Preferred Stock is redeemable, at the option of the Company, at any
time on or after November 1, 1998, at redemption prices beginning at 105%. At
the option of the Company, the $2.03 Preferred Stock is exchangeable for the
Company's 8 1/8% convertible subordinated notes due 2005. The notes would be
subject to the same redemption and conversion terms as the $2.03 Preferred
Stock.
In December 1995, the Company privately placed 1.2 million shares of its
Common Stock for $10.2 million to a state sponsored retirement plan. In April
1996, the Company privately placed 600,000 shares of its Common Stock to a
limited number of institutional investors for approximately $6.9 million.
Warrants to acquire 40,000 shares of common stock were exercised in October
1996. Additionally, warrants to acquire 20,000 shares of Common Stock at a price
of $12.88 per share were outstanding at December 31, 1996 and will expire in May
1999.
F-13
67
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) STOCK OPTION AND PURCHASE PLAN
The Company maintains a Stock Option Plan which authorizes the grant of
options on up to 2.0 million shares of Common Stock. However, no new options may
be granted which would result in there being aggregate outstanding options
exceeding 10% of the Company's common shares outstanding plus those shares
issuable under convertible securities. Under the plan, incentive and
non-qualified options may be issued to officers, key employees and consultants.
The plan is administered by the Compensation Committee of the Board. All options
issued under the plan vest 30% after one year, 60% after two years and 100%
after three years. The following is a summary of stock option activity:
NUMBER OF OPTIONS EXERCISE
-------------------------------- PRICE RANGE
1994 1995 1996 PER SHARE
------- ------- ---------- -------------
Outstanding at beginning of year.... 428,983 680,483 977,149 $ 3.38-$ 9.38
Granted............................. 298,500 342,000 378,500 10.50- 13.88
Canceled............................ (16,000) (12,000) (7,950) 7.00- 10.50
Exercised........................... (31,000) (33,334) (115,250) 3.38- 8.25
------- ------- ---------- -------------
Outstanding at end of year.......... 680,483 977,149 1,232,499 $ 3.38-$13.88
======= ======= ========== =============
In 1994, the stockholders approved the 1994 Outside Directors Stock Option
Plan (the "Directors Plan"). Only Directors who are not employees of the Company
are eligible under the Directors Plan. The Directors Plan covers a maximum of
200,000 shares. At December 31, 1996, 76,000 options were outstanding under the
Directors Plan of which 16,800 were exercisable as of that date. The exercise
price of the options ranges from $7.75 to $13.88 per share.
In 1994, the stockholders approved the 1994 Stock Purchase Plan (the "1994
Plan") which authorizes the sale of up to 500,000 shares of Common Stock to
officers, directors, key employees and consultants. Under the Plan, the right to
purchase shares at prices ranging from 50% to 85% of market value may be
granted. The Company had a 1989 Stock Purchase Plan (the "1989 Plan") which was
identical to the 1994 Plan except that it covered 333,333 shares. Upon adoption
of the 1994 Plan, the 1989 Plan was terminated. The plans are administered by
the Compensation Committee of the Board. During the year ended December 31,
1996, the Company sold 100,000 unregistered shares of Common Stock to officers
and outside directors for an aggregate of approximately $996,000.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation cost for the Company's two stock option
plans been determined based on the fair value at the grant date for awards in
1995 and 1996 consistent with the provisions of SFAS No. 123, the Company's net
earnings and earnings per share would have been reduced in the pro forma amounts
indicated below:
1995 1996
-------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net earnings--as reported................................... $4,390 $12,615
Earnings per share--as reported............................. $ 0.31 $ 0.69
Net earnings--pro forma..................................... $4,081 $11,996
Earnings per share--pro forma............................... $ 0.28 $ 0.64
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants: dividend yield of 1%; expected volatility of 38%;
risk-free interest rate of 6%; and expected lives of 4 years.
F-14
68
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) BENEFIT PLAN
The Company maintains a 401(k) Plan for the benefit of its employees. The
Plan permits employees to make contributions on a pre-tax salary reduction
basis. The Company makes discretionary contributions to the Plan. Company
contributions for 1994, 1995 and 1996 were $226,000, $346,000 and $548,000,
respectively. The Company has no other employee benefit plans.
(10) INCOME TAXES
Federal income tax expense was $139,000, $1.8 million and $6.8 million for
the years 1994, 1995 and 1996, respectively. The current portion of the income
tax provision represents alternative minimum tax currently payable. A
reconciliation between the statutory federal income tax rate and the Company's
effective federal income tax rate is as follows:
1994 1995 1996
------- ------- --------
Statutory tax rate................................. 34% 34% 34%
Realization of valuation allowance................. (29) (5) --
Other.............................................. -- -- 1
------- ------- --------
Effective tax rate................................. 5% 29% 35%
======= ======= ========
Income taxes paid.................................. $47,500 $60,000 $590,000
======= ======= ========
The Company follows FASB Statement No. 109, "Accounting for Income Taxes."
Under Statement 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Significant components of the Company's deferred tax liabilities and assets
are as follows (in thousands):
DECEMBER 31,
------------------
1995 1996
------- -------
Deferred tax liabilities:
Depreciation.............................................. $29,130 $31,726
======= =======
Deferred tax assets:
Net operating loss carryforwards.......................... 6,193 2,625
Percentage depletion carryforward......................... 4,388 2,589
AMT credits and other..................................... 863 621
------- -------
Total deferred tax assets................................. 11,444 5,835
Valuation allowance for deferred tax assets................. (40) (40)
------- -------
Net deferred tax assets..................................... $11,404 $ 5,795
======= =======
Net deferred tax liabilities................................ $17,726 $25,931
======= =======
Due to uncertainty as to the company's ability to realize the tax benefit,
a valuation allowance was established for the full amount of the net deferred
tax assets. In 1995, income taxes were reduced from the statutory rate of 34% by
approximately $0.3 million through realization of a portion of the valuation
allowance, resulting in $40,000 of the allowance remaining at each of December
31, 1995 and 1996.
The Company has entered into several business combinations accounted for as
purchases. In connection with these transactions, deferred tax assets and
liabilities of $7.7 million and $23.8 million, respectively, were
F-15
69
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recorded. In 1996 the Company acquired Eastern Petroleum Company in a taxable
business combination accounted for as a purchase. A net deferred tax liability
of $2.1 million was recorded in the transaction.
As a result of the Company's issuance of equity and convertible debt
securities, it experienced a change in control during 1988 as defined by Section
382 of the Internal Revenue Code. The change in control placed limitations to
the utilization of net operating loss carryovers. At December 31, 1996, the
Company had available for federal income tax reporting purposes net operating
loss carryovers of approximately $7.5 million which are subject to annual
limitations as to their utilization and otherwise expire between 1997 and 2010,
if unused. The Company has alternative minimum tax net operating loss carryovers
of $6.6 million which are subject to annual limitations as to their utilization
and otherwise expire from 1997 to 2009 if unused. The Company has statutory
depletion carryover of approximately $3.2 million and an alternative minimum tax
credit carryover of approximately $500,000. The statutory depletion carryover
and alternative minimum tax credit carryover are not subject to limitation or
expiration.
(11) MAJOR CUSTOMERS
The Company markets its oil and gas production on a competitive basis. The
type of contract under which gas production is sold varies but can generally be
grouped into three categories: (a) life-of-the-well; (b) long-term (1 year or
longer); and (c) short-term contracts which may have a primary term of one year,
but which are cancelable at either party's discretion in 30-120 days.
Approximately 60% of the Company's gas production is currently sold under market
sensitive contracts which do not contain floor price provisions. For the year
ended December 31, 1996, no one customer accounted for more than 10% of the
Company's total oil and gas revenues. Management believes that the loss of any
one customer would not have a material adverse effect on the operations of the
Company. Oil is sold on a basis such that the purchaser can be changed on 30
days notice. The price received is generally equal to a posted price set by the
major purchasers in the area. The Company sells to oil purchasers on a basis of
price and service.
(12) OIL AND GAS ACTIVITIES
The following summarizes selected information with respect to oil and gas
producing activities:
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
Oil and gas properties:
Subject to amortization.......................... $129,082 $197,826 $259,681
Not subject to amortization...................... 4,291 12,247 22,838
-------- -------- --------
Total.................................... 133,373 210,073 282,519
Accumulated depletion amortization............... (20,409) (33,371) (53,102)
-------- -------- --------
Net oil and gas properties............... $112,964 $176,702 $229,417
======== ======== ========
Costs incurred:
Acquisition...................................... $ 59,501 $ 69,244 $ 63,579
Development...................................... 9,518 9,968 12,536
Exploration...................................... 192 216 2,025
-------- -------- --------
Total costs incurred..................... $ 69,211 $ 79,428 $ 78,140
======== ======== ========
(13) RELATED PARTY TRANSACTIONS
Mr. Edelman, Chairman of the Company, is also a shareholder of Snyder Oil
Corporation ("SOCO"), and, until February 1996 was an executive officer of SOCO.
At December 31, 1996, Mr. Edelman owned 5.7%
F-16
70
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the Company's Common Stock. In 1995, the Company acquired SOCO's interest in
certain wells located in Appalachia for $4 million. The price was determined
based on arms-length negotiations through a third-party broker retained by SOCO.
Subsequent to the transaction, the Company and SOCO no longer held interests in
any of the same properties.
During 1995, the Company incurred fees of $145,000, to the Hawthorne
Company in connection with acquisitions. Mr. Aikman, a director of the Company,
is an executive officer and a principal owner of the Hawthorne Company. The fees
were consistent with those paid by the Company to third parties for similar
services.
(14) UNAUDITED SUPPLEMENTAL RESERVE INFORMATION
The Company's proved oil and gas reserves are located in the United States.
Proved reserves are those quantities of crude oil and natural gas which, upon
analysis of geological and engineering data, can with reasonable certainty be
recovered in the future from known oil and gas reservoirs. Proved developed
reserves are those proved reserves which can be expected to be recovered from
existing wells with existing equipment and operating methods. Proved undeveloped
oil and gas reserves are proved reserves that are expected to be recovered from
new wells on undrilled acreage.
Quantities of Proved Reserves
CRUDE OIL NATURAL GAS
--------- -----------
(BBLS) (MCF)
(IN THOUSANDS)
Balance, December 31, 1993.................................. 4,539 74,563
Revisions................................................. 15 630
Extensions, discoveries and additions..................... 15 6,605
Purchases................................................. 4,599 75,698
Sales..................................................... (79) (1,130)
Production................................................ (640) (6,996)
------ -------
Balance, December 31, 1994.................................. 8,449 149,370
Revisions................................................. 255 (3,513)
Extensions, discoveries and additions..................... 475 10,076
Purchases................................................. 2,618 90,575
Sales..................................................... (21) (1,150)
Production................................................ (913) (12,471)
------ -------
Balance, December 31, 1995.................................. 10,863 232,887
Revisions................................................. 280 (7,545)
Extensions, discoveries and additions..................... 952 16,696
Purchases................................................. 3,884 86,022
Sales..................................................... (236) (11,235)
Production................................................ (1,068) (21,231)
------ -------
Balance, December 31, 1996.................................. 14,675 295,594
====== =======
Proved developed reserves:
December 31, 1994......................................... 6,430 97,251
====== =======
December 31, 1995......................................... 8,880 174,958
====== =======
December 31, 1996......................................... 10,703 207,601
====== =======
F-17
71
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The "Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves" (Standardized Measure) is a disclosure requirement
under Statement of Financial Accounting Standards No. 69 "Disclosures about Oil
and Gas Producing Activities". The Standardized Measure does not purport to
present the fair market value of proved oil and gas reserves. This would require
consideration of expected future economic and operating conditions, which are
not taken into account in calculating the Standardized Measure.
Future cash inflows were estimated by applying year end prices to the
estimated future production less estimated future production costs based on year
end costs. Future net cash inflows were discounted using a 10% annual discount
rate to arrive at the Standardized Measure.
Standardized Measure
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996
----------- --------- ----------
(IN THOUSANDS)
Future cash inflows........................... $ 457,048 $ 729,566 $1,393,338
Future costs:
Production.................................. (133,972) (256,374) (365,753)
Development................................. (52,102) (60,554) (86,192)
----------- --------- ----------
Future net cash flows......................... 270,974 412,638 941,393
Income taxes.................................. (59,950) (102,108) (271,023)
----------- --------- ----------
Total undiscounted future net cash flows...... 211,024 310,530 670,370
10% discount factor........................... (91,475) (136,480) (319,481)
----------- --------- ----------
Standardized measure.......................... $ 119,549 $ 174,050 $ 350,889
=========== ========= ==========
Changes in Standardized Measure
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996
----------- --------- ----------
(IN THOUSANDS)
Standardized measure, beginning of year....... $ 53,751 $ 119,549 $ 174,050
Revisions:
Prices...................................... 4,224 (4,100) 151,508
Quantities.................................. 2,240 2,267 (6,762)
Estimated future development costs.......... -- (5,238) (2,971)
Accretion of discount....................... 6,512 15,054 22,924
Income taxes................................ (19,624) (24,200) (86,095)
----------- --------- ----------
Net revisions............................ (6,648) (16,217) 78,604
Purchases..................................... 84,836 87,741 125,871
Extensions, discoveries and additions......... 2,402 7,419 22,816
Production.................................... (14,442) (22,487) (43,598)
Sales......................................... (350) (1,955) (6,854)
----------- --------- ----------
Standardized measure, end of year............. $ 119,549 $ 174,050 $ 350,889
=========== ========= ==========
F-18
72
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) COMETRA ACQUISITION
Effective January 1, 1997, the Company acquired oil and gas properties
located in West Texas, South Texas and the Gulf of Mexico (the "Cometra
Properties") from American Cometra, Inc. ("Cometra") for a purchase price of
$385 million, subject to adjustment (the "Cometra Acquisition"). The Cometra
Acquisition increases the Company's proforma proved reserves at December 31,
1996 by 68% to 644 Bcfe and increases its Present Value by 98% to $974 million.
The Cometra Properties, located primarily in the Company's core operating areas,
include 515 producing wells, and additional development and exploration
potential on approximately 150,000 gross acres (90,000 net acres). In addition,
the Cometra Properties include gas pipelines, a 25,000 Mcf/d gas processing
plant and an above-market gas contract with a major Texas gas utility covering
approximately 30% of the current production from the Cometra Properties.
The Company will finance the cash portion of the purchase price with $220
million of borrowings through expansion of its bank credit facility (the
"Amended Credit Facility") and the issuance to Cometra of a $125 million
non-interest bearing promissory note due March 31, 1997, which is secured by a
bank letter of credit. The promissory note will be repaid at maturity through
borrowings under the Amended Credit Facility. The Amended Credit Facility will
enable the Company to obtain revolving credit loans and issue letters of credit
from time to time in an aggregate amount not to exceed $400 million initially.
Availability under the Amended Credit Facility will be reduced to $325 million
180 days after the funding of the Cometra Acquisition, unless otherwise agreed
to by the lenders.
The Amended Credit Facility provides for a Borrowing Base which is subject
to semi-annual determinations and certain other redeterminations. The Amended
Credit Facility is secured by first priority security interests in (i) existing
mortgaged oil and gas properties of the Company, including the Cometra
Properties, (ii) all accounts receivable, inventory and intangibles of the
Company and the Bank Guarantors, and (iii) all of the capital stock of the
Company's direct or indirect subsidiaries. Substantially all assets of the
Company will be pledged as collateral, if, on May 15, 1997 the Borrowing Base
and amounts outstanding under the Credit Agreement have not been reduced to
$325. Such security interests will be released upon the (i) reduction of the
amount outstanding under the Amended Credit Facility to $325 (or the then
determined Borrowing Base) and (ii) issuance of $75 million of Common Stock
and/or sale of Company assets in excess of the Borrowing Base value attributable
to such assets as agreed by the Lenders (the "Trigger Event").
The Amended Credit Facility bears interest at either the Alternate Base
Rate (as defined) plus a margin ranging from 0% to 0.25% or the Eurodollar loan
rate plus a margin ranging from 0.625% to 1.125%. Interest is payable quarterly
and the Amended Credit facility matures in February 2002.
The Amended Credit Facility includes various covenants that require, among
other things, that the Company (i) maintain a minimum consolidated tangible net
worth of at least $100 million plus 90% of the net proceeds from the Common
Stock offering described below and 50% of the net proceeds from any subsequent
equity offering; (ii) maintain a ratio of EBITDA to consolidated interest
expense on total debt for each period of four consecutive fiscal quarters of at
least 2.5 to 1.0; and (iii) not make restricted payments (defined as dividends,
distributions or guarantees to third parties or the retirement, repurchase or
prepayment prior to the scheduled maturity of its subordinated debt) in an
aggregate amount in any one fiscal year in excess of $5 million plus 50% of the
net proceeds from equity offerings subsequent to the Common Stock offering
described below and 50% of the Company's consolidated net income earned after
January 1, 1997. In addition, the Amended Credit Facility will restrict the
ability of the Company to dispose of assets, incur additional indebtedness,
repay other indebtedness or amend other debt instruments, create liens on
assets, make investments or acquisitions, engage in mergers or consolidations,
make capital expenditures or engage in certain transactions with affiliates.
In January 1997, the Company filed a registration statement with the
Securities and Exchange Commission covering the sale of 4 million shares of
Common Stock and $100 million aggregate principal
F-19
73
LOMAK PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amount of ten year senior subordinated notes. The proceeds from the offerings
will be used to repay indebtedness from the Cometra Acquisition. The notes will
be guaranteed by all of the subsidiaries of the Company and each guarantor is a
wholly owned subsidiary of the Company. The guarantees are full, unconditional
and joint and several, and separate financial statements of each guarantor are
not presented because they are included in the consolidated financial statements
of the Company and management has concluded that they provide no additional
benefits.
Unaudited Pro Forma Financial Information
The following table presents unaudited pro forma operating results as if
the Cometra Acquisition had occurred as of January 1, 1996. The pro forma
operating results also include the following acquisitions, all of which were
accounted for as purchase transactions: (i) the purchase of certain oil and gas
properties from Bannon Energy Incorporated, (ii) the private placement of
600,000 shares of Common Stock and (iii) the private placement of $55 million of
6% Convertible Subordinated Debentures Due 2007 and the application of the net
proceeds therefrom. Additionally, the unaudited pro forma operating results give
effect to the sale of 4 million shares of Common Stock and $100 million
aggregate principal amount of ten year senior subordinated notes.
YEAR ENDED
DECEMBER 31,
1996
(IN THOUSANDS) ------------
Revenues:
Oil and gas sales......................................... $130,508
Field services............................................ 14,463
Gas transportation and marketing.......................... 24,326
Interest and other........................................ 3,386
--------
172,683
--------
Expenses:
Direct operating.......................................... 39,394
Field services............................................ 10,443
Gas transportation and marketing.......................... 13,152
Exploration............................................... 1,460
General and administrative................................ 5,616
Interest.................................................. 29,480
Depletion, depreciation and amortization.................. 44,389
--------
143,934
--------
Earnings before income taxes................................ 28,749
Income taxes................................................ 10,062
--------
Net income.................................................. $ 18,687
========
Earnings per common share................................... $ 0.80
========
BALANCE SHEET DATA (AT DECEMBER 31, 1996):
Cash and equivalents........................................ $ 8,625
Total assets................................................ 670,847
Long-term debt, including current portion................... 399,606
Stockholders' equity........................................ 223,029
F-20
74
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Lomak Petroleum, Inc.:
We have audited the accompanying statements of revenues and direct
operating expenses of the American Cometra Interests, as described in Note 1,
for the years ended December 31, 1994, 1995 and 1996. These financial statements
are the responsibility of management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying statements of revenues and direct operating expenses
reflect the revenues and direct operating expenses attributable to the American
Cometra Interests, as described in Note 1, and are not intended to be a complete
presentation of the revenues and expenses of the American Cometra Interests.
In our opinion, the statements referred to above present fairly the
revenues and direct operating expenses of the American Cometra Interests, as
described in Note 1, for the years ended December 31, 1994, 1995 and 1996, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Worth, Texas
February 7, 1997
F-21
75
THE AMERICAN COMETRA INTERESTS
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
------------ ------------ -----------------
Revenues:
Oil and gas production....................... $ 46,808,830 $ 43,513,982 $ 60,751,200
Marketing and gas plant operating activities
(net)..................................... 3,370,500 5,276,900 7,273,100
------------ ------------ ------------
Total revenues.......................... 50,179,330 48,790,882 68,024,300
Direct operating expenses...................... (14,447,533) (12,727,532) (14,375,900)
------------ ------------ ------------
Excess of revenues over operating
expenses............................. $ 35,731,797 $ 36,063,350 $ 53,648,400
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-22
76
THE AMERICAN COMETRA INTERESTS
NOTES TO THE STATEMENTS OF REVENUES
AND DIRECT OPERATING EXPENSES
1. GENERAL:
Organization
The accompanying statements present the revenues and direct operating
expenses of certain working and other interests in oil and gas properties and
the Sterling gas plant and related pipeline owned by American Cometra, Inc. (the
"American Cometra Interests") which were purchased by Lomak Petroleum, Inc.
("Lomak"). Such financial statements were derived from the historical records of
the predecessor owner and represent Lomak's interest.
Basis of Presentation
The historical financial statements reflecting financial position, results
of operations and cash flows required by generally accepted accounting
principles are not presented, as such information is neither readily available
on an individual property basis nor meaningful for the American Cometra
Interests. During the periods presented, the American Cometra Interests were not
accounted for as a separate entity. These statements do not include
depreciation, depletion and amortization, general and administrative, interest,
federal income tax expenses, or federal income tax credits allowed under Section
29 of the Internal Revenue Code. Accordingly, the accompanying financial
statements are not intended to be a complete presentation of the results of
operations of the American Cometra Interests in conformity with generally
accepted accounting principles.
Revenue Recognition
Revenues are recognized when oil and gas production is sold. Direct
operating expenses are accrued when services are provided. Netted against
marketing and gas plant operating activities is $9,758,300, $7,700,000 and
$11,478,400 for the years ended December 31, 1994, 1995 and 1996, respectively,
relating to costs associated with those activities.
Use of Estimates
Management has made a number of estimates and assumptions relating to the
reporting of the revenues and direct operating expenses to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
2. SALES TO MAJOR CUSTOMERS:
For the years ended December 31, 1994, 1995 and 1996 four purchasers
accounted for 33%, 54% and 74% of total revenues, respectively.
3. OIL AND GAS RESERVES INFORMATION (UNAUDITED):
The estimates of the American Cometra Interests in proved oil and gas
reserves, which are located entirely in the United States, are based on
evaluations by an independent petroleum engineer, Netherland, Sewell &
Associates as of December 31, 1996. These reserves were estimated in accordance
with guidelines established by the Securities and Exchange Commission which
require that reserve reports be prepared under existing economic and operating
conditions with no provision for price escalations except by contractual
arrangements. Reserves as of December 31, 1994 and 1995 were derived from the
December 31, 1996 reserve estimates after considering production and drilling
activities.
Lomak's management emphasizes that reserve estimates are inherently
imprecise. Accordingly, the estimates are expected to change as future
information becomes available.
F-23
77
THE AMERICAN COMETRA INTERESTS
NOTES TO THE STATEMENTS OF REVENUES
AND DIRECT OPERATING EXPENSES -- (CONTINUED)
3. OIL AND GAS RESERVES INFORMATION (UNAUDITED), CONTINUED:
The following unaudited table sets forth the estimated proved oil and gas
reserve quantities of the American Cometra Interests at December 31, 1994, 1995
and 1996:
CRUDE OIL NATURAL GAS
(BBLS) (MCFS)
--------- -----------
(IN THOUSANDS)
PROVED RESERVES:
Balance, December 31, 1993................................ 10,107 194,508
Production............................................. (404) (14,372)
Purchases.............................................. -- 1,294
Extensions, discoveries, renewals...................... 505 12,683
Sales.................................................. -- --
------ -------
Balance, December 31, 1994................................ 10,208 194,113
Production............................................. (626) (15,212)
Purchases.............................................. 93 1,502
Extensions, discoveries, renewals...................... 24 9,210
Sales.................................................. (14) --
------ -------
Balance, December 31, 1995................................ 9,685 189,613
Production............................................. (803) (16,124)
Extensions, discoveries, renewals...................... 848 28,516
------ -------
Balance, December 31, 1996................................ 9,730 202,005
====== =======
PROVED DEVELOPED RESERVES:
Balance, December 31, 1994................................ 5,062 97,269
====== =======
Balance, December 31, 1995................................ 4,550 93,398
====== =======
Balance, December 31, 1996................................ 4,595 103,749
====== =======
The "Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves" (Standardized Measure) is a disclosure requirement
under Statement of Financial Accounting Standards No. 69. The Standardized
Measure does not purport to present the fair market value of proved oil and gas
reserves. This would require consideration of expected future economic and
operating conditions, which are not taken into account in calculating the
Standardized Measure.
Future net cash flows for the periods presented were derived from the
December 31, 1996 reserve estimate after considering historical production and
drilling activities. December 31, 1996 prices in the reserve estimates were
adjusted for fixed and determinable escalations to the estimated future
production less estimated future production costs based on period-end costs and
future development costs. Future net cash inflows were discounted using a 10%
annual discount rate to arrive at the Standardized Measure. Future income tax
estimates are not included, as the historical tax basis of the properties is not
relevant.
F-24
78
THE AMERICAN COMETRA INTERESTS
NOTES TO THE STATEMENTS OF REVENUES
AND DIRECT OPERATING EXPENSES -- (CONTINUED)
3. OIL AND GAS RESERVES INFORMATION (UNAUDITED), CONTINUED:
The standardized measure of discounted future net cash flows relating to
proved oil and gas properties is as follows:
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
------------ ------------ -------------
(IN THOUSANDS)
Future cash inflows............................ $1,207,887 $1,179,424 $1,156,858
Future costs:
Production................................... (243,413) (232,040) (219,098)
Development.................................. (99,353) (92,534) (88,350)
---------- ---------- ----------
Future net cash flows.......................... 865,121 854,850 849,410
Income taxes................................... -- -- --
---------- ---------- ----------
Undiscounted future net cash flows............. 865,121 854,850 849,410
10% discount factor............................ (444,749) (408,382) (367,919)
---------- ---------- ----------
Standardized measure........................... $ 420,372 $ 446,468 $ 481,491
========== ========== ==========
Changes in standardized measure of discounted future net cash flows from
proved reserve quantities are as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
------------ ------------ -------------
(IN THOUSANDS)
Standardized measure, beginning of year........ $ 395,914 $ 420,372 $ 446,468
Purchases...................................... 627 1,228 --
Extensions, discoveries, additions............. 17,730 15,051 38,185
Production..................................... (33,490) (32,141) (47,809)
Sales.......................................... -- (79) --
Accretion of discount.......................... 39,591 42,037 44,647
--------- --------- ---------
Standardized measure, end of year.............. $ 420,372 $ 446,468 $ 481,491
========= ========= =========
F-25
79
[Lomak Logo]
80
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 5, 1997
PROSPECTUS
$100,000,000
LOMAK PETROLEUM, INC.
% SENIOR SUBORDINATED NOTES DUE 2007
LOMAK PETROLEUM LOGO
The % Senior Subordinated Notes due 2007 (the "Notes") are being offered (the
"Notes Offering") by Lomak Petroleum, Inc., a Delaware corporation ("Lomak" or
the "Company"). The Company's payment obligations under the Notes will be
jointly, severally and unconditionally guaranteed (the "Guarantees") on a senior
subordinated basis by each Restricted Subsidiary (as defined) of the Company and
any future Restricted Subsidiary of the Company (the "Subsidiary Guarantors").
Initially, the Subsidiary Guarantors will consist of Lomak Operating Company,
Lomak Production Company, Lomak Resources Company, Buffalo Oilfield Services,
Inc., Lomak Energy Services Company, Lomak Energy Company, LPI Acquisition,
Inc., Lomak Production I, L.P., Lomak Resources, L.L.C., Lomak Offshore L.P.,
Lomak Pipeline Systems, L.P., Lomak Gathering & Processing Company, Lomak Gas
Company and LPI Operating Company.
Interest on the Notes will accrue at the rate of % per annum and will be
payable semi-annually in arrears on and of each year, commencing
on , 1997. The Notes mature on , 2007, unless previously
redeemed. The Notes will be subject to redemption at the option of the Company,
in whole or in part, on or after , 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest, if any, thereon to the
applicable redemption date. Upon the occurrence of a Change of Control (as
defined), the Company will be required to offer to repurchase all or a portion
of each Holder's Notes at an offer price in cash equal to 101% of the aggregate
principal amount of such Notes plus accrued and unpaid interest, if any, thereon
to the date of repurchase. Prior to , 2000, the Company may, at its
option, on any one or more occasions, redeem up to 33 1/3% of the original
aggregate principal amount of the Notes at a redemption price equal to % of
the principal amount thereof, plus accrued and unpaid interest, if any, thereon
to the redemption date, with all or a portion of the net proceeds of public
sales of Equity Interests of the Company. See "Description of the
Notes -- Optional Redemption."
Concurrently with the Notes Offering, the Company is offering 4,000,000 shares
of its Common Stock (the "Common Stock Offering" and together with the Notes
Offering, the "Offerings") by a separate prospectus. The closing of the Notes
Offering and the Common Stock Offering are contingent upon each other.
The Notes will be general unsecured obligations of the Company and will be
subordinated in right of payment to Senior Debt (as defined) of the Company,
which will include borrowings under the Credit Agreement (as defined). As of
December 31, 1996, after giving pro forma effect to the Offerings, the
application of the proceeds therefrom, as described under "Use of Proceeds," and
the consummation of the Cometra Acquisition (as defined), the principal amount
of Senior Debt outstanding would have been $244 million, which represents
borrowings under the Credit Agreement. The Company also has $55 million
principal amount outstanding of 6% Convertible Subordinated Debentures Due 2007,
which are expressly subordinated to the Notes. See "Description of the Notes."
The Company does not intend to apply for listing of the Notes on any securities
exchange or inclusion of the Notes in any automated quotation system.
- --------------------------------------------------------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE NOTES.
- --------------------------------------------------------------------------------
THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
- ---------------------------------------------------------------------------------------------------------------------
PER NOTE % % %
TOTAL $ $ $
- ---------------------------------------------------------------------------------------------------------------------
(1) Plus accrued and unpaid interest, if any, from the date of issuance.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses estimated at $ payable by the Company.
- --------------------------------------------------------------------------------
The Notes are offered by Chase Securities Inc., NationsBanc Capital Markets,
Inc., Bear, Stearns & Co. Inc. and Credit Suisse First Boston Corporation
(together, the "Underwriters"), subject to prior sale, when, as and if issued by
the Company and delivered to and accepted by the Underwriters, and subject to
certain other conditions. The Underwriters reserve the right to withdraw, cancel
or modify such offer and reject orders in whole or in part. It is expected that
delivery of the Notes will be made in New York, New York in book-entry form
through the facilities of The Depository Trust Company on or about ,
1997.
CHASE SECURITIES INC.
NATIONSBANC CAPITAL MARKETS, INC.
BEAR, STEARNS & CO. INC.
, 1997 CREDIT SUISSE FIRST BOSTON
81
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE NOTES
OFFERING, AND MAY BID FOR AND PURCHASE, NOTES IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements, and
other information filed by the Company can be inspected and copied at the public
reference facilities of the Commission, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as the following regional offices: 7 World Trade
Center, Suite 1300, New York, New York 10048; and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies can be obtained
by mail at prescribed rates. Requests for copies should be directed to the
Commission's Public Reference Section, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission also maintains a Website
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. In addition, reports, proxy statements and other information
concerning the Company can be inspected and copied at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, on which
the Common Stock is listed.
The Company has filed with the Commission a Registration Statement on Form
S-3 ("Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Notes being offered by this Prospectus
and the Common Stock which is being offered by a separate prospectus. This
Prospectus does not contain all the information set forth on the Registration
Statement and the exhibits thereto. For further information with respect to the
Company and the Notes being offered hereby, reference is made to the
Registration Statement and the exhibits thereto. Statements contained in this
Prospectus concerning the provisions of documents filed with the Registration
Statement as exhibits are necessarily summaries of such documents, and each such
statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission. All of these documents may be
inspected without charge at the offices of the Commission, the addresses of
which are set forth above, and copies may be obtained therefrom at prescribed
rates.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents and information heretofore filed with the
Commission by the Company are hereby incorporated by reference into this
Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
2. The Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1996, June 30, 1996 and September 30,
1996.
3. The Company's Current Report on Form 8-K, dated April 19, 1996, and
Form 8-K/A, dated May 31, 1996.
4. The Company's Current Report on Form 8-K dated February 26, 1997.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the Notes
Offering shall be deemed to be incorporated by reference into this Prospectus
and to be a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus. The Company will provide without charge
to each person, including any beneficial owner, to whom a copy of this
Prospectus is delivered, upon the written or oral request of any such person, a
copy of any document described above (other than exhibits). Requests for such
copies should be directed to Lomak Petroleum, Inc., 500 Throckmorton Street,
Fort Worth, Texas 76102, Attn: Corporate Secretary, Telephone No. (817)
870-2601.
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THE OFFERING
ISSUER........................ Lomak Petroleum, Inc.
SECURITIES OFFERED............ $100 million aggregate principal amount
of % Senior Subordinated Notes due 2007.
MATURITY...................... , 2007.
INTEREST PAYMENT DATES........ and of each year,
commencing on , 1997.
MANDATORY REDEMPTION.......... None.
OPTIONAL REDEMPTION........... Except as otherwise described below, the Notes
will not be redeemable at the Company's option
prior to , 2002. Thereafter, the
Notes will be subject to redemption at the
option of the Company, in whole or in part, at
the redemption prices set forth under the
heading "Description of the Notes -- Optional
Redemption," plus accrued and unpaid interest
thereon to the applicable redemption date. In
addition, prior to , 2000, the
Company may, at its option, on any one or more
occasions, redeem up to 33 1/3% of the original
principal amount of the Notes at a redemption
price equal to % of the principal amount
thereof, plus accrued and unpaid interest, if
any, to the redemption date, with all or a
portion of the net proceeds of public sales of
Equity Interests of the Company; provided that
at least 66 2/3% of the original aggregate
principal amount of the Notes remains
outstanding immediately after the occurrence of
such redemption. See "Description of the
Notes -- Optional Redemption."
CHANGE OF CONTROL............. Upon the occurrence of a Change of Control, the
Company will generally be required to offer to
repurchase all or a portion of each Holder's
Notes, at an offer price in cash equal to 101%
of the aggregate principal amount of such
Notes, plus accrued and unpaid interest, if
any, to the date of repurchase, and to
repurchase all Notes tendered pursuant to such
offer. The Credit Agreement will prohibit the
Company from repurchasing any Notes pursuant to
a Change of Control offer prior to the
repayment in full of the Senior Debt under the
Credit Agreement. Therefore, if a Change of
Control were to occur, there can be no
assurance that the Company or the Subsidiary
Guarantors will have the financial resources or
be permitted under the terms of their
indebtedness to repurchase the Notes. If any
Event of Default (as defined) occurs, the
Trustee or holders of at least 25% in principal
amount of the Notes then outstanding may
declare the principal of and the accrued and
unpaid interest on such Notes to be due and
payable immediately. However, such repayment
would be subject to certain subordination
provisions in the Indenture. See "Risk
Factors--Risks Relating to a Change of Control"
and "Description of the Notes--Subordination"
and "--Repurchase at the Option of
Holders--Change of Control," and "--Events of
Default and Remedies."
RANKING....................... The Notes will be general, unsecured
obligations of the Company, will be
subordinated in right of payment to Senior Debt
of the Company, which includes borrowings under
the Credit Agreement and any other permitted
indebtedness which does not expressly
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provide that it is on a parity with or
subordinated in right of payment to the Notes.
As of December 31, 1996, on a pro forma basis
after giving effect to the Offerings and the
application of the proceeds therefrom, Senior
Debt would have been approximately $244
million, which represents borrowings under the
Credit Agreement. See "Capitalization,"
"Description of the Notes -- Subordination" and
"Description of Capital Stock and Indebtedness
-- Credit Agreement."
SUBSIDIARY GUARANTEES......... The Company's payment obligations under the
Notes will be jointly, severally and
unconditionally guaranteed on a senior
subordinated basis (the "Guarantees") by each
Restricted Subsidiary of the Company and any
future Restricted Subsidiary of the Company.
The Guarantees will be subordinated to Senior
Debt of the Subsidiary Guarantors to the same
extent and in the same manner as the Notes are
subordinated to Senior Debt. See "Description
of the Notes -- Guarantees" and "Description of
Capital Stock and Indebtedness -- Credit
Agreement."
CERTAIN COVENANTS............. The Notes will be issued pursuant to an
indenture (the "Indenture") containing certain
covenants that will, among other things, limit
the ability of the Company and its Restricted
Subsidiaries to incur additional indebtedness
and issue Disqualified Stock, pay dividends,
make distributions, make investments, make
certain other Restricted Payments, enter into
certain transactions with affiliates, dispose
of certain assets, incur liens securing
Indebtedness (as defined) of any kind (other
than Permitted Liens, as defined) and engage in
mergers and consolidations. See "Description of
the Notes--Certain Covenants."
USE OF PROCEEDS............... The Company will use the proceeds of the Notes
Offering and the Common Stock Offering to repay
a portion of the indebtedness incurred to fund
the purchase price for the Cometra Properties.
See "Use of Proceeds."
RISK FACTORS
Prior to making an investment decision, prospective investors should
carefully consider, together with the other information contained in this
Prospectus, the risk factors discussed under the caption "Risk Factors," which
include risks relating to: (i) the volatility of oil and gas prices; (ii) the
uncertainty of estimates of reserves and future net revenues; (iii) the ability
of the Company to find or acquire additional oil and gas reserves that are
economically recoverable; (iv) the ability of the Company to obtain commercial
production through development and exploration activities; (v) the ability of
the Company to successfully integrate the Cometra Acquisition; (vi) the effects
of leverage on the Company's operating activities and ability to obtain
additional financing in the future; (vii) the availability of capital for
acquisitions and development projects; and (viii) the subordination of the Notes
to Senior Debt.
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[NOTE: THESE RISK FACTORS SUPPLEMENT THE RISK FACTORS CONTAINED IN THE COMMON
STOCK PROSPECTUS. THE "DILUTION" AND "SHARES ELIGIBLE FOR FUTURE SALE" RISK
FACTORS WILL NOT BE INCLUDED IN THE NOTES PROSPECTUS.]
SUBORDINATION OF NOTES AND GUARANTEES
The Notes will be subordinated in right of payment to all existing and
future Senior Debt of the Company, including borrowings under the Credit
Agreement. In the event of bankruptcy, liquidation or reorganization of the
Company, the assets of the Company will be available to pay obligations on the
Notes only after all Senior Debt has been paid in full, and there may not be
sufficient assets remaining to pay amounts due on any or all of the Notes
outstanding. The aggregate principal amount of Senior Debt of the Company, as of
December 31, 1996, would have been $244 million on a pro forma basis. The
Guarantees will be subordinated to Indebtedness of the Subsidiary Guarantors to
the same extent and in the same manner as the Notes are subordinated to Senior
Debt. Additional Senior Debt may be incurred by the Company from time to time,
subject to certain restrictions. In addition to being subordinated to all
existing and future Senior Debt of the Company, the Notes will not be secured by
any of the Company's assets, unlike the borrowings under the Credit Agreement.
See "Description of the Notes--Subordination."
FRAUDULENT CONVEYANCE
The incurrence of indebtedness (such as the Notes) is subject to review
under relevant federal and state fraudulent conveyance statutes in a bankruptcy
or reorganization case or a lawsuit by or on behalf of other creditors of the
Company. The Company's obligations under the Notes will be guaranteed on a
senior subordinated basis by its Restricted Subsidiaries. To the extent that a
court were to find that (x) the Notes or a Guarantee was incurred with the
intent to hinder, delay or defraud any present or future creditor or that the
Company or such Subsidiary Guarantor contemplated insolvency with a design to
favor one or more creditors to the exclusion in whole or in part of others or
(y) the Company or a Subsidiary Guarantor did not receive fair consideration or
reasonably equivalent value for issuing the Notes or Guarantee and, at the time
thereof, the Company or such Subsidiary Guarantor (i) was insolvent or rendered
insolvent by reason of the issuance of the Notes or the Guarantee, (ii) was
engaged or about to engage in a business or transaction for which its remaining
assets constituted unreasonably small capital or (iii) intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as they
matured, a court could avoid or subordinate the Notes or Guarantee in favor of
other creditors. Among other things, a legal challenge of the Guarantee issued
by such Subsidiary Guarantor on fraudulent conveyance grounds may focus on the
benefits, if any, realized by such Subsidiary Guarantor as a result of the
issuance by the Company of the Notes. To the extent the Guarantee issued by a
Subsidiary Guarantor is voided as a fraudulent conveyance or held unenforceable
for any other reason, the holders of the Notes would cease to have any claim in
respect of such Subsidiary Guarantor and would be creditors solely of the
Company and any other Subsidiary Guarantors.
On the basis of historical financial information, recent operating history
as discussed in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and other information currently available to it, the
Company believes that the Notes and the Guarantees issued concurrently with the
issuance of the Notes are being incurred for proper purposes and in good faith
and that, after giving effect to Indebtedness incurred in connection with the
issuance of the Notes and the issuance of the Guarantees, the Company and the
Subsidiary Guarantors are solvent, will have sufficient capital for carrying on
their respective businesses and will be able to pay their debts as such debts
become absolute and mature. There can be no assurance, however, that a court
passing on such questions would reach the same conclusions and, if not, a court
could, among other things, void all or a portion of the Company's or the
Subsidiary Guarantor's obligations to holders of Notes and/or subordinate the
Company's and the Subsidiary Guarantor's obligations under the Notes and
Guarantees to a greater extent than would otherwise be the case.
ABSENCE OF A PUBLIC MARKET FOR NOTES
There is no existing market for the Notes and, although the Underwriters
have advised the Company that they currently intend to make a market in the
Notes, the Underwriters are not obligated to do so and may
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discontinue such market making at any time. The Company does not intend to apply
for listing of the Notes on a securities exchange or to seek approval for
quotation through an automated quotation system. Accordingly, there can be no
assurance that an active market will develop upon completion of the Notes
Offering or, if developed, that such market will be sustained or as to the
liquidity of any market. The initial offering price of the Notes will be
determined through negotiations between the Company and the Underwriters, and
may bear no relationship to the market price of the Notes after the Notes
Offering. Factors such as quarterly or cyclical variations in the Company's
financial results, variations in interest rates, future announcements concerning
the Company or its competitors, government regulation, general economic and
other conditions and developments affecting the oil and gas industry could cause
the market price of the Notes to fluctuate substantially.
RISKS RELATING TO A CHANGE OF CONTROL
Upon a Change of Control (as defined herein), holders of the Notes will
have the right to require the Company to repurchase all or any part of such
holders' Notes at a price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of repurchase. The events that
constitute a Change of Control hereunder would constitute a default under the
Credit Agreement, which prohibits the purchase of the Notes by the Company in
the event of certain Change of Control events unless and until such time as the
Company's indebtedness under the Credit Agreement is repaid in full. There can
be no assurance that the Company and the Subsidiary Guarantors would have
sufficient financial resources available to satisfy all of its or their
obligations under the Credit Agreement and the Notes in the event of a Change of
Control. The Company's failure to purchase the Notes would result in a default
under the Indenture and under the Credit Agreement, each of which could have
adverse consequences for the Company and the holders of the Notes. See
"Description of Capital Stock and Indebtedness" and "Description of the Notes
- -- Repurchase at the Option of Holders -- Change of Control." The definition of
"Change of Control" in the Indenture includes a sale, lease, conveyance or other
disposition of "all or substantially all" of the assets of the Company and its
Subsidiaries taken as a whole to a person or group of persons. There is little
case law interpreting the phrase "all or substantially all" in the context of an
indenture. Because there is no precise established definition of this phrase,
the ability of a holder of the Notes to require the Company to repurchase such
Notes as a result of a sale, lease, conveyance or transfer of all or
substantially all of the Company's assets to a person or group of persons may be
uncertain.
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USE OF PROCEEDS
The net proceeds of the Notes Offering are estimated to be approximately
$96.7 million and the net proceeds of the Common Stock Offering are estimated to
be approximately $75.5 million (assuming an offering price of $20 per share),
after deducting underwriting discounts and estimated expenses. The Company
intends to use all of such net proceeds to repay certain indebtedness incurred
under the Credit Agreement to fund a portion of the cash purchase price for the
Cometra Properties. See "Cometra Acquisition." As of February 11, 1997,
indebtedness under the Credit Agreement, which expires in February 2002, had a
weighted average interest rate of 6.5%. For additional information with respect
to the interest rates, maturity and covenants related to the Credit Agreement,
see "Description of Capital Stock and Indebtedness -- Credit Agreement."
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DESCRIPTION OF THE NOTES
GENERAL
The Senior Subordinated Notes (the "Notes") will be issued pursuant to an
Indenture (the "Indenture") among the Company, the Subsidiary Guarantors and
Fleet National Bank, as trustee (the "Trustee"). A copy of the Indenture in
substantially the form in which it is to be executed is filed as an exhibit to
the Registration Statement of which this Prospectus forms a part and will be
made available to prospective purchasers of the Notes upon request. The
Indenture is subject to and governed by the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The terms of the Notes include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act. The Notes are subject to all such terms, and Holders of the Notes
are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of certain provisions of the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below. The
definitions of certain terms used in the following summary are set forth below
under "-- Certain Definitions."
The Notes will be general unsecured obligations of the Company and will be
subordinated in right of payment to Senior Debt. The Notes will be jointly,
severally and unconditionally guaranteed on a senior subordinated basis by each
of the Restricted Subsidiaries of the Company and any future Restricted
Subsidiary of the Company. The obligations of the Subsidiary Guarantors under
the Guarantees will be general unsecured obligations of each of the Subsidiary
Guarantors and will be subordinated in right of payment to all obligations of
the Subsidiary Guarantors in respect of Senior Debt. See "-- Guarantees" and
"Risk Factors -- Subordination."
For purposes of this section, the term "Company" means Lomak Petroleum,
Inc. As of the date of the Indenture, all of the Company's Subsidiaries will be
Restricted Subsidiaries. Under certain circumstances, however, the Company will
be able to designate current and future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the
restrictive convenants set forth in the Indenture. See "--Certain Covenants."
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes and
any other payment obligations of the Company in respect of the Notes (including
any obligation to repurchase the Notes) will be subordinated in certain
circumstances in right of payment, as set forth in the Indenture, to the prior
payment in full in cash of all Senior Debt, whether outstanding on the date of
the Indenture or thereafter incurred.
Upon any payment or distribution of property or securities to creditors of
the Company in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, or in an assignment for the benefit of creditors or any
marshalling of the Company's assets and liabilities, the holders of Senior Debt
will be entitled to receive payment in full of all Obligations due in respect of
such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt, whether or not a
claim for such interest would be allowed in such proceeding) before the Holders
of the Notes will be entitled to receive any payment with respect to the Notes,
and until all Obligations with respect to Senior Debt are paid in full, any
distribution to which the Holders of the Notes would be entitled shall be made
to the holders of Senior Debt (except in each case that Holders of the Notes may
receive securities that are subordinated at least to the same extent as the
Notes are subordinated to Senior Debt and any securities issued in exchange for
Senior Debt and payments made from the trust described under "-- Legal
Defeasance and Covenant Defeasance").
The Company may not make any payment (whether by redemption, purchase,
retirement, defeasance or otherwise) upon or in respect of the Notes (except in
such subordinated securities or from the trust described under "-- Legal
Defeasance and Covenant Defeasance") if (i) a default in the payment of the
principal of, premium, if any, or interest on Designated Senior Debt occurs or
(ii) any other default occurs and is continuing with respect to Designated
Senior Debt that permits, or with the giving of notice or passage of time or
both (unless cured or waived) will permit, holders of the Designated Senior Debt
as to which such default
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relates to accelerate its maturity and the Trustee receives a notice of such
default (a "Payment Blockage Notice") from the Company or the holders of any
Designated Senior Debt. Cash payments on the Notes shall be resumed (a) in the
case of a payment default, upon the date on which such default is cured or
waived and (b) in case of a nonpayment default, the earliest of the date on
which such nonpayment default is cured or waived, the date on which the
applicable Payment Blockage Notice is retracted by written notice to the Trustee
or 90 days after the date on which the applicable Payment Blockage Notice is
received, unless the maturity of any Designated Senior Debt has been accelerated
or a default of the type described in clause (ix) under the caption "Events of
Default" has occurred and is continuing. No new period of payment blockage may
be commenced unless and until 360 days have elapsed since the date of
commencement of the payment blockage period resulting from the immediately prior
Payment Blockage Notice. No nonpayment default in respect of Designated Senior
Debt that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent
Payment Blockage Notice.
The Indenture will further require that the Company promptly notify holders
of Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency of the Company, Holders of the Notes may recover
less ratably than creditors of the Company who are holders of Senior Debt. On a
pro forma basis, after giving effect to the Cometra Acquisition, the related
financing transactions and the application of the proceeds therefrom, the
principal amount of Senior Debt outstanding at December 31, 1996 would have been
approximately $244 million, which represents borrowings under the Credit
Agreement. See "Description of Capital Stock and Indebtedness." The Indenture
will limit, subject to certain financial tests, the amount of additional
Indebtedness, including Senior Debt, that the Company and its Subsidiaries can
incur. See "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Disqualified Stock."
GUARANTEES
The Company's payment obligations under the Notes will be jointly,
severally and unconditionally guaranteed (the "Guarantees") by each Restricted
Subsidiary of the Company and any future Restricted Subsidiary of the Company.
The Guarantees will be subordinated to Indebtedness of the Subsidiary Guarantors
to the same extent and in the same manner as the Notes are subordinated to the
Senior Debt. Each Guarantee by a Subsidiary Guarantor will be limited in an
amount not to exceed the maximum amount that can be guaranteed by the applicable
Subsidiary Guarantor without rendering such Guarantee, as it relates to such
Subsidiary Guarantor, voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting rights of creditors
generally.
The Indenture will provide that no Subsidiary Guarantor may consolidate
with or merge with or into (whether or not such Subsidiary Guarantor is the
surviving Person), another Person whether or not affiliated with such Subsidiary
Guarantor, unless (i) subject to the provisions of the following paragraph, the
Person formed by or surviving any such consolidation or merger (if other than
such Subsidiary Guarantor) assumes all the obligations of such Subsidiary
Guarantor pursuant to a supplemental indenture in form and substance reasonably
satisfactory to the Trustee in respect of the Notes, the Indenture and the
Guarantees; (ii) immediately after giving effect to such transaction, no Default
or Event of Default exists; and (iii) such transaction does not violate any of
the covenants described under the heading "-- Certain Covenants."
The Indenture will provide that in the event of a sale or other disposition
of all or substantially all of the assets of a Subsidiary Guarantor to a third
party or an Unrestricted Subsidiary in a transaction that does not violate any
of the covenants in the Indenture, by way of merger, consolidation or otherwise,
or a sale or other disposition of all of the capital stock of a Subsidiary
Guarantor, then such Subsidiary Guarantor (in the event of a sale or other
disposition, by way of such a merger, consolidation or otherwise, of all of the
capital stock of such Subsidiary Guarantor) or the Person acquiring the property
(in the event of a sale or other disposition of all or substantially all of the
assets of such Subsidiary Guarantor) will be released from and relieved of any
obligations under its Guarantee; provided that the Net Proceeds of such sale or
other disposition are applied in
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accordance with the covenant described under the caption "-- Repurchase at the
Option of Holders -- Asset Sales."
Any Subsidiary Guarantor that is designated an Unrestricted Subsidiary in
accordance with the terms of the Indenture shall be released and relieved of its
obligations under its Guarantee and any Unrestricted Subsidiary and any newly
formed or newly acquired Subsidiary that becomes a Restricted Subsidiary will be
required to execute a Guarantee in accordance with the terms of the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $100 million and
will mature on , 2007. Interest on the Notes will accrue at the rate
of % per annum and will be payable semi-annually in arrears
on - and - of each year, commencing on
, 1997, to Holders of the Notes of record on the immediately
preceding and . Interest on the Notes will accrue from the most
recent date on which interest has been paid or, if no interest has been paid,
from the date of original issuance.
Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. Principal, premium, if any, and interest on the Notes will
be payable at the office or agency of the Company maintained for such purpose
within the City and State of New York or, in the event the Notes do not remain
in book-entry form, at the option of the Company, payment of interest may be
made by check mailed to the Holders of the Notes at their respective addresses
set forth in the applicable register of Holders of the Notes. Until otherwise
designated by the Company, the Company's office or agency in New York will be
the office of the Trustee maintained for such purpose. The Notes will be fully
registered as to principal and interest in minimum denominations of $1,000 and
integral multiples of $1,000 in excess thereof.
OPTIONAL REDEMPTION
Except as otherwise described below, the Notes will not be redeemable at
the Company's option prior to , 2002. Thereafter, the Notes will be
subject to redemption at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on of the years indicated below:
YEAR PERCENTAGE
---- ----------
2002......................................... %
2003......................................... %
2004......................................... %
2005 and thereafter.......................... 100%
Prior to , 2000, the Company may, at its option, on any one or
more occasions, redeem up to 33 1/3% of the original aggregate principal amount
of the Notes at a redemption price equal to % of the principal amount thereof,
plus accrued and unpaid interest, if any, thereon to the redemption date, with
all or a portion of the net proceeds of public sales of Equity Interests of the
Company; provided that at least 66 2/3% of the original aggregate principal
amount of the Notes remains outstanding immediately after the occurrence of such
redemption; and provided, further, that such redemption shall occur within 60
days of the date of the closing of the related sale of such Equity Interests.
SELECTION AND NOTICE
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed, or, if such Notes are not so listed, on a pro rata basis, by lot or by
such method as the Trustee shall deem fair and appropriate; provided that no
Note of $1,000 or less shall be redeemed in part. Notices of redemption shall be
mailed by first class mail at least 30 but not more than 60 days before the
redemption date
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to each Holder of the Notes to be redeemed at its registered address. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion thereof
will be issued in the name of the Holder thereof upon cancellation of the
original Note. On and after the redemption date, interest will cease to accrue
on the Notes or portions of them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of the Notes will
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount of the Notes plus accrued and
unpaid interest, if any, thereon to the date of purchase (the "Change of Control
Payment"). Within 30 days following any Change of Control, the Company will mail
a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offer to repurchase the Notes pursuant to
the procedures required by the Indenture and described in such notice. The
Change of Control Payment shall be made on a business day not less than 30 days
nor more than 60 days after such notice is mailed (the "Change of Control
Payment Date"). The Company will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all the Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of such Notes or portions thereof being purchased by
the Company. The Paying Agent will promptly mail to each Holder of the Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the
Indenture will not contain provisions that permit the Holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction.
The Company will not be required to make a Change of Control Offer if a
third party makes the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements set forth in the Indenture
applicable to a Change of Control Offer made by the Company and purchases all
Notes (or portions thereof) validly tendered and not withdrawn under such Change
of Control Offer.
The Credit Agreement will prohibit the Company from repurchasing any Notes
pursuant to a Change of Control Offer prior to the repayment in full of the
Senior Debt under the Credit Agreement. Moreover, the occurrence of certain
change of control events identified in the Credit Agreement will constitute a
default under the Credit Agreement. Any future Credit Facilities or other
agreements relating to the Senior Debt to which the Company becomes a party may
contain similar restrictions and provisions. If a Change of Control were to
occur, the Company may not have sufficient available funds to pay the Change of
Control Payment for all Notes that might be delivered by Holders of the Notes
seeking to accept the Change of Control Offer after
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first satisfying its obligations under the Credit Agreement or other agreements
relating to Senior Debt, if accelerated. The failure of the Company to make or
consummate the Change of Control Offer or pay the Change of Control Payment when
due will constitute a Default under the Indenture and will otherwise give the
Trustee and the Holders of the Notes the rights described under "--Events of
Default and Remedies."
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of the Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
Asset Sales
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, engage in an Asset Sale unless (i) the
Company or the Restricted Subsidiary, as the case may be, receives consideration
at the time of such Asset Sale at least equal to the fair market value (as
determined in good faith by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee, which determination shall be
conclusive evidence of compliance with this provision) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 85% of the
consideration therefor received by the Company or such Restricted Subsidiary in
such Asset Sale, plus all other Asset Sales since the date of the Indenture, on
a cumulative basis, is in the form of cash or Cash Equivalents; provided that
the amount of any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the Notes or any guarantee thereof) that are assumed by
the transferee of any such assets pursuant to a customary novation agreement
that releases the Company or such Restricted Subsidiary from further liability.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to reduce Senior
Debt, (b) to acquire a controlling interest in another Oil and Gas Business, (c)
to make capital expenditures in respect of the Company's or its Restricted
Subsidiaries' Oil and Gas Business, (d) to purchase long-term assets that are
used or useful in such Oil and Gas Business or (e) to repurchase any Notes.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce Senior Debt that is revolving debt or otherwise invest such
Net Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied as provided in the first sentence
of this paragraph will (after the expiration of the periods specified in this
paragraph) be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10 million, the
Company will be required to make an offer to all Holders of the Notes and, to
the extent required by the terms thereof, to all holders or lenders of Pari
Passu Indebtedness (an "Asset Sale Offer") to purchase the maximum principal
amount of the Notes and any such Pari Passu Indebtedness to which the Asset Sale
Offer applies that may be purchased out of the Excess Proceeds, at an offer
price in cash equal to 100% of the principal amount thereof plus accrued and
unpaid interest thereon to the date of purchase, or, in the case, of any other
Pari Passu Indebtedness, 100% of the principal amount thereof (or with respect
to discount Pari Passu Indebtedness, the accreted value thereof) on the date of
purchase, in each case, in accordance with the procedures set forth in the
Indenture or the agreements governing the Pari Passu Indebtedness, as
applicable. To the extent that the aggregate principal amount (or accreted
value, as the case may be) of the Notes and Pari Passu Indebtedness tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use any remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of the Notes surrendered by Holders thereof and the
aggregate principal amount or accreted value of other Pari Passu Indebtedness
surrendered by holders or lenders thereof, collectively, exceeds the amount of
Excess Proceeds, the Trustee and the trustee or other lender representatives for
the Pari Passu Indebtedness shall select the Notes and other Pari Passu
Indebtedness to be purchased on a pro rata basis, based on the aggregate
principal amount (or
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accreted value, as applicable) thereof surrendered in such Asset Sale Offer.
Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
The Credit Agreement will prohibit the Company from purchasing any Notes
from the Net Proceeds of Asset Sales. Any future credit agreements or other
agreements relating to Senior Debt to which the Company becomes a party may
contain similar restrictions and provisions. In the event an Asset Sale Offer
occurs at a time when the Company is prohibited from purchasing the Notes, the
Company could seek the consent of its lenders to the purchase or could attempt
to refinance the Senior Debt that contain such prohibition. If the Company does
not obtain such a consent or repay such Senior Debt, the Company may remain
prohibited from purchasing the Notes. In such case, the Company's failure to
purchase tendered Notes would constitute an Event of Default under the Indenture
which would, in turn, constitute a default under the Credit Agreement and
possibly a default under other agreements relating to Senior Debt. In such
circumstances, the subordination provisions in the Indenture would likely
restrict payments to the Holders of the Notes.
CERTAIN COVENANTS
Restricted Payments
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or
pay any dividend or make any other payment or distribution on account of the
Company's Equity Interests (including, without limitation, any payment to
holders of the Company's Equity Interests in connection with any merger or
consolidation involving the Company) to the direct or indirect holders of the
Company's Equity Interests in their capacity as such (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of the
Company); (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any direct or indirect parent or other
Affiliate of the Company that is not a Wholly Owned Restricted Subsidiary of the
Company; (iii) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is subordinated to
the Notes, except at final maturity; or (iv) make any Restricted Investment (all
such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "-- Incurrence of
Indebtedness and Issuance of Disqualified Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clauses (2), (3), (5), (6) and (7) of the next succeeding paragraph), is
less than the sum of (i) 50% of the Consolidated Net Income of the Company
for the period (taken as one accounting period) from the beginning of the
first fiscal quarter commencing after the date of the Indenture to the end
of the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted Payment
(or, if such Consolidated Net Income for such period is a deficit, less
100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds
received by the Company from the issue and sale since the date of the
Indenture of Equity Interests of the Company or of debt securities of the
Company that have been converted into or exchanged for such Equity
Interests (other than Equity Interests (or convertible debt securities)
sold to a Subsidiary of the Company and other than Disqualified Stock or
debt securities that have been converted into Disqualified Stock), plus
(iii) to the extent that any Restricted Investment that was made after the
date of the Indenture is sold for cash or otherwise liquidated or repaid
for cash, the lesser of (A) the net proceeds of such sale, liquidation or
repayment and (B) the initial amount of such Restricted Investment;
provided,
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however, that the foregoing provisions of this paragraph (c) will not
prohibit Restricted Payments in an aggregate amount not to exceed $20
million.
The foregoing provisions will not prohibit: (1) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (2) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c)(ii) of the preceding paragraph; (3) the defeasance, redemption
or repurchase of Subordinated Indebtedness with the net cash proceeds from an
incurrence of subordinated Permitted Refinancing Debt or the substantially
concurrent sale (other than to a Subsidiary of the Company) of Equity Interests
of the Company (other than Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c)(ii) of the
preceding paragraph; (4) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or any Subsidiary of
the Company held by any of the Company's (or any of its Subsidiaries') employees
pursuant to any management equity subscription agreement or stock option
agreement in effect as of the date of the Indenture; provided that the aggregate
price paid for all such repurchased, redeemed, acquired or retired Equity
Interests shall not exceed $2 million in any twelve-month period; and provided
further that no Default or Event of Default shall have occurred and be
continuing immediately after such transaction; (5) repurchases of Equity
Interests deemed to occur upon exercise of stock options if such Equity
Interests represent a portion of the exercise price of such options; (6) the
redemption of the 6% Convertible Subordinated Debentures; provided that the
average closing price of the Company's common stock for the 30 trading days
prior to the date of such redemption is greater than 120% of the conversion
price and (7) conversion or exchange of the $2.03 Convertible Preferred Stock in
accordance with its terms.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (as determined in good faith by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee, which
determination shall be conclusive evidence of compliance with this provision) on
the date of the Restricted Payment of the asset(s) proposed to be transferred by
the Company or the applicable Restricted Subsidiary, as the case may be,
pursuant to the Restricted Payment. Not later than five days after the date of
making any Restricted Payment, the Company shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by the covenant
"Restricted Payments" were computed.
Designation of Unrestricted Subsidiaries
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under clause (c) of the first paragraph of the covenant
"Restricted Payments." All such outstanding Investments will be deemed to
constitute Investments in an amount equal to the greater of the fair market
value or the book value of such Investments at the time of such designation.
Such designation will only be permitted if such Restricted Payment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
Incurrence of Indebtedness and Issuance of Disqualified Stock
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company will not issue any
Disqualified Stock and will not permit any of its
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Restricted Subsidiaries to issue any shares of preferred stock; provided,
however, that the Company may incur Indebtedness (including Acquired Debt) or
issue shares of Disqualified Stock if:
(i) the Fixed Charge Coverage Ratio for the Company's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have
been at least 2.5 to 1, determined on a pro forma basis as set forth in the
definition of Fixed Charge Coverage Ratio; and
(ii) no Default or Event of Default shall have occurred and be
continuing at the time such additional Indebtedness is incurred or such
Disqualified Stock is issued or would occur as a consequence of the
incurrence of the additional Indebtedness or the issuance of the
Disqualified Stock.
Notwithstanding the foregoing, the Indenture will not prohibit any of the
following (collectively, "Permitted Indebtedness"): (a) the Indebtedness
evidenced by the Notes; (b) the incurrence by the Company or any of its
Restricted Subsidiaries of Indebtedness pursuant to Credit Facilities, so long
as the aggregate principal amount of all Indebtedness outstanding under all
Credit Facilities does not, at any one time, exceed the greater of (i) $400
million (or, if there is any permanent reduction in the aggregate principal
amount permitted to be borrowed under the Credit Agreement, such lesser
aggregate principal amount) and (ii) an amount equal to the sum of (a) $50
million plus (b) 30% of Adjusted Consolidated Net Tangible Assets determined
after the incurrence of such Indebtedness (including the application of the
proceeds therefrom); (c) the guarantee by any Subsidiary Guarantor of any
Indebtedness that is permitted by the Indenture to be incurred by the Company;
(d) all Indebtedness of the Company and its Restricted Subsidiaries in existence
as of the date of the Indenture after giving effect to the Cometra Acquisition,
the related financing transactions and the application of the proceeds thereof;
(e) intercompany Indebtedness between or among the Company and any of its Wholly
Owned Restricted Subsidiaries; provided, however, that (i) if the Company is the
obligor on such Indebtedness, such Indebtedness is expressly subordinate to the
payment in full of all Obligations with respect to the Notes and (ii)(A) any
subsequent issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Company or a Wholly Owned
Restricted Subsidiary and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Wholly Owned
Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence
of such Indebtedness by the Company or such Restricted Subsidiary, as the case
may be; (f) Indebtedness in connection with one or more standby letters of
credit, guarantees, performance bonds or other reimbursement obligations, in
each case, issued in the ordinary course of business and not in connection with
the borrowing of money or the obtaining of advances or credit (other than
advances or credit on open account, includible in current liabilities, for goods
and services in the ordinary course of business and on terms and conditions
which are customary in the Oil and Gas Business, and other than the extension of
credit represented by such letter of credit, guarantee or performance bond
itself), not to exceed in the aggregate at any given time 5% of Total Assets;
(g) Indebtedness under Interest Rate Hedging Agreements entered into for the
purpose of limiting interest rate risks, provided that the obligations under
such agreements are related to payment obligations on Indebtedness otherwise
permitted by the terms of this covenant and that the aggregate notional
principal amount of such agreements does not exceed 105% of the principal amount
of the Indebtedness to which such agreements relate; (h) Indebtedness under Oil
and Gas Hedging Contracts, provided that such contracts were entered into in the
ordinary course of business for the purpose of limiting risks that arise in the
ordinary course of business of the Company and its Restricted Subsidiaries; (i)
the incurrence by the Company of Indebtedness not otherwise permitted to be
incurred pursuant to this paragraph, provided that the aggregate principal
amount (or accreted value, as applicable) of all Indebtedness incurred pursuant
to this clause (i), together with all Permitted Refinancing Debt incurred
pursuant to clause (j) of this paragraph in respect of Indebtedness previously
incurred pursuant to this clause (i), does not exceed $10 million at any one
time outstanding; (j) Permitted Refinancing Debt incurred in exchange for, or
the net proceeds of which are used to refinance, extend, renew, replace, defease
or refund, Indebtedness that was permitted by the Indenture to be incurred
(including Indebtedness previously incurred pursuant to this clause (j)); (k)
accounts payable or other obligations of the Company or any Restricted
Subsidiary to trade creditors created or assumed by the Company or such
Restricted Subsidiary in the ordinary course of business in connection with the
obtaining of goods or services; (l) Indebtedness consisting of obligations in
respect of
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purchase price adjustments, guarantees or indemnities in connection with the
acquisition or disposition of assets; and (m) production imbalances that do not,
at any one time outstanding, exceed 2% of the Total Assets of the Company.
The Indenture will provide that the Company will not permit any
Unrestricted Subsidiary to incur any Indebtedness other than Non-Recourse Debt;
provided, however, if any such Indebtedness ceases to be Non-Recourse Debt, such
event shall be deemed to constitute an incurrence of Indebtedness by the
Company.
No Layering
The Indenture will provide that (i) the Company will not incur, create,
issue, assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the Notes and (ii) the Subsidiary Guarantors will
not directly or indirectly incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any guarantees issued in respect of Senior Debt and senior in any
respect in right of payment to the Guarantees, provided, however, that the
foregoing limitations will not apply to distinctions between categories of
Indebtedness that exist by reason of any Liens arising or created in respect of
some but not all such Indebtedness.
Liens
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause
or suffer to exist or become effective any Lien securing Indebtedness of any
kind (other than Permitted Liens) upon any of its property or assets, now owned
or hereafter acquired, unless all payments under the Notes are secured by such
Lien prior to, or on an equal and ratable basis with, the Indebtedness so
secured for so long as such Indebtedness is secured by such Lien.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (i)(x) pay dividends
or make any other distributions to the Company or any of its Restricted
Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest
or participation in, or measured by, its profits, or (y) pay any indebtedness
owed by it to the Company or any of its Restricted Subsidiaries, (ii) make loans
or advances to the Company or any of its Restricted Subsidiaries or (iii)
transfer any of its properties or assets to the Company or any of its Restricted
Subsidiaries, except for such encumbrances or restrictions existing under or by
reason of (a) the Credit Agreement as in effect as of the date of the Indenture,
and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof or any other
Credit Facility, provided that such amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements, refinancings or
other Credit Facilities are no more restrictive taken as a whole with respect to
such dividend and other payment restrictions than those contained in the Credit
Agreement as in effect on the date of the Indenture, (b) the Indenture and the
Notes, (c) applicable law, (d) any instrument governing Indebtedness or Capital
Stock of a Person acquired by the Company or any of its Restricted Subsidiaries
as in effect at the time of such acquisition (except, in the case of
Indebtedness, to the extent such Indebtedness was incurred in connection with or
in contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person and its Subsidiaries, or the property or assets of the Person and its
Subsidiaries, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred, (e) by
reason of customary non-assignment provisions in leases and customary provisions
in other agreements that restrict assignment of such agreement or rights
thereunder, entered into in the ordinary course of business and consistent with
past practices, (f) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described in
clause (iii) above on the property so acquired, or (g) Permitted Refinancing
Debt, provided that the restrictions contained in the
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agreements governing such Permitted Refinancing Debt are no more restrictive
than those contained in the agreements governing the Indebtedness being
refinanced.
Merger, Consolidation, or Sale of Assets
The Indenture will provide that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets, in one or more related transactions, to another
Person, and the Company may not permit any of its Restricted Subsidiaries to
enter into any such transaction or series of transactions if such transaction or
series of transactions would, in the aggregate, result in a sale, assignment,
transfer, lease, conveyance, or other disposition of all or substantially all of
the properties or assets of the Company to another Person, in either case unless
(i) the Company is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (the "Surviving Entity") is a corporation organized or
existing under the laws of the United States, any state thereof or the District
of Columbia; (ii) the Surviving Entity (if the Company is not the continuing
obligor under the Indenture) assumes all the obligations of the Company under
the Notes and the Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee; (iii) immediately before and after
giving effect to such transaction or series of transactions no Default or Event
of Default exists; (iv) immediately after giving effect to such transaction or a
series of transactions on a pro forma basis (and treating any Indebtedness not
previously an obligation of the Company and its Subsidiaries which becomes the
obligation of the Company or any of its Subsidiaries as a result of such
transaction or series of transactions as having been incurred at the time of
such transaction or series of transactions), the Consolidated Net Worth of the
Company and its Subsidiaries or the Surviving Entity (if the Company is not the
continuing obligor under the Indenture) is equal to or greater than the
Consolidated Net Worth of the Company and its Subsidiaries immediately prior to
such transaction or series of transactions and (v) the Company or the Surviving
Entity (if the Company is not the continuing obligor under the Indenture) will,
at the time of such transaction or series of transactions and after giving pro
forma effect thereto as if such transaction or series of transactions had
occurred at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the test set forth
in the first paragraph of the covenant described above under the caption "--
Incurrence of Indebtedness and Issuance of Disqualified Stock." Notwithstanding
the restrictions described in the foregoing clauses (iv) and (v), any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company, and any Wholly Owned Restricted Subsidiary
may consolidate with, merge into or transfer all or part of its properties and
assets to another Wholly Owned Restricted Subsidiary.
Transactions with Affiliates
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any of
its Affiliates (each of the foregoing, an "Affiliate Transaction"), unless (i)
such Affiliate Transaction is on terms that are no less favorable to the Company
or the relevant Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Subsidiary with an unrelated
Person and (ii) the Company delivers to the Trustee (a) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $1.0 million but less than or equal to $5.0
million, an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (i) above, (b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $5.0 million but less than or equal to $10.0 million, a resolution of
the Board of Directors set forth in an Officers' Certificate certifying that
such Affiliate Transaction or series of Affiliate Transactions complies with
clause (i) above and that such Affiliate Transaction or series of Affiliate
Transactions has been approved in good faith by a majority of the members of the
Board of Directors who are disinterested with respect to such Affiliate
Transaction or series of related Affiliate Transactions, which resolution shall
be conclusive evidence of compliance with this provision, and (c) with respect
to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate
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consideration in excess of $10.0 million, the Company delivers a resolution of
the Board of Directors set forth in an Officers' Certificate certifying that
such Affiliate Transaction or series of related Affiliate Transactions complies
with clause (i) above and that such Affiliate Transaction or series of related
Affiliate Transactions has been approved in good faith by a resolution adopted
by a majority of the members of the Board of Directors of the Company who are
disinterested with respect to such Affiliate Transaction or series of related
Affiliate Transactions and an opinion as to the fairness to the Company or such
Subsidiary of such Affiliate Transaction or series of related Affiliate
Transactions (which resolution and fairness opinion shall be conclusive evidence
of compliance with this provision) from a financial point of view issued by an
accounting, appraisal, engineering or investment banking firm of national
standing; (which resolution and fairness opinion shall be conclusive evidence of
compliance with this provision); provided that the following shall not be deemed
Affiliate Transactions: (1) transactions contemplated by any employment
agreement or other compensation plan or arrangement entered into by the Company
or any of its Subsidiaries in the ordinary course of business and consistent
with the past practice of the Company or such Subsidiary, (2) transactions
between or among the Company and/or its Restricted Subsidiaries, (3) Restricted
Payments and Permitted Investments that are permitted by the provisions of the
Indenture described above under the caption "--Restricted Payments," and (4)
indemnification payments made to officers, directors and employees of the
Company or any Subsidiary pursuant to charter, bylaw, statutory or contractual
provisions.
Additional Subsidiary Guarantees
The Indenture will provide that if the Company or any of its Restricted
Subsidiaries shall acquire or create another Restricted Subsidiary after the
date of the Indenture, then such newly acquired or created Restricted Subsidiary
will be required to execute a Guarantee and deliver an opinion of counsel, in
accordance with the terms of the Indenture.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any material respect in any business other than the Oil and Gas
Business.
Commission Reports
Notwithstanding that the Company may not be required to remain subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act, to the
extent permitted by the Exchange Act the Company will file with the Commission
and provide, within 15 days after such filing, the Trustee and Holders and
prospective Holders (upon request) with the annual reports and the information,
documents and other reports which are specified in Sections 13 and 15(d) of the
Exchange Act (but without exhibits in the case of the Holders and prospective
Holders). In the event that the Company is not permitted to file such reports,
documents and information with the Commission, the Company will provide
substantially similar information to the Trustee, the Holders, and prospective
Holders (upon request) as if the Company were subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act. The Company also will
comply with the other provisions of Section 314(a) of the Trust Indenture Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event
of Default: (i) a default for 30 days in the payment when due of interest on the
Notes (whether or not prohibited by the subordination provisions of the
Indenture); (ii) a default in payment when due of the principal of or premium,
if any, on the Notes (whether or not prohibited by the subordination provisions
of the Indenture); (iii) the failure by the Company to comply with its
obligations under "Certain Covenants -- Merger, Consolidation or Sale of Assets"
above; (iv) the failure by the Company for 30 days after notice from the Trustee
or the Holders of at least 25% in principal amount of the Notes then outstanding
to comply with the provisions described under the captions "Repurchase at the
Option of Holders and "Certain Covenants" other than the provisions described
under "-- Merger, Consolidation or Sale of Assets"; (v) failure by the Company
for 60 days after notice from the Trustee or the Holders of at least 25% in
principal amount of the Notes then outstanding to comply with
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any of its other agreements in the Indenture or the Notes; (vi) except as
permitted by the Indenture, any Guarantee shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any reason to be in
full force and effect or a Subsidiary Guarantor, or any Person acting on behalf
of such Subsidiary Guarantor, shall deny or disaffirm its obligations under its
Guarantee; (vii) a default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or
is created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (b) results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there is then existing a Payment Default or the
maturity of which has been so accelerated, aggregates $10 million or more;
provided, that if any such default is cured or waived or any such acceleration
rescinded, or such Indebtedness is repaid, within a period of 10 days from the
continuation of such default beyond the applicable grace period or the
occurrence of such acceleration, as the case may be, such Event of Default under
the Indenture and any consequential acceleration of the Notes shall be
automatically rescinded; (viii) the failure by the Company or any of its
Restricted Subsidiaries to pay final, non-appealable judgments aggregating in
excess of $5 million, which judgments remain unpaid or discharged for a period
of 60 days; and (ix) certain events of bankruptcy or insolvency with respect to
the Company or any of its Significant Subsidiaries or any group of Subsidiaries
that, taken together, would constitute a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Notes then outstanding may
declare the principal of and accrued but unpaid interest on such Notes to be due
and payable immediately. Notwithstanding the foregoing, in the case of an Event
of Default arising from certain events of bankruptcy or insolvency, with respect
to the Company or any Significant Subsidiary or any group of Subsidiaries that,
taken together, would constitute a Significant Subsidiary, all outstanding Notes
will become due and payable without further action or notice. Holders of the
Notes may not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the Notes then outstanding may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Holders of the Notes notice of
any continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
The Holders of a majority in principal amount of the Notes then outstanding
by notice to the Trustee may on behalf of the Holders of all of the Notes waive
any existing Default or Event of Default and its consequences under the
Indenture except a continuing Default or Event of Default in the payment of
interest or premium on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, within
five business days of becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event of Default.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of such outstanding Notes to
receive payments in respect of the principal of, premium, if any, or interest on
such Notes when such payments are due from the trust referred to below, (ii) the
Company's obligations with respect to such Notes concerning issuing temporary
Notes, registration of such Notes, mutilated, destroyed, lost or stolen Notes
and the maintenance of an office or agency for payment and money for security
payments held in trust, (iii) the rights, powers, trusts, duties and immunities
of the Trustee, and the Company's obligations in connection therewith and (iv)
the Legal Defeasance provisions of the Indenture. In addition, the Company may,
at its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any
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omission to comply with such obligations shall not constitute a Default or Event
of Default. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default and Remedies" will no longer
constitute an Event of Default.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the outstanding Notes
on the stated maturity or on the applicable redemption date, as the case may be,
and the Company must specify whether the Notes are being defeased to maturity or
to a particular redemption date; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to such Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to such Trustee
confirming that the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit: (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company must have delivered to the Trustee an opinion of counsel
to the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii) the
Company must deliver to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the Holders of
the Notes over the other creditors of the Company, or with the intent of
defeating, hindering, delaying or defrauding creditors of the Company or others;
and (viii) the Company must deliver to the Trustee an Officers' Certificate and
an opinion of counsel, each stating that all conditions precedent provided for
relating to the Legal Defeasance or the Covenant Defeasance have been complied
with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of the Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the Notes or the Guarantees may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the Notes then
outstanding (including, without limitation, consents obtained in connection with
a purchase of,
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or tender offer or exchange offer for, the Notes), and any existing default or
compliance with any provision of such Indenture, the Notes or the Guarantees may
be waived with the consent of the Holders of a majority in principal amount of
the then outstanding Notes (including consents obtained in connection with a
tender offer or exchange offer for the Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of the Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the Notes
(other than provisions relating to the covenants described above under the
caption "-- Repurchase at the Option of Holders"), (iii) reduce the rate of or
change the time for payment of interest on any Note, (iv) waive a Default or
Event of Default in the payment of principal of or premium, if any, or interest
on the Notes (except a recision of acceleration of the Notes by the Holders of
at least a majority in principal amount of such Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Note payable
in money other than that stated in the Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of Holders of the Notes to receive payments of principal of or premium, if any,
or interest on the Notes or (vii) make any change in the foregoing amendment and
waiver provisions. In addition, any amendment to the provisions described under
"-- Repurchase at the Option of Holders" or the provisions of Article 10 of the
Indenture (which relate to subordination) will require the consent of the
Holders of at least 66 2/3% in principal amount of the Notes then outstanding if
such amendment would adversely affect the rights of Holders of such Notes.
However, no amendment may be made to the subordination provisions of the
Indenture that adversely affects the rights of any holder of Senior Debt then
outstanding unless the holders of such Senior Debt (or any group or
representative thereof authorized to give a consent) consents to such change.
Notwithstanding the foregoing, without the consent of any Holder of the
Notes the Company and the Trustee may amend or supplement the Indenture or the
Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
in the case of a merger or consolidation, to make any change that would provide
any additional rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, to
secure the Notes or to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest, it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of the Notes, unless such Holder shall have offered to
such Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
GOVERNING LAW
The Indenture, the Notes and the Guarantees provide that they will be
governed by the laws of the State of New York.
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BOOK-ENTRY, DELIVERY AND FORM
The Notes to be sold as set forth herein will be issued in the form of a
fully registered Global Certificate (the "Global Certificate"). The Global
Certificate will be deposited on the date of the closing of the sale of the
Notes offered hereby (the "Closing Date") with, or on behalf of, The Depository
Trust Company, New York, New York (the "Depositary") and registered in the name
of Cede & Co., as nominee of the Depositary (such nominee being referred to
herein as the "Global Certificate Holder").
Except as set forth below, the Global Certificate may be transferred, in
whole and not in part, only to another nominee of the Depositary or to a
successor of the Depositary or its nominee.
The Depositary has advised the Company and the Underwriters as follows: it
is a limited-purpose trust company which was created to hold securities for its
participating organizations (the "Participants") and to facilitate the clearance
and settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. Participants
include securities brokers and dealers (including the Underwriters), banks,
trust companies, clearing corporations and certain other organizations. Access
to the Depositary's book-entry system is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("indirect participants"). Persons who are not Participants may beneficially own
securities held by the Depositary only through Participants or indirect
participants.
The Depositary has also advised that pursuant to procedures established by
it (i) upon the issuance by the Company of the Notes, the Depositary will credit
the accounts of Participants designated by the Underwriters with the principal
amount of the Notes purchased by the Underwriters, and (ii) ownership of
beneficial interests in the Global Certificate will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
the Depositary (with respect to Participants' interests), the Participants and
the indirect participants. The laws of some states require that certain persons
take physical delivery in definitive form of securities which they own.
Consequently, the ability to transfer beneficial interests in the Global
Certificate is limited to such extent.
All payments on the Global Certificate registered in the name of the
Depositary's nominee will be made by the Company through the Paying Agent to the
Depositary's nominee as the registered owner of the Global Certificate. Under
the terms of the Indenture, the Company and the Trustee will treat the persons
in whose names the Notes are registered as the owners of such Notes for the
purpose of receiving payments of principal and interest on such Notes and for
all other purposes whatsoever. Therefore, neither the Company, the Trustee nor
the Paying Agent has any direct responsibility or liability for the payment of
principal or interest on the Notes to owners of beneficial interests in the
Global Certificate. The Depositary has advised the Company and the Trustee that
its present practice is, upon receipt of any payment of principal or interest,
to credit immediately the accounts of the Participants with payment in amounts
proportionate to their respective holdings in principal amount of beneficial
interests in the Global Certificate as shown on the records of the Depositary.
Payments by Participants and indirect participants to owners of beneficial
interests in the Global Certificate will be governed by standing instructions
and customary practices, as is now the case with securities held for the
accounts of customers in bearer form or registered in "street name" and will be
the responsibility of such Participants or indirect participants.
So long as the Global Certificate Holder is the registered owner of the
Global Certificate, the Global Certificate Holder will be considered the sole
Holder under the Indenture of any Notes evidenced by the Global Certificate.
Beneficial owners of Notes evidence by the Global Certificate will not be
considered the owners or Holders thereof under the Indenture for any purpose,
including with respect to the giving of any directions, instructions or
approvals to the Trustee thereunder. Neither the Company nor the Trustee will
have any responsibility or liability for any aspect of the records of the
Depositary or for maintaining, supervising or reviewing any records of the
Depositary relating to the Notes.
As long as the Notes are represented by a Global Certificate, the
Depositary's nominee will be the only entity that can exercise a right to
repurchase the Notes. See "-- Repurchase at the Option of Holders." Notice by
Participants or indirect participants or by owners of beneficial interests in a
Global Certificate held
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through such Participants or indirect participants of the exercise of the option
to elect repurchase of beneficial interests in Notes represented by a Global
Certificate must be transmitted to the Depositary in accordance with its
procedures on a form required by the Depositary and provided to Participants. In
order to ensure that the Depositary's nominee will timely exercise a right to
repurchase with respect to a particular Note, the beneficial owner of such Note
must instruct the broker or other Participant or indirect participant through
which it holds an interest in such Note to notify the Depositary of its desire
to exercise a right to repurchase. Different firms have different cut-off times
for accepting instructions from their customers and, accordingly, each
beneficial owner should consult the broker or other Participant or indirect
participant through which it holds an interest in a Note in order to ascertain
the cut-off time by which such an instruction must be given in order for timely
notice to be delivered to the Depositary. The Company will not be liable for any
delay in delivery to the Paying Agent of notices of the exercise of any option
to elect repurchase.
The Company will issue Notes in definitive form in exchange for the Global
Certificate if, and only if, either (i) the depositary is at any time unwilling
or unable to continue as depositary and a successor depositary is not appointed
by the Company within 90 days, (ii) an Event of Default has occurred and is
continuing and the Notes registrar has received a request from the Depositary to
issue Notes in definitive form in lieu of all or a portion of the Global
Certificate (in which case the Company shall deliver Notes in definitive form
within 30 days of such request), or (iii) the Company determines not to have the
Notes represented by a Global Certificate. In any instance, an owner of a
beneficial interest in the Global Certificate will be entitled to have Notes
equal in principal amount to such beneficial interest registered in its name and
will be entitled to physical delivery of such Notes in definitive form. Notes so
issued in definitive form will be issued in denominations of $1,000 and integral
multiples thereof and will be issued in registered form only, without coupons.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Adjusted Consolidated Net Tangible Assets" means (without duplication), as
of the date of determination, (i) the sum of (a) discounted future net revenues
from proved oil and gas reserves of the Company and its Restricted Subsidiaries
calculated in accordance with the Commission's guidelines before any state or
federal income taxes, with no less than 80% of the discounted future net
revenues estimated by one or more nationally recognized firms of independent
petroleum engineers in a reserve report prepared as of the end of the Company's
most recently completed fiscal year, as increased by, as of the date of
determination, the estimated discounted future net revenues from (1) estimated
proved oil and gas reserves acquired since the date of such year-end reserve
report, and (2) estimated oil and gas reserves attributable to upward revisions
of estimates of proved oil and gas reserves since the date of such year-end
reserve report due to exploration, development or exploitation activities, in
each case calculated in accordance with the Commission's guidelines (utilizing
the prices utilized in such year-end reserve report) increased by the accretion
of the discount from the date of the reserve report to the date of
determination, and decreased by, as of the date of determination, the estimated
discounted future net revenues from (3) estimated proved oil and gas reserves
produced or disposed of since the date of such year-end reserve report and (4)
estimated oil and gas reserves attributable to downward revisions of estimates
of proved oil and gas reserves since the date of such year-end reserve report
due to changes in geological conditions or other factors which would, in
accordance with standard industry practice, cause such revisions, in each case
calculated in accordance with the Commission's guidelines (utilizing the prices
utilized in such year-end reserve report); provided that, in the case of each of
the determinations made pursuant to clause (1) through (4), such increases and
decreases shall be as estimated
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by the Company's petroleum engineers, unless in the event that there is a
Material Change as a result of such acquisitions, dispositions or revisions,
then the discounted future net revenues utilized for purposes of this clause
(i)(a) shall be confirmed in writing by one or more nationally recognized firms
of independent petroleum engineers, (b) the capitalized costs that are
attributable to oil and gas properties of the Company and its Restricted
Subsidiaries to which no proved oil and gas reserves are attributable, based on
the Company's books and records as of a date no earlier than the date of the
Company's latest annual or quarterly financial statements, (c) the Net Working
Capital on a date no earlier than the date of the Company's latest annual or
quarterly financial statements and (d) the greater of (1) the net book value on
a date no earlier than the date of the Company's latest annual or quarterly
financial statements or (2) the book value of other tangible assets (including,
without duplication, investments in unconsolidated Restricted Subsidiaries) of
the Company and its Restricted Subsidiaries, as of the date no earlier than the
date of the Company's latest annual or quarterly financial statements, minus
(ii) the sum of (a) minority interests, (b) any gas balancing liabilities of the
Company and its Restricted Subsidiaries reflected in the Company's latest
audited financial statements, and (c) the discounted future net revenues,
calculated in accordance with the Commission's guidelines, attributable to
reserves subject to Dollar-Denominated Production Payments which, based on the
estimates of production and price assumptions included in determining the
discounted future net revenues specified in (i)(a) above, would be necessary to
fully satisfy the payment obligations of the Company and its Restricted
Subsidiaries with respect to Dollar-Denominated Production Payments on the
schedules specified with respect thereto. If the Company changes its method of
accounting from the successful efforts method to the full cost method or a
similar method of accounting, "Adjusted Consolidated Net Tangible Assets" will
continue to be calculated as if the Company was still using the successful
efforts method of accounting. At December 31, 1996 the Adjusted Consolidated Net
Tangible Assets was $1.1 billion.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition
(but excluding the creation of a Lien) of any assets including, without
limitation, by way of a sale and leaseback (provided that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole will be governed by the provisions
of the Indenture described above under the caption "--Repurchase at the Option
of Holders -- Change of Control" and/or the provisions described above under the
caption "-- Certain Covenants -- Merger, Consolidation, or Sale of Assets" and
not by the provisions described above under "-- Repurchase at the Option of
Holders -- Asset Sales"), and (ii) the issuance or sale by the Company or any of
its Restricted Subsidiaries of Equity Interests of any of the Company's
Subsidiaries (including the sale by the Company or a Restricted Subsidiary of
Equity Interests in an Unrestricted Subsidiary), in the case of either clause
(i) or (ii), whether in a single transaction or a series of related transactions
(a) that have a fair market value in excess of $5 million or (b) for net
proceeds in excess of $5 million. Notwithstanding the foregoing, the following
shall not be deemed to be Asset Sales: (i) a transfer of assets by the Company
to a Wholly Owned Restricted Subsidiary of the Company or by a Wholly Owned
Restricted Subsidiary of the Company to the Company or to another Wholly Owned
Restricted Subsidiary of the Company, (ii) an issuance of Equity Interests by a
Wholly Owned Restricted Subsidiary of the Company to the Company or to another
Wholly Owned Restricted Subsidiary of the Company, (iii) a Restricted Payment or
Permitted Investment that is permitted by the covenant described above under the
caption "-- Certain Covenants -- Restricted Payments," (iv) the abandonment,
farm-out, lease or sublease of undeveloped oil and gas properties in the
ordinary course of business, (v) the trade or exchange by the Company or any
Restricted Subsidiary of the Company of any oil and gas property owned or held
by the Company or such Restricted Subsidiary for any oil and gas property owned
or held by another Person, which the Board of Directors of the Company
determines in good faith to be of approximately equivalent value, (vi) the trade
or exchange by the Company or any Subsidiary of the Company of any oil and gas
property owned or
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held by the Company or such Subsidiary for Equity Interests in another Person
engaged primarily in the Oil and Gas Business which, together with all other
such trades or exchanges (to the extent excluded from the definition of Asset
Sale pursuant to this clause (vi)) since the date of the Indenture, do not
exceed 5% of Adjusted Consolidated Net Tangible Assets determined after such
trade or exchange and (vii) the sale or transfer of hydrocarbons or other
mineral products or surplus or obsolete equipment in the ordinary course of
business.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Borrowing Base" means, as of any date, the aggregate amount of borrowing
availability as of such date under all Credit Facilities that determine
availability on the basis of a borrowing base or other asset-based calculation.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited), (iv) in the case of a limited liability company or
similar entity, any membership or similar interests therein and (v) any other
interest or participation that confers on a Person the right to receive a share
of the profits and losses of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any lender party to the Credit
Agreement or with any domestic commercial bank having capital and surplus in
excess of $500 million and a Thompson Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above, (v) commercial paper having a rating of at least P1 from Moody's
Investors Service, Inc. (or its successor) and a rating of at least A1 from
Standard & Poor's Ratings Group (or its successor) Rating Group (or its
successor) and (vi) investments in money market or other mutual funds
substantially all of whose assets comprise securities of the types described in
clauses (ii) through (v) above.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" or group of related "persons" (a "Group") (as such terms
are used in Section 13(d)(3) of the Exchange Act), (ii) the adoption of a plan
relating to the liquidation or dissolution of the Company, (iii) the
consummation of any transaction (including, without limitation, any purchase,
sale, acquisition, disposition, merger or consolidation) the result of which is
that any "person" (as defined above) or Group becomes the "beneficial owner" (as
such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act) of
more than 40% of the aggregate voting power of all classes of Capital Stock of
the Company having the right to elect directors under ordinary circumstances or
(iv) the first day on which a majority of the members of the Board of Directors
of the Company are not Continuing Directors.
"Commission" means the Securities and Exchange Commission.
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"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person and its Restricted Subsidiaries for
such period plus (i) an amount equal to any extraordinary loss, plus any net
loss realized in connection with an Asset Sale (together with any related
provision for taxes), to the extent such losses were included in computing such
Consolidated Net Income, plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was included in computing such Consolidated
Net Income, plus (iii) consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letters of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Interest Rate
Hedging Agreements), to the extent that any such expense was included in
computing such Consolidated Net Income, plus (iv) depreciation, depletion and
amortization expenses (including amortization of goodwill and other intangibles)
for such Person and its Restricted Subsidiaries for such period to the extent
that such depreciation, depletion and amortization expenses were included in
computing such Consolidated Net Income, plus (v) exploration expenses for such
Person and its Restricted Subsidiaries for such period to the extent such
exploration expenses were included in computing such Consolidated Net Income,
plus (vi) other non-cash charges (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Restricted Subsidiaries for such period to the
extent that such other non-cash charges were included in computing such
Consolidated Net Income, in each case, on a consolidated basis and determined in
accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on
the income or profits of, and the depreciation, depletion and amortization and
other non-cash charges and expenses of, a Restricted Subsidiary of the referent
Person shall be added to Consolidated Net Income to compute Consolidated Cash
Flow only to the extent (and in the same proportion) that the Net Income of such
Restricted Subsidiary was included in calculating the Consolidated Net Income of
such Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to the referent Person by such Restricted
Subsidiary without prior governmental approval (that has not been obtained), and
without direct or indirect restriction pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Restricted Subsidiary or its
stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Wholly Owned Restricted Subsidiary thereof,
(ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (that has not been obtained)
or, directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of the
most recent fiscal quarter of the Company ending prior to the taking of any
action for the purpose of which the determination is being made and for which
internal financial statements are available (but in no event ending more than
135 days prior to the taking of such action), as (i) the par or stated value of
all outstanding Capital Stock of the Company, plus (ii) paid-in capital or
capital surplus relating to such Capital Stock plus (iii) any retained earnings
or earned surplus less (A) any accumulated deficit and (B) any amounts
attributable to Disqualified Stock.
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"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of original issuance of the Notes or (ii) was nominated
for election or elected to such Board of Directors with the approval of a
majority of the Continuing Directors who were members of such Board at the time
of such nomination.
"Credit Agreement" means that certain Credit Agreement, dated as of
February 14, 1997, by and among the Company, the Subsidiaries, BankOne, as
administrative agent and as a lender, The Chase Manhattan Bank, as syndication
agent and as a lender, NationsBank, as documentation agent and as a lender, and
certain other banks, financial institutions and other entities, as lenders,
providing for up to $400 million of Indebtedness, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, restated, modified, renewed,
refunded, replaced or refinanced, in whole or in part, from time to time,
whether or not with the same lenders or agents.
"Credit Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Credit Agreement) or commercial
paper facilities with banks or other institutional lenders providing for
revolving credit loans, term loans, production payments, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
of credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time. Indebtedness under
Credit Facilities outstanding on the date on which the Notes are first issued
and authenticated under the Indenture (after giving effect to the use of
proceeds thereof) shall be deemed to have been incurred on such date in reliance
on the exception provided by clause (b) of the definition of Permitted
Indebtedness.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) the Credit Agreement and (ii) any other
Senior Debt permitted under the Indenture the principal amount of which is $25
million or more and that has been designated by the Company as "Designated
Senior Debt."
"Disqualified Stock" means any Capital Stock to the extent that, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the holder thereof, in whole or in part, on or prior
to the date that is 91 days after the date on which the Notes mature.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Interest Rate
Hedging Agreements) and (ii) the consolidated interest expense of such Person
and its Restricted Subsidiaries that was capitalized during such period, and
(iii) any interest expense on Indebtedness of another Person that is guaranteed
by such Person or any of its Restricted Subsidiaries or secured by a Lien on
assets of such Person or any of its Restricted Subsidiaries (whether or not such
guarantee or Lien is called upon) and (iv) the product of (a) all cash dividend
payments (and non-cash dividend payments in the case of a Person that is a
Restricted Subsidiary) on any series of preferred stock of such Person or any of
its Restricted Subsidiaries, times (b) a fraction, the numerator of which is one
and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP.
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"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Restricted Subsidiaries incurs, assumes, guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or issues
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the date on which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the referent Person or any of its Restricted Subsidiaries,
including through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date (including, without
limitation, any acquisition to occur on the Calculation Date) shall be deemed to
have occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated without
giving effect to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income, (ii) the net proceeds of Indebtedness incurred or
Disqualified Stock issued by the referent Person pursuant to the first paragraph
of the covenant described under the caption "-- Certain Covenants -- Incurrence
of Indebtedness and Issuance of Disqualified Stock" during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have been received by the referent Person or
any of its Restricted Subsidiaries on the first day of the four-quarter
reference period and applied to its intended use on such date, (iii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iv) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Indebtedness" means, with respect to any Person, without duplication, (a)
any indebtedness of such Person, whether or not contingent, (i) in respect of
borrowed money, (ii) evidenced by bonds, notes, debentures or similar
instruments, (iii) evidenced by letters of credit (or reimbursement agreements
in respect thereof) or banker's acceptances, (iv) representing Capital Lease
Obligations, (v) representing the balance deferred and unpaid of the purchase
price of any property, except any such balance that constitutes an accrued
expense or trade payable, (vi) representing any obligations in respect of
Interest Rate Hedging Agreements or Oil and Gas Hedging Contracts, and (vii) in
respect of any Production Payment, (b) all indebtedness of others secured by a
Lien on any asset of such Person (whether or not such indebtedness is assumed by
such Person), (c) obligations of such Person in respect of production
imbalances, (d) Attributable Debt of such Person, and (e) to the extent not
otherwise included in the foregoing, the guarantee by such Person of any
indebtedness of any other Person, provided that the indebtedness described in
clauses (a)(i), (ii), (iv) and (v) shall be included in this definition of
Indebtedness only if, and to the extent that, the indebtedness described in such
clauses would appear as a liability upon a balance sheet of such Person prepared
in accordance with GAAP.
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"Interest Rate Hedging Agreements" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations, but
excluding trade credit and other ordinary course advances customarily made in
the oil and gas industry), advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities, together with all items
that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP; provided that the following shall not constitute
Investments: (i) an acquisition of assets, Equity Interests or other securities
by the Company for consideration consisting of common equity securities of the
Company, (ii) Interest Rate Hedging Agreements entered into in accordance with
the limitations set forth in clause (g) of the second paragraph of the covenant
described under the caption "-- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Disqualified Stock", (iii) Oil and Gas Hedging Agreements
entered into in accordance with the limitations set forth in clause (h) of the
second paragraph of the covenant described under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Disqualified Stock" and
(iv) endorsements of negotiable instruments and documents in the ordinary course
of business.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other
than a precautionary financing statement with respect to a lease not intended as
a security agreement).
"Material Change" means an increase or decrease (excluding changes that
result solely from changes in prices) of more than 20% during a fiscal quarter
in the estimated discounted future net cash flows from proved oil and gas
reserves of the Company and its Restricted Subsidiaries, calculated in
accordance with clause (i)(a) of the definition of Adjusted Consolidated Net
Tangible Assets; provided, however, that the following will be excluded from the
calculation of Material Change: (i) any acquisitions during the quarter of oil
and gas reserves that have been estimated by one or more nationally recognized
firms of independent petroleum engineers and on which a report or reports exist
and (ii) any disposition of properties existing at the beginning of such quarter
that have been disposed of as provided in the "Asset Sales" covenant.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale, but excluding cash amounts
placed in escrow, until such amounts are released to the Company), net of the
direct costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees and expenses, and sales commissions) and
any relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness (other than Indebtedness under any Credit
Facility) secured by a Lien on the asset or assets that were the subject of such
Asset Sale and any reserve for
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adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP and any reserve established for future liabilities.
"Net Working Capital" means (i) all current assets of the Company and its
Restricted Subsidiaries, minus (ii) all current liabilities of the Company and
its Restricted Subsidiaries, except current liabilities included in
Indebtedness, in each case as set forth in financial statements of the Company
prepared in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides any guarantee or credit
support of any kind (including any undertaking, guarantee, indemnity, agreement
or instrument that would constitute Indebtedness), or (b) is directly or
indirectly liable (as a guarantor or otherwise); and (ii) no default with
respect to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) the explicit terms of which provide that there is
no recourse against any of the assets of the Company or its Restricted
Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Oil and Gas Business" means (i) the acquisition, exploration, development,
operation and disposition of interests in oil, gas and other hydrocarbon
properties, (ii) the gathering, marketing, treating, processing, storage,
distribution, selling and transporting of any production from such interests or
properties, (iii) any business relating to exploration for or development,
production, treatment, processing, storage, transportation or marketing of oil,
gas and other minerals and products produced in association therewith and (iv)
any activity that is ancillary to or necessary or appropriate for the activities
described in clauses (i) through (iii) of this definition.
"Oil and Gas Hedging Contracts" means any oil and gas purchase or hedging
agreement, and other agreement or arrangement, in each case, that is designed to
provide protection against oil and gas price fluctuations.
"Pari Passu Indebtedness" means Indebtedness that ranks pari passu in right
of payment to the Notes.
"Permitted Indebtedness" has the meaning given in the covenant described
under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Disqualified Stock."
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (b) any Investment in Cash
Equivalents or securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof having
maturities of not more than one year from the date of acquisition; (c) any
Investment by the Company or any Restricted Subsidiary of the Company in a
Person if, as a result of such Investment and any related transactions that at
the time of such Investment are contractually mandated to occur, (i) such Person
becomes a Wholly Owned Restricted Subsidiary of the Company or (ii) such Person
is merged, consolidated or amalgamated with or into, or transfers or conveys all
or substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Restricted Subsidiary of the Company; (d) any Investment made as a
result of the receipt of non-cash consideration from an Asset Sale that was made
pursuant to and in compliance with the covenant described above under the
caption "-- Repurchase at the Option of Holders -- Asset Sales"; (e) other
Investments in any Person or Persons having an aggregate fair market value
(measured on the date each such Investment was made and without giving effect to
subsequent changes in value), when taken together with all other Investments
made pursuant to this clause (e) that are at the time outstanding, not to exceed
$10 million; (f) any Investment acquired by the Company in exchange for Equity
Interests in the Company (other than Disqualified Stock); (g) shares of Capital
Stock received in connection with any good faith settlement of a bankruptcy
proceeding involving a trade creditor; (h) entry into operating agreements,
joint ventures, partnership agreements, working interests, royalty interests,
mineral leases, processing agreements, farm-out agreements, contracts for the
sale, transportation or exchange of oil and natural gas,
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unitization agreements, pooling arrangements, area of mutual interest
agreements, production sharing agreements or other similar or customary
agreements, transactions, properties, interests or arrangements, and Investments
and expenditures in connection therewith or pursuant thereto, in each case made
or entered into the ordinary course of the Oil and Gas Business, excluding,
however, Investments in corporations other than any Investment received pursuant
to the Asset Sale provision and (i) the acquisition of any Equity Interests
pursuant to a transaction of the type described in clause (vi) of the exclusions
from the definition of "Asset Sale."
"Permitted Liens" means (i) Liens securing Indebtedness of a Subsidiary or
Liens securing Senior Debt that is outstanding on the date of issuance of the
Notes (after giving effect to the Cometra Acquisition, the related financing
transactions and the application of the proceeds therefrom) and Liens securing
Senior Debt that are permitted by the terms of the Indenture to be incurred;
(ii) Liens in favor of the Company; (iii) Liens on property existing at the time
of acquisition thereof by the Company or any Subsidiary of the Company and Liens
on property or assets of a Subsidiary existing at the time it became a
Subsidiary, provided that such Liens were in existence prior to the
contemplation of the acquisition and do not extend to any assets other than the
acquired property; (iv) Liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment insurance or
other kinds of social security, or to secure the payment or performance of
tenders, statutory or regulatory obligations, surety or appeal bonds,
performance bonds or other obligations of a like nature incurred in the ordinary
course of business (including lessee or operator obligations under statutes,
governmental regulations or instruments related to the ownership, exploration
and production of oil, gas and minerals on state or federal lands or waters);
(v) Liens existing on the date of the Indenture (after giving effect to the
Cometra Acquisition, the related financing transactions and the application of
proceeds therefrom); (vi) Liens for taxes, assessments or governmental charges
or claims that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (vii) statutory liens of
landlords, mechanics, suppliers, vendors, warehousemen, carriers or other like
Liens arising in the ordinary course of business; (viii) judgment Liens not
giving rise to an Event of Default so long as any appropriate legal proceeding
that may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceeding may be
initiated shall not have expired; (ix) Liens on, or related to, properties or
assets to secure all or part of the costs incurred in the ordinary course of the
Oil and Gas Business for the exploration, drilling, development, or operation
thereof; (x) Liens in pipeline or pipeline facilities that arise under operation
of law; (xi) Liens arising under operating agreements, joint venture agreements,
partnership agreements, oil and gas leases, farm-out agreements, division
orders, contracts for the sale, transportation or exchange of oil or natural
gas, unitization and pooling declarations and agreements, area of mutual
interest agreements and other agreements that are customary in the Oil and Gas
Business, (xii) Liens reserved in oil and gas mineral leases for bonus or rental
payments and for compliance with the terms of such leases, (xiii) Liens securing
the Notes and (xiv) Liens not otherwise permitted by clauses (i) through (xiii)
that are incurred in the ordinary course of business of the Company or any
Subsidiary of the Company with respect to obligations that do not exceed $5.0
million at any one time outstanding.
"Permitted Refinancing Debt" means any Indebtedness of the Company or any
of its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness (other than Indebtedness incurred under a Credit Facility) of the
Company or any of its Restricted Subsidiaries; provided that: (i) the principal
amount of such Permitted Refinancing Indebtedness does not exceed the principal
amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased
or refunded (plus the amount of reasonable expenses incurred in connection
therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity
date on or later than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable taken as a whole to the Holders of the Notes as
those contained in the documentation governing the
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Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is incurred either by the Company or by the
Restricted Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Production Payments" means Dollar-Denominated Production Payments and
Volumetric Production Payments, collectively.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any direct or indirect Subsidiary of the
Company that is not an Unrestricted Subsidiary.
"Senior Debt" means (i) Indebtedness of the Company or any Subsidiary of
the Company under or in respect of any Credit Facility, whether for principal,
interest (including interest accruing after the filing of a petition initiating
any proceeding pursuant to any bankruptcy law, whether or not the claim for such
interest is allowed as a claim in such proceeding), reimbursement obligations,
fees, commissions, expenses, indemnities or other amounts, and (ii) any other
Indebtedness permitted under the terms of the Indenture, unless the instrument
under which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Notes. Notwithstanding
anything to the contrary in the foregoing sentence, Senior Debt will not include
(w) any liability for federal, state, local or other taxes owed or owing by the
Company, (x) any Indebtedness of the Company to any of its Subsidiaries or other
Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in
violation of the Indenture (other than Indebtedness under (i) any Credit
Agreement or (ii) any other Credit Facility that is incurred on the basis of a
representation by the Company to the applicable lenders that it is permitted to
incur such Indebtedness under the Indenture).
"Significant Subsidiary" means each Subsidiary that for the most recent
fiscal year of such Subsidiary had consolidated revenues greater than $10
million or as at the end of such fiscal year had assets greater than $10
million.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock, entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantors" means each Restricted Subsidiary of the Company
existing on the date of the Indenture (such Subsidiaries being Lomak Operating
Company, Lomak Production Company, Lomak Resources Company, Buffalo Oilfield
Services, Inc., Lomak Energy Services Company, Lomak Energy Company, LPI
Acquisition, Inc., Lomak Production I, L.P., Lomak Resources, L.L.C., Lomak
Offshore L.P., Lomak Pipeline Systems, L.P., Lomak Gathering & Processing
Company, Lomak Gas Company and LPI Operating Company), any other future
Restricted Subsidiary of the Company that executes a Guarantee in accordance
with the provisions of the Indenture, and, in each case, their respective
successors and assigns.
"Total Assets" means, with respect to any Person, the total consolidated
assets of such Person and its Restricted Subsidiaries, as shown on the most
recent balance sheet of such Person.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company which at
the time of determination shall be an Unrestricted Subsidiary (as designated by
the Board of Directors of the Company, as provided below) and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company
may designate any Subsidiary of the Company (including any newly acquired or
newly formed Subsidiary or a Person becoming a Subsidiary through merger or
consolidation or Investment therein) to be an Unrestricted Subsidiary only if
(a) such Subsidiary does not own any Capital Stock of, or own or hold any Lien
on any property of, any other Subsidiary of the Company which is not a
Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted
Subsidiary; (b) all the Indebtedness of such Subsidiary shall, at the
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date of designation, and will at all times thereafter, consist of Non-Recourse
Debt; (c) the Company certifies that such designation complies with the
"Limitation on Restricted Payments" covenant; (d) such Subsidiary, either alone
or in the aggregate with all other Unrestricted Subsidiaries, does not operate,
directly or indirectly, all or substantially all of the business of the Company
and its Subsidiaries; (e) such Subsidiary does not, directly or indirectly, own
any Indebtedness of or Equity Interest in, and has no investments in, the
Company or any Restricted Subsidiary; (f) such Subsidiary is a Person with
respect to which neither the Company nor any of its Restricted Subsidiaries has
any direct or indirect obligation (1) to subscribe for additional Equity
Interests or (2) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating results; and (g)
on the date such Subsidiary is designated an Unrestricted Subsidiary, such
Subsidiary is not a party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary with terms
substantially less favorable to the Company than those that might have been
obtained from Persons who are not Affiliates of the Company. Any such
designation by the Board of Directors of the Company shall be evidenced to the
Trustee by filing with the Trustee a resolution of the Board of Directors of the
Company giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions. If, at
any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred as of such date. The Board of
Directors of the Company may designate any Unrestricted Subsidiary to be
Restricted Subsidiary; provided, that (i) immediately after giving effect to
such designation, no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof and the Company could incur
at least $1.00 of additional Indebtedness (excluding Permitted Indebtedness)
pursuant to the first paragraph of the "Incurrence of Indebtedness and Issuance
of Disqualified Stock" covenant on a pro forma basis taking into account such
designation and (ii) such Subsidiary executes a Guarantee pursuant to the terms
of the Indenture.
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned, directly or indirectly, by such Person or by one or more
Wholly Owned Restricted Subsidiaries of such Person.
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UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") among the Company and the underwriters named
below (the "Underwriters"), the Company has agreed to sell to the Underwriters,
and the Underwriters have severally agreed to purchase from the Company, the
following respective principal amounts of Notes:
PRINCIPAL
UNDERWRITERS AMOUNT
------------ ---------
Chase Securities Inc........................................ $
NationsBanc Capital Markets, Inc............................
Bear, Stearns & Co. Inc.....................................
Credit Suisse First Boston Corporation......................
------------
Total............................................. $100,000,000
============
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Notes offered
hereby if any are purchased. The Company has been advised by the Underwriters
that the Underwriters propose to offer the Notes to the public initially at the
public offering price set forth on the cover page of this Prospectus, and to
certain dealers initially at such price less a discount not in excess of %
of the principal amount of the Notes. The Underwriters may allow, and such
dealers may reallow, a concession to certain other dealers not in excess
of % of the principal amount of the Notes. After the initial offering of the
Notes to the public, the Underwriters may change the public offering price,
concession and discount.
The Notes comprise new issues of securities with no established trading
market. The Company has been advised by the Underwriters that the Underwriters
currently intend to make a market in the Notes, as permitted by applicable laws
and regulations. No assurance can be given, however, that the Underwriters will
make a market in the Notes, or as to the liquidity of, or the trading market
for, the Notes.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities including liabilities under the Securities Act, and to contribute to
payments which the Underwriters might be required to make in respect thereof.
In order to facilitate the Notes Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Underwriters may overallot in connection with the Notes
Offering, creating a short position in the Notes for their own account. In
addition, to cover overallotments or to stabilize the price of the Notes, the
Underwriters may bid for, and purchase, Notes in the open market. Finally, the
underwriting syndicate may reclaim selling concessions allowed to an underwriter
or a dealer for distributing the Notes in the Notes Offering, if the syndicate
repurchases previously distributed Notes in transactions to cover syndicate
short positions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Notes above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
The Company has agreed with the Underwriters not to sell or otherwise
dispose of any debt securities registered under the Securities Act (or sold in a
private placement with resales permitted pursuant to Rule 144A thereunder) for a
period of 90 days after the date of this Prospectus without the prior written
consent of Chase Securities Inc.
The Chase Manhattan Bank, an affiliate of Chase Securities Inc., and
NationsBank of Texas, N.A., an affiliate of NationsBanc Capital Markets, Inc.,
are each an agent and a lender under the Credit Facility. See "Description of
Capital Stock and Indebtedness." Net proceeds of the Notes Offering will be
applied to repay indebtedness under the Credit Facility. See "Use of Proceeds."
In addition, The Chase Manhattan Bank and NationsBank of Texas, N.A., and their
affiliates, may perform financial and banking services for the Company in the
ordinary course of business. Anthony Dub, a Director of the Company, is a
Managing Director of Credit Suisse First Boston Corporation, one of the
Underwriters.
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The Notes Offering is being made pursuant to the provisions of Section
2710(c)(8) of the Conduct Rules of the National Association of Securities
Dealers, Inc. Bear, Stearns & Co. Inc. ("Bear Stearns") has agreed to act as
Qualified Independent Underwriter for the Notes Offering, and as such has
assumed responsibilities of conducting due diligence and the public offering
price of the Notes will not be higher than the price recommended by Bear
Stearns.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Notes offered
hereby will be passed upon for the Company by Vinson & Elkins L.L.P., 2300 First
City Tower, Houston, Texas 77002-6760, and for the Underwriters by Simpson
Thacher & Bartlett (a partnership which includes professional corporations), 425
Lexington Avenue, New York, New York 10017-3909.
EXPERTS
The Consolidated Financial Statements of the Company, as of December 31,
1995 and 1996 and for the three years then ended, included and incorporated by
reference in this Prospectus, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto included and incorporated by reference in this Prospectus in reliance
upon the authority of said firm as experts in giving said reports.
The statements of revenues and direct operating expenses of the American
Cometra Interests (referred to herein as the Cometra Properties) for the years
ended December 31, 1994, 1995 and 1996, included in the Registration Statement
have been audited by Coopers & Lybrand L.L.P. independent accountants, and are
included herein in reliance upon the authority of that firm as experts in
accounting and auditing.
The financial statements of the Bannon Interests as of December 31, 1995
and for the year then ended, have been incorporated by reference herein and in
the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
Certain information with respect to the gas and oil reserves of the Company
derived from the respective reports of Netherland, Sewell & Associates, Inc.,
Wright & Company, Inc., H. J. Gruy and Associates, Inc., Huddleston & Co., Inc.
and Clay, Holt & Klammer, each of which is a firm of independent petroleum
consultants, has been included and incorporated herein and elsewhere in the
Registration Statement in reliance upon the authority of said firm as experts
with respect to the matters contained in their respective reports.
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NO DEALER, SALES PERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES
OR ANY OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER WILL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
------------------------------------------------------------
TABLE OF CONTENTS
Available Information.................
Incorporation of Certain Information
by Reference........................
Prospectus Summary....................
Risk Factors..........................
Forward-Looking Information...........
Cometra Acquisition...................
Use of Proceeds.......................
Capitalization........................
Unaudited Pro Forma Consolidated
Financial Statements................
Selected Consolidated Financial
Data................................
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................
Business..............................
Management............................
Principal Stockholders and Share
Ownership of Management.............
Description of the Notes..............
Description of Capital Stock and
Indebtedness........................
Underwriting..........................
Legal Matters.........................
Experts...............................
Glossary..............................
Index to Financial Statements.........
PROSPECTUS
$100,000,000
LOMAK PETROLEUM, INC.
% SENIOR SUBORDINATED
NOTES DUE 2007
[LOMAK LOGO]
CHASE SECURITIES INC.
NATIONSBANC CAPITAL MARKETS, INC.
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
, 1997
117
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of the Offerings are estimated to be as follows:
Securities and Exchange Commission registration fee......... $ 59,644
NASD filing fee............................................. 20,500
New York Stock Exchange listing fee......................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses (including legal fees)........... *
Printing expenses........................................... *
Rating agency fees.......................................... *
Trustee fees and expenses................................... *
Transfer Agent fees......................................... *
Engineering fees and expenses............................... *
Miscellaneous............................................... *
--------
TOTAL..................................................... $ *
========
- ---------------
* To be provided by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL authorizes, inter alia, a corporation to indemnify
any person ("indemnitee") who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), by reason of the fact that such person
is or was an officer or director of such corporation, or is or was serving at
the request of such corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that he acted in good
faith and in a manner he reasonably believes to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. A
Delaware corporation may indemnify past or present officers and directors of
such corporation or of another corporation or other enterprise at the former
corporation's request, in an action by or in the right of the corporation to
procure a judgment in its favor under the same conditions, except that no
indemnification is permitted without judicial approval if such person is
adjudged to be liable to the corporation. Where an officer or director is
successful on the merits or otherwise in defense of any action referred to
above, or in defense of any claim, issue or matter therein, the corporation must
indemnify him against the expenses (including attorneys' fees) which he actually
and reasonably incurred in connection therewith. Section 145 further provides
that any indemnification shall be made by the corporation only as authorized in
each specific case upon a determination by the (i) stockholders, (ii) Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding or (iii) independent counsel if a
quorum of disinterested directors so directs. Section 145 provides that
indemnification pursuant to its provision is not exclusive of other rights of
indemnification to which a person may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise.
Section 145 of the DGCL also empowers the Company to purchase and maintain
insurance on behalf of any person who is or was an officer or director of the
Company against liability asserted against or incurred by him in any such
capacity, whether or not the Company would have the power to indemnify such
officer or director against such liability under the provisions of Section 145.
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Article SEVENTH, section (5) of the Company's Certificate of Incorporation
provides:
Any former, present or future director, officer or employee of the
Company or the legal representative of any such director, officer or
employee shall be indemnified by the Company
(a) against reasonable costs, disbursements and counsel fees paid
or incurred where such person has been successful on the merits or
otherwise in any pending, threatened or completed civil, criminal,
administrative or arbitrative action, suit or proceeding, and any appeal
therein and any inquiry or investigation which could lead to such
action, suit or proceeding, or in defense of any claim, issue or matter
therein, by reason of such person being or having been such director,
officer or employee, and
(b) with respect to any such action, suit, proceeding, inquiry or
investigation for which indemnification is not made under (a) above,
against reasonable costs, disbursements (which shall include amounts
paid in satisfaction of settlements, judgments, fines and penalties,
exclusive, however, of any amount paid or payable to the Company) and
counsel fees if such person also had no reasonable cause to believe the
conduct was unlawful, with the determination as to whether the
applicable standard of conduct was met to be made by a majority of the
members of the Board of Directors (sitting as a committee of the Board)
who were not parties to such inquiry, investigation, action, suit or
proceeding or by any one or more disinterested counsel to whom the
question may be referred to the Board of Directors; provided, however,
in connection with any proceeding by or in the right of the Company, no
indemnification shall be provided as to any person adjudged by any court
to be liable for negligence or misconduct except as and to the extent
determined by such court.
Article EIGHTH of the Company's Certificate of Incorporation provides:
No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director
derived an improper personal benefit. This paragraph shall not eliminate or
limit the liability of a director for any act or omission occurring prior
to the effective date of its adoption. If the General Corporation Law of
the State of Delaware is hereafter amended to authorize corporate action
further limiting or eliminating the personal liability of directors, then
the liability of a director to the Corporation shall be limited or
eliminated to the fullest extent permitted by the General Corporation Law
of the State of Delaware, as so amended from time to time. No repeal or
modification of this Article VIII, directly or by adoption of an
inconsistent provision of this Certificate of Incorporation, by the
stockholders of the Corporation shall be effective with respect to any
cause of action, suit claim or other matter, but for this Article VIII,
would accrue or arise prior to such repeal or modification.
Article XII of the Company's Bylaws, incorporating the above provisions,
provides for an indemnification agreement to be entered into by directors' and
designated officers of the Company. All directors of the Company have executed
an indemnification agreement the form of which was approved by stockholders at
the Company's 1994 annual stockholders meeting.
Article XII of the Company's Bylaws also allows the Company to purchase
liability insurance for officers and directors. As of the date hereof, there is
no such insurance in place.
Article XIII of the Company's Bylaws, with certain specified exceptions,
limits the personal liability of the directors to Lomak or its stockholders for
monetary damages for breach of fiduciary duty to the fullest extent permitted by
Delaware law, including any changes in Delaware law adopted in the future.
The form of the Underwriting Agreements filed as Exhibit 1.1 and 1.2 to
this Registration Statement contains certain provisions for indemnification of
directors and officers of the Company and the Underwriters against civil
liabilities under the Securities Act.
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Section 8.3 of the Agreement of Limited Partnership of Lomak Production I,
L.P., a Delaware limited partnership, provides for indemnification of Lomak
Energy Company, its general partner. The partnership shall indemnify and hold
harmless the general partner against any liability, loss damage, costs or
expense (including attorneys' fees) incurred by the general partner on behalf of
the partnership or in furtherance of the partnership's interest without
relieving the general partner of liability for fraud, misconduct, bad faith or
gross negligence. In addition, to the full extent permitted by applicable law,
the partnership shall indemnify and save harmless the general partner from and
reimburse the General Partner for, all judgments, penalties, including excise
and similar taxes, fines, settlements and reasonable expenses, if the general
partner was, is or is threatened to be named defendant or respondent in a
proceeding because the person is or was a general partner of the partnership.
The Certificate of Incorporation of each of Lomak Resources Company, Lomak
Gas Company, Lomak Gathering & Processing Company and Lomak Energy Company (each
Delaware corporations) provides that each director, officer and employee, past
or present, of the company shall be indemnified by the company to the fullest
extent permitted by Delaware law. The Bylaws of each of Lomak Resources Company
Lomak Gas Company, Lomak Gathering & Processing Company and Lomak Energy Company
provide that the company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (including proceedings by or in the right of the company) by
reason of the fact that he is or was a director, officer or employee or agent of
the company against expenses, judgments, fines and amounts paid in settlement
incurred by him in connection with such action if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the company, and with respect to any criminal action, had no reasonable cause to
believe his conduct was unlawful; provided that no indemnification shall be made
in respect of any claim as to which such person shall have adjudged to be liable
to the company unless a court shall find that such person is fairly and
reasonably entitled to indemnity. To the extent that a director, officer,
employee or agent of the corporation has been successful on the merits or
otherwise in defense of any action, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith.
The Bylaws of LPI Acquisition, Inc. (a Texas corporation) provide that the
company shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
(including proceedings by or in the right of the company) by reason of the fact
that he is or was a director, officer or employee or agent of the company
against expenses, judgments, fines and amounts paid in settlement incurred by
him in connection with such action if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
company, and with respect to any criminal action, had no reasonable cause to
believe his conduct was unlawful; provided that no indemnification shall be made
in respect of any claim as to which such person shall have adjudged to be liable
to the company unless a court shall find that such person is fairly and
reasonably entitled to indemnity. To the extent that a director, officer,
employee or agent of the corporation has been successful on the merits or
otherwise in defense of any action, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith.
The Code of Regulations of each of Lomak Operating Company and Buffalo
Oilfield Services (each Ohio corporations) provides that the corporation shall
indemnify any director or officer of the corporation against expense and amounts
paid in settlement actually and reasonably incurred by him in connection with
any threatened, pending, or completed action, suit, or proceeding, other than an
action by or in the right of the corporation, to which he was, is, or is
threatened to be made a party by reason of the fact that he is or was a director
or officer, provided that he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and
that, with respect to any criminal action or proceeding, he had no reasonable
cause to believe his conduct was unlawful. In the case of any threatened,
pending or completed action or suit by or in the right of the corporation, the
corporation shall indemnify each officer and director against expenses actually
and reasonably incurred in connection with the defense or settlement thereof,
provided that he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any matter as to which such person
was adjudged to be liable for negligence or misconduct in the performance of his
duty to
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the corporation unless and only to the extent that a court shall determine that
such person is fairly and reasonably entitled to indemnity for such expenses.
The Certificate of Incorporation and the Bylaws of Lomak Energy Services
Company provides for indemnification of its officers and directors to the full
extent permitted by Delaware law.
The Certificate of Incorporation of Lomak Production Company (a Delaware
corporation) provides that the corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by reason of the fact that he is or was a
director or officer of the corporation, against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in the best interests of, the corporation, in
accordance with and to the fullest extent permitted by statute. The Bylaws of
the corporation provide that the corporation shall indemnify its directors and
officers against expenses incurred in connection with the defense of any action,
suit or proceeding in which he is made a party by reason of being or having been
such director or officer unless he is adjudged to be liable for negligence or
misconduct in the performance of duties to the corporation. The Bylaws also
provide that the corporation may also reimburse to any director or officer the
reasonable costs of settlement of any such action, suit or proceeding, if it
shall be found by a majority of a committee composed of the directors not
involved in the matter in controversy that it was in the interests of the
corporation that such settlement be made and that such director, officer, or
employee was not guilty of negligence or misconduct.
Section 8.3 of the Agreement of Limited Partnership of Lomak Offshore,
L.P., an Ohio limited partnership, provides for indemnification of LPI Operating
Company, its general partner. The partnership shall indemnify and hold harmless
the general partner against any liability, loss damage, costs or expense
(including attorneys' fees) incurred by the general partner on behalf of the
partnership or in furtherance of the partnership's interest without relieving
the general partner of liability for fraud, misconduct, bad faith or gross
negligence. In addition, to the full extent permitted by applicable law, the
partnership shall indemnify and save harmless the general partner from and
reimburse the General Partner for, all judgments, penalties, including excise
and similar taxes, fines, settlements and reasonable expenses, if the general
partner was, is or is threatened to be named defendant or respondent in a
proceeding because the person is or was a general partner of the partnership.
Section 8.3 of the Agreement of Limited Partnership of Lomak Pipeline
Systems, a Texas limited partnership, provides for indemnification of Lomak
Gathering & Processing Company, its general partner. The partnership shall
indemnify and hold harmless the general partner against any liability, loss
damage, costs or expense (including attorneys' fees) incurred by the general
partner on behalf of the partnership or in furtherance of the partnership's
interest without relieving the general partner of liability for fraud,
misconduct, bad faith or gross negligence. In addition, to the full extent
permitted by applicable law, the partnership shall indemnify and save harmless
the general partner from and reimburse the General Partner for, all judgments,
penalties, including excise and similar taxes, fines, settlements and reasonable
expenses, if the general partner was, is or is threatened to be named defendant
or respondent in a proceeding because the person is or was a general partner of
the partnership.
II-4
121
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
1.1 -- Form of Common Stock Underwriting Agreement
**1.2 -- Form of Notes Underwriting Agreement
**2.1 -- Purchase and Sale Agreement between Cometra Energy, L.P. and
Cometra Production Company, L.P., as seller, and Lomak
Petroleum, Inc., as buyer, dated December 31, 1996,
including First Amendment to Purchase and Sale Agreement,
dated January 10, 1997.
**2.2 -- Purchase and Sale Agreement between Rockland, L.P., as
seller, and Lomak Petroleum, Inc., as buyer, dated December
31, 1996
**4.1 -- Specimen certificate for Common Stock
**4.2 -- Specimen certificate for Notes (included as Exhibit A to
Exhibit 4.3)
**4.3 -- Form of Trust Indenture relating to the Senior Subordinated
Notes due 2007 between Lomak Petroleum, Inc. and Fleet
National Bank as trustee.
**4.4(a) -- Certificate of Incorporation of the Company dated March 24,
1980 (incorporated by reference to the Company's
Registration Statement (No. 33-31558)).
**4.4(b) -- Certificate of Amendment of Certificate of Incorporation of
the Company dated July 22, 1981 (incorporated by reference
to the Company's Registration Statement (No. 33-31558)).
**4.4(c) -- Certificate of Amendment of Certificate of Incorporation of
the Company dated September 8, 1982 (incorporated by
reference to the Company's Registration Statement (No.
33-31558)).
**4.4(d) -- Certificate of Amendment of Certificate of Incorporation of
the Company dated December 28, 1988 (incorporated by
reference to the Company's Registration Statement (No.
33-31558)).
**4.4(e) -- Certificate of Amendment by Certificate of Incorporation of
the Company dated August 31, 1989 (incorporated by reference
to the Company's Registration Statement (No. 33-31558)).
**4.4(f) -- Certificate of Amendment of Certificate of Incorporation of
the Company dated May 30, 1991.
**4.4(g) -- Certificate of Amendment to the Certificate of Incorporation
of the Company dated November 20, 1992.
**4.4(h) -- Certificate of Amendment to the Certificate of Incorporation
of the Company dated May 24, 1996.
**4.4(i) -- Certificate of Amendment to the Certificate of Incorporation
of the Company dated October 2, 1996.
**4.4(j) -- Restated Certificate of Incorporation as required by Item
102 of Regulation S-T.
**4.5 -- By-Laws of the Company (incorporated by reference to the
Company's Registration Statement (No. 33-31558)).
*5.1 -- Opinion of Vinson & Elkins L.L.P.
**12.1 -- Statement re computation of ratios
23.1 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit 5.1
hereto)
**23.2 -- Consent of Arthur Andersen LLP
**23.3 -- Consent of Ernst & Young LLP
**23.4 -- Consent of Coopers & Lybrand LLP
**23.5 -- Consent of KPMG Peat Marwick LLP
**23.6 -- Consent of Netherland, Sewell & Associates, Inc.
**23.7 -- Consent of Wright & Company, Inc.
**23.8 -- Consent of H.J. Gruy and Associates, Inc.
**23.9 -- Consent of Huddleston & Co., Inc.
**23.10 -- Consent of Clay, Holt & Klammer
**24.1 -- Powers of Attorney (included on the signature page to this
Registration Statement)
**25.1 -- Statement of eligibility of trustee
**27.1 -- Financial Data Schedule
- ---------------
* To be filed by amendment.
** Previously filed.
II-5
122
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act of 1933,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-6
123
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cleveland, State of Ohio, on March 5, 1997.
LOMAK PETROLEUM, INC.
By /s/ Thomas W. Stoelk
-----------------------------------
Thomas W. Stoelk
Chief Financial Officer and Vice
President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to Registration Statement on Form S-3 has been signed by the following persons
in the capacities indicated.
NAME TITLE DATE
---- ----- ----
Thomas J. Edelman* Chairman and Chairman of the Board March 5, 1997
- ---------------------------------------------
Thomas J. Edelman
John H. Pinkerton* President, Chief Executive Officer, and Director March 5, 1997
- --------------------------------------------- (Chief Executive Officer)
John H. Pinkerton
/s/ Thomas W. Stoelk Chief Financial Officer and Vice President -- March 5, 1997
- --------------------------------------------- Finance (Principal Financial Officer)
Thomas W. Stoelk
John R. Frank* Chief Accounting Officer and Controller March 5, 1997
- --------------------------------------------- (Principal Accounting Officer)
John R. Frank
Robert E. Alkman* Director March 5, 1997
- ---------------------------------------------
Robert E. Alkman
Allen Finkelson* Director March 5, 1997
- ---------------------------------------------
Allen Finkelson
Anthony V. Dub* Director March 5, 1997
- ---------------------------------------------
Anthony V. Dub
Ben A. Guill* Director March 5, 1997
- ---------------------------------------------
Ben A. Guill
C. Rand Michaels* Director March 5, 1997
- ---------------------------------------------
C. Rand Michaels
*By: /s/ Thomas W. Stoelk
- -----------------------------------------
Thomas W. Stoelk
Attorney-in-Fact
II-7
124
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant
certifies that it has reasonable grounds to believe it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cleveland, State of Ohio, on March 5, 1997.
LOMAK OPERATING COMPANY
LOMAK ENERGY COMPANY
LOMAK PRODUCTION COMPANY
LOMAK RESOURCES COMPANY
LOMAK RESOURCES, L.L.C.
LPI ACQUISITION, INC.
BUFFALO OILFIELD SERVICES, INC.
LOMAK ENERGY SERVICES COMPANY
By /s/ Thomas W. Stoelk
-----------------------------------
Thomas W. Stoelk
Chief Financial Officer and Vice
President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to Registration Statement on Form S-3 has been signed by the following persons
in the capacities indicated.
NAME TITLE DATE
---- ----- ----
John H. Pinkerton* President, Chief Executive Officer, and Director March 5, 1997
- --------------------------------------------- (Chief Executive Officer)
John H. Pinkerton
/s/ Thomas W. Stoelk Vice President -- Finance, Chief Financial March 5, 1997
- --------------------------------------------- Officer and Director (Chief Financial Officer)
Thomas W. Stoelk
John R. Frank* Chief Accounting Officer and Controller March 5, 1997
- --------------------------------------------- (Principal Accounting Officer)
John R. Frank
C. Rand Michaels* Director March 5, 1997
- ---------------------------------------------
C. Rand Michaels
By /s/ Thomas W. Stoelk
-----------------------------------------
Thomas W. Stoelk
Attorney-in-fact
II-8
125
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cleveland, State of Ohio, on March 5, 1997.
LOMAK PRODUCTION I, L.P.
By: LOMAK PRODUCTION COMPANY
By /s/ Thomas W. Stoelk
-----------------------------------
Thomas W Stoelk
Chief Financial Officer and
Vice President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to Registration Statement on Form S-3 has been signed by the following persons
in the capacities indicated.
NAME TITLE DATE
---- ----- ----
John H. Pinkerton* President, Chief Executive Officer, and Director March 5, 1997
- --------------------------------------------- (Chief Executive Officer)
John H. Pinkerton
/s/ Thomas W. Stoelk Vice President -- Finance, Chief Financial March 5, 1997
- --------------------------------------------- Officer and Director (Principal Financial
Thomas W. Stoelk Officer)
John R. Frank* Chief Accounting Officer and Controller March 5, 1997
- --------------------------------------------- (Principal Accounting Officer)
John R. Frank
C. Rand Michaels* Director March 5, 1997
- ---------------------------------------------
C. Rand Michaels
*By: /s/ Thomas W. Stoelk
- -----------------------------------------
Thomas W. Stoelk
Attorney-in-Fact
II-9
126
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant
certifies that it has reasonable grounds to believe it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cleveland, State of Ohio, on March 5, 1997.
LOMAK GATHERING & PROCESSING
COMPANY
LOMAK GAS COMPANY
LPI OPERATING COMPANY
By /s/ Thomas W. Stoelk
-----------------------------------
Thomas W. Stoelk
Chief Financial Officer and Vice
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed by the following persons in
the capacities indicated.
NAME TITLE DATE
---- ----- ----
John H. Pinkerton* President, Chief Executive Officer, and Director March 5, 1997
- --------------------------------------------- (Chief Executive Officer)
John H. Pinkerton
/s/ Thomas W. Stoelk Vice President -- Finance, Chief Financial March 5, 1997
- --------------------------------------------- Officer and Director (Chief Financial Officer)
Thomas W. Stoelk
John R. Frank* Chief Accounting Officer and Controller March 5, 1997
- --------------------------------------------- (Principal Accounting Officer)
John R. Frank
C. Rand Michaels* Director March 5, 1997
- ---------------------------------------------
C. Rand Michaels
*By /s/ Thomas W. Stoelk
----------------------------------------
Thomas W. Stoelk
Attorney-in-Fact
II-10
127
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cleveland, State of Ohio, on March 5, 1997.
LOMAK OFFSHORE, L.P.
By: LPI OPERATING COMPANY
By /s/ Thomas W. Stoelk
-----------------------------------
Thomas W. Stoelk
Chief Financial Officer and
Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed by the following persons in
the capacities indicated.
NAME TITLE DATE
---- ----- ----
John H. Pinkerton* President, Chief Executive Officer, and Director March 5, 1997
- --------------------------------------------- (Chief Executive Officer)
John H. Pinkerton
/s/ Thomas W. Stoelk Vice President -- Finance, Chief Financial March 5, 1997
- --------------------------------------------- Officer and Director (Principal Financial
Thomas W. Stoelk Officer)
John R. Frank* Chief Accounting Officer and Controller March 5, 1997
- --------------------------------------------- (Principal Accounting Officer)
John R. Frank
C. Rand Michaels* Director March 5, 1997
- ---------------------------------------------
C. Rand Michaels
*By /s/ Thomas W. Stoelk
- --------------------------------------------
Thomas W. Stoelk
Attorney-in-Fact
II-11
128
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cleveland, State of Ohio, on March 5, 1997.
LOMAK PIPELINE SYSTEMS, L.P.
By: LOMAK GATHERING & PROCESSING
COMPANY
By /s/ Thomas W. Stoelk
-----------------------------------
Thomas W. Stoelk
Chief Financial Officer and
Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed by the following persons in
the capacities indicated.
NAME TITLE DATE
---- ----- ----
John H. Pinkerton* President, Chief Executive Officer, and March 5, 1997
- ------------------------------------------ Director (Chief Executive Officer)
John H. Pinkerton
/s/ Thomas W. Stoelk Vice President -- Finance, Chief Financial March 5, 1997
- ------------------------------------------ Officer and Director (Principal Financial
Thomas W. Stoelk Officer)
John R. Frank* Chief Accounting Officer and Controller March 5, 1997
- ------------------------------------------ (Principal Accounting Officer)
John R. Frank
C. Rand Michaels* Director March 5, 1997
- ------------------------------------------
C. Rand Michaels
*By /s/ Thomas W. Stoelk
----------------------------------------
Thomas W. Stoelk
Attorney-in-Fact
II-12
129
INDEX TO EXHIBITS
EXHIBIT NO. INDEX TO EXHIBITS
----------- -----------------
1.1 -- Form of Common Stock Underwriting Agreement
**1.2 -- Form of Notes Underwriting Agreement
**2.1 -- Purchase and Sale Agreement between Cometra Energy, L.P. and
Cometra Production Company, L.P., as seller, and Lomak
Petroleum, Inc., as buyer, dated December 31, 1996,
including First Amendment to Purchase and Sale Agreement,
dated January 10, 1997.
**2.2 -- Purchase and Sale Agreement between Rockland, L.P., as
seller, and Lomak Petroleum, Inc., as buyer, dated December
31, 1996
**4.1 -- Specimen certificate for Common Stock
**4.2 -- Specimen certificate for Notes (included as Exhibit A to
Exhibit 4.3)
**4.3 -- Form of Trust Indenture relating to the Senior Subordinated
Notes due 2007 between Lomak Petroleum, Inc. and Fleet
National Bank as trustee.
**4.4(a) -- Certificate of Incorporation of the Company dated March 24,
1980 (incorporated by reference to the Company's
Registration Statement (No.33-31558)).
**4.4(b) -- Certificate of Amendment of Certificate of Incorporation of
the Company dated July 22, 1981 (incorporated by reference
to the Company's Registration Statement (No. 33-31558)).
**4.4(c) -- Certificate of Amendment of Certificate of Incorporation of
the Company dated September 8, 1982 (incorporated by
reference to the Company's Registration Statement (No.
33-31558)).
**4.4(d) -- Certificate of Amendment of Certificate of Incorporation of
the Company dated December 28, 1988 (incorporated by
reference to the Company's Registration Statement (No.
33-31558)).
**4.4(e) -- Certificate of Amendment by Certificate of Incorporation of
the Company dated August 31, 1989 (incorporated by reference
to the Company's Registration Statement (No. 33-31558)).
**4.4(f) -- Certificate of Amendment of Certificate of Incorporation of
the Company dated May 30, 1991.
**4.4(g) -- Certificate of Amendment to the Certificate of Incorporation
of the Company dated November 20, 1992.
**4.4(h) -- Certificate of Amendment to the Certificate of Incorporation
of the Company dated May 24, 1996.
**4.4(i) -- Certificate of Amendment to the Certificate of Incorporation
of the Company dated October 2, 1996.
**4.4(j) -- Restated Certificate of Incorporation as required by Item
102 of Regulation S-T.
**4.5 -- By-Laws of the Company (incorporated by reference to the
Company's Registration Statement (No. 33-31558)).
*5.1 -- Opinion of Vinson & Elkins L.L.P.
**12.1 -- Statement re computation of ratios
23.1 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit 5.1
hereto)
**23.2 -- Consent of Arthur Andersen LLP
**23.3 -- Consent of Ernst & Young LLP
**23.4 -- Consent of Coopers & Lybrand LLP
**23.5 -- Consent of KPMG Peat Marwick LLP
**23.6 -- Consent of Netherland, Sewell & Associates, Inc.
**23.7 -- Consent of Wright & Company, Inc.
**23.8 -- Consent of H.J. Gruy and Associates, Inc.
**23.9 -- Consent of Huddleston & Co., Inc.
**23.10 -- Consent of Clay, Holt & Klammer
**24.1 -- Powers of Attorney (included on the signature page to this
Registration Statement)
**25.1 -- Statement of eligibility of trustee
**27.1 -- Financial Data Schedule
- ---------------
* To be filed by amendment.
** Previously filed.
1
EXHIBIT 1.1
4,000,000 Shares
LOMAK PETROLEUM, INC.
Common Stock
UNDERWRITING AGREEMENT
_________ __, 1997
MORGAN STANLEY & CO. INCORPORATED
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
A.G. EDWARDS & SONS, INC.
MCDONALD & COMPANY SECURITIES, INC.
As Representatives of the several Underwriters
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs:
1. Introductory. Lomak Petroleum, Inc., a Delaware
corporation (the "Company") proposes to issue and sell, pursuant to the terms
of this Agreement, to the several Underwriters named in Schedule A hereto (the
"Underwriters" which term also shall include any underwriter substituted as
hereinafter provided in Section 11) an aggregate of 4,000,000 shares of Common
Stock, par value $.01 per share (the "Common Stock") of the Company. The
aggregate of 4,000,000 shares so proposed to be sold by the Company is herein
called the "Firm Stock". The Company also proposes to sell severally to the
Underwriters, on a pro rata basis, at the option of the Underwriters, an
aggregate of not more than 600,000 additional shares of Common Stock as
provided in Section 3 of this Agreement. The aggregate of 600,000 shares so
proposed to be sold is herein called the "Optional Stock". The Firm Stock and
the Optional Stock are collectively referred to herein as the "Stock". Morgan
Stanley & Co. Incorporated, PaineWebber Incorporated, Smith Barney Inc., A.G.
Edwards & Sons, Inc. and McDonald & Company Securities, Inc. are acting as
representatives of the several Underwriters and in such capacity are
hereinafter referred to as the "Representatives".
It is understood by all parties that the Company is concurrently
entering into an agreement, dated the date hereof (the "Debt Underwriting
Agreement") providing for the sale by the Company of $100,000,000 principal
amount of its __% Senior Subordinated Notes due 2007 to Chase Securities Inc.,
NationsBanc Capital Markets, Inc., Bear, Stearns & Co. Inc. and Credit Suisse
First Boston Corporation, as underwriters.
Before the purchase and public offering of the Stock by the
several Underwriters, the Company and the Representatives,
2
acting on behalf of the several Underwriters, shall enter into an agreement
substantially in the form of Exhibit A hereto (the "Pricing Agreement"). The
Pricing Agreement may take the form of an exchange of any standard form of
written telecommunication between the Company and the Representatives and shall
specify such applicable information as is indicated in Exhibit A hereto. The
offering of the Stock will be governed by this Agreement, as supplemented by
the Pricing Agreement. From and after the date of the execution and delivery
of the Pricing Agreement, this Agreement shall be deemed to incorporate the
Pricing Agreement.
2. (a) Representations and Warranties of the Company. The
Company represents and warrants to, and agrees with, the several Underwriters,
as of the date hereof and as of the date of the Pricing Agreement (such later
date being hereinafter referred to as the "Representation Date"), that:
(i) A registration statement on Form S-3 (File No.
333-_______) with respect to the Stock, a copy of which has heretofore been
delivered to you, has been carefully prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and the
published rules and regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") under the Act, and has been filed
with the Commission under the Act; and the Company has so prepared and proposes
so to file prior to the effective date of such registration statement an
amendment to such registration statement including the final form of prospectus
(which may omit such information as permitted by Rule 430A of the Rules and
Regulations). Such registration statement as amended and the prospectus
constituting a part thereof (including in each case all documents incorporated
by reference therein, as from time to time amended or supplemented pursuant to
the Act, the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise
and the information, if any, deemed to be a part thereof pursuant to Rule
430A(b) or Rule 434 of the Rules and Regulations) are hereinafter referred to
as the "Registration Statement" and the "Prospectus", respectively, except that
if any revised prospectus shall be provided to the Underwriters by the Company
for use in connection with the offering of the Stock which differs from the
prospectus on file at the Commission at the time the Registration Statement
becomes effective (whether or not such prospectus is required to be filed by
the Company pursuant to Rule 424(b) of the Rules and Regulations), the term
"Prospectus" shall refer to such revised prospectus from and after the time it
is first provided to the Underwriters for such use. If the Company elects to
rely on Rule 434 under the Rules and Regulations, all references to the
Prospectus shall be deemed to include, without limitation, the form of
prospectus and the abbreviated term sheet, taken together, provided to the
Underwriters by the Company in reliance on Rule 434 under Rules and Regulations
(the "Rule 434 Prospectus"). If the Company files a registration statement to
3
register a portion of the Securities and relies on Rule 462(b) for such
registration statement to become effective upon filing with the Commission (the
"Rule 462 Registration Statement"), then any reference to "Registration
Statement" herein shall be deemed to be to both the registration statement
referred to above (No. 333-__) and the Rule 462 Registration Statement, as each
such registration statement may be amended pursuant to the Act.
(ii) When the Registration Statement becomes effective and as
of the Representation Date, the Registration Statement and the Prospectus will
conform in all material respects to the requirements of the Act and the Rules
and Regulations. At the time the Registration Statement becomes effective and
at the Representation Date, the Registration Statement will not include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading. The Prospectus, at the time the Registration Statement becomes
effective and as of the Representation Date (unless the term "Prospectus"
refers to a prospectus which has been provided to the Underwriters by the
Company for use in connection with the offering of the Stock which differs from
the prospectus on file at the Commission at the time the Registration Statement
becomes effective, in which case at the time it is first provided to the
Underwriters for such use) and at the Closing Date (as hereinafter defined),
will not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided,
however, that the foregoing representations, warranties and agreements shall
not apply to information relating to the Underwriters contained in or omitted
from the Registration Statement or the Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf
of any Underwriter, directly or through the Representatives, specifically for
use in the preparation thereof.
(iii) The documents incorporated by reference in the
Prospectus, when they were filed with the Commission, conformed in all material
respects to the requirements of the Exchange Act and the published rules and
regulations of the Commission thereunder (the "Exchange Act Regulations"), and
none of such documents contained an 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 light of the circumstances under which they
were made, not misleading; and any further documents so filed and incorporated
by reference, when they are filed with the Commission, will conform in all
material respects to the requirements of the Exchange Act and the published
rules and regulations of the Commission thereunder and will not contain an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or
3
4
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The Company and the transactions
contemplated by this Agreement meet the requirements for use of Form S-3 under
the Act.
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, (A) neither
the Company nor any of its subsidiaries has incurred any liabilities or
obligations (indirect, direct or contingent) or entered into any oral or
written agreements or other transactions not in the ordinary course of business
that, singly or in the aggregate, could reasonably be expected to be material
to the Company and its subsidiaries considered as a whole or that could
reasonably be expected to result in a material reduction in the earnings of the
Company and its subsidiaries considered as a whole, (B) neither the Company nor
any of its subsidiaries has sustained any loss or interference with its
business or properties from strike, fire, flood, windstorm, accident or other
calamity (whether or not covered by insurance) that, singly or in the
aggregate, could reasonably be expected to be material to the Company and its
subsidiaries considered as a whole, (C) there has been no material change in
the indebtedness of the Company, no change in the capital stock of the Company
and, except for regular quarterly dividends, no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital stock,
and (D) there has not been any material adverse change, nor any development
that could, singly or in the aggregate, result in a material adverse change in
the condition (financial or other), business, prospects or results of
operations of the Company and its subsidiaries considered as a whole, whether
or not arising in the ordinary course of business.
(v) The financial statements, together with the related
notes and schedules, set forth or incorporated by reference in the Prospectus
and elsewhere in the Registration Statement, fairly present, on the basis
stated in the Registration Statement, the financial position and the results of
operations and changes in financial position of the Company and its
consolidated subsidiaries at the respective dates or for the respective periods
therein specified. Such financial statements and related notes and schedules
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis except as may be set forth in the Prospectus.
The selected financial data set forth in the Prospectus under the caption
"Selected Consolidated Financial Data" and in the Company's Annual Report on
Form 10-K for the fiscal-year ended [December 31, 1995], incorporated by
reference in the Prospectus fairly presents, on the basis stated in the
Registration Statement and such Annual Report, the information set forth
therein.
4
5
(vi) The pro forma financial statements and other pro forma
information and data of the Company and the related notes thereto included in
the Registration Statement and the Prospectus have been prepared in accordance
with the Commission's rules and guidelines with respect to pro forma financial
statements, present fairly in all material respects the information shown
therein and have been properly compiled on the bases described therein, and the
assumptions used in the preparation thereof are reasonable and the adjustments
used therein are appropriate to give effect to the transactions and
circumstances referred to therein.
(vii) Arthur Andersen LLP, Ernst & Young LLP, Coopers &
Lybrand L.L.P. and KPMG Peat Marwick LLP, who have expressed their opinions on
the audited financial statements and related schedules included or incorporated
by reference in the Registration Statement, are independent public accountants
as required by the Act and the Rules and Regulations.
(viii) The Company and each of its subsidiaries have been duly
organized and are validly existing and in good standing as corporations or
limited partnerships under the laws of their respective jurisdictions of
organization, with power and authority (corporate and other) to own, lease and
operate their properties and to conduct their businesses as described in the
Registration Statement and Prospectus; the Company and each of its subsidiaries
are in possession of and operating in compliance with all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates and orders
required for the conduct of its business, all of which are valid and in full
force and effect, and neither the Company nor any of its subsidiaries has
received any notice of proceedings relating to the revocation or modification
of any such franchise, grant, authorization, license, permit, easement,
consent, certificate or order which, singly or in the aggregate, if the subject
of an unfavorable decision, would result in a materially adverse change in the
condition (financial or otherwise), business, prospects or results of
operations of the Company and its subsidiaries considered as a whole; and the
Company and each of such subsidiaries are duly qualified to do business and in
good standing as foreign corporations or limited partnerships in all other
jurisdictions where their ownership or leasing of properties or the conduct of
their businesses requires such qualification.
(ix) The Company has authorized, issued and outstanding
capital stock as set forth under the heading "Capitalization" in the Prospectus
(except for subsequent issuances, if any, pursuant to reservations or
agreements referred to in the Prospectus); the issued and outstanding shares of
Common Stock of the Company conform to the description thereof in the
Prospectus and have been duly authorized and validly
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issued and are fully paid and nonassessable and are listed on the New York
Stock Exchange; the stockholders of the Company have no preemptive rights with
respect to any shares of capital stock of the Company and all outstanding
shares of capital stock of each corporate subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable and are owned directly
by the Company or by another subsidiary of the Company free and clear of any
liens, encumbrances, equities or claims.
(x) The Stock to be issued and sold by the Company to the
Underwriters hereunder has been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein and in the Pricing
Agreement, will be duly and validly issued and fully paid and nonassessable and
will conform to the description thereof in the Prospectus.
(xi) There are no contracts, agreements or understandings
between the Company or its subsidiaries and any third party (whether acting in
an individual, fiduciary or other capacity) granting such third party the right
to require the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such third
party or to require the Company to include such securities in the securities
registered pursuant to the registration Statement or in any securities being
registered pursuant to any other registration statement filed by the Company
under the Act.
(xii) There are no statutes, regulations, contracts or other
documents that are required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the registration Statement that
are not described or filed as required. The contracts so described in the
Registration Statement and the Prospectus are in full force and effect and
neither the Company or any of its subsidiaries nor, to the best knowledge of
the Company, any other party is in breach of or default under any such
contracts.
(xiii) The oil and gas reserve estimates of the Company and its
subsidiaries contained in the Registration Statement and the Prospectus have
been prepared primarily by independent petroleum consultants listed in the
Prospectus in accordance with Commission guidelines applied on a consistent
basis throughout the periods involved, and neither of the Company nor any of
its subsidiaries has any reason to believe that such estimates do not fairly
reflect oil and gas reserves of the Company and its subsidiaries at the dates
indicated.
(xiv) Except as disclosed in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any
subsidiary is the subject, that are required
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to be disclosed in the Registration Statement (other than as described
therein), or which, if determined adversely to the Company or any subsidiary,
would individually or in the aggregate result in a material adverse change in
the condition (financial or otherwise), business, prospects or results of
operations of the Company and its subsidiaries considered as a whole or which
might materially and adversely affect the consummation of this Agreement; and
to the best of the Company's knowledge no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.
(xv) The Company is not or with the giving of notice or
passage of time or both would be, in breach or violation of any of the terms or
provisions of or in default under (A) any statute, rule or regulation
applicable to the Company or any of its subsidiaries, (B) any indenture,
contract, lease, mortgage, deed of trust, note or other agreement or instrument
to which the Company or such subsidiary is a party or by which it may be bound,
(C) its certificate of incorporation, partnership agreement, by-laws or other
organizational documents, and (D) any order, decree or judgment of any court or
governmental agency or body having jurisdiction over the Company or any of its
subsidiaries. The performance of this Agreement and the Agreement dated
December 31, 1996, between the Company and American Cometra, Inc. ("Cometra")
(the "Cometra Acquisition Agreement") and the consummation of the transactions
herein contemplated will not, with the giving of notice or passage of time or
both, result in a breach or violation of any of the terms or provisions of or
constitute a default under (W) any statute, rule or regulation applicable to
the Company or any of its subsidiaries, (X) any indenture, contract, mortgage,
lease, deed of trust, note or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which it is bound, (Y) the
Company's or any such subsidiary's certificate of incorporation, partnership
agreements, by-laws or other organizational documents, or (Z) any order, decree
judgment of any court or governmental agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their respective properties.
(xvi) No labor dispute with the employees of the Company or
any of its subsidiaries exists or is imminent; and the Company is not aware of
any existing or imminent labor disturbance by the employees of any of its
principal suppliers, manufacturers or contractors which might be expected to
result in any material adverse change in the condition (financial or
otherwise), or in the earnings, affairs or business prospects of the Company
and its subsidiaries considered as a whole.
(xvii) No consent, approval, authorization, order, registration
or qualification of or with any court or governmental agency or body is
required for the issuance and sale
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of the Stock by the Company or for the consummation by the Company of the
transactions contemplated by this Agreement, including, without limitation, the
use of the proceeds from the sale of the Stock to be sold by the Company in the
manner contemplated in the Prospectus under the caption "Use of Proceeds,"
except such as may be required by the National Association of Securities
Dealers, Inc. (the "NASD") or under the Act or the securities or Blue Sky laws
of any jurisdiction in connection with the purchase and distribution of the
Stock by the Underwriters.
(xviii) This Agreement has been and the Pricing Agreement will
be duly authorized, executed and delivered by the Company.
(xix) The Company and its subsidiaries own or have obtained
valid licenses for all trademarks, trademark registrations, service marks,
service mark registrations, trade names and copyrights described in the
Prospectus as being owned, licensed or used by the Company or any of its
subsidiaries or that are necessary for the conduct of their respective
businesses as described in the Prospectus (collectively, "Intellectual
Property") and neither the Company nor any of its subsidiaries is aware of any
claim (or of any facts that would form a reasonable basis for any claim) to the
contrary or any challenge by any third party to the rights of the Company or
any of its subsidiaries with respect to any such Intellectual Property or to
the validity or scope of any such Intellectual Property and neither the Company
nor any of its subsidiaries has any claim against a third party with respect to
the infringement by such third party of any such Intellectual Property, which
claims or challenges, if adversely determined, could, singly or in the
aggregate, have a material adverse effect on the condition (financial or
otherwise), business prospects or results of operations of the Company and its
subsidiaries considered as a whole. The Company has a good faith belief in the
distinctiveness and enforceability of all trademarks, service marks and trade
names comprising the Intellectual Property.
(xx) The Company and its subsidiaries have such certificates,
permits, licenses, franchises, consents, approvals, authorizations and
clearances as are necessary to own, lease or operate their respective
properties and to conduct their respective businesses in the manner described
in the Prospectus ("Licenses") and all such Licenses are valid and in full
force and effect. The Company and each of its subsidiaries are in compliance
in all material respects with their respective obligations under such Licenses
and no event has occurred that allows, or after notice or lapse of time or both
would allow, revocation, suspension or termination of any such License or a
material violation of any such laws or regulations. No such License contains a
burdensome restriction on the Company or any
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of its subsidiaries that is not adequately disclosed in the Registration
Statement and the Prospectus.
(xxi) The Company is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
(xxii) The Company and each of its subsidiaries has (i) good
and defensible title to all its interests in its oil and gas properties, title
investigations having been carried out by or on behalf of the Company or such
subsidiary in accordance with good practice in the oil and gas industry in the
areas in which it operates and (ii) good and marketable title to, or has valid
rights to lease or otherwise use, all items of other real or personal property
which are material to the business of the Company and its subsidiaries taken as
a whole, in each case free and clear of all liens, encumbrances, claims and
defects that may materially interfere with the condition (financial or
otherwise), results of operations, business or prospects of the Company and its
subsidiaries taken as a whole.
(xxiii) There has been no storage, generation, transportation,
handling, treatment, disposal, discharge, emission, or other release of any
kind of toxic or other wastes or other hazardous substances, including, but not
limited to, brine, crude oil, natural gas liquids and other petroleum
materials, by, due to, or caused by the Company or any of their subsidiaries
(or, to the best of the Company's knowledge, any other entity for whose acts or
omissions, the Company or any of its subsidiaries is or may be liable) upon any
of the property now or previously owned or leased by the Company or any of its
subsidiaries, or upon any other property, in violation of any statute or any
ordinance, rule, regulation, order, judgment decree or permit or which would,
under any statute or any ordinance, judgment rule (including rule of common
law), regulation, order, decree or permit, give rise to any liability, except
for any violation or liability which would not have, singularly or in the
aggregate with all such violations and liabilities, a material adverse effect
on the condition (financial or otherwise), results of operations, business or
prospects of the Company and its subsidiaries taken as a whole; there has been
no disposal, discharge, emission or other release of any kind onto such
property or into the environment surrounding such property of any toxic or
other wastes or other hazardous substances with respect to which the Company or
any of its subsidiaries has knowledge, except for any such disposal, discharge,
emission, or other release of any kind which would not have, singularly or in
the aggregate with all such discharges and other releases, a material adverse
effect on the condition (financial or otherwise), results of operations,
business or prospects of the Company and its subsidiaries taken as a whole.
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(xxiv) The Company and its subsidiaries carry or are entitled
to the benefits of insurance in such amounts and covering such risks as is
generally maintained by or on behalf of companies of established repute engaged
in the same of similar business, and all such insurance is in full force and
effect.
(xxv) As of the date hereof, (1) all royalties, rentals,
deposits and other amounts due on the oil and gas properties of the Company and
its subsidiaries have been properly and timely paid, and no proceeds form the
sale or production attributable to the oil and gas properties of the Company
and its subsidiaries are currently being held in suspense by any purchaser
thereof, except where such amounts due could not, singly or in the aggregate,
have a material adverse effect on the condition (financial or otherwise),
business, prospects or results of operation of the Company and its subsidiaries
taken as a whole and (2) there are no claims under take-or-pay contracts
pursuant to which natural gas purchasers have any make-up rights affecting the
interest of the Company and its subsidiaries in its oil and gas properties,
except where such claims could not, singly or in the aggregate, have a material
adverse effect on the condition (financial or otherwise), business, prospects
or results of operation of the Company and its subsidiaries taken as a whole;
(xxvi) As of date hereof, the aggregate undiscounted monetary
liability of the Company and its subsidiaries for petroleum taken or received
under any operating or gas balancing and storage agreement relating to its oil
and gas properties that permits any person to receive any portion of the
interest of the Company and its subsidiaries in any petroleum or to receive
cash or other payments to balance any disproportionate allocations of petroleum
could not, singly or in the aggregate, have a material adverse effect on the
condition (financial or otherwise), business, prospects or results of operation
of the Company and its subsidiaries taken as a whole;
(xxvii) Each "employee benefit plan" within the meaning of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), in which
employees of the Company or any of its subsidiaries are eligible to participate
is in compliance in all material respects with the applicable provisions of
ERISA and the Internal Revenue Code of 1986, as amended. Neither the Company
nor any of its subsidiaries has any has any liability under Title IV of ERISA,
nor does the Company or any of its subsidiaries expect that any such liability
will be incurred, that could singly or in the aggregate, have a material
adverse effect on the condition (financial or otherwise), business, prospects
or results of operations of the Company and its subsidiaries considered as a
whole;
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(xxviii) The Company and its subsidiaries make and keep accurate
books, records and accounts reflecting their respective assets and maintain
internal accounting controls which provide reasonable assurance that (A)
transactions are executed with management's authorization, (B) transactions are
recorded as necessary to permit preparation of financial statements and to
maintain accountability for assets, (C) access to assets is permitted only in
accordance with management's authorization and (D) the reported accountability
of assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(xxix) The Company and its subsidiaries have filed all federal,
state, local and foreign tax returns required to be filed, such returns are
complete and accurate in all material respects, and all taxes shown by such
returns or otherwise assessed that are due or payable have been paid, except
such taxes as are being contested in good faith and as to which adequate
reserves have been provided. The charges, accruals and reserves on the books
of the Company and its subsidiaries in respect of any tax liability for any
year not finally determined are adequate to meet any assessments or
reassessments for additional taxes; and there has been no tax deficiency
asserted and, to the best knowledge of the Company, no tax deficiency might be
asserted or threatened against the Company or any of its subsidiaries that
could, singly or in the aggregate, have a material adverse effect on the
financial (financial or otherwise), business, prospects or results of
operations of the Company and its subsidiaries considered as a whole.
(xxx) No transaction has occurred between or among the
Company, its subsidiaries and any of their respective officers, directors or
affiliates or, the best of the Company's knowledge, any affiliate of any such
officer or director, that is required to be described in the Registration
Statement that is not so described.
(xxxi) The Company has not taken and will not take, directly or
indirectly, any action designed to or that could reasonably be expected to
cause or result in the stabilization or manipulation of the price of the Common
Stock and the Company has not distributed and will not distribute any offering
material in connection with the offering and sale of the Stock other than any
preliminary prospectus filed with the Commission or the Prospectus or other
materials, if any, permitted by the Act or the Rules or Regulations.
(xxxii) No forward looking statement within the meaning to
Section 27A of the Act and Section 21E of the Exchange Act contained in the
Registration Statement has been made or reaffirmed without a reasonable basis
or has been disclosed other than in good faith.
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(xxxiii) Neither the Company nor any of its subsidiaries has, at
anytime during the last five years, (A) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any contributions in
violation of law or (B) made any payment to any federal, state or local
governmental officer or official or other person charged with similar public or
quasi-public duties, other than payments required or permitted by the laws of
the United States or any jurisdiction thereof.
(b) Any certificate signed by an officer of the Company and
delivered to the Representatives or counsel for the Underwriters shall be
deemed a representation and warranty of the Company to each Underwriter as to
the matters covered thereby.
3. Purchase by and Sale and Delivery to Underwriters; Closing
Date. On the basis of the representations, warranties, covenants and
agreements herein contained, and subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriters the Firm Stock, and
subject to the terms and conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase from the Company, at the price per share
set forth in the Pricing Agreement, the number of shares of Firm Stock set
forth opposite their names in Schedule A (except as otherwise provided in the
Pricing Agreement), subject to adjustment in accordance with Section 11 hereof.
If the Company has elected not to rely upon Rule 430A under the
Rules and Regulations, the initial public offering price and the purchase price
per share to be paid by the several Underwriters for the Firm Stock each have
been determined and set forth in the Pricing Agreement, dated the date hereof,
and an amendment to the Registration Statement and the Prospectus will be filed
before the Registration Statement becomes effective.
If the Company has elected to rely upon Rule 430A under the Rules
and Regulations, the purchase price per share to be paid by the several
Underwriters for the Firm Stock shall be an amount equal to the initial public
offering price, less an amount per share to be determined by agreement between
the Representatives and the Company. The initial public offering price per
share of the Firm Stock shall be a fixed price to be determined by agreement
between the Representatives and the Company. The initial public offering price
per share of the Firm Stock shall not be higher than the last reported sale
price (regular way) or the last reported asked price, whichever is higher, of
the Common Stock on the New York Stock Exchange immediately prior to
determination of the initial public offering price. The initial public
offering price and the purchase price, when so determined, shall be set forth
in the Pricing Agreement. In the event that such prices have not been agreed
upon and the Pricing Agreement has not been executed and delivered by all
parties thereto by the close of business on the fourteenth
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business day following the date of this Agreement, this Agreement shall
terminate forthwith, without liability of any party to any other party, unless
otherwise agreed to by the Company and the Representatives.
The Company will deliver the Firm Stock to the Representatives
for the respective accounts of the several Underwriters (in the form of
definitive certificates, issued in such names and in such denominations as the
Representatives may direct by notice in writing to the Company given at or
prior to 12:00 Noon, New York Time, on the business day preceding the Closing
Date or, if no such direction is received, in the names of the respective
Underwriters in the amount set forth opposite each Underwriter's name on
Schedule A hereto), against payment of the purchase price therefor in
immediately available funds, all at the offices of Simpson Thacher & Bartlett,
425 Lexington Avenue, New York, NY 10017. The time and date of delivery and
closing shall be at 10:00 A.M., on the third (or, if pricing is determined
after 4:30 p.m. New York time, the fourth) full business day after the
Registration Statement becomes effective (or, if the Company has elected to
rely upon Rule 430A, the third (or, if pricing is determined after 4:30 p.m.
New York time, the fourth) full business day after execution of the Pricing
Agreement); provided, however, that such date and time may be accelerated or
extended by agreement between the Company and the Representatives or postponed
pursuant to the provisions of Section 11 hereof. The time and date of such
payment and delivery are herein referred to as the "Closing Date". The Company
shall make the certificates for the Stock available to the Representatives for
examination on behalf of the Underwriters not later than 3:00 P.M., New York
Time, on the business day preceding the Closing Date.
In addition, for the purpose of covering any over-allotments in
connection with the distribution and sale of the Firm Stock as contemplated by
the Prospectus, the Company hereby grants the Underwriters an option to
purchase, severally and not jointly, up to 600,000 shares in the aggregate of
the Optional Stock. The purchase price per share to be paid for the Optional
Stock shall be the same price per share as for the Firm Stock, less the amount
of any dividend declared by the Company and payable on any Optional Stock and
as to which the record date has occurred after the date of the Pricing
Agreement. The option granted hereby may be exercised as to all or any part of
the Optional Stock at any time not more than 30 days subsequent to the
effective date of this Agreement. No Optional Stock shall be sold and
delivered unless the Firm Stock previously has been, or simultaneously is, sold
and delivered. The right to purchase the Optional Stock or any portion thereof
may be surrendered and terminated at any time upon notice by the
Representatives to the Company.
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The option granted hereby may be exercised by the Representatives
on behalf of the Underwriters by giving written notice to the Company setting
forth the number of shares of the Optional Stock to be purchased by them and
the date and time for delivery of and payment for the Optional Stock. Such
date and time for delivery of and payment for the Optional Stock (which may be
the Closing Date) is herein called the "Option Closing Date" and shall not be
later than three days after written notice is given. Optional Stock shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Stock set forth opposite such Underwriter's name in
Schedule A hereto bears to the total number of shares of Firm Stock (subject to
adjustment by the Representatives to eliminate odd lots). Upon exercise of the
option by the Representatives, the Company agrees to sell to the Underwriters
the number of shares of Optional Stock set forth in the written notice of
exercise and the Underwriters agree, severally and not jointly, subject to the
terms and conditions herein set forth, to purchase such shares of Optional
Stock.
The Company will deliver the Optional Stock to the
Representatives for the respective accounts of the several Underwriters (in the
form of definitive certificates, issued in such names and in such denominations
as the Representatives may direct by notice in writing to the Company given at
or prior to 12:00 Noon, New York Time, on the business day preceding the Option
Closing Date or, if no such direction is received, in the names of the
respective Underwriters), against payment of the purchase price therefor in
immediately available funds, all at the offices of Simpson Thacher & Bartlett,
425 Lexington Avenue, New York, NY 10017. The Company shall make the
certificates for the Optional Stock available to the Representatives for
examination on behalf of the Underwriters not later than 3:00 P.M., New York
Time, on the business day preceding the Option Closing Date.
It is understood that Morgan Stanley & Co. Incorporated,
PaineWebber Incorporated, Smith Barney Inc., A.G. Edwards & Sons, Inc. or
McDonald & Company Securities, Inc., individually and not as Representatives of
the several Underwriters, may (but shall not be obligated to) make payment to
the Company on behalf of any Underwriter or Underwriters, for the Stock to be
purchased by such Underwriter or Underwriters. Any such payment by Morgan
Stanley & Co. Incorporated, PaineWebber Incorporated, Smith Barney Inc., A.G.
Edwards & Sons, Inc. or McDonald & Company Securities, Inc. shall not relieve
such Underwriter or Underwriters from any of its or their other obligations
hereunder.
After the Registration Statement becomes effective, the several
Underwriters propose to make an initial public offering of the Stock at the
initial public offering price. The
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Representatives shall promptly advise the Company of the commencement of the
initial public offering.
4. Covenants and Agreements of the Company. The Company
covenants and agrees with the several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective under the Act, will advise
the Representatives promptly as to the time at which the Registration
Statement becomes effective, will advise the Representatives promptly of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the institution of any
proceedings for that purpose, and will use its best efforts to prevent
the issuance of any such stop order and to obtain as soon as possible
the lifting thereof, if issued. If the Company elects to rely on Rule
434 under the Rules and Regulations, the Company will prepare an
"abbreviated term sheet" that complies with the requirements of Rule 434
under the Rules and Regulations. If the Company elects not to rely on
Rule 434, the Company will provide the Underwriters with copies of the
form of Prospectus, in such number as the Underwriters may reasonably
request, and file or transmit for filing with the Commission such
Prospectus in accordance with Rule 424(b) of the Rules and Regulations
by the close of business in New York on the business day immediately
succeeding the date of the Pricing Agreement. If the Company elects to
rely on Rule 434, the Company will provide the Underwriters with copies
of the form of Rule 434 Prospectus, in such number as the Underwriters
may reasonably request, and file or transmit for filing with the
Commission the form of Rule 434 Prospectus complying with Rule 434(c)(2)
of the Act in accordance with Rule 424(b) of the Act by the close of
business in New York on the business day immediately succeeding the date
of the Pricing Agreement.
(b) The Company will advise the Representatives promptly of any
request by the Commission for any amendment of or supplement to the
Registration Statement or the Prospectus or for additional information,
and will not at any time file any amendment to the Registration
Statement or supplement to the Prospectus which shall not previously
have been submitted to the Representatives a reasonable time prior to
the proposed filings thereof or to which the Representatives shall
reasonably object in writing or which is not in compliance with the Act
and the Rules and Regulations.
(c) The Company will prepare and file with the Commission,
promptly upon the request of the Representatives, any amendments or
supplements to the
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Registration Statement or the Prospectus (including any revised
prospectus which the Company proposes for use by the Underwriters in
connection with the offering of the Stock which differs from the
prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is
required to be filed pursuant to Rule 424 of the Rules and Regulations
or any abbreviated term sheet prepared in reliance on Rule 434 of the
Rules and Regulations) which in the opinion of the Representatives may
be necessary to enable the several Underwriters to continue the
distribution of the Stock and will use its best efforts to cause the
same to become effective as promptly as possible. The Company will
promptly file all reports and any definitive proxy or information
statements required to be filed by the Company with the Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of the Prospectus and for so long as the delivery
of a prospectus is required in connection with the offering or sale of
the Stock.
(d) If at any time after the effective date of the Registration
Statement when a prospectus relating to the Stock is required to be
delivered under the Act any event relating to or affecting the Company
or any of its subsidiaries occurs or has occurred as a result of which
the Prospectus would include an untrue statement of a material fact, or
omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, or if it is necessary, at any time to amend the
Prospectus to comply with the Act, the Company will promptly notify the
Representatives thereof and will prepare an amended or supplemented
prospectus (in form and substance satisfactory to counsel to the
Underwriters) or, with the consent of counsel to the Underwriters, make
an appropriate filing pursuant to Section 13 or 14 of the Exchange Act
which will correct such statement or omission; and, in case any
Underwriter is required to deliver a prospectus relating to the Stock
nine months or more after the effective date of the Registration
Statement, the Company upon the request of the Representatives and at
the expense of such Underwriter will prepare promptly such prospectus or
prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Act.
(e) The Company will deliver to the Representatives, at or
before the Closing Date, signed copies of the Registration Statement and
all amendments thereto including all financial statements and exhibits
thereto and all documents theretofore incorporated by reference therein,
and will deliver to the Representatives such number of copies of
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the Registration Statement, including such financial statements and all
documents theretofore incorporated by reference therein but without
exhibits, and of all amendments thereto, as the Representatives may
reasonably request. The Company will deliver or mail to or upon the
order of the Representatives on the date of the initial public offering,
and thereafter from time to time during the period when delivery of a
prospectus relating to the Stock is required under the Act, as many
copies of the Prospectus, in final form or as thereafter amended or
supplemented as the Representatives may reasonably request.
(f) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than 60 days
after the close of the period covered thereby, an earnings statement (in
form complying with the provisions of Rule 158 under the Act) which will
be in reasonable detail (but which need not be audited) and which will
comply with Section 11(a) of the Act, covering a period of at least
twelve months beginning not later than the first day of the Company's
fiscal quarter next following the "effective date" (as defined in Rule
158) of the Registration Statement.
(g) The Company will furnish to its shareholders annual reports
containing financial statements certified by independent public
accountants and shall also furnish quarterly summary financial
information in reasonable detail which may be unaudited. During the
period of five years from the date hereof, the Company will deliver to
the Representatives and, upon request, to each of the other
Underwriters, copies of each annual report of the Company and each other
report furnished by the Company to its shareholders; and will deliver to
the Representatives, as soon as they are available, copies of any other
reports (financial or other) which the Company shall publish or
otherwise make available to any of its security holders as such, and as
soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national
securities exchange or the NASD.
(h) The Company will use its best efforts to effect the listing
of the Stock on the New York Stock Exchange.
(i) The Company will use the net proceeds received by it from
the sale of the Stock in the manner specified in the Prospectus under
"Use of Proceeds".
(j) During a period of ___ days from the date of the Pricing
Agreement, the Company will not, without prior written consent of Morgan
Stanley & Co. Incorporated,
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directly or indirectly, sell, offer to sell, grant any option for the
sale of, or otherwise dispose of or enter into any agreement to sell,
any Common Stock or any security convertible into Common Stock.
(k) At the time this Agreement is executed, the Company shall
have furnished to the Representatives a letter from each officer and
director of the Company, in which each such person agrees that, during a
period of _____ days from the date of the Pricing Agreement, such person
will not, without the prior written consent of Morgan Stanley & Co.
Incorporated, directly or indirectly, (i) sell, offer to sell, grant any
option for the sale of, or otherwise dispose of or transfer, any shares
of Common Stock or any securities convertible into or exchangeable or
exercisable for such Common Stock, or file any registration statement
under the Act with respect to any of the foregoing or (ii) enter into
any swap or any other agreement or any transaction that transfers, in
whole or in part, directly or indirectly, the economic consequence of
ownership of the Common Stock, whether any such swap or transaction is
to be settled by delivery of Common Stock or other securities, in cash
or otherwise.
5. Payment of Expenses. The Company will pay (directly or by
reimbursement) all expenses incident to the performance of its obligations
under this Agreement, including but not limited to all expenses and taxes
incident to delivery of the Stock to the Representatives, all expenses incident
to the registration of the Stock under the Act and the printing of copies of
the Registration Statement, each Preliminary Prospectus, the Prospectus, any
amendments or supplements thereto including any abbreviated terms sheet
delivered by the Company pursuant to Rule 434 of the Rules and Regulations, the
"Blue Sky" memorandum, the Agreement Among Underwriters, Underwriters'
Questionnaire and this Agreement and furnishing the same to the Underwriters
and dealers except as otherwise provided in Sections 4(d) and 4(e), the fees
and disbursements of the Company's counsel and accountants, all filing and
printing fees and expenses (including legal fees and disbursements of counsel
for the Underwriters) incurred in connection with qualification of the Stock
for sale and determination of its eligibility for investment under the laws of
such jurisdictions as the Representatives may designate, all fees and expenses
(including legal fees and disbursements of counsel for the Underwriters) paid
or incurred in connection with filings made with the National Association of
Securities Dealers, Inc. (the "NASD"), the fees and expenses incurred in
connection with the listing of the Stock on the New York Stock Exchange, the
costs of preparing stock certificates, the costs and fees of any registrar or
transfer agent and all other costs and expenses incident to the
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performance of its obligations hereunder which are not otherwise specifically
provided for in this Section.
If this Agreement is terminated by the Representatives in
accordance with the provisions of Section 3 or Section 8 hereof, the Company
shall reimburse the Underwriters for all of their out-of-pocket expenses,
including the fees and disbursements of Simpson Thacher & Bartlett, counsel for
the Underwriters.
6. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through the
Representatives expressly for use therein.
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the Registration Statement and each person, if any,
who controls the Company within the meaning of either Section 15 of the Act or
Section 20 of the Exchange Act from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through the
Representatives expressly for use in the
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Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to paragraph (a) or (b) of this Section 6,
such person (the "indemnified party") shall promptly notify the person against
whom such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding
and shall pay the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be
at the expense of such indemnified party unless (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It
is understood that the indemnifying party shall not, in respect of the legal
expenses of any indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for (i) the fees and expenses
of more than one separate firm (in addition to any local counsel) for all
Underwriters and all persons, if any, who control any Underwriter within the
meaning of either Section 15 of the Act or Section 20 of the Exchange Act and
(ii) the fees and expenses of more than one separate firm (in addition to any
local counsel) for the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of either such Section, and that all such fees and expenses shall
be reimbursed as they are incurred. In the case of any such separate firm for
the Underwriters and such control persons of any Underwriters, such firm shall
be designated in writing by Morgan Stanley & Co. Incorporated. In the case of
any such separate firm for the Company, and such directors, officers and
control persons of the Company, such firm shall be designated in writing by the
Company. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second and third sentences of this
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paragraph, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such indemnifying
party of the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to the
date of such settlement. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
(d) To the extent the indemnification provided for in paragraph
(a) or (b) of this Section 6 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party or parties on the one hand
and the indemnified party or parties on the other hand from the offering of the
Stock or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault
of the indemnifying party or parties on the one hand and of the indemnified
party or parties on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriters on the other hand in
connection with the offering of the Stock shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Stock
(before deducting expenses) received by the Company and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate
initial public offering price of the Stock. The relative fault of the Company
on the one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The
Underwriters' respective obligations to contribute pursuant to
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this Section 6 are several in proportion to the respective number of Stock they
have purchased hereunder, and not joint.
(e) The Company and the Underwriters agree that it would not be
just or equitable if contribution pursuant to this Section 6 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account
of the equitable considerations referred to in paragraph (d) of this Section 6.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 6, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Stock underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 6 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this
Section 6 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full force
and effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, or the Company, its officers or directors or any person
controlling the Company and (iii) acceptance of and payment for any of the
Stock.
7. Survival of Indemnities, Representations, Warranties, etc.
The respective indemnities, covenants, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by them respectively, pursuant to this Agreement,
shall remain in full force and effect, regardless of any investigation made by
or on behalf of any Underwriter, the Company or any of its officers or
directors or any controlling person, and shall survive delivery of and payment
for the Stock.
8. Conditions of Underwriters' Obligations. The respective
obligations of the several Underwriters hereunder
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shall be subject to the accuracy, at and (except as otherwise stated herein) as
of the date hereof, the Representation Date and the Closing Date or the Option
Closing Date, as the case may be, of the representations and warranties made
herein by the Company, to the accuracy of the statements of the Company's
officers or directors in any certificate furnished pursuant to the provisions
hereof, to compliance at and as of such Closing Date by the Company with its
covenants and agreements herein contained and other provisions hereof to be
satisfied at or prior to such Closing Date, and to the following additional
conditions:
(a) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date:
(i) there shall not have occurred any downgrading,
nor shall any notice have been given of any intended or potential
downgrading or of any review for a possible change that does not
indicate the direction of the possible change, in the rating
accorded any of the Company's securities by any "nationally
recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole,
from that set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this
Agreement) that, in your judgment, is material and adverse and
that makes it, in your judgment, impracticable to market the
Stock on the terms and in the manner contemplated in the
Prospectus.
(b) The Registration Statement shall become effective not later
than 3:00 P.M., New York City time, on the date hereof or, with the
consent of the Representatives, at a later time and date, not later,
however, than 5:30 P.M., New York City time on the first business day
following the date hereof, or at such later date as may be approved by a
majority in interest of the Underwriters, and at such Closing Date (i)
no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or,
to the knowledge of the Company or the Representatives, threatened by
the Commission, and any request for additional information on the part
of the Commission (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to the reasonable
satisfaction of the Representatives, and (ii) there shall not have come
to
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the attention of the Representatives any facts that would cause them to
believe that the Prospectus, at the time it was required to be delivered
to a purchaser of the Stock, contained any untrue statement of a
material fact or omitted to state any material fact necessary in order
to make the statements therein, in the light of the circumstances under
which they were made, not misleading. If the Company has elected to
rely upon Rule 430A of the Rules and Regulations, the price of the Stock
and any price related information previously omitted from the effective
Registration Statement pursuant to Rule 430A shall have been transmitted
to the Commission for filing pursuant to Rule 424(b) of the Rules and
Regulations within the prescribed time period, and before the Closing
Date the Company shall have provided evidence satisfactory to the
Representatives of such timely filing, or a post-effective amendment
providing such information shall have been promptly filed and declared
effective in accordance with the requirements of Rule 430A of the Rules
and Regulations.
(c) At the time of execution of this Agreement, the
Representatives shall have received from Arthur Andersen LLP a letter,
dated the date of such execution, in form and substance previously
approved by the Representatives, and to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the Rules and Regulations.
(ii) In their opinion, the financial statements and
supporting schedule(s) examined by them and included in the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published Rules and
Regulations thereunder and with the Exchange Act and the Exchange Act
Regulations and, if applicable, they have made a review in accordance
with standards established by the American Institute of Certified Public
Accountants of the unaudited consolidated interim financial statements,
selected financial data, pro forma financial information, prospective
financial statements and/or condensed financial statements derived from
audited financial statements of the Company for the periods specified in
such letter, as indicated in their reports thereon, copies of which have
been furnished to the Representatives;
(iii) The unaudited selected financial information with
respect to the consolidated results of operations and financial position
of the Company for the five most recent fiscal years included in the
Prospectus and included or incorporated by reference in Item 6 of the
Company's Annual
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Report on Form 10-K for the most recent fiscal year agrees with the
corresponding amounts (after restatement where applicable) in the
audited consolidated financial statements for the five such fiscal years
which were included or incorporated by reference in the Company's Annual
Reports on Form 10-K for such fiscal years;
(iv) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of
the minute books of the Company and its subsidiaries since the date of
the latest audited financial statements included or incorporated by
reference in the Prospectus, inquiries of officials of the Company and
its subsidiaries responsible for financial and accounting matters and
such other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
(A) the unaudited condensed consolidated statements of
income, consolidated balance sheets and consolidated statements
of cash flows included or incorporated by reference in the
Company's Quarterly Reports on Form 10-Q incorporated by
reference in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of
the Act or the Exchange Act as it applies to Form 10-Q and the
related published rules and regulations thereunder, or are not in
conformity with generally accepted accounting principles applied
on a basis substantially consistent with the basis for the
audited consolidated statements of income, consolidated balance
sheets and consolidated statements of cash flows included in the
Prospectus or incorporated by reference in the Company's Annual
Report on Form 10-K for the most recent fiscal year;
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and any
such unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements included
in the Prospectus or incorporated by reference in the Company's
Annual Report on Form 10-K for the most recent fiscal year;
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(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived the
unaudited condensed financial statements referred to in clause
(A) and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in clause (B)
were not determined on a basis substantially consistent with the
basis for the audited financial statements included in the
Prospectus or incorporated by reference in the Company's Annual
Report on Form 10-K for the most recent fiscal year;
(D) any unaudited pro forma consolidated condensed
financial statements included or incorporated by reference in the
Prospectus do not comply as to form in all material respects with
the applicable accounting requirements of the Act and the
published rules and regulations thereunder or the pro forma
adjustments have not been properly applied to the historical
amounts in the compilation of those statements;
(E) as of a specified date not more than three days prior
to the date of such letter, there has been any change in the
consolidated capital stock of the Company (other than issuances
of capital stock upon exercise of options, upon earn-outs of
performance shares and upon conversions of convertible
securities, in each case which were outstanding on the date of
the latest balance sheet included or incorporated by reference in
the Prospectus) or any increase in the consolidated long-term
debt of the Company and consolidated subsidiaries, any decrease
in the consolidated net current assets, net assets or other items
specified by the Representatives, or any change in any other
items specified by the Representatives, in each case as compared
with amounts shown in the latest balance sheet included or
incorporated by reference in the Prospectus, except in each case
for changes, increases or decreases which the Prospectus
discloses have occurred or may occur; and
(F) for the period from the date of the latest financial
statements included or incorporated by reference in the
Prospectus to the specified date referred to in Clause (E) there
was any decrease in consolidated net revenues or operating profit
or the total or per share amounts of consolidated net income or
other items specified by the Representatives, or any increases in
any items specified by the Representatives, in each case as
compared with the comparable period of the preceding year and
with any other period of corresponding length specified by the
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Representatives, except in each case for increases or decreases
which the Prospectus discloses have occurred or may occur; and
(v) In addition to the examination referred to in their
report(s) included or incorporated by reference in the Prospectus and
the limited procedures, inspection of minute books, inquiries and other
procedures referred to in paragraphs (iii) and (iv) above, they have
carried out certain specified procedures, not constituting an
examination in accordance with generally accepted auditing standards,
with respect to certain amounts, percentages and financial information
specified by the Representatives which are derived from the general
accounting records of the Company and its subsidiaries, which appear in
the Prospectus or in Part II of, or in exhibits and schedules to, the
Registration Statement specified by the Representatives or in documents
incorporated by reference in the Prospectus specified by the
Representatives, and have compared certain of such amounts, percentages
and financial information with the accounting records of the Company and
its subsidiaries and have found them to be in agreement.
(vi) On the basis of a reading of the unaudited consolidated
condensed pro forma financial statements included in the Registration
Statement and the Prospectus, carrying out certain specified procedures
and inquiries of certain officials of the Company and its consolidated
subsidiaries who have responsibility for financial and accounting
matters, and proving the arithmetic accuracy of the application of the
pro forma adjustments to the historical amounts in the unaudited
consolidated condensed pro forma financial statements, nothing came to
their attention that caused them to believe that the unaudited
consolidated condensed pro forma financial statements do not comply as
to form in all material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X or that the pro forma
adjustments have not been properly applied to the historical amounts in
the compilation of such statements.
(d) The Representatives shall have received from Arthur Andersen
LLP a letter, dated the Closing Date, to the effect that such
accountants reaffirm, as of such Closing Date, and as through made on
such Closing Date, the statements made in the letter furnished by such
accountants pursuant to paragraph (c) of this Section 8, except that the
specified date will be a date not more than three business days prior to
the Closing Date.
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(e) At the time of execution of this Agreement, the
Representatives shall have received from Coopers & Lybrand L.L.P. a
letter, dated the date of such execution, in form and substance
previously approved by the Representatives, and to the effect that:
(i) They are independent certified public accountants
with respect to the Company and its subsidiaries within the
meaning of the Act and the Rules and Regulations.
(ii) In their opinion, the financial statements and
supporting schedule(s) of Cometra examined by them and included
or incorporated by reference in the Registration Statement comply
as to form in all material respects with the applicable
accounting requirements of the Act and the related published
Rules and Regulations thereunder and with the Exchange Act and
the Exchange Act Regulations and, if applicable, they have made a
review in accordance with standards established by the American
Institute of Certified Public Accountants of the selected
financial data and/or condensed financial statements derived from
audited financial statements of Cometra for the periods specified
in such letter, as indicated in their reports thereon, copies of
which have been furnished to the Representatives;
(iii) On the basis of limited procedures, not
constituting an examination in accordance with generally accepted
auditing standards, consisting of a reading of the unaudited
financial statements and other information referred to below, a
reading of the latest available interim financial statements of
Cometra, inspection of the minute books of Cometra since the date
of the latest audited financial statements included in the
Prospectus, inquiries of officials of Cometra responsible for
financial and accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to
their attention that caused them to believe that with respect to
Cometra:
(A) the unaudited condensed consolidated
statements of income, consolidated balance sheets and
consolidated statements of cash flows of Cometra included
in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of
the Act and the related published rules and regulations
thereunder, or are not in conformity with generally
accepted accounting principles applied
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on a basis substantially consistent with the basis for the
audited consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows
included in the Prospectus for the most recent fiscal
year;
(B) any other unaudited income statement data and
balance sheet items of Cometra included in the Prospectus
do not agree with the corresponding items in the unaudited
consolidated financial statements from which such data and
items were derived, and any such unaudited data and items
were not determined on a basis substantially consistent
with the basis for the corresponding amounts in the
audited consolidated financial statements included in the
Prospectus for the most recent fiscal year;
(C) the unaudited financial statements of Cometra
which were not included in the Prospectus but from which
were derived the unaudited condensed financial statements
referred to in clause (A) and any unaudited income
statement data and balance sheet items included in the
Prospectus and referred to in clause (B) were not
determined on a basis substantially consistent with the
basis for the audited financial statements included in the
Prospectus for the most recent fiscal year;
(D) as of a specified date not more than three
days prior to the date of such letter, there has been any
increase in the consolidated long-term debt, any decrease
in the consolidated net current assets, net assets or
other items specified by the Representatives, or any
change in any other items specified by the
Representatives, in each case as compared with amounts
shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or
decreases which the Prospectus discloses have occurred or
may occur; and
(E) for the period from the date of the latest
financial statements included in the Prospectus to the
specified date referred to in Clause (D) there was any
decrease in consolidated net revenues or operating profit
or the total or per share amounts of consolidated net
income or other items specified by the Representatives, or
any increases in any items specified by the
Representatives, in each case as compared with the
comparable period of the preceding year and with
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any other period of corresponding length specified by the
Representatives, except in each case for increases or
decreases which the Prospectus discloses have occurred or
may occur; and
(iv) In addition to the examination referred to in
their report(s) included in the Prospectus and the limited
procedures, inspection of minute books, inquiries and other
procedures referred to in paragraphs (iii) and (iv) above, they
have carried out certain specified procedures, not constituting
an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and
financial information specified by the Representatives which are
derived from the general accounting records of Cometra, which
appear in the Prospectus, and have compared certain of such
amounts, percentages and financial information with the
accounting records of Cometra and have found them to be in
agreement.
(f) The Representatives shall have received from Coopers &
Lybrand L.L.P. a letter, dated the Closing Date, to the effect that such
accountants reaffirm, as of such Closing Date, and as through made on
such Closing Date, the statements made in the letter furnished by such
accountants pursuant to paragraph (e) of this Section 8, except that the
specified date will be a date not more than three business days prior to
the Closing Date.
(g) At the time of execution of this Agreement, the
Representatives shall have received from each of Ernst & Young LLP and
KPMG Peat Marwick LLP a letter, dated the date of such execution, in
form and substance previously approved by the Representatives, and to
the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the Rules and Regulations.
(ii) In their opinion, the financial statements and
supporting schedule(s) examined by them and included in the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published Rules and
Regulations thereunder and with the Exchange Act and the Exchange Act
Regulations and, if applicable, they have made a review in accordance
with standards established by the American Institute of Certified Public
Accountants of the selected financial data and/or condensed financial
statements derived from audited financial statements of the Company for
the periods specified in such letter, as indicated in their
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31
reports thereon, copies of which have been furnished to the
Representatives;
(h) The Representatives shall have received from each of Ernst &
Young LLP and KPMG Peat Marwick LLP a letter, dated the Closing Date, to
the effect that such accountants reaffirm, as of such Closing Date, and
as through made on such Closing Date, the statements made in the letter
furnished by such accountants pursuant to paragraph (g) of this Section
8, except that the specified date will be a date not more than three
business days prior to the Closing Date.
(i) At the time of execution of this Agreement, the
Representatives shall have received a letter from each of Netherlands,
Sewell and Associates, Inc., Wright & Co., Inc., H.J. Gruy and
Associates, Inc., Huddleston & Co., Inc. and Clay, Holt & Klammer (the
"Independent Petroleum Engineers") dated the date of such execution, in
form and substance satisfactory to the Representatives, confirming that
they are independent petroleum consultants with respect to the Company
and the Company's subsidiaries, attaching their report with respect to
the oil and gas reserves of the Company and its subsidiaries and stating
that, as of the date of such letter, they have no reason to believe that
the conclusions and findings of such firm contained in such report are
not true and correct.
(j) The Representatives shall have received a letter (the
"bring-down letter") from each of Independent Petroleum Engineers,
addressed to the Representatives and dated the Closing Date confirming,
as of the date of the Closing Date, the conclusions and findings of such
firm with respect to the information and other matters covered by their
letter delivered to the Representatives pursuant to paragraph (i) and
confirming in all material respects the conclusions and findings set
forth in such prior letter.
(k) The Representatives shall have received from Vinson & Elkins
L.L.P., counsel for the Company, an opinion, dated the Closing Date, to
the effect that:
(i) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State
of Delaware and has power and authority (corporate and other) to own or
lease its properties and conduct its business as described in the
Prospectus; the Company is in possession of and is operating in
compliance with all franchises, grants, authorizations, licenses,
permits, easements, consents, certificates and orders required for the
conduct of its business, all of which are valid and in full force and
effect; and the Company is duly
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qualified as a foreign corporation in good standing in all other
jurisdictions where its ownership or leasing of properties or the
conduct of its business requires such qualification.
(ii) The Company has an authorized and outstanding capital
stock as set forth under the heading "Capitalization" in the Prospectus;
all outstanding shares of Common Stock (including the Stock) conform to
the description thereof in the Prospectus and have been duly authorized
and validly issued and are fully paid and nonassessable, and the
stockholders of the Company have no preemptive rights with respect to
any shares of capital stock of the Company.
(iii) To the best of such counsel's knowledge, there are no
legal or governmental proceedings pending to which the Company or any of
its subsidiaries is a party or of which any property of the Company or
any subsidiary is the subject, which individually or in the aggregate
are material; and to the best of such counsel's knowledge no such
proceedings are threatened by governmental authorities or others.
(iv) This Agreement and the Pricing Agreement have been duly
authorized, executed and delivered by the Company; and the performance
of this Agreement, the Pricing Agreement and the Cometra Acquisition
Agreement and the consummation of the transactions herein and therein
contemplated will not result in a breach or violation of any of the
terms or provisions of or constitute a default under any statute,
contract, indenture, mortgage, deed of trust, loan agreement, note,
lease or other agreement or instrument known to such counsel to which
the Company is a party or by which it is bound, the Company's
Certificate of Incorporation or By-laws, or any order, rule or
regulation known to such counsel of any court or governmental agency or
body having jurisdiction over the Company or any of its properties.
(v) No consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation by
the Company of the transactions contemplated by this Agreement and the
Pricing Agreement, except such as may be required under the Act or as
may be required under the securities or Blue Sky laws of any
jurisdiction or by the NASD in connection with the purchase and
distribution of the Stock by the Underwriters.
(vi) The Registration Statement has become effective under
the Act and, to the best of the knowledge of such counsel, no stop order
suspending the effectiveness thereof
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has been issued and no proceedings for that purpose have been instituted
or are pending or contemplated under the Act.
(vii) The Stock has been approved for listing on the New York
Stock Exchange.
(viii) The Registration Statement and the Prospectus (other
than the financial statements and supporting schedules included therein,
as to which no opinions need be rendered), and each amendment or
supplement thereto, as of their respective effective or issue dates and
as of the Closing Date complied as to form in all material respects with
the requirements of the Act and the Rules and Regulations.
(ix) The descriptions in the Registration Statement and
Prospectus of contracts and other documents are accurate in all material
respects and such descriptions fairly present in all material respects
the information required to be shown; and such counsel does not know of
any legal or governmental proceedings or of any contracts or documents
of a character required to be described in the Registration Statement or
Prospectus or to be filed as exhibits to the Registration Statement or
Prospectus which are not described and filed as required.
(x) Neither the Company nor any of its subsidiaries is, and
will not be as a result of the consummation of the transactions
contemplated by this Agreement, an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(xi) Neither the Company nor any of its subsidiaries is a
"holding company" as defined in Section 2(a)(7) of the Public Utility
Holding Company Act of 1935, as amended.
(xii) The documents incorporated by reference in the
Prospectus (other than the financial statements and supporting schedules
included therein, as to which no opinions need be rendered), as of the
dates they were filed with the Commission, complied as to form in all
material respects with the requirements of the Exchange Act and the
published rules and regulations thereunder; and nothing has come to such
counsel's attention that would lead such counsel to believe that the
Registration Statement, at the time it became effective, at the
Representation Date or at the Closing Date, 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 not misleading or that the Prospectus, at the
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Representation Date (unless the term "Prospectus" refers to a prospectus
which has been provided to the Underwriters by the Company for use in
connection with the offering of the Stock which differs from the
prospectus on file at the Commission at the time the Registration
Statement became effective, in which case at the time it was first
provided to the Underwriters for such use) or at the Closing Date,
included any untrue statement of a material fact or omitted to state any
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(xiii) Lomak Operating Company, Lomak Production Company, Lomak
Resources Company, Buffalo Oilfield Services, Inc., Lomak Energy
Services Company, Talon Trucking Company, Eastern Petroleum Company,
Lomak Energy Company, LPI Acquisition, Inc., Lomak Production I, L.P.,
and Lomak Resources, L.L.C., subsidiaries of the Company (the
"Subsidiaries"), have each been duly organized, are validly existing as
a corporation or a limited partnership, as the case may be, in good
standing under the laws of their respective jurisdictions of
organization and have power and authority (corporate and other) to own
their respective properties and conduct their respective businesses as
described in the Prospectus, and each of such Subsidiaries are duly
qualified as foreign corporations or limited partnerships in good
standing and in all other jurisdictions where their ownership or leasing
of properties or the conduct of their businesses requires such
qualification.
(xiv) All outstanding shares of capital stock of the
Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable, and are owned by the Company free and clear of
any liens, encumbrances, equities and claims.
(l) The Representatives shall have received from Simpson Thacher
& Bartlett, counsel for the Underwriters, their opinion or opinions
dated the Closing Date with respect to the validity of the Stock, the
Registration Statement, the Prospectus and such other related matters as
the Representatives may require. In giving such opinion, such counsel
may rely, as to all matters governed by the laws of jurisdictions other
than the law of the State of New York and the federal law of the United
States, upon opinions of counsel satisfactory to the Representatives.
The Company shall have furnished to such counsel such documents as they
may request for the purpose of enabling them to pass upon such matters.
(m) The Representatives shall have received a certificate, dated
such Closing Date, of the Chief Executive
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Officer or the President and the chief financial or accounting officer
of the Company to the effect that: (i) no stop order suspending the
effectiveness of the Registration Statement has been issued, and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act; (ii) subsequent to the respective dates as
of which information is given in the Prospectus, neither the Company nor
any of its subsidiaries has incurred any liabilities or obligations,
direct or contingent, nor entered into any transactions, not in the
ordinary course of business, which in either case are material to the
Company and its subsidiaries considered as a whole, whether or not
arising in the ordinary course of business, and there has not been any
material adverse change in the condition (financial or otherwise),
business, prospects or results of operations of the Company and its
subsidiaries considered as a whole, or any change in the capital stock
or long-term debt of the Company and its subsidiaries considered as a
whole; (iii) the Company has complied with all agreements and satisfied
all conditions on its part to be performed or satisfied at or before the
Closing Date; (iv) the representations and warranties of the Company in
this Agreement are true and correct at and as of the Closing Date; (v)
between the execution of this Agreement and the Closing Date, there has
not occurred any downgrading, nor has any notice been given of any
intended or potential downgrading or of any review for a possible change
that does not indicate the direction of the possible change, in the
rating accorded any of the Company's securities by any "nationally
recognized statistical rating organization," as such term is defined for
purposes of Rule 436(g)(2) under the Act; and (vi) between the execution
of this Agreement and the Closing Date, the business and operations
conducted by the Company and its subsidiaries have not sustained a loss
by strike, fire, flood, accident or other calamity (whether or not
insured) of such a character as to interfere materially with the conduct
of the business and operations of the Company and its subsidiaries
considered as a whole. As used in this Section 8(m), the term
"Prospectus" means the Prospectus in the form first used to confirm
sales of Stock.
(n) The Company shall have furnished to the Representatives such
additional certificates as the Representatives may have reasonably
requested as to the accuracy, at and as of the Closing Date, of the
representations and warranties made herein by it as to compliance at and
as of the Closing Date by it with its covenants and agreements herein
contained and other provisions hereof to be satisfied at or prior to the
Closing Date and as to other conditions to the obligations of the
Underwriters hereunder.
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(o) The Stock shall have been approved for listing on the New
York Stock Exchange.
(p) The closing under the Debt Underwriting Agreement shall have
occurred concurrently with the closing hereunder.
(q) In the event the Underwriters exercise the option granted in
Section 3 hereof to purchase all or any portion of the Optional Shares,
the representations and warranties of the Company contained herein and
the statements in any certificates furnished by the Company hereunder
shall be true and correct as of the Option Closing Date, and you shall
have received:
(i) A letter from each of Arthur Andersen LLP, Coopers &
Lybrand L.L.P., Ernst & Young LLP and KPMG Peat Marwick LLP, in form and
substance satisfactory to you and dated the Option Closing Date,
substantially the same in scope and substance as the letters furnished
to you pursuant to Sections 8(c), 8(e) and (g) except that the specified
date in the letter furnished pursuant to this Section 8(q) shall be a
date not more than five days prior to the Option Closing Date.
(ii) A letter from each of the Independent Petroleum
Engineers, in form and substance satisfactory to you and dated the
Option Closing Date, substantially the same in scope and substance as
the letter furnished to you pursuant to Section 8(i), except that the
specified date in the letter furnished pursuant to this Section 8(q)
shall be a date not more than five days prior to the Option Closing
Date.
(iii) A certificate, dated the Option Closing Date, of the
Chief Executive Officer or President and the chief financial or
accounting officer of the Company confirming that the certificate
delivered at the Closing Date pursuant to Section 8(m) remains true as
of the Option Closing Date.
(iv) The opinion of Vinson & Elkins L.L.P., counsel for the
Company, in form and substance satisfactory to counsel for the
Underwriters, dated the Option Closing Date, relating to the Optional
Stock and otherwise to the same effect as the opinion required by
Section 8(k).
(v) The opinion of Simpson Thacher & Bartlett, counsel for
the Underwriters, dated the Option Closing Date, relating to the
Optional Stock and otherwise to the same effect as the opinion required
by Section 8(l).
If any of the conditions hereinabove provided for in this Section
shall not have been satisfied when and as required
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by this Agreement, this Agreement may be terminated by the Representatives by
notifying the Company of such termination in writing or by telegram at or prior
to the Closing Date, but the Representatives shall be entitled to waive any of
such conditions.
9. Termination. This Agreement shall be subject to termination
by notice given by you to the Company, if (a) after the execution and delivery
of this Agreement and prior to the Closing Date (i) trading generally shall
have been suspended or materially limited on or by, as the case may be, any of
the New York Stock Exchange, the American Stock Exchange, the National
Association of Securities Dealers, Inc., the Chicago Board of Options Exchange,
the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of
any securities of the Company shall have been suspended on any exchange or in
any over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses (a)(i) through (iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable
to market the Stock on the terms and in the manner contemplated in the
Prospectus.
10. Reimbursement of Underwriters. Notwithstanding any other
provisions hereof, if this Agreement shall be terminated by the Representatives
under Section 8, Section 9 or Section 12, the Company will bear and pay the
expenses specified in Section 5 hereof and, in addition to its obligations
pursuant to Section 6 hereof, the Company will reimburse the reasonable
out-of-pocket expenses of the several Underwriters (including reasonable fees
and disbursements of counsel for the Underwriters) incurred in connection with
this Agreement and the proposed purchase of the Stock, and promptly upon demand
the Company will pay such amounts to you as Representatives. In addition, the
provisions of Section 6 shall survive any such termination.
11. Default By Underwriters. If any Underwriter or Underwriters
shall default in its or their obligations to purchase shares of Firm Stock
hereunder on the Closing Date and the aggregate number of shares of Firm Stock
which such defaulting Underwriter or Underwriters agreed but failed to purchase
does not exceed 10% of the total number of shares which the Underwriters are
obligated to purchase at the Closing Date, the other Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder,
to purchase the shares of Firm Stock which such defaulting Underwriter or
Underwriters agreed but failed to purchase. If any Underwriter or
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Underwriters shall so default and the aggregate number of shares of Firm Stock
with respect to which such default or defaults occur is more than 10% of the
total number of shares underwritten and arrangements satisfactory to the
Representatives and the Company for the purchase of such shares of Firm Stock
by other persons are not made within 48 hours after such default, this
Agreement shall terminate.
If the remaining Underwriters or substituted underwriters are
required hereby or agree to take up all or part of the shares of Firm Stock of
a defaulting Underwriter or Underwriters as provided in this Section 11, (i)
the Company shall have the right to postpone the Closing Date for a period of
not more than five full business days, in order that the Company may effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees promptly to file any amendments to the Registration Statement or
supplements to the Prospectus which may thereby be made necessary, and (ii) the
respective numbers of shares of Firm Stock to be purchased by the remaining
Underwriters or substituted underwriters shall be taken as the basis of their
underwriting obligation for all purposes of this Agreement. Nothing herein
contained shall relieve any defaulting Underwriter of its liability to the
Company or the Underwriters for damages occasioned by its default hereunder.
Any termination of this Agreement pursuant to this Section 11 shall be without
liability on the part of any non-defaulting Underwriter or the Company, except
for expenses to be paid or reimbursed pursuant to Section 5 and except for the
provisions of Section 6.
12. Default By the Company. If the Company shall fail at the
Closing Date to sell and deliver the number of shares of Stock which it is
obligated to sell hereunder, then this Agreement shall terminate without any
liability on the part of any non-defaulting party.
No action taken pursuant to this Section shall relieve the
Company so defaulting from liability, if any, in respect of such default.
13. Notices. All communications hereunder shall be in writing
and, if sent to the Underwriters shall be mailed, delivered or telegraphed and
confirmed to you, as their Representatives c/o Morgan Stanley & Co.
Incorporated at 1585 Broadway, New York, New York 10036, Attn: [ ],
except that notices given to an Underwriter pursuant to Section 6 hereof shall
be sent to such Underwriter at the address provided to the Representatives or,
if sent to the Company, shall be mailed, delivered or telegraphed and confirmed
c/o Lomak Petroleum, Inc., 500 Throckmorton Street, Fort Worth, Texas 76106
Attn: John H. Pinkerton, President and Chief Executive Officer.
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14. Successors. This Agreement shall inure to the benefit of
and be binding upon the several Underwriters, the Company and their respective
successors and legal representatives. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person other than the
persons mentioned in the preceding sentence any legal or equitable right,
remedy or claim under or in respect of this Agreement, or any provisions herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person; except that the representations,
warranties, covenants, agreements and indemnities of the Company contained in
this Agreement shall also be for the benefit of the person or persons, if any,
who control any Underwriter or Underwriters within the meaning of Section 15 of
the Act, and the indemnities of the several Underwriters shall also be for the
benefit of each director of the Company, each of its officers who has signed
the Registration Statement and the person or persons, if any, who control the
Company within the meaning of Section 15 of the Act.
15. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS. The Company hereby consents to personal
jurisdiction in the State of New York and voluntarily submits to the
jurisdiction of the courts of such state, including the federal district courts
located in such state, in any proceeding with respect to this Agreement.
16. Counterparts. This Agreement may be executed by one or more
parties hereto in any number of counterparts each of which shall be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
17. Authority of the Representatives. In connection with this
Agreement, the Representatives will act for and on behalf of the several
Underwriters, and any action taken under this Agreement by the Representatives
jointly or by Morgan Stanley & Co. Incorporated, as representative of the
several Underwriters, will be binding on all the Underwriters.
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If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter and your acceptance shall constitute a binding agreement
between the Company and each of the Several Underwriters.
Very truly yours,
LOMAK PETROLEUM, INC.
By________________________________
President
Accepted and delivered,
as of the date first above written:
MORGAN STANLEY & CO. INCORPORATED
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
A.G. EDWARDS & SONS, INC.
MCDONALD & COMPANY SECURITIES, INC.
Acting on their own behalf and as
Representatives of the several Underwriters
referred to in the foregoing Agreement.
By: MORGAN STANLEY & CO. INCORPORATED
By________________________________________________
Authorized Signature
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SCHEDULE A
Number of
Shares of
Stock to be
Name Purchased
---- -------------
MORGAN STANLEY & CO. INCORPORATED
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
A.G. EDWARDS & SONS, INC.
MCDONALD & COMPANY SECURITIES, INC.
____________
Total . . . . . . . . . . . . . . . . . . . . . . . . . 4,000,000
=========
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EXHIBIT A
4,000,000 Shares
LOMAK PETROLEUM, INC.
Common Stock
PRICING AGREEMENT
________ __, 1997
MORGAN STANLEY & CO. INCORPORATED
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
A.G. EDWARDS & SONS, INC.
MCDONALD & COMPANY SECURITIES, INC.
As Representatives of the several Underwriters
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs:
Reference is made to the Underwriting Agreement, dated ________
__, 1997 (the "Underwriting Agreement"), relating to the purchase by the
several Underwriters named in Schedule A thereto, for whom Morgan Stanley & Co.
Incorporated, PaineWebber Incorporated, Smith Barney Inc., A.G. Edwards & Sons,
Inc. and McDonald & Company Securities, Inc. are acting as representatives (the
"Representatives"), of the above shares of common stock (the "Common Stock") of
Lomak Petroleum, Inc. (the "Company").
Pursuant to Section 3 of the Underwriting Agreement, the Company
agrees with each underwriter as follows:
1. The initial public offering price per share for the Stock,
determined as provided in Section 3, shall be $_______________.
2. The purchase price per share for the Stock to be paid by the
several Underwriters shall be $______________.
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If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Underwriters and the Company in accordance with its
terms.
Very truly yours,
LOMAK PETROLEUM, INC.
By________________________________
President
Accepted and delivered,
as of the date first above written:
MORGAN STANLEY & CO. INCORPORATED
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
A.G. EDWARDS & SONS, INC.
MCDONALD & COMPANY SECURITIES, INC.
Acting on their own behalf and as
Representatives of the several Underwriters
referred to in the foregoing Agreement.
By: MORGAN STANLEY & CO. INCORPORATED
By________________________________________________
Authorized Signature
2
