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1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 1997 REGISTRATION NO. 333-20257 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------ 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)

------------------ 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) ------------------ 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

------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. ------------------ 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. [ ] ------------------ 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 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." 3 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 February 14, 1997 4,000,000 SHARES LOMAK PETROLEUM LOGO COMMON STOCK ------------------------------------ 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 February 13, 1997, the reported last sale price of the Common Stock on the New York Stock Exchange was $19 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. ------------------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 11 HEREOF FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ------------------------------------ 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. ------------------------------------ PRICE $ A SHARE ------------------------------------ UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) ------------------------------------------------------------ Per Share $ $ $ Total(3) $ $ $

(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 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." ------------------------------------ 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 offices of Morgan Stanley & Co. Incorporated, New York, New York, against payment therefor in immediately available funds. ------------------------------------ MORGAN STANLEY & CO. INCORPORATED PAINEWEBBER INCORPORATED SMITH BARNEY INC. A.G. EDWARDS & SONS, INC. MCDONALD & COMPANY SECURITIES, INC. , 1997 4 [LOMAK LOGO] [Graphic 1: Map of the United States depicting the Company's core operating areas and the locations of its corporate offices.] GEOGRAPHICAL FOCUS
Percent of Present Value ------------- Midcontinent Region 61% Appalachian Region 21% Gulf Coast Region 16% Other 2% --- Total 100% ===
[Graphic 2: Bar chart showing the Company's reserve growth (in Bcfe) from 1992 through 1996 and pro forma at December 31, 1996 including the Cometra Acquisition.] ------------------------ IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 5 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. ------------------------------------ TABLE OF CONTENTS
PAGE ---- Available Information................................................................. 4 Incorporation of Certain Information by Reference..................................... 4 Prospectus Summary.................................................................... 5 Risk Factors.......................................................................... 11 Forward-Looking Information........................................................... 16 Cometra Acquisition................................................................... 17 Notes Offering........................................................................ 19 Use of Proceeds....................................................................... 19 Capitalization........................................................................ 20 Price Range of Common Stock and Dividend Policy....................................... 21 Unaudited Pro Forma Consolidated Financial Statements................................. 22 Selected Consolidated Financial Data.................................................. 26 Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................................... 27 Business.............................................................................. 32 Management............................................................................ 42 Principal Stockholders and Share Ownership of Management.............................. 45 Description of Capital Stock and Indebtedness......................................... 46 Underwriting.......................................................................... 49 Legal Matters......................................................................... 50 Experts............................................................................... 50 Glossary.............................................................................. 51 Index to Financial Statements......................................................... F-1
3 6 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 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. 4 7 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 $634 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: - Reserves increased from 20 Bcfe in 1991 to 644 Bcfe in 1996, a compound annual growth rate of 101%; - Production increased from 2 Bcfe in 1991 to 49 Bcfe in 1996, a compound annual growth rate of 88%; - EBITDA increased from $4 million in 1991 to $104 million in 1996, a compound annual growth rate of 96%; and - Net income increased from $427,000 in 1991 to $19 million in 1996, a compound annual growth rate of 113%. 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. 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. 5 8 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. 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 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 Common Stock after the Common Stock Offering. Over 75% of Lomak's employees either own, or hold options to acquire, shares of Common Stock. 6 9 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 August 13, 1997, 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. 7 10 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 20,220,936 shares(1)(2) Offering....................................... 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"

- --------------- (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. 8 11 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 ======== ======== ======== ======== 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 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
- --------------- (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 or as a measure of liquidity. (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. 9 12 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. 10 13 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 11 14 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" and "Forward-Looking Information." 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. 12 15 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%. 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. 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 August 13, 1997, 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 believes is reasonable, it is not fully insured against all risks. The Company does not carry business interrruption 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 13 16 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 As of January 1, 1997, the Company had hedged approximately 12% of its production through April 1997. 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). 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. 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. 14 17 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. 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 15 18 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 President of Snyder Oil Corporation ("SOCO"), an independent publicly traded oil and gas company, and Chairman, President and Chief Executive Officer of Patina Oil & Gas Company ("Patina"), a publicly traded oil and gas company in which SOCO owns a majority interest. The Company currently has no existing business relationships with either SOCO or Patina, and neither SOCO nor Patina owns any of the Company's securities. However, as a result of Mr. Edelman's position in these companies, conflicts of interests may arise between them. The Company has, and it has been advised that SOCO also has, board policies that require Mr. Edelman to give notification of any potential conflicts that may arise between the Company and SOCO. There can be no assurance, however, that the Company will not compete with SOCO or Patina for the same acquisition or encounter other conflicts of interest. See "Management." 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." 16 19 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 17 20 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. 18 21 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." 19 22 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. 20 23 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. 21 24 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. 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. 22 25 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 $ 16,383 ======= ======== Earnings per common share.... $ 0.69 $ 0.80 ======= ======== Weighted average shares outstanding................ 14,812 1,583 4,000 20,395 ======= ========
See notes to pro forma combined financial statements 23 26 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 24 27 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. (c) To record depletion expense for the Bannon Acquisition and the Cometra Acquisition at a rate of $0.87 per Mcfe, and 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. (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. 25 28 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 ======== ======== ======== ======== ======== ======== 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 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 or as a measure of liquidity. (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. 26 29 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. 27 30 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 higher production volumes attributable to acquisition and development activities, increased prices received from the sale of oil and gas products and 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 $5.5 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 19 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, 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, depreciation and amortization 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. 28 31 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, depreciation and amortization rate for 1995 was $0.83 per Mcfe versus $0.93 per Mcfe in 1994 due to the addition of properties at lower than historical Mcfe costs. 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 29 32 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." 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 August 13, 1997, unless otherwise agreed by the lenders. The Borrowing Base is subject to semi-annual determination and is calculated 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 additional 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"). 30 33 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 highest of (a) the agent banks' reference rate, (b) the secondary market rate for certificates of deposit (adjusted for maximum statutory reserve requirements) plus 1.0% and (c) 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. 31 34 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 $634 million and has spent $39 million on development and exploration activities. These activities have added approximately 719 Bcfe at an average cost of $0.76 per Mcfe. As a result, the Company has achieved substantial growth since 1991: - Reserves increased from 20 Bcfe in 1991 to 644 Bcfe in 1996, a compound annual growth rate of 101%; - Production increased from 2 Bcfe in 1991 to 49 Bcfe in 1996, a compound annual growth rate of 88%; - EBITDA increased from $4 million in 1991 to $104 million in 1996, a compound annual growth rate of 96%; and - Net income increased from $427,000 in 1991 to $19 million in 1996, a compound annual growth rate of 113%. 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 32 35 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. 33 36 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. 34 37 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 6,520 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 $ 634,476 658,353 $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 $0.73 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 $30.0 million in cash and $15.0 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. 35 38 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. 36 39 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 37 40 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 38 41 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 4.0 0.8 Dry............................... 6.0 1.5 2.0 0.2 7.0 3.7 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. 39 42 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. 40 43 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. 41 44 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 OFFICE NAME AGE 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. Since 1981, Mr. Edelman has been a director and President of Snyder Oil Corporation ("SOCO"), an independent, publicly traded oil and gas company. 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 42 45 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 43 46 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. 44 47 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% American Cometra, Inc. (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. 45 48 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 December 1997. 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 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. 46 49 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 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 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 47 50 reduced to $325 million on August 13, 1997, unless otherwise agreed by the lenders. The Borrowing Base is subject to semi-annual determination and is calculated 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 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 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 additional 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 highest of (a) the agent banks' reference rate, (b) the secondary market rate for certificates of deposit (adjusted for maximum statutory reserve requirements) plus 1.0% and (c) 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 contains various covenants that, among other things, will restrict the ability of the Company to dispose of assets, incur additional indebtedness, repay other indebtedness or amend other debt instruments, pay dividends, create liens on assets, make investments or acquisitions, engage in mergers or consolidations, make capital expenditures or engage in certain transactions with affiliates. In addition, under the Credit Agreement, the Company will be required to comply with specified minimum interest coverage and maximum leverage ratios. 48 51 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. 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. 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. 49 52 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. 50 53 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. 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. 51 54 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. 52 55 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 56 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 57 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 58 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 59 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 8,882 -- Common repurchased............... -- -- (36) -- (601) -- 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 60 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 ======== ======== ========
See accompanying notes. F-6 61 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." Under Statement 121, the Company periodically reviews the carrying value of its oil and gas properties for impairment. If an impairment is indicated, the amount of the impairment is charged to expense. F-7 62 LOMAK PETROLEUM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 $1.3 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 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. F-8 63 LOMAK PETROLEUM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 which included cash and approximately 2.2 million shares of Common Stock. 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. 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 F-9 64 LOMAK PETROLEUM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. 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. F-10 65 LOMAK PETROLEUM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. 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. F-11 66 LOMAK PETROLEUM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 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 ======

F-12 67 LOMAK PETROLEUM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (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 December 1997. (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 F-13 68 LOMAK PETROLEUM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. 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. (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. F-14 69 LOMAK PETROLEUM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 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. F-15 70 LOMAK PETROLEUM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (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 an executive officer and shareholder of Snyder Oil Corporation ("SOCO"). At December 31, 1996, Mr. Edelman owned 5.7% 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. F-16 71 LOMAK PETROLEUM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 ====== =======
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. F-17 72 LOMAK PETROLEUM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 =========== ========= ==========
(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 F-18 73 LOMAK PETROLEUM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) $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. 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 amount of ten year senior subordinated notes. The proceeds from the offerings will be used to repay indebtedness from the Cometra Acquisition. 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 ========
F-19 74 LOMAK PETROLEUM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1996 ------------ (IN THOUSANDS) 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 75 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 76 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 77 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 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 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 79 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 80 Lomak Logo 81 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 FEBRUARY 14, 1997 PROSPECTUS $100,000,000 [LOMAK PETROLEUM LOGO] LOMAK PETROLEUM, INC. % SENIOR SUBORDINATED NOTES DUE 2007 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"). 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 Common Stock 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 11 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 (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 82 [LOMAK LOGO] [Graphic 1: Map of the United States depicting the Company's core operating areas and the locations of its corporate offices.] GEOGRAPHICAL FOCUS
Percent of Present Value ------------- Midcontinent Region 61% Appalachian Region 21% Gulf Coast Region 16% Other 2% --- Total 100% ===
[Graphic 2: Bar chart showing the Company's reserve growth (in Bcfe) from 1992 through 1996 and pro forma at December 31, 1996 including the Cometra Acquisition.] IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN THE NOTES PURSUANT TO EXEMPTIONS FROM RULES 10b-6 AND 10b-7 UNDER THE SECURITIES EXCHANGE ACT OF 1934. A-2 83 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. 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. A-3 84 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 herein, 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 Common Stock 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 A-4 85 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 See "Risk Factors" for a discussion of certain factors that should be considered in connection with an investment in the Notes offered hereby, including information regarding the Company's highly leveraged capital structure, the uncertainty of oil and gas prices and certain risks associated with an investment in the Notes offered hereby. A-5 86 [NOTE: THESE RISK FACTORS SUPPLEMENT THE RISK FACTORS CONTAINED IN THE COMMON STOCK 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 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, A-6 87 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. A-7 88 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." A-8 89 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 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 A-9 90 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 A-10 91 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 A-11 92 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 A-12 93 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 A-13 94 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, A-14 95 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 A-15 96 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 A-16 97 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 A-17 98 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 A-18 99 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 A-19 100 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 A-20 101 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, A-21 102 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. A-22 103 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 A-23 104 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 A-24 105 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 A-25 106 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. A-26 107 "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. A-27 108 "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). A-28 109 "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. "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), (ii) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period, (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. "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. A-29 110 "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. "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 A-30 111 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 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 A-31 112 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, 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 A-32 113 (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 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 A-33 114 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 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. A-34 115 "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. A-35 116 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. The Company has agreed with the Underwriters not to sell or otherwise dispose of any debt securities registered under the Securities Act or sold 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. 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 the responsibilities of pricing the Notes and conducting due diligence and the public offering price of the Notes will not be higher than the price recommended by Bear Stearns. A-36 117 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. A-37 118 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 119 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. II-1 120 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. II-2 121 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-3 122 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-4 123 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 February 14, 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 February 14, 1997 - ----------------------------------- Thomas J. Edelman John H. Pinkerton* President, Chief Executive Officer, and February 14, 1997 - ----------------------------------- Director (Chief Executive Officer) John H. Pinkerton /s/ Thomas W. Stoelk Chief Financial Officer and Vice February 14, 1997 - ----------------------------------- President -- Finance (Principal Thomas W. Stoelk Financial Officer) John R. Frank* Chief Accounting Officer and Controller February 14, 1997 - ----------------------------------- (Principal Accounting Officer) John R. Frank Robert E. Alkman* Director February 14, 1997 - ----------------------------------- Robert E. Alkman Allen Finkelson* Director February 14, 1997 - ----------------------------------- Allen Finkelson Anthony V. Dub* Director February 14, 1997 - ----------------------------------- Anthony V. Dub Ben A. Guill* Director February 14, 1997 - ----------------------------------- Ben A. Guill C. Rand Michaels* Director February 14, 1997 - ----------------------------------- C. Rand Michaels *By: /s/ Thomas W. Stoelk ------------------------------ Thomas W. Stoelk Attorney-in-Fact
II-5 124 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 February 14, 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 February 14, 1997 - ----------------------------------- Director (Chief Executive Officer) John H. Pinkerton /s/ Thomas W. Stoelk Vice President -- Finance, Chief February 14, 1997 - ----------------------------------- Financial Officer and Director (Chief Thomas W. Stoelk Financial Officer) John R. Frank* Chief Accounting Officer and Controller February 14, 1997 - ----------------------------------- (Principal Accounting Officer) John R. Frank C. Rand Michaels* Director February 14, 1997 - ----------------------------------- C. Rand Michaels By /s/ Thomas W. Stoelk --------------------------------- Thomas W. Stoelk Attorney-in-fact
II-6 125 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 February 14, 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, February 14, 1997 - ----------------------------------- and Director (Chief Executive John H. Pinkerton Officer) /s/ Thomas W. Stoelk Vice President -- Finance, Chief February 14, 1997 - ----------------------------------- Financial Officer and Director Thomas W. Stoelk (Principal Financial Officer) John R. Frank* Chief Accounting Officer and February 14, 1997 - ----------------------------------- Controller (Principal Accounting John R. Frank Officer) C. Rand Michaels* Director February 14, 1997 - ----------------------------------- C. Rand Michaels *By: /s/ Thomas W. Stoelk ------------------------------ Thomas W. Stoelk Attorney-in-Fact
II-7 126 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 February 14, 1997. LOMAK GATHERING & PROCESSING COMPANY LOMAK GAS COMPANY LPI OPERATING COMPANY By /s/ John H. Pinkerton ----------------------------------- John H. Pinkerton President and Chief Executive Officer KNOW BY ALL THESE PRESENTS, that each of the undersigned directors and officers of the Subsidiary Guarantors hereby constitute and appoints John H. Pinkerton and Thomas W. Stoelk, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and on his behalf and in his name, place and stead in any and all capacities, to sign, execute and file with the Securities and Exchange Commission and any state securities regulatory board or commission any documents relating to the proposed issuance and registration of the securities offered pursuant to this Registration Statement on Form S-3 under the Securities Act of 1933, including any and all amendments (including post-effective amendments and amendments thereto) to this Registration Statement on Form S-3 and any registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as he might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. 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 - ----------------------------------- ---------------------------------------- ------------------- /s/ John H. Pinkerton President, Chief Executive Officer, and February 14, 1997 - ----------------------------------- Director (Chief Executive Officer) John H. Pinkerton /s/ Thomas W. Stoelk Vice President -- Finance, Chief February 14, 1997 - ----------------------------------- Financial Officer and Director (Chief Thomas W. Stoelk Financial Officer) /s/ John R. Frank Chief Accounting Officer and Controller February 14, 1997 - ----------------------------------- (Principal Accounting Officer) John R. Frank /s/ C. Rand Michaels Director February 14, 1997 - ----------------------------------- C. Rand Michaels
II-8 127 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 February 14, 1997. LOMAK OFFSHORE, L.P. By: LPI OPERATING COMPANY By /s/ John H. Pinkerton ----------------------------------- John H. Pinkerton President and Chief Executive Officer KNOW BY ALL THESE PRESENTS, that each of the undersigned directors and officers of the registrant hereby constitute and appoints John H. Pinkerton and Thomas W. Stoelk, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and on his behalf and in his name, place and stead in any and all capacities, to sign, execute and file with the Securities and Exchange Commission and any state securities regulatory board or commission any documents relating to the proposed issuance and registration of the securities offered pursuant to this Registration Statement on Form S-3 under the Securities Act of 1933, including any and all amendments (including post-effective amendments and amendments thereto) to this Registration Statement on Form S-3 and any registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as he might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. 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 - ----------------------------------- ------------------------------------- ------------------- /s/ John H. Pinkerton President, Chief Executive Officer, February 14, 1997 - ----------------------------------- and Director (Chief Executive John H. Pinkerton Officer) /s/ Thomas W. Stoelk Vice President -- Finance, Chief February 14, 1997 - ----------------------------------- Financial Officer and Director Thomas W. Stoelk (Principal Financial Officer) /s/ John R. Frank Chief Accounting Officer and February 14, 1997 - ----------------------------------- Controller (Principal Accounting John R. Frank Officer) /s/ C. Rand Michaels Director February 14, 1997 - ----------------------------------- C. Rand Michaels
II-9 128 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 February 14, 1997. LOMAK PIPELINE SYSTEMS, L.P. By:LOMAK GATHERING & PROCESSING COMPANY By /s/ John H. Pinkerton ----------------------------------- John H. Pinkerton President and Chief Executive Officer KNOW BY ALL THESE PRESENTS, that each of the undersigned directors and officers of the registrant hereby constitute and appoints John H. Pinkerton and Thomas W. Stoelk, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and on his behalf and in his name, place and stead in any and all capacities, to sign, execute and file with the Securities and Exchange Commission and any state securities regulatory board or commission any documents relating to the proposed issuance and registration of the securities offered pursuant to this Registration Statement on Form S-3 under the Securities Act of 1933, including any and all amendments (including post-effective amendments and amendments thereto) to this Registration Statement on Form S-3 and any registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as he might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. 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 - ----------------------------------- ------------------------------------- ------------------- /s/ John H. Pinkerton President, Chief Executive Officer, February 14, 1997 - ----------------------------------- and Director (Chief Executive John H. Pinkerton Officer) /s/ Thomas W. Stoelk Vice President -- Finance, Chief February 14, 1997 - ----------------------------------- Financial Officer and Director Thomas W. Stoelk (Principal Financial Officer) /s/ John R. Frank Chief Accounting Officer and February 14, 1997 - ----------------------------------- Controller (Principal Accounting John R. Frank Officer) /s/ C. Rand Michaels Director February 14, 1997 - ----------------------------------- C. Rand Michaels
II-10 129 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 1.2 DRAFT 2/10/97 LOMAK PETROLEUM, INC. $100,000,000 ____________% SENIOR SUBORDINATED NOTES DUE 2007 UNDERWRITING AGREEMENT ---------------------- ___________ ___, 1997 CHASE SECURITIES INC. NATIONSBANC CAPITAL MARKETS, INC. BEAR, STEARNS & CO., INC. CREDIT SUISSE FIRST BOSTON CORPORATION c/o Chase Securities Inc. 270 Park Avenue New York, New York 10017 Dear Sirs: Lomak Petroleum, Inc., a Delaware corporation (the "Company"), proposes to issue and sell $100,000,000 principal amount of its __% Senior Subordinated Notes due 2007 (the "Notes"). The Notes are to be issued pursuant to an Indenture dated as of ________ __, 1997 (the "Indenture") to be entered into between the Company and ______________, as trustee (the "Trustee"), the form of which has been filed as an exhibit to the Registration Statement (as defined below). The Notes will be jointly, severally and unconditionally guaranteed (the "Guarantees" and, together with the Notes, the "Securities") on a senior subordinated basis by each Restricted Subsidiary of the Company (as defined in the Indenture) and any future Restricted Subsidiary of the Company (the "Subsidiary Guarantors"). It is understood by all parties that the Company is concurrently entering into an agreement, dated the date hereof (the "Common Stock Underwriting Agreement") providing for the sale by the Company of an aggregate of 4,000,000 shares (plus up to 600,000 shares to cover over-allotments, if any) of the Company's Common Stock to certain underwriters for whom Morgan Stanley & Co. Incorporated, Paine Webber Incorporated, Smith Barney Inc., A.G. Edwards & Sons, Inc. and McDonald & Company Securities, Inc. are acting as representatives. This is to confirm the agreement concerning the purchase of the Securities from the Company by the several Underwriters named in Schedule 1 hereto (the "Underwriters"). 1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The Company represents and warrants to and agrees with the several Underwriters on and as of the date hereof and the Closing Date (as defined in Section 3) that: 2 2 (a) A registration statement on Form S-3 (No. 333- ), including a form of prospectus, relating to the Securities has been prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") and has been filed by the Company with the Commission. The Company may have filed one or more amendments thereto, including the related preliminary prospectus, each of which has previously been furnished to you. The Company will next file with the Commission either (i) prior to effectiveness of such registration statement, a further amendment to such registration statement (including the form of final prospectus) or (ii) after effectiveness of such registration statement, a final prospectus in accordance with Rules 430A and 424(b)(1) or (4). In the case of clause (ii), the Company has included (or incorporated by reference) in such registration statement, as amended at the Effective Time (as defined below), all information (other than information permitted to be omitted from the Registration Statement when it becomes effective pursuant to Rule 430A ("Rule 430A Information")) required by the Securities Act and the rules thereunder to be included in the final prospectus with respect to the Securities and the offering thereof. As filed, such amendment and form of final prospectus, or such final prospectus, shall contain all Rule 430A Information, together with all other such required information, with respect to the Securities and the offering thereof and, except to the extent the Underwriters shall agree in writing to a modification, shall be in all substantive respects in the form furnished to you prior to the execution of this Agreement or, to the extent not completed at such time, shall contain only such specific additional information and other changes (beyond that contained in the latest Preliminary Prospectus) as the Company has advised you, prior to the execution of this Agreement, will be included or made therein. For purposes of this Agreement, "Effective Time" means the date and time as of which such registration statement, or the most recent post-effective amendment thereto, if any, was or is declared effective by the Commission, and "Preliminary Prospectus" means each prospectus included in such registration statement, or amendments thereof, before it becomes effective under the Securities Act, any prospectus filed with the Commission by the Company pursuant to Rule 424(a) and the prospectus included in the Registration Statement at the Effective Time that omits Rule 430A Information. Such registration statement, as amended at the Effective Time, including all Rule 430A Information, if any, and any documents incorporated by reference therein at such time is hereinafter referred to as the "Registration Statement", and the form of prospectus relating to the Securities, as first filed with the Commission pursuant to and in accordance with Rule 424(b) or, if no such filing is required, as included in the Registration Statement is hereinafter referred to as the "Prospectus". Reference made herein to any Preliminary Prospectus or to the Prospectus shall be deemed to refer to and include any documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Securities Act, as of the date of such Preliminary Prospectus or the Prospectus, as the case may be, and any reference to any amendment or supplement to any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include any document filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after the date of such Preliminary Prospectus or the Prospectus, as the case may be, and incorporated by reference in such Preliminary Prospectus or the Prospectus, as the case may be; and any reference to any amendment to the Registration Statement shall be deemed to include any annual report of the Company filed with the Commission pursuant to Section 13(a) or 15(d) of the 3 3 Exchange Act after the Effective Time that is incorporated by reference in the Registration Statement. (b) At the Effective Time, the Registration Statement did or will, and when the Prospectus is first filed (if required) in accordance with Rule 424(b) and on the Closing Date, the Prospectus (and any supplements thereto) will, comply in all material respects with the applicable requirements of the Securities Act and the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), and the respective rules thereunder; at the Effective Time, the Registration Statement did not or will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; at the Effective Time and on the Closing Date, the Indenture did or will conform in all material respects with the applicable requirements of the Trust Indenture Act and the rules thereunder; and, at the Effective Time, the Prospectus, if not filed pursuant to Rule 424(b), did not or will not, and on the date of any filing pursuant to Rule 424(b) and on the Closing Date, the Prospectus (together with any supplement thereto) will not, include any 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. The preceding sentence does not apply to (i) that part of the Registration Statement which shall constitute the Statement of Eligibility and Qualification (Form T-1) of the Trustee under the Trust Indenture Act or (ii) information contained in or omitted from the Registration Statement or the Prospectus (or any supplement thereto) in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter specifically for use therein (the "Underwriters' Information"). The parties acknowledge and agree that the Underwriters' Information consists solely of the statements relating to the Underwriters contained in the second, third and fifth paragraphs under the caption "Underwriting" in the Prospectus. (c) 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 rules and regulations of the Commission thereunder, and none of such documents contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and any further documents so filed and incorporated by reference in the Prospectus, when such documents are filed with Commission will conform in all material respects to the requirements of the Exchange Act and the rules and regulations of the Commission thereunder and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. The Company and the transactions contemplated by this Agreement meet the requirements for use of Form S-3 under the Act. (d) No action has been taken and no statute, rule, regulation or order has been enacted, adopted or issued by any governmental agency or body which prevents the issuance of the Securities or suspends the sale of the Securities in any jurisdiction; no injunction, restraining order or order of any nature by any federal or state court of competent jurisdiction has been issued with respect to the Company or any of its subsidiaries which would prevent or suspend the issuance or sale of the Securities or the use of the Preliminary Prospectus or the Prospectus in any jurisdiction; no action, suit or proceeding is pending 4 4 against or, to the best knowledge of the Company, threatened against or affecting the Company or any of its subsidiaries before any court or arbitrator or any governmental agency, body or official, domestic or foreign, which could reasonably be expected to interfere with or adversely affect the issuance of the Securities or in any manner draw into question the validity or enforceability of this Agreement, the Indenture or any other related agreement or any action taken or to be taken pursuant thereto; and the Company has complied with any and all requests by any securities authority in any jurisdiction for additional information to be included in the Preliminary Prospectus and the Prospectus. (e) The Company and each of its subsidiaries have been duly organized and are validly existing as corporations or limited partnerships in good standing under the laws of their respective jurisdictions of organization, are duly qualified to do business and are in good standing as foreign corporations or limited partnerships in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification, and have all power and authority necessary to own or hold their respective properties and to conduct the businesses in which they are engaged, except where the failure to so qualify or have such power or authority would not have, singularly or in the aggregate, 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 (a "Material Adverse Effect"). (f) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and conform to the description thereof contained in the Prospectus. All the outstanding shares of capital stock or partnership interests, as the case may be, of each subsidiary of the Company have been duly authorized and validly issued, are fully paid and nonassessable and, except to the extent set forth in the Registration Statement, are owned by the Company directly or indirectly through one or more wholly-owned subsidiaries, free and clear of any claim, lien, encumbrance, security interest, restriction upon voting or transfer or any other claim of any third party. (g) The execution, delivery and performance of this Agreement, the Indenture, the Notes and the agreement (the "Cometra Acquisition Agreement"), dated December 31, 1996, between the Company and American Cometra, Inc. ("Cometra") by the Company and the Guarantees by each of the Subsidiary Guarantors, the issuance, authentication, sale and delivery of the Securities and compliance by the Company with the terms thereof and the consummation of the transactions contemplated hereby and thereby will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such actions result in any violation of the provisions of the charter, partnership agreement, by-laws or other organizational documents of the Company or any of its subsidiaries or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties or assets; and except for the 5 5 registration of the Securities under the Securities Act, the qualification of the Indenture under the Trust Indenture Act and such consents, approvals, authorizations, registrations or qualifications as may be required under the Exchange Act and applicable state securities laws in connection with the purchase and distribution of the Securities by the Underwriters, no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is required for the execution, delivery and performance of this Agreement, the Indenture and the Notes by the Company and the Guarantees by the Subsidiary Guarantors, the issuance, authentication, sale and delivery of the Securities and compliance by the Company with the terms thereof, and the consummation of the transactions contemplated hereby and thereby. (h) 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 the 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 the oil and gas reserves of the Company and its subsidiaries at the dates indicated. (i) There are no contracts or other documents which are required to be described in the Prospectus or filed as exhibits to the Registration Statement by the Securities Act or by the Rules and Regulations and which have not been so described or filed. (j) 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 or assets of the Company or any of its subsidiaries is the subject which, singularly or in the aggregate, if determined adversely to the Company or any of its subsidiaries, are reasonably likely to have a Material Adverse Effect; and to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others. (k) Neither the Company nor any of its subsidiaries (i) is in violation of its charter, partnership agreement, by-laws or other organizational documents, (ii) is in default in any material respect, and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any material indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which it is a party or by which it is bound or to which any of its property or assets is subject or (iii) is in violation in any respect of any law, ordinance, governmental rule, regulation or court decree to which it or its properties or assets may be subject. (l) The Company and each of its subsidiaries possess all material licenses, certificates, authorizations and permits issued by, and have made all declarations and filings with, the appropriate state, federal or foreign regulatory agencies or bodies which are necessary or desirable for the ownership of their respective properties or the conduct of their respective businesses as described in the Prospectus, except where the failure to possess or make the same would not have, singularly or in the aggregate, a Material Adverse Effect, and the 6 6 Company has not received notification of any revocation or modification of any such license, authorization or permit and has no reason to believe that any such license, certificate, authorization or permit will not be renewed in the ordinary course. (m) The Company has full right, power and authority to execute and deliver this Agreement, the Indenture and the Notes and to perform its obligations hereunder and thereunder; and all corporate action required to be taken for the due and proper authorization, execution and delivery of this Agreement, the Indenture and the Notes and the consummation of the transactions contemplated thereby have been duly and validly taken. (n) This Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and legally binding agreement of the Company. (o) Each Subsidiary Guarantor has full right, power and authority to execute and deliver the Indenture and the Guarantees and to perform its obligations thereunder; and all corporate action required to be taken for the due and proper authorization, execution and delivery of the Indenture and the Guarantees and the consummation by each Subsidiary Guarantor of the transactions contemplated by the Indenture and the Guarantees have been duly and validly taken. (p) The Indenture has been duly authorized by the Company and each Subsidiary Guarantor and, when duly executed by the proper officers of the Company and each Subsidiary Guarantor and delivered by the Company and each Subsidiary Guarantor, will constitute a valid and binding agreement of the Company and each Subsidiary Guarantor enforceable against the Company and each Subsidiary Guarantor in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, and by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law); and the Notes have been duly authorized by the Company and, when duly executed, authenticated, issued and delivered as provided in the Indenture, will be duly and validly issued and outstanding and will constitute valid and binding obligations of the Company entitled to the benefits of the Indenture and enforceable in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, and by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law); and each Guarantee has been duly authorized by each Subsidiary Guarantor and, when duly executed, authenticated, issued and delivered as provided in the Indenture, will be duly and validly issued and outstanding and will constitute valid and binding obligations of each Subsidiary Guarantor entitled to the benefits of the Indenture and enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, and by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law); and the Indenture and the Securities conform to the descriptions thereof contained in the Prospectus. 7 7 (q) There are no persons with registration or other similar rights either to have any securities registered pursuant to the Registration Statement or to have any securities otherwise registered by the Company under the Securities Act in connection with or as a result of the execution, delivery and performance of this Agreement; except as described in the Prospectus, there are no outstanding subscriptions, rights, warrants, calls or options to acquire, or instruments convertible into or exchangeable for, or agreements or understandings with respect to the sale or issuance of, any shares of capital stock of or other equity or other ownership interest in the Company or any of its subsidiaries.. (r) The Company and each of its subsidiaries have filed all federal, state, local and foreign income and franchise tax returns required to be filed through the date hereof and have paid all taxes due thereon, and no tax deficiency has been determined adversely to the Company or any of its subsidiaries which has had (nor does the Company or any of its subsidiaries have any knowledge of any tax deficiency which, if determined adversely to the Company or any of its subsidiaries, could reasonably be expected to have) a Material Adverse Effect. (s) Neither the Company nor any of its subsidiaries is (i) an "investment company" within the meaning of the Investment Company Act of 1940, as amended (the "Investment Company Act"), and the rules and regulations of the Commission thereunder or (ii) a "holding company" or a "subsidiary company" of a holding company or an "affiliate" thereof within the meaning of the Public Utility Holding Company Act of 1935, as amended. (t) The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (u) The Company and each of its subsidiaries own or possess adequate rights to use all material patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses and know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) necessary for the conduct of their respective businesses and have no reason to believe that the conduct of their respective businesses will conflict with, and have not received any notice of any claim of conflict with, any such rights of others. (v) The Company and each of its Subsidiaries have (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 its subsidiaries in accordance with good practice in the oil and gas industry in the areas in which they operate; and (ii) good and marketable title in fee simple to, or have valid rights to lease or otherwise use, all items of real or personal property which are material to the business of the Company and its subsidiaries taken as a whole, in each 8 8 case free and clear of all liens, encumbrances, claims and defects except such as (i) do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries or (ii) could not reasonably be expected to have a Material Adverse Effect. (w) No labor disturbance by or dispute with the employees of the Company or any of its subsidiaries exists or, to the best knowledge of the Company, is contemplated or threatened. (x) 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 its 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, rule (including rule of common law), regulation, order, judgment, 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; 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 have 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. (y) 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; (z) 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; 9 9 (aa) No "prohibited transaction" (as defined in Section 406 of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended from time to time (the "Code")) or "accumulated funding deficiency" (as defined in Section 302 of ERISA) or any of the events set forth in Section 4043(b) of ERISA (other than events with respect to which the 30-day notice requirement under Section 4043 of ERISA has been waived) has occurred with respect to any employee benefit plan which could have a Material Adverse Effect; each employee benefit plan is in compliance in all material respects with applicable law, including ERISA and the Code; the Company has not incurred and does not expect to incur liability under Title IV of ERISA with respect to the termination of, or withdrawal from, any "pension plan"; and each "pension plan" (as defined in ERISA) for which the Company would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which could cause the loss of such qualification. (bb) Arthur Andersen LLP, Ernst & Young LLP, Coopers & Lybrand L.L.P. and KPMG Peat Marwick LLP, are each independent certified public accountants with respect to the Company and its subsidiaries as required by the Act and the Rules and Regulations. The financial statements (including the related notes and supporting schedules) contained or incorporated by reference in the Prospectus comply in all material respects with the requirements under the Securities Act and the Exchange Act (except that certain supporting schedules are omitted); such financial statements have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods covered thereby and fairly present the financial position of the entities purported to be covered thereby at the respective dates indicated and the results of their operations and their cash flows for the respective periods indicated; and the financial information contained in the Prospectus under the headings " Prospectus Summary--Summary Historical and Pro Forma Financial Data", "Capitalization", "Selected Consolidated Financial Data" "Management's Discussion and Analysis of Results of Operations and Financial Condition" and "Executive Compensation" are derived from the accounting records of the Company and its subsidiaries and fairly present the information purported to be shown thereby. The pro forma financial statements and other pro forma financial information and data contained in the Prospectus: (i) present fairly in all material respects the information shown therein, (ii) have been prepared in accordance with, and contain all material adjustments to the historical financial statements required by, the Commission's rules and guidelines with respect to pro forma financial statements, (iii) have been properly compiled on the basis described therein, and (iv) 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. The other historical financial and statistical information and data included in the Prospectus are, in all material respects, fairly presented. (cc) The Company and each of its subsidiaries have insurance covering their respective properties, operations, personnel and businesses, which insurance is in amounts 10 10 and insures against such losses and risks as are adequate to protect the Company and its subsidiaries and their respective businesses. Neither the Company nor any of its subsidiaries has received notice from any insurer or agent of such insurer that capital improvements or other expenditures are required or necessary to be made in order to continue such insurance. (dd) 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 Securities and the Company has not distributed and will not distribute any offering material in connection with the offering and sale of the Securities 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; the Company has not taken and will not take, directly or indirectly, any action prohibited by Rule 10b-6 under the Exchange Act in connection with the offering of the Securities. (ee) Since the date as of which information is given in the Prospectus, except as otherwise stated therein, (i) there has been no material adverse change or any development involving a prospective material adverse change in the condition, financial or otherwise, or in the earnings, business affairs, management or business prospects of the Company, whether or not arising in the ordinary course of business, (ii) the Company has not incurred any material liability or obligation, direct or contingent, other than in the ordinary course of business, (iii) the Company has not entered into any material transaction other than in the ordinary course of business and (iv) there has not been any change in the capital stock or long-term debt of the Company, or any dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (ff) Neither the Company nor, to the best knowledge of the Company, any director, officer, agent, employee or other person associated with or acting on behalf of the Company has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977; or (iv) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment. (gg) On and immediately after the Closing Date, the Company (after giving effect to the issuance of the Securities and to the other transactions related thereto as described in the Prospectus) will be Solvent. As used in this paragraph, the term "Solvent" means, with respect to a particular date, that on such date (i) the present fair market value (or present fair saleable value) of the assets of the Company is not less than the total amount required to pay the probable liabilities of the Company on its total existing debts and liabilities (including contingent liabilities) as they become absolute and matured, (ii) the Company is able to realize upon its assets and pay its debts and other liabilities, contingent 11 11 obligations and commitments as they mature and become due in the normal course of business, (iii) assuming the sale of the Securities as contemplated by this Agreement and the Prospectus, the Company is not incurring debts or liabilities beyond its ability to pay as such debts and liabilities mature and (iv) the Company is not engaged in any business or transaction, and is not about to engage in any business or transaction, for which its property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which the Company is engaged. In computing the amount of such contingent liabilities at any time, it is intended that such liabilities will be computed at the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. (hh) Neither the Company nor any of its subsidiaries owns any "margin securities" as that term is defined in Regulations G and U of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), and none of the proceeds of the sale of the Securities will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Securities to be considered a "purpose credit" within the meanings of Regulation G, T, U or X of the Federal Reserve Board. (ii) Neither the Company nor any of its subsidiaries is a party to any contract, agreement or understanding with any person that would give rise to a valid claim against the Company or the Underwriters for a brokerage commission, finder's fee or like payment in connection with the offering and sale of the Securities. (jj) No forward looking statement within the meaning to Section 27A of the Securities 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. 2. PURCHASE BY THE UNDERWRITERS. On the basis of the representations, warranties and agreements contained herein, and subject to the terms and conditions set forth herein, the Company agrees to issue and sell to each of the Underwriters, severally and not jointly, and each of the Underwriters, severally and not jointly, agrees to purchase from the Company, the principal amount of Notes together with the related Guarantees set forth opposite the name of such Underwriter in Schedule 1 hereto at a purchase price equal to _____% of the principal amount thereof plus accrued interest, if any, from _______ __, 1997 to the Closing Date (as hereinafter defined). The Company shall not be obligated to deliver any of the Securities except upon payment for all the Securities to be purchased as provided herein. 12 12 3. DELIVERY OF AND PAYMENT FOR THE SECURITIES. Delivery of and payment for the Securities shall be made at the office of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, NY 10017, or at such other place as shall be agreed upon by the Underwriters and the Company, at 10:00 A.M., New York City time, on ________ __, 1997, or at such other date or time, not later than seven full business days thereafter, as shall be agreed upon by the Underwriters and the Company (such date and time being referred to herein as the "Closing Date"). On the Closing Date, the Company shall deliver or cause to be delivered to the Underwriters certificates for the Securities in global registered form against payment to or upon the order of the Company of the purchase price by certified or official bank check or checks drawn in New York Clearing House funds or similar next-day funds. Time shall be of the essence, and delivery at the time and place specified pursuant to this Agreement is a further condition of the obligation of each Underwriter hereunder. Upon delivery, the Securities shall be in definitive fully registered form, in such denominations and registered in such names as the Underwriters shall have requested in writing not less than two full business days prior to the Closing Date. The Company shall make the certificates for the Securities available for inspection by the Underwriters in New York, New York, not later than one full business day prior to the Closing Date. 4. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with each of the several Underwriters: (a) That, if the Effective Time is prior to the execution and delivery of this Agreement, to file the Prospectus with the Commission pursuant to and in accordance with subparagraph (1) (or, if applicable and if consented to by the Underwriters, subparagraph (4)) of Rule 424(b) within the time period prescribed by such rule and will provide evidence satisfactory to the Underwriters of such timely filing; to file promptly all reports and any definitive proxy or information statements required to be filed by the Company with the Commission pursuant to Section 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 and sale of the Securities; (b) To advise the Underwriters promptly of any proposal to amend or supplement the registration statement as filed or the related prospectus or the Registration Statement or the Prospectus and not to effect such amendment or supplementation without the consent of the Underwriters; to advise the Underwriters promptly of the receipt of any comments from the Commission and of the effectiveness of the Registration Statement (in each case if the Effective Time is subsequent to the execution and delivery of this Agreement) and of any amendment or supplementation of the Registration Statement or the Prospectus, or of any request by the Commission therefor, and of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; to advise the Underwriters promptly of any order preventing or suspending the use of any prospectus relating to the Securities, of the suspension of the qualification of such Securities for offering or sale in any jurisdiction and of the initiation or threatening of any proceeding for any such purpose; and to use best 13 13 efforts to prevent the issuance of any stop order or of any such order preventing or suspending the use of any prospectus relating to the Securities or suspending any such qualification and, if any such stop order or order or suspension is issued, to obtain the lifting thereof at the earliest possible time; (c) To furnish promptly to each of the Underwriters and counsel for the Underwriters a signed copy of the Registration Statement as originally filed with the Commission, and each amendment thereto filed with the Commission, including all consents and exhibits filed therewith; and to deliver promptly without charge to the Underwriters such number of the following documents as the Underwriters may from time to time reasonably request: (i) conformed copies of the Registration Statement as originally filed with the Commission and each amendment thereto (in each case excluding exhibits other than this Agreement, the Indenture, the Guarantees, the computation of the ratio of earnings to fixed charges and the computation of per share earnings), (ii) each Preliminary Prospectus, the Prospectus and any amended or supplemented Prospectus and (iii) any document incorporated by reference in the Prospectus (excluding exhibits thereto); (d) If the delivery of a prospectus is required at any time in connection with the sale of the Securities and if at such time any events shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or if for any other reason it shall be necessary or advisable at such time to amend or supplement the Prospectus or to file under the Exchange Act any document incorporated by reference in the Prospectus in order to comply with the Securities Act or the Exchange Act or with a request from the Commission, to notify the Underwriters immediately thereof, and to promptly prepare and file with the Commission an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance; (e) As soon as practicable to make generally available to the Company's security holders and to deliver to the Underwriters an earning statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Securities Act and the Rules and Regulations (including, at the option of the Company, Rule 158); (f) For so long as the Securities are outstanding, to furnish to the Underwriters copies of any annual reports, quarterly reports and current reports filed by the Company with the Commission on Forms 10-K, 10-Q and 8-K, or such other similar forms as may be designated by the Commission, and such other documents, reports and information as shall be furnished by the Company to the Trustee or to the holders of the Securities pursuant to the Indenture or the Exchange Act or any rule or regulation of the Commission thereunder; 14 14 (g) For a period of 180 days from the date of the Prospectus, to not offer for sale, sell, contract to sell or otherwise dispose of, directly or indirectly, or file a registration statement for, or announce any offering of, any debt securities of the Company (other than the Securities) without the prior written consent of the Underwriters. (h) Not to, for so long as the Securities are outstanding, be or become, or be or become owned by, an investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act, and to not be or become, or be or become owned by, a closed-end investment company required to be registered, but not registered thereunder; (i) In connection with the offering of the Securities, until the Underwriters shall have notified the Company of the completion of the distribution of the Securities, not to, and to cause its affiliated purchasers (as defined in Rule 10b-6 under the Exchange Act) not to, either alone or with one or more other persons, bid for or purchase, for any account in which it or any of its affiliated purchasers has a beneficial interest, any Securities, or attempt to induce any person to purchase any Securities; and not to, and to cause its affiliated purchasers not to, make bids or purchase for the purpose of creating actual, or apparent, active trading in or of raising the price of the Securities; (j) In connection with the offering of the Securities, to make its officers, employees, independent accountants and legal counsel reasonably available upon request by the Underwriters; (k) To furnish to each of the Underwriters on the date hereof a copy of the independent accountants' reports included in the Prospectus signed by the accountants rendering such report; (l) To do and perform all things required to be done and performed by it under this Agreement that are within its control prior to or after the Closing Date, and to use its best efforts to satisfy all conditions precedent on its part to the delivery of the Securities; (m) To not take any action prior to the execution and delivery of the Indenture which, if taken after such execution and delivery, would have violated any of the covenants contained in the Indenture; (n) To not take any action prior to the Closing Date which would require the Prospectus to be amended or supplemented pursuant to Section 4(d); (o) Prior to the Closing Date, not to issue any press release or other communication directly or indirectly or hold any press conference with respect to the Company, its condition, financial or otherwise, or earnings, business affairs or business prospects (except for routine oral marketing communications in the ordinary course of business and consistent with the past practices of the Company and of which the 15 15 Underwriters are notified), without the prior written consent of the Underwriters, unless in the judgment of the Company and its counsel, and after notification to the Underwriters, such press release or communication is required by law; and (p) To apply the net proceeds from the sale of the Securities as set forth in the Prospectus under the heading "Use of Proceeds". 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective obligations of the several Underwriters hereunder are subject to the accuracy, when made and on the Closing Date, of the representations and warranties of the Company contained herein, to the accuracy of the statements of the Company made in any certificates pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder, and to each of the following additional terms and conditions: (a) If the Effective Time is not prior to the execution and delivery of this Agreement, the Registration Statement shall have become effective and the Indenture shall have been qualified under the Trust Indenture Act, and the Representative shall have received notice thereof, not later than (i) 6:00 p.m. New York City time on the date of determination of the public offering price, if such determination occurred at or prior to 3:00 p.m. New York City time on such date or (ii) 12:00 noon New York City time on the business day following the day on which the offering price was determined if such determination occurred after 3:00 p.m. New York City time on such date. If the Effective Time is prior to the execution and delivery of this Agreement, the Prospectus shall have been timely filed with the Commission in accordance with Section 4(a) of this Agreement. Prior to the Closing Date, no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; and any request of the Commission for inclusion of additional information in the Registration Statement or the Prospectus or otherwise shall have been complied with to the reasonable satisfaction of the Underwriters. (b) The Prospectus (and any amendments or supplements thereto) shall have been printed and copies distributed to the Underwriters as promptly as practicable on or following the date of this Agreement or at such other date and time as to which the Underwriters may agree. (c) None of the Underwriters shall have discovered and disclosed to the Company on or prior to the Closing Date that the Prospectus or any amendment or supplement thereto contains an untrue statement of a fact which, in the opinion of counsel for the Underwriters, is material or omits to state any fact which, in the opinion of such counsel, is material and is required to be stated therein or is necessary to make the statements therein not misleading. 16 16 (d) All corporate or partnership proceedings and other legal matters incident to the authorization, form and validity of this Agreement, the Notes, the Guarantees, the Indenture, the Registration Statement and the Prospectus, and all other legal matters relating to this Agreement and the transactions contemplated hereby shall be reasonably satisfactory in all material respects to counsel for the Underwriters, and the Company shall have furnished and shall have caused its subsidiaries to have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters. (e) Vinson & Elkins L.L.P. shall have furnished to the Underwriters their written opinion, as counsel to the Company and its subsidiaries, addressed to the Underwriters and dated the Closing Date, in form and substance reasonably satisfactory to the Underwriters, substantially to the effect set forth in Annex A hereto. (f) The Representative shall have received from Simpson Thacher & Bartlett, counsel for the Underwriters, such opinion or opinions, dated the Closing Date, with respect to such matters as the Underwriters may reasonably require, and the Company and its subsidiaries shall have furnished to such counsel such documents as they request for enabling them to pass upon such matters. (g) The Company shall have furnished to the Underwriters a letter from Arthur Andersen LLP, dated the date of delivery thereof (which, if the Effective Time is prior to the execution and delivery of this Agreement, shall be on or prior to the date of this Agreement or, if the Effective Time is subsequent to the execution and delivery of this Agreement, shall be prior to the filing of the amendment or post-effective amendment to the Registration Statement to be filed shortly prior to the Effective Time), in form and substance satisfactory to the Underwriters, substantially to the effect set forth in Annex B hereto. (h) The Company shall have furnished to the Underwriters a letter from Coopers & Lybrand L.L.P., dated the date of delivery thereof (which, if the Effective Time is prior to the execution and delivery of this Agreement, shall be on or prior to the date of this Agreement or, if the Effective Time is subsequent to the execution and delivery of this Agreement, shall be prior to the filing of the amendment or post-effective amendment to the Registration Statement to be filed shortly prior to the Effective Time), in form and substance satisfactory to the Underwriters, substantially to the effect set forth in Annex C hereto. (i) The Company shall have furnished to the Underwriters a letter from each of Ernst & Young LLP and KPMG Peat Marwick LLP, dated the date of delivery thereof (which, if the Effective Time is prior to the execution and delivery of this Agreement, shall be on or prior to the date of this Agreement or, if the Effective Time is subsequent to the execution and delivery of this Agreement, shall be prior to the filing of the amendment or post-effective amendment to the Registration Statement to be filed shortly 17 17 prior to the Effective Time), in form and substance satisfactory to the Underwriters, substantially to the effect set forth in Annex D hereto. (j) The Company shall have furnished to the Underwriters a letter (the "bring-down letter") from each of Arthur Andersen LLP, Ernst & Young LLP, Coopers & Lybrand L.L.P. and KPMG Peat Marwick LLP, addressed to the Underwriters and dated the Closing Date confirming, as of the date of such bring-down letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Prospectus, as of a date not more than three days prior to the date of the bring-down letter), the conclusions and findings of such firm with respect to the financial information and other matters covered by such firms letter delivered to the Underwriters concurrently with the execution of this Agreement and described in paragraph (g), (h) or (i) as the case may be (each, an "initial letter"). In addition, if the Effective Time is prior to the execution and delivery of this Agreement, Arthur Andersen LLP and Coopers & Lybrand L.L.P. shall confirm in their bring-down letters that they have performed the procedures specified in clause (iii) of Annex B and Annex C, respectively, with respect to certain amounts, percentages and financial information specified by the Underwriters and deemed to be a part of the Registration Statement pursuant to Rule 430A(b) and have found such amounts, percentages and financial information to be in agreement with the records specified in clause (iii) of Annex B and Annex C, respectively. (k) The Company shall have furnished to the Underwriters 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 delivery thereof (which, if the Effective Time is prior to the execution and delivery of this Agreement, shall be on or prior to the date of this Agreement or, if the Effective Time is subsequent to the execution and delivery of this Agreement, shall be prior to the filing of the amendment or post-effective amendment to the Registration Statement to be filed shortly prior to the Effective Time), in form and substance satisfactory to the Underwriters, confirming that they are independent petroleum consultants with respect to the Company and its subsidiaries, attaching their report with respect to the Company's and its subsidiaries oil and gas reserves 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 or correct. (l) The Company shall have furnished to the Underwriters a letter (the "bring-down letter") from each of Independent Petroleum Engineers, addressed to the Underwriters and dated the Closing Date confirming, as of the date of the bring-down letter, the conclusions and findings of such firm with respect to the information and other matters covered by their letter delivered to the Underwriters concurrently with the execution of this Agreement and described in paragraph (k) and confirming in all material respects the conclusions and findings set forth in such prior letter. 18 18 (m) The Company shall have furnished to the Underwriters a certificate, dated the Closing Date, of its Chairman of the Board, its President or a Vice President and its chief financial officer stating that (A) such officers have carefully examined the Registration Statement and the Prospectus, (B) in their opinion, as of the Effective Time, the Registration Statement and the Prospectus did not include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and since the Effective Time, no event has occurred which should have been set forth in a supplement or amendment to the Registration Statement or the Prospectus pursuant to Section 4(d) hereof and (C) to the best of his or her knowledge after reasonable investigation, as of the Closing Date, the representations and warranties of the Company in this Agreement are true and correct, the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or, to the best of his or her knowledge, are contemplated by the Commission, and subsequent to the date of the most recent financial statements included or incorporated by reference in the Prospectus, there has been no material adverse change in the financial position or results of operation of the Company and its subsidiaries, or any change, or any development including a prospective change, in or affecting the condition (financial or otherwise), results of operations, business or prospects of the Company and its subsidiaries taken as a whole, except as set forth in the Prospectus. (n) The Indenture shall have been duly executed and delivered by the Company and the Trustee, the Notes shall have been duly executed and delivered by the Company and duly authenticated by the Trustee and the Guarantees shall have been duly executed and delivered by each of the Subsidiary Guarantors. (o) If any event shall have occurred that requires the Company under Section 4(d) to prepare an amendment or supplement to the Prospectus, such amendment or supplement shall have been prepared, the Underwriters shall have been given a reasonable opportunity to comment thereon, and copies thereof shall have been delivered to the Underwriters reasonably in advance of the Closing Date. (p) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency or body which would, as of the Closing Date, prevent the issuance or sale of the Securities; and no injunction, restraining order or order of any other nature by any federal or state court of competent jurisdiction shall have been issued as of the Closing Date which would prevent the issuance or sale of the Securities. (q) Subsequent to the execution and delivery of this Agreement or, if earlier, the dates as of which information is given in the Registration Statement (exclusive of any amendment thereof) and the Prospectus (exclusive of any supplement thereto), there shall not have been any change in the capital stock or long-term debt of the Company or any of 19 19 its subsidiaries or any change, or any development involving a prospective change, in or affecting the condition (financial or otherwise), results of operations, business or prospects of the Company and its subsidiaries taken as a whole, the effect of which, in any such case described above, is, in the judgment of the Underwriters, so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Securities on the terms and in the manner contemplated in the Prospectus (exclusive of any supplement). (r) Subsequent to the execution and delivery of this Agreement (i) no downgrading shall have occurred in the rating accorded the Securities or any of the Company's other debt securities by any "nationally recognized statistical rating organization", as that term is defined by the Commission for purposes of Rule 436(g)(2) of the Rules and Regulations and (ii) no such organization shall have publicly announced that it has under surveillance or review (other than an announcement with positive implications of a possible upgrading), its rating of the Securities or any of the Company's other debt securities. (s) Subsequent to the execution and delivery of this Agreement there shall not have occurred any of the following: (i) trading in securities generally on the New York Stock Exchange, the American Stock Exchange or the over-the-counter market shall have been suspended or limited, or minimum prices shall have been established on either of such exchanges or such market by the Commission, by such exchange or by any other regulatory body or governmental authority having jurisdiction, or trading in securities of the Company on any exchange or in the over-the-counter market shall have been suspended or (ii) any moratorium on commercial banking activities shall have been declared by Federal or New York State authorities or (iii) an outbreak or escalation of hostilities or a declaration by the United States of a national emergency or war or (iv) a material adverse change in general economic, political or financial conditions (or the effect of international conditions on the financial markets in the United States shall be such) the effect of which, in the case of this clause (iv), is, in the judgment of the several Underwriters, so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the sale and delivery of the Securities on the terms and in the manner contemplated by this Agreement and the Prospectus. (t) The closing under the Common Stock Underwriting Agreement shall have occurred concurrently with the closing hereunder. All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Underwriters. 6. TERMINATION. This Agreement shall become effective upon the later of (i) when the Underwriters and the Company shall have received notification of the effectiveness of the Registration Statement or (ii) the execution of this Agreement. The obligations of the Underwriters hereunder may be terminated by the Underwriters, in their absolute discretion, by 20 20 notice given to and received by the Company prior to delivery of and payment for the Securities if, prior to that time, any of the events described in Sections 5(p), 5(q), 5(r), or 5(s) shall have occurred. 7. DEFAULTING UNDERWRITERS. (a) If, on the Closing Date, any Underwriter or Underwriters defaults in the performance of its or their obligations under this Agreement, the remaining non-defaulting Underwriters may make arrangements for the purchase of such Securities by other persons satisfactory to the Company and the non-defaulting Underwriters, but if no such arrangements are made by the Closing Date, then each remaining non-defaulting Underwriter shall be severally obligated to purchase the Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase on the Closing Date in the respective proportions which the principal amount of Notes set forth opposite the name of each remaining non-defaulting Underwriter in Schedule 1 hereto bears to the aggregate principal amount of Notes set forth opposite the names of all the remaining non-defaulting Underwriters in Schedule 1 hereto; provided, however, that the remaining non-defaulting Underwriters shall not be obligated to purchase any of the Securities on the Closing Date if the aggregate principal amount of Notes which the defaulting Underwriter or Underwriters agreed but failed to purchase on such date exceeds one-eleventh of the aggregate principal amount of the Notes to be purchased on the Closing Date, and any remaining non-defaulting Underwriter shall not be obligated to purchase in total more than 110% of the principal amount of the Notes which it agreed to purchase on the Closing Date pursuant to the terms of Section 2. If the foregoing maximums are exceeded and the remaining Underwriters or other underwriters satisfactory to the remaining Underwriters and the Company do not elect to purchase the Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter or the Company, except that the Company will continue to be liable for the payment of expenses to the extent set forth in Sections 8 and 12 and except that the provisions of Sections 9 and 10 shall not terminate and shall remain in effect. As used in this Agreement, the term "Underwriter" includes, for all purposes of this Agreement unless the context otherwise requires, any party not listed in Schedule 1 hereto who, pursuant to this Section 7, purchases Securities which a defaulting Underwriter agreed but failed to purchase. (b) Nothing contained herein shall relieve a defaulting Underwriter of any liability it may have for damages caused by its default. If other underwriters are obligated or agree to purchase the Securities of a defaulting Underwriter, either the remaining Underwriters or the Company may postpone the Closing Date for up to seven full business days in order to effect any changes that in the opinion of counsel for the Company or counsel for the Underwriters may be necessary in the Registration Statement, the Prospectus or in any other document or arrangement, and the Company agrees to file promptly any amendment or supplement to the Registration Statement or the Prospectus that effects any such changes. 8. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If (a) no notice shall have been given pursuant to Section 6 causing this Agreement to become effective, (b) the Company shall fail to tender the Securities for delivery to the Underwriters for any reason permitted under this Agreement or (c) the Underwriters shall decline to purchase the Securities for any reason 21 21 permitted under this Agreement, the Company shall reimburse the Underwriters for the fees and expenses of their counsel and for such other out-of-pocket expenses as shall have been reasonably incurred by them in connection with this Agreement and the proposed purchase of the Securities, and upon demand the Company shall pay the full amount thereof to the Underwriters. If this Agreement is terminated pursuant to Section 7 by reason of the default of one or more Underwriters, the Company shall not be obligated to reimburse any defaulting Underwriter on account of those expenses. 9. INDEMNIFICATION. (a) The Company shall indemnify and hold harmless each Underwriter, its affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls any Underwriter within the meaning of the Securities Act or the Exchange Act (collectively referred to for the purposes of this Section 9 and Section 10 as the Underwriter) from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, without limitation, any loss, claim, damage, liability or action relating to purchases and sales of the Securities), to which that Underwriter may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein 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 shall reimburse each Underwriter promptly upon demand for any legal or other expenses reasonably incurred by that Underwriter in connection with investigating or preparing to defend or defending against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any such document in reliance upon and in conformity with any Underwriters' Information. (b) Each Underwriter, severally and not jointly, shall indemnify and hold harmless the Company, its affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act (collectively referred to for the purposes of this Section 9 and Section 10 as the Company), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement 22 22 or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with any Underwriters' Information, and shall reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or preparing to defend or defending against or appearing as third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred. (c) Promptly after receipt by an indemnified party under this Section 9 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party pursuant to Section 9(a) or 9(b), notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 9 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and, provided, further, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 9. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 9 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that an indemnified party shall have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel for the indemnified party will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based upon advice of counsel to the indemnified party) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based upon advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm of attorneys (in addition to any local counsel) at any one time for all such indemnified party or parties. Each indemnified party, as a condition of the indemnity agreements contained in Sections 9(a) and 9(b), shall use all reasonable efforts to cooperate with the indemnifying party in the defense of any such action or claim. No indemnifying party shall be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with 23 23 its written consent or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld), 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. The obligations of the Company and the Underwriters in this Section 9 and in Section 10 are in addition to any other liability which the Company or the Underwriters, as the case may be, may otherwise have, including in respect of any breaches of representations, warranties and agreements made herein by any such party. 10. CONTRIBUTION. If the indemnification provided for in Section 9 is unavailable or insufficient to hold harmless an indemnified party under Section 9(a) or (b), then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Securities 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 Company on the one hand and the Underwriters on the other with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, 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 with respect to such offering shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities purchased under this Agreement (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters with respect to the Securities purchased under this Agreement, in each case as set forth in the table on the cover page of the Prospectus. The relative fault 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 on the one hand or the Underwriters on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 10 were to be determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 10 shall be deemed to include, for purposes of this Section 10, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any 24 24 such action or claim. Notwithstanding the provisions of this Section 10, no Underwriter shall be required to contribute any amount in excess of the amount by which the total underwriting discounts and commissions received by such Underwriter exceeds the amount of any damages which such Underwriter has otherwise paid or become liable to pay by reason of any 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 Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute as provided in this Section 10 are several in proportion to their respective underwriting obligations and not joint. 11. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure to the benefit of and be binding upon the Underwriters, the Company, and their respective successors. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except as provided in Sections 9 and 10 with respect to affiliates, officers, directors, employees, representatives, agents and controlling persons of the Company and the Initial Purchasers. Nothing in this Agreement is intended or shall be construed to give any person, other than the persons referred to in this Section 11, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. 12. EXPENSES. The Company agrees with the Underwriters to pay (a) the costs incident to the authorization, issuance, sale, preparation, printing and delivery of the Notes and the related Guarantees and any stamp duties and transfer taxes payable in that connection; (b) the costs incident to the preparation, printing and filing under the Securities Act of the Registration Statement and any amendments and exhibits thereto; (c) the costs of printing and distributing the Registration Statement as originally filed and each amendment thereto and any post-effective amendments thereof (including, in each case, exhibits), any Preliminary Prospectus, the Prospectus and any amendment or supplement to the Prospectus, all as provided in this Agreement; (d) the costs of printing, reproducing and distributing the Indenture, this Agreement and any other underwriting and selling group documents by mail, telex or other means of communications; (e) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of sale of the Notes and the related Guarantees; (f) the fees and expenses of the Company's counsel and independent accountants; (g) the fees and expenses of preparing, printing and distributing Blue Sky Memoranda (including related fees and expenses of counsel to the Underwriters); (h) any fees charged by securities rating services for rating the Securities; (i) all fees and expenses of the Trustee and any paying agent (including related fees and expenses of any counsel to such parties); and (j) all other costs and expenses incident to the performance of the obligations of the Company under this Agreement; provided that, except as otherwise provided in this Section 12 and in Section 8, the Underwriters shall pay their own costs and expenses, including the costs and expenses of their counsel. 13. SURVIVAL. The respective indemnities, rights of contribution, representations, warranties and agreements of the Company and the Underwriters contained in this Agreement or made by or on behalf on them, respectively, pursuant to this Agreement, shall survive the delivery of and payment for the Securities and shall remain in full force and effect, regardless of any 25 25 termination or cancellation of this Agreement or any investigation made by or on behalf of any of them or any person controlling any of them. 14. NOTICES, ETC. All statements, requests, notices and agreements hereunder shall be in writing, and: (a) if to the Underwriters, shall be delivered or sent by mail, telex or facsimile transmission to Chase Securities Inc., 270 Park Avenue, New York, New York 10017, Attention: Lawrence S. Landry, fax: (212) 270-0994; (b) if to the Company, shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth in the Registration Statement, Attention: John H. Pinkerton; provided, however, that any notice to an Underwriter pursuant to Section 8(c) shall be delivered or sent by mail to such Underwriter at its address set forth on Schedule 2 hereto. Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof. The Company shall be entitled to act and rely upon any request, consent, notice or agreement given or made on behalf of the Underwriters. 15. DEFINITIONS OF CERTAIN TERMS. For purposes of this Agreement, (a) "business day" means any day on which the New York Stock Exchange, Inc. is open for trading and (b) "subsidiary" has the meaning set forth in Rule 405 of the Rules and Regulations. 16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 17. COUNTERPARTS. This Agreement may be executed 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. 18. HEADINGS. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. 26 26 If the foregoing is in accordance with your understanding of the agreement between the Company and the several Underwriters, kindly indicate your acceptance in the space provided for that purpose below. Very truly yours, LOMAK PETROLEUM, INC. By ________________________________ Name: Title: Accepted: CHASE SECURITIES INC. NATIONSBANC CAPITAL MARKETS, INC. BEAR, STEARNS & CO., INC. CREDIT SUISSE FIRST BOSTON CORPORATION By: Chase Securities Inc. By ____________________________________ Authorized Signatory 27 SCHEDULE 1
Principal Amount Underwriters of Notes - ------------ -------- Chase Securities Inc........................................... $ NationsBanc Capital Markets, Inc............................... Bear, Stearns & Co., Inc....................................... Credit Suisse First Boston Corporation......................... ------------ Total.......................................................... $100,000,000 ============
28 Schedule 2 ADDRESSES FOR NOTICES Chase Securities Inc. One Chase Plaza, 25th Floor New York, New York 10081 Attention: Legal Department NationsBanc Capital Markets, Inc. 100 North Tryon Street Charlotte, NC 28255 Attention: Bear, Stearns & Co., Inc. 245 Park Avenue New York, New York 10167 Attention: Credit Suisse First Boston Corporation 3030 Texas Commerce Tower Houston, Texas 77002 Attention: 29 ANNEX A [Form of Opinion of Counsel for the Company] Vinson & Elkins shall have furnished to the Initial Purchasers their written opinion, as counsel to the Company, addressed to the Underwriters and dated the Closing Date, in form and substance reasonably satisfactory to the Underwriters, substantially to the effect set forth below: (i) The Company and each of its subsidiaries have been duly organized and are validly existing as corporations or limited partnerships in good standing under the laws of their respective jurisdictions of organization, are duly qualified to do business and are in good standing as foreign corporations or limited partnerships in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification, and have all power and authority necessary to own or hold their respective properties and to conduct the businesses in which they are engaged (except where the failure to so qualify or have such power and authority would not have a Material Adverse Effect); (ii) The Company has the authorized capitalization set forth in the Prospectus, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and conform to the description thereof contained in the Prospectus; and all of the issued shares of capital stock or partnership interests, as the case may be, of each subsidiary of the Company have been duly and validly authorized and issued and are fully paid and non-assessable and (except for directors' qualifying shares) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims; (iii) The Registration Statement was declared effective under the Securities Act and the Indenture was qualified under the Trust Indenture Act as of the date and time specified in such opinion; the Prospectus was filed with the Commission pursuant to the subparagraph of Rule 424(b) of the Rules and Regulations specified in such opinion on the date specified therein; and no stop order suspending the effectiveness of the Registration Statement has been issued and, to the best of such counsel's knowledge, no proceeding for that purpose is pending or threatened by the Commission; (iv) The Registration Statement and the Prospectus and any further amendments or supplements to the Registration Statement or the Prospectus made by the Company and the Subsidiary Guarantors prior to the Closing Date (other than the financial statements and related schedules therein, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Securities Act and the Rules and Regulations; (v) The documents incorporated by reference in the Prospectus and the Registration Statement, as of the dates they were filed with the Commission or 30 2 became effective, as the case may be, comply as to form in all material respects with the requirements of the Securities Act or the Exchange Act, as applicable, and the rules and regulations thereunder (other than financial statements and related schedules therein, as to which such counsel need express no opinion); (vi) The Indenture complies as to form in all material respects with the requirements of the Trust Indenture Act and the rules and regulations of the Commission thereunder; (vii) the descriptions in the Offering Memorandum of statutes, legal and governmental proceedings and contracts and other documents are accurate in all material respects; and to the best of such counsel's knowledge, there are no contracts or other documents which are required to be described in the Prospectus or filed as exhibits to the Registration Statement by the Securities Act or by the Rules and Regulations and which have not been so described or filed; (viii) (x) The Company has full right, power and authority to execute and deliver this Agreement, the Indenture and the Notes and to perform its obligations hereunder and thereunder, (y) each Subsidiary Guarantor has the full right, power and authority to execute and deliver the Guarantees and to perform its obligations hereunder and thereunder; and all corporate action required to be taken for the due and proper authorization, execution and delivery of this Agreement, the Indenture, the Notes and the Guarantees and the consummation of the transactions contemplated hereby and thereby have been duly and validly taken; (ix) The Underwriting Agreement has been duly authorized, executed and delivered by the Company; (x) The Indenture has been duly authorized, executed and delivered by the Company and constitutes a valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law); (xi) The Notes have been duly authorized and executed by the Company and, upon the due authentication and delivery thereof by the Trustee and upon payment and delivery in accordance with this Agreement, will constitute valid and binding obligations of the Company entitled to the benefits of the Indenture and enforceable in accordance with their terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally and by general equitable principles (whether considered in a 31 3 proceeding in equity or at law); and the Indenture and the Securities conform to the descriptions thereof contained in the Prospectus; (xii) The Guarantees have been duly authorized, executed and delivered by each Subsidiary Guarantor and constitutes a valid and binding agreement of the parties thereto enforceable against the parties thereto in accordance with their terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law); (xiii) The execution, delivery and performance of this Agreement, the Cometra Acquisition Agreement, the Indenture and the Notes by the Company, the Guarantees by each of the Subsidiary Guarantors, the issuance, authentication, sale and delivery of the Securities and compliance by the Company with the terms thereof and the consummation of the transactions contemplated hereby and thereby will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any material indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such actions result in any violation of the provisions of the charter, partnership agreements, by-laws or other organizational documents of the Company or any of its subsidiaries or any statute or any order, rule or regulation of any court, arbitrator or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties or assets; and except for the registration of the Securities under the Securities Act, the qualification of the Indenture under the Trust Indenture Act and such consents, approvals, authorizations, registrations or qualifications as may be required under the Exchange Act and applicable state securities laws in connection with the purchase and distribution of the Securities by the Underwriters, no consent, approval, authorization or order of, or filing or registration with, any such court, arbitrator or governmental agency or body under any such statute, judgment, order, decree, rule or regulation is required for the execution, delivery and performance of this Agreement, the Indenture, the Notes and the Guarantees by the Company and the Subsidiary Guarantors, the issuance, authentication, sale and delivery of the Securities and compliance by the Company with the terms thereof and the consummation of the transactions contemplated hereby and thereby; (xiv) To the best of such counsel's knowledge and except as set forth in the Prospectus, there are no pending actions or suits or judicial, arbitral, rule-making, administrative or other proceedings to which the Company or any of its 32 4 subsidiaries is a party or of which any property or assets of the Company or any of its subsidiaries is subject which (A) singularly or in the aggregate, if determined adversely to the Company or any of its subsidiaries, could reasonably be expected to have a Material Adverse Effect or (B) questions the validity or enforceability of this Agreement, the Indenture, the Notes or the Guarantees or any action taken or to be taken pursuant thereto; and, to the best of such counsel's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (xv) Neither the Company nor any of its subsidiaries is an "investment company" within the meaning of the Investment Company Act and the rules and regulations of the Commission thereunder, without taking account of any exemption under the Investment Company Act arising out of the number of holders of the Company's securities or (B) a "holding company" or a "subsidiary company" of a holding company or an "affiliate" thereof within the meaning of the Public Utility Holding Company Act of 1935, as amended; and (xvi) neither the consummation of the transactions contemplated by this Agreement nor the sale, issuance, execution or delivery of the Securities will violate Regulation G, T, U or X of the Federal Reserve Board; References to the Prospectus in such counsel's opinion shall include any supplements thereto at the Closing Date. Such counsel shall also state that they have participated in conferences with representatives of the Company and with representatives of its independent accountants and counsel at which conferences the contents of the Registration Statement and the Prospectus and any amendment and supplement thereto and related matters were discussed and, although such counsel assumes no responsibility for the accuracy, completeness or fairness of the Prospectus, any amendment or supplement thereto (except as expressly provided above), nothing has come to the attention of such counsel to cause such counsel to believe that the Registration Statement (or any post-effective amendment thereto), at the time of its effective date (including the information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A or Rule 434, if applicable), 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 or any amendment or supplement thereto as of its date and the Closing Date contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or that any document incorporated by reference in the Prospectus when they were filed with the Commission contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (other than the financial statements and other financial and statistical information contained therein, as to which such counsel need express no belief) . 33 5 In rendering such opinion, such counsel may rely as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers of the Company and public officials which are furnished to the Underwriters. 34 ANNEX B [Form of Initial Comfort Letter of Arthur Andersen LLP] The Company shall have furnished to the Underwriters a letter from Arthur Andersen LLP, dated the date of delivery thereof (which, if the Effective Time is prior to the execution and delivery of this Agreement, shall be on or prior to the date of this Agreement or, if the Effective Time is subsequent to the execution and delivery of this Agreement, shall be prior to the filing of the amendment or post-effective amendment to the Registration Statement to be filed shortly prior to the Effective Time), in form and substance satisfactory to the Underwriters, substantially to the effect set forth below: (i) they are independent public accountants with respect to the Company and its subsidiaries within the meaning of the Securities Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission; (ii) in their opinion the consolidated financial statements and financial statement schedules audited by them and included or incorporated by reference in the Registration Statement and the Prospectus comply as to form in all material respects with the applicable accounting requirements of the Securities Act, the Exchange Act and the Rules and Regulations; (iii) based upon the procedures of the American Institute of Certified Public Accountants for a review of interim financial information as described in Statement of Auditing Standards No. 71 ("SAS No. 71"), reading of the minutes, inquiries of certain officials of the Company and its subsidiaries who have responsibility for financial and accounting matters and certain other limited procedures requested by the Underwriters and described in detail in such letter, nothing has come to their attention that causes them to believe that: (A) any unaudited financial statements included or incorporated by reference in the Registration Statement and the Prospectus do not comply as to form in all material respects with the accounting requirements; (B) any material modifications should be made to the unaudited condensed consolidated financial statements included or incorporated by reference in the Registration Statement and the Prospectus for them to be in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements included in the Registration Statement and the Prospectus; (C) the unaudited condensed consolidated financial statements included or incorporated by reference in the Registration Statement and the Prospectus do not comply as to form in all material respects with the applicable requirements of the Securities Act, the Exchange Act and the related published rules and regulations; (D) at the date of last available balance sheet, there was any change in the capital stock, increase in long-term debt, decrease in net current assets or stockholders' equity as compared with the amounts shown in the ___________, 199_ unaudited condensed consolidated balance sheet included in the Registration Statement and the Prospectus or (E) for 35 2 the period from ________, 199_ to the last date included in the period covered by the latest available income statement there were any decreases, as compared with the corresponding period in the preceding year in net revenues, income from operations or EBITDA or in total or per share amounts of net income of the Company and its subsidiaries except, in all instances for changes, increases or decreases set forth in such letter, in which case the letter shall be accompanied by an explanation by the Company as to the significance thereof unless said explanation is not deemed necessary by the Underwriters. (iv) based upon the procedures detailed in such letter with respect to the period subsequent to the date of the last available balance sheet, including reading of minutes and inquiries of certain officials of the Company who have responsibility for financial and accounting matters, nothing has come to their attention that causes them to believe that (A) at a specified date not more than three business days prior to the date of such letter, there was any change in capital stock, increase in long-term debt or decrease in net current assets or stockholders' equity as compared with the amounts shown in the __________ ___, 199_ unaudited balance sheet included in the Prospectus or (B) for the period from __________ ____, 199_ to a specified date not more than three business days prior to the date of such letter, there were any decreases, as compared with the corresponding period in the preceding year, in net revenues, income from operations, EBITDA or in total or per share net income, except in all instances for changes, increases or decreases that the Prospectus discloses have occurred or which are set forth in such letter, in which case the letter shall be accompanied by an explanation by the Company as to the significance thereof unless said explanation is not deemed necessary by the Underwriters; (v) they have performed certain other specified procedures as a result of which they determined that certain information of an accounting, financial or statistical nature (which is limited to accounting, financial or statistical information derived from the general accounting records of the Company and its subsidiaries) set forth in the Registration Statement and the Prospectus agrees with the accounting records of the Company and its subsidiaries, excluding any questions of legal interpretation; and (vi) on the basis of a reading of the unaudited pro forma financial statements and information included in the Registration Statement and the Prospectus; carrying out certain specified procedures; inquiries of certain officials of the Company 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 pro forma financial statements, nothing came to their attention which caused them to believe that the pro forma financial statements and information do not comply in 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 and information. 36 3 References to the Prospectus in such comfort letter include any supplement thereto at the date of the letter. 37 ANNEX C [Form of Initial Comfort Letter of Coopers & Lybrand L.L.P.] The Company shall have furnished to the Underwriters a letter from Coopers & Lybrand L.L.P., dated the date of delivery thereof (which, if the Effective Time is prior to the execution and delivery of this Agreement, shall be on or prior to the date of this Agreement or, if the Effective Time is subsequent to the execution and delivery of this Agreement, shall be prior to the filing of the amendment or post-effective amendment to the Registration Statement to be filed shortly prior to the Effective Time), in form and substance satisfactory to the Underwriters, substantially to the effect set forth below: (i) they are independent public accountants with respect to the Company and its subsidiaries within the meaning of the Securities Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission; (ii) in their opinion the consolidated financial statements and financial statement schedules of America Cometra, Inc. ("Cometra") audited by them and included in the Registration Statement and the Prospectus comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the Rules and Regulations; (iii) based upon the procedures of the American Institute of Certified Public Accountants for a review of interim financial information as described in Statement of Auditing Standards No. 71 ("SAS No. 71"), inquiries of certain officials of Cometra who have responsibility for financial and accounting matters and certain other limited procedures requested by the Underwriters and described in detail in such letter, nothing has come to their attention that causes them to believe that: (A) any unaudited Cometra financial statements included or incorporated by reference in the Registration Statement and Prospectus do not comply as to form in all material respects with the accounting requirements; (B) any material modifications should be made to the unaudited condensed consolidated Cometra financial statements included or incorporated by reference in the Registration Statement and the Prospectus for them to be in conformity with generally accepted accounting principles; (C) the unaudited condensed consolidated Cometra financial statements included or incorporated by reference in the Registration Statement and the Prospectus do not comply as to form in all material respects with the applicable requirements of the Securities Act and the related published rules and regulations; (D) (1) at the date of last available balance sheet for Cometra, there was any increase in long-term debt, decrease in consolidated net current assets or stockholders' equity as compared with the amounts shown in the ___________, 199_ unaudited condensed consolidated balance sheet included in the Registration Statement or (2) for the period from _________, 199_ to the last date included in the period covered by the latest available income statement there were any decreases, as compared with the corresponding period in the 38 preceding year in net revenues, income from operations, EBITDA or in total or per share amounts of net income of Cometra except, in all instances for changes, increases or decreases set forth in such letter, in which case the letter shall be accompanied by an explanation by Cometra as to the significance thereof unless said explanation is not deemed necessary by the Underwriters. (iv) based upon the procedures detailed in such letter with respect to the period subsequent to the date of the last available balance sheet, including reading of minutes and inquiries of certain officials of Cometra who have responsibility for financial and accounting matters, nothing has come to their attention that causes them to believe that (A) at a specified date not more than three business days prior to the date of such letter, there was any increase in long-term debt or decrease in net current assets as compared with the amounts shown in the ____________ ____, 199_ unaudited balance sheet included in the Prospectus or (B) for the period from _____________ _____, 199_ to a specified date not more than three business days prior to the date of such letter, there were any decreases, as compared with the corresponding period in the preceding year, in net revenues, income from operations, EBITDA or total or per share amounts of net income, except in all instances for changes, increases or decreases that the Prospectus discloses have occurred or which are set forth in such letter, in which case the letter shall be accompanied by an explanation by Cometra as to the significance thereof unless said explanation is not deemed necessary by the Underwriters; (v) they have performed certain other specified procedures as a result of which they determined that certain information of an accounting, financial or statistical nature (which is limited to accounting, financial or statistical information derived from the general accounting records of the Company and its subsidiaries) set forth in the Registration Statement and the Prospectus agrees with the accounting records of Cometra and its subsidiaries, excluding any questions of legal interpretation; and References to the Prospectus in such comfort letter include any supplement thereto at the date of the letter. 39 ANNEX D [Form of Initial Comfort Letter of Ernst & Young LLP and KPMG Peat Marwick LLP] The Company shall have furnished to the Underwriters a letter from each of Ernst & Young LLP and KPMG Peat Marwick LLP, dated the date of delivery thereof (which, if the Effective Time is prior to the execution and delivery of this Agreement, shall be on or prior to the date of this Agreement or, if the Effective Time is subsequent to the execution and delivery of this Agreement, shall be prior to the filing of the amendment or post-effective amendment to the Registration Statement to be filed shortly prior to the Effective Time), in form and substance satisfactory to the Underwriters, substantially to the effect set forth below: (i) they are independent public accountants with respect to the Company and its subsidiaries within the meaning of the Securities Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission; and (ii) in their opinion the consolidated financial statements and financial statement schedules audited by them and included or incorporated by reference in the Registration Statement and the Prospectus comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the Rules and Regulations. References to the Prospectus in such comfort letters include any supplement thereto at the date of the letter.

1 Exhibit 4.1 COMMON STOCK THIS CERTIFICATE IS TRANSFERABLE IN PAR VALUE $0.01 CLEVELAND, OHIO AND NEW YORK, NEW YORK SHARES [GRAPHIC] INCORPORATED UNDER THE LAWS CUSIP 541509 30 3 OF THE STATE OF DELAWARE SEE REVERSE FOR CERTAIN DEFINITIONS L O M A K PETROLEUM, INC. THIS CERTIFIES THAT IS THE OWNER OF FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF Lomak Petroleum, Inc. transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. Witness the facsimile signatures of its duly authorized officers. Dated: Countersigned and Registered: KEYCORP SHAREHOLDER SERVICES, INC. (Cleveland, Ohio) Transfer Agent and Registrar /s/ Jeffery A. Bynum /s/ John H. Pinkerton Authorized Signature Corporate Secretary President & CEO 2 LOMAK PETROLEUM, INC. The Corporation will furnish without charge to any Shareholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class and series of shares which the Corporation is authorized to issue and the qualifications, limitations or restrictions of such preferences and/or rights. Such request may be made to the secretary of the Corporation: The following abbreviations, when used in the inscription of the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-______Custodian__________ (Cust.) (Minor) TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right under Uniform Gifts to Minors Act of survivorship and not as tenants in common --------------------------------- (State)
Additional abbreviations may also be used though not in the above list. For Value Received, hereby sell, assign ------------------------------ and transfer unto Please insert social security or other identifying number of assignee - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- Please print or typewrite name and address including postal zip code of assignee - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ of the Capital Stock represented by the within certificate, and do hereby Shares - ----------------------------------------------- irrevocably constitute and appoint - ------------------------------------------------------------------ to transfer the said stock on the books of the within-named Corporation with Attorney - ----------------------------------------------------- full power of substitution in the premises. Dated 19 . ------------- --- -------------------------------------------- NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. Signature(s) Guaranteed: - ----------------------------------------------- THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17AD-15.

1 Exhibit 4.3 INDENTURE dated as of ____________ ___, 1997 among Lomak Petroleum, Inc., a Delaware corporation (the "Company"), as issuer, the Subsidiary Guarantors (as hereinafter defined) as guarantors and Fleet National Bank, as trustee (the "Trustee"). The Company, the Subsidiary Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the ___% Senior Subordinated Notes due 2007 of the Company (the "Notes"): ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1. Definitions. ----------- "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 2 2 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 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 the 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 3 3 ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Agent" means any Registrar, Paying Agent or co-registrar. "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 shall be governed by Sections 4.13 and/or 5.1 hereof and not by Section 4.10 hereof), 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 $5.0 million or (b) for net proceeds in excess of $5.0 million. Notwithstanding the foregoing, the following shall not be deemed to be Asset Sales: (1) 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, (2) 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, (3) a Permitted Investment or a Restricted Payment that is permitted by Section 4.7, (4) the abandonment, farm-out, lease or sublease of undeveloped oil and gas properties in the ordinary course of business, (5) 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, (6) the trade or exchange by the Company or any Subsidiary of the Company of any oil and gas property owned or 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 (6)) since the date of the Indenture, do no exceed 5% of Adjusted Consolidated Net Tangible Assets determined after such trade or exchange and (7) the sale or transfer of hydrocarbons or other mineral products or other inventory 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 4 4 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). "Bankruptcy Code" means Title 11 of the United States Code, as amended. "Board of Directors" means the Board of Directors of the Company or a Subsidiary Guarantor, as applicable, or any authorized committee of such Board of Directors. "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. "Business Day" means any day other than a Legal Holiday. "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 or a rating of at least A1 from S&P, and (vi) investments in money market or other mutual funds 5 5 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" (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 of related "persons" 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. "Closing Date" the date of the closing of the sale of the Notes offered pursuant to the Offering. "Cometra Acquisition" means the acquisition by the Company of certain oil and gas properties from American Cometra, Inc. pursuant to an agreement, dated December 31, 1996, between the Company and American Cometra, Inc. "Commission" means the Securities and Exchange Commission. "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 letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Interest Rate Hedging 6 6 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 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 Company 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 7 7 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. "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. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 12.2 hereof or such other address as to which the Trustee may give notice to the Company. "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, N.A., 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 $400.0 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 payment financing, 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 8 8 Notes are first issued and authenticated under this 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 set forth in Section 4.9 hereof. "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. "Depository" means, with respect to the Notes issued in the form of one or more Global Notes, The Depository Trust Company or another Person designated as Depository by the Company, which must be a clearing agency registered under the Exchange Act. "Designated Senior Debt" means (i) the Credit Agreement and (ii) any other Senior Debt permitted under this 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 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). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "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 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 9 9 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 Section 4.9 hereof 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 shall not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date. "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); (ii) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period; (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 10 10 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. "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. "Government Securities" means securities that are (a) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged or (b) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such Government Security or a specific payment of principal of or interest on any such Government Security held by such custodian for the account of the holder of such depository receipt; provided, that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Security or the specific payment of principal of or interest on the Government Security evidenced by such depository receipt. "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. "Guarantee" means each of the Guarantees of the Notes by the Subsidiary Guarantors hereunder. "Holder" means a Person in whose name a Note is registered on the Registrar's books. "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 11 11 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. "Indenture" means this Indenture, as amended or supplemented from time to time. "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 form 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 definition of "Permitted Indebtedness" set forth in Section 4.9 hereof, (iii) Oil and Gas Hedging Contracts entered into in accordance with the limitations set forth in clause (h) of the definition of "Permitted Indebtedness" set forth in Section 4.9 hereof and (iv) endorsements of negotiable instruments and documents in the ordinary course of business. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary 12 12 of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York, the City of Chicago or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. "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 Section 4.10 hereof. "Moody's" means Moody's Investors Service, Inc. and its successors. "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 13 13 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 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 or agreement or instrument that would constitute Indebtedness) or (b) is directly or indirectly liable (as a guarantor or otherwise); (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. "Note Custodian" means the Trustee or the Registrar, as custodian with respect to the Notes in global form, or any successor entity thereto or any entity acting as custodian with respect to Notes in global form. 14 14 "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Offering" means the offering of the Notes by the Company. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary, the Assistant Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company, by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 12.5 hereof. "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, distribution, treating, processing, storage, 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. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 12.5 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary Guarantor or the Trustee. "Pari Passu Indebtedness" means indebtedness which ranks pari passu in right of payment to the Notes. "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 15 15 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 Section 4.10 hereof; (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 $10.0 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, unitization agreements, pooling arrangements, area of mutual interest agreements, production sharing agreements or other similar or customary agreements, transactions, properties, interest or arrangements, and Investments and expenditures in connection therewith or pursuant thereto, in each case made or entered into in 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 (6) of the exclusion from the definition of "Asset Sale". "Permitted Liens" means (i) Liens securing Indebtedness of a Subsidiary or Liens securing Senior Debt, in each case, 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 or assets 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 16 16 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 Indentures (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 pipelines 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 and 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 Debt 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 Debt has a final maturity date on or later than the final maturity date of, and has a Weighted 17 17 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 Debt 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 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. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Production Payments" means Dollar-Denominated Production Payments and Volumetric Production Payments, collectively. "Repurchase Offer" means an offer made by the Company to purchase all or any portion of a Holder's Notes pursuant to Section 4.10 or 4.13 hereof. "Responsible Officer" when used with respect to the Trustee, means any officer within the Corporate Trust Department of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "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. "S&P" means Standard & Poor's Ratings Group and its successors. "Securities Act" means the Securities Act of 1933, as amended. "Significant Subsidiary" means each Subsidiary that for the most recent fiscal year of such Subsidiary had consolidated 18 18 revenues greater than $10.0 million or as at the end of such fiscal year, had assets greater than $10.0 million. "Subordinated Indebtedness" means any Indebtedness of the Company or any Restricted Subsidiary (whether outstanding on the date of the issuance of the Notes or thereafter incurred) which is subordinate or junior in right of payment to the Notes pursuant to a written agreement. "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 hereof (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 I,L.P., Lomak Pipeline Systems, L.P., Lomak Gathering & Processing Company and Lomak Gas Company) and any other future Restricted Subsidiary of the Company and in each case their respective successors and assigns. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA. "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. "Trustee" means the party named as such in the preamble to this Indenture until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "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 19 19 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 date of designation, and will at all times thereafter consist of, Non-Recourse Debt; (c) the Company certifies that such designation was permitted by Section 4.7; (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 Officer's 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 a Restricted Subsidiary; provided, that (1) 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 Section 4.9 on a pro forma basis taking into account such designation and (2) such Subsidiary executes a Guarantee pursuant to Section 11.4 of this 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 20 20 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 one-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" means, with respect to any Person, a Restricted Subsidiary of such Person, all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) are owned, directly or indirectly, by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person. Section 1.2. Other Definitions. -----------------
Defined in Term Section "Affiliate Transaction"............................................ 4.11 "Asset Sale Offer"................................................. 3.9 "Bankruptcy Law"................................................... 10.2 "Change of Control Offer".......................................... 4.13 "Change of Control Payment"........................................ 4.13 "Change of Control Payment Date"................................... 4.13 "Closing Date"..................................................... 2.1 "Covenant Defeasance".............................................. 8.3 "Custodian"........................................................ 6.1 "DTC".............................................................. 2.3 "Event of Default"................................................. 6.1 "Excess Proceeds".................................................. 4.10 "Global Note" ..................................................... 2.1 "Global Note Holder"............................................... 2.1 "incur"............................................................ 4.9 "Legal Defeasance"................................................. 8.2 "Notice of Default"................................................ 6.1 "Offer Amount"..................................................... 3.9 "Offer Period"..................................................... 3.9 "Paying Agent"..................................................... 2.3 "Payment Blockage Notice".......................................... 10.4 "Payment Default".................................................. 6.1 "Permitted Indebtedness"........................................... 4.9 "Purchase Date".................................................... 3.9 "Registrar"........................................................ 2.3 "Restricted Payments".............................................. 4.7 "Senior Debt"...................................................... 10.2
Section 1.3. Incorporation By Reference of Trust Indenture Act. ------------------------------------------------- Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. 21 21 The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; "obligor" with respect to the Notes means the Company and with respect to the Guarantees means the Subsidiary Guarantors and any successor obligor upon the Notes and the Guarantees, respectively. All other terms used in this indenture that are defined by the TIA, defined by TIA reference to another statute or defined by rule enacted by the Commission under the TIA have the meanings so assigned to them. Section 1.4. Rules of Construction. ---------------------- Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the Commission from time to time. ARTICLE 2 THE NOTES Section 2.1. Form and Dating. ---------------- The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Guarantees of the Subsidiary Guarantors shall be substantially in the form of Exhibit C hereto, the terms of which are incorporated in and made part of this indenture. The Notes may have notations, legends or endorsements required by law, 22 22 stock exchange rule or usage. Each Note shall be dated the date of its issuance and shall show the date of its authentication. 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. The Notes offered and sold may be issued initially in the form of one or more fully registered global Notes (each being called a "Global Note"), with, or on behalf of, The Depository Trust Company and registered in the name of Cede & Co., as nominee of the Depository (such nominee being referred to herein as the "Global Note Holder"), or will remain in the custody of the Registrar pursuant to the Fast Balance Certificate Agreement between the Depository and the Registrar and shall bear the legend set forth as Exhibit B. Except as set forth in Section 2.6, the Global Notes may be transferred, in whole and not in part, only to another nominee of the Depository or to a successor of the Depository or its nominee. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company, the Subsidiary Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and (as to the Trustee, to the extent such terms and provisions pertain to the Trustee) to be bound thereby. Notes issued in global form shall be substantially in the form of Exhibit A attached hereto (including the legend on Exhibit B). Notes issued in certificated form shall be substantially in the form of Exhibit A attached hereto (but without including the legend on Exhibit B). Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate amount of outstanding Notes from time to time endorsed thereon and that the aggregate amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the amount of outstanding Notes represented thereby shall be made by the Trustee or the Note Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.6 hereof. Section 2.2. Execution and Authentication. ----------------------------- Two Officers shall sign the Notes for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Notes and may be in facsimile form. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. 23 23 A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall, upon a written order of the Company signed by two Officers, authenticate Notes for original issue up to the aggregate principal amount of $100,000,000. The aggregate principal amount of Notes outstanding at any time may not exceed $100,000,000, except as provided in Section 2.7 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. Section 2.3. Registrar and Paying Agent. --------------------------- The Company shall maintain an office or agency in the Borough of Manhattan, The City of New York where (i) Notes may be presented for registration of transfer or for exchange ("Registrar") and (ii) Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Company initially appoints The Depository Trust Company ("DTC")to act as Depository with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Note Custodian with respect to the Global Notes. Section 2.4. Paying Agent to Hold Money in Trust. ------------------------------------ The Company shall require each Paying Agent, including the Trustee (who shall be deemed to have agreed by its execution of this Indenture), to agree in writing that the Paying Agent shall hold in trust for the benefit of Holders or the Trustee (unless the Paying Agent is the Trustee, in which case it shall hold in trust for the Holders) all money held by the Paying Agent 24 24 for the payment of principal, premium, if any, or interest, on the Notes, and shall notify the Trustee of any default by the Company or any Subsidiary Guarantor in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company or a Subsidiary Guarantor, the Trustee shall serve as sole Paying Agent for the Notes. Section 2.5. Holder Lists. ------------- The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is not the Registrar, the Company and/or the Subsidiary Guarantors shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company and the Subsidiary Guarantors shall otherwise comply with TIA ss. 312(a). Section 2.6. Transfer and Exchange. ---------------------- Subject to the provisions of Section 2.13, when Notes are presented to the Registrar with a request to register the transfer of such Notes or to exchange such Notes for an equal principal amount of Notes of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transaction are met; PROVIDED, HOWEVER, that the Notes surrendered for transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer duly executed by the Holder thereof (or his attorney duly authorized in writing) in form satisfactory to the Company and to the Registrar. In order to permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Notes at the Registrar's written request. No service charge shall be made for any registration of transfer or exchange or of redemption, but the Company may, by notice to the Trustee, require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or other governmental charge payable upon exchanges or transfers pursuant to Sections 2.2, 2.3, 3.6, 3.7(b) or 3.9). The Registrar shall not be required to register the transfer of or exchange of any Note (i) during a period beginning at the opening of business 15 days before the mailing of a notice 25 25 of redemption of Notes and ending at the close of business on the day of such mailing and (ii) selected for redemption in whole or in part pursuant to Article Three, except the unredeemed portion of any Note being redeemed in part. Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. Section 2.7. Replacement Notes. ------------------ If any mutilated Note is surrendered to the Trustee, or the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon the receipt of a written authentication order of the Company signed by two Officers of the Company, shall authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company and the Trustee may charge for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. Section 2.8. Outstanding Notes. ------------------ The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.9 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note. If a Note is replaced pursuant to Section 2.7 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the principal amount of any Note is considered paid under Section 4.1 hereof, it ceases to be outstanding and interest on it ceases to accrue. Notes will also cease to be 26 26 outstanding for certain purposes hereunder as provided in Article 8 hereof. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. Section 2.9. Treasury Notes. --------------- In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, any Subsidiary Guarantor, or by any Affiliate of the Company or any Subsidiary Guarantor, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that a Trustee actually knows are registered in the names of the Company, any Subsidiary Guarantor or any of their Affiliates or are certified as such by the Company in an Officer's Certificate delivered to the Trustee shall be so disregarded. When the Company, any Subsidiary Guarantor or any of their Affiliates repurchases or otherwise acquires Notes, the Company shall notify the Trustee, in writing, of the aggregate principal amount of such Notes so repurchased or otherwise acquired. The Trustee may require an Officer's Certificate listing Notes owned by the Company, any Subsidiary Guarantor or any of their Affiliates. Section 2.10. CUSIP Number. ------------- The Company in issuing the Notes may use a "CUSIP" number, and if so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders; PROVIDED that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Notes and that reliance may be placed only on the other identification numbers printed on the Notes. Section 2.11. Cancellation. ------------- The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy cancelled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all cancelled Notes shall be delivered to the 27 27 Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. Section 2.12. Defaulted Interest. ------------------- If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.1 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. Section 2.13. Book-Entry Provisions for Global Notes. --------------------------------------- (a) The Global Notes initially shall (i) be registered in the name of Cede & Co., as the nominee of The Depository Trust Company, (ii) be delivered to the Registrar as custodian for such Depository and (iii) bear legends as set forth in Exhibit B. (b) Members of, or participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depository, or the Registrar or the Trustee as its custodian, or under the Global Note, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Note. (c) Transfers of Global Notes shall be limited to transfers in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in the Global Notes may be transferred or exchanged for Certificated Notes in accordance with the rules and procedures of the Depository. In addition, Certificated Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in Global Notes if (i) the Company notifies 28 28 the Registrar that the Depository is unwilling or unable to continue as Depository for any Global Note and a successor Depository is not appointed by the Company within 90 days of such notice or (ii) the Company, at its option, notifies the Registrar in writing that it elects to cause the issuance of Notes in definitive form under the Indenture or (iii) an Event of Default has occurred and is continuing and the Registrar has received a request from the Depository to issue Certificated Notes. (d) In connection with any transfer or exchange of a portion of the beneficial interest in any Global Note to beneficial owners pursuant to paragraph (c), the Registrar shall (if one or more Certificated Notes are to be issued) reflect on its books and records the date and a decrease in the principal amount of the Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Certificated Notes of like tenor and amount. (e) In connection with the transfer of Global Notes as an entirety to beneficial owners pursuant to the second sentence of paragraph (c), the Global Notes shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depository in exchange for its beneficial interest in the Global Notes, an equal aggregate principal amount of Certificated Notes of authorized denominations. (f) The Holder of any Global Note may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes. ARTICLE 3 REDEMPTION AND PREPAYMENT Section 3.1. Notices to Trustee. ------------------- If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.7 hereof, then it shall furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the paragraph of the Notes and/or Section of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. 29 29 Section 3.2. Selection of Notes to Be Redeemed. ---------------------------------- If less than all of the Notes are to be redeemed at any time, selection of Notes for redemption shall 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 the 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 Notes of $1,000 or less shall be redeemed in part. In the event of partial redemption by lot, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Notes not previously called for redemption. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed. A new Note in principal amount equal to the unredeemed portion thereof shall be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date, unless the Company defaults in payment of the redemption price, interest ceases to accrue on Notes or portions of them called for redemption. Except as provided in this Section 3.2, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. The provisions of the two preceding paragraphs of this Section 3.2 shall not apply with respect to any redemption affecting only a Global Note, whether such Global Note is to be redeemed in whole or in part. In case of any such redemption in part, the unredeemed portion of the principal amount of the Global Note shall be in an authorized denomination. Section 3.3. Notice of Redemption. --------------------- Subject to the provisions of Section 3.9 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder of Notes to be redeemed at such Holder's registered address. The notice shall identify the Notes to be redeemed and shall state: (a) the redemption date; (b) the redemption price; 30 30 (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption cease to accrue on and after the redemption date; (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. If any of the Notes to be redeemed is in the form of a Global Note, then such notice shall be modified in form but not substance to the extent appropriate to accord with the procedures of the Depository applicable to redemptions. At the Company's request and expense, the Trustee shall give the notice of redemption in the Company's name; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. Section 3.4. Effect of Notice of Redemption. ------------------------------- Once notice of redemption is mailed in accordance with Section 3.3 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. Section 3.5. Deposit of Redemption Price. ---------------------------- On or prior to the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of and accrued interest on, all Notes to be redeemed. 31 31 If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.1 hereof. Section 3.6. Notes Redeemed in Part. ----------------------- Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the receipt of a written authentication order of the Company signed by two Officers of the Company, the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed portion of the Note surrendered. Section 3.7. Optional Redemption. -------------------- (a) Except as set forth in clause (b) of this Section 3.7, the Company shall not have the option to redeem the Notes pursuant to this Section 3.7 prior to ____________, 2002. From and after ____________, 2002, the Company shall have the option to redeem the Notes, in whole or in part, 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 each of the years indicated below:
Percentage of Year Principal Amount ---- ---------------- 2002.................................... % 2003.................................... % 2004 ................................... % 2005 and thereafter..................... 100.000%
(b) Notwithstanding the provisions of clause (a) of this Section 3.7, at any time prior to ___________, 2000, the Company may, at its option, on any one or more occasions, redeem up to $33,333,000 in aggregate principal amount of Notes at a redemption price of ___% of the principal amount thereof, plus 32 32 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 $66,667,000 in aggregate principal amount of Notes remains outstanding immediately after the occurrence of such redemption; and provided, further, that such redemption shall occur within 60 days of the date after the closing of the related sale of such Equity Interests. (c) Any redemption pursuant to this Section 3.7 shall be made pursuant to the provisions of Sections 3.1 through 3.6 hereof. Section 3.8. Mandatory Redemption. --------------------- Except as set forth under Sections 4.10 and 4.13 hereof, the Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. Section 3.9. Offer to Purchase By Application of Excess Proceeds. ----------------------------------- - --------------- In the event that, pursuant to Section 4.10 hereof, the Company shall be required to commence an offer to all Holders of Notes and, to the extent required by the terms thereof, to all holders or lenders of other Pari Passu Indebtedness, to purchase Notes and any such Pari Passu Indebtedness (an "Asset Sale Offer"), it shall follow the procedures specified below. The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.10 hereof, giving effect to any related offer for Pari Passu Indebtedness pursuant to Section 4.10, (the "Offer Amount") or, if less than the Offer Amount has been tendered, all Notes tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale 33 33 Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (a) that the Asset Sale Offer is being made pursuant to this Section 3.9 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; (b) the Offer Amount, the purchase price and the Purchase Date; (c) that any Note not tendered or accepted for payment shall continue to accrue interest; (d) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Purchase Date; (e) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may only elect to have all of such Note purchased and may not elect to have only a portion of such Note purchased; (f) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a Depository, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three Business Days before the Purchase Date; (g) that Holders shall be entitled to withdraw their election if the Company, the Depository or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (h) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased) in the manner provided in Section 4.10; and (i) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). 34 34 If any of the Notes subject to an Asset Sale Offer is in the form of a Global Note, then such notice may be modified in form but not substance to the extent appropriate to accord with the procedures of the Depository applicable to repurchases. On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.9. The Company, the Depository or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon receipt of a written authentication order of the Company signed by two Officers of the Company shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.9, any purchase pursuant to this Section 3.9 shall be made pursuant to the provisions of Sections 3.1 through 3.6 hereof. ARTICLE 4 COVENANTS Section 4.1. Payment of Notes. ----------------- The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all such amounts then due. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. 35 35 Section 4.2. Maintenance of Office or Agency. -------------------------------- The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where principal, premium, if any, and interest on the Notes will be paid and where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the following office of an Affiliate of the Trustee as one such office or agency of the Company in accordance with Section 2.3: _____________________. Section 4.3. 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 shall 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 that 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 Trustees, 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 shall at all times comply with TIA Section 314(a). 36 36 Section 4.4. Compliance Certificate. ----------------------- (a) The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of, premium, if any, or interest on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. As of the date hereof, the Company's fiscal year ends on December 31 of each calendar year. In the event the Company changes its fiscal year, it shall promptly notify the Trustee of such change. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the fiscal year-end financial statements delivered pursuant to Section 4.3(a) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, within five Business Days of any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. Section 4.5. Taxes. ------ The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency all material taxes, 37 37 assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. Section 4.6. Stay, Extension and Usury Laws. ------------------------------- Each of the Company and the Subsidiary Guarantors covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and each of the Company and the Subsidiary Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. Section 4.7. Restricted Payments. -------------------- The Company shall not and shall 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) or 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 38 38 Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.9 hereof; 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 this 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 this 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 this Indenture of Equity Interests in 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 this 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, 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 shall 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 this 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 39 39 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 this Indenture; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $2.0 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 Company's 6% Convertible Subordinated Debentures due February 1, 2007; 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 Company's $2.03 Convertible Preferred Stock into Common 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 of the Company 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 this Section 4.7 were computed. In computing Consolidated Net Income for purposes of this Section 4.7, (i) the Company shall use audited financial statements for the portion of the relevant period for which audited financial statements are available on the date of determination and unaudited financial statements and other current financial data based on the books and records of the Company for the remaining portion of such period and (ii) the Company shall be permitted to rely in good faith on the financial statements and other financial data derived from the books and records of the Company that are available on the date of determination. If the Company makes a Restricted Payment which, at the time of the making of such Restricted Payment, would on the good faith determination of the Company be permitted under the requirements of this Indenture, such Restricted Payment shall be deemed to have been made in compliance with this Indenture notwithstanding any subsequent adjustments made in good faith to the Company's financial statements affecting Consolidated Net Income of the Company for any period. 40 40 The Board of Directors 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 shall be deemed to be Restricted Payments at the time of such designation and shall reduce the amount available for Restricted Payments under clause (c) of the first paragraph of this covenant. All such outstanding Investments shall 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 shall 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. Section 4.8. Dividend and Other Payment Restrictions Affecting Subsidiaries. --------------------------------------- - ----------------------- The Company shall not, and shall 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 this 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 any 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 this Indenture, (b) this 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 this Indenture to be 41 41 incurred, (e) by reason of customary non-assignment provisions in leases and customary provisions in other agreements that restrict assignment of such agreements 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 agreements governing such Permitted Refinancing Debt are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced. Section 4.9. Incurrence of Indebtedness and Issuance of Disqualified Stock. --------------------------------------- - ---------------------- The Company shall not, and shall 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 the Company shall not issue any Disqualified Stock and shall not permit any of its 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, this Indenture shall 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 (1) $400.0 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 (2) an amount equal to the sum of [(x) $25 million plus (y) 30% of Adjusted Consolidated Net 42 42 Tangible Assets] determined after the incurrance of such Indebtedness (including the application of the proceeds therefrom; (c) the guarantee by any Subsidiary Guarantor of any Indebtedness that is permitted by this 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 5.0% 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 $10.0 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 43 43 permitted by this 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 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 Company shall not permit any of its 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. Section 4.10. Asset Sales. ------------ The Company shall not, and shall 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 of the Company 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 this 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 controlling interests 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 this 44 44 Indenture. Any Net Proceeds from Asset Sales that are not applied as provided in the first sentence of this paragraph shall (after the expiration of the periods specified in this paragraph) be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company shall make an Asset Sale Offer to purchase the maximum principal amount of Notes and any other 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 in an amount equal to, in the case of the Notes, 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 Section 3.9 hereof or the agreements governing 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 sum of (i) the aggregate principal amount of Notes surrendered by Holders thereof, and (ii) the aggregate principal amount or accreted value, as the case may be, of other Pari Passu Indebtedness surrendered by holders or lenders thereof, 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 accreted value, as applicable) thereof surrendered in such Asset Sale Offer. Upon completion of such Asset Sale Offer, the Excess Proceeds shall be reset at zero. Section 4.11. Transactions with Affiliates. ----------------------------- The Company shall not, and shall 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 an Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1,000,000 but less than or equal to $5,000,000, an Officers' Certificate to the Trustee certifying that such Affiliate Transaction complies with clause (i) above, (b) with respect to any Affiliate Transaction or 45 45 series of related Affiliate Transactions involving aggregate consideration in excess of $5,000,000 but less than or equal to $10,000,000, a resolution of the Board of Directors set forth in an Officer's 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 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 (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 consideration of $10,000,000 or more, 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 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, however, that the foregoing shall not apply to (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 Subsidiary, (3) Permitted Investments and Restricted Payments that are permitted by Section 4.7 hereof, and (4) any indemnification payment made to any director, officer or employee of the Company or any Subsidiary pursuant to charter, bylaw, statutory or contractual provisions. Section 4.12. Liens. ------ The Company shall not, and shall 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. 46 46 Section 4.13. Offer to Repurchase Upon Change of Control. ------------------------------------------- (a) Upon the occurrence of a Change of Control, each Holder of the Notes shall 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 shall mail a notice to each Holder stating: (1) a description of the transaction or transactions that constitute the Change of Control; (2) that the Change of Control Offer is being made pursuant to this Section 4.13 and that all Notes tendered shall be accepted for payment; (3) the purchase price and the purchase date described below (the "Change of Control Payment Date"); (4) that any Note not tendered shall continue to accrue interest, if any; (5) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest, if any, after the Change of Control Payment Date; (6) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer shall be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (7) that Holders shall be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Notes purchased; and (8) that Holders whose Notes are being purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. The Company and each Subsidiary Guarantor shall 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 to such party in connection with the repurchase of the Notes as a result of a Change of Control. (b) On a Business Day that is no earlier than 30 days nor later than 60 days from the date that the Company mails or causes to be mailed notice of the Change of Control to the Holders (the "Change of Control Payment Date"), the Company shall, 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 47 47 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 shall promptly mail to each Holder of the Notes so tendered the Change of Control Payment for such Notes, and the Trustee shall 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 shall be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Change of Control provisions described above shall be applicable whether or not any other provisions of this Indenture are applicable. The Company shall not be required to make a Change of Control Offer upon a Change of Control 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 this Section 4.13 and purchases all Notes (or portions thereof) validly tendered and not withdrawn under such Change of Control Offer. Section 14.4. Additional Subsidiary Guarantees. --------------------------------- In the event that the Company or any of its Subsidiaries shall acquire or create a Subsidiary after the date of this Indenture, such newly acquired or created Subsidiary shall be deemed to make the guarantee set forth in Section 11.1 and the Company shall cause such Subsidiary to evidence such guarantee in the manner set forth in Section 11.2. Section 14.5. Corporate Existence. -------------------- Subject to Article 5 hereof, the Company and the Subsidiaries shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of the Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary and (ii) the rights (charter, partnership agreement and statutory), licenses and franchises of the Company and the Subsidiaries; provided, however, that the Company and the Subsidiaries shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of the Subsidiaries, if the Board of Directors of the relevant Person shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and the 48 48 Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. Section 4.16. No Senior Subordinated Debt. ---------------------------- Notwithstanding the provisions of Section 4.9 hereof, (i) the Company shall 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 of the Company and senior in any respect in right of payment to the Notes and (ii) the Subsidiary Guarantors shall 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 of the Company and senior in any respect in right of payment to the Guarantees; provided, however, that the foregoing limitations shall 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. Section 4.17. Business Activities. -------------------- The Company shall not, and shall not permit any Restricted Subsidiary to, engage in any material respect in any business other than the Oil and Gas Business. ARTICLE 5 SUCCESSORS Section 5.1. Merger, Consolidation, or Sale of Substantially All Assets. ----------------------------------------------- - ----------- The Company shall 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 supplemented indenture in a form reasonably satisfactory to the 49 49 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 series of transactions on a pro forma basis (and treating any Indebtedness not previously an obligation of the Company or any of its Subsidiary which becomes the obligation of the Company or any of its Subsidiary 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 this 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 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 Section 4.9 hereof. Notwithstanding 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. Section 5.2. Successor Corporation Substituted. ---------------------------------- Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.1 hereof, the Surviving Entity shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the Surviving Entity and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets that meets the requirements of Section 5.1 hereof. 50 50 ARTICLE 6 DEFAULTS AND REMEDIES Section 6.1. Events of Default. ------------------ An "Event of Default" occurs if: (1) the Company defaults in the payment of interest, if any, on the Notes when the same becomes due and payable and the Default continues for a period of 30 days, whether or not such payment is prohibited by the provisions of Article 10 hereof; (2) the Company defaults in the payment of the principal of or premium, if any, on the Notes, whether or not such payment is prohibited by the provisions of Article 10 hereof; (3) the Company fails to observe or perform any covenant, condition or agreement on the part of the Company to be observed or performed pursuant to Article 5 hereof; (4) the Company fails to observe or perform any covenant, condition or agreement on the part of the Company to be observed or performed pursuant to Sections 4.3, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.16 and 4.17 hereof and the Default continues for the period and after the notice specified below; (5) the Company fails to comply with any of its other agreements or covenants in, or provisions of, the Notes or this Indenture and the Default continues for consecutive days after the notice specified below; (6) except as permitted herein, 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 a Subsidiary Guarantor, shall deny or disaffirm such Subsidiary Guarantor's obligation under its Guarantee; (7) a default occurs 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 shall be created hereafter, 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 51 51 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 this Indenture and any consequential acceleration of the Notes shall be automatically rescinded; (8) a final non-appealable judgment or order or final non-appealable judgments or orders are rendered against the Company or any Restricted Subsidiary that remain unpaid or discharged for a period of 60 days and that require the payment of money, either individually or in an aggregate amount, in excess of $5 million; (9) the Company or any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary case or proceeding, (b) consents to the entry of an order for relief against it in an involuntary case or proceeding, (c) consents to the appointment of a Custodian of it or for all or substantially all of its property or (d) makes a general assignment for the benefit of its creditors; (10) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company or any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, in an involuntary case or proceeding, (b) appoints a Custodian of the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, or for all or substantially all of the property of the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, or (c) orders the liquidation of the Company, any Significant Subsidiary or any group of Subsidiaries 52 52 that, taken together, would constitute a Significant Subsidiary, and in each case the order or decree remains unstayed and in effect for 60 consecutive days. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. A Default under clause (4) is not an Event of Default until the Trustee notifies the Company, or the Holders of at least 25% in principal amount of the then outstanding Notes notify the Company and the Trustee, of the Default and the Company does not cure the Default within 30 consecutive days after receipt of the notice. A Default under clause (5) is not an Event of Default until the Trustee notifies the Company, or the Holders of at least 25% in principal amount of the then outstanding Notes notify the Company and the Trustee, of the Default and the Company does not cure the Default within 60 days after receipt of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." Section 6.2. Acceleration. ------------- If an Event of Default (other than an Event of Default specified in clauses (9) and (10) of Section 6.1 hereof) relating to the Company or any Subsidiary Guarantor occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the then outstanding Notes by written notice to the Company and the Trustee, may declare the unpaid principal amount of and any accrued and unpaid interest on all the Notes to be due and payable immediately. If payment of the Notes is accelerated because of an Event of Default, the Company or the Trustee shall notify the holders of Designated Senior Debt of such acceleration. Upon such declaration the principal and interest shall be due and payable immediately; provided, however, that so long as any Designated Senior Debt or any commitment therefor is outstanding, any such notice or declaration shall not become effective until the earlier of (a) five Business Days after such notice is delivered to the representative for the Designated Senior Debt or (b) the acceleration of any Designated Senior Debt and thereafter, payments on the Notes pursuant to this Article 6 shall be made only to the extent permitted pursuant to Article 10 herein. Notwithstanding the foregoing, if any Event of Default specified in clause (9) or (10) of Section 6.1 hereof relating to the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary occurs, such an amount shall ipso facto become and be immediately due and payable without any declaration or other act or notice on the part of the Trustee or any Holder. 53 53 After a declaration of acceleration under this Indenture, but before a judgment or decree for payment of principal, premium, if any, and interest on the Notes due under this Article 6 has been obtained by the Trustee, Holders of a majority in principal amount of the then outstanding Notes by written notice to the Company and the Trustee may rescind an acceleration and its consequences if (i) the Company or any Subsidiary Guarantor has paid or deposited with the Trustee a sum sufficient to pay (a) all sums paid or advanced by the Trustee under this Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and (b) all overdue interest on the Notes, if any, (ii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction and (iii) all existing Events of Default (except nonpayment of principal, premium, if any, or interest that has become due solely because of the acceleration) have been cured or waived. Section 6.3. Other Remedies. --------------- If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 6.4. Waiver of Past Defaults. ------------------------ Holders of not less than a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of principal of, premium and liquidated damages, if any, or interest on, the Notes (including in connection with an offer to purchase) (provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. 54 54 Section 6.5. Control by Majority. -------------------- Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability it being understood that (subject to Section 7.1) the Trustee shall have no duty to ascertain whether or not such actions or forebearances are unduly prejudicial to such holders. Section 6.6. Limitation on Suits. -------------------- A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. Section 6.7. Rights of Holders of Notes to Receive Payment. ---------------------------------------------- Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective 55 55 dates, shall not be impaired or affected without the consent of such Holder. Section 6.8. Collection Suit by Trustee. --------------------------- If an Event of Default specified in Section 6.1(1) or (2) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company or any Subsidiary Guarantor for the whole amount of principal of, premium, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.9. Trustee May File Proofs of Claim. --------------------------------- The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company or any of the Subsidiary Guarantors (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding provided, however, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and may be a member of the creditors' committee. 56 56 Section 6.10. Priorities. ----------- If the Trustee collects any money pursuant to this Article, it shall, subject to the provisions of Article 10, pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Sections 6.8 and 7.7 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium, if any, and accrued interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium, if any, and accrued interest, as the case may be, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. Section 6.11. Undertaking for Costs. ---------------------- In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.7 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7 TRUSTEE Section 7.1. Duties of Trustee. ------------------ (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. 57 57 (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any notices, requests, statements, certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder shall have furnished to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee 58 58 need not be segregated from other funds except to the extent required by law. Section 7.2. Rights of Trustee. ------------------ (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company or any Subsidiary Guarantor shall be sufficient if signed by an Officer of the Company or such Subsidiary Guarantor. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have furnished to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. (g) Except with respect to Sections 4.1 and 4.4 hereof, the Trustee shall have no duty to inquire as to the performance of the Company's covenants in Article 4 hereof. In addition, the Trustee shall not be deemed to have knowledge of any Default or Event of Default except (i) any Event of Default occurring pursuant to Sections 4.1, 4.4 and 6.1(1) or (2) hereof or (ii) any Default or Event of Default of which the Trustee shall have received written notification or obtained actual knowledge. For the purposes of this clause (g) only, "actual knowledge" shall mean the actual fact or statement of knowing, without any duty to make investigation with regard thereto. 59 59 (h) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder. (i) The Trustee shall not be bound to ascertain or inquire as to the performance or observance of any covenants, conditions, or agreements on the part of the Company, except as otherwise set forth herein, but the Trustee may require of the Company full information and advice as to the performance of the covenants, conditions and agreements contained herein and shall be entitled in connection herewith to examine the books, records and premises of the Company. (j) The permissive rights of the Trustee to perform the acts enumerated in this Indenture shall not be construed as a duty and the Trustee shall not be answerable for other than its negligence or willful misconduct. Section 7.3. Individual Rights of Trustee. ----------------------------- The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company, the Subsidiary Guarantors or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. Section 7.4. Trustee's Disclaimer. --------------------- The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture, the Notes, or the Guarantees, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or in any certificate delivered pursuant hereto or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. Section 7.5. Notice of Defaults. ------------------- If a Default or Event of Default occurs and is continuing and if it is actually known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on, any Note, the Trustee may 60 60 withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. Section 7.6. Reports by Trustee to Holders of the Notes. ------------------------------------------- Within 60 days after each _____________ beginning with the ________________ following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA ss. 313(a) (but if no event described in TIA ss. 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA ss. 313(b)(2) and transmit by mail all reports as required by TIA ss. 313(c). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the Commission and each stock exchange on which the Notes are listed in accordance with TIA ss. 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. Section 7.7. Compensation and Indemnity. --------------------------- The Company and the Subsidiary Guarantors shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder, including, without limitation, extraordinary services such as default administration. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company and the Subsidiary Guarantors shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company and the Subsidiary Guarantors shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company and the Subsidiary Guarantors (including this Section 7.7) and investigating or defending itself against any claim (whether asserted by the Company, the Subsidiary Guarantors or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Company and the Subsidiary Guarantors promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company and the Subsidiary 61 61 Guarantors shall not relieve the Company and the Subsidiary Guarantors of their obligations hereunder. The Company and the Subsidiary Guarantors shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company and the Subsidiary Guarantors shall pay the reasonable fees and expenses of such counsel. The Company and the Subsidiary Guarantors need not pay for any settlement made without their consent, which consent shall not be unreasonably withheld. The obligations of the Company and the Subsidiary Guarantors under this Section 7.7 are joint and several and shall survive the satisfaction and discharge of this Indenture. To secure the Company's and the Subsidiary Guarantors' payment obligations in this Section, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(9) or (10) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. The Trustee shall comply with the provisions of TIA section 313(b)(2) to the extent applicable. Section 7.8. Replacement of Trustee. ----------------------- A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of Notes of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or public officer takes charge of the Trustee or its property; or 62 62 (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of Notes of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder of a Note who has been a Holder of a Note for at least six months, fails to comply with Section 7.10, such Holder of a Note may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.7 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 hereof shall continue for the benefit of the retiring Trustee. Section 7.9. Successor Trustee by Merger, etc. --------------------------------- If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. Section 7.10. Eligibility; Disqualification. ------------------------------ There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at 63 63 least $50 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA sections 310(a)(1), (2) and (5). The Trustee is subject to TIA sections 310(b). Section 7.11. Preferential Collection of Claims Against ----------------------------------------- Company. - -------- The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.1. Option to Effect Legal Defeasance or Covenant --------------------------------------------- Defeasance. - ----------- The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.2 or 8.3 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. Section 8.2 Legal Defeasance and Discharge. ------------------------------- Upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.2, the Company and the Subsidiary Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Notes and the Guarantees thereof on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.5 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due from the trust fund described in Section 8.4 hereof, and as more fully set forth in such Section, (b) the Company's obligations with respect to such Notes under Article 2 and Section 4.2 hereof, (c) the rights, powers, trusts, duties 64 64 and immunities of the Trustee hereunder and the Company's obligations in connection therewith and (d) this Article 8. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.2 notwithstanding the prior exercise of its option under Section 8.3 hereof. Section 8.3. Covenant Defeasance. -------------------- Upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.3, the Company and the Subsidiary Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be released from their obligations under the covenants contained in Sections 4.3, 4.5, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.16 and 4.17 hereof and in clause (iv) of Section 5.1 and the covenants contained in the Guarantees with respect to the outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any compliance certificate, direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.1 hereof, but, except as specified above, the remainder of this Indenture, such Notes and such Guarantees shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.3 hereof, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, Sections 6.1(3) (but only with respect to the Company's failure to observe or perform the covenants, conditions and agreements of the Company under clause (iv) of Section 5.1), 6.1(4), 6.1(7) and 6.1(8) hereof shall not constitute Events of Default. Section 8.4. Conditions to Legal or Covenant Defeasance. ------------------------------------------- The following shall be the conditions to the application of either Section 8.2 or 8.3 hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: 65 65 (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in United States 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; (b) in the case of an election under Section 8.2 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the 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 this 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; (c) in the case of an election under Section 8.3 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the 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; (d) 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 Section 6.1(9) or 6.1(10) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this 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; (f) the Company shall 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 66 66 effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) the Company shall 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 (h) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Section 8.5. Deposited Money and Government Securities ----------------------------------------- to be Held in Trust; Other Miscellaneous Provisions. - ---------------------------------------------------- Subject to Section 8.6 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.5, the "Trustee") pursuant to Section 8.4 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company and the Subsidiary Guarantors shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.4 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article 8 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.4 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.4(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. 67 67 Section 8.6. Repayment to Company. --------------------- Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as a general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining shall be repaid to the Company. Section 8.7. Reinstatement. -------------- If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.2 or 8.3 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the obligations of the Company and the Subsidiary Guarantors under this Indenture, the Notes and the Guarantees shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.2 or 8.3 hereof, as the case may be; provided, however, that if the Company or any Subsidiary Guarantor makes any payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company or such Subsidiary Guarantor shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER Section 9.1. Without Consent of Holders of Notes. ------------------------------------ Notwithstanding Section 9.2 of this Indenture, the Company, the Subsidiary Guarantors and the Trustee may amend or supplement this Indenture, the Notes or the Guarantees without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency; 68 68 (b) to provide for uncertificated Notes in addition to or in place of certificated Notes; (c) to provide for the assumption of the Company's obligations to the Holders of the Notes in the case of a merger or consolidation pursuant to Article 5 hereof; (d) 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 hereunder of any Holder of the Note; (e) to secure the Notes; or (f) to comply with requirements of the Commission in order to effect or maintain the qualification of this Indenture under the TIA. Upon the request of the Company accompanied by a resolution of the Board of Directors of the Company and each of the Subsidiary Guarantors, as the case may be, authorizing the execution of any such amended or supplemental indenture, and upon receipt by the Trustee of the documents described in Section 7.2 hereof, the Trustee shall join with the Company and the Subsidiary Guarantors in the execution of any amended or supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. Section 9.2. With Consent of Holders of Notes. --------------------------------- Except as provided below in this Section 9.2, the Company, the Subsidiary Guarantors and the Trustee may amend or supplement this Indenture, the Notes and the Guarantees with the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for the Notes), and, subject to Sections 6.4 and 6.7 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this 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, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for the Notes). Notwithstanding the foregoing, without the consent of at least 662/3% in aggregate principal amount of the Notes then 69 69 outstanding (including consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), no waiver or amendment to this Indenture may make any change in the provisions of Sections 3.9, 4.10 and 4.13 hereof that adversely affect the rights of any Holder of Notes. In addition, any amendment to the provisions of Article 10 of this Indenture shall require the consent of the Holders of at least 66 2/3% in aggregate principal amount of the Notes then outstanding if such amendment would adversely affect the rights of Holders of Notes; provided that, no amendment may be made to the provisions of Article 10 of this 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 consent) consent to such change. Subject to Sections 6.4 and 6.7 hereof, the Holders of a majority in aggregate principal amount of the Notes then outstanding may waive compliance in a particular instance by the Company or any Subsidiary Guarantor with any provision of this Indenture, the Notes or the Guarantees. However, without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder): (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes (except as provided above with respect to Sections 3.9, 4.10 and 4.13 hereof); (c) reduce the rate of or change the time for payment of interest on any Note; (d) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in principal amount of the Notes and a waiver of the payment default that resulted from such acceleration); (e) make any Note payable in money other than that stated in the Notes; (f) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal or premium, if any, or interest on the Notes; or (g) make any change in the foregoing amendment and waiver provisions. Upon the request of the Company accompanied by a resolution of the Board of Directors of the Company and each of 70 70 the Subsidiary Guarantors, as the case may be, authorizing the execution of any such amended or supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.2 hereof, the Trustee shall join with the Company and the Subsidiary Guarantors in the execution of such amended or supplemental indenture unless such amended or supplemental indenture affects the Trustee's own rights, duties or immunities under this indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental indenture. It shall not be necessary for the consent of the Holders of Notes under this Section 9.2 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental indenture or waiver. Section 9.3. Compliance with Trust Indenture Act. ------------------------------------ Every amendment or supplement to this Indenture or the Notes shall be set forth in an amended or supplemental Indenture that complies with the TIA as then in effect. Section 9.4. Revocation and Effect of Consents. ---------------------------------- Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. Section 9.5. Notation on or Exchange of Notes. --------------------------------- The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall authenticate new Notes that reflect the amendment, supplement or waiver. 71 71 Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. Section 9.6. Trustee to Sign Amendment, etc. ------------------------------- The Trustee shall sign any amended or supplemental indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. Neither the Company nor any Subsidiary Guarantor may sign an amendment or supplemental Indenture until its respective Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.1) shall be fully protected in relying upon, an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture and that there has been compliance with all conditions precedent. ARTICLE 10 SUBORDINATION Section 10.1. Agreement to Subordinate. ------------------------- The Company and each Subsidiary Guarantor agree, and each Holder by accepting a Note and the related Guarantee agrees, that (i) the Indebtedness evidenced by (a) the Notes, including, but not limited to, the payment of principal of, premium, if any, and interest on the Notes, and any other payment Obligation of the Company in respect of the Notes (including any obligation to repurchase the Notes) is subordinated in right of payment, to the extent and in the manner provided in this Article, to the prior payment in full in cash of all Senior Debt of the Company (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed), and (b) the Guarantees and other payment Obligations in respect of the Guarantees are subordinated in right of payment, to the extent and in the manner provided in this Article, to the prior payment in full in cash of all Senior Debt of each Subsidiary Guarantor and (ii) the subordination is for the benefit of the Holders of Senior Debt. Section 10.2. Certain Definitions. -------------------- "Bankruptcy Law" means title 11, U.S. Code or any similar Federal or state law for the relief of debtors. "Representative" means the indenture trustee or other trustee, agent or representative for any Senior Debt. "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 72 72 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 of the Company or any Subsidiary of the Company permitted under the terms of this 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 this 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 this Indenture). A "distribution" may consist of cash, securities or other property, by set-off or otherwise. All Designated Senior Debt now or hereafter existing and all other Obligations relating thereto shall not be deemed to have been paid in full unless the holders or owners thereof shall have received payment in full in cash (or other form of payment consented to by the holders of such Designated Senior Debt) with respect to such Designated Senior Debt and all other Obligations with respect thereto. Section 10.3. Liquidation; Dissolution; Bankruptcy. ------------------------------------- (a) 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: (1) the holders of Senior Debt of the Company shall be entitled to receive payment in full in cash of all Obligations 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 Notes shall be entitled to receive any payment with respect to the Notes and related Obligations (except in each case that Holders of Notes may receive securities that are subordinated at least to the same extent as the Notes to Senior Debt and any securities issued in exchange for Senior Debt and payments made from any defeasance trust created pursuant to Section 8.1 hereof 73 73 provided that the applicable deposit does not violate Article 8 or 10 of this Indenture); and (2) until all Obligations with respect to Senior Debt of the Company (as provided in subsection (1) above) are paid in full in cash, any payment or distribution to which the Holders of Notes and the related Guarantees would be entitled shall be made to holders of Senior Debt of the Company (except that Holders of Notes and the related Guarantees may receive securities that are subordinated at least to the same extent as the Notes to Senior Debt and any securities issued in exchange for Senior Debt and payments made from any defeasance trust created pursuant to Section 8.1 hereof provided that the applicable deposit does not violate Article 8 or 10 of this Indenture). (b) Upon any payment or distribution of property or securities to creditors of a Subsidiary Guarantor in a liquidation or dissolution of such Subsidiary Guarantor or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to such Subsidiary Guarantor or its property, or in an assignment for the benefit of creditors or any marshalling of such Subsidiary Guarantor's assets and liabilities: (1) the holders of Senior Debt of such Subsidiary Guarantor shall be entitled to receive payment in full in cash of all Obligations 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 Notes and the related Guarantees shall be entitled to receive any payment or distribution with respect to the Guarantee made by such Subsidiary Guarantor (except in each case that Holders of Notes and the related Guarantees may receive securities that are subordinated at least to the same extent as the Notes to Senior Debt and any securities issued in exchange for Senior Debt and payments made from any defeasance trust created pursuant to Section 8.1 hereof provided that the applicable deposit does not violate Article 8 or 10 of this Indenture); and (2) until all Obligations with respect to Senior Debt of such Subsidiary Guarantor (as provided in subsection (1) above) are paid in full in cash, any payment or distribution to which the Holders of Notes and the related Guarantees would be entitled shall be made to holders of Senior Debt of such Subsidiary Guarantor (except that Holders of Notes and the related Guarantees may receive securities that are subordinated at least to the same extent as the Notes to Senior Debt and any securities issued in exchange for Senior Debt and payments made from any defeasance trust created 74 74 pursuant to Section 8.1 hereof provided that the applicable deposit does not violate Article 8 or 10 of this Indenture). Under the circumstances described in this Section 10.3, the Company, any Subsidiary Guarantor or any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar person making any payment or distribution of cash or other property or securities is authorized or instructed to make any payment or distribution to which the Holders of the Notes and the related Guarantees would otherwise be entitled (other than securities that are subordinated at least to the same extent as the Notes to Senior Debt and any securities issued in exchange for Senior Debt and payments made from any defeasance trust referred to in the second parenthetical clause of each of clauses (a)(1), (b)(1), (c)(1), (a)(2), (b)(2) and (c)(2) above, which shall be delivered or paid to the Holders of Notes as set forth in such clauses) directly to the holders of the Senior Debt of the Company and any Subsidiary Guarantor, as applicable, (pro rata to such holders on the basis of the respective amounts of Senior Debt of the Company and any Subsidiary Guarantor, as applicable, held by such holders) or their Representatives, or to any trustee or trustees under any other indenture pursuant to which any such Senior Debt may have been issued, as their respective interests appear, to the extent necessary to pay all such Senior Debt in full, in cash or cash equivalents after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Senior Debt. To the extent any payment of or distribution in respect of Senior Debt (whether by or on behalf of the Company or any Subsidiary Guarantor, as proceeds of security or enforcement of any right of setoff or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then if such payment or distribution is recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person, the Senior Debt or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred. To the extent the obligation to repay any Senior Debt is declared to be fraudulent, invalid or otherwise set aside under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then the obligation so declared fraudulent, invalid or otherwise set aside (and all other amounts that would come due with respect thereto had such obligation not been so affected) shall be deemed to be reinstated and outstanding as Senior Debt for all purposes hereof as if such declaration, invalidity or setting aside had not occurred. 75 75 Section 10.4. Default on Designated Senior Debt. ---------------------------------- The Company and the Subsidiary Guarantors may not make any payment (whether by redemption, purchase, retirements, defeasance or otherwise) upon or in respect of the Notes and the related Guarantees (other than securities that are subordinated at least to the same extent as the Notes to Senior Debt and any securities issued in exchange for Senior Debt and payments and other distributions made from any defeasance trust created pursuant to Section 8.1 hereof if the applicable deposit does not violate Article 8 or 10 of this Indenture) until all principal and other Obligations with respect to the Senior Debt of the Company have been paid in full if: (i) a default in the payment of any 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) would permit, holders of the Designated Senior Debt as to which such default relates to accelerate its maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from the Company or the holders of any Designated Senior Debt. If the Trustee receives any such Payment Blockage Notice, no subsequent Payment Blockage Notice shall be effective for purposes of this Section unless and until 360 days shall 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 any 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 Company shall resume payments on and distributions in respect of the Notes and any Subsidiary Guarantor shall resume making payments and distributions pursuant to the Guarantees upon: (1) in the case of a default referred to in Section 10.4(i) hereof the date upon which the default is cured or waived, or (2) in the case of a default referred to in Section 10.4(ii) hereof, the earliest of (1) the date on which such nonpayment default is cured or waived, (2) the date the applicable Payment Blockage Notice is retracted by written notice to the Trustee and (3) 90 days after the date on which the applicable Payment Blockage Notice is received unless (A) the maturity of any Designated Senior Debt has been accelerated or (B) a Default or Event of Default under Section 6.1(9) or (10) has occurred and is continuing, 76 76 if this Article otherwise permits the payment, distribution or acquisition at the time of such payment or acquisition. Section 10.5. Acceleration of Notes. ---------------------- If payment of the Notes is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt of the acceleration. Section 10.6. When Distribution Must Be Paid Over. ------------------------------------ In the event that the Trustee or any Holder receives any payment or distribution of or in respect of any Obligations with respect to the Notes or the Guarantees at a time when such payment or distribution is prohibited by Section 10.3 or Section 10.4 hereof, such payment or distribution shall be held by the Trustee (if the Trustee has actual knowledge that such payment or distribution is prohibited by Section 10.3 or 10.4) or such Holder, in trust for the benefit of, and shall be paid forthwith over and delivered to, the holders of Senior Debt as their interests may appear or their Representative under the indenture or other agreement (if any) pursuant to which such Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. With respect to the holders of Senior Debt, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt, and, except as provided in Section 10.12, shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holders of Notes or the Company, the Subsidiary Guarantors or any other Person money or assets to which any holders of Senior Debt shall be entitled by virtue of this Article 10, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. Section 10.7. Notice by Company. ------------------ The Company and the Subsidiary Guarantors shall promptly notify the Trustee and the Paying Agent of any facts known to the Company or any Subsidiary Guarantor that would cause a payment of any Obligations with respect to the Notes or the related Guarantees to violate this Article, but failure to give such notice shall not affect the subordination of the Notes and the related Guarantees to the Senior Debt as provided in this Article. 77 77 Section 10.8 Subrogation. ------------ After all Senior Debt is paid in full and until the Notes are paid in full, Holders of Notes and the related Guarantees shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes and the Guarantees) to the rights of holders of Senior Debt to receive distributions and payments applicable to Senior Debt to the extent that distributions and payments otherwise payable to the Holders of Notes and the related Guarantees have been applied to the payment of Senior Debt. A payment or distribution made under this Article to holders of Senior Debt that otherwise would have been made to Holders of Notes and the related Guarantees is not, as between the Company and Holders of Notes, a payment by the Company on the Notes. Section 10.9 Relative Rights. ---------------- This Article defines the relative rights of Holders of Notes and the related Guarantees and holders of Senior Debt. Nothing in this Indenture shall: (1) impair, as between the Company and Holders of Notes, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms; (2) affect the relative rights of Holders of Notes and the related Guarantees and creditors of the Company other than their rights in relation to holders of Senior Debt; or (3) prevent the Trustee or any Holder from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt to receive distributions and payments otherwise payable to Holders of Notes and the related Guarantees. If the Company fails because of this Article to pay principal of or interest on a Note on the due date, the failure is still a Default or Event of Default. Section 10.10. Subordination May Not Be Impaired by ------------------------------------ Company or the Subsidiary Guarantors. - ------------------------------------- No right of any present or future holders of any Senior Debt to enforce subordination as provided in this Article Ten will at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or any Subsidiary Guarantor or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company or any Subsidiary Guarantor with the terms of this Indenture, regardless of any knowledge thereof that any such holder of Senior Debt may have or otherwise be charged with. The provisions of this 78 78 Article Ten are intended to be for the benefit of, and shall be enforceable directly by, the holders of Senior Debt. Section 10.11. Payment, Distribution or Notice to ---------------------------------- Representative. - --------------- Whenever a payment or distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets or securities of the Company or any Subsidiary Guarantor referred to in this Article 10, the Trustee and the Holders of Notes and the related Guarantees shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any payment or distribution to the Trustee or to the Holders of Notes and the related Guarantees for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Debt and other Indebtedness of the Company or any Subsidiary Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. Section 10.12. Rights of Trustee and Paying Agent. ----------------------------------- Notwithstanding the provisions of this Article 10 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes and the Guarantees, unless the Trustee shall have received at its Corporate Trust Office at least one Business Day prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Notes or Guarantees to violate this Article, which notice shall specifically refer to Section 10.3 or 10.4 hereof. Only the Company or a Representative may give the notice. Nothing in this Article 10 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.7 hereof. The Trustee in its individual or any other capacity may hold Senior Debt with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. Section 10.13. Authorization to Effect Subordination. -------------------------------------- Each Holder by the Holder's acceptance thereof authorizes and directs the Trustee on the Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee to act as the Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of 79 79 claim or proof of debt in the form required in any proceeding referred to in Section 6.9 hereof at least 30 days before the expiration of the time to file such claim, each lender under the Credit Agreement is hereby authorized to file an appropriate claim for and on behalf of the Holders of the Notes and the related Guarantees. Section 10.14. Amendments. ----------- No amendment may be made to the provisions of or the definitions of any terms appearing in this Article 10, or to the provisions of Section 6.2 relating to the Designated Senior Debt, 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 authorized to give a consent) consent to such change. Section 10.15. No Waiver of Subordination Provisions. -------------------------------------- Without in any way limiting the generality of Section 10.9 of this Indenture, the holders of Senior Debt may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders, without incurring responsibility to the Holders and without impairing or releasing the subordination provided in this Article Ten or the obligations hereunder of the Holders to the holders of Senior Debt, do any one or more of the following: (a) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Debt or any instrument evidencing the same or any agreement under which Senior Debt is outstanding or secured; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt; (c) release any Person liable in any manner for the collection of Senior Debt; and (d) exercise or refrain from exercising any rights against the Company and each Subsidiary Guarantor and any other Person. ARTICLE 11 THE GUARANTEES Section 11.1. The Guarantees. --------------- Each of the Subsidiary Guarantors hereby, jointly and severally, unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (a) the principal of and premium and interest, on the Notes shall be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on premium and interest, on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder shall be promptly paid in 80 80 full or performed, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same shall be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Subsidiary Guarantors shall be jointly and severally obligated to pay the same immediately. The Subsidiary Guarantors hereby agree that their obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each of the Subsidiary Guarantors hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenant that this Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and this Indenture. If any Holder or the Trustee is required by any court or otherwise to return to the Company or the Subsidiary Guarantors, or any Custodian, Trustee, liquidator or other similar official acting in relation to either the Company or the Subsidiary Guarantors, any amount paid by either to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each of the Subsidiary Guarantors agrees that it shall not be entitled to any right of subrogation in relation to the Holders of Notes in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each of the Subsidiary Guarantors further agrees that, as between the Subsidiary Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6, such obligations (whether or not due and payable) shall forthwith become due and payable by the Subsidiary Guarantors for the purpose of this Guarantee. The Subsidiary Guarantors shall have the right to seek contribution from any Subsidiary Guarantor not paying so long as the exercise of such right does not impair the rights of the Holders under the Guarantees. 81 81 Section 11.2. Execution and Delivery of Guarantees. ------------------------------------- (i) To evidence its Guarantee set forth in Section 11.1, each of the Subsidiary Guarantors hereby agrees that a notation of such Guarantee substantially in the form of Exhibit C shall be endorsed by an officer of such Subsidiary Guarantor on each Note authenticated and delivered by the Trustee, that this Indenture shall be executed on behalf of such Subsidiary Guarantor by its President or one of its Vice Presidents and attested to by an Officer and that such Subsidiary Guarantor shall deliver to the Trustee an Opinion of Counsel that the foregoing have been duly authorized, executed and delivered by such Subsidiary Guarantor and that such Guarantee is a valid and legally binding obligation of such Subsidiary Guarantor, enforceable against such Subsidiary Guarantor in accordance with its terms. Each Subsidiary Guarantor hereby agrees that its Guarantee set forth in Section 11.1 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Guarantee. If an Officer whose signature is on this Indenture or on the applicable Guarantee no longer holds that office at the time the Trustee authenticates the Note on which such Guarantee is endorsed, such Guarantee shall be valid nevertheless. The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Guarantees set forth in this Indenture on behalf of the Subsidiary Guarantors. Section 11.3. Subsidiary Guarantors May Consolidate, -------------------------------------- etc., on Certain Terms. - ----------------------- 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: (a) subject to the provisions of Section 11.4 hereof, 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 reasonably satisfactory to the Trustee in respect of the Notes, this Indenture and such Subsidiary Guarantor's Guarantee; (b) immediately after giving effect to such transaction, no Default or Event of Default exists; and (c) such transaction does not violate any of Sections 4.3, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.16 and 4.17. 82 82 Notwithstanding the foregoing, none of the Subsidiary Guarantors shall be permitted to consolidate with or merge with or into (whether or not such Subsidiary Guarantor is the surviving Person), another corporation, Person or entity pursuant to the preceding sentence if such consolidation or merger would not be permitted by Section 5.1 hereof. In case of any such consolidation or merger and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by such Subsidiary Guarantor, such successor corporation shall succeed to and be substituted for such Subsidiary Guarantor with the same effect as if it had been named herein as a Subsidiary Guarantor. Such successor corporation thereupon may cause to be signed any or all of the Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Guarantees so issued shall in all respects have the same legal rank and benefit under this Indenture as the Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all of such Guarantees had been issued at the date of the execution hereof. Except as set forth in Articles 4 and 5 hereof, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of any Subsidiary Guarantor with or into the Company or another Subsidiary Guarantor, or shall prevent any sale or conveyance of the property of any Subsidiary Guarantor as an entirety or substantially as an entirety to the Company or any Subsidiary Guarantor. Section 11.4. Releases of Guarantees. ----------------------- In the event of a sale or other disposition of all or substantially all of the assets of any Subsidiary Guarantor or a sale or other disposition of all of the capital stock of any Subsidiary Guarantor, to any corporation or other Person (including an Unrestricted Subsidiary) by way of merger, consolidation, or otherwise, in a transaction that does not violate any of the covenants of this Indenture, then such Subsidiary Guarantor (in the event of a sale or other disposition, by way of such merger, consolidation or otherwise, of all the capital stock of such Subsidiary Guarantor) shall be released and relieved of any obligations under its Guarantee and such acquiring corporation or other Person (in the event of a sale or other disposition of all or substantially all of the assets of such Subsidiary Guarantor), if other than a Subsidiary Guarantor, shall have no obligation to assume or otherwise become liable under such Guarantee; provided, that the Net Proceeds of such sale or other disposition are applied in accordance with Section 4.10 hereof. Upon delivery by the Company to the Trustee 83 83 of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the provisions of this Indenture, including without limitation Section 4.10, the Trustee shall execute any documents reasonably required in order to evidence the release of any Subsidiary Guarantor from its obligations under its Guarantee. Any Subsidiary Guarantor not released from its obligations under its Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of such Subsidiary Guarantor under this Indenture as provided in this Article 11. Any Subsidiary Guarantor that is designated an Unrestricted Subsidiary in accordance with the terms of this Indenture shall be released from and relieved of its obligations under its Guarantee and any Unrestricted Subsidiary that becomes a Restricted Subsidiary and any newly created or newly acquired Subsidiary that is or becomes a Subsidiary shall be required to execute a Guarantee in accordance with the terms of this Indenture. Section 11.5. Limitation on Subsidiary Guarantor Liability. --------------------------------------------- For purposes hereof, each Subsidiary Guarantor's liability shall be that amount from time to time equal to the aggregate liability of such Subsidiary Guarantor thereunder, but shall be limited to the lesser of (i) the aggregate amount of the Obligations of the Company under the Notes and this Indenture and (ii) the amount, if any, which would not have (A) rendered such Subsidiary Guarantor "insolvent" (as such term is defined in the federal Bankruptcy Law and in the Debtor and Creditor Law of the State of New York) or (B) left it with unreasonably small capital at the time its Guarantee of the Notes was entered into, after giving effect to the incurrence of existing Indebtedness immediately prior to such time; provided that, it shall be a presumption in any lawsuit or other proceeding in which such Subsidiary Guarantor is a party that the amount guaranteed pursuant to its Guarantee is the amount set forth in clause (i) above unless any creditor, or representative of creditors of such Subsidiary Guarantor, or debtor in possession or trustee in bankruptcy of such Subsidiary Guarantor, otherwise proves in such a lawsuit that the aggregate liability of such Subsidiary Guarantor is limited to the amount set forth in clause (ii). In making any determination as to the solvency or sufficiency of capital of a Subsidiary Guarantor in accordance with the previous sentence, the right of such Subsidiary Guarantor to contribution from other Subsidiary Guarantors and any other rights such Subsidiary Guarantor may have, contractual or otherwise, shall be taken into account. 84 84 Section 11.6. "Trustee" to Include Paying Agent. ---------------------------------- In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in Article 10 and this Article 11 shall in such case (unless the context shall otherwise require) be construed as extending to and including such Paying Agent within its meaning as fully and for all intents and purposes as if such Paying Agent were named in Article 10 and this Article 11 in place of the Trustee. Section 11.7. Subordination of Guarantees. ---------------------------- The obligations of each of the Subsidiary Guarantors under its Guarantee pursuant to this Article 11 shall be junior and subordinated to the Senior Debt of the Subsidiary Guarantor pursuant to Article 10 hereof. For the purposes of the foregoing sentence, the Trustee and the Holders shall have the right to receive and/or retain payments or distributions by or on behalf of any of the Subsidiary Guarantors only at such times as they may receive and/or retain payments in respect of the Notes pursuant to this Indenture, including Article 10 hereof. ARTICLE 12 MISCELLANEOUS Section 12.1. Trust Indenture Act Controls. ----------------------------- If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA ss. 318(c), the imposed duties shall control. If any provisions of this Indenture modifies or excludes any provision of the TIA that may be so modified or excluded, the letter provision shall be deemed to apply to this Indenture as so modified or excluded, as the case may be. Section 12.2. Notices. -------- Any notice or communication by the Company or the Subsidiary Guarantors or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company or any Subsidiary Guarantor: Lomak Petroleum, Inc. 500 Throckmorton Street Fort Worth, Texas 76102 Telecopier No.: (817) 870-2914 Attention: John H. Pinkerton 85 85 With a copy to: Vinson & Elkins L.L.P. 1001 Fannin, Suite 2300 Houston, Texas 77002-6760 Telecopier No.: (713) 615-5605 Attention: J. Mark Metts If to the Trustee: Telecopier No.: Attention: Indenture Trust Administration Division The Company or any Subsidiary Guarantor or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if by telecopy; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA ss. 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company or any Subsidiary Guarantor mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. Section 12.3. Communication by Holders of Notes with -------------------------------------- Other Holders of Notes. - ----------------------- Holders may communicate pursuant to TIA ss. 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Subsidiary Guarantors, the 86 86 Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). Section 12.4. Certificate and Opinion as to Conditions ---------------------------------------- Precedent. - ---------- Upon any request or application by the Company or any Subsidiary Guarantor to the Trustee to take any action under this Indenture, the Company or such Subsidiary Guarantor, as the case may be, shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.5 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been complied with; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.5 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been complied with. Section 12.5. Statements Required in Certificate or ------------------------------------- Opinion. - -------- Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with. 87 87 Section 12.6. Rules by Trustee and Agents. ---------------------------- The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 12.7. No Personal Liability of Directors, Officers, --------------------------------------------- Employees and Stockholders. - --------------------------- No director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes or this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes, by accepting a Note, waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. Section 12.8. Governing Law. -------------- THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE GUARANTEES. Section 12.9. No Adverse Interpretation of Other Agreements. ---------------------------------------------- This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or their respective Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture and the Guarantees. Section 12.10. Successors. ----------- All agreements of the Company and each Subsidiary Guarantor in this Indenture, the Notes and the Guarantees shall bind its respective successors. All agreements of the Trustee in this Indenture shall bind its successors. Section 12.11. Severability. ------------- In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 88 88 Section 12.12. Counterpart Originals. ---------------------- The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 12.13. Table of Contents, Headings, Etc. --------------------------------- The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [Signatures on following page] 89 89 SIGNATURES Dated as of ___________, 1997 LOMAK PETROLEUM, INC. Attest: By________________________________ Name:______________________________ __________________________ Title:_____________________________ LOMAK OPERATING COMPANY Attest: By________________________________ Name:______________________________ __________________________ Title:_____________________________ LOMAK PRODUCTION COMPANY Attest: By________________________________ Name:______________________________ __________________________ Title:_____________________________ LOMAK RESOURCES COMPANY Attest: By________________________________ Name:______________________________ __________________________ Title:_____________________________ BUFFALO OILFIELD SERVICES, INC. Attest: By________________________________ Name:______________________________ __________________________ Title:_____________________________ LOMAK ENERGY SERVICES COMPANY Attest: By________________________________ Name:______________________________ __________________________ Title:_____________________________ 90 90 LOMAK ENERGY COMPANY Attest: By________________________________ Name:______________________________ __________________________ Title:_____________________________ LPI ACQUISITION, INC. Attest: By________________________________ Name:______________________________ __________________________ Title:_____________________________ LOMAK PRODUCTION I, L.P. Attest: By________________________________ Name:______________________________ __________________________ Title:_____________________________ LOMAK RESOURCES, L.L.C. Attest: By________________________________ Name:______________________________ __________________________ Title:_____________________________ LOMAK OFFSHORE I, L.P. Attest: By________________________________ Name:______________________________ __________________________ Title:_____________________________ LOMAK PIPELINE SYSTEMS, L.P. Attest: By________________________________ Name:______________________________ __________________________ Title:_____________________________ 91 91 LOMAK GATHERING & PROCESSING COMPANY Attest: By________________________________ Name:______________________________ __________________________ Title:_____________________________ LOMAK GAS COMPANY Attest: By________________________________ Name:______________________________ __________________________ Title:_____________________________ 92 ================================================================================ EXHIBIT A (Face of Note) _____% Senior Subordinated Notes due 2007 No. $__________ Cusip Number: LOMAK PETROLEUM, INC. promises to pay to or registered assigns, the principal sum of DOLLARS on ___________, 2007. Interest Payment Dates: _____________ and ____________ Record Dates: __________________ and ___________________ Dated: _______________, ____ LOMAK PETROLEUM, INC. By_______________________ Name: Title: By_______________________ Name: Title: This is one of the Notes referred to in the within-mentioned (SEAL) Indenture: [Name of Trustee], as Trustee By____________________________ Authorized Signatory ================================================================================ A-1 93 (Back of Note) ____% Senior Subordinated Note due 2007 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. Lomak Petroleum, Inc., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note at the rate of ____% per annum, which interest shall be payable in cash semiannually in arrears on _________________ and __________________, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"); provided that the first Interest Payment Date shall be ________________, 1997. Interest on the Notes will accrue from the most recent date to 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. 2. METHOD OF PAYMENT. On each Interest Payment Date the Company will pay interest to the Person who is the Holder of record of this Note as of the close of business on the ________________ or ________________ immediately preceding such Interest Payment Date, even if this Note is cancelled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. Principal, premium if any and interest on this Note 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 Holder of this Note at its address set forth in the register of Holders of Notes; provided that all payments with respect to the Global Notes and definitive Notes having an aggregate principal amount of $5.0 million or more the Holders of which have given wire transfer instructions to the Company at least 10 Business Days prior to the applicable payment date will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, ______________________________________, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any A-2 94 Holder. The Company or any Subsidiary Guarantor or any other of the Company's Subsidiaries may act in any such capacity. 4. INDENTURE. The Company issued the Notes under an Indenture dated as of ________________, 1997 ("Indenture") among the Company, the Subsidiary Guarantors and the Trustee. 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 of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The Notes are general unsecured obligations of the Company equal in an aggregate principal amount to $100,000,000 and will mature on ____________, 2007. 5. OPTIONAL REDEMPTION. (a) The Notes are not redeemable at the Company's option prior to __________________, 2002. From and after ___________________, 2002, 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 ......................... 100.000%
(b) Notwithstanding the provisions of clause (a) of this Paragraph 5, prior to ________________, 2000 the Company may, at its option, on any one or more occasions, redeem up to $33,333,000 in aggregate principal amount of 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 the net proceeds of sales of Equity Interests (other than Disqualified Stock) of the Company; provided that at least $66,667,000 in aggregate principal amount of Notes must remain outstanding immediately after the occurrence of such redemption; and provided, further, that any such redemption shall occur within 60 days after the date of the closing of the related sale of such Equity Interests. 6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. A-3 95 7. REPURCHASE AT OPTION OF HOLDER. (a) Upon the occurrence of a Change of Control, each Holder of Notes shall 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 thereof plus accrued and unpaid interest, if any, thereon to the date of purchase (the "Change of Control Payment"). The right of the Holders of the Notes to require the Company to repurchase such Notes upon a Change of Control may not be waived by the Trustee without the approval of the Holders of the Notes required by Section 9.2 of the Indenture. 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 offering to repurchase 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 Company and each Subsidiary Guarantor 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. (b) If the Company or a Restricted Subsidiary consummates any Asset Sales permitted by the Indenture, when the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company shall make an Asset Sale Offer to purchase the maximum principal amount of Notes and any other 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 in an amount equal to, in the case of the Notes, 100% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of purchase or, in the case of any 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 Section 3.9 of 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 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 sum of (i) the aggregate principal amount of Notes surrendered by Holders thereof and (ii) the aggregate principal amount or accreted value, as the case may be, of Pari Passu Indebtedness surrendered by holders or lenders thereof exceeds the amount of Excess Proceeds, the Trustee and the trustee or other lender representative for the Pari Passu Indebtedness shall select the Notes and the other Pari Passu A-4 96 Indebtedness to be purchased on a pro rata basis, based on the aggregate principal amount (or 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. 8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or on the aggregate principal amount of the Notes called for redemption, as the case may be. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes may be issued initially in the form of one or more fully registered Global Notes. The Notes may also be issued in registered form without coupons in minimum denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in 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 need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Note for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or the tender offer or exchange offer for, such Notes), and any existing Default or Event of Default under, or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes. Without the consent of any Holder of a Note, the Indenture or the Notes may be amended or supplemented 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 case of a merger or consolidation, to make any change that A-5 97 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, or to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 consecutive days in the payment when due of interest on the Notes (whether or not prohibited by the provisions of Article 10 of the Indenture); (ii) default in payment when due of the principal of or premium, if any, on the Notes (whether or not prohibited by the provisions of Article 10 of the Indenture); (iii) failure by the Company to comply with the provisions of Article 5 of the Indenture; (iv) failure by the Company for 30 consecutive days after notice from the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding to comply with the provisions of Sections 4.3, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.16, and 4.17 of the Indenture; (v) failure by the Company for 60 consecutive days after notice from the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding to comply with any of its other agreements or covenants in, or provisions of, this Note or in the Indenture; (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 a Subsidiary Guarantor, shall deny or disaffirm such Subsidiary Guarantor's obligations under its Guarantee; (vii) 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 Restricted Subsidiary 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 $10.0 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) a final non-appealable judgment or order or final non-appealable judgments or orders are rendered against the Company or any Restricted Subsidiary that remain unpaid or discharged for a period of 60 days and that require the A-6 98 payment in money, either individually or in an aggregate amount, that is more than $5.0 million; and (ix) 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. If any Event of Default (other than an Event of Default described in clause (x) above) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the 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 Subsidiary Guarantor, 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 then outstanding Notes 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 aggregate 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 5 Business days after becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. SUBORDINATION. The Notes are subordinated to Senior Debt of the Company. To the extent provided in the Indenture, Senior Debt must be paid before the Notes may be paid. The Company agrees, and each Holder by accepting a Note agrees, that the Indebtedness evidenced by the Notes, including, but not limited to, the payment of principal of, premium, if any, and interest on the Notes, and any other payment Obligation of the Company in respect of the Notes is subordinated in right of payment, to the extent and in the manner provided in the Indenture, to the prior payment in full in cash of all Senior Debt of the Company (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed) and authorizes the Trustee to give effect and appoints the Trustee as attorney-in-fact for such purpose. 14. TRUSTEE DEALINGS WITH COMPANY. 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 A-7 99 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. 15. NO RECOURSE AGAINST OTHERS. No director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes, by accepting a Note, waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 16. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 17. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act. 18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Lomak Petroleum, Inc. 500 Throckmorton Street Fort Worth, Texas 76102 Telecopier No.: (817) 870-2914 Attention: Secretary [NOTE: THE FORM OF GUARANTEE ATTACHED AS EXHIBIT C TO THE INDENTURE IS TO BE ATTACHED TO THIS NOTE.] A-8 100 ASSIGNMENT FORM To assign this Security, fill in the form below: (I) or (we) assign and transfer this Security to - ------------------------------------------------------------------------------- (Insert assignee's Social Security or tax I.D. No.) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint -------------------------------------------------------- agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. - ------------------------------------------------------------------------------- Date: ------------------ Your Signature: ---------------------------- (Sign exactly as your name appears on the face of this Security) Signature Guarantee:* ----------------------- - -------- */ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-9 101 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.13 of the Indenture, check the box below: [ ] Section 4.10 [ ] Section 4.13 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.13 of the Indenture, state the principal amount you elect to have purchased: $______________ Date: Your Signature: (Sign exactly as your name appears on the face of this Security) Signature Guarantee:* ----------------------- - -------- */ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-10 102 EXHIBIT B (Form of Legend for Global Note) Unless and until it is exchanged in whole or in part for Notes in definitive form, this Note may not be transferred except as a whole by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. Unless this certificate is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) ("DTC"), to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as may be requested by an authorized representative of DTC (and any payment is made to Cede & Co. or such other entity as may be requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. B-1 103 SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES [To be attached to Global Note] The following exchanges of a part of this Global Note for definitive Notes have been made:
Amount of Amount of Principal Amount Signature of decrease in increase in of this Global authorized Principal Amount Principal Amount Note following officer of Date of of this Global of this Global such decrease Trustee or Note Exchange Note Note (or increase) Custodian -------- ---- ---- ------------- ---------
B-2 104 EXHIBIT C Guarantee Each of the Subsidiary Guarantors, if any, hereby, jointly and severally, unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (a) the principal of and premium and interest on the Notes shall be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on premium and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder shall be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same shall be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason and the Subsidiary Guarantors shall be jointly and severally obligated to pay the same immediately. The obligations of the Subsidiary Guarantors to the Holders of Notes and to the Trustee pursuant to this Guarantee and the Indenture (including the subordination provisions thereof) are expressly set forth in Article 11 of the Indenture, and reference is hereby made to such Indenture for the precise terms of this Guarantee. The terms of Article 11 of the Indenture are incorporated herein by reference. This is a continuing Guarantee and shall remain in full force and effect and shall be binding upon each of the Subsidiary Guarantors and its respective successors and assigns to the extent set forth in the Indenture until full and final payment of all of the Company's Obligations under the Notes and the Indenture and shall inure to the benefit of the Trustee and the Holders of Notes and their successors and assigns and, in the event of any transfer or assignment of rights by any Holder of Notes or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. Notwithstanding the foregoing, any Subsidiary Guarantor that satisfies the provisions of Section 11.4 of the Indenture shall be released of its obligations hereunder. This is a Guarantee of payment and not a guarantee of collection. This Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Note upon C-1 105 which this Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. For purposes hereof, each Subsidiary Guarantor's liability will be that amount from time to time equal to the aggregate liability of such Subsidiary Guarantor hereunder but shall be limited to the lesser of (i) the aggregate amount of the obligations of the Company under the Notes and the Indenture and (ii) the amount, if any, which would not have (A) rendered such Subsidiary Guarantor "insolvent" (as such term is defined in the federal Bankruptcy Law and in the Debtor and Creditor law of the State of New York) or (B) left it with unreasonably small capital at the time its Guarantee of the Notes was entered into, after giving effect to the incurrence of existing Indebtedness immediately prior to such time; provided that, it shall be a presumption in any lawsuit or other proceeding in which such Subsidiary Guarantor is a party that the amount guaranteed pursuant to its Guarantee is the amount set forth in clause (i) above unless any creditor, or representative of creditors of such Subsidiary Guarantor, or debtor in possession or trustee in bankruptcy of such Subsidiary Guarantor, otherwise proves in such a lawsuit that the aggregate liability of such Subsidiary Guarantor is limited to the amount set forth in clause (ii). The Indenture provides that, in making any determination as to the solvency or sufficiency of capital of a Subsidiary Guarantor in accordance with the previous sentence, the right of such Subsidiary Guarantor to contribution from other Subsidiary Guarantors and any other rights such Subsidiary Guarantor may have, contractual or otherwise, shall be taken into account. Capitalized terms used herein have the same meanings given in the Indenture unless otherwise indicated. LOMAK OPERATING COMPANY, a Texas corporation By:_____________________________________ Name:___________________________________ Title:__________________________________ LOMAK PRODUCTION COMPANY By:_____________________________________ Name:___________________________________ Title:__________________________________ C-2 106 LOMAK RESOURCES COMPANY By:_____________________________________ Name:___________________________________ Title:__________________________________ BUFFALO OILFIELD SERVICES, INC. By:_____________________________________ Name:___________________________________ Title:__________________________________ LOMAK ENERGY SERVICES COMPANY By:_____________________________________ Name:___________________________________ Title:__________________________________ LOMAK ENERGY COMPANY By:_____________________________________ Name:___________________________________ Title:__________________________________ LPI ACQUISITION, INC. By:_____________________________________ Name:___________________________________ Title:__________________________________ LOMAK PRODUCTION I, L.P. By:_____________________________________ Name:___________________________________ Title:__________________________________ C-3 107 LOMAK RESOURCES, L.L.C. By:_____________________________________ Name:___________________________________ Title:__________________________________ LOMAK OFFSHORE I, L.P. By:_____________________________________ Name:___________________________________ Title:__________________________________ LOMAK PIPELINE SYSTEMS, L.P. By:_____________________________________ Name:___________________________________ Title:__________________________________ LOMAK GATHERING & PROCESSING COMPANY By:_____________________________________ Name:___________________________________ Title:__________________________________ LOMAK GAS COMPANY By:_____________________________________ Name:___________________________________ Title:__________________________________ C-4 108 Draft - 2/11/97 ================================================================================ LOMAK PETROLEUM, INC. As Issuer 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 I,L.P. LOMAK PIPELINE SYSTEMS, L.P. LOMAK GATHERING & PROCESSING COMPANY LOMAK GAS COMPANY As Guarantors ____% SENIOR SUBORDINATED NOTES DUE 2007 ------------------ INDENTURE Dated as of ____________, 1997 ------------------ ------------------ FLEET NATIONAL BANK As Trustee ------------------ 109 ================================================================================ 110
CROSS-REFERENCE TABLE* Trust Indenture Indenture Act Section Section 310 (a)(1).................................................................................... 7.10 (a)(2).................................................................................... 7.10 (a)(3).................................................................................... N.A. (a)(4).................................................................................... N.A. (a)(5).................................................................................... 7.10 (b)....................................................................................... 7.10 (c)....................................................................................... N.A. 311 (a)....................................................................................... 7.11 (b)....................................................................................... 7.11 (c)....................................................................................... N.A. 312 (a)....................................................................................... 2.5 (b)....................................................................................... 12.3 (c)....................................................................................... 12.3 313 (a)....................................................................................... 7.6 (b)(1).................................................................................... N.A. (b)(2).................................................................................... 7.7 (c)....................................................................................... 7.6; 12.2 (d)....................................................................................... 7.6 314 (a)....................................................................................... 4.3; 12.2 (b)....................................................................................... N.A. (c)(1).................................................................................... 12.4 (c)(2).................................................................................... 12.4 (c)(3).................................................................................... N.A. (d)....................................................................................... 10.3-10.5 (e)....................................................................................... 12.5 (f)....................................................................................... N.A. 315 (a)....................................................................................... 7.1 (b)....................................................................................... 7.5; 12.2 (c)....................................................................................... 7.1 (d)....................................................................................... 7.1 (e)....................................................................................... 6.11 316 (a)(last sentence)........................................................................ 2.9 (a)(1)(A)..............................................................................6.5 (a)(1)(B)..............................................................................6.4 (a)(2).................................................................................... N.A. (b)....................................................................................... 6.7 (c)....................................................................................... 2.12 317 (a)(1).................................................................................... 6.8 (a)(2).................................................................................... 6.9 (b)....................................................................................... 2.4 318 (a)....................................................................................... 12.1 (b)....................................................................................... N.A. (c)....................................................................................... 12.1 - ------------- N.A. means not applicable. *This Cross-Reference Table is not part of the Indenture.
111 Page TABLE OF CONTENTS
Page ---- ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE...................................................1 Section 1.1. Definitions..................................................................1 Section 1.2. Other Definitions.......................................................... 18 Section 1.3. Incorporation By Reference of Trust Indenture Act.......................................................... 19 Section 1.4. Rules of Construction...................................................... 19 ARTICLE 2 THE NOTES.................................................. 20 Section 2.1. Form and Dating............................................................ 20 Section 2.2. Execution and Authentication............................................... 21 Section 2.3. Registrar and Paying Agent................................................. 21 Section 2.4. Paying Agent to Hold Money in Trust........................................ 22 Section 2.5. Holder Lists............................................................... 22 Section 2.6. Transfer and Exchange...................................................... 22 Section 2.7. Replacement Notes.......................................................... 23 Section 2.8. Outstanding Notes.......................................................... 24 Section 2.9. Treasury Notes............................................................. 24 Section 2.10. CUSIP Number............................................................... 25 Section 2.11. Cancellation............................................................... 25 Section 2.12. Defaulted Interest......................................................... 25 Section 2.13. Book-Entry Provisions for Global Notes..................................... 25 ARTICLE 3 REDEMPTION AND PREPAYMENT.......................................... 27 Section 3.1. Notices to Trustee......................................................... 27 Section 3.2. Selection of Notes to Be Redeemed.......................................... 27 Section 3.3. Notice of Redemption....................................................... 28 Section 3.4. Effect of Notice of Redemption............................................. 29 Section 3.5. Deposit of Redemption Price................................................ 29 Section 3.6. Notes Redeemed in Part..................................................... 29 Section 3.7. Optional Redemption........................................................ 29 Section 3.8. Mandatory Redemption....................................................... 30 Section 3.9. Offer to Purchase By Application of Excess Proceeds..................................................... 30 ARTICLE 4 COVENANTS.................................................. 33 Section 4.1. Payment of Notes........................................................... 33 Section 4.2. Maintenance of Office or Agency............................................ 33 Section 4.3. Reports.................................................................... 34 Section 4.4. Compliance Certificate..................................................... 34 Section 4.5. Taxes...................................................................... 35
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Page ---- Section 4.6. Stay, Extension and Usury Laws............................................. 35 Section 4.7. Restricted Payments........................................................ 35 Section 4.8. Dividend and Other Payment Restrictions Affecting Subsidiaries................................................. 38 Section 4.9. Incurrence of Indebtedness and Issuance of Disqualified Stock......................................... 39 Section 4.10. Asset Sales................................................................ 41 Section 4.11. Transactions with Affiliates............................................... 42 Section 4.12. Liens...................................................................... 43 Section 4.13. Offer to Repurchase Upon Change of Control............................................................. 44 Section 4.14. Additional Subsidiary Guarantees........................................... 45 Section 4.15. Corporate Existence........................................................ 45 Section 4.16. No Senior Subordinated Debt................................................ 46 Section 4.17. Business Activities........................................................ 46 ARTICLE 5 SUCCESSORS.................................................. 46 Section 5.1. Merger, Consolidation, or Sale of Substantially All Assets............................................... 46 Section 5.2. Successor Corporation Substituted.......................................... 47 ARTICLE 6 DEFAULTS AND REMEDIES............................................ 48 Section 6.1. Events of Default.......................................................... 48 Section 6.2. Acceleration............................................................... 50 Section 6.3. Other Remedies............................................................. 51 Section 6.4. Waiver of Past Defaults.................................................... 51 Section 6.5. Control by Majority........................................................ 52 Section 6.6. Limitation on Suits........................................................ 52 Section 6.7. Rights of Holders of Notes to Receive Payment........................................................ 52 Section 6.8. Collection Suit by Trustee................................................. 53 Section 6.9. Trustee May File Proofs of Claim........................................... 53 Section 6.10. Priorities................................................................. 54 Section 6.11. Undertaking for Costs...................................................... 54 ARTICLE 7 TRUSTEE................................................... 54 Section 7.1. Duties of Trustee.......................................................... 54 Section 7.2. Rights of Trustee.......................................................... 56 Section 7.3. Individual Rights of Trustee............................................... 57 Section 7.4. Trustee's Disclaimer....................................................... 57 Section 7.5. Notice of Defaults......................................................... 57 Section 7.6. Reports by Trustee to Holders of the Notes.............................................................. 58 Section 7.7. Compensation and Indemnity................................................. 58 Section 7.8. Replacement of Trustee..................................................... 59 Section 7.9. Successor Trustee by Merger, etc. ......................................... 60
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Page ---- Section 7.10. Eligibility; Disqualification.............................................. 60 Section 7.11. Preferential Collection of Claims Against Company........................................................ 61 ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE................................... 61 Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance................................................. 61 Section 8.2. Legal Defeasance and Discharge............................................. 61 Section 8.3. Covenant Defeasance........................................................ 62 Section 8.4. Conditions to Legal or Covenant Defeasance............................................................. 62 Section 8.5. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions......................................... 64 Section 8.6. Repayment to Company....................................................... 65 Section 8.7. Reinstatement.............................................................. 65 ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER....................................... 65 Section 9.1. Without Consent of Holders of Notes........................................ 65 Section 9.2. With Consent of Holders of Notes........................................... 66 Section 9.3. Compliance with Trust Indenture Act........................................ 68 Section 9.4. Revocation and Effect of Consents.......................................... 68 Section 9.5. Notation on or Exchange of Notes........................................... 68 Section 9.6. Trustee to Sign Amendment, etc. ........................................... 69 ARTICLE 10 SUBORDINATION................................................ 69 Section 10.1. Agreement to Subordinate................................................... 69 Section 10.2. Certain Definitions........................................................ 69 Section 10.3. Liquidation; Dissolution; Bankruptcy....................................... 70 Section 10.4. Default on Designated Senior Debt.......................................... 73 Section 10.5. Acceleration of Notes...................................................... 74 Section 10.6. When Distribution Must Be Paid Over........................................ 74 Section 10.7. Notice by Company.......................................................... 74 Section 10.8. Subrogation................................................................ 75 Section 10.9. Relative Rights............................................................ 75 Section 10.10. Subordination May Not Be Impaired by Company............................................................. 75 Section 10.11. Payment, Distribution or Notice to Representative...................................................... 76 Section 10.12. Rights of Trustee and Paying Agent......................................... 76 Section 10.13. Authorization to Effect Subordination...................................... 76 Section 10.14. Amendments................................................................. 77 Section 10.15. No Waiver of Subordination Provisions...................................... 77
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Page ---- ARTICLE 11 THE GUARANTEES................................................ 77 Section 11.1. The Guarantees............................................................. 77 Section 11.2. Execution and Delivery of Guarantees....................................... 78 Section 11.3. Subsidiary Guarantors May Consolidate, etc., on Certain Terms................................................. 79 Section 11.4. Releases of Guarantees..................................................... 80 Section 11.5. Limitation on Subsidiary Guarantor Liability.............................................................. 81 Section 11.6. "Trustee" to Include Paying Agent.......................................... 81 Section 11.7. Subordination of Guarantees................................................ 82 ARTICLE 12 MISCELLANEOUS................................................ 82 Section 12.1. Trust Indenture Act Controls............................................... 82 Section 12.2. Notices.................................................................... 82 Section 12.3. Communication by Holders of Notes with Other Holders of Notes................................................. 83 Section 12.4. Certificate and Opinion as to Conditions Precedent................................................... 83 Section 12.5. Statements Required in Certificate or Opinion............................................................. 84 Section 12.6. Rules by Trustee and Agents................................................ 84 Section 12.7. No Personal Liability of Directors, Officers, Employees and Stockholders................................... 85 Section 12.8. Governing Law.............................................................. 85 Section 12.9. No Adverse Interpretation of Other Agreements............................................................. 85 Section 12.10. Successors................................................................. 85 Section 12.11. Severability............................................................... 85 Section 12.12. Counterpart Originals...................................................... 85 Section 12.13. Table of Contents, Headings, Etc. ......................................... 85
EXHIBITS Exhibit A FORM OF NOTE Exhibit B FORM OF LEGEND FOR GLOBAL NOTE Exhibit C FORM OF GUARANTEE -iv-

1 Exhibit 4.4(h) CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF LOMAK PETROLEUM, INC. (Pursuant to Section 242 of the Delaware General Corporation Law) Lomak Petroleum, Inc., a Delaware corporation (the "Corporation"), DOES HEREBY CERTIFY: FIRST: The name of the Corporation is Lomak Petroleum, Inc. SECOND: The amendment to the Certificate of Incorporation of the Corporation effected by this certificate shall provide: that the number of authorized shares of the Corporations Common Stock be increased from 20 million shares to 35 million shares; and that the number of authorized shares of the Corporation's Preferred Stock be increased from 2 million shares to 4 million shares. THIRD: To accomplish the foregoing amendment, the present Article FOURTH is hereby amended to begin as follows: "FOURTH. The total number of shares of all classes of stock which the Corporation shall have authority to issue is 39 million shares, divided into classes as follows: 35 million Common shares having a par value of $.01 per share; and 4 million Preferred shares having a par value of $1.00 per share. FOURTH: The remainder of Article FOURTH shall remain unchanged. FIFTH: The above amendment to the Certiciate of Incorporation of the Corporation was duly adopted by unanimous approval of the Board of Directors of the Corporation and has 2 been duly approved by the stockholders owning more than a majority of the Corporation's outstanding shares of stock entitled to vote in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said Lomak Petroleum, Inc. has caused this Certificate to be signed by Jeffrey A. Bynum, its Vice President - Land and Corporate Secretary, and attested by Amy L. Laubscher, its Assistant Secretary, as of the 24th day of May, 1996. LOMAK PETROLEUM, INC. By: /s/ Jeffery A. Bynum ---------------------------------- Jeffery A. Bynum Vice President - Land and Corporate Secretary ATTEST: By: /s/ Amy L. Laubscher ---------------------------------- Amy L. Laubscher Assistant Secretary

1 Exhibit 4.4(i) CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION OF LOMAK PETROLEUM, INC. ---------- (Pursuant to Section 242 of the Delaware General Corporation Law) ---------- LOMAK PETROLEUM, INC., A Delaware Corporation (the "Corporation"), DOES HEREBY CERTIFY: FIRST: The name of the Corporation is LOMAK PETROLEUM, INC. SECOND: The amendment to the Certificate of Incorporation of the Corporation effected by this certificate shall provide for addition of a new Article VIII to such Certificate of Incorporation which shall read as follows: ARTICLE VIII 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 the 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. THIRD: The above amendment to the Certificate was duly adopted by the unanimous written consent of the Board of Directors of the Corporation and has been duly 2 approved by the stockholders of the Corporation at the annual meeting of stockholders of the Corporation held on May 25, 1994 by ninety-eight point sixty-three percent (98.63%) of the outstanding shares of the Corporation's capital stock entitled to vote in accordance with the Certificate and the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, Lomak petroleum, Inc. has caused this certificate to be signed by Jeffery A. Bynum, its Vice President - Land and Corporate Secretary, and attested to by Amy L. Laubscher, its Assistant Secretary, as of the 2nd day of October 1996. LOMAK PETROLEUM INC. By: /s/ Jeffery A. Bynum ------------------------- Jeffery A. Bynum Vice President - Land and Corporate Secretary ATTEST: By: /s/ Amy L. Laubscher --------------------- Amy L. Laubscher Assistant Secretary

1 EXHIBIT 12.1 LOMAK PETROLEUM, INC. COMPUTATIONS OF RATIOS (In thousands)
Year Ended December 31, ------------------------------------------------------------ Pro Forma 1992 1993 1994 1995 1996 1996 ------- ------- ------- ------- --------- --------- EBITDA: Net income.................... $ 686 $ 1,391 $ 2,619 $ 4,390 $12,615 $ 18,931 Taxes......................... 192 (81) 139 1,782 6,834 10,194 Exploration expense........... 36 86 359 512 1,460 1,460 Interest expense.............. 952 1,120 2,807 5,584 7,487 29,104 Depletion, depreciation and amortization................ 3,124 4,347 10,105 14,863 22,303 44,389 ------- ------- ------- ------- ------- -------- EBITDA...................... 4,990 6,863 16,029 27,131 50,699 104,078 EBITDA to Interest Expense...... 5.2x 6.1x 5.7x 4.9x 6.8x 3.6x Earnings: Income before taxes........... 878 1,310 2,758 6,172 19,449 29,125 Interest expense.............. 952 1,120 2,807 5,584 7,487 29,104 ------- ------- ------- ------- ------- -------- Earnings.................... 1,830 2,430 5,565 11,756 26,936 58,229 Fixed charges: Interest expense.............. 952 1,120 2,807 5,584 7,487 29,104 Earnings to fixed charges....... 1.9x 2.2x 2.0x 2.1x 3.6x 2.0x Total Debt...................... 13,127 31,108 62,592 83,088 116,806 309,106 Total Debt to EBITDA............ 2.6x 4.5x 3.9x 3.1x 2.3x 3.7x

1 Exhibit 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports (and to all references to our firm), included in, or incorporated by reference, in this registration statement. Arthur Andersen LLP Cleveland, Ohio, February 14, 1997.

1 Exhibit 23.4 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We consent to the inclusion in this Registration Statement on Form S-3 of our report dated February 7, 1997, on our audits of the statements of revenues and direct operating expenses of the American Cometra Interests, for the years ended December 31, 1994, 1995 and 1996. We also consent to the reference to our firm under the caption "Experts". /s/ Coopers & Lybrand L.L.P COOPERS & LYBRAND L.L.P Fort Worth, Texas February 14, 1997

1 Exhibit 25.1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM T-1 ---------- STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ---------- / / CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) FLEET NATIONAL BANK --------------------------------------------------------- (Exact name of trustee as specified in its charter) Not applicable 04-317415 - ------------------------------- ----------------------------- (State of incorporation (I.R.S. Employer if not a national bank) Identification No.) One Monarch Place, Springfield, MA 01102 - ---------------------------------------- ----------------------------- (Address of principal executive offices) (Zip Code)

Pat Beaudry, 777 Main Street, Hartford, CT 06115 (203) 728-2065 -------------------------------------------------------------- (Name, address and telephone number of agent for service) LOMAK PETROLEUM, INC. LOMAK OPERATING COMPANY LOMAK PRODUCTION COMPANY LOMAK RESOURCES COMPANY BUFFALO OILFIELD SERVICES, INC. LOMAK ENERGY SERVICES COMPANY LOMAK GATHERING & PROCESSING COMPANY LOMAK PIPELINE SYSTEMS, L.P. LOMAK GAS COMPANY LOMAK ENERGY COMPANY LPI ACQUISITION, INC. LOMAK PRODUCTION I, L.P. LOMAK RESOURCES, L.L.C. LOMAK OFFSHORE, L.P. LPI OPERATING COMPANY --------------------------------------------------- (Exact names of obligors 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 (I.R.S. Employer incorporation or organization) Identification No.) 500 Throckmorton Street, Forth Worth, Texas 76102 - ---------------------------------------- ----------------------------- (Address of principal executive offices) (Zip Code)

Senior Subordinated Notes Due 2007 ------------------------------------------------------------------ (Title of the indenture securities) 2 Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject, The Comptroller of the Currency, Washington, D.C. Federal Reserve Bank of Boston Boston, Massachusetts Federal Deposit Insurance Corporation Washington, D.C. (b) Whether it is authorized to exercise corporate trust powers: The trustee is so authorized. Item 2. Affiliations with obligor and underwriter. If the obligor or any underwriter for the obligor is an affiliate of the trustee, describe each such affiliation. None with respect to the trustee. Item 16. List of exhibits. List below all exhibits filed as a part of this statement of eligibility and qualification. (1) A copy of the Articles of Association of the trustee as now in effect. (2) A copy of the Certificate of Authority of the trustee to do business. (3) A copy of the Certification of Fiduciary Powers of the trustee. (4) A copy of the By-Laws of the trustee as now in effect. (5) Consent of the trustee required by Section 321(b) of the Act. (6) A copy of the latest Consolidated Reports of Condition and Income of the trustee published pursuant to law or the requirements of its supervising or examining authority. NOTES In as much as this Form T-1 is filed prior to the ascertainment by the trustee of all facts on which to base answers to Item 2, the answers to said Items are based upon imcomplete information. Said Items may, however, be considered correct unless amended by an amendment to this Form T-1. 3 SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, Fleet National Bank, a national banking association organized and existing under the laws of the United States, has duly caused this statement of of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Hartford, and State of Connecticut, on the 11th day of February, 1997. FLEET NATIONAL BANK, AS TRUSTEE By: /s/ Elizabeth C. Hammer ------------------------- 4 EXHIBIT 1 ARTICLES OF ASSOCIATION OF FLEET NATIONAL BANK FIRST. The title of this Association, which shall carry on the business of banking under the laws of the United States, shall be "Fleet National Bank." SECOND. The main office of the Association shall be in Springfield, Hampden County Commonwealth of Massachusetts. The general business of the Association shall be conducted at its main office and its branches. THIRD. The board of directors of this Association shall consist of not less than five (5) nor more than twenty-five (25) shareholders, the exact number of directors within such minimum and maximum limits to be fixed and determined from time to time by resolution of a majority of the full board of directors or by resolution of the shareholders at any annual or special meeting thereof. Unless otherwise provided by the laws of the United States, any vacancy in the board of directors for any reason, including an increase in the number thereof, may be filled by action of the board of directors. FOURTH. The annual meeting of the shareholders for the election of directors and the transaction of whatever other business may be brought before said meeting shall be held at the main office or such other place as the board of directors may designate, on the day of each year specified therefore in the bylaws, but if no election is held on that day, it may be held on any subsequent day according to the provisions of law; and all elections shall be held according to such lawful regulations as may be prescribed by the board of directors. FIFTH. The authorized amount of capital stock of this Association shall be eight million five hundred thousand (8,500,000) shares of which three million five hundred thousand (3,500,000) shares shall be common stock with a par value of six and 25/100 dollars ($6.25) each, and of which five million (5,000,000) shares without par value shall be preferred stock. The capital stock may be increased or decreased from time to time, in accordance with the provisions of the laws of the United States. No holder of shares of the capital stock of any class of the Association shall have any pre-emptive or preferential right of subscription to any shares of any class of stock of the Association, whether now or hereafter authorized, or to any obligations convertible into stock of the Association, issued or sold, nor any right of subscription to any thereof other than such, if any, as the board of directors, in its discretion, may from time to time determine and at such price as the board of directors may from time to time fix. 5 The board of directors of the Association is authorized, subject to limitations prescribed by law and the provisions of this Article, to provide for the issuance from time to time in one or more series of any number of the preferred shares, and to establish the number of shares be included in each series, and to fix the designation, relative rights, preferences, qualifications and limitations of the shares of each such series. The authority of the board of directors with respect to each series shall include, but not be limited to, determination of the following: a. The number of shares constituting that series and the distinctive designation of that series; b. The dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and whether they shall be payable in preference to, or in another relation to, the dividends payable to any other class or classes or series of stock; c. Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; d. Whether that series shall have conversion or exchange privileges, and, if so, the terms and conditions of such conversion or exchange, including provision for the adjustment of the conversion or exchange rate in such events as the board of directors shall determine; e. Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the manner of selecting shares for redemption if less than all shares are to be redeemed, the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; f. Whether that series shall be entitled to the benefit of a sinking fund to be applied to the purchase or redemption of shares of that series, and, if so, the terms and amounts of such sinking fund; g. The right of the shares of that series to the benefit of conditions and restrictions upon the creation of indebtedness of the Association or any subsidiary, upon the issue of any additional stock (including additional shares of such series or of any other series) and upon the payment of dividends or the making of other distributions on, and the purchase, redemption or other acquisition by the Association or any subsidiary of any outstanding stock of the Association; h. The right of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Association and whether such rights shall be in preference to, or in another relation to, the comparable rights of any other class or classes or series of stock; and i. Any other relative, participating, optional or other special rights, qualifications, limitations or restrictions of that series. Shares of any series of preferred stock which have been redeemed (whether through the operation of a sinking fund or otherwise) or which, if convertible or exchangeable, have been converted into or exchanged for shares of stock of any other class or classes shall have the status of authorized and unissued shares of preferred stock of the same series and may be reissued as a part of the series of which they were originally a part or may be reclassified and reissued as part of a new series of preferred stock to be created by resolution or resolutions of the board of directors or as part of any other series or preferred stock, all subject to the conditions and the restrictions adopted by the board of directors providing for the issue of any series of preferred stock and by the provisions of any applicable law. Subject to the provisions of any applicable law, or except as otherwise provided by the resolution or resolutions providing for the issue of any series of preferred stock, the holders of outstanding shares of common stock shall exclusively possess voting power for the election of directors and for all purposes, each holder of record of shares of common stock being entitled to one vote for each share of common stock standing in his name on the books of the Association. Except as otherwise provided by the resolution or resolutions providing for the issue of any series of preferred stock, after payment shall have been made to the holders of preferred stock of the full amount of dividends to which they shall be entitled pursuant to the resolution or resolutions providing for the issue of any other series of preferred stock, the holders of common stock shall be entitled, to the exclusion of the holders of preferred stock of any and all series, to receive such dividends as from time to time may be declared by the board of directors. Except as otherwise provided by the resolution or resolutions for the issue of any series of preferred stock, in the event of any liquidation, dissolution or winding up of the Association, whether voluntary or involuntary, after payment shall have been made to the holders of preferred stock of the full amount to which they shall be entitled pursuant to the resolution or resolutions providing for the issue of any series of preferred stock the holders of common stock shall be entitled, to the exclusion of the holders of preferred stock of any and all series, to share, ratable according to the number of shares of common stock held by them, in all remaining assets of the Association available for distribution to its shareholders. The number of authorized shares of any class may be increased or decreased by the affirmative vote of the holders of a majority of the stock of the Association entitled to vote. 6 SIXTH. The board of directors shall appoint one of its members president of this Association, who shall be chairman of the board, unless the board appoints another director to be the chairman. The board of directors shall have the power to appoint one or more vice presidents; and to appoint a secretary and such other officers and employees as may be required to transact the business of this Association. The board of directors shall have the power to define the duties of the officers and employees of the Association; to fix the salaries to be paid to them; to dismiss them; to require bonds from them and to fix the penalty thereof; to regulate the manner in which any increase of the capital of the Association shall be made; to manage and administer the business and affairs of the Association; to make all bylaws that it may be lawful for them to make; and generally to do and perform all acts that it may be legal for a board of directors to do and perform. SEVENTH. The board of directors shall have the power to change the location of the main office to any other place within the limits of the City of Hartford, Connecticut, without the approval of the shareholders but subject to the approval of the Comptroller of the Currency; and shall have the power to establish or change the location of any branch or branches of the Association to any other location, without the approval of the shareholders but subject to the approval of the Comptroller of the Currency. EIGHTH. The corporate existence of this Association shall continue until terminated in accordance with the laws of the United States. NINTH. The board of directors of this Association, or any three or more shareholders owning, in the aggregate, not less than ten percent (10%) of the stock of this Association, may call a special meeting of shareholders at any time. Unless otherwise provided by the laws of the United States, a notice of the time, place and purpose of every annual and special meeting of the shareholders shall be given by first class mail, postage prepaid, mailed at least ten (10) days prior to the date of such meeting to each shareholder of record at his address as shown upon the books of this Association. TENTH. (a) Right to Indemnification. Each person who was or is made 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 (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director, officer or employee of the Association or is or was serving at the request of the Association as a director, officer, employee or agent of another corporation or of a partnership, joint venture, limited liability company, trust, or other enterprise, including service with respect to an employee benefit plan, shall be indemnified and held harmless by the Association to the fullest extent authorized by the law of the state in which the Association's ultimate parent company is incorporated, except as provided in subsection (b). The aforesaid indemnity shall protect the indemnified person against all expense, liability and loss (including attorney's fees, judgements, fines ERISA excise taxes or penalties, and amounts paid in settlement) reasonably incurred by such person in connection with such a proceeding. Such indemnification shall continue as to a person who has ceased to be a director, officer or employee and shall inure to the benefit of his or her heirs, executors, and administrators, but shall only cover such person's period of service with the Association. The Association may, by action of its Board of Directors, grant rights to indemnification to agents of the Association and to any director, officer, employee or agent of any of its subsidiaries with the same scope and effect as the foregoing indemnification of directors and officers. (b) Restrictions on Indemnification. Notwithstanding the foregoing, (i) no person shall be indemnified hereunder by the Association against expenses, penalties, or other payments incurred in an administrative proceeding or action instituted by a federal bank regulatory agency which proceeding or action results in a final order assessing civil money penalties against that person, requiring affirmative action by that person in the form of payments to the Association, or removing or prohibiting that person from service with the Association, and any advancement of expenses to that person in that proceeding must be repaid; and (ii) no person shall be indemnified hereunder by the Association and no advancement of expenses shall be made to any person hereunder to the extent such indemnification or advancement of expenses would violate or conflict with any applicable federal statute now or hereafter in force or any applicable final regulation or interpretation now or hereafter adopted by the Office of the Comptroller of the Currency ("OCC") or the Federal Deposit Insurance Corporation ("FDIC"). The Association shall comply with any requirements imposed on it by any such statue or regulation in connection with any indemnification or advancement of expenses hereunder by the Association. With respect to proceedings to enforce a claimant's rights to indemnification, the Association shall indemnify any such claimant in connection with such a proceeding only as provided in subsection (d) hereof. (c) Advancement of Expenses. The conditional right to indemnification conferred in this section shall be a contract right and shall include the right to be paid by the Association the reasonable expenses (including attorney's fees) incurred in defending a proceeding in advance of its final disposition (an "advancement of expenses"); provided, however, that an advancement of expenses shall be made only upon (i) delivery to the Association of a binding written undertaking by or on behalf of the person receiving the advancement to repay all amounts so advanced if it is ultimately determined that such person is not entitled to be indemnified in such proceeding, including if such proceeding results in a final order assessing civil money penalties against that person, requiring affirmative action by that person in the form of payments to the Association, or removing or prohibiting that person from service with the Association, and (ii) compliance with any other actions or determinations required by applicable law, regulation or OCC or FDIC interpretation to be taken or made by the Board of Directors of the Association 7 or other persons prior to an advancement of expenses. The Association shall cease advancing expenses at any time its Board of Directors believes that any of the prerequisites for advancement of expenses are no longer being met. (d) Right of Claimant to Bring Suit. If a claim under subsection (a) of the section is not paid in full by the Association within thirty (30) days after written claim has been received by the Association, the claimant may at any time thereafter bring suit against the Association to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Association to recover an advancement of expenses pursuant to the terms of an undertaking, the claimant shall be entitled to be paid also the expense of prosecuting or defending such claim. It shall be a defense to any such action brought by the claimant to enforce a right to indemnification hereunder (other than an action brought to enforce a claim for an advancement of expenses where the required undertaking, if any, has been tendered to the Association) that the claimant has not met any applicable standard for indemnification under the law of the state in which the Association's ultimate parent company is incorporated. In any suit brought by the Association to recover an advancement of expenses pursuant to the terms of an undertaking, the Association shall be entitled to recover such expenses upon a final adjudication that the claimant has not met any applicable standard for indemnification standard for indemnification under the law of the state in which the Association's ultimate parent company is incorporated. (e) Non-Exclusivity of Rights. The rights to indemnification and the advancement of expenses conferred in this section shall not be exclusive of any other right which any person may have or hereafter acquired under any statute, agreement, vote of stockholders or disinterested directors or otherwise. (f) Insurance. The Association may purchase, maintain, and make payment or reimbursement for reasonable premiums on, insurance to protect itself and any director, officer, employee or agent of the Association or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Association would have the power to indemnify such person against such expense, liability or loss under the law of the state in which the Association's ultimate parent company is incorporated; provided however, that such insurance shall explicitly exclude insurance coverage for a final order of a federal bank regulatory agency assessing civil money penalties against an Association director, officer, employee or agent. ELEVENTH. These articles of association may be amended at any regular or special meeting of the shareholders by the affirmative vote of the holders of a majority of the stock of this Association, unless the vote of the holders of greater amount of stock is required by law, and in that case by the vote of the holders of such greater amount. The notice of any shareholders' meeting at which an amendment to the articles of association of this Association is to be considered shall be given as hereinabove set forth. I hereby certify that the articles of association of this Association, in their entirety, are listed above in items first through eleventh. Secretary/Assistant Secretary - -------------------------------------------------- Dated at , as of . --------------------------------------- -------------------- Revision of February 15, 1996 8 EXHIBIT 2 [LOGO] - -------------------------------------------------------------------------------- COMPTROLLER OF THE CURRENCY ADMINISTRATOR OF NATIONAL BANKS - -------------------------------------------------------------------------------- Washington, D.C. 20219 CERTIFICATE I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify that: (1) The Comptroller of the Currency, pursuant to Revised Statutes 324, et seq., as amended, 12 U.S.C. 1, et seq., as amended, has possession, custody and control of all records pertaining to the chartering, regulation and supervision of all National Banking Associations. (2) "Fleet National Bank", (Charter No. 1338), is a National Banking Association formed under the laws of the United States and is authorized thereunder to transact the business of banking on the date of this Certificate. IN TESTIMONY WHEREOF, I have hereunto subscribed my name and caused my seal of office to be affixed to these presents at the Treasury Department, in the City of Washington and District of Columbia, this 3rd day of October, 1996. /s/ EUGENE A. LUDWIG ---------------------------------- Comptroller of the Currency 9 EXHIBIT 2 [LOGO] - -------------------------------------------------------------------------------- COMPTROLLER OF THE CURRENCY ADMINISTRATOR OF NATIONAL BANKS - -------------------------------------------------------------------------------- Washington, D.C. 20219 Certification of Fiduciary Powers I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify the records in this Office evidence "Fleet National Bank", (Charter No. 1338), was granted, under the hand and seal of the Comptroller, the right to act in all fiduciary capacities authorized under the provisions of The Act of Congress approved September 28, 1962, 76 Stat. 668, 12 U.S.C. 92a. I further certify the authority so granted remains in full force and effect. IN TESTIMONY WHEREOF, I have hereunto subscribed my name and caused my seal of Office of the Comptroller of the Currency to be affixed to these presents at the Treasury Department, in the City of Washington and District of Columbia, this 3rd day of October, 1996. /s/ EUGENE A. LUDWIG ---------------------------------- Comptroller of the Currency 10 EXHIBIT 4 AMENDED AND RESTATED BY-LAWS OF FLEET NATIONAL BANK ARTICLE I MEETINGS OF SHAREHOLDERS Section 1. Annual Meeting. The regular annual meeting of the shareholders for the election of Directors and the transaction of any other business that may properly come before the meeting shall be held at the Main Office of the Association, or such other place as the Board of Directors may designate, on the fourth Thursday of April in each year at 1:15 o'clock in the afternoon unless some other hour of such day is fixed by the Board of Directors. If, from any cause, an election of Directors is not made on such day, the Board of Directors shall order the election to be held on some subsequent day, of which special notice shall be given in accordance with the provisions of law, and of these bylaws. Section 2. Special Meetings. Special meetings of the shareholders may be called at any time by the Board of Directors, the President, or any shareholders owning not less than twenty-five percent (25%) of the stock of the Association. Section 3. Notice of Meetings of Shareholders. Except as otherwise provided by law, notice of the time and place of annual or special meetings of the shareholders shall be mailed, postage prepaid, at least ten (10) days before the date of the meeting to each shareholder of record entitled to vote thereat at his address as shown upon the books of the Association; but any failure to mail such notice to any shareholder or any irregularity therein, shall not affect the validity of such meeting or of any of the proceedings thereat. Notice of a special meeting shall also state the purpose of the meeting. Section 4. Quorum; Adjourned Meetings. Unless otherwise provided by law, a quorum for the transaction of business at every meeting of the shareholders shall consist of not less than two-fifths (2/5) of the outstanding capital stock represented in person or by proxy; less than such quorum may adjourn the meeting to a future time. No notice need be given of an adjourned annual or special meeting of the shareholders if the adjournment be to a definite place and time. Section 5. Votes and Proxies. At every meeting of the shareholders, each share of the capital stock shall be entitled to one vote except as otherwise provided by law. A majority of the votes cast shall decide every question or matter submitted to the shareholder at any meeting, unless otherwise provided by law or by the Articles of Association or these By-laws. Share- holders may vote by proxies duly authorized in writing and filed with the Cashier, but no officer, clerk, teller or bookeeper of the Association may act as a proxy. 11 Section 6. Nominations to Board of Directors. At any meeting of shareholders held for the election of Directors, nominations for election to the Board of Directors may be made, subject to the provisions of this section, by any share- holder of record of any outstanding class of stock of the Association entitled to vote for the election of Directors. No person other than those whose names are stated as proposed nominees in the proxy statement accompanying the notice of the meeting may be nominated as such meeting unless a shareholder shall have given to the President of the Association and to the Comptroller of the Currency, Washington, DC written notice of intention to nominate such other person mailed by certified mail or delivered not less than fourteen (14) days nor more than fifty (50) days prior to the meeting of shareholders at which such nomination is to be made; provided, however, that if less than twenty-one (21) days' notice of such meeting is given to shareholders, such notice of intention to nominate shall be mailed by certified mail or delivered to said President and said Comptroller on or before the seventh day following the day on which the notice of such meeting was mailed. Such notice of intention to nominate shall contain the following information to the extent known to the notifying shareholder: (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the total number of shares of capital stock of the Association that will be voted for each proposed nominee; (d) the name and residence address of the notifying shareholder; and (e) the number of shares of capital stock of the Association owned by the notifying shareholder. In the event such notice is given, the proposed nominee may be nominated either by the shareholder giving such notice or by any other shareholder present at the meeting at which such nomination is to be made. Such notice may contain the names of more than one proposed nominee, and if more than one is named, any one or more of those named may be nominated. Section 7. Action Taken Without a Shareholder Meeting. Any action requiring shareholder approval or consent may be taken without a meeting and without notice of such meeting by written consent of the shareholders. ARTICLE II DIRECTORS Section 1. Number. The Board of Directors shall consist of such number of shareholders, not less than five (5) nor more than twenty-five (25), as from time to time shall be determined by a majority of the votes to which all of its shareholders are at the time entitled, or by the Board of Directors as hereinafter provided. Section 2. Mandatory Retirement for Directors. No person shall be elected a director who has attained the age of 68 and no person shall continue to serve as a director after the date of the first meeting of the stockholders of the Association held on or after the date on which such person attains the age of 68; provided, however, that any director serving on the Board as of December 15, 1995 who has attanined the age of 65 on or prior to such date shall be permitted to continue to serve as a director until the date of the first meeting of the stockholders of the Association held on or after the date on which such person attains the age of 70. -2- 12 Section 3. General Powers. The Board of Directors shall exercise all the coporate powers of the Association, except as expressly limited by law, and shall have the control, management, direction and dispositon of all its property and affairs. Section 4. Annual Meeting. Immediately following a meeting of shareholders held for the election of Directors, the Cashier shall notify the directors- elect who may be present of their election and they shall then hold a meeting at the Main Office of the Association, or such other place as the Board of Directors may designate, for the purpose of taking their oaths, organizing the new Board, electing officers and transacting any other business that may come before such meeting. Section 5. Regular Meeting. Regular meetings of the Board of Directors shall be held without notice at the Main Office of the Association, or such other place as the Board of Directors may designate, at such dates and times as the Board shall determine. If the day designated for a regular meeting falls on a legal holiday, the meeting shall be held on the next business day. Section 6. Special Meetings. A special meeting of the Board of Directors may be called at anytime upon the written request of the Chairman of the Board, the President, or of two Directors, stating the purpose of the meeting. Notice of the time and place shall be given not later than the day before the date of the meeting, by mailing a notice to each Director at his last known address, by delivering such notice to him personally, or by telephoning. Section 7. Quorum; Votes. A majority of the Board of Directors at the time holding office shall constitute a quorum for the transaction of all business, except when otherwise provided by law, but less than a quorum may adjourn a meeting from time to time, and the meeting may be held, as adjourned, without further notice. If a quorum is present when a vote is taken, the affirmative vote of a majority of Directors present is the act of the Board of Directors. Section 8. Action by Directors Without a Meeting. Any action requiring Director approval or consent may be taken without a meeting and without notice of such meeting by written consent of all the Directors. Section 9. Telephonic Participation in Directors' Meetings. A Director or member of a Committee of the Board of Directors may participate in a meeting of the Board or of such Committee may participate in a meeting of the Board or of such Committee by means of a conference telephone or similar communications equipment enabling all Directors participating in the meeting to hear one another, and participation in such a meeting shall constitute presence in person at such a meeting. Section 10. Vacancies. Vacancies in the Board of Directors may be filled by the remaining members of the Board at any regular or special meeting of the Board. Section 11. Interim Appointments. The Board of Directors shall, if the share- holders at any meeting for the election of Directors have determined a number of Directors less than twenty-five (25), have the power, by affirmative vote of the majority of all the Directors, to increase such number of Directors to not more than twenty-five (25) and to elect Directors to fill the resulting vacancies and to serve until the next annual meeting of shareholders or the next election of Directors; provided, however, that the number of Directors shall not be so increased by more than two (2) if the number last determined by shareholders was fifteen (15) or less, or increased by more than four (4) if the number last determined by shareholders was sixteen (16) or more. Section 12. Fees. The Board of Directors shall fix the amount and direct the payment of fees which shall be paid to each Director for attendance at any meeting of the Board of Directors or of any Committees of the Board. ARTICLE III COMMITTEES OF THE BOARD Section 1. Executive Committee. The Board of Directors shall appoint from its members an Executive Committee which shall consist of such number of persons as the Board of Directors shall determine; the Chairman of the Board and the President shall be members ex-officio of the Executive Committee with full voting power. The Chairman of the Board or the President may from time to time appoint from the Board of Directors as temporary additional members of the Executive Committee, with full voting powers, not more than two members to serve for such periods as the Chairman of the Board or the President may determine. The Board of Directors shall designate a member of the Executive Committee to serve as Chairman thereof. A meeting of the Executive Committee may be called at any time upon the written request of the Chairman of the Board, the President or the Chairman of the Executive Committee, stating the purpose of the meeting. Not less than twenty four hours' notice of said meeting shall be given to each member of the Committee personally, by telephoning, or by mail. The Chairman of the Executive Committee or, in his absence, a member of the Committee chosen by a majority of the members present shall preside at meetings of the Executive Committee. -3- 13 The Executive Committee shall possess and may exercise all the powers of the Board when the Board is not in session except such as the Board, only, by law, is authorized to exercise; it shall keep minutes of its acts and proceedings and cause same to be presented and reported at every regular meeting and at any special meeting of the Board including specifically, all its actions relating to loans and discounts. All acts done and powers and authority conferred by the Executive Committee, from time to time, within the scope of its authority, shall be deemed to be, and may be certified as being, the acts of and under the authority of the Board. Section 2. Risk Management Committee. The Board shall appoint from its members a Risk Management Committee which shall consist of such number as the Board shall determine. The Board shall designate a member of the Risk Management Committee to serve as Chairman thereof. It shall be the duty of the Risk Management Committee to (a) serve as the channel of communication with management and the Board of Directors of Fleet Financial Group, Inc. to assure that formal processes supported by management information systems are in place for the identification, evaluation and management of significant risks inherent in or associated with lending activities, the loan portfolio, asset-liablity management, the investment portfolio, trust and investment advisory activities, the sale of nondeposit investment products and new products and services and such additional activities or functions as the Board may determine from time to time; (b) assure the formulation and adoption of policies approved by the Risk Management Committee or Board governing lending activities, management of the loan portfolio, the maintenance of an adequate allowance for loan and lease losses, asset-liability management, the investment portfolio, the retail sale of non-deposit investment products, new products and services and such additional activities or functions as the Board may determine from time to time (c) assure that a comprehensive independent loan review program is in place for the early detection of problem loans and review significant reports of the loan review department, management's responses to those reports and the risk attributed to unresolved issues; (d) subject to control of the Board, exercise general supervision over trust activities, the investment of trust funds, the disposition of trust investments and the acceptance of new trusts and the terms of such acceptance, and (e) perform such additional duties and exercise such additional powers of the Board as the Board may determine from time to time. Section 3. Audit Committee. The Board shall appoint from its members and Audit Committee which shall consist of such number as the Board shall determine no one of whom shall be an active officer or employee of the Association or Fleet Financial Group, Inc. or any of its affiliates. In addition, members of the Audit Committee must not (i) have served as an officer or employee of the Association or any of its affiliates at any time during the year prior to their appointment; or (ii) own, control, or have owned or controlled at any time during the year prior to appointment, ten percent (10%) or more of any outstanding class of voting securities of the Association. At least two (2) members of the Audit Committee must have significant executive, professional, educational or regulatory experience in financial, auditing, accounting, or banking matters. No member of the Audit Commitee may have significant direct or indirect credit or other relationships with the Association, the termination of which would materially adversely affect the Association's financial condition or results of operations. The Board shall designate a member of the Audit Committee to serve as Chairman thereof. It shall be the duty of the Audit Committee to (a) cause a continuous audit and examination to be made on its behalf into the affairs of the Association and to review the results of such examination; (b) review significant reports of the internal auditing department, management's responses to those reports and the risk attributed to unresolved issues; (c) review the basis for the reports issued under Section 112 of The Federal Deposit Insurance Corporation Improvement Act of 1991; (d) consider, in consultation with the independent auditor and an internal auditing executive, the adequacy of the Association's internal controls, including the resolution of identified material weakness and reportable conditions; (e) review regulatory communications received from any federal or state agency with supervisory jurisdiction or other examining authority and monitor any needed corrective action by management; (f) ensure that a formal system of internal controls is in place for maintaining compliance with laws and regulations; (g) cause an audit of the Trust Department at least once during each calendar year and within 15 months of the last such audit or, in liew thereof, adopt a continuous audit system and report to the Board each calendar year and within 15 months of the previous report on the performance of such audit function; and (h) perform such additional duties and exercise such additional powers of the Board as the Board may determine from time to time. The Audit Committee may consult with internal counsel and retain its own outside counsel without approval (prior or otherwise) from the Board or management and obligate the Association to pay the fees of such counsel. -4- 14 Section 4. Community Affairs Committee. The Board shall appoint from its members a Community Affairs Committee which shall consist of such number as the Board shall determine. The Board shall designate a member of the Community Affairs Committee to serve as Chairman thereof. It shall be the duty of the Commmunity Affairs Committee to (a) oversee compliance by the Association with the Community Reinvestment Act of 1977, as amended, and the regulations promulgated thereunder; and (b) perform such additional duties and exercise such additional powers of the Board as the Board may determine from time to time. Section 5. Regular Meetings. Except for the Executive Committee which shall meet on an ad hoc basis as set forth in Section 1 of this Article, regular meetings of the Committees of the Board of Directors shall be held, without notice, at such time and place as the Committee or the Board of Directors may appoint and as often as the business of the Association may require. Section 6. Special Meetings. A Special Meeting of any of the Committees of the Board of Directors may be called upon the written request of the Chairman of the Board or the President, or of any two members of the respective Committee, stating the purpose of the meeting. Not less than twenty-four hours' notice of such special meeting shall be given to each member of the Committee personally, by telephoning, or by mail. Section 7. Emergency Meetings. An Emergency Meeting of any of the Committees of the Board of Directors may be called at the request of the Chairman of the Board or the President, who shall state that an emergency exists, upon not less than one hour's notice to each member of the Committee personally or by telephoning. Section 8. Action Taken Without a Committee Meeting. Any Committee of the Board of Directors may take action without a meeting and without notice of such meeting by resolution assented to in writing by all members of such Committee. Section 9. Quorum. A majority of a Committee of the Board of Directors shall constitute a quorum for the transaction of any business at any meeting of such Committee. If a quorum is not available, the Chairman of the Board or the President shall have power to make temporary appointments to a Committee of- members of the Board of Directors, to act in the place and stead of members who temporarily cannot attend any such meeting; provided, however, that any temporary appointment to the Audit Committee must meet the requirements for members of that Committee set forth in Section 3 of this Article. Section 10. Record. The committes of the Board of Directors shall keep a record of their respective meetings and proceedings which shall be presented at the regular meeting of the Board of Directors held in the calendar month next following the meetings of the Committees. If there is no regular Board of Directors meeting held in the calendar month next following the meeting of a Committee, then such Committee's records shall be presented at the next regular Board of Directors meeting held in a month subsequent to such Committee meeting. Section 11. Changes and Vacancies. The Board of Directors shall have power to change the members of any Committee at any time and to fill vacancies on any Committee; provided, however, that any newly appointed member of the Audit Committee must meet the requirements for members of that Committee set forth in Section 3 of this Article. Section 12. Other Committees. The Board of Directors may appoint, from time to time, other committees of one or more persons, for such purposes and with such powers as the Board may determine. ARTICLE IV WAIVER OF NOTICE OF MEETINGS Section 1. Waiver. Whenever notice is required to be given to any shareholder, Director, or member of a Committee of the Board of Directors, such notice may be waived in writing either before or after such meeting by any shareholder, Director or Committee member respectively, as the case may be, who may be entitled to such notice; and such notice will be deemed to be waived by attendance at any such meeting. -5- 15 ARTICLE V OFFICERS AND AGENTS Section 1. Officers. The Board shall appoint a Chairman of the Board and a President, and shall have the power to appoint one or more Executive Vice Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a Cashier, a Secretary, an Auditor, a Controller, one or more Trust Officers and- such other officers as are deemed necessary or desirable for the proper transaction of business of the Association. The Chairman of the Board and the President shall be appointed from members of the Board of Directors. Any two or more offices, except those of President and Cashier, or Secretary, may be held by the same person. The Board may, from time to time, by resolution passed by a majority of the entire Board, designate one or more officers of the Association or of an affiliate or of Fleet Financial Group, Inc. with power to appoint one or more Vice Presidents and such other officers of the Association below the level of Vice President as the officer or officers designated in such resolution deem necessary or desirable for the proper transaction of the business of the Association. Section 2. Chairman of the Board. The chairman of the Board shall preside at all meetings of the Board of Directors. Subject to definition by the Board of Directors, he shall have general executive powers and such specific powers and duties as from time to time may be conferred upon or assigned to him by the Board of Directors. Section 3. President. The President shall preside at all meetings of the Board of Directors if there be no Chairman or if the Chairman be absent. Subject to definition by the Board of Directors, he shall have general executive powers and such specific powers and duties as from time to time may be conferred upon or assigned to him by the Board of Directors. -6- 16 Section 4. Cashier and Secretary. The Cashier shall be the Secretary of the Board and of the Executive Committee, and shall keep accurate minutes of their meetings and of all meetings of the shareholders. He shall attend to the giving of all notices required by these By-laws. He shall be custodian of the corporate seal, records, documents and papers of the Association. He shall have such powers and perform such duties as pertain by law or regulation to the office of Cashier, or as are imposed by these By-laws, or as may be delegated to him from time to time by the Board of Directors, the Chairman of the Board or the President. Section 5. Auditor. The Auditor shall be the chief auditing officer of the Association. He shall continuously examine the affairs of the Association and from time to time shall report to the Board of Directors. He shall have such powers and perform such duties as are conferred upon, or assigned to him by these By-laws, or as may be delegated to him from time to time by the Board of Directors. Section 6. Officers Seriatim. The Board of Directors shall designate from time to time not less than two officers who shall in the absence or disability of the Chairman or President or both, succeed seriatim to the duties and responsibilities of the Chairman and President respectively. Section 7. Clerks and Agents. The Board of Directors may appoint, from time to time, such clerks, agents and employees as it may deem advisable for the prompt and orderly transaction of the business of the Association, define their duties, fix the salaries to be paid them and dismiss them. Subject to the authority of the Board of Directors, the Chairman of the Board or the President, or any other officer of the Association authorized by either of them may appoint and dismiss all or any clerks, agents and employees and prescribe their duties and the conditions of their employment, and from time to time fix their compensation. Section 8. Tenure. The Chairman of the Board of Directors and the President shall, except in the case of death, resignation, retirement or disqualification under these By-laws, or unless removed by the affirmative vote of at least two- thirds of all of the members of the Board of Directors, hold office for the term of one year or until their respective successors are appointed. Either of such officers appointed to fill a vacancy occurring in an unexpired term shall serve for such unexpired term of such vacancy. All other officers, clerks, agents, attorneys-in-fact and employees of the Association shall hold office during the pleasure of the Board of Directors or of the officer or committee appointing them respectively. ARTICLE VI TRUST DEPARTMENT Section 1. General Powers and Duties. All fiduciary powers of the Association shall be exercised through the Trust Department, subject to such regulations as the Comptroller of the Currency shall from time to time establish. The Trust Department shall be to placed under the management and immediate supervision of an officer or officers appointed by the Board of Directors. The duties of all officers of the Trust Department shall be to cause the policies and instructions of the Board and the Risk Management Committee with respect to the trusts under their supervision to be carried out, and to supervise the due performance of the trusts and agencies entrusted to the Association and under their supervision, in accordance with law and in accordance with the terms of such trusts and agencies. -7- 17 ARTICLE VII BRANCH OFFICES Section 1. Establishment. The Board of Directors shall have full power to establish, to discontinue, or, from time to time, to change the location of any branch office, subject to such limitations as may be provided by law. Section 2. Supervision and Control. Subject to the general supervision and control of the Board of Directors, the affairs of branch offices shall be under the immediate supervision and control of the President or of such other officer or officers, employee or employees, or other individuals as the Board of Directors may from time to time determine, with such powers and duties as the Board of Directors may confer upon or assign to him or them. ARTICLE VIII SIGNATURE POWERS Section 1. Authorization. The power of officers, employees, agents and attorneys to sign on behalf of and to affix the seal of the Association shall be prescribed by the Board of Directors or by the Executive Committee or by both; provided that the President is authorized to restrict such power of any officer, employee, agent or attorney to the business of a specific department or departments, or to a specific branch office or branch offices. Facsimile signatures may be authorized. -8- 18 ARTICLE IX STOCK CERTIFICATES AND TRANSFERS Section 1. Stock Records. The Trust Department shall have custody of the stock certificate books and stock ledgers of the Association, and shall make all transfers of stock, issue certificates thereof and disburse dividends declared thereon. Section 2. Form of Certificate. Every shareholder shall be entitled to a certificate conforming to the requirements of law and otherwise in such form as the Board of Directors may approve. The certificates shall state on the face thereof that the stock is transferable only on the books of the Association and shall be signed by such officers as may be prescribed from time to time by the Board of Directors or Executive Committee. Facsimile signatures may be authorized. Section 3. Transfers of Stock. Transfers of stock shall be made only on the books of the Association by the holder in person, or by attorney duly authorized in writing, upon surrender of the certificate therefor properly endorsed, or upon the surrender of such certificate accompanied by a properly executed written assignment of the same, or a written power of attorney to sell, assign or transfer the same or the shares represented thereby. Section 4. Lost Certificate. The Board of Directors or Executive Committee may order a new certificate to be issued in place of a certificate lost or destroyed, upon proof of such loss or destruction and upon tender to the Association by the shareholder, of a bond in such amount and with or without surety, as may be ordered, indemnifying the Association against all liability, loss, cost and damage by reason of such loss or destruction and the issuance of a new certificate. Section 5. Closing Transfer Books. The Board of Directors may close the transfer books for a period not exceeding thirty days preceding any regular or special meeting of the shareholders, or the day designated for the payment of a dividend or the allotment of rights. In lieu of closing the transfer books the Board of Directors may fix a day and hour not more than thirty days prior to the day of holding any meeting of the shareholders, or the day designated for the payment of a dividend, or the day designated for the allotment of rights, or the day when any change of conversion or exchange of capital stock is to go into effect, as the day as of which shareholders entitled to notice of and to vote at such meetings or entitled to such dividend or to such allotment of rights or to exercise the rights in respect of any such change, conversion or exchange of capital stock, shall be determined, and only such shareholders as shall be shareholders of record on the day and hour so fixed shall be entitled to notice of and to vote at such meeting or to receive payment of such dividend or to receive such allotment of rights or to exercise such rights, as the case may be. ARTICLE X THE CORPORATE SEAL Section 1. Seal. The following is an impression of the seal of the Association adopted by the Board of Directors. ARTICLE XI BUSINESS HOURS Section 1. Business Hours. The main office of this Association and each branch office thereof shall be open for business on such days, and for such hours as the Chairman, or the President, or any Executive Vice President, or such other officer as the Board of Directors shall from time to time designate, may determine as to each office to conform to local custom and convenience, provided that any one or more of the main and branch offices or certain departments thereof may be open for such hours as the President, or such other officer as the Board of Directors shall from time to time designate, may determine as to each office or department on any legal holiday on which work is not prohibited by law, and provided further that any one or more of the main and branch offices or certain departments thereof may be ordered closed or open on any day for such hours as to each office or department as the President, or such other officer as the Board of Directors shall from time to time designate, subject to applicable laws regulations, may determine when such action may be required by reason of disaster or other emergency condition. ARTICLE IX CHANGES IN BY-LAWS Section 1. Amendments. These By-laws may be amended upon vote of a majority of the entire Board of Directors at any meeting of the Board, provided ten (10) day's notice of the proposed amendment has been given to each member of the Board of Directors. No amendment may be made unless the By-law, as amended, is consistent with the requirements of law and of the Articles of Association. These By-laws may also be amended by the Association's shareholders. A true copy Attest: Secretary/Assistant Secretary - --------------------------------------- Dated at , as of . --------------------------------------- ---------------------- Revision of January 11, 1993 -9- 19 EXHIBIT 5 CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b) OF THE TRUST INDENTURE ACT OF 1939 The undersigned, as Trustee under the Indenture to be entered into between Lomak Petroleum, Inc. and Fleet National Bank, as Trustee, does hereby consent that, pursuant to Section 321(b) of the Trust Indenture Act of 1939, reports of examinations with respect to the undersigned by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. FLEET NATIONAL BANK, AS TRUSTEE By: /s/ Elizabeth C. Hammer ------------------------------- Its: Vice President Dated: February 11, 1997 20 Board of Governors of the Federal Reserve System OMB Number: 7100-0036 Federal Deposit Insurance Corporation OMB Number: 3064-0052 Office of the Comptroller of the Currency OMB Number: 1557-0081 Expires March 31, 1999 Federal Financial Institutions Examination Council - ------------------------------------------------------------------------------- [LOGO] [1] Please refer to page i, Table of Contents, for the required disclosure of estimated burden. - ------------------------------------------------------------------------------- CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR A BANK WITH DOMESTIC AND FOREIGN OFFICES -- FFIEC 031 (960930) REPORT AT THE CLOSE OF BUSINESS SEPTEMBER 30, 1996 -------- (RCRI 9999) This report is required by law: 12 U.S.C. Section 324 (State member banks); 12 U.S.C. Section 1817 (State nonmember banks); and 12 U.S.C. Section 161 (National banks). This report form is to be filed by banks with branches and consolidated subsidiaries in U.S. territories and possessions, Edge or Agreement subsidiaries, foreign branches, consolidated foreign subsidiaries, or international Banking Facilities. - ------------------------------------------------------------------------------- NOTE: The Reports of Condition and Income must be signed by an authorized officer and the Report of Condition must be attested to by not less than two directors (trustees) for State nonmember banks and three directors for State member and National banks. I, Giro S. DeRosa, Vice President --------------------------------------------------- Name and Title of Officer Authorized to Sign Report of the named bank do hereby declare that these Reports of Condition and Income (including the supporting schedules) have been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and are true to the best of my knowledge and belief. /s/ Giro DeRosa - ----------------------------------------------------- Signature of Officer Authorized to Sign Report 10/26/96 - ----------------------------------------------------- Date of Signature The Reports of Condition and Income are to be prepared in accordance with Federal regulatory authority instructions. NOTE: These instructions may in some cases differ from generally accepted accounting principles. We, the undersigned directors (trustees), attest to the correctness of this Report of Condition (including the supporting schedules) and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true and correct. /s/ [SIGNATURE ILLEGIBLE] - ----------------------------------------------------- Director (Trustee) /s/ [SIGNATURE ILLEGIBLE] - ----------------------------------------------------- Director (Trustee) /s/ [SIGNATURE ILLEGIBLE] - ----------------------------------------------------- Director (Trustee) - ------------------------------------------------------------------------------- FOR BANKS SUBMITTING HARD COPY REPORT FORMS: STATE MEMBER BANKS: Return the original and one copy to the appropriate Federal Reserve District Bank. STATE NONMEMBER BANKS: Return the original only in the special return address envelope provided. If express mail is used in lieu of the special return address envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114. NATIONAL BANKS: Return the original only in the special return address envelope provided. If express mail is used in lieu of the special return address envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114. - ------------------------------------------------------------------------------- 0 2 4 9 9 FDIC Certificate Number ----------- (RCRI 9050) [ADDRESS LABEL] 21 FFIEC 031 Page i /2/ Consolidated Reports of Condition and Income for Bank With Domestic and Foreign Offices - -------------------------------------------------------------------------------- TABLE OF CONTENTS SIGNATURE PAGE COVER REPORT OF INCOME Schedule RI -- Income Statement ................................... RI-1, 2, 3 Schedule RI-A -- Changes in Equity Capital .............................. RI-4 Schedule RI-B -- Charge-offs and Recoveries and Changes in Allowance for Loan and Lease Losses ............................... RI-4, 5 Schedule RI-C -- Applicable Income Taxes by Taxing Authority ............ RI-5 Schedule RI-D -- Income from International Operations ................... RI-6 Schedule RI-E -- Explanations ........................................ RI-7, 8 REPORT OF CONDITION Schedule RC -- Balance Sheet ......................................... RC-1, 2 Schedule RC-A -- Cash and Balances Due From Depository Institutions ..... RC-3 Schedule RC-B -- Securities ....................................... RC-3, 4, 5 Schedule RC-C -- Loans and Lease Financing Receivables: Part I. Loans and Leases ......................................... RC-6, 7 Part II. Loans to Small Businesses and Small Farms (included in the forms for June 30 only) ............... RC-7a, 7b Schedule RC-D -- Trading Assets and Liabilities (to be completed only by selected banks) ............................. RC-8 Schedule RC-E -- Deposit Liabilities ............................ RC-9, 10, 11 Schedule RC-F -- Other Assets .......................................... RC-11 Schedule RC-G -- Other Liabilities ..................................... RC-11 Schedule RC-H -- Selected Balance Sheet Items for Domestic Offices .................................................... RC-12 Schedule RC-I -- Selected Assets and Liabilities of IBFs ............... RC-13 Schedule RC-K -- Quarterly Averages .................................... RC-13 Schedule RC-L -- Off Balance Sheet Items ....................... RC-14, 15, 16 Schedule RC-M -- Memoranda ......................................... RC-17, 18 Schedule RC-N -- Past Due and Nonaccrual Loans, Leases, and Other Assets ................................................ RC-19, 20 Schedule RC-O -- Other Data for Deposit Insurance Assessments ...... RC-21, 22 Schedule RC-R -- Regulatory Capital ................................ RC-23, 24 Optional Narrative Statement Concerning the Amounts Reported in the Reports of Condition and Income .............................. RC-25 Special Report (to be completed by all banks) Schedule RC-J -- Repricing Opportunities (sent only to and to be completed only by savings banks) DISCLOSURE OF ESTIMATED BURDEN THE ESTIMATED AVERAGE BURDEN ASSOCIATED WITH THIS INFORMATION COLLECTION IS 32.2 HOURS PER RESPONDENT AND IS ESTIMATED TO VARY FROM 15 TO 230 HOURS PER RESPONSE, DEPENDING ON INDIVIDUAL CIRCUMSTANCES. BURDEN ESTIMATES INCLUDE THE TIME FOR REVIEWING INSTRUCTIONS, GATHERING AND MAINTAINING DATA IN THE REQUIRED FORM, AND COMPLETING THE INFORMATION COLLECTION, BUT EXCLUDE THE TIME FOR COMPILING AND MAINTAINING BUSINESS RECORDS IN THE NORMAL COURSE OF A RESPONDENT'S ACTIVITIES. COMMENTS CONCERNING THE ACCURACY OF THIS BURDEN ESTIMATE AND SUGGESTIONS FOR REDUCING THIS BURDEN SHOULD BE DIRECTED TO THE OFFICE OF INFORMATION AND REGULATORY AFFAIRS, OFFICE OF MANAGEMENT AND BUDGET, WASHINGTON, D.C. 20503, AND TO ONE OF THE FOLLOWING: SECRETARY BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D.C. 20551 LEGISLATIVE AND REGULATORY ANALYSIS DIVISION OFFICE OF THE COMPTROLLER OF THE CURRENCY WASHINGTON, D.C. 20219 ASSISTANT EXECUTIVE SECRETARY FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, D.C. 20429 For information or assistance, National and State nonmember banks should contact the FDIC's Call Reports Analysis Unit, 550 17th Street, NW, Washington, D.C. 20429, toll-free on (800) 688-FDIC(3342), Monday through Friday between 8:00 a.m. and 5:00 p.m., Eastern time. State member banks should contact their Federal Reserve District Bank. 22 Legal Title of Bank: Fleet National Bank Address: One Monarch Place City, State Zip: Springfield, MA 01102 FDIC Certificate No.: 0 2 4 9 9 --------- Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031 Page RI-1 CONSOLIDATED REPORT OF INCOME FOR THE PERIOD JANUARY 1, 1996-SEPTEMBER 30, 1996 All Report of Income schedules are to be reported on a calendar year-to-date basis in thousands of dollars. SCHEDULE RI--INCOME STATEMENT
I480 ------------------------- Dollars Amounts in Thousands RIAD Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------ 1. Interest income: a. Interest and fee income on loans: (1) In domestic offices: (a) Loans secured by real estate .............................................. 4011 854,388 1.a.(1)(a) (b) Loans to depository institutions .......................................... 4019 1,052 1.a.(1)(b) (c) Loans to finance agricultural production and other loans to farmers ....... 4024 405 1.a.(1)(c) (d) Commercial and industrial loans ........................................... 4012 850,473 1.a.(1)(d) (e) Acceptances of other banks ................................................ 4026 261 1.a.(1)(e) (f) Loans to individuals for household, family, and other personal expenditures: (1) Credit cards and related plans ........................................ 4054 13,229 1.a.(1)(f)(1) (2) Other ................................................................. 4055 144,012 1.a.(1)(f)(2) (g) Loans to foreign governments and official institutions ..................... 4056 0 1.a.(1)(g) (h) Obligations (other than securities and leases) of states and political subdivisions in the U.S.: (1) Taxable obligations ................................................... 4503 0 1.a.(1)(h)(1) (2) Tax-exempt obligations ................................................ 4504 7,756 1.a.(1)(h)(2) (i) All other loans in domestic offices ....................................... 4058 115,822 1.a.(1)(1) (2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ................. 4059 2,981 1.a.(2) b. Income from lease financing receivables: (1) Taxable leases ................................................................ 4505 114,095 1.b.(1) (2) Tax-exempt leases ............................................................. 4307 1,130 1.b.(2) c. Interest income on balances due from depository institutions: (1) (1) In domestic offices ........................................................... 4105 1,047 1.c.(1) (2) In foreign offices, Edge and Agreement subsidiaries, and IBFs .................. 4106 142 1.c.(2) d. Interest and dividend income on securities: (1) U.S. Treasury securities and U.S. Government agency and corporation obligations ................................................................... 4027 323,294 1.d.(1) (2) Securities issued by states and political subdivisions in the U.S.: (a) Taxable securities ........................................................ 4506 0 1.d.(2)(a) (b) Tax-exempt securities ..................................................... 4507 4,736 1.d.(2)(b) (3) Other domestic debt securities ................................................ 3657 12,668 1.d.(3) (4) Foreign debt securities ....................................................... 3658 4,985 1.d.(4) (5) Equity securities (including investments in mutual funds) ..................... 3659 15,296 1.d.(5) e. Interest income from trading assets ............................................... 4069 429 i.e.
- -------------- (1) Includes interest income on time certificates of deposit not held for trading. 3 23 Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 Address: One Monarch Place ST-BK: 25-0590 FFIEC 031 City, State Zip: Springfield, MA 01102 Page RI-2 FDIC Certificate No.: 0 2 4 9 9 ----------- SCHEDULE RI--CONTINUED
-------------- Dollar Amounts in Thousands Year-to-date - -------------------------------------------------------------------------------------------------- 1. Interest income (continued) RIAD Bil Mil Thou f. Interest income on federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs.............................. 4020 25,381 1.f. g. Total interest income (sum of items 1.a through 1.f)................. 4107 2,493,582 1.g. 2. Interest expense: a. Interest on deposits: (1) Interest on deposits in domestic offices: (a) Transaction accounts (NOW accounts, ATS accounts, and telephone and preauthorized transfer accounts)............. 4508 10,989 2.a.(1)(a) (b) Nontransaction accounts: (1) Money market deposit accounts (MMDAs)................. 4509 196,360 2.a.(1)(b)(1) (2) Other savings deposits................................ 4511 38,216 2.a.(1)(b)(2) (3) Time certificates of deposit of $100,000 or more...... 4174 130,069 2.a.(1)(b)(3) (4) All other time deposits............................... 4512 310,562 2.a.(1)(b)(4) (2) Interest on deposits in foreign offices, Edge and Agreement subsidiaries, and IBFs.......................................... 4172 74,619 2.a.(2) b. Expense of federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs......................... 4180 221,536 2.b. c. Interest on demand notes issued to the U.S. Treasury, trading liabilities, and other borrowed money................................ 4185 145,395 2.c. d. Interest on mortgage indebtedness and obligations under capitalized leases............................................................... 4072 630 2.d. e. Interest on subordinated notes and debentures........................ 4200 47,710 2.e. f. Total interest expense (sum of items 2.a through 2.e)................ 4073 1,176,086 2.f. ----------------------- 3. Net interest income (item 1.g minus 2.f)................................. RIAD 4074 1,317,496 3. ----------------------- 4. Provisions: ----------------------- a. Provision for loan and lease losses.................................. RIAD 4230 24,179 4.a. b. Provision for allocated transfer risk................................ RIAD 4243 0 4.b. ----------------------- 5. Noninterest income: a. Income from fiduciary activities..................................... 4070 217,705 5.a. b. Service charges on deposit accounts in domestic offices.............. 4080 169,866 5.b. c. Trading revenue (must equal Schedule RI, sum of Memorandum items 8.a through 8.d)............................................... A220 16,406 5.c. d. Other foreign transaction gains (losses)............................. 4076 781 5.d. e. Not applicable f. Other noninterest income: (1) Other fee income................................................ 5407 576,559 5.f.(1) (2) All other noninterest income*................................... 5408 270,460 5.f.(2) ----------------------- g. Total noninterest income (sum of items 5.a through 5.f).............. RIAD 4079 1,251,777 5.g. 6. a. Realized gains (losses) on held-to-maturity securities............... RIAD 3521 1 6.a. b. Realized gains (losses) on available-for-sale securities............. RIAD 3196 16,196 6.b. ----------------------- 7. Noninterest expense: a. Salaries and employee benefits....................................... 4135 480,905 7.a. b. Expenses of premises and fixed assets (net of rental income) (excluding salaries and employee benefits and mortgage interest)..... 4217 164,769 7.b. c. Other noninterest expense*........................................... 4092 942,296 7.c. ----------------------- d. Total noninterest expense (sum of items 7.a through 7.c)............. RIAD 4093 1,587,970 7.d. ----------------------- 8. Income (loss) before income taxes and extraordinary items and other ----------------------- adjustments (item 3 plus or minus items 4.a, 4.b, 5.g, 6.a, 6.b, and 7.d) RIAD 4301 973,321 8. 9. Applicable income taxes (on item 8)...................................... RIAD 4302 397,990 9. ----------------------- 10. Income (loss) before extraordinary items and other adjustments (item 8 ----------------------- minus 9)................................................................. RIAD 4300 575,331 10. -----------------------
- -------------------- *Describe on Schedule RI-E--Explanations. 4 24 Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 Address: One Monarch Place ST-BK: 25-0590 FFIEC 031 City, State Zip: Springfield, MA 01102 Page RI-3 FDIC Certificate No.: 0 2 4 9 9 --------- SCHEDULE RI--CONTINUED
Year-to-date -------------------- Dollar Amounts in Thousands RIAD Bil Mil Thou - ---------------------------------------------------------------------------------------------------- 11. Extraordinary items and other adjustments: a. Extraordinary items and other adjustments, gross of income taxes* ..... 4310 0 11.a. b. Applicable income taxes (on item 11.a)* ............................... 4315 0 11.b. c. Extraordinary items and other adjustments, net of income taxes (item 11.a minus 11.b) ................................................ RIAD 4320 0 11.c 12. Net income (loss) (sum of items 10 and 11.c) ............................. RIAD 4340 575,331 12. -------------------------------------------

------ I481 <- Memoranda ------------ Year-to-date -------------------- Dollar Amounts in Thousands RIAD Bil Mil Thou - --------------------------------------------------------------------------------------------------------------------------- 1. Interest expense incurred to carry tax-exempt securities, loans, and leases acquired after August 7, 1986, that is not deductible for federal income tax purposes ......................... 4513 2,092 M.1. 2. Income from the sale and servicing of mutual funds and annuities in domestic offices (included in Schedule RI, item 8) .............................................................. 8431 33,068 M.2. 3.-4. Not applicable 5. Number of full-time equivalent employees on payroll at end of current period (round to Number nearest whole number) .......................................................................... 4150 12,552 M.5. 6. Not applicable 7. If the reporting bank has restated its balance sheet as a result of applying push down MM DD YY accounting this calendar year, report the date of the bank's acquisition ....................... 9106 00/00/00 M.7. 8. Trading revenue (from cash instruments and off-balance sheet derivative instruments) (sum of Memorandum items 8.a through 8.d must equal Schedule RI, item 5.c): Bil Mil Thou a. Interest rate exposures ..................................................................... 8757 2,536 M.8.a. b. Foreign exchange exposures .................................................................. 8758 13,870 M.8.b. c. Equity security and index exposures ......................................................... 8759 0 M.8.c. d. Commodity and other exposures ............................................................... 8760 0 M.8.d. 9. Impact on income of off-balance sheet derivatives held for purposes other than trading: a. Net increase (decrease) to interest income .................................................. 8761 (1,530) M.9.a. b. Net (increase) decrease to interest expense ................................................. 8762 (7,731) M.9.b. c. Other (noninterest) allocations ............................................................. 8763 235 M.9.c. 10. Credit losses on off-balance sheet derivatives (see instructions) .............................. A251 0 M.10. --------------------
- ------------ *Describe on Schedule RI-E--Explanations. 5 25 Legal Title of Bank: Fleet National Bank Address: One Monarch Place City, State Zip: Springfield, MA 01102 FDIC Certificate No.: 02499 Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031 Page RI-4 SCHEDULE RI-A--CHANGES IN EQUITY CAPITAL Indicate decreases and losses in parentheses.
I483 <- Dollar Amounts in Thousands RIAD Bil Mil Thou - ---------------------------------------------------------- ---- --- --- ---- 1. Total equity capital originally reported in the December 31, 1995, Reports of Condition and Income................ 3215 1,342,473 1. 2. Equity capital adjustments from amended Reports of Income, net*............................................. 3216 0 2. 3. Amended balance end of previous calendar year (sum of items 1 and 2)................................... 3217 1,342,473 3. 4. Net income (loss) (must equal Schedule RI, item 12)...... 4340 575,331 4. 5. Sale, conversion, acquisition, or retirement of capital stock, net....................................... 4346 0 5. 6. Changes incident to business combinations, net........... 4356 4,161,079 6. 7. LESS: Cash dividends declared on preferred stock......... 4470 0 7. 8. LESS: Cash dividends declared on common stock............ 4460 625,239 8. 9. Cumulative effect of changes in accounting principles from prior years* (see instructions for this schedule)... 4411 0 9. 10. Corrections of material accounting errors from prior years* (see instructions for this schedule).............. 4412 0 10. 11. Change in net unrealized holding gains (losses) on available-for-sale securities............................ 8433 (30,167) 11. 12. Foreign currency translation adjustments................. 4414 0 12. 13. Other transactions with parent holding company* (not included in items 5, 7, or 8 above)...................... 4415 (1,003,722) 13. 14. Total equity capital end of current period (sum of items 3 through 13) (must equal Schedule RC, item 28).... 3210 4,419,755 14. - ----------- *Describe on Schedule RI-E--Explanations.
SCHEDULE RI-B--CHARGE-OFFS AND RECOVERIES AND CHANGES IN ALLOWANCE FOR LOAN AND LEASE LOSSES PART I. CHARGE-OFFS AND RECOVERIES ON LOANS AND LEASES Part I excludes charge-offs and recoveries through the allocated transfer risk reserve.
I486 <- ------------------------------------------------ (Column A) (Column B) Charge-offs Recoveries ------------------------------------------------ Calendar year-to-date ------------------------------------------------ Dollar Amounts in Thousands RIAD Bil Mil Thou RIAD Bil Mil Thou - ---------------------------------------------------------- ---- --- --- ---- ---- --- --- ---- 1. Loans secured by real estate: //////////////////////////////////////////////////////////// a. To U.S. addressees (domicile)....................... 4651 52,012 4661 10,568 1.a. b. To non-U.S. addressees (domicile)................... 4652 0 4662 0 1.b. 2. Loans to depository institutions and acceptances of other banks: //////////////////////////////////////////////////////////// a. To U.S. banks and other U.S. depository institutions 4653 0 4663 0 2.a. b. To foreign banks.................................... 4654 0 4664 0 2.b. 3. Loans to finance agricultural production and other loans to farmers....................................... 4655 6 4665 89 3. 4. Commercial and industrial loans: //////////////////////////////////////////////////////////// a. To U.S. addressees (domicile)....................... 4645 58,172 4617 39,649 4.a. b. To non-U.S. addressees (domicile)................... 4646 0 4618 102 4.b. 5. Loans to individuals for household, family, and ///////////////////////////////////////////////////////////// other personal expenditures: //////////////////////////////////////////////////////////// a. Credit cards and related plans...................... 4656 1,340 4666 1,125 5.a. b. Other (includes single payment, installment, and all student loans)...................................... 4657 17,633 4667 2,946 5.b. 6. Loans to foreign governments and official institutions.. 4643 0 4627 0 6. 7. All other loans......................................... 4644 2,987 4628 750 7. 8. Lease financing receivables: ///////////////////////////////////////////////////////////// a. Of U.S. addressees (domicile)........................ 4658 11,644 4668 3,670 8.a. b. Of non-U.S. addressees (domicile).................... 4659 0 4669 0 8.b. Total (sum of items 1 through 8)........................ 4635 143,794 4605 58,899 9.
6 26 Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031 Page RI-5 Legal Title of Bank: Fleet National Bank Address: One Monarch Place City, State Zip: Springfield, MA 01102 FDIC Certificate No.: 0 2 4 9 9 --------- SCHEDULE RI-B -- CONTINUED PART I. CONTINUED
------------------------------------------- (Column A) (Column B) Charge-offs Recoveries ------------------------------------------- Calendar year-to-date ----------------------------------------------- Memoranda Dollar Amounts in Thousands RIAD Bil Mil Thou RIAD Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------------ 1-3. Not applicable 4. Loans to finance commercial real estate, construction, and land development activities (not secured by real estate) included in Schedule RI-B, part I, items 4 and 7, above ......................... 5409 513 5410 1,374 M.4. 5. Loans secured by real estate in domestic offices (included in Schedule RI-B, part I, item 1, above): a. Construction and land development ................................ 3582 189 3583 253 M.5.a. b. Secured by farmland .............................................. 3584 145 3585 220 M.5.b. c. Secured by 1-4 family residential properties: (1) Revolving, open-end loans secured by 1-4 family residential properties and extended under lines of credit ................ 5411 3,647 5412 536 M.5.c.(1) (2) All other loans secured by 1-4 family residential properties.. 5413 23,744 5414 2,707 M.5.c.(2) d. Secured by multifamily (5 or more) residential properties ........ 3588 4,055 3589 395 M.5.d. e. Secured by nonfarm nonresidential properties ..................... 3590 20,232 3591 6,457 M.5.e. -------------------------------------------
PART II. CHANGES IN ALLOWANCE FOR LOAN AND LEASE LOSSES
-------------------- Dollar Amounts in Thousands RIAD Bil Mil Thou - ----------------------------------------------------------------------------------------------------------------- 1. Balance originally reported in the December 31, 1995, Reports of Condition and Income .. 3124 266,943 1. 2. Recoveries (must equal part I, item 9, column B above) ................................. 4605 58,899 2. 3. LESS: Charge-offs (must equal part I, item 9, column A above) .......................... 4635 143,794 3. 4. Provision for loan and lease losses (must equal Schedule RI, item 4.a) ................. 4230 24,179 4. 5. Adjustments* (see instructions for this schedule) ...................................... 4815 634,542 5. 6. Balance end of current period (sum of items 1 through 5) (must equal Schedule RC, item 4.b) .............................................................................. 3123 840,769 6.
- ----------------- * Describe on Schedule RI-E -- Explanations. SCHEDULE RI-C -- APPLICABLE INCOME TAXES BY TAXING AUTHORITY SCHEDULE RI-C IS TO BE REPORTED WITH THE DECEMBER REPORT OF INCOME.
--------- I489 <- -------------------- Dollar Amounts in Thousands RIAD Bil Mil Thou - -------------------------------------------------------------------------------------------------------------------- 1. Federal ................................................................................... 4780 N/A 1. 2. State and local ........................................................................... 4790 N/A 2. 3. Foreign ................................................................................... 4795 N/A 3. 4. Total (sum of items 1 through 3) (must equal sum of Schedule RI, items 9 and 11.b) ........ 4770 N/A 4. --------------------------- 5. Deferred portion of item 4 ................................... RIAD 4772 N/A 5. -------------------------------------------------
7 27 Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031 Page RI-6 Legal Title of Bank: Fleet National Bank Address: One Monarch Place City, State Zip: Springfield, MA 01102 FDIC Certificate No.: 0 2 4 9 9 --------- SCHEDULE RI-D--INCOME FROM INTERNATIONAL OPERATIONS For all banks with foreign offices, Edge or Agreement subsidiaries, or IBFs where international operations account for more than 10 percent of total revenues, total assets, or net income. PART I. ESTIMATED INCOME FROM INTERNATIONAL OPERATIONS
------- I492 -------------------- Year-to-date -------------------- Dollar Amounts in Thousands RIAD Bil Mil Thou <- - ------------------------------------------------------------------------------------------------------------------------ 1. Interest income and expense booked at foreign offices, Edge and Agreement subsidiaries, ////////////////// and IBFs: ////////////////// a. Interest income booked................................................................... 4837 N/A 1.a. b. Interest expense booked.................................................................. 4838 N/A 1.b. c. Net interest income booked at foreign offices, Edge and Agreement subsidiaries, and ////////////////// IBFs (item 1.a minus 1.b)................................................................ 4839 N/A 1.c. 2. Adjustments for booking location of international operations: ////////////////// a. Net interest income attributable to international operations booked at domestic offices.. 4840 N/A 2.a. b. Net interest income attributable to domestic business booked at foreign offices.......... 4841 N/A 2.b. c. Net booking location adjustment (item 2.a minus 2.b)..................................... 4842 N/A 2.c. 3. Noninterest income attributable to international operations: ////////////////// a. Noninterest income attributable to international operations.............................. 4097 N/A 3.a. b. Provision for loan and lease losses attributable to international operations............. 4235 N/A 3.b. c. Other noninterest expense attributable to international operations....................... 4239 N/A 3.c. d. Net noninterest income (expense) attributable to international operations (item 3.a ////////////////// minus 3.b and 3.c)....................................................................... 4843 N/A 3.d. 4. Estimated pretax income attributable to international operations before capital allocation ////////////////// adjustment (sum of items 1.c, 2.c, and 3.d).................................................. 4844 N/A 4. 5. Adjustment to pretax income for internal allocations to international operations to reflect ////////////////// the effects of equity capital on overall bank funding costs.................................. 4845 N/A 5. 6. Estimated pretax income attributable to international operations after capital allocation ////////////////// adjustment (sum of items 4 and 5)............................................................ 4846 N/A 6. 7. Income taxes attributable to income from international operations as estimated in item 6..... 4797 N/A 7. 8. Estimated net income attributable to international operations (item 6 minus 7)............... 4341 N/A 8. --------------------- Memoranda --------------------- Dollar Amounts in Thousands RIAD Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------------- 1. Intracompany interest income included in item 1.a above...................................... 4847 N/A M.1. 2. Intracompany interest expense included in item 1.b above..................................... 4848 N/A M.2. --------------------- PART II. SUPPLEMENTARY DETAILS ON INCOME FROM INTERNATIONAL OPERATIONS REQUIRED BY THE DEPARTMENTS OF COMMERCE AND TREASURY FOR PURPOSES OF THE U.S. INTERNATIONAL ACCOUNTS AND THE U.S. NATIONAL INCOME AND PRODUCT ACCOUNTS -------------------- YEAR-to-date --------------------- Dollar Amounts in Thousands RIAD Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------------- 1. Interest income booked at IBFs............................................................... 4849 N/A 1. 2. Interest expense booked at IBFs.............................................................. 4850 N/A 2. 3. Noninterest income attributable to international operations booked at domestic offices ////////////////// (excluding IBFs): ////////////////// a. Gains (losses) and extraordinary items................................................... 5491 N/A 3.a. b. Fees and other noninterest income........................................................ 5492 N/A 3.b. 4. Provision for loan and lease losses attributable to international operations booked at ////////////////// domestic offices (excluding IBFs)............................................................ 4852 N/A 4. 5. Other noninterest expense attributable to international operations booked at domestic ////////////////// offices (excluding IBFs)..................................................................... 4853 N/A 5. ---------------------
8 28 Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031 Page RI-7 Legal Title of Bank: Fleet National Bank Address: One Monarch Place City, State Zip: Springfield, MA 01102 FDIC Certificate No.: 0 2 4 9 9 --------- SCHEDULE RI-E--EXPLANATIONS SCHEDULE RI-E IS TO BE COMPLETED EACH QUARTER ON A CALENDAR YEAR-TO-DATE BASIS. Detail all adjustments in Schedule RI-A and RI-B, all extraordinary items and other adjustments in Schedule RI, and all significant items of other noninterest income and other noninterest expense in Schedule RI. (See instructions for details.)
I495 -------------- Year-to-date ------------------------- <- Dollars Amounts in Thousands RIAD Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------ 1. All other noninterest income (from Schedule RI, item 5.f.(2)) Report amounts that exceed 10% of Schedule RI, item 5.f.(2): a. Net gains on other real estate owned .............................................. 5415 0 1.a. b. Net gains on sales of loans ....................................................... 5416 0 1.b. c. Net gains on sales of premises and fixed assets ................................... 5417 0 1.c. Itemize and describe the three largest other amounts that exceed 10% of Schedule RI, item 5.f.(2): d. TEXT 4461 Income on Mortgages Held For Resale 4461 115,563 1.d. ----------------------------------------------------------------------------------- e. TEXT 4462 Gain From Branch Divestitures 4462 77,976 1.e. ----------------------------------------------------------------------------------- f. TEXT 4463 4463 1.f. --- ------------------------------------------------------------------------------- 2. Other noninterest expense (from Schedule RI, item 7.c): a. Amortization expense of intangible assets ......................................... 4531 207,168 2.a. Report amounts that exceed 10% of Schedule RI, item 7.c: b. Net losses on other real estate owned ............................................. 5418 0 2.b. c. Net losses on sales of loans ...................................................... 5419 0 2.c. d. Net losses on sales of premises and fixed assets .................................. 5420 0 2.d. Itemize and describe the three largest other amounts that exceed 10% of Schedule RI, Item 7.c: e. TEXT 4464 Intercompany Corporate Support Function Charges 4464 219,071 2.e. ----------------------------------------------------------------------------------- f. TEXT 4467 Intercompany Data Processing & Programming Charges 4467 238,115 2.f. ----------------------------------------------------------------------------------- g. TEXT 4468 4468 2.g. ----------------------------------------------------------------------------------- 3. Extraordinary items and other adjustments (from Schedule RI, item 11.a) and applicable income tax effect (from Schedule RI, item 11.b) (itemize and describe all extraordinary items and other adjustments): a. (1) TEXT 4469 4469 3.a.(1) ------------------------------------------------------------------------------- (2) Applicable income tax effect RIAD 4486 3.a.(2) ------------ ----------- b. (1) TEXT 4487 4487 3.b.(1) ------------------------------------------------------------------------------- (2) Applicable income tax effect RIAD 4488 3.b.(2) ------------ ----------- c. (1) TEXT 4489 4489 3.c.(1) ------------------------------------------------------------------------------- (2) Applicable income tax effect RIAD 4491 3.c.(2) ----------- 4. Equity capital adjustments from amended Reports of Income (from Schedule RI-A, item 2) (itemize and describe all adjustments: a. TEXT 4492 4492 4.a. ----------------------------------------------------------------------------------- b. TEXT 4493 4493 4.b. ----------------------------------------------------------------------------------- 5. Cumulative effect of changes in accounting principles from prior years (from Schedule RI-A, item 9) (itemize and describe all changes in accounting principles): a. TEXT 4494 4494 5.a. ----------------------------------------------------------------------------------- B. TEXT 4495 4495 5.b. ----------------------------------------------------------------------------------- 6. Corrections of material accounting errors from prior years (from Schedule RI-A, item 10) (itemize and describe all corrections): a. TEXT 4496 4496 6.a. ----------------------------------------------------------------------------------- b. TEXT 4497 4497 6.b. -----------------------------------------------------------------------------------
9 29 Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031 Page RI-8 Legal Title of Bank: Fleet National Bank Address: One Monarch Place City, State Zip: Springfield, MA 01102 FDIC Certificate No.: 0 2 4 9 9 --------- SCHEDULE RI-E--CONTINUED
-------------- Year-to-date ----------------------- Dollars Amounts in Thousands RIAD Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------ 7. Other transactions with parent holding company (from Schedule RI-A, item 13) (itemize and describe all such transactions): a. TEXT 4498 Fleet National Bank Surplus Distribution to FFG 4498 (1,003,722) 7.a. -------------------------------------------------------------------------------- b. TEXT 4499 4499 7.b -------------------------------------------------------------------------------- 8. Adjustments to allowance for loan and lease losses (from Schedule RI-B, part II, item 5) (itemize and describe all adjustments): a. TEXT 4521 12/31/95 ending Balance of Pooled Entities 4521 636,497 8.a. -------------------------------------------------------------------------------- b. TEXT 4522 Divested Allowance Related to Sold Loans 4522 (1,955) 8.b. -------------------------------------------------------------------------------- ----------------------- 9. Other explanations (the space below is provided for the bank to briefly describe, at its option, any other significant items affecting the Report of Income): I498 I499 <- No comment /x/ (RIAD 4769) ----------------------- Other explanations (please type or print clearly): (TEXT) 4769)
10 30 Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031 Page RC-1 Legal Title of Bank: Fleet National Bank Address: One Monarch Place City, State Zip: Springfield, MA 01102 FDIC Certificate No.: 0 2 4 9 9 --------- CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED SAVINGS BANKS FOR SEPTEMBER 30, 1996 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding as of the last business day of the quarter. SCHEDULE RC--BALANCE SHEET
C400 Dollar Amounts in Thousands RCFC Bil Mil Thou <- - ------------------------------------------------------------------------------------------------------------ ASSETS 1. Cash and balances due from depository institutions (from Schedule RC-A): a. Noninterest-bearing balances and currency and coin(1)....................... 0081 3,929,278 1.a. b. Interest-bearing balances(2)................................................ 0071 30,710 1.b. 2. Securities: a. Held-to-maturity securities (from Schedule RC-B, column A).................. 1754 284,288 2.a. b. Available-for-sale securities (from Schedule RC-B, column D)................ 1773 7,315,890 2.b. 3. Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: a. Federal funds sold.......................................................... 0276 32,521 3.a. b. Securities purchased under agreements to resell............................. 0277 0 3.b. 4. Loans and lease financing receivables: a. Loans and leases, net of unearned income (from Schedule RC-C).................................RCFD 2122 32,002,964 4.a. b. LESS: Allowance for loan and lease losses.............RCFD 3123 840,769 4.b. c. LESS: Allocated transfer risk reserve.................RCFD 3128 0 4.c. d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b and 4.c)............................................... 2125 31,162,195 4.d. 5. Trading assets (from Schedule RC-D)............................................ 3545 48,111 5. 6. Premises and fixed assets (including capitalized leases)....................... 2145 560,725 6. 7. Other real estate owned (from Schedule RC-M)................................... 2150 22,784 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M).......................................................... 2130 0 8. 9. Customers' liability to this bank on acceptances outstanding................... 2155 14,235 9. 10. Intangible assets (from Schedule RC-M)......................................... 2143 2,311,234 10. 11. Other assets (from Schedule RC-F).............................................. 2160 3,699,236 11. 12. Total assets (sum of items 1 through 11)....................................... 2170 49,411,207 12.
- ---------- (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held for trading. 11 31 Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 Address: One Monarch Place ST-BK: 25-0590 FFIEC 031 City, State Zip: Springfield, MA 01102 Page RC-2 FDIC Certificate No.: 0 2 4 9 9 --------- SCHEDULE RC--CONTINUED
----------------------- Dollar Amounts in Thousands Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------------ LIABILITIES 13. Deposits: a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I) ................................................................................. RCON 2200 33,574,312 13.a. ---------------------- (1) Noninterest-bearing(1) ...................................... RCON 6631 10,385,307 13.a.(1) (2) Interest-bearing ............................................ RCON 6636 23,189,005 13.a.(2) ---------------------- b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, part II) ................................................................................ RCFN 2200 1,817,711 13.b. ---------------------- (1) Noninterest-bearing ......................................... RCFN 6631 36 13.b.(1) (2) Interest-bearing ............................................ RCFN 6636 1,817,675 13.b.(2) ---------------------- 14. Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: a. Federal funds purchased ................................................................. RCFD 0278 4,393,064 14.a. b. Securities sold under agreements to repurchase .......................................... RCFD 0279 133,568 14.b 15. a. Demand notes issued to the U.S. Treasury ................................................ RCON 2840 1,589,048 15.a. b. Trading liabilities (from Schedule RC-D) ................................................ RCFD 3548 34,078 15.b. 16. Other borrowed money: a. With a remaining maturity of one year or less ........................................... RCFD 2332 575,600 16.a. b. With a remaining maturity of more than one year ......................................... RCFD 2333 647,284 16.b. 17. Mortgage indebtedness and obligations under capitalized leases ............................. RCFD 2910 11,403 17. 18. Bank's liability on acceptances executed and outstanding ................................... RCFD 2920 14,235 18. 19. Subordinated notes and debentures .......................................................... RCFD 3200 1,213,219 19. 20. Other liabilities (from Schedule RC-G) ..................................................... RCFD 2930 987,930 20. 21. Total liabilities (sum of items 13 through 20) ............................................. RCFD 2948 44,991,452 21. 22. Limited-life preferred stock and related surplus ........................................... RCFD 3282 0 22. EQUITY CAPITAL 23. Perpetual preferred stock and related surplus .............................................. RCFD 3838 125,000 23. 24. Common stock ............................................................................... RCFD 3230 19,487 24. 25. Surplus (exclude all surplus related to preferred stock) ................................... RCFD 3839 2,551,927 25. 26. a. Undivided profits and capital reserves .................................................. RCFD 3632 1,739,604 26.a b. Net unrealized holding gains (losses) on available-for-sale securities .................. RCFD 8434 (16,263) 26.b 27. Cumulative foreign currency translation adjustments ........................................ RCFD 3284 0 27. 28. Total equity capital (sum of items 23 through 27) .......................................... RCFD 3210 4,419,755 28. 29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, and 28) ................................................................................ RCFD 3300 49,411,207 29. ----------------------
Memorandum To be reported only with the March Report of Condition.
Number ------------------ 1. Indicate in the box at the right the number of the statement below that best describes the most comprehensive level of auditing work performed for the bank by independent external auditors as of any date during 1995 ........................................................... RCFD 6724 N/A M.1. ------------------
1 = Independent audit of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the bank 2 = Independent audit of the bank's parent holding company conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the consolidated holding company (but not on the bank separately) 3 = Directors' examination of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority) 4 = Directors' examination of the bank performed by other external auditors (may be required by state chartering authority) 5 = Review of the bank's financial statements by external auditors 6 = Compilation of the bank's financial statements by external auditors 7 = Other audit procedures (excluding tax preparation work) 8 = No external audit work - ------------ (1) Includes total demand deposits and noninterest-bearing time and savings deposits. 12 32 Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031 Address: One Monarch Place Page RC-3 City State Zip: Springfield, MA 01102 FDIC Certificate No.: 0 2 4 9 9 ---------

SCHEDULE RC-A--CASH AND BALANCES DUE FROM DEPOSITORY INSTITUTIONS Exclude assets held for trading.
C405 -------------------------------------------- (Column A) (Column B) Consolidated Domestic Bank Offices -------------------- --------------------- Dollar Amounts in Thousands RCFD Bil Mil Thou RCON Bil Mil Thou - ---------------------------------------------------------------------------------------------------------------------------- 1. Cash items in process of collection, unposted debits, and currency and coin..................................................................... 0022 3,629,071 1. a. Cash items in process of collection and unposted debits............... 0020 2,937,263 1.a. b. Currency and coin..................................................... 0080 691,808 1.b. 2. Balances due from depository institutions in the U.S..................... 0082 153,295 2. a. U.S. branches and agencies of foreign banks (including their IBFs).... 0083 0 2.a. b. Other commercial banks in the U.S. and other depository institutions in the U.S. (including their IBFs).................................... 0085 153,370 2.b 3. Balances due from banks in foreign countries and foreign central banks... 0070 8,998 3. a. Foreign branches of other U.S. Banks.................................. 0073 454 3.a. b. Other banks in foreign countries and foreign central banks............ 0074 9,045 3.b. 4. Balances due from Federal Reserve Banks.................................. 0090 168,048 0090 168,048 4. 5. Total (sum of items 1 through 4) (total of column A must equal Schedule RC, sum of items 1.a and 1.b)................................... 0010 3,959,988 0010 3,959,412 5. -------------------------------------------- Memorandum Dollar Amounts in Thousands RCON Bil Mil Thou - ---------------------------------------------------------------------------------------------------------------------------- Noninterest-bearing balances due from commercial banks in the U.S. (included in item 2, column B above) 0050 122,585 M.1.
SCHEDULE RC-B--SECURITIES Exclude assets held for trading.
C410 ----------------------------------------------------------------------------------------- Held-to-maturity Available-for-sale ------------------------------------------- ------------------------------------------- (Column A) (Column B) (Column C) (Column D) Amortized Cost Fair Value Amortized Cost Fair Value(1) -------------------- -------------------- -------------------- -------------------- Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou - ---------------------------------------------------------------------------------------------------------------------------- 1. U.S. Treasury securities....... 0211 250 0213 250 1286 1,501,551 1287 1,483,819 1. 2. U.S. Government agency and corporation obligations (exclude mortgage-backed securities): a. Issued by U.S. Government agencies(2)................. 1289 0 1290 0 1291 0 1293 0 2.a. b. Issued by U.S. Government- sponsored agencies(3)....... 1294 0 1295 0 1297 499 1298 503 2.b. -----------------------------------------------------------------------------------------
- ---------- (1) Includes equity securities without readily determinable fair values at historical cost in item 6.c, column D. (2) Includes Small Business Administration "Guaranteed Loan Pool Certificates," U.S. Maritime Administration obligations, and Export-Import Bank participation certificates. (3) Includes obligations (other than mortgage-backed securities) issued by the Farm Credit System, the Federal Home Loan Bank System, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Financing Corporation, Resolution Funding Corporation, the Student Loan Marketing Association, and the Tennessee Valley Authority. 13 33 Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031 Address: One Monarch Place Page RC-4 City, State Zip: Springfield, MA 01102 FDIC Certificate No.: 0 2 4 9 9 ---------

SCHEDULE RC-B--CONTINUED
Held-to-maturity Available-for-sale ------------------------------------ ---------------------------------------- (Column A) (Column B) (Column C) (Column D) Amortized Cost Fair Value Amortized Cost Fair Value(1) ----------------- ----------------- ----------------- -------------------- Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou - ----------------------------- ----------------- ----------------- ----------------- -------------------- 3. Securities issued by states and political subdivisions in the U.S.: a. General obligations...... 1676 172,838 1677 172,764 1678 0 1679 0 3.a. b. Revenue obligations...... 1681 13,265 1686 13,268 1690 0 1691 0 3.b. c. Industrial development and similar obligations.. 1694 0 1695 0 1696 0 1697 0 3.c. 4. Mortgage-backed securities (MBS): a. Pass-through securities: (1) Guaranteed by GNMA................ 1698 0 1699 0 1701 826,767 1702 821,306 4.a.(1) (2) Issued by FNMA and FHLMC........... 1703 886 1705 886 1706 4,672,031 1707 4,668,468 4.a.(2) (3) Other pass-through securities.......... 1709 4 1710 4 1711 4 1713 0 4.a.(3) b. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS): (1) Issued or guaranteed by FNMA, FHLMC, or GNMA...... 1714 0 1715 0 1716 0 1717 0 4.b.(1) (2) Collateralized by MBS issued or guaranteed by FNMA, FHLMC, or GNMA...... 1718 0 1719 0 1731 0 1732 0 4.b.(2) (3) All other mortgage- backed securities... 1733 0 1734 0 1735 481 1736 481 4.b.(3) 5. Other debt securities: a. Other domestic debt securities.............. 1737 0 1738 0 1739 715 1741 709 5.a. b. Foreign debt securities.............. 1742 97,045 1743 84,773 1744 0 1746 0 5.b. 6. Equity securities: a. Investments in mutual funds................... 1747 28,870 1748 28,870 6.a. b. Other equity securities with readily determin- able fair values........ 1749 0 1751 0 6.b. c. All other equity securities(1)........... 1752 311,734 1753 311,734 6.c. 7. Total (sum of items 1 through 6) (total of column A must equal Schedule RC, item 2.a) (total of column D must equal Schedule RC, item 2.b).................. 1754 284,288 1771 271,945 1772 7,342,648 1773 7,315,890 7.
- ------------------ (1) Includes equity securities without readily determinable fair values at historical cost in item 6.c, column D. 14 34 Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 Address: One Monarch Place ST-BK: 25-0590 FFIEC 031 City, State Zip: Springfield, MA 01102 Page RC-5 FDIC Certificate No.: 0 2 4 9 9 --------- SCHEDULE RC-B--CONTINUED
-------- Memoranda C412 -------------------- Dollar Amounts in Thousands RCFD Bil Mil Thou - -------------------------------------------------------------------------------------------------------------- 1. Pledged securities(2) ................................................................. 0416 3,825,264 M.1. 2. Maturity and repricing data for debt securities(2), (3), (4) (excluding those in nonaccrual status): a. Fixed rate debt securities with a remaining maturity of: (1) Three months or less ........................................................... 0343 70,352 M.2.a.(1) (2) Over three months through 12 months ............................................ 0344 102,839 M.2.a.(2) (3) Over one year through five years ............................................... 0345 2,792,361 M.2.a.(3) (4) Over five years ................................................................ 0346 2,959,066 M.2.a.(4) (5) Total fixed rate debt securities (sum of Memorandum items 2.a.(1) through 2.a.(4) ........................................................................ 0347 5,924,618 M.2.a.(5) b. Floating rate debt securities with a repricing frequency of: (1) Quarterly or more frequently ................................................... 4544 504,558 M.2.b.(1) (2) Annually or more frequently, but less frequently than quarterly ................ 4545 830,398 M.2.b.(2) (3) Every five years or more frequently, but less frequently than annually ......... 4551 0 M.2.b.(3) (4) Less frequently than every five years .......................................... 4552 0 M.2.b.(4) (5) Total floating rate debt securities (sum of Memorandum items 2.b.(1) through 2.b.(4) ........................................................................ 4553 1,334,956 M.2.b.(5) c. Total debt securities (sum of Memorandum items 2.a.(5) and 2.b.(5)) (must equal total debt securities from Schedule RC-B, sum of items 1 through 5, columns A and D, minus nonaccrual debt securities included in Schedule RC-N, item 9, column C) ...... 0393 7,259,574 M.2.c. 3. Not applicable 4. Held-to-maturity debt securities restructured and in compliance with modified terms (included in Schedule RC-B, items 3 through 5, column A, above) ....................... 5365 0 M.4. 5. Not applicable 6. Floating rate debt securities with a remaining maturity of one year or less(2), (4) (included in memorandum items 2.b.(1) through 2.b.(4) above) .......................... 5519 4,700 M.6. 7. Amortized cost of held-to-maturity securities sold or transferred to available-for- sale or trading securities during the calendar year-to-date (report the amortized cost at date of sale or transfer) .......................................................... 1778 0 M.7. 8. High-risk mortgage securities (included in the held-to-maturity and available-for-sale accounts in Schedule RC-B, item 4.b): a. Amortized cost ..................................................................... 8780 0 M.8.a. b. Fair value ......................................................................... 8781 0 M.8.b. 9. Structured notes (included in the held-to-maturity and available-for-sale accounts in Schedule RC-B, items 2, 3, and 5): a. Amortized cost ..................................................................... 8782 0 M.9.a. b. Fair value ......................................................................... 8783 0 M.9.b. ---------------------
- -------------- (2) Includes held-to-maturity securities at amortized cost and available-for- sale securities at fair value. (3) Excludes equity securities, e.g., investments in mutual funds, Federal Reserve stock, common stock, and preferred stock. (4) Memorandum items 2 and 6 are not applicable to savings banks that must complete supplemental Schedule RC-J. 15 35 Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 Address: One Monarch Place ST-BK: 25-0590 FFIEC 031 City, State Zip: Springfield, MA 01102 Page RC-6 FDIC Certificate No.: 0 2 4 9 9 --------- SCHEDULE RC-C--LOANS AND LEASE FINANCING RECEIVABLES PART I. LOANS AND LEASES Do not deduct the allowance for loan and lease losses from amounts reported in this schedule. Report total loans and leases, net of unearned income. Exclude assets held for trading.
C415 ----------------------- ----------------------- (Column A) (Column B) Consolidated Domestic Bank Offices ----------------------- ----------------------- Dollar Amounts in Thousands RCFD Bil Mil Thou RCON Bil Mil Thou - ------------------------------------------------------------- ----------------------- ----------------------- 1. Loans secured by real estate............................. 1410 11,784,177 1. a. Construction and land development...................... 1415 548,373 1.a. b. Secured by farmland (including farm residential and other improvements).................................... 1420 2,097 1.b. c. Secured by 1-4 family residential properties: (1) Revolving, open-end loans secured by 1-4 family residential properties and extended under lines of credit.......................................... 1797 1,993,022 1.c.(1) (2) All other loans secured by 1-4 family residential properties: (a) Secured by first liens......................... 5367 4,386,615 1.c.(2)(a) (b) Secured by junior liens........................ 5368 492,852 1.c.(2)(b) d. Secured by multifamily (5 or more) residential properties............................................. 1460 534,555 1.d. e. Secured by nonfarm nonresidential properties........... 1480 3,826,663 1.e. 2. Loans to depository institutions: a. To commercial banks in the U.S. ....................... 1505 184,751 2.a. (1) To U.S. branches and agencies of foreign banks.... 1506 0 2.a.(1) (2) To other commercial banks in the U.S. ............ 1507 184,751 2.a.(2) b. To other depository institutions in the U.S. ......... 1517 13,595 1517 13,595 2.b. c. To banks in foreign countries......................... 1510 1,346 2.c. (1) To foreign branches of other U.S. banks........... 1513 160 2.c.(1) (2) To other banks in foreign countries............... 1516 1,186 2.c.(2) 3. Loans to finance agricultural production and other loans to farmers......................................... 1590 5,208 1590 5,208 3. 4. Commercial and industrial loans: a. To U.S. addressees (domicile)......................... 1763 13,126,493 1763 13,078,732 4.a. b. To non-U.S. addressees (domicile)..................... 1764 63,365 1764 30,053 4.b. 5. Acceptances of other banks: a. Of U.S. banks......................................... 1756 0 1756 0 5.a. b. Of foreign banks...................................... 1757 0 1757 0 5.b. 6. Loans to individuals for household, family, and other personal expenditures (i.e., consumer loans) (includes purchased paper)......................................... 1975 2,129,035 6. a. Credit cards and related plans (includes check credit and other revolving credit plans)..................... 2008 98,959 6.a. b. Other (includes single payment, installment, and all student loans)........................................ 2011 2,030,076 6.b. 7. Loans to foreign governments and official institutions (including foreign central banks)........................ 2081 0 2081 0 7. 8. Obligations (other than securities and leases) of states and political subdivisions in the U.S. (includes nonrated industrial development obligations)... 2107 155,642 2107 155,642 8. 9. Other loans.............................................. 1563 2,082,709 9. a. Loans for purchasing or carrying securities (secured and unsecured)............................... 1545 157,698 9.a. b. All other loans (exclude consumer loans).............. 1564 1,925,011 9.b. 10. Lease financing receivables (net of unearned income).... 2165 2,456,643 10. a. Of U.S. addressees (domicile)......................... 2182 2,456,643 10.a. b. Of non-U.S. addressees (domicile)..................... 2183 0 10.b. 11. LESS: Any unearned income on loans reflected in items 1-9 above.......................................... 2123 0 2123 0 11. 12. Total loans and leases, net of unearned income (sum of items 1 through 10 minus item 11) (total of column A must equal Schedule RC, item 4.a)............... 2122 32,002,964 2122 31,921,891 12.
16 36 Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 Address: One Monarch Place ST-BK: 25-0590 FFIEC 031 City, State Zip: Springfield, MA 01102 Page RC-7 FDIC Certificate No.: 0 2 4 9 9 --------- SCHEDULE RC-C--CONTINUED PART I. CONTINUED
(Column A) (Column B) Consolidated Domestic Bank Offices ----------------- ----------------- Memoranda Dollar Amounts in Thousands RCFD Bil Mil Thou RCON Bil Mil Thou - -------------------------------------------------------------------------------- ----------------- ----------------- 1. Commercial paper included in Schedule RC-C, part I, above .................. 1496 0 1496 0 M.1. 2. Loans and leases restructured and in compliance with modified terms (included in Schedule RC-C, part I, above and not reported as past due or nonaccrual in Schedule RC-N, Memorandum item 1): a. Loans secured by real estate: (1) To U.S. addressees (domicile) ...................................... 1687 6,593 M.2.a.(1) (2) To non-U.S. addressees (domicile) .................................. 1689 0 M.2.a.(2) b. All other loans and all lease financing receivables (exclude loans to individuals for household, family, and other personal expenditures) .... 8691 1,770 M.2.b. c. Commercial and industrial loans to and lease financing receivables of non-U.S. addresses (domicile) included in Memorandum item 2.b above................................................................... 8692 0 M.2.c. 3. Maturity and repricing data for loans and leases(1) (excluding those in nonaccrual status): a. Fixed rate loans and leases with a remaining maturity of: (1) Three months or less ............................................... 0348 1,695,265 M.3.a.(1) (2) Over three months through 12 months ............................... 0349 1,681,892 M.3.a.(2) (3) Over one year through five years ................................... 0356 5,059,493 M.3.a.(3) (4) Over five years .................................................... 0357 1,758,418 M.3.a.(4) (5) Total fixed rate loans and leases (sum of Memorandum items 3.a.(1) through 3.a.(4))...................................... 0358 10,195,068 M.3.a.(5) b. Floating rate loans with a repricing frequency of: (1) Quarterly or more frequently ....................................... 4554 18,981,879 M.3.b.(1) (2) Annually or more frequently, but less frequently than quarterly .... 4555 1,675,386 M.3.b.(2) (3) Every five years or more frequently, but less frequently than annually ........................................................... 4561 758,500 M.3.b.(3) (4) Less frequently than every five years .............................. 4564 79,024 M.3.b.(4) (5) Total floating rate loans (sum of Memorandum items 3.b.(1) through 3.b.(4)) ................................................... 4567 21,494,789 M.3.b.(5) c. Total loans and leases (sum of Memorandum items 3.a.(5) and 3.b.(5)) (must equal the sum of total loans and leases, net, from Schedule RC-C, part I, item 12, plus unearned income from Schedule RC-C, part I, item 11, minus total nonaccrual loans and leases from Schedule RC-N, sum of items 1 through 8, column C) ......... 1479 31,689,857 M.3.c. d. Floating rate loans with a remaining maturity of one year or less (included in Memorandum items 3.b.(1) through 3.b.(4) above) ........... A246 0 M.3.d. 4. Loans to finance commercial real estate, construction, and land development activities (not secured by real estate) included in Schedule RC-C, part I, items 4 and 9, column A, page RC-6(2) ............... 2746 305,298 M.4. 5. Loans and leases held for sale (included in Schedule RC-C, part I, above) ..................................................................... 5369 0 M.5. ------------------------ 6. Adjustable rate closed-end loans secured by first liens on 1-4 family RCON Bil Mil Thou residential properties (included in Schedule RC-C, part I, item 1.c.(2)(a), ------------------------ column B, page RC-6) ....................................................... 5370 1,706,916 M.6. - -------------- (1) Memorandum item 3 is not applicable to savings banks that must complete supplemental Schedule RC-J. (2) Exclude loans secured by real estate that are included in Schedule RC-C, part I, item 1, column A.
17 37 Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031 Address: One Monarch Place Page RC-8 City, State Zip: Springfield, MA 01102 FDIC Certificate No.: 0 2 4 9 9 ---------

SCHEDULE RC-D--TRADING ASSETS AND LIABILITIES Schedule RC-D is to be completed only by banks with $1 billion or more in total assets or with $2 billion or more in par/notional amount of off-balance sheet derivative contracts (as reported in Schedule RC-L, items 14.a through 14.e, columns A through D).
----- C420 ----------------------- Dollar Amounts in Thousands Bil Mil Thou - -------------------------------------------------------------------------------------------------- ----------------------- ASSETS 1. U.S. Treasury securities in domestic offices ................................................ RCON 3531 0 1. 2. U.S. Government agency and corporation obligations in domestic offices (exclude mortgage- backed securities) .......................................................................... RCON 3532 0 2. 3. Securities issued by states and political subdivisions in the U.S. in domestic offices ...... RCON 3533 0 3. 4. Mortgage-backed securities (MBS) in domestic offices: a. Pass-through securities issued or guaranteed by FNMA, FHLMC, or GNMA ..................... RCON 3534 0 4.a. b. Other mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or GNMA (include CMOs, REMICs, and stripped MBS) ................................................. RCON 3535 0 4.b. c. All other mortgage-backed securities ..................................................... RCON 3536 0 4.c. 5. Other debt securities in domestic offices ................................................... RCON 3537 0 5. 6. Certificates of deposit in domestic offices ................................................. RCON 3538 0 6. 7. Commercial paper in domestic offices ........................................................ RCON 3539 0 7. 8. Bankers acceptances in domestic offices ..................................................... RCON 3540 0 8. 9. Other trading assets in domestic offices .................................................... RCON 3541 0 9. 10. Trading assets in foreign offices ........................................................... RCFN 3542 0 10. 11. Revaluation gains on interest rate, foreign exchange rate, and other commodity and equity contracts: a. In domestic offices ...................................................................... RCON 3543 43,581 11.a. b. In foreign offices ....................................................................... RCFN 3544 4,530 11.b. 12. Total trading assets (sum of items 1 through 11) (must equal Schedule RC, item 5) ........... RCFD 3545 48,111 12. ----------------------- LIABILITIES Bil Mil Thou ----------------------- 13. Liability for short positions ............................................................... RCFD 3546 0 13. 14. Revaluation losses on interest rate, foreign exchange rate, and other commodity and equity contracts ................................................................................... RCFD 3547 34,078 14. 15. Total trading liabilities (sum of items 13 and 14) (must equal Schedule RC, item 15.b) ...... RCFD 3548 34,078 15. -----------------------
18 38 Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 Address: One Monarch Place ST-BK: 25-0590 FFIEC 031 City, State Zip: Springfield, MA 01102 Page RC-9 FDIC Certificate No.: 0 2 4 9 9 --------- SCHEDULE RC-E--DEPOSIT LIABILITIES PART I. DEPOSITS IN DOMESTIC OFFICES
-------- C425 --------------------------------------------------------------- Nontransaction Transaction Accounts Accounts ------------------------------------------- --------------- (Column A) (Column B) (Column C) Total transaction Memo: Total Total accounts (including demand deposits nontransaction total demand (included in accounts deposits) column A) (including MMDAs) ------------------- ------------------- ------------------- Dollar Amounts in Thousands RCON Bil Mil Thou RCON Bil Mil Thou RCON Bil Mil Thou - ------------------------------------------------------ ------------------- ------------------- ------------------- Deposits of: 1. Individuals, partnerships, and corporations ....... 2201 9,213,807 2240 8,820,326 2346 21,863,734 1. 2. U.S. Government ................................... 2202 36,789 2280 36,769 2520 29,856 2. 3. States and political subdivisions in the U.S. ..... 2203 683,890 2290 461,287 2530 680,014 3. 4. Commercial banks in the U.S. ...................... 2206 653,505 2310 653,505 2550 771 4. 5. Other depository institutions in the U.S. ......... 2207 225,732 2312 225,732 2349 2,968 5. 6. Banks in foreign countries ........................ 2213 11,881 2320 11,881 2236 0 6. 7. Foreign governments and official institutions (including foreign central banks) ................. 2216 1,386 2300 1,386 2377 0 7. 8. Certified and official checks ..................... 2330 169,979 2330 169,979 8. 9. Total (sum of items 1 through 8) (sum of columns A and C must equal Schedule RC, item 13.a) ........................................ 2215 10,996,969 2210 10,380,865 2385 22,577,343 9. ------------------- ------------------- -------------------
Memoranda
Dollar Amounts in Thousands RCON Bil Mil Thou - ----------------------------------------------------------------------------------------------------- ----------------- 1. Selected components of total deposits (i.e., sum of item 9, columns A and C): a. Total Individual Retirement Accounts (IRAs) and Keogh Plan accounts .......................... 6835 2,679,044 M.1.a. b. Total brokered deposits ...................................................................... 2365 1,542,597 M.1.b. c. Fully insured brokered deposits (included in Memorandum item 1.b above): (1) Issued in denominations of less than $100,000 ............................................ 2343 2,240 M.1.c.(1) (2) Issued either in denominations of $100,000 or in denominations greater than $100,000 and participated out by the broker in shares of $100,000 or less ................ 2344 1,540,357 M.1.c.(2) d. Maturity data for brokered deposits: (1) Brokered deposits issued in denominations of less than $100,000 with a remaining maturity of one year or less (included in Memorandum item 1.c.(1) above) ................. A243 110 M.1.d.(a) (2) Brokered deposits issued in denominations of $100,000 or more with a remaining maturity of one year or less (included in Memorandum item 1.b above) ..................... A244 601,205 M.1.d.(2) e. Preferred deposits (uninsured deposits of states and political subdivisions in the U.S. reported in item 3 above which are secured or collateralized as required under state law) .... 5590 477,275 M.1.e. 2. Components of total nontransaction accounts (sum of Memorandum items 2.a through 2.d must equal item 9, column C above): a. Savings deposits: (1) Money market deposit accounts (MMDAs) .................................................... 6810 10,310,776 M.2.a.(1) (2) Other savings deposits (excludes MMDAs) .................................................. 0352 2,519,554 M.2.a.(2) b. Total time deposits of less than $100,000 .................................................... 6648 7,097,828 M.2.b. c. Time certificates of deposit of $100,000 or more ............................................. 6645 2,649,185 M.2.c. d. Open-account time deposits of $100,000 or more ............................................... 6646 0 M.2.d. 3. All NOW accounts (included in column A above) .................................................... 2398 616,104 M.3. ------------------- 4. Not applicable
19 39 Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031 Legal Title of Bank: Fleet National Bank Page PR-10 Address: One Monarch Place City, State Zip: Springfield, MA 01102 FDIC Certificate No.: 0 2 4 9 9 --------- SCHEDULE RC-E--CONTINUED PART I. CONTINUED Memoranda (continued)
Dollar Amounts in Thousands RCON Bil Mil Thou - -------------------------------------------------------------------------------------------------------------------- 5. Maturity and repricing data for time deposits of less than $100,000 (sum of Memorandum items 5.a.(1) through 5.b.(3) must equal memorandum item 2.b above):(1) a. Fixed rate time deposits of less than $100,000 with a remaining maturity of: (1) Three months or less ................................................................ A225 1,708,719 M.5.a.(1) (2) Over three months through 12 months ................................................. A226 3,119,370 M.5.a.(2) (3) Over one year ....................................................................... A227 2,182,483 M.5.a.(3) b. Floating rate time deposits of less than $100,000 with a repricing frequency of: (1) Quarterly or more frequently ........................................................ A228 87,256 M.5.b.(1) (2) Annually or more frequently, but less frequently than quarterly ..................... A229 0 M.5.b.(2) (3) Less frequently than annually ....................................................... A230 0 M.5.b.(3) c. Floating rate time deposits of less than $100,000 with a remaining maturity of one year or less (included in memorandum items 5.b.(1) through 5.b.(3) above) ........... A231 59,897 M.5.c. 6. Maturity and repricing data for time deposits of $100,000 or more (i.e., time certificates of deposit of $100,000 or more and open-account time deposits of $100,000 or more) (sum of Memorandum items 6.a.(1) through 6.b.(4) must equal the sum of Memorandum items 2.c and 2.d above):(1) a. Fixed rate time deposits of $100,000 or more with a remaining maturity of: (1) Three months or less ................................................................ A232 660,156 M.6.a.(1) (2) Over three months through 12 months ................................................. A233 868,600 M.6.a.(2) (3) Over one year through five years .................................................... A234 1 ,111,843 M.6.a.(3) (4) Over five years ..................................................................... A235 8,586 M.6.a.(4) b. Floating rate time deposits of $100,000 or more with a repricing frequency of: (1) Quarterly or more frequently ........................................................ A236 0 M.6.b.(1) (2) Annually or more frequently, but less frequently than quarterly ..................... A237 0 M.6.b.(2) (3) Every five years or more frequently, but less frequently than annually .............. A238 0 M.6.b.(3) (4) Less frequently than every five years ............................................... A239 0 M.6.b.(4) c. Floating rate time deposits of $100,000 or more with a remaining maturity of one year or less (included in Memorandum items 6.b.(1) through 6.b.(4) above) ........... A240 0 M.6.c. -----------------
- -------------------- (1) Memorandum items 5 and 6 are not applicable to savings banks that must complete supplemental Schedule RC-J. 20 40 Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031 Legal Title of Bank: Fleet National Bank Page RC-11 Address: One Monarch Place City, State Zip: Springfield, MA 01102 FDIC Certificate No.: 0 2 4 9 9 --------- SCHEDULE RC-E--CONTINUED PART II. DEPOSITS IN FOREIGN OFFICES (INCLUDING EDGE AND AGREEMENT SUBSIDIARIES AND IBFS)
------------------------- Dollars Amounts in Thousands RCFN Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------ Deposits of: 1. Individuals, partnerships, and corporations........................................... 2621 1,746,651 1. 2. U.S. banks (including IBFs and foreign branches of U.S. banks) ....................... 2623 0 2. 3. Foreign banks (including U.S. branches and agencies of foreign banks, including their IBFs)............................................................... 2625 0 3. 4. Foreign governments and official institutions (including foreign central banks)....... 2650 0 4. 5. Certified and official checks ........................................................ 2330 0 5. 6. All other deposits.................................................................... 2668 71,060 6. 7. Total (sum of items 1 through 6) (must equal Schedule RC, item 13.b).................. 2200 1,817,711 7. ------------------------- Memorandum Dollars Amounts in Thousands RCFN Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------ 1. Time deposits with a remaining maturity of one year or less (included in Part II, item 7 above)................................................ A245 1,817,674 M.1.
SCHEDULE RC-F--OTHER ASSETS
C430 ----------------------------- Dollars Amounts in Thousands Bil Mil Thou - ---------------------------------------------------------------------------------------------------------------------- 1. Income earned, not collected on loans................................................. RCFD 2164 161,790 1. 2. Net deferred tax assets(1)............................................................ RCFD 2148 0 2. 3. Excess residential mortgage servicing fees receivable................................. RCFD 5371 153,788 3. 4. Other (itemize and describe amounts that exceed 25% of this item)..................... RCFD 2168 3,383,658 4. ------------- -------------------------- a. TEXT 3549 Mortgages Held For Resale RCFD 3549 1,555,298 4.a. ------------- ------------------------------------------ b. TEXT 3550 RCFD 3550 4.b. ------------- ------------------------------------------ c. TEXT 3551 RCFD 3551 4.c. ----------------------------------------------------------------------------------- 5. Total (sum of items 1 through 4) (must equal Schedule RC, item 11).................... RCFD 2160 3,699,236 5. ------------------------- Memorandum Dollars Amounts in Thousands RCFN Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------ 1. Deferred tax assets disallowed for regulatory capital purposes........................ RCFD 5610 0 M.1.
SCHEDULE RC-G--OTHER LIABILITIES
C435 ----------------------------- Dollars Amounts in Thousands Bil Mil Thou - ---------------------------------------------------------------------------------------------------------------------- 1. a. Interest accrued and unpaid on deposits in domestic offices(2)..................... RCON 3645 47,460 1.a. b. Other expenses accrued and unpaid (includes accrued income taxes payable).......... RCFD 3646 565,126 1.b. 2. Net deferred tax liabilities(1)....................................................... RCFD 3049 268,231 2. 3. Minority interest in consolidated subsidiaries........................................ RCFD 3000 0 3. 4. Other (itemize and describe amounts that exceed 25% of this item)..................... RCFD 2938 107,113 4. ------------- -------------------------- a. TEXT 3552 RCFD 3552 4.a. ------------- ------------------------------------------ b. TEXT 3553 RCFD 3553 4.b. ------------- ------------------------------------------ c. TEXT 3554 RCFD 3554 4.c. ----------------------------------------------------------------------------------- 5. Total (sum of items 1 through 4) (must equal Schedule RC, item 20).................... RCFD 2930 987,930 5.
- -------------- (1) See discussion of deferred income taxes in Glossary entry on"income taxes." For savings banks, include "dividends" accrued and unpaid on deposits. 21 41 Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031 Legal Title of Bank: Fleet National Bank Page RC-12 Address: One Monarch Place City, State Zip: Springfield, MA 01102 FDIC Certificate No.: 0 2 4 9 9 --------- SCHEDULE RC-H--SELECTED BALANCE SHEET ITEMS FOR DOMESTIC OFFICES
-------- C440 <- -------------------- Domestic Offices -------------------- Dollar Amounts in Thousands RCON Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------------- 1. Customers' liability to this bank on acceptances outstanding .................................. 2155 14,235 1. 2. Bank's liability on acceptances executed and outstanding ...................................... 2920 14,235 2. 3. Federal funds sold and securities purchased under agreements to resell ........................ 1350 32,521 3. 4. Federal funds purchased and securities sold under agreements to repurchase .................... 2800 4,526,632 4. 5. Other borrowed money .......................................................................... 3190 1,222,884 5. EITHER //////////////////// 6. Net due from own foreign offices, Edge and Agreement subsidiaries, and IBFs ................... 2163 N/A 6. OR //////////////////// 7. Net due to own foreign offices, Edge and Agreement subsidiaries, and IBFs ..................... 2941 1,800,174 7. 8. Total assets (excludes net due from foreign offices, Edge and Agreement subsidiaries, and //////////////////// IBFs) ......................................................................................... 2192 49,324,712 8. 9. Total liabilities (excludes net due to foreign offices, Edge and Agreement subsidiaries, and //////////////////// IBFs) ......................................................................................... 3129 43,104,783 9. -------------------- Items 10-17 include held-to-maturity and available-for-sale securities in domestic offices. -------------------- RCON Bil Mil Thou -------------------- 10. U.S. Treasury securities ...................................................................... 1779 1,484,069 10. 11. U.S. Government agency and corporation obligations (exclude mortgage-backed //////////////////// securities) ................................................................................... 1785 503 11. 12. Securities issued by states and political subdivisions in the U.S. ............................ 1786 186,103 12. 13. Mortgage-backed securities (MBS): //////////////////// a. Pass-through securities: //////////////////// (1) Issued or guaranteed by FNMA, FHLMC, or GNMA ........................................... 1787 5,490,660 13.a.(1) (2) Other pass-through securities .......................................................... 1869 4 13.a.(2) b. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS): //////////////////// (1) Issued or guaranteed by FNMA, FHLMC, or GNMA ........................................... 1877 0 13.b.(1) (2) All other mortgage-backed securities ................................................... 2253 481 13.b.(2) 14. Other domestic debt securities ................................................................ 3159 709 14. 15. Foreign debt securities ....................................................................... 3160 97,045 15. 16. Equity securities: //////////////////// a. Investments in mutual funds ................................................................ 3161 28,870 16.a. b. Other equity securities with readily determinable fair values .............................. 3162 0 16.b. c. All other equity securities ................................................................ 3169 311,734 16.c. 17. Total held-to-maturity and available-for-sale securities (sum of items 10 through 16) ......... 3170 7,600,178 17. -------------------- Memorandum (to be completed only by banks with ibfs and other "foreign" offices) -------------------- Dollar Amounts in Thousands RCON Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------------- EITHER //////////////////// 1. Net due from the IBF of the domestic offices of the reporting bank ............................ 3051 0 M.1. OR //////////////////// 2. Net due to the IBF of the domestic offices of the reporting bank .............................. 3059 N/A M.2. --------------------
22 42 Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031 Legal Title of Bank: Fleet National Bank Page RC-13 Address: One Monarch Place City, State Zip: Springfield, MA 01102 FDIC Certificate No.: 0 2 4 9 9 --------- SCHEDULE RC-I--SELECTED ASSETS AND LIABILITIES OF IBFs To be completed only by banks with IBFs and other "foreign" offices.
C445 -------------------- Dollar Amounts in Thousands RCFN Bil Mil Thou - --------------------------------------------------------------------------------------------------------------------- 1. Total IBF assets of the consolidated bank (component of Schedule RC, item 12)............... 2133 0 1. 2. Total IBF loans and lease financing receivables (component of Schedule RC-C, part I, item 12, column A........................................................................... 2076 0 2. 3. IBF commercial and industrial loans (component of Schedule RC-C, part I, item 4, column A)................................................................................... 2077 0 3. 4. Total IBF liabilities (component of Schedule RC, item 21)................................... 2898 0 4. 5. IBF deposit liabilities due to banks, including other IBFs (component of Schedule RC-E, part II, items 2 and 3)..................................................................... 2379 0 5. 6. Other IBF deposit liabilities (component of Schedule RC-E, part II, items 1, 4, 5 and 6).... 2381 0 6. --------------------
SCHEDULE RC-K--QUARTERLY AVERAGES(1)
C455 ------------------------------ Dollar Amounts in Thousands Bil Mil Thou - --------------------------------------------------------------------------------------------------------------------- ASSETS 1. Interest-bearing balances due from depository institutions........................ RCFD 3381 11,877 1. 2. U.S. Treasury securities and U.S. Government agency and corporation obligations(2).................................................................... RCFD 3382 7,015,138 2. 3. Securities issued by states and political subdivisions in the U.S.(2)............. RCFD 3383 170,402 3. 4. a. Other debt securities(2)....................................................... RCFD 3647 98,284 4.a. b. Equity securities(3) (includes investments in mutual funds and Federal Reserve stock)................................................................. RCFD 3648 347,251 4.b. 5. Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs....................................................................... RCFD 3365 34,682 5. Loans: a. Loans in domestic offices: (1) Total loans................................................................ RCON 3360 28,984,270 6.a.(1) (2) Loans secured by real estate............................................... RCON 3385 11,632,311 6.a.(2) (3) Loans to finance agricultural production and other loans to farmers........ RCON 3386 5,556 6.a.(3) (4) Commercial and industrial loans............................................ RCON 3387 12,739,363 6.a.(4) (5) Loans to individuals for household, family, and other personal expenditures............................................................... RCON 3388 2,145,195 6.a.(5) b. Total loans in foreign offices, Edge and Agreement subsidiaries, and IBFs...... RCFN 3360 70,538 6.b. 7. Trading assets.................................................................... RCFD 3401 78,267 7. 8. Lease financing receivables (net of unearned income).............................. RCFD 3484 2,345,903 8. 9. Total assets(4)................................................................... RCFD 3368 48,195,765 9. LIABILITIES 10. Interest-bearing transaction accounts in domestic offices (NOW accounts, ATS accounts, and telephone and preauthorized transfer accounts) (exclude demand deposits)......................................................................... RCON 3485 621,447 10. 11. Nontransaction accounts in domestic offices: a. Money market deposit accounts (MMDAs).......................................... RCON 3486 9,575,516 11.a. b. Other savings deposits......................................................... RCON 3487 3,366,546 11.b. c. Time certificates of deposit of $100,000 or more............................... RCON 3345 2,591,101 11.c. d. All other time deposits........................................................ RCON 3469 7,248,888 11.d. 12. Interest-bearing deposits in foreign offices, Edge and Agreement subsidiaries, and IBFs.......................................................................... RCFN 3404 1,891,869 12. 13. Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs.............................................................................. RCFD 3353 5,441,316 13. 14. Other borrowed money.............................................................. RCFD 3355 1,166,403 14. -------------------------------
- ---------- (1) For all items, banks have the option of reporting either (1) an average of daily figures for the quarter, or (2) an average of weekly figures (i.e., the Wednesday of each week of the quarter). (2) Quarterly averages for all debt securities should be based on amortized cost. (3) Quarterly averages for all equity securities should be based on historical cost. (4) The quarterly average for total assets should reflect all debt securities (not held for trading) at amortized cost, equity securities with readily determinable fair values at the lower of cost or fair value, and equity securities without readily determinable fair values at historical cost. 23 43 Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031 Address: One Monarch Place Page RC-14 City, State Zip: Springfield, MA 01102 FDIC Certificate No.: 0 2 4 9 9 ---------

Schedule RC-L--Off-Balance Sheet Items Please read carefully the instructions for the preparation of Schedule RC-L. Some of the amounts reported in Schedule RC-L are regarded as volume indicators and not necessarily as measures of risk.
C460 ----------------------- Dollar Amounts in Thousands RCFD Bil Mil Thou - ---------------------------------------------------------------------------------- ----------------------- 1. Unused commitments: a. Revolving, open-end lines secured by 1-4 family residential properties, e.g., home equity lines.................................................... 3814 1,603,462 1.a. b. Credit card lines.......................................................... 3815 35,582 1.b. c. Commercial real estate, construction, and land development: (1) Commitments to fund loans secured by real estate....................... 3816 447,874 1.c.(1) (2) Commitments to fund loans not secured by real estate................... 6550 467,237 1.c.(2) d. Securities underwriting.................................................... 3817 0 1.d. e. Other unused commitments................................................... 3818 18,958,713 1.e. 2. Financial standby letters of credit and foreign office guarantees............. 3819 2,194,339 2. a. Amount of financial standby letters of credit conveyed to others RCFD 3820 85,446 2.a. 3. Performance standby letters of credit and foreign office guarantees........... 3821 173,093 3. a. Amount of performance standby letters of credit conveyed to others RCFD 3822 11,025 3.a. 4. Commercial and similar letters of credit...................................... 3411 155,635 4. 5. Participations in acceptances (as described in the instructions) conveyed to others by the reporting bank...................................... 3428 13,822 5. 6. Participations in acceptances (as described in the instructions) acquired by the reporting (nonaccepting) bank................................. 3429 11,805 6. 7. Securities borrowed........................................................... 3432 0 7. 8. Securities lent (including customers' securities lent where the customer is indemnified against loss by the reporting bank)............................ 3433 200,546 8. 9. Loans transferred (i.e., sold or swapped) with recourse that have been treated as sold for Call Report purposes: a. FNMA and FHLMC residential mortgage loan pools: (1) Outstanding principal balance of mortgages transferred as of the report date............................................................ 3650 239,132 9.a.(1) (2) Amount of recourse exposure on these mortgages as of the report date... 3651 239,132 9.a.(2) b. Private (nongovernment-issued or -guaranteed) residential mortgage loan pools: (1) Outstanding principal balance of mortgages transferred as of the report date............................................................ 3652 32,676 9.b.(1) (2) Amount of recourse exposure on these mortgages as of the report date... 3653 32,676 9.b.(2) c. Farmer Mac agricultural mortgage loan pools: (1) Outstanding principal balance of mortgages transferred as of the report date............................................................ 3654 0 9.c.(1) (2) Amount of recourse exposure on these mortgages as of the report date... 3655 0 9.c.(2) d. Small business obligations transferred with recourse under Section 208 of the Riegle Community Development and Regulatory Improvement Act of 1994: (1) Outstanding principal balance of small business obligations transferred as of the report date...................................... A249 0 9.d.(1) (2) Amount of retained recourse on these obligations as of the report date............................................................ A250 0 9.d.(2) 10. When-issued securities: a. Gross commitments to purchase............................................. 3434 0 10.a. b. Gross commitments to sell................................................. 3435 0 10.b. 11. Spot foreign exchange contracts............................................... 8765 1,897,509 11. 12. All other off-balance sheet liabilities (exclude off-balance sheet derivatives) (itemize and describe each component of this item over 25% of Schedule RC, item 28, "Total equity capital").............................. 3430 0 12. a. TEXT 3555 RCFD 3555 12.a. b. TEXT 3556 RCFD 3556 12.b. c. TEXT 3557 RCFD 3557 12.c. d. TEXT 3558 RCFD 3558 12.d.
24 44 Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031 Address: One Monarch Place Page RC-15 City, State Zip: Springfield, MA 01102 FDIC Certificate No.: 0 2 4 9 9 ---------

SCHEDULE RC-L--CONTINUED
----------------------------- Dollar Amounts in Thousands RCFD Bil Mil Thou - ---------------------------------------------------------------------------------------------------------------------- 13. All other off-balance sheet assets (exclude off-balance sheet derivatives) itemize and describe each component of this item over 25% of Schedule RC, item 28, "Total equity capital").................................................... 5591 0 13. ------------- -------------------------- a. TEXT 5592 RCFD 5592 13.a. ------------- ------------------------------------------ b. TEXT 5593 RCFD 5593 13.b. ------------- ------------------------------------------ c. TEXT 5594 RCFD 5594 13.c. ------------- ------------------------------------------ d. TEXT 5595 RCFD 5594 13.d. -----------------------------------------------------------------------------------

----------- C461 --------------------------------------------------------------------------------------- (Column A) (Column B) (Column C) (Column D) Dollar Amounts in Thousands Interest Rate Foreign Exchange Equity Derivative Commodity and - ------------------------------ Contracts Contracts Contracts Other Contracts Off-balance Sheet Derivatives --------------------------------------------------------------------------------------- Position Indicators Tril Bil Mil Thou Tril Bil Mil Thou Tril Bil Mil Thou Tril Bil Mil Thou - ------------------------------ --------------------------------------------------------------------------------------- 14. Gross amounts (e.g., notional amounts) (for each column, sum of items 14.a through 14.e must equal sum of items 15, 16.a, and 16.b): ---------------------- --------------------- --------------------- -------------------- 744,062 0 0 42,510 14.a. ---------------------- --------------------- --------------------- -------------------- a. Futures contracts...... RCFD 8693 RCFD 8694 RCFD 8695 RCFD 8696 ---------------------- --------------------- --------------------- -------------------- b. Forward contracts...... 2,569,500 1,809,728 0 27,422 14.b. ---------------------- --------------------- --------------------- -------------------- RCFD 8697 RCFD 8698 RCFD 8699 RCFD 8700 ---------------------- --------------------- --------------------- -------------------- c. Exchange-traded option contracts: ---------------------- --------------------- --------------------- -------------------- (1) Written options.... 0 0 0 0 14.c.(1) ---------------------- --------------------- --------------------- -------------------- RCFD 8701 RCFD 8702 RCFD 8703 RCFD 8704 ---------------------- --------------------- --------------------- -------------------- (2) Purchased options.. 902,500 0 0 1,746 14.c.(2) ---------------------- --------------------- --------------------- -------------------- d. Over-the-counter option contracts: RCFD 8705 RCFD 8706 RCFD 8707 RCFD 8708 ---------------------- --------------------- --------------------- -------------------- (1) Written options.... 1,251,332 1,443 0 0 14.d.(1) ---------------------- --------------------- --------------------- -------------------- RCFD 8709 RCFD 8710 RCFD 8711 RCFD 8712 ---------------------- --------------------- --------------------- -------------------- (2) Purchased options.. 13,125,235 1,443 0 0 14.d.(2) ---------------------- --------------------- --------------------- -------------------- RCFD 8713 RCFD 8714 RCFD 8715 RCFD 8716 ---------------------- --------------------- --------------------- -------------------- e. Swaps.................. 18,810,986 0 0 0 14.e. ---------------------- --------------------- --------------------- -------------------- RCFD 3450 RCFD 3826 RCFD 8719 RCFD 8720 ---------------------- --------------------- --------------------- -------------------- 15. Total gross notional amount of derivative contracts held for trading................... 5,345,761 1,812,614 0 1,746 15. ---------------------- --------------------- --------------------- -------------------- RCFD A126 RCFD A127 RCFD 8723 RCFD 8724 ---------------------- --------------------- --------------------- -------------------- 16. Total gross notional amount of derivative contracts held for purposes other than trading: ---------------------- --------------------- --------------------- -------------------- a. Contracts not marked to market................. 3,930,500 0 0 42,510 16.a. ---------------------- --------------------- --------------------- -------------------- RCFD 8725 RCFD 8726 RCFD 8727 RCFD 8728 ---------------------- --------------------- --------------------- -------------------- b. Contracts not marked to market.............. 28,127,354 0 0 27,422 16.b. ---------------------- --------------------- --------------------- -------------------- RCFD 8729 RCFD 8730 RCFD 8731 RCFD 8732 ---------------------- --------------------- --------------------- --------------------
25 45 Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 Address: One Monarch Place ST-BK: 25-0590 FFIEC 031 City, State Zip: Springfield, MA 01102 Page RC-16 FDIC Certificate No.: 0 2 4 9 9 --------- SCHEDULE RC--L--CONTINUED
------------------------------------------------------------------------------------- (Column A) (Column B) (Column C) (Column D) Dollar Amounts in Thousands Interest Rate Foreign Exchange Equity Derivative Commodity and - ----------------------------- Contracts Contracts Contracts Other Contracts Off-balance Sheet Derivatives ------------------------------------------------------------------------------------- Position Indicators RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou - -------------------------------------------------------------------------------------------------------------------------- 17. Gross fair values of derivative contracts: a. Contracts held for trading: (1) Gross positive fair value............. 8733 29,453 8734 18,658 8735 0 8736 61 17.a.(1) (2) Gross negative fair value............. 8737 20,216 8738 13,862 8739 0 8740 0 17.a.(2) b. Contracts held for purposes other than trading that are marked to market: (1) Gross positive fair value............. 8741 655 8742 0 8743 0 8744 2,261 17.b.(1) (2) Gross negative fair value 8745 4,613 8746 0 8747 0 8748 0 17.b.(2) c. Contracts held for purposes other than trading that are not marked to market: (1) Gross positive fair value............. 8749 67,825 8750 0 8751 0 8752 123 17.c.(1) (2) Gross negative fair value............. 8753 112,527 8754 0 8755 0 8756 0 17.c.(2) - --------------------------------------------------------------------------------------------------------------------------

Memoranda Dollar Amounts in Thousands RCFD Bil Mil Thou - -------------------------------------------------------------------------------------------------------------------------- 1.-2. Not applicable 3. Unused commitments with an original maturity exceeding one year that are reported in Schedule RC-L, items 1.a through 1.e, above (report only the unused portions of commitments that are fee paid or otherwise legally binding)................................................. 3833 16,723,351 M.3. a. Participations in commitments with an original maturity ------------------------ exceeding one year conveyed to others............................. RCFD 3834 | 1,632,422 M.3.a. ------------------------ 4. To be completed only by banks with $1 billion or more in total assets: Standby letters of credit and foreign office guarantees (both financial and performance) issued to non-U.S. addressees (domicile) included in Schedule RC-L, items 2 and 3, above............... 3377 332,359 M.4. 5. Installment loans to individuals for household, family, and other personal expenditures that have been securitized and sold without recourse (with servicing retained), amounts outstanding by type of loan: a. Loans to purchase private passenger automobiles (to be completed for the September report only)....................................................................... 2741 6,842 M.5.a. b. Credit cards and related plans (TO BE COMPLETED QUARTERLY)................................... 2742 0 M.5.b. c. All other consumer installment credit (including mobile home loans) (to be completed for the September report only)....................................................................... 2743 0 M.5.c. ---------------------------
26 46 Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031 Address: One Monarch Place Page RC-17 City, State Zip: Springfield, MA 01102 FDIC Certificate No.: 0 2 4 9 9 ---------

SCHEDULE RC-M--MEMORANDA
C465 ------------------- Dollar Amounts in Thousands RCFD Bil Mil Thou - --------------------------------------------------------------------------------------------------------------------- 1. Extensions of credit by the reporting bank to its executive officers, directors, principal shareholders, and their related interests as of the report date: a. Aggregate amount of all extensions of credit to all executive officers, directors, principal shareholders, and their related interests...................................... 6164 550,070 1.a b. Number of executive officers, directors, and principal shareholders to whom the amount of all extensions of credit by the reporting bank (including extensions of credit to related interests) equals or exceeds the lesser of $500,000 or 5 percent Number ---------------- of total capital as defined for this purpose in agency regulations. RCFD 6165 22 1.b ---------------- 2. Federal funds sold and securities purchased under agreements to resell with U.S. branches and agencies of foreign banks(1) (included in Schedule RC, items 3.a and 3.b)............... 3405 0 2. 3. Not applicable. 4. Outstanding principal balance of 1-4 family residential mortgage loans serviced for others (include both retained servicing and purchased servicing): a. Mortgages serviced under a GNMA contract ................................................ 5500 25,856,990 4.a. b. Mortgages serviced under a FHLMC contract: (1) Serviced with recourse to servicer................................................... 5501 54,298 4.b.(1) (2) Serviced without recourse to servicer................................................ 5502 34,252,992 4.b.(2) c. Mortgages serviced under a FNMA contract: (1) Serviced under a regular option contract............................................. 5503 184,834 4.c.(1) (2) Serviced under a special option contract............................................. 5504 40,751,543 4.c.(2) d. Mortgages serviced under other servicing contracts....................................... 5505 11,239,928 4.d. 5. To be completed only by banks with $1 billion or more in total assets: Customers' liability to this bank on acceptances outstanding (sum of items 5.a and 5.b must equal Schedule RC, item 9): a. U.S. addressees (domicile)............................................................... 2103 14,104 5.a. b. Non-U.S. addressees (domicile)........................................................... 2104 131 5.b. 6. Intangible assets: a. Mortgage servicing rights............................................................... 3164 1,534,859 6.a. b. Other identifiable intangible assets: (1) Purchased credit card relationships................................................. 5506 0 6.b.(1) (2) All other identifiable intangible assets............................................ 5507 116,198 6.b.(2) c. Goodwill................................................................................ 3163 660,177 6.c. d. Total (sum of items 6.a through 6.c) (must equal schedule RC, item 10).................. 2143 2,311,234 6.d. e. Amount of intangible assets (included in item 6.b. (2) above) that have been grandfathered or are otherwise qualifying for regulatory capital purposes............... 6442 0 6.e. 7. Mandatory convertible debt, net of common or perpetual stock dedicated to redeem the debt.. 3295 75,000 7.
- ------------ (1) Do not report federal funds sold and securities purchased under agreements to resell with other commercial banks in the U.S. in this item. 27 47 Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 Address: One Monarch Place ST-BK: 25-0590 FFIEC 031 City, State Zip: Springfield, MA 01102 Page RC-18 FDIC Certificate No.: 0 2 4 9 9 ----------- SCHEDULE RC-M--CONTINUED
------------------------- Dollar Amounts in Thousands Bil Mil Thou - --------------------------------------------------------------------------------------------------------------------- 8. a. Other real estate owned: (1) Direct and indirect investments in real estate ventures........................ RCFD 5372 0 8.a.(1) (2) All other real estate owned: (a) Construction and land development in domestic offices...................... RCON 5508 2,221 8.a.(2)(a) (b) Farmland in domestic offices............................................... RCON 5509 0 8.a.(2)(b) (c) 1-4 family residential properties in domestic offices...................... RCON 5510 9,228 8.a.(2)(c) (d) Multifamily (5 or more) residential properties in domestic offices......... RCON 5511 441 8.a.(2)(d) (e) Nonfarm nonresidential properties in domestic offices...................... RCON 5512 10,894 8.a.(2)(e) (f) In foreign offices......................................................... RCFN 5513 0 8.a.(2)(f) (3) Total (sum of items 8.a.(1) and 8.a.(2)) (Must equal Schedule RC, item 7)...... RCFD 2150 22,784 8.a.(3) b. Investments in unconsolidated subsidiaries and associated companies: (1) Direct and indirect investments in real estate ventures........................ RCFD 5374 0 8.b.(1) (2) All other investments in unconsolidated subsidiaries and associated companies.. RCFD 5375 0 8.b.(2) (3) Total (sum of items 8.b.(1) and 8.b.(2)) (must equal Schedule RC, item 8)...... RCFD 2130 0 8.b.(3) c. Total assets of unconsolidated subsidiaries and associated companies............... RCFD 5376 0 8.c. 9. Noncumulative perpetual preferred stock and related surplus included in Schedule RC, item 23, "Perpetual preferred stock and related surplus".............................. RCFD 3778 125,000 9. 10. Mutual fund and annuity sales in domestic offices during the quarter (include proprietary, private label, and third party products): a. Money market funds................................................................. RCON 6441 129,353 10.a. b. Equity securities funds............................................................ RCON 8427 105,157 10.b. c. Debt securities funds.............................................................. RCON 8428 10,646 10.c. d. Other mutual funds................................................................. RCON 8429 0 10.d. e. Annuities.......................................................................... RCON 8430 97,532 10.e. f. Sales of proprietary mutual funds and annuities (included in items 10.a through 10.e above)........................................................................ RCON 8784 220,741 10.f.

- ------------------------------------------------------------------------------------------------------------------------------------ -------------------- Memorandum Dollar Amounts in Thousands RCFD Bil Mil Thou - --------------------------------------------------------------------------------------------------------------------- 1. Interbank holdings of capital instruments (to be completed for the December report only): a. Reciprocal holdings of banking organizations' capital instruments....................... 3836 N/A M.1.a. b. Nonreciprocal holdings of banking organizations' capital instruments.................... 3837 N/A M.1.b. -------------------- - ------------------------------------------------------------------------------------------------------------------------------------
28 48 Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 Address: One Monarch Place ST-BK: 25-0590 FFIEC 031 City, State Zip: Springfield, MA 01102 Page RC-19 FDIC Certificate No.: 0 2 4 9 9 ----------- SCHEDULE RC-N--PAST DUE AND NONACCRUAL LOANS, LEASES, AND OTHER ASSETS
The FFIEC regards the information reported in ---- all of Memorandum item 1, in items 1 through 10, C470 column A, and in Memorandum items 2 through 4, -------------------------------------------------------------- <- column A, as confidential. (Column A) (Column B) (Column C) Past due Past due 90 Nonaccrual 30 through 89 days or more days and still and still accruing accruing ------------------ ------------------ ------------------ Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou - --------------------------------------------------------------------------------------------------------------------- 1. Loans secured by real estate: ////////////////// ////////////////// ////////////////// a. To U.S. addresses (domicile) ................. 1245 1246 63,732 1247 236,175 1.a. b. To non-U.S. addressees (domicile) ............ 1248 1249 0 1250 0 1.b. 2. Loans to depository institutions and acceptances ///// ////////////////// ////////////////// of other banks: ///// ////////////////// ////////////////// a. To U.S. banks and other U.S. depository ///// ////////////////// ////////////////// institutions ................................. 5377 5378 160 5379 0 2.a. b. To foreign banks ............................. 5380 5381 0 5382 0 2.b. 3. Loans to finance agricultural production and ///// ////////////////// ////////////////// other loans to farmers .......................... 1594 1597 0 1583 715 3. 4. Commercial and industrial loans: ///// ////////////////// ////////////////// a. To U.S. addressees (domicile) ................ 1251 1252 5,283 1253 60,030 4.a. b. To non-U.S. addressees (domicile) ............ 1254 1255 0 1256 0 4.b. 5. Loans to individuals for household, family, and ///// ////////////////// ////////////////// other personal expenditures: ///// ////////////////// ////////////////// a. Credit cards and related plans ............... 5383 5384 1,272 5385 968 5.a. b. Other (includes single payment, installment, ///// ////////////////// ////////////////// and all student loans) ....................... 5386 5387 22,269 5388 9,380 5.b. 6. Loans to foreign governments and official ///// ////////////////// ////////////////// institutions .................................... 5389 5390 0 5391 0 6. 7. All other loans ................................. 5459 5460 7,982 5461 645 7. 8. Lease financing receivables: ///// ////////////////// ////////////////// a. Of U.S. addressees (domicile) ................ 1257 1258 114 1259 5,194 8.a. b. Of non-U.S. addressees (domicile) ............ 1271 1272 0 1791 0 8.b. 9. Debt securities and other assets (exclude other ///// ////////////////// ////////////////// real estate owned and other repossessed assets) . 3505 3506 0 3507 25,944 9. ----- ------------------ ------------------ Amounts reported in items 1 through 8 above include guaranteed portions of past due and nonaccrual loans and leases. Report in item 10 below certain guaranteed loans and have already been included in the amounts reported in items 1 through 8. ------------------ ------------------ ------------------ RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou 10. Loans and leases reported in items 1 ------------------ ------------------ ------------------ through 8 above which are wholly or partially ///// ////////////////// ////////////////// guaranteed by the U.S. Government ............... 5612 5613 16,166 5614 15,817 10. a. Guaranteed portion of loans and leases ///// ////////////////// ////////////////// included in item 10 above .................... 5615 5616 15,781 5617 11,488 10.a. ------------------ ------------------ ------------------
29 49 Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031 Address: One Monarch Place Page RC-20 City, State Zip: Springfield, MA 01102 FDIC Certificate No.: 0 2 4 9 9 ---------

SCHEDULE RC-N -- CONTINUED
C473 ------ (Column A) (Column B) (Column C) Past Due Past Due 90 Nonaccrual 30 through 89 days or more days and still and still Memoranda accruing accruing ------------------ ------------------ ------------------ Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou --------------------------- ------------------ ------------------ ------------------ 1. Restructured loans and leases included in //// Schedule RC-N, items 1 through 8, above (and not //// reported in Schedule RC-C, part I, Memorandum //// item 2).............................................. 1658 2. Loans to finance commercial real estate, //// construction, and land development activities //// (not secured by real estate) included in ///// ////////////////// ////////////////// Schedule RC-N, items 4 and 7, above................. 6558 6559 0 6560 2,851 M.2. ---- ------------------ ------------------ 3. Loans secured by real estate in domestic offices RCON RCON Bil Mil Thou RCON Bil Mil Thou ---- ------------------ ------------------ (included in Schedule RC-N, item 1, above): ///// ////////////////// ////////////////// a. Construction and land development................ 2759 2769 589 3492 22,571 M.3.a. b. Secured by farmland.............................. 3493 3494 0 3495 159 M.3.b. c. Secured by 1-4 family residential properties: ///// ////////////////// ////////////////// (1) Revolving, open-end loans secured by ///// ////////////////// ////////////////// 1-4 family residential properties and ///// ////////////////// ////////////////// extended under lines of credit............... 5398 5399 3,769 5400 13,509 M.3.c.(1) (2) All other loans secured by 1-4 family ///// ////////////////// ////////////////// residential properties....................... 5401 5402 53,378 5403 90,447 M.3.c.(2) d. Secured by multifamily (5 or more) residential ///// ////////////////// ////////////////// properties....................................... 3499 3500 774 3501 9,472 M.3.d. e. Secured by nonfarm nonresidential properties..... 3502 3503 5,222 3504 100,017 M.3.e. ---- ------------------ ------------------

---- ------------------ (Column B) Pa Past due 90 thr? days or more ---- ------------------ RCFD RCFD Bil Mil Thou ---- ------------------ 4. Interest rate, foreign exchange rate, and other ///// ////////////////// commodity and equity contracts: ///// ////////////////// a. Book value of amounts carried as assets.......... 3522 3528 0 M.4.a. b. Replacement cost of contracts with a ///// ////////////////// positive replacement cost........................ 3529 3530 0 M.4.b.
30 50 Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 ST-BK: 25-0590 Address: One Monarch Place Page RC-21 City, State Zip: Springfield, MA 01102 FDIC Certificate No.: |0|2|4|9|9| SCHEDULE RC-O -- OTHER DATA FOR DEPOSIT INSURANCE ASSESSMENTS

C475 ----------------------- Dollar Amounts in Thousands RCON Bil Mil Thou - ---------------------------------------------------------------------------------- ----------------------- 1. Unposted debits (see instructions): a. Actual amount of all unposted debits....................................... 0030 64 1.a. OR b. Separate amount of unposted debits: (1) Actual amount of unposted debits to demand deposits.................... 0031 N/A 1.b.(1) (2) Actual amount of unposted debits to time and savings deposits(1)....... 0032 N/A 1.b.(2) 2. Unposted credits (see instructions): a. Actual amount of all unposted credits...................................... 3510 64 2.a. OR b. Separate amount of unposted credits: (1) Actual amount of unposted credits to demand deposits................... 3512 N/A 2.b.(1) (2) Actual amount of unposted credits to time and savings deposits(1)...... 3514 N/A 2.b.(2) 3. Uninvested trust funds (cash) held in bank's own trust department (not included in total deposits in domestic offices)............................... 3520 145,532 3. 4. Deposits of consolidated subsidiaries in domestic offices and in insured branches in Puerto Rico and U.S. territories and possessions (not included in total deposits): a. Demand deposits of consolidated subsidiaries............................... 2211 194,247 4.a. b. Time and savings deposits(1) of consolidated subsidiaries.................. 2351 17,598 4.b. c. Interest accrued and unpaid on deposits of consolidated subsidiaries....... 5514 9 4.c. 5. Deposits in insured branches in Puerto Rico and U.S. territories and possessions: a. Demand deposits in insured branches (included in Schedule RC-E, Part II)... 2229 0 5.a. b. Time and savings deposits(1) in insured branches (included in Schedule RC-E, Part II)................................................. 2383 0 5.b. c. Interest accrued and unpaid on deposits in insured branches (included in Schedule RC-G, item 1.b)...................................... 5515 0 5.c. Item 6 is not applicable to state nonmember banks that have not been authorized by the Federal Reserve to act as pass-through correspondents. 6. Reserve balances actually passed through to the Federal Reserve by the reporting bank on behalf of its respondent depository institutions that are also reflected as deposit liabilities of the reporting bank: a. Amount reflected in demand deposits (included in Schedule RC-E, Part I, item 4 or 5, column B)..................................................... 2314 0 6.a. b. Amount reflected in time and savings deposits(1) (included in Schedule RC-E, Part I, item 4 or 5, column A or C, but not column B)....... 2315 0 6.b. 7. Unamortized premiums and discounts on time and savings deposits:(1) a. Unamortized premiums....................................................... 5516 786 7.a. b. Unamortized discounts...................................................... 5517 0 7.b. - ------------------------------------------------------------------------------------------------------------------------- 8. To be completed by banks with "Oakar deposits." Total "Adjusted Attributable Deposits" of all institutions acquired under Section 5(d)(3) of the Federal Deposit Insurance Act (from most recent FDIC Oakar Transaction Worksheet(s))............................................... 5518 2,188,589 8. - ------------------------------------------------------------------------------------------------------------------------- 9. Deposits in lifeline accounts................................................. 5596 9. 10. Benefit-responsive "Depository Institution Investment Contracts" (included in total deposits in domestic offices)........................................... 8432 0 10.
- --------------- (1) For FDIC insurance assessment purposes, "time and savings deposits" consists of nontransaction accounts and all transaction accounts other than demand deposits. 31 51 Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031 Address: One Monarch Place Page RC-22 City, State Zip: Springfield, MA 01102 FDIC Certificate No.: 0 2 4 9 9 ---------

SCHEDULE RC-O--CONTINUED
------------------ Dollar Amounts in Thousands RCON Bil Mil Thou - --------------------------------------------------------------------------------------------------------------------- 11. Adjustments to demand deposits in domestic offices reported in Schedule RC-E for ////////////////// certain reciprocal demand balances: ////////////////// a. Amount by which demand deposits would be reduced if reciprocal demand balances ////////////////// between the reporting bank and savings associations were reported on a net basis ////////////////// rather than a gross basis in Schedule RC-E ............................................... 8785 0 11.a. b. Amount by which demand deposits would be increased if reciprocal demand balances ////////////////// between the reporting bank and U.S. branches and agencies of foreign banks were ////////////////// reported on a gross basis rather than a net basis in Schedule RC-E ....................... A181 0 11.b. c. Amount by which demand deposits would be reduced if cash items in process of ////////////////// collection were included in the calaculation of net reciprocal demand balances between ////////////////// the reporting bank and the domestic offices of U.S. banks and savings associations ////////////////// in Schedule RC-E ......................................................................... A182 0 11.c. ------------------ Memoranda (To Be Completed Each Quarter Except As Noted) ------------------ Dollar Amounts in Thousands RCON Bil Mil Thou - --------------------------------------------------------------------------------------------------------------------- 1. Total deposits in domestic offices of the bank (sum of Memorandum items 1.a.(1) and ////////////////// 1.b.(1) must equal Schedule RC, item 13.a): ////////////////// a. Deposit accounts of $100,000 or less: ////////////////// (1) Amount of deposit accounts of $100,000 or less ....................................... 2702 18,512,871 M.1.a.(1) (2) Number of deposit accounts of $100,000 or less (to be Number ////////////////// -------------------------- completed for the June report only) ....................... RCON 3779 N/A ////////////////// M.1.a.(2) -------------------------- b. Deposit accounts of more than $100,000: ////////////////// (1) Amount of deposit accounts of more than $100,000 ..................................... 2710 15,061,441 M.1.b.(1) Number ////////////////// -------------------------- (2) Number of deposit accounts of more than $100,000 .......... RCON 2722 28,530 ////////////////// M.1.b.(2) ---------------------------------------------- 2. Estimated amount of uninsured deposits in domestic offices of the bank: a. An estimate of your bank's uninsured deposits can be determined by multiplying the number of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(2) above by $100,000 and subtracting the result from the amount of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(1) above. Indicate in the appropriate box at the right whether your bank has a method or YES NO procedure for determining a better estimate of uninsured deposits than the ------------------ estimate described above ................................................................. 6861 /// x M.2.a. ------------------ RCON Bil Mil Thou b. If the box marked YES has been checked, report the estimate of uninsured deposits ------------------ determined by using your bank's method or procedure ...................................... 5597 N/A M.2.b. ------------------ - ----------------------------------------------------------------------------------------------------------------------------- Person to whom questions about the Reports of Condition and Income should be directed: C477 <- ---- Pamela S. Flynn, Vice President (401) 278-5194 - ------------------------------------------------------------------------------ -------------------------------------------- Name and Title (TEXT 8901) Area code/phone number/extension (TEXT 8902)
32 52 Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031 Address: One Monarch Place Page RC-23 City, State Zip: Springfield, MA 01102 FDIC Certificate No.: 0 2 4 9 9 ---------

SCHEDULE RC-R--CONTINUED This schedule must be completed by all banks as follows: Banks that reported total assets of $1 billion or more in Schedule RC, item 12, for June 30, 1995, must complete items 2 through 9 and Memoranda items 1 and 2. Banks with assets of less than $1 billion must complete items 1 through 3 below or Schedule RC-R in its entirety, depending on their response to item 1 below. -------------- C480 1. Test for determining the extent to which Schedule RC-R must be completed. To be --------------- completed only by banks with total assets of less than $1 billion. Indicate in the Yes No appropriate box at the right whether the bank has total capital greater than or ------------------------- equal to eight percent of adjusted total assets ..................................... RCFD 6056 1. ------------------------- For purposes of this test, adjusted total assets equals total assets less cash, U.S. Treasuries, U.S. Government agency obligations, and 80 percent of U.S. Government-sponsored agency obligations plus the allowance for loan and lease losses and selected off-balance sheet items as reported on Schedule RC-L (see instructions). If the box marked YES has been checked, then the bank only has to complete items 2 and 3 below. If the box marked NO has been checked, the bank must complete the remainder of this schedule. A NO response to item 1 does not necessarily mean that the bank's actual risk-based capital ratio is less than eight percent or that the bank is not in compliance with the risk-based capital guidelines. ----------------------------------------------------------------- NOTE: All banks are required to complete items 2 and 3 below. See optional worksheet for items 3.a through 3.f. ------------------------------------------ ----------------------------------------------------------------- (Column A) (Column B) Dollar Amounts in Thousands Subordinated Debt(1) Other - ---------------------------------------------------------------------- and Intermediate Limited-Life 2. Subordinated debt(1) and other limited-life capital instruments Term Preferred Stock Capital Instruments (original weighted average maturity of at least five years) -------------------- -------------------- with a remaining maturity of: RDFD Bil Mil Thou RCFD Bil Mil Thou ------------------------------------------ a. One year or less................................................ 3780 25,737 3786 0 2.a. b. Over one year through two years................................. 3781 737 3787 0 2.b. c. Over two years through three years.............................. 3782 10,745 3788 0 2.c. d. Over three years through four years............................. 3783 0 3789 0 2.d. e. Over four years through five years.............................. 3784 0 3790 0 2.e. f. Over five years................................................. 3785 1,101,000 3791 0 2.f. ------------------------------------------ 3. Amounts used in calculated regulatory capital ratios (report amounts determined by the bank for its own internal regulatory capital -------------------- analyses consistent with applicable capital standards): RCFD Bil Mil Thou -------------------- a. Tier 1 capital........................................................................ 8274 3,659,643 3.a. b. Tier 2 capital........................................................................ 8275 1,757,001 3.b. c. Total risk-based capital.............................................................. 3792 5,416,644 3.c. d. Excess allowance for loan and lease losses............................................ A222 264,213 3.d. e. Risk-weighted assets (net of all deductions, including excess allowance).............. A223 45,860,269 3.e. f. "Average total assets" (net of all assets deducted from Tier 1 capital)(2)............ A224 47,419,390 3.f. ------------------------------------------ (Column A) (Column B) Items 4-9 and Memoranda items 1 and 2 are to be completed Assets Credit Equiv- by banks that answered NO to Item 1 above and Recorded alent Amount by banks with total assets of $1 billion or more. on the of Off-Balance Balance Sheet Sheet Items(3) -------------------- -------------------- 4. Assets and credit equivalent amounts of off-balance sheet items RCFD Bil Mil Thou RCFD Bil Mil Thou assigned to the Zero percent risk category: -------------------- -------------------- a. Assets recorded on the balance sheet: (1) Securities issued by, other claims on, and claims unconditionally guaranteed by, the U.S. Government and its agencies and other OECD central governments......... 3794 2,335,793 4.a.(1) (2) All other................................................... 3795 968,339 4.a.(2) b. Credit equivalent amount of off-balance sheet items............. 3796 296,454 4.b. ------------------------------------------

- ---------- (1) Exclude mandatory convertible debt reported in Schedule RC-M, item 7. (2) Do not deduct excess allowance for loan and lease losses. (3) Do not report in column B the risk-weighted amount of assets reported in column A. 33 53 Call Date: 9/30/96 ST-BK: 25-0590 FFIEC 031 Legal Title of Bank: Fleet National Bank Page RC-24 Address: One Monarch Place City, State Zip: Springfield, MA 01102 FDIC Certificate No.: 0 2 4 9 9 --------- SCHEDULE RC-R--CONTINUED
(Column A) (Column B) Assets Credit Equiv- Recorded alent Amount on the of Off-Balance Balance Sheet Sheet Items(1) ----------------------- ----------------------- Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou - ------------------------------------------------------------- ----------------------- ----------------------- 5. Assets and credit equivalent amounts of off-balance sheet items assigned to the 20 percent risk category: a. Assets recorded on the balance sheet: (1) Claims conditionally guaranteed by the U.S. Government and its agencies and other OECD central governments................................ 3798 692,459 5.a.(1) (2) Claims collateralized by securities issued by the U.S. Government and its agencies and other OECD central governments; by securities issued by U.S. Government-sponsored agencies; and by cash on deposit......................................... 3799 0 5.a.(2) (3) All other.......................................... 3800 8,538,080 5.a.(3) b. Credit equivalent amount of off-balance sheet items.... 3801 926,409 5.b. 6. Assets and credit equivalent amounts of off-balance sheet items assigned to the 50 percent risk category: a. Assets recorded on the balance sheet................... 3802 5,601,621 6.a. b. Credit equivalent amount of off-balance sheet items.... 3803 413,089 6.b. 7. Assets and credit equivalent amount of off-balance sheet items assigned to the 100 percent risk category: a. Assets recorded on the balance sheet................... 3804 32,091,416 7.a. b. Credit equivalent amount of off-balance sheet items.... 3805 9,770,697 7.b. 8. Balance sheet asset values excluded from the calculation of the risk-based capital ratio(2)............ 3806 24,268 8. 9. Total assets recorded on the balance sheet (sum of items 4.a, 5.a, 6.a, 7.a, and 8, column A) (must equal Schedule RC, item 12 plus items 4.b and 4.c).............. 3807 50,251,976 9.

Dollar Amounts in Thousands RCFD Bil Mil Thou - ------------------------------------------------------------------------------------- ----------------------- ~~1. Current credit exposure across all off-balance sheet derivative contracts covered by the risk-based capital standards........................................ 8764 118,571 M.1~~

With a remaining maturity of ------------------------------------------------------------------------------------ (Column A) (Column B) (Column C) One year or less Over one year Over five years through five years ------------------------------------------------------------------------------------ RCFD Tril Bil Mil Thou RCFD Tril Bil Mil Thou RCFD Tril Bil Mil Thou ------------------------------------------------------------------------------------ 2. Notional principal amounts of off-balance sheet derivative contracts(3): a. Interest rate contracts................. 3809 8,972,794 8766 20,272,746 8767 719,181 M.2.a. b. Foreign exchange contracts................. 3812 1,431,018 8769 52,587 8770 0 M.2.b. c. Gold contracts............ 8771 15,034 8772 0 8773 0 M.2.c. d. Other previous metals contracts................. 8774 14,134 8775 0 8776 0 M.2.d. e. Other commodity contracts................. 8777 0 8778 0 8779 0 M.2.e. f. Equity derivative contracts................. A000 0 A001 0 A002 0 M.2.f.
(1) Do not report in column B the risk-weighted amount of assets reported in column A. (2) Include the difference between the fair value and the amortized cost of available-for-sale securities in item 8 and report the amortized cost of these securities in items 4 through 7 above. Item 8 also includes on-balance sheet asset values (or portions thereof) of off-balance sheet interest rate, foreign exchange rate, and commodity contracts and those contracts (e.g., futures contracts) not subject to risk-based capital. Exclude from item 8 margin accounts and accrued receivables not included in the calculation of credit equivalent amounts of off-balance sheet derivatives as well as any portion of the allowance for loan and lease losses in excess of the amount that may be included in Tier 2 capital. (3) Exclude foreign exchange contracts with an original maturity of 14 days or less and all futures contracts. 34 54 Legal Title of Bank: Fleet National Bank Call Date: 9/30/96 Address: One Monarch Place ST-BK: 25-0590 FFIEC 031 City, State Zip: Springfield, MA 01102 Page RC-25 FDIC Certificate No.: 0 2 4 9 9 ---------- OPTIONAL NARRATIVE STATEMENT CONCERNING THE AMOUNTS REPORTED IN THE REPORTS OF CONDITION AND INCOME AT CLOSE OF BUSINESS ON SEPTEMBER 30, 1996 FLEET NATIONAL BANK SPRINGFIELD MASSACHUSETTS - ---------------------------- -------------------, ---------------------- Legal Title of Bank City State The management of the reporting bank may, if it wishes, submit a brief narrative statement on the amounts reported in the Reports of Condition and Income. This optional statement will be made available to the public, along with the publicly available data in the Reports of Condition and Income, in response to any request for individual bank report data. However, the information reported in column A and in all of Memorandum item 1 of Schedule RC-N is regarded as confidential and will not be released to the public. BANKS CHOOSING TO SUBMIT THE NARRATIVE STATEMENT SHOULD ENSURE THAT THE STATEMENT DOES NOT CONTAIN THE NAMES OR OTHER IDENTIFICATIONS OF INDIVIDUAL BANK CUSTOMERS, REFERENCES TO THE AMOUNTS REPORTED IN THE CONFIDENTIAL ITEMS IN SCHEDULE RC-N, OR ANY OTHER INFORMATION THAT THEY ARE NOT WILLING TO HAVE MADE PUBLIC OR THAT WOULD COMPROMISE THE PRIVACY OF THEIR CUSTOMERS. Banks choosing not to make a statement may check the "No comment" box below and should make no entries of any kind in the space provided for the narrative statement; i.e., DO NOT enter in this space such phrases as "No statement," "Not applicable," "N/A," "No comment," and "None." The optional statement must be entered on this sheet. The statement should not exceed 100 words. Further, regardless of the number of words, the statement must not exceed 750 characters, including punctuation, indentation, and standard spacing between words and sentences. If any submission should exceed 750 characters, as defined, it will be truncated at 750 characters with no notice to the submitting bank and the truncated statement will appear as the bank's statement both on agency computerized records and in computer-file releases to the public. All information furnished by the bank in the narrative statement must be accurate and not misleading. Appropriate efforts shall be taken by the submitting bank to ensure the statement's accuracy. The statement must be signed, in the space provided below, by a senior officer of the bank who thereby attests to its accuracy. If, subsequent to the original submission, material changes are submitted for the data reported in the Reports of Condition and Income, the existing narrative statement will be deleted from the files, and from disclosure; the bank, at its option, may replace it with a statement, under signature, appropriate to the amended data. The optional narrative statement will appear in agency records and in release to the public exactly as submitted (or amended as described in the preceding paragraph) by the management of the bank (except for the truncation of statements exceeding the 750-character limit described above). THE STATEMENT WILL NOT BE EDITED OR SCREENED IN ANY WAY BY THE SUPERVISORY AGENCIES FOR ACCURACY OR RELEVANCE. DISCLOSURE OF THE STATEMENT SHALL NOT SIGNIFY THAT ANY FEDERAL SUPERVISORY AGENCY HAS VERIFIED OR CONFIRMED THE ACCURACY OF THE INFORMATION CONTAINED THEREIN. A STATEMENT TO THIS EFFECT WILL APPEAR ON ANY PUBLIC RELEASE OF THE OPTIONAL STATEMENT SUBMITTED BY THE MANAGEMENT OF THE REPORTING BANK. - ------------------------------------------------------------------------------- No comment [X] (RCON 6979) C471 C472 <- BANK MANAGEMENT STATEMENT (please type or print clearly): (TEXT 6980) /s/ Guo DeRosa 10/24/96 -------------------------------------- ----------------- Signature of Executive Officer of Bank Date of Signature 35

5 1000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 8,625 7,658 18,121 0 799 35,203 303,658 58,099 282,547 22,307 116,806 148 0 1,150 16,231 282,547 68,054 91,238 24,456 38,033 33,756 0 7,487 19,449 6,834 12,615 0 0 0 12,615 0.69 0.69