1
As filed with the Securities and Exchange Commission on May 5, 1998
Registration No. 333-51503
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------------
FORM S-3/A
Amendment No. 1
REGISTRATION STATEMENT
Under The Securities Act Of 1933
--------------------------------
LOMAK PETROLEUM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 500 Throckmorton Street 34-1312571
Ft. Worth Texas 76102
(STATE OR OTHER JURISDICTION OF (817) 870-2601
INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
(ADDRESS, INCLUDING ZIP CODE, TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------------------------
John H. Pinkerton, President
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)
--------------------------------
With a copy to:
J. Mark Metts
Vinson & Elkins L.L.P.
1001 Fannin, Suite 2300
Houston, Texas 77002-6760
(713) 758-2222
--------------------------------
Approximate date of commencement of proposed sale to the public: FROM TIME
TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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 being registered on this Form are to be 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, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, 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, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
2
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 MAY 5, 1998
PROSPECTUS
----------
LOMAK PETROLEUM, INC.
903,615 SHARES OF COMMON STOCK
Up to 903,615 shares (the "Offered Securities") of Common Stock, par
value $.01 per share (the "Lomak Common Stock") of Lomak Petroleum, Inc., a
Delaware corporation ("Lomak or the "Company") may be offered for sale from time
to time by a certain stockholder of the Company (the "Selling Securityholder")
See "Selling Securityholder." The Company will not receive any of the proceeds
from the sale of the Offered Securities by the Selling Securityholder.
The Offered Securities covered by this Prospectus may be sold by the
selling Securityholder or by pledges, donees transferees or other successors in
interest. Sales of Offered Securities by the Selling Securityholder may be
effected from time to time in one or more transactions, including block trades,
in negotiated transactions or in a combination of any such methods of sale. The
selling price of the Offered Securities may be at the market price prevailing at
the time of sale, at a price related to such prevailing market price or at a
negotiated price. Each Selling Securityholder may be deemed an "underwriter"
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act") See "Plan of Distribution."
The Lomak Common Stock is traded on The New York Stock Exchange (the
"NYSE") under the symbol "LOM." The closing price of the Lomak Common Stock on
the NYSE was $15.38 per share on April 28, 1998.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR A
DESCRIPTION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE SECURITIES HEREBY OFFERED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
---------------------
The date of this Prospectus is May __, 1998.
3
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 NYSE, 20 Broad Street, New York, New York 10005, on which the
Lomak Common Stock is listed.
The Company has filed with the Commission a Registration Statement on
Form S-3 (herein together with all amendments and exhibits thereto, called the
"Registration Statement") under the Securities Act with respect to the Offered
Securities. This Prospectus does not contain all of the information set forth or
incorporated by reference in the Registration Statement and the exhibits and
schedules relating thereto, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. For further
information with respect to Lomak and the Offered Securities, reference is made
to the Registration Statement and the exhibits filed or incorporated as a part
thereof, which are on file at the offices of the Commission and may be obtained
upon payment of the fee prescribed by the Commission, or may be examined without
charge at the offices of the Commission or on the Commission's Web site.
Statements contained in this Prospectus as to the contents of any documents
referred to are not necessarily complete, and in each such instance, are
qualified in all respects by reference to the applicable documents filed with
the Commission.
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, 1997, dated March 20, 1998.
2. The Company's Current Report on Form 8-K dated February 26,
1997, as amended by Form 8-K/A dated March 14, 1997.
3. The description of Lomak Common Stock contained in Lomak's
Registration Statement on Form 8-A, dated July 16, 1996.
All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offerings made hereby 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
request of any such person, a copy of any document described above (other than
exhibits, unless such exhibits are specifically incorporated by reference into
such documents). 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.
2
4
- --------------------------------------------------------------------------------
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.
THE COMPANY
Lomak is an independent energy company engaged in oil and gas
development, exploration and acquisition primarily in four core areas: the
Permian, Midcontinent, Gulf Coast, and Appalachia regions. Over the past seven
years, the Company has significantly increased its reserves and production
through acquisitions and the development and exploration of its properties. At
December 31, 1997, the Company had proved reserves of 753 Bcfe with a Present
Value of $632 million. On an Mcfe basis, the reserves were 76% natural gas, with
a reserve life index in excess of 15 years. Properties operated by the Company
account for 98% of its total reserves. The Company's leasehold position contains
1.2 million gross acres. The Company also owns over 3,000 miles of gas gathering
systems and a gas processing plant in proximity to its principal gas properties.
RECENT DEVELOPMENTS
Fuhrman-Mascho Acquisition. In December 1997, the Company completed the
acquisition of certain oil properties located in the Fuhrman-Mascho field in
West Texas (the "Fuhrman-Mascho Properties") for a purchase price of $40
million, including 554,101 shares of Lomak Common Stock. The Fuhrman-Mascho
Properties include 160 producing wells and leasehold acreage covering
approximately 13,600 gross acres (12,100 net acres). On a Present Value basis,
the acquired reserves were 40% developed and greater than 95% operated.
Additionally, the Company recorded $12 million of deferred income taxes in
connection with the acquisition.
Trend Acquisition. In March 1998, the Company completed the acquisition
of oil and gas properties from Trend Exploration Company (the "Trend
Acquisition") for a purchase price of $57 million, including $42 million in cash
and $15 million of Lomak Common Stock (the "Trend Shares"). The acquired
properties encompass 14,200 gross acres, include 32 producing wells, 13 proved
drilling locations, 15 unproved locations and significant exploration potential.
On a BOE basis, the reserves are 85% oil and 15% natural gas. Upon completion of
the acquisition Lomak assumed operations of 25 of the producing wells. Current
production is 2,100 BOE per day net to Lomak's 60% average working interest.
Legal Proceedings. In July 1997, a gas utility filed an action in the
state district court in Tarrant County, Texas. In the lawsuit, the gas utility
asserted a breach of contract claim arising out of a gas purchase contract,
in which it is buyer and the Company is seller. Under the gas utility's
interpretation of the contract it is seeking, as damages, the reimbursement of
the difference between the above-market contract price it paid and market price
on a portion of the gas it has taken beginning in July 1997. As of January
1998, the utility alleged that it was entitled to receive approximately $2
million plus attorneys' fees and that this amount will increase by the time the
proceedings are completed. Based on its interpretation of the contract, the
Company counterclaimed seeking damages for breach of contract and repudiation
of the contract. In April 1998, the court gave notice of its intention to grant
a partial summary judgment on the liability issue in favor of the gas
utility's interpretation of the contract. The case is currently scheduled for
trial on June 1, 1998 to determine the amount of damages, if any. The Company
intends to defend the damage claim and appeal the entire decision when a final
judgment is entered. Accordingly, no damage amounts have been included in the
Company's financial statements.
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 and exploratory drilling and strategic
acquisitions. Management believes that the acquisitions completed since 1990
have substantially enhanced the Company's ability to increase its production and
reserves through the ongoing development of the acquired properties. The Company
now has over 1,600 proven recompletion and development drilling projects. With
its large development inventory and expanding exploration effort, the Company
believes that it can achieve significant growth in reserves, production, cash
flow and earnings over the next several years, without the benefit of future
acquisitions. The Company currently anticipates spending approximately $300
million during the next three years on the development and exploration
activities. Consequently, while acquisitions are expected to continue to play an
important role in its future growth, the Company will focus on exploiting the
potential of its larger property base. The Company's leasehold now totals
approximately 1.2 million gross acres (1.0 million net acres), providing
significant long-term development and exploration potential.
- --------------------------------------------------------------------------------
3
5
- --------------------------------------------------------------------------------
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 business units, each with
operating, engineering, geological, land, acquisition and other personnel
experienced in their respective area. 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 operating and developing its properties.
Development. 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 experience. At
December 31, 1997, over 1,600 proven development projects were in inventory.
Over 360 of these projects are anticipated to be initiated in 1998 at a total
cost of $77 million. Based on the projects currently in inventory, development
expenditures are currently projected to total $250 million for the next three
years.
Exploration. Beginning in 1996, the Company began to conduct
exploration activities on or near existing properties within its core operating
areas. The Company currently has an inventory of 13 multi-prospect, higher risk,
higher reward exploration projects. Each of the exploration projects includes
multiple drilling prospects. The Company's exploration program targets 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. Lomak's strategy is based upon limiting its risk by allocating no
more than 10% of its cash flow to exploration activities and by participating in
a variety of projects with differing characteristics. The Company projects
exploratory expenditures to range between $8 million and $10 million in 1998.
Acquisitions. Since 1990, 68 acquisitions have been completed for a
total consideration of $808 million. These acquisitions have been made at an
average cost of $0.70 per Mcfe. The Company's acquisition strategy has
historically been based on: (i) Locale: focusing in core areas where the Company
has operating and technical expertise; (ii) Efficiency: targeting acquisitions
in which operating and cost efficiencies can be obtained; (iii) Reserve
Potential: pursuing properties with the potential for reserve increases through
recompletions and drilling; (iv) Incremental Purchases: seeking acquisitions
where opportunities for purchasing additional interests in the same or adjoining
properties exist; and (v) Complexity: pursuing more complex but less competitive
corporate acquisitions.
The Company maintains its corporate headquarters at 500 Throckmorton
Street, Fort Worth, Texas 76102 and its telephone number is (817) 870-2601.
- --------------------------------------------------------------------------------
4
6
- --------------------------------------------------------------------------------
THE OFFERING
The Issuer........................................ Lomak Petroleum, Inc., a Delaware corporation.
Securities Offered................................ 903,615 shares of Lomak Common Stock issued to Trend Exploration
Company ("Trend").
NYSE Common Stock Symbol.......................... "LOM"
Selling Securityholders........................... The Offered Securities were issued to Trend in connection with the
Trend Acquisition. Trend or its transferees, pledgees, donees, or
successors may from time to time offer and sell, pursuant to this
Prospectus, the Offered Securities. See "Selling Securityholder."
Use of Proceeds................................... The Selling Securityholder will receive all of the proceeds from the
sale of the Offered Securities. Lomak will not receive any proceeds
from the sale of the Offered Securities.
- --------------------------------------------------------------------------------
5
7
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,
1997. Average product prices at December 31, 1997 were $16.00 per barrel of oil,
$10.27 per barrel for natural gas liquids and $2.79 per Mcf of gas. 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.
6
8
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.
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.
EFFECTS OF LEVERAGE
At December 31, 1997, the Company's outstanding indebtedness was $367.1
million and the Company's ratio of total debt to total capitalization was 53.7%.
The principal payment obligations of the Company's debt for 1998, 1999 and 2000
amount to $413,000, $12,000 and $-0-, respectively. The Company's level of
indebtedness will have several important effects on its future operations,
including (i) a substantial portion of the Company's cash flow from operations
must be dedicated to the payment of interest on its indebtedness and will not be
available for other purposes, (ii) covenants contained in the Company's debt
obligations will require the Company to meet certain financial tests, and other
restrictions will limit its ability to borrow additional funds or to dispose of
assets and may affect the Company's flexibility in planning for, and reacting
to, changes in its businesses, including possible acquisition activities and
(iii) the Company's ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, general corporate purposes
or other purposes may be impaired. The Company's ability to meet its debt
service obligations and to reduce its total indebtedness will be dependent upon
the Company's future performance, which will be subject to oil and gas prices,
the Company's level of production, general economic conditions and to financial,
business and other factors affecting the operations of the Company, many of
which are beyond its control. There can be no assurance that the Company's
future performance will not be adversely affected by some or all of these
factors. In addition, the Credit Agreement, (the "Credit Agreement") among the
Company and several banks (the "Banks"), the indenture for the Company's 6%
Convertible Debentures (the 6% Convertible Debentures") and the indenture for
the Company's 8.75%
7
9
Senior Subordinated Notes (the "8.75% Notes") contain restrictions on the
Company's ability to pay dividends on capital stock. Under the most restrictive
of these provisions, the Company would have been able to pay up to $18.3 million
of dividends as of December 31, 1997. 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 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
December 31, 1997 the Borrowing Base was $325 million, of which the Company had
borrowings of $186.7 million outstanding. 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.
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 interruption insurance.
Losses and liabilities arising from uninsured or under-insured events could have
a material adverse effect on the financial condition and results of operations
of the Company.
From time to time, due primarily to contract terms, pipeline
interruptions or weather conditions, the producing wells in which the Company
owns an interest have been subject to production curtailments. The curtailments
vary from a few days to several months. In most cases the Company is provided
only limited notice as to when production will be curtailed and the duration of
such curtailments. The Company is currently not curtailed on any of its
production.
Certain of the Company's properties are located offshore 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. Several of the offshore properties have encountered
production shortfalls due primarily to mechanical problems. The mechanical
issues are currently being addressed by the operators. However, the Company
cannot accurately predict when and if production will be returned to the
original levels.
HEDGING RISKS
From time to time, the Company hedges a portion of its physical oil and
natural gas production by entering short positions through fixed price swaps or
options. The Company does not generally trade directly utilizing NYMEX futures.
The settlement is determined by the difference between the Company's fixed price
and the average of the daily prompt NYMEX WTI contract during each corresponding
month.
The Company's Vice-President-Gas Management has the responsibility for
implementing approved hedge strategies. The hedge program provides for oversight
and reporting requirements, hedge goals and how strategies will be developed.
8
10
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. Approximately 38% of average gas production at December 31,
1997 was sold subject to fixed price sales contracts. These fixed price
contracts are at prices ranging from $2.10 to $4.34 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 51%, 42% and 7%, 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.
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,
1997 approximately 12% of the Company's existing market sensitive production was
fixed under hedging agreements which expire in 1998. Subsequent to December 31,
1997, the Company entered into additional hedging agreements which increased the
percentage of the Company's existing market sensitive production covered by
hedging arrangements to 28%. In the future, the Company may hedge a larger
percentage of its production, however, it currently anticipates that such
percentage would not exceed 70%. Although these hedging activities provide the
Company some protection against falling prices, these activities also reduce the
potential benefits to the Company of price increases above the levels of the
hedges.
As part of the acquisition of oil and gas properties from American
Cometra, Inc. in the first quarter of 1997, the Company acquired an above market
gas contract with a major Texas gas utility company, which expires June 30,
2000. The contract represents 16% of the Company's 1997 gas production on an Mcf
basis. The price paid pursuant to the contract converts to a price of $3.73 per
Mcf ($3.33 per Mmbtu) at December 31, 1997. The gas contract provides for a
price escalation of $0.05 per Mcf on July 1 of each year. No other purchaser of
the Company's oil or gas during 1997 exceeded 10% of the Company's total
revenues. In July 1997 the gas utility filed an action in state district court
regarding the gas contract. (See "The Company - Recent Developments").
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
9
11
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 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.
CERTAIN BUSINESS INTERESTS OF CHAIRMAN
Thomas J. Edelman, Chairman of the Company, is also the Chairman,
President and Chief Executive Officer of Patina Oil & Gas Company ("Patina"), a
publicly traded oil and gas company. The Company currently has no existing
business relationships with Patina, and Patina does not own any of the Company's
securities. However, as a result of Mr. Edelman's position in Patina, conflicts
of interests may arise between them. The Company has board policies that require
Mr. Edelman to give notification of any potential conflicts that may arise
between the Company and Patina. There can be no assurance, however, that the
Company will not compete with Patina for the same acquisition or encounter other
conflicts of interest.
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. Without limiting the generality of the foregoing, words such as
"anticipate," estimate," "project" and "expect" are intended to identify
forward-looking statements. 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
10
12
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.
USE OF PROCEEDS
The Company will not receive any proceeds upon the sale by the Selling
Securityholder of the Offered Securities.
DESCRIPTION OF CAPITAL STOCK AND INDEBTEDNESS
As of the date hereof the authorized capital stock of the Company
consists of (i) 10,000,000 shares of serial preferred stock, $1.00 par value, of
which 1,150,000 shares has been designated as "$2.03 Convertible Preferred
Stock" and (ii) 50,000,000 shares of Lomak Common Stock, $.01 par value. As of
March 26, 1998 the Company had outstanding 21,193,742 shares of Lomak Common
Stock and 1,149,840 shares of $2.03 Convertible Preferred Stock.
LOMAK COMMON STOCK
Holders of Lomak 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 6% Convertible
Debentures, the indenture for the 8.75% 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 Lomak Common Stock.
All shares of Lomak 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 Lomak Common
Stock have no preemptive, conversion, sinking fund or redemption provisions and
are not liable for further call or assessment. Each share of Lomak Common Stock
is entitled to share on a pro rata basis in any assets available for
distribution to the holders of the Lomak 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 Lomak Common Stock are
validly issued, fully paid and nonassessable.
OPTIONS
The Company's stock option plans, which are administered by the
Compensation Committee, provide for the granting of options to purchase shares
of Lomak Common Stock to key employees, directors 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 3,200,000 shares of Lomak
Common Stock subject to a limitation of 10% of the outstanding Lomak Common
Stock on a fully diluted basis. At December 31, 1997, a total of 1,906,959
options had been granted under the plan of which options to purchase 729,257
shares were exercisable at that date. The options outstanding at December 31,
1997 were granted at an exercise price of $3.38 to $18.00 per share. The
exercise price of all such options was equal to the fair market value of the
Lomak 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.
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 Lomak Common Stock. At December 31, 1997, 1,149,840 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
11
13
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. 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 Lomak 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 Lomak 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 (the "6% Convertible
Debentures") in a private offering not registered under the Securities Act. The
6% Convertible Debentures are convertible at any time prior to maturity, unless
previously redeemed or repurchased, into shares of Lomak Common Stock, at a
conversion price of $19.25 per share, subject to adjustment under certain
circumstances. The 6% Convertible 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 Debentures will mature on February 1, 2007. The Company may
redeem the 6% Convertible 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
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 Debentures, the Company has filed a
shelf registration statement (the "6% Debenture Shelf Registration Statement")
relating to the resale of the 6% Convertible Debentures and the shares of Lomak
Common Stock issuable upon conversion of the 6% Convertible Debentures. The
Company will use its reasonable best efforts to maintain the effectiveness of
the 6% Debenture Shelf Registration Statement until the third anniversary of the
issuance of the 6% Convertible Debentures, except that it shall be permitted to
suspend the use of the 6% Debenture Shelf Registration Statement during certain
periods under certain circumstances. If the Company fails to meet certain of its
obligations under the 6% Debenture Shelf Registration Statement, then a
supplemental payment will be made to the holders of the 6% Convertible
Debentures or shares of Lomak Common Stock actually issued upon conversion of
the 6% Convertible Debentures. During the first 90 days of such a default, the
supplemental payment will be $.05 per week per $1,000 principal amount of the 6%
Convertible Debentures and $.0005 per week per share of such Lomak Common Stock.
The amount of such supplemental payment will increase over time if the default
continues, subject to a maximum supplemental payment of $.20 per week per $1,000
principal amount of 6% Convertible Debentures and $.002 per week per share of
Lomak Common Stock.
CREDIT AGREEMENT
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 is
currently $325 million under the expanded facility and is subject to semi-annual
determination and certain other redeterminations based upon a variety of
factors, including the discounted present value of estimated future net cash
flow from oil and gas production.
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.
12
14
The obligations of the Company under the Credit Agreement are
unconditionally and irrevocably guaranteed by certain subsidiaries of the
Company.
At the Company's option, the applicable interest rate per annum is
either the Eurodollar loan rate plus a margin ranging from .625% to 1.125% or
the Alternate Base Rate (as defined) plus a margin ranging from 0% to .25%. The
Alternate Base Rate is the higher of (a) the administrative agent bank's prime
rate and (b) the federal funds effective rate plus .5%.
The Credit Agreement includes various covenants that require, among
other things, that the Company (i) maintain a minimum consolidated tangible net
worth of at least $100 million plus 90% of the net cash proceeds from the sale
of 4 million shares of the Company's common stock completed in March 1997 (the
"Original Offering ") and 50% of the net proceeds from any subsequent equity
offering by the Company; (ii) maintain a ratio of EBITDA to consolidated
interest expense on total debt for each period of four consecutive fiscal
quarters of at least 2.5 to 1.0; and (iii) not make restricted payments (defined
as dividends, distributions or guarantees to third parties or the retirement,
repurchase or prepayment prior to the scheduled maturity of its subordinated
debt) in an aggregate amount in any one fiscal year in excess of $5 million plus
50% of the net proceeds from the Original Offering and any equity offerings
subsequent to the Original Offering and 50% of the Company's consolidated net
income earned after January 1, 1997. In addition, the Credit Agreement restricts
the ability of the Company to dispose of assets, incur additional indebtedness,
repay other indebtedness or amend other debt instruments, create liens on
assets, make investments or acquisitions, engage in mergers or consolidations,
make capital expenditures or engage in certain transactions with affiliates.
8.75% SENIOR SUBORDINATED NOTES
On March 14, 1997, the Company sold $125,000,000 of 8.75% Senior
Subordinated Notes due 2007 (the "8.75% Notes"). The 8.75% Notes are not
redeemable at the Company's option prior to January 15, 2002. Thereafter, the
8.75% Notes will be subject to redemption at the option of the Company, in whole
or in part, at redemption prices, plus accrued and unpaid interest, if any,
beginning at 104.375% of the principal amount and declining to 100% in 2005. The
8.75% Notes are unsecured general obligations of the Company and are
subordinated to all senior debt (as defined) of the Company which includes
borrowings under the Credit Agreement. The 8.75% Notes are guaranteed on a
senior subordinated basis by all of the subsidiaries of the Company and any
future subsidiary of the Company and each guarantor is a wholly owned subsidiary
of the Company. The guarantees are full, unconditional and joint and several.
Separate financial statements of each guarantor are not presented because they
are included in the consolidated financial statements of the Company and
management has concluded that their disclosure provides no additional benefits.
The 8.75% Notes were issued pursuant to an indenture containing certain
covenants that will, among other things, limit the ability of the Company and
its 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 and engage in mergers and
consolidations.
CONVERTIBLE PREFERRED SECURITIES
On October 16, 1997, Lomak, through a newly-formed affiliate Lomak
Financing Trust (the "Trust"), completed the issuance of $120 million of 5 3/4%
trust convertible preferred securities (the "Convertible Preferred Securities").
The Trust issued 2,400,000 shares of the Convertible Preferred Securities at $50
per share. Each Convertible Preferred Security is convertible at the holder's
option into 2.1277 shares of Common Stock, representing a conversion price of
$23.50 per share.
The Trust invested the $120 million of proceeds in 5 3/4% convertible
junior subordinated debentures issued by Lomak (the " Junior Debentures"). In
turn, Lomak used the net proceeds from the issuance of the Junior Convertible
Debentures to repay a portion of its credit facility. The sole assets of the
Trust are the Junior Debentures. The Junior Debentures and the related
Convertible Preferred Securities mature on November 1, 2027. Lomak and Lomak
Financing Trust may redeem the Junior Debentures and the Convertible Preferred
Securities, respectively, in whole or in part, on or after November 4, 2000. For
the first twelve months thereafter, redemptions may be made at 104.025% of the
principal amount. This premium declines proportionally every twelve months until
November 1, 2007, when the redemption price becomes fixed at 100% of the
principal amount. If Lomak redeems any Junior Debentures prior to the scheduled
maturity
13
15
date, the Trust must redeem Convertible Preferred Securities having an aggregate
liquidation amount equal to the aggregate principal amount of the Junior
Debentures so redeemed.
Lomak has guaranteed the payments of distributions and other payments
on the Convertible Preferred Securities only if and to the extent that the Trust
has funds available. Such guarantee, when taken together with Lomak's
obligations under the Junior Debentures and related indenture and declaration of
trust, provide a full and unconditional guarantee of amounts due on the
Convertible Preferred Securities.
Lomak owns all the common securities of the Trust. As such, the
accounts of the Trust have been included in Lomak's consolidated financial
statements after appropriate eliminations of intercompany balances. The
distributions on the Convertible Preferred Securities have been recorded as a
charge to interest expense on Lomak's consolidated statements of income, and
such distributions are deductible by Lomak for income tax purposes.
SELLING SECURITYHOLDER
The Offered Securities were issued to Trend (the "Selling
Securityholder") in connection with the Trend Acquisition. The Selling
Securityholder or its transferees, pledges, donees or successors (the "Selling
Securityholders") may from time to time offer and sell pursuant to this
Prospectus any or all of the Offered Securities.
The Offered Securities have been registered pursuant to an agreement
which provides that the Company file a registration statement with regard to the
Offered Securities within thirty (30) days of the date of the Trend Acquisition
and keep such registration statement effective until the earlier of (i) the sale
pursuant to such registration statement or Rule 144(a) under the Securities Act
of all the Offered Securities, and (ii) the expiration of the holding period
applicable to sales of Offered Securities under Rule 144(k) under the Securities
Act, or any successor provision. Although the Selling Securityholder has not
advised the Company that it currently intends to sell all or any of the Offered
Securities pursuant to this Prospectus, the Selling Securityholder may choose to
sell the Offered Securities from time to time upon notice to Lomak. See "Plan of
Distribution."
PLAN OF DISTRIBUTION
The Offered Securities may be sold from time to time to purchasers
directly by the Selling Securityholder. Alternatively, the Selling
Securityholder may from time to time offer the Offered Securities to or through
underwriters, broker/dealers or agents, who may receive compensation in the form
of underwriting discounts, concessions or commissions from the Selling
Securityholder or the purchasers of such securities for whom they may act as
agents. The Selling Securityholder and any underwriters, broker/dealers or
agents that participate in the distribution of Offered Securities may be deemed
to be "underwriters" within the meaning of the Securities Act and any profit on
the sale of such securities and any discounts, commissions, concessions or other
compensation received by any such underwriter, broker/dealer or agent may be
deemed to be underwriting discounts and commissions under the Securities Act.
The Offered Securities may be sold from time to time in one or more
transactions at fixed prices, at the prevailing market prices at the time of
sale, at varying prices determined at the time of sale or at negotiated prices.
This sale of the Offered Securities may be effectuated in transactions (which
may involve crosses or block transactions) (i) on any national securities
exchange or quotation service on which the Offered Securities may be listed or
quoted at the time of sale, (ii) in the over-the-counter market, (iii) in
transactions otherwise than on such exchanges or in the over-the-counter market,
or (iv) through the writing and exercise of options. At the time a particular
offering of the Offered Securities is made, a Prospectus Supplement, if
required, will be distributed which will set forth the aggregate amount of the
type of Offered Securities being offered and the terms of the offering,
including the name or names of any underwriters, broker/dealers or agents, any
discounts, commissions and other terms constituting compensation from the
Selling Securityholder and any discounts, commissions or concessions allowed or
reallowed to be paid to broker/dealers. To comply with the securities laws of
certain jurisdictions, if applicable, the Offered Securities will be offered or
sold in such jurisdictions only through registered or licensed brokers or
dealers. In addition, in certain jurisdictions the Offered Securities may not be
offered or sold unless they have been registered or qualified for sale in such
jurisdictions or any exemption from registration or qualification is available
and is complied with.
14
16
The Selling Securityholder will be subject to applicable provisions of
the Exchange Act and rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Offered Securities by the
Selling Securityholder. The foregoing may affect the marketability of such
securities.
Pursuant to the Company's agreement with Trend, the Company shall pay all
expenses of the registration of the Offered Securities including, without
limitation, commission filing fees and expenses of compliance with state
securities or "blue sky" laws; provided, however, that the Selling
Securityholder will pay all underwriting discounts and selling commissions, if
any. The Selling Securityholder will be indemnified by the Company jointly and
severally against certain civil liabilities, including certain liabilities under
the Securities Act, or will be entitled to contribution in connection therewith.
The Company will be indemnified by the Selling Securityholder severally against
certain civil liabilities, including certain liabilities under the Securities
Act, or will be entitled to contribution in connection therewith.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Offered
Securities being registered hereby will be passed upon for Lomak by Vinson &
Elkins L.L.P., Houston, Texas.
EXPERTS
The Consolidated Financial Statements of the Company, as of December
31, 1996 and 1997 and for the three years then ended, incorporated by reference
in this Prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto incorporated by
reference in this Prospectus in reliance upon the authority of said firm as
experts in giving said reports.
15
17
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.
Mcf/d. One thousand cubic feet per day.
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.
MmBtu. One million British thermal units. One British thermal unit is the heat
required to raise the temperature of a one-pound mass of water from 58.5 to 59.5
degrees Fahrenheit.
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.
16
18
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) proved 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.
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.
17
19
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, OR ANY OF THEIR AGENTS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY OR SINCE SUCH DATE.
-----------------
TABLE OF CONTENTS
Page
Available Information............................... 2
Incorporation of Certain Information by Reference... 2
Prospectus Summary................................... 3
Risk Factors.......................................... 6
Forward-Looking Information.......................... 10
Use of Proceeds...................................... 11
Description of Capital Stock and Indebtedness....... 11
Selling Securityholder.............................. 14
Plan of Distribution................................. 14
Legal Matters........................................ 15
Experts.............................................. 15
Glossary............................................. 16
LOMAK PETROLEUM, INC.
903,615 SHARES OF COMMON STOCK
April 30, 1998
18
20
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the distribution of the Offered
Securities (all of which shall be paid by the Registrant) being registered
hereunder (other than underwriting discounts) are set forth in the following
table (all amounts except the SEC registration fee are estimated):
SEC Registration Fee............................................. $ 4,211
Legal Fees and Expenses.......................................... 7,500
Accounting Fees and Expenses..................................... 5,000
Printing and Engraving........................................... 12,000
Miscellaneous.................................................... 1,289
-------------
Total...................................................... $ 30,000
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Delaware corporation. Section 145 of the Delaware General
Corporation Law generally provides that a corporation is empowered to indemnify
any person who is made a party to a proceeding or threatened proceeding by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or was, at the request of the corporation, serving in any of
such capacities in another corporation or other enterprise. This statute
describes in detail the right of the corporation to indemnify any such person.
Article SEVENTH, section (5) the Company 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.
21
The termination of any such inquiry, investigation, action, suit or
proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent shall not of itself
create a presumption that such person did not meet the standards of
conduct set forth in subsection (b) above.
Reasonable costs, disbursements and counsel fees incurred by such
person in connection with any inquiry, investigation, action, suit
or proceeding may be paid by the Company in advance of the final
disposition of such matter if authorized by a majority of the Board
of Directors (sitting as a committee of the Board) not parties to
such matter upon receipt by the Company of an undertaking by or on
behalf of such person to repay such amount unless it is ultimately
determined that such person is entitled to be indemnified as set
forth herein.
The Board of Directors may, at any regular or special meeting of
the Board, by resolution, accord similar indemnification
(prospective or retroactive) to any director, trustee, officer or
employee of any other company who is serving as such at the request
of the Company because of the Company's interest in such other
company and any officer, director or employee of any constituent
corporation absorbed by the Company in a consolidation or merger,
or the legal representative of any such director, trustee, officer
or employee.
The indemnification herein provided shall not exclude any other
rights to which such person may be entitled as a matter of law or
which may be lawfully granted.
Article EIGHTH of the Company's Certificate of Incorporation provides:
No director of the Company shall be liable to the Company 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 Company 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 Company 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 Company
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 Selling Securityholder will be indemnified by Lomak, against
certain civil liabilities, including certain liabilities under the Securities
Act, or will be entitled to contribution in connection therewith. Lomak and the
Trust will be indemnified by the Selling Securityholder severally against
certain civil liabilities, including certain liabilities under the Securities
Act, or will be entitled to contribution in connection therewith.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company,
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the
22
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. See Item 17, "Undertakings."
23
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
3.1(a) Certificate of Incorporation of Lomak dated March 24, 1980
(incorporated by reference to the Company's Registration
Statement (No. 33-31558)).
3.1(b) Certificate of Amendment of Certificate of Incorporation
dated July 22, 1981 (incorporated by reference to the
Company's Registration Statement (No. 33-31558)).
3.1(c) Certificate of Amendment of Certificate of Incorporation
dated September 8, 1982 (incorporated by reference to the
Company's Registration Statement (No. 33-31558)).
3.1(d) Certificate of Amendment of Certificate of Incorporation
dated December 28, 1988 (incorporated by reference to the
Company's Registration Statement (No. 33-31558)).
3.1(e) Certificate of Amendment of Certificate of Incorporation
dated August 31, 1989 (incorporated by reference to the
Company's Registration Statement (No. 33-31558)).
3.1(f) Certificate of Amendment of Certificate of Incorporation
dated May 30, 1991 (incorporated by reference to the
Company's Registration Statement (No. 333-20259)).
3.1(g) Certificate of Amendment of Certificate of Incorporation
dated November 20, 1992 (incorporated by reference to the
Company's Registration Statement (No. 333-20257)).
3.1(h) Certificate of Amendment of Certificate of Incorporation
dated May 24, 1996 (incorporated by reference to the
Company's Registration Statement (No. 333-20257)).
3.1(i) Certificate of Amendment of Certificate of Incorporation
dated October 2, 1996 (incorporated by reference to the
Company's Registration Statement (No. 333-20257)).
3.1(j) Restated Certificate of Incorporation as required by Item
102 of Regulation S-T (incorporated by reference to the
Company's Registration Statement (No. 333-20257)).
3.2 By-Laws of the Company (incorporated by reference to the
Company's Registration Statement (No. 33-31558)).
4 Specimen certificate of Lomak Petroleum, Inc. Common Stock
(incorporated by reference to the Company's registration
statement (No. 333-20257)).
4.13 Form of Trust Indenture relating to the Senior Subordinated
Notes due 2007 between Lomak Petroleum, Inc., and Fleet
National Bank as trustee (incorporated on the Company' s
Registration Statement (No. 333-20257)).
4.14 Purchase and Sale Agreement dated as of September 8, 1997
by and among Cabot Oil & Gas Corporation, Cranberry
Pipeline Corporation, Big Sandy Gas Company, and Lomak
Petroleum, Inc.
5.1* Opinion of Vinson & Elkins L.L.P. as to the legality of
Lomak Petroleum, Inc. common stock being registered hereby.
24
10.1(a)* Purchase and sale agreement dated March 8, 1998 by and
between Trend Exploration Company and Lomak Petroleum, Inc.
23.1* Consent of Independent Public Accountants.
23.2* Consent of Vinson & Elkins L.L.P. (included in their
opinion filed as Exhibit 5.1).
24.1** Powers of attorney (included in the signature page hereto).
* Filed herewith.
** Previously filed.
25
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii)To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Securities and Exchange
Commission by the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
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 the
registration statement 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of 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 Act and will be governed by the final adjudication of
such issue.
The Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of the
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 shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(b) For the purposes of determining any liability under the Securities
Act, 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.
26
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Lomak
Petroleum, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Forth Worth, State of
Texas on May 5, 1998.
LOMAK PETROLEUM, INC.
BY: /S/ JOHN H. PINKERTON
------------------------------------
John H. Pinkerton
President and
Chief Executive Officer
(Principal Executive Officer)
27
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
Signature Title Date
- ------------------------------------------ ------------------------------------------ --------------------------
Thomas J. Edelman* Chairman and Director May 5, 1998
- ------------------------------------------
Thomas J. Edelman
John H. Pinkerton* President, Chief Executive Officer and May 5, 1998
- ------------------------------------------ Director (Principal Executive Officer)
John H. Pinkerton
C. Rand Michaels* Vice Chairman and Director May 5, 1998
- ------------------------------------------
C. Rand Michaels
Robert E. Aikman* Director May 5, 1998
- --------------------------------------------
Robert E. Aikman
Allen Finkelson* Director May 5, 1998
- --------------------------------------------
Allen Finkelson
Anthony V. Dub* Director May 5, 1998
- --------------------------------------------
Anthony V. Dub
Ben A. Guill* Director May 5, 1998
- ------------------------------------------
Ben A. Guill
/s/ Thomas W. Stoelk Senior Vice President - Finance and May 5, 1998
- ------------------------------------------ Administration and Chief Financial Officer
Thomas W. Stoelk (Principal Financial Officer)
Geoffrey T. Doke* Controller and Chief Accounting Officer May 5, 1998
- ------------------------------------------ (Principal Accounting Officer)
Geoffrey T. Doke
Thomas W. Stoelk, by signing his name hereto, does sign and execute this
Amendment No. 1 to the Registration Statement on behalf of the above-named
officers and directors of Lomak Petroleum, Inc. on the 5th day of May, 1998,
pursuant to powers of attorney executed on behalf of each of such officers and
directors and previously filed with the Securities and Exchange Commission.
*By: /s/ THOMAS W. STOELK
-----------------------------
Thomas W. Stoelk
Attorney-in-Fact
28
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
3.1(a) Certificate of Incorporation of Lomak dated March 24, 1980
(incorporated by reference to the Company's Registration
Statement (No. 33-31558)).
3.1(b) Certificate of Amendment of Certificate of Incorporation
dated July 22, 1981 (incorporated by reference to the
Company's Registration Statement (No. 33-31558)).
3.1(c) Certificate of Amendment of Certificate of Incorporation
dated September 8, 1982 (incorporated by reference to the
Company's Registration Statement (No. 33-31558)).
3.1(d) Certificate of Amendment of Certificate of Incorporation
dated December 28, 1988 (incorporated by reference to the
Company's Registration Statement (No. 33-31558)).
3.1(e) Certificate of Amendment of Certificate of Incorporation
dated August 31, 1989 (incorporated by reference to the
Company's Registration Statement (No. 33-31558)).
3.1(f) Certificate of Amendment of Certificate of Incorporation
dated May 30, 1991 (incorporated by reference to the
Company's Registration Statement (No. 333-20259)).
3.1(g) Certificate of Amendment of Certificate of Incorporation
dated November 20, 1992 (incorporated by reference to the
Company's Registration Statement (No. 333-20257)).
3.1(h) Certificate of Amendment of Certificate of Incorporation
dated May 24, 1996 (incorporated by reference to the
Company's Registration Statement (No. 333-20257)).
3.1(i) Certificate of Amendment of Certificate of Incorporation
dated October 2, 1996 (incorporated by reference to the
Company's Registration Statement (No. 333-20257)).
3.1(j) Restated Certificate of Incorporation as required by Item
102 of Regulation S-T (incorporated by reference to the
Company's Registration Statement (No. 333-20257)).
3.2 By-Laws of the Company (incorporated by reference to the
Company's Registration Statement (No. 33-31558)).
5 Specimen certificate of Lomak Petroleum, Inc. Common Stock
(incorporated by reference to the Company's registration
statement (No. 333-20257)).
4.15 Form of Trust Indenture relating to the Senior Subordinated
Notes due 2007 between Lomak Petroleum, Inc., and Fleet
National Bank as trustee (incorporated on the Company' s
Registration Statement (No. 333-20257)).
4.16 Purchase and Sale Agreement dated as of September 8, 1997
by and among Cabot Oil & Gas Corporation, Cranberry
Pipeline Corporation, Big Sandy Gas Company, and Lomak
Petroleum, Inc.
5.1* Opinion of Vinson & Elkins L.L.P. as to the legality of
Lomak Petroleum, Inc. common stock being registered hereby.
29
10.1(a)* Purchase and sale agreement dated March 8, 1998 by and
between Trend Exploration Company and Lomak Petroleum, Inc.
23.1* Consent of Independent Public Accountants.
23.2* Consent of Vinson & Elkins L.L.P. (included in their
opinion filed as Exhibit 5.1).
24.1** Powers of attorney (included in the signature page hereto).
* Filed herewith.
** Previously filed.
1
Exhibit 5.1
[Vinson & Elkins Logo]
ATTORNEYS AT LAW
VINSON & ELKINS L.L.P.
1001 FANNIN STREET
SUITE 2300
HOUSTON, TEXAS 77002-6760
TELEPHONE (713) 758-2222
FAX (713) 758-2346
WRITER'S TELEPHONE WRITER'S FAX
(713) 758-3820 (713) 615-5605
April 30, 1998
Lomak Petroleum, Inc.
500 Throckmorton Street
Fort Worth, Texas 76102
Ladies and Gentlemen:
We have acted as counsel to Lomak Petroleum, Inc., a Delaware
corporation (the "Company"), in connection with the preparation of the Company's
Registration Statement on Form S-3 (the "Registration Statement"), relating to
the proposed offer and sale by Trend Exploration Company, a stockholder of the
Company, of up to 903,615 shares of the Company's common stock, par value $.01
per share (the "Shares"). In such capacity, we are passing on certain legal
matters in connection with the registration of the sale of the Shares. At you
request, this opinion is being furnished to you for filing as an exhibit to the
Registration Statement.
In connection with rendering this opinion, we have examined such
certificates, instruments and documents and reviewed such questions of law as we
have considered necessary or appropriate for the purposes of this opinion. In
addition, we have relied as to factual matters on certification of officers of
the Company.
Based upon the foregoing examination and review, we are of the opinion
that the shares are duly and validly authorized and legally issued, fully paid
and nonassessable.
The forgoing opinion is limited to the laws of the United States of
America and to the Geneal Corporation Law of the State of Delaware. For purposes
of this opinion, we assume that the Shares will be issued in compliance with all
applicable state securities or Blue Sky laws.
2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, however, we do not hereby admit
that we are within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933 and the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly your,
VINSON & ELKINS L.L.P.
1
Exhibit 10.1(a)
PURCHASE AND SALE AGREEMENT
---------------------------
This Purchase and Sale Agreement (the "Agreement") is entered into on
the 8th day of March, 1998, by and between TREND EXPLORATION COMPANY, a Texas
corporation whose address is 500 N. Loraine, Suite 1130, Midland, Texas 79701
("Seller") and LOMAK PRODUCTION I, L. P. a Texas limited partnership, whose
address is 500 Throckmorton Street, Fort Worth, TX 76012 ("Buyer") and LOMAK
PETROLEUM, INC., a Delaware corporation whose address is 500 Throckmorton
Street, Fort Worth, TX 76012 ("Lomak").
Buyer desires to purchase and Seller desires to sell all of Seller's
undivided interest in and to the oil, gas and/or mineral leases, together with
all wells, equipment, personal property and rights connected therewith,
described below, subject to the following terms and conditions set forth below,
and Lomak, as owner of Buyer (through its wholly owned subsidiary, Lomak Energy
Company, a Delaware corporation), desires to guarantee the obligations of Buyer
hereunder.
ARTICLE I
PURCHASE AND SALE
-----------------
I.1 PURCHASE AND SALE OF ASSETS.
(a) ASSETS CONVEYED. Subject to the terms and conditions set forth
in this Agreement (including the exhibits attached hereto) and
to the reservation in Section 1.1 (b) below, Seller will sell
and Buyer will buy, as of the Effective Date (defined in
Section 1.3 below), the following (the "Assets"):
(i) All of Seller's interests in the oil, gas and/or
mineral leases described in Exhibit "A", attached
hereto and made a part hereof (the "Leases"), whether
such interests are evidenced by instruments recorded
in the county where the Leases are situated or Seller
is entitled to an assignment of such interests by
reason of an exploration, farmout, farmin,
participation, joint venture or other agreement,
insofar as the Leases cover and affect the lands
(and, if applicable, the depths) described in said
Exhibit "A" (the "Lands"); it being the intent of
Seller to sell and Buyer to buy all of Seller's
undivided oil, gas and mineral leasehold interests in
the Lands and all of Seller's undivided interests in
the Leases, whether or not the Leases and Lands are
fully and correctly described herein; together with
all tenements, hereditaments and appurtenances of
Seller belonging to the Leases;
(ii) All of Seller's rights, titles and interests in the
wells and well bores (including, without limitation,
the wells identified in Exhibit "A" hereto), personal
property, equipment and facilities located on the
Lands used directly in the operation of and
production from and pursuant to the Leases, including
without limitation, pumps, well equipment (surface
and subsurface), gas plants, salt water disposal
wells, lines and facilities, water injection wells,
lines and facilities, sulphur recovery facilities,
compressors, compressor stations, dehydration
facilities, treating facilities, pipeline gathering
lines, flow lines, transportation lines, valves,
meters, separators, tanks, tank batteries and other
fixtures (collectively the "Wells and Equipment");
-1-
2
(iii) All of Seller's rights, titles and interests in the
oil, gas, condensate, and natural gas liquids
produced after the Effective Date, "line fill" and
oil inventory below the pipeline connection in all
storage tanks attributable to the Leases and Lands,
subject however to the existing leasehold burdens
(including, without limitation, royalties, overriding
royalties, production payments and other non-cost
bearing interests in production) affecting same
(collectively the "Production"); and,
(iv) All of Seller's rights, titles and interests in the
contracts, agreements, permits, licenses and consents
pertaining to the Leases and Lands, including,
without limitation, the Basic Documents (as defined
in Section 2.1 (h) below) and any other operating
agreements, communitization, unitization and pooling
agreements, area of mutual interest agreements,
farmout agreements, farmin agreements, geophysical
and seismic options, geophysical agreements,
exploration agreements, salt water disposal
agreements, water injection agreements, line well
injection agreements, surface use agreements, road
use agreements, drilling contracts, well services
contracts, production sales contracts, gas contracts,
gas balancing agreements, storage agreements,
warehouse agreements, supplier contracts, service
contracts, insurance contracts, construction
agreements, division orders, transfer orders,
easements, rights-of-way, permits, licenses,
authorizations and appurtenances and rights of every
kind and character which are used or useful or
appropriate to exploring for, developing, producing,
operating, treating, storing, marketing or
transporting oil, gas and other hydrocarbons or water
in, on or under the Lands pursuant to the terms of
the Leases, together with any causes of action
accruing in favor of Seller thereunder or in
connection therewith, even if such causes of action
accrued or began to accrue prior to the Effective
Date (collectively the "Contractual Rights").
(v) All of Seller's original files, books, records and
data (other than Seller's financial files and
records), including, without limitation, maps, logs,
geophysical data (including all geophysical 3D
seismic data sets), title opinions and curative,
production records, geological data and computer data
bases, relating to the Assets (collectively the
"Files"); it being agreed that from and after
Closing, Seller will not retain any copies of the
Files except copies of maps, logs, geophysical data
(including all geophysical 3D seismic data sets),
production records and geological data, together with
any computer data bases relating thereto.
(b) RESERVATION OF BLALOCK/BRUNSON INTERESTS. Seller reserves an
undivided 1/3 interest in the Assets, insofar and only insofar
as the Assets include the Leases, Lands, Wells and Equipment,
Production, Contractual Rights and Files comprising the
Brunson/Blalock Prospect described in Exhibit "A" attached
hereto (the "Reserved Assets"). For all purposes under this
Agreement and notwithstanding the above to the contrary, the
term "Assets" shall be deemed to be exclusive of the Reserved
Assets. Following Closing, either party may propose to the
other party, in writing, an operating agreement covering all
or any portion of the Brunson/Blalock Prospect. Within sixty
(60) days following the non-proposing party's actual receipt
of such proposal, the parties shall enter into a mutually
acceptable operating agreement covering such lands upon which
the parties agree, utilizing the A.A.P.L. Form 610-1989 Model
Form Operating Agreement (the "JOA"). The JOA shall be subject
to (or incorporate) the following:
-2-
3
(i) Lomak Production Company (or another entity
designated by Buyer) shall be named as operator;
(ii) the preferential right to purchase provision (Article
VIII.F.) shall be stricken;
(iii) the provisions relating to loss of title (Article
IV.B.) shall be revised to provide that losses
thereunder shall be joint losses to be borne by the
parties in proportion to their respective interests
as set forth in Exhibit A attached thereto (provided,
this provision shall not be construed as limiting
Buyer's rights under Seller's Special Warranty under
Section 2.2 below);
(iv) the term of the JOA shall be for the life of the
leases (Option 1 under Article XIII);
(v) Exhibit C to the JOA shall be the COPAS - 1984 -
Onshore form Accounting Procedure Joint Account;
(vi) regardless of which option the parties elect under
Article VI.G., each party shall have the right to (1)
take its share of production in kind, and (2) receive
payment for its share of production directly from the
purchaser thereof; and
(vii) under Article VI.F., the percentage "70%" shall be
inserted in the blank such that none of the
operations described therein shall be terminated
without the consent of parties bearing at least 70%
of the costs thereof.
I.2 PURCHASE PRICE.
(a) PURCHASE PRICE. The aggregate consideration to be paid by
Buyer for the Assets shall be Fifty-Seven Million Dollars
($57,000,000.00) U.S. (the "Base Purchase Price"), as adjusted
pursuant to the other provisions of this Agreement (the Base
Purchase Price, after such adjustments, if any, being referred
to herein as the "Purchase Price"). The parties have agreed to
the allocation of the Base Purchase Price among the separate
wells, tracts or properties comprising the Assets, as set
forth in Exhibit "B" attached hereto and incorporated herein,
based upon the working and net revenue interests set forth
therein. Such allocation has been determined for the purposes
of establishing the bases for certain taxes, determining the
value of Environmental Defects (as defined in Section 4.1
below) and Title Defects (as defined in Section 4.2 below), if
any, and determining adjustments to the Base Purchase Price,
if any. Of the Purchase Price, the sum of $15,000,000.00 shall
be paid by Buyer causing Lomak to issue to Seller on the
Closing Date that number of shares of Lomak's common stock
("Lomak Common Stock") determined by dividing $15,000,000.00
by the average of the closing price on the New York Stock
Exchange of Lomak Common Stock for the five trading days ended
two trading days prior to Closing (and excluding the Closing
Date). The Lomak Common Stock shall be held in escrow and
distributed to Seller as provided in Section 1.5 hereof. The
balance of the Purchase Price shall be paid by Buyer to Seller
at Closing as follows:
(i) By wire transfer of the Performance Deposit and
interest thereon, as provided in Section 1.2 (b), of
immediately available funds to an account designated
by Seller; and,
-3-
4
(ii) By wire transfer of immediately available funds to an
account designated by Seller.
(b) PERFORMANCE DEPOSIT. Upon execution of this Agreement, Buyer
will deposit in an interest-bearing escrow account at Bank
One, N.A. ("Bank One"), to be held by Bank One pursuant to its
form escrow agreement, the sum of $2,500,000.00, which will
secure Buyer's performance under this Agreement (the
"Performance Deposit"). At Closing, the Performance Deposit,
including any interest accruing thereon from the date of
deposit through the end of the day preceding the date of
Closing (the "Accrued Interest"), will be delivered to Seller
and credited against the Purchase Price. If this Agreement is
terminated prior to Closing, the Performance Deposit will be
disposed of as provided in Section 7.2 below. Until the
Performance Deposit has either been delivered to Seller at
Closing or has otherwise been disposed in accordance with
Section 7.2, it shall continue to be held in escrow as
provided herein.
I.3 EFFECTIVE DATE. If Closing occurs, the conveyance of the Assets shall
be effective as of March 1, 1998, at 7:00 a.m. local time where the
Assets are located (the "Effective Date").
I.4 REGISTRATION OF LOMAK COMMON STOCK. Within thirty (30) days of Closing,
Buyer shall cause Lomak to prepare and file with the Securities
Exchange Commission (the "Commission") a shelf registration statement
on Form S-3 or other appropriate form (the "Registration Statement"),
pursuant to Rule 415 of the Securities Act of 1933, as amended, and all
rules and regulations promulgated under such Act (the "Securities
Act"), covering the resale by Seller of the Lomak Common Stock issued
hereunder (the "Registration"). Buyer shall cause Lomak to use its best
efforts to have the Registration Statement declared effective by the
Commission (the date on which the Lomak Common Stock is declared
effective being the "Registration Effective Date"). Buyer shall bear
and pay all expenses incurred in connection with the Registration,
including, without limitation, all expenses incident to Lomak's
performance of or compliance with the registration rights granted
pursuant hereto, registration and filing fees, fees and expenses
incurred in compliance with securities, blue sky and other applicable
laws, printing and engraving expenses, messenger, telephone and
delivery expenses, and fees and disbursements of Lomak's counsel and
all independent certified public accountants.
I.5 ESCROW OF THE LOMAK COMMON STOCK. Buyer shall cause the Lomak Common
Stock to be delivered to Lomak to be held in escrow and to be released
as follows:
On the first day of each of the eight (8) months following the
Registration Effective Date (each such day being a "Stock Release
Date"), Lomak shall release and deliver to Seller that number of shares
of Lomak Common Stock equal in value to $1,875,000 ("monthly
installment") whereupon such shares may be fully and freely traded on
the New York Stock Exchange, without restriction. The number of shares
of Lomak Common Stock to be released on each Stock Release Date shall
be determined based upon the average of the closing price of Lomak
Common Stock on the New York Stock Exchange for the five trading days
ended two trading days prior to the end of the month preceding such
Stock Release Date. In lieu of the release by Lomak of shares of Lomak
Common Stock as full settlement of any monthly installment, Buyer may,
at its discretion, deliver all or part of such monthly installment in
cash; provided, that the aggregate value of each and every monthly
installment (whether comprised of Lomak Common Stock and/or cash) must
equal $1,875,000.
-4-
5
Buyer may at any time prepay any and all monthly installments in cash.
Any shortfall remaining after all shares of Lomak Common Stock have
been released to Seller hereunder shall be paid by Buyer in cash when
due, the intent being that the aggregate value of all eight monthly
installments (whether comprised of Lomak Common Stock and/or cash) will
be equal to $15,000,000. Any shares of Lomak Common Stock remaining in
escrow after payment of the eight monthly installments shall be
delivered by Lomak to Buyer; and, for the sole purpose of facilitating
such delivery, Seller shall deliver to Lomak a stock power duly
executed in blank. Buyer shall cause Lomak to maintain the Registration
of Lomak Common Stock hereunder and take such other steps as may be
reasonably necessary to permit the Lomak Common Stock registered
pursuant hereto to be fully and freely traded without restrictions on
the New York Stock Exchange.
ARTICLE II
REPRESENTATIONS, WARRANTIES
---------------------------
AND DISCLAIMERS OF SELLER
-------------------------
II.1 REPRESENTATIONS AND WARRANTIES. Except as otherwise provided in Exhibit
"C" attached hereto and made a part hereof, Seller hereby represents
and warrants to Buyer as follows:
(a) ORGANIZATION AND GOOD STANDING. Seller is duly incorporated,
validly existing and in good standing under the laws of the
State of Texas, and it is duly authorized and qualified to
transact business in the State of Texas, and it has all
requisite power and authority to conduct it business and to
own its interest in the Assets.
(b) POWER. Seller has all requisite power and authority to execute
and deliver, and to perform all its obligations under, this
Agreement and all other documents and instruments executed in
connection herewith. The execution and delivery by Seller of
this Agreement and all other documents contemplated hereby or
referred to herein, and the performance by it of the promises,
covenants and agreements herein made by it will not be in
violation of the articles of incorporation, bylaws,
resolutions and/or other documents under which Seller was
created or is presently governed. The execution and delivery
by Seller of this Agreement and all other documents
contemplated hereby or referred to herein, and the performance
by it of the promises, covenants and agreements herein made by
it will not be in violation of, constitute a breach of, or
constitute an event of default under any Agreement or
indenture to which it is subject or by which it is bound.
(c) CORPORATE APPROVAL. The execution and delivery by Seller of
this Agreement and all other documents contemplated hereby or
referred to herein have been duly authorized by all necessary
corporate action and do not and will not (i) require any
consent or approval of any of its stockholders, (ii) violate
the charter or by-laws of such corporation, or (iii) to its
knowledge violate any provisions of any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or
award presently in effect having applicability to it.
-5-
6
(d) GOVERNMENT CONSENT. No authorization, consent, approval,
license, exemption of or filing or registration with any court
or governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, is or will be
necessary to the valid execution, delivery or performance by
Seller of this Agreement or any transfer, assignment,
conveyance, bill of sale or agreement executed and delivered
pursuant hereto subject to the requirements of the State of
Texas with respect to certain of the oil, gas and mineral
leases covered by this Agreement.
(e) BINDING OBLIGATION. This Agreement constitutes the legal,
valid and binding obligation of Seller enforceable against it
in accordance with its terms, except as limited by bankruptcy,
insolvency or other laws of general application relating to
the enforcement of creditors' rights.
(f) VIOLATIONS. Seller is not in default with respect to the
Assets under or in violation of any law, order, writ,
injunction, rule, regulation or decree of any governmental
body, agency or court or of any commission or other
administrative agency, which violation could materially
adversely affect the ownership and operation of any of the
Assets. With respect to the ownership, operation, production
and sale of hydrocarbons and carrying on of its business with
respect to the Assets, it has complied with all laws, rules
and regulations applicable thereto, the failure to comply with
which could materially adversely affect the ownership or
operation of such Assets.
(g) BROKERS. Any obligation or liability, contingent or otherwise,
incurred by Seller for brokers' or finders' fees in respect of
the matters provided for in this Agreement shall be the sole
obligation of Seller, and Buyer shall have no responsibility
therefor.
(h) BASIC DOCUMENTS. The term "Basic Documents" means all of the
documents known to Seller (or of which Buyer has constructive
notice due to public filings) evidencing interests which
comprise the Assets and all contractually binding documents to
which the Seller or the Assets may be subject and which will
be binding on the Assets or on Buyer after the Closing of the
sale and purchase herein provided including, without
limitation, deeds, surface leases, oil, gas and mineral
leases, assignments, overriding royalty assignments, mineral
and royalty deeds, farmout and farmin agreements, option
agreements, pooling agreements and declarations, assignments
of production payments, unit agreements, unit operating
agreements, joint operating agreements, joint venture
agreements, surface leases, agreements for the disposal of
salt water, production marketing contracts, division orders
and the like. Seller is not in breach or default with respect
to any of its obligations pursuant to any Basic Documents or
any regulations incorporated therein or governing same, except
in a manner which does not and will not materially reduce the
value of the Assets. All payments due under each Basic
Document with respect to Seller's interest herein have been
made and there has not occurred any event, fact or
circumstances which, with the lapse of time or the giving of
notice, or both, would constitute a breach or default by
Seller which would materially reduce the value of the Assets.
Seller has not been given or threatened to give notice of any
action to terminate, cancel, rescind or procure a judicial
reformation of any Basic Document or any provision thereof. A
list of the contracts and agreements which
-6-
7
materially affect the Assets and constitute Basic Documents is
attached as Exhibit "D" and incorporated herein by reference.
The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not
result in a breach of, constitute a default under, or result
in a violation of the provisions of any Basic Document and
will not conflict with any provision of the agreements
pursuant to which the interests of Seller in or by virtue of
any Basic Document was created.
(i) LEASES AND AGREEMENTS. With respect to the Basic Documents,
Seller or, to the best of Seller's knowledge, a predecessor in
interest of Seller has fulfilled all requirements applicable
to Seller for filings, certificates, disclosures of parties in
interest, and other similar matters contained in leases and
other instruments (or otherwise applicable thereto by law,
rule or regulation) and Seller is fully qualified to own and
hold the interest of Seller therein.
(j) OPERATING AGREEMENTS. With respect to the joint, unit or other
operating agreements relating to the Assets (1) there are no
outstanding calls or payments under authorities for
expenditures for payment which are due by Seller or which it
has committed to make which have not been made with respect to
the Assets; (2) there are no drilling or development
operations currently being conducted on or in respect of the
Assets, and there are no remaining payout accounts applicable
to the Assets resulting from the failure of any party to
participate in material operations heretofore conducted on or
in respect of an Asset; (3) there are no material operations
under the operating agreements with respect to which Seller
has become a non-consenting party, and no Asset is presently
or, as the result of any election heretofore made, will be
relinquished because of non-participation in any operation
pursuant to any operating agreement; and (4) there are no
pending investment adjustments applicable to Seller because of
changes in participation under any unit operating agreement or
otherwise. The operating agreements are described in Exhibit
"D" attached hereto.
(k) GAS CONTRACTS AND RELATED MARKETING AGREEMENTS. Set forth in
Exhibit "D" hereto is a schedule of all gas sales agreements
to which the Assets are subject, directly or by act of a third
party, or by which any interest of Seller in gas produced from
or attributable to an Asset is otherwise disposed of, which
provide for a term in excess of thirty (30) days or which can
not be terminated by Seller by notice not in excess of thirty
(30) days. No gas sales agreement warrants the amount of gas
to be delivered. Seller, or, to the best of Seller's
knowledge, a predecessor in interest of Seller, has made all
filings necessary under any law or regulation to (i) allow it
to obtain the maximum lawful price allowed by such law or
regulation for natural gas produced from or attributable to
the Assets and (ii) authorize the sale of its natural gas.
Approvals of such filings have been obtained or, with respect
to pending filings, Seller has no knowledge of any reason why
such approval will not be forthcoming in the normal course;
and no purchaser of natural gas is withholding payment of the
full share of the proceeds of all sales made by Seller.
-7-
8
Also set forth in Exhibit "D" hereto is a schedule of all
transportation, gathering, compressing, treating, marketing
and other agreements which relate to or affect the sale of gas
produced from the Assets.
(l) LIQUID SALES AGREEMENTS. All crude oil and condensate sale
arrangements relating to its share of liquids produced from
the Assets may be terminated upon not more than 60 days'
notice without penalty or detriment. No purchaser of liquids
is withholding payment of the full share of Seller of the
proceeds of all sales, other than for matters of title or
completion of division orders.
(m) PREPAYMENTS AND GAS BALANCING. With respect to the Assets, (i)
there are no "take-or- pay" prepayments for which an
obligation of Seller to deliver gas after the Effective Time
exists, (ii) Seller is not obligated, under any prepayment
arrangement, "take or pay" contract, production payment
agreement or other arrangement, to deliver hydrocarbons at
some future time without then or thereafter receiving full
payment therefor, (iii) there are no imbalances resulting from
any gas balancing agreement except those routinely occurring
when actual production has varied from allowables, which are
not considered material and which are routinely corrected and
adjusted periodically, and those as a result of which there
presently exists an obligation and corresponding account for
cash balancing, which are not recoupable or collectible from
production from the Assets.
(n) INFORMATION. All historical production and accounting data
provided by Seller to Buyer and used by Buyer in determining
the value of the Assets is true and correct in all material
respects.
(o) LIENS AND ENCUMBRANCES. The Assets will be transferred as of
the Closing Date (evidenced by proper, recordable releases,
waivers and/or other similar documents furnished at or before
Closing) free and clear of all liens, security interests,
mortgages, pledges, preferential purchase rights, consents to
assign and/or other encumbrances or claims affecting, placed,
caused to be placed or allowed to be placed on the Assets by
Seller other than the following (the "Permitted
Encumbrances"):
(i) Contractual obligations under the Basic Documents
("Contractual Liens");
(ii) Materialmen's liens, mechanics' liens and other
similar statutory and common law liens arising in the
ordinary course of business with respect to
obligations not yet due, or due but not yet
delinquent ("Statutory Liens");
(iii) Imperfections of title and encumbrances which are
immaterial in nature, amount or extent and which do
not substantially detract from the value or interfere
with the use of the Assets subject thereto or
affected thereby or otherwise impair the operations
being conducted thereon ("Immaterial Imperfections");
and
(iv) Royalties, overriding royalties, production payments
and other non-cost bearing interests in production
used in the determination of the net revenue
interests attributable to the Assets ("Other
Burdens").
-8-
9
(p) CONTRACTS AND AGREEMENTS. There are no contracts or agreements
to which Seller is a party or subject which materially and
adversely affect the value or marketability of the Assets,
except as set forth in the Basic Documents and/or reflected or
referenced in county records.
(q) TAXES. All taxes, assessments, penalties, interest and levies
by any governmental authority or agency assessed against the
Assets, which Seller has not, in good faith, protested, have
been properly paid, prior to delinquency.
(r) NO PREFERENTIAL RIGHTS OR CALLS. There are no preferential
rights of purchase, consents to assignment, first rights of
refusal or other required consents, nor are there any calls on
production (including preferential rights to purchase
production) affecting the Assets.
(s) PERMITS. Except as otherwise specified in this Agreement (i)
Seller has obtained all permits, licenses, certificates and
authorizations required by federal, state and local law in
connection with the ownership and operation of the Assets
(collectively the "Permits"), made all filings and reports
related thereto and paid all fees necessary or appropriate to
obtain such Permits, and (ii) the Permits, and the filings and
reports related thereto, are in full force and effect, and no
violations have been reported to Seller in respect of any such
Permits, or the filings or reports related thereto, and no
judicial, administrative or arbitral proceeding is pending or,
to Seller's knowledge, threatened, relating to the revocation
or limitation of any such Permits, or the filings or reports
related thereto.
(t) CURTAILMENTS. There are no curtailments of takes, failures or
refusals of purchasers of production to take under existing
production purchase contracts or refund obligations relating
to the Assets.
(u) WELLS: DRILLING, OPERATIONS, ALLOWABLES.
(i) all of the wells in which Seller has an interest by
virtue of its ownership of the Assets have been
drilled and completed within the boundaries of the
Leases or within the limits otherwise permitted by
applicable pooling and/or other agreements, Leases
and law;
(ii) the drilling and completion of such wells and all
development and operations on the Leases have been
conducted in compliance with all applicable Leases,
the Basic Documents, laws, Permits, regulations and
orders; and
(iii) none of such wells is subject to penalties on
allowables because of overproduction or other
violation of any applicable law, permit, regulation
or order that would prevent such well from being
entitled to its full legal and regular allowable from
and after the Effective Date as prescribed by
applicable governmental authority.
(v) STATE OF REPAIR OF EQUIPMENT. The Wells and Equipment have
been maintained in a state of repair such that they have been
and presently are adequate for normal operations in accordance
with standard industry practice in the area in which they are
used.
-9-
10
(w) SUITS. There is no suit, action, claim, or, to the best of
Seller's knowledge, investigation or inquiry by any person or
entity or by any administrative agency or governmental body,
including, without limitation, condemnation, expropriation,
surface damage, waste disposal, property damage, automotive
and public liability or forfeiture proceedings against Seller
in respect of the Assets.
(x) LEASE PAYMENTS. All rental, royalty, shut-in royalty and other
lease accounts with respect to the Assets are current, and all
payments required thereunder have been made. All material
surface damage, waste disposal, right-of-way or other
obligations of them to landowners and lessors asserted prior
to the Effective Time have been paid.
(y) PARTNERSHIPS. None of the Assets is subject to a tax
partnership or other partnership.
(z) BANKRUPTCY PROCEEDINGS. Seller is not contemplating bankruptcy
and, to the best of Seller's knowledge, no bankruptcy or
receivership proceedings are being threatened or contemplated
against Seller.
(aa) NON-FOREIGN SELLER. Seller is not a foreign person within the
meaning of Section 1445 of the Internal Revenue Code.
(bb) MATERIAL. As used in this Section 2.1 the term "material" or
"materially" shall mean the sum of $10,000, so that
"materially affect", "materially adversely affect" or
"materially reduce the value" shall mean a loss or reduction
in value of $10,000 or more.
(cc) MATERIAL ADVERSE CHANGES. There shall have been no adverse
material changes in the condition of the Assets from the
Effective Date up to Closing, except for the depletion of oil,
gas and other hydrocarbon reserves and ordinary wear and tear
of the Wells and Equipment.
II.2 WARRANTIES AND DISCLAIMERS.
(a) SPECIAL WARRANTY. The Assignment and Bill of Sale to be
delivered to Buyer pursuant to Section 6.3(a) below will
contain a "special warranty" by which Seller will agree to
warrant and defend title to the Assets to Buyer, its
successors and assigns, against every person whomsoever
lawfully claiming the Assets or any part thereof by, through
or under Seller (the "Special Warranty").
(b) DISCLAIMERS. Except for the Special Warranty given pursuant to
Section 2.2 (a) and except as otherwise expressly provided in
this Agreement, SELLER HEREBY DISCLAIMS ALL REPRESENTATIONS
AND WARRANTIES, EXPRESS OR IMPLIED. ALL OF SELLER'S INTERESTS
IN THE WELLS AND EQUIPMENT ARE BEING SOLD "AS IS, WHERE IS AND
WITH ALL FAULTS," AND WITHOUT WARRANTY OF MERCHANTABILITY,
CONDITION OR FITNESS FOR A PARTICULAR PURPOSE, EXPRESS OR
IMPLIED.
-10-
11
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
OF BUYER
--------
Except as otherwise provided in Exhibit "E" attached hereto and made a
part hereof, Buyer represents as follows:
III.1 Buyer represents and warrants to Seller as follows:
(a) ORGANIZATION AND GOOD STANDING. Buyer is a duly organized and
validly existing Texas limited partnership and is duly
authorized and qualified to transact business in the State of
Texas and to own the Assets.
(b) POWER. Buyer has all requisite power and authority to execute
and deliver, and to perform all its obligations under, this
Agreement and all other documents and instruments executed in
connection herewith.
(c) APPROVAL. The execution and delivery by Buyer of this
Agreement and all other documents contemplated hereby or
referred to herein have been duly authorized by all necessary
partnership action and do not and will not (i) require any
consent or approval of its limited partner, (ii) violate its
agreement of limited partnership, or (iii) to its knowledge
violate any provisions of any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award
presently in effect having applicability to it.
(d) GOVERNMENT CONSENT. No authorization, consent, approval,
license, exemption of or filing or registration with any court
or governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, is or will be
necessary to the valid execution, delivery or performance by
Buyer of this Agreement or any other document contemplated
hereby or referred to herein.
(e) BINDING OBLIGATION. This Agreement constitutes the legal,
valid and binding obligation of Buyer enforceable against it
in accordance with its terms, except as limited by bankruptcy,
insolvency or other laws of general application relating to
the enforcement of creditors' rights.
(f) BROKERS. If any obligation or liability of Buyer exists for
brokers' or finders' fees in respect of the matters provided
for in this Agreement, such obligation or liability shall be
the sole obligation of it, and Seller shall have no
responsibility therefor. Buyer has notified Seller prior to or
at the execution hereof of whether or not Buyer is or will be
obligated for any brokers' or finders' fees relating to the
transactions contemplated by this Agreement.
ARTICLE IV
ENVIRONMENTAL AND TITLE INSPECTIONS;
------------------------------------
PRE-CLOSING CONDUCT
-------------------
IV.1 ENVIRONMENTAL REVIEW AND DEFECTS.
-11-
12
(a) INSPECTION OF ASSETS. Following execution of this Agreement
and through the time of Closing, Buyer shall have full access
to the Assets so that Buyer may visually (and otherwise) fully
inspect the Lands, and the Wells and Equipment, and conduct or
cause to be conducted such environmental survey(s) in
connection therewith which Buyer, in its sole discretion,
deems advisable or prudent.
(b) NOTICE AND VALUATION OF ENVIRONMENTAL DEFECTS. On or before
March 15, 1998, at 6:00 p.m., local time where the Assets are
located, Buyer shall furnish written notice to Seller advising
of any Environmental Defects (defined in Section 4.1 (d)
below) (the "Environmental Defects Notice"). In the
Environmental Defects Notice, Buyer may request reduction of
the Base Purchase Price for any of the adversely affected
portions of the Assets. The Environmental Defects Notice shall
clearly indicate the nature and a detailed description of each
of the alleged Environmental Defects, the portion(s) of the
Assets to which the Environmental Defect relates, and the
dollar amount which Buyer believes, based upon good faith,
reasonable estimates, would be necessary to rectify or
remediate same. Seller shall have the right, but not the
obligation, to attempt to cure any or all of the Environmental
Defects alleged in the Environmental Defects Notice at any
time prior and up to Closing. In the event Seller is unable or
unwilling to materially and substantially cure the alleged
Environmental Defect(s) by the time of Closing, Buyer and
Seller will confer and use their best, good faith efforts to
agree on the validity of the claim of such Environmental
Defect(s) and the amount(s), if any, by which the Base
Purchase Price should be adjusted in connection therewith.
(c) FAILURE TO AGREE ON ADJUSTMENTS FOR ENVIRONMENTAL DEFECTS. In
the event the parties cannot mutually agree on an adjustment
to the Base Purchase Price for any Environmental Defect(s)
which have been alleged in the Environmental Defects Notice,
as provided above, Buyer shall have the right to (i) proceed
to Closing and accept the Assets with such alleged
Environmental Defect(s) without any corresponding adjustment
to the Base Purchase Price, or (ii) terminate this Agreement
as to that portion of the Assets adversely affected by such
alleged Environmental Defect(s) (the "Properties Excluded Due
to Environmental Defect") and receive a corresponding
adjustment to the Base Purchase Price by deducting therefrom
the value(s) allocated to the Properties Excluded Due to
Environmental Defect in Exhibit "B" attached hereto.
(d) "ENVIRONMENTAL DEFECT" DEFINED.
(i) DEFINITION OF "ENVIRONMENTAL DEFECT". "Environmental
Defect(s)" shall mean the existence of any condition
(i) which constitutes a violation of any of the
Environmental Laws applicable to the Assets and/or
Seller and (ii) to which prompt remedial or
corrective action either is required by law or would
otherwise be undertaken by a prudent operator of oil
and gas properties and/or gas gathering or water
disposal systems, as the case may be.
(ii) DEFINITION OF "ENVIRONMENTAL LAWS". "Environmental
Laws" shall mean any and all constitutional
provisions, statutes, acts, codes, regulations,
rules, ordinances, orders, decrees, rulings,
proclamations, resolutions, judgments, decisions,
-12-
13
declarations, or interpretative or advisory opinions
or letters of any federal, state or local
governmental authority (whether executive,
legislative or judicial or otherwise) pertaining to
health or the environment, including, without
limitation, the Clean Air Act, the Comprehensive
Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA"), the Federal Water Pollution
Control Act or Clean Water Act ("CWA"), the
Occupational Safety and Health Act of 1970, the
Resource Conservation and Recovery Act of 1976
("RCRA"), the Toxic Substances Control Act, the
Hazardous & Solid Waste Amendments Act of 1984, the
Superfund Amendments and Preauthorization Act of
1986, the Hazardous Materials Transportation Act, the
Emergency Planning and Community Right to Know Act of
1986, the Federal Safe Drinking Water Act, the
Federal Water Pollution Control Act, and the Used Oil
Recycling Act. For purposes of this Agreement, the
terms "hazardous substance," "release" (when used in
the context of environmental or health matters) and
"threatened release" have the meanings specified in
CERCLA, the terms "pollutant" and "discharge" (or
"discharge of a pollutant") have the meanings
specified in CWA, and the terms "solid waste",
"hazardous waste" and "disposal" (or "disposed") have
the meanings specified in RCRA; provided, however,
that (A) to the extent the laws of the states in
which the Assets are located establish a meaning for
"hazardous substance", "release", "pollutant",
"discharge", "solid waste", "hazardous waste" or
"disposal" that is broader than that specified in
CERCLA, the CWA or RCRA, such broader meaning shall
apply; and (B) the terms "hazardous substance",
"solid waste" and "hazardous waste" shall include all
oil and gas exploration and production wastes that
may present an endangerment to public health or
welfare or the environment, even if such wastes are
specifically exempt from classification as hazardous
substances, solid wastes or hazardous wastes pursuant
to CERCLA or RCRA or the applicable state analogues
to those statutes.
IV.2 TITLE REVIEW AND DEFECTS.
(a) REVIEW OF PERTINENT FILES AND DOCUMENTS. Following execution
of this Agreement, Buyer shall have full access, during
reasonable hours, to the records, documents, materials and
files in Seller's possession (or to which Seller has
convenient access) relating to the Assets, including, but not
limited to, accounting records, and geological, geophysical,
well, land and legal files, but only insofar as they relate to
the Assets. Seller shall allow Buyer to copy any such records,
documents, materials and files in Seller's possession (with
the understanding that if this Agreement is terminated and
Closing has not occurred, Buyer shall immediately deliver to
Seller all such copies). Buyer shall make such other
examination of title to the Assets as Buyer, acting in its
sole discretion, deems necessary or advisable.
(b) NOTICE OF TITLE DEFECTS. On or before March 15, 1998, at 6:00
p.m., local time where the Assets are located, Buyer shall
furnish written notice to Seller advising in full detail of
any Title Defects (defined in Section 4.2 (d) below) found by
Buyer to adversely affect Seller's title to the Assets and
which of such Title Defects, if any, Buyer is willing to waive
(the "Title Defects Notice"). The Title Defects Notice shall
include Buyer's suggested means for curing the alleged Title
Defects set forth therein, but such suggestions shall not be
binding upon Seller.
-13-
14
(c) RIGHTS OF THE PARTIES REGARDING TITLE DEFECTS. Seller shall
have the right, but not the obligation, to attempt to cure any
alleged Title Defect prior to Closing and at any time
thereafter up to and including one hundred twenty (120) days
following Closing (the "Cure Period").
(i) TITLE DEFECTS UNCURED AT CLOSING. If, at Closing,
Seller has been unable or unwilling to cure an
alleged Title Defect which has been timely and
properly asserted in the Title Defects Notice, (i)
Seller shall retain that portion of the Assets
affected by the alleged Title Defect to Buyer at
Closing (the "Retained Properties"), and (ii) Buyer
and Seller shall confer and use their best efforts to
agree on the validity of the claim of the alleged
Title Defect and the amount which Buyer will retain
from the Base Purchase Price while Seller attempts to
cure all such Title Defects during the Cure Period
(the "Title Retention Amount"). If during the Cure
Period, Seller is able to cure the alleged Title
Defect to the reasonable satisfaction of Buyer, Buyer
shall promptly remit to Seller that portion of the
Title Retention Amount that is allocated to such
cured Title Defect and, simultaneously therewith,
Seller shall deliver to Buyer an assignment, on a
form substantially the same as the Assignment and
Bill of Sale provided for in Section 6.3(a) below,
conveying to Buyer that portion of the Retained
Properties previously affected by such Title Defect;
provided, however, if the Title Defect is cured and
the assignment made after the Closing Date, then the
portion of the Title Retention Amount which Buyer is
required to remit to Seller shall be reduced by an
amount equal to the net proceeds of production
actually received by Seller from the Effective Date
up to the time of remittance attributable to the
portion of the Retained Properties being assigned
(after first deducting from net proceeds an amount
equal to the total capital expenditures actually paid
by Seller in connection therewith during such time
period).
(ii) TITLE DEFECTS UNCURED AT END OF CURE PERIOD. If, upon
the expiration of the Cure Period, Seller has been
unable or has elected not to cure one or more of the
outstanding Title Defects (of which Seller was
notified in the Title Defects Notice under the
provisions of Section 4.2 (b) above), then, unless
otherwise agreed by Seller and Buyer, Buyer shall
have the right to (i) waive one or more of the Title
Defects and receive assignment from Seller of all or
a portion of the Retained Properties affected by such
uncured Title Defects and, simultaneously therewith,
remit to Seller that portion of the Title Retention
Amount (less the net proceeds of production actually
received by Seller during the period from the
Effective Date through the date such assignment is
made, after first deducting from the net proceeds an
amount equal to the total capital expenditures
actually paid by Seller in connection therewith, in
accordance herewith, during such period) attributable
thereto, and/or (ii) refuse assignment from Seller of
all or any portion of the Retained Properties
affected by the uncured Title Defects and retain that
portion of the Title Retention Amount allocated
thereto. If pursuant to this provision Buyer elects
to receive assignment of any or all of the Retained
Properties, Seller shall
-14-
15
convey such Retained Properties to Buyer by
assignment, on a form substantially the same as the
Assignment and Bill of Sale provided for in Section
6.3(a) below, which shall be effective as of the
Effective Date.
(iii) ADJUSTMENTS TO BASE PURCHASE PRICE FOR UNCURED TITLE
DEFECTS. In the event the parties are unable to
mutually agree upon a Title Retention Amount for an
alleged Title Defect (of which Seller was notified in
the Title Defects Notice under the provisions of
Section 4.2 (b) above), Buyer shall have the right to
(i) waive the Title Defect and proceed to Closing
without retaining any Title Retention Amount
therefor, or (ii) terminate this Agreement as to the
portion of the Assets adversely affected by the
alleged Title Defect (the "Properties Excluded Due to
Title Defect") and receive an adjustment to the Base
Purchase Price for the Properties Excluded Due to
Title Defect based upon and in accordance with the
values allocated thereto in Exhibit "B" attached
hereto.
(d) "TITLE DEFECT" DEFINED. The term "Title Defect(s)," as used
herein, shall mean any of the following:
(i) any encumbrance, defect or other condition affecting
Seller's title to the Assets (or any party thereof)
which causes Seller to receive a net revenue interest
percentage in the oil, gas and other hydrocarbons
produced from each well included in the Assets which
is greater or less than the net revenue interest
percentage represented for such well in Exhibit "B"
attached hereto;
(ii) any encumbrance, defect or other condition affecting
Seller's title to the Assets (or any party thereof)
which obligates Seller to pay for a percentage of the
costs and expenses for the operation, development and
maintenance of each well included in the Assets which
is greater or less than the percentage of Working
Interest represented for such well in Exhibit "B"
attached hereto; or
(iii) any liens, security interests, mortgages, pledges,
preferential purchase rights, consent requirements or
other encumbrances affecting, placed, caused to be
placed or allowed to be placed on the Assets by
Seller, other than the Permitted Encumbrances
(defined in Section 2.1 (o) above), which, based upon
petroleum industry standards for the area in which
the affected portion of the Assets is located, alone
or in combination with other defects, will interfere
with Buyer's substantial enjoyment of the Assets or
adversely and substantially affect the marketability
of the Assets or substantial portion thereof.
IV.3 FURTHER OBLIGATIONS. In addition to the provisions set forth in Section
4.1 and 4.2 hereof with respect to Environmental Defects and Title
Defects, Seller shall be bound by the indemnification provisions of
Article IX of this Agreement relating to Environmental Defects and
Title Defects which are asserted subsequent to the notice dates set
forth in Sections 4.1 and 4.2 hereof.
IV.4 PRE-CLOSING CONDUCT. Seller covenants and agrees that from and after
the date hereof, and unless and until this Agreement is terminated or
Closing occurs, as hereinafter provided:
-15-
16
(a) CASUALTY LOSSES. If any of the Wells and Equipment included in
the Assets is damaged or destroyed by fire, flood, storm or
other casualty (herein "Casualty Loss"), Seller shall
immediately notify Buyer of same and the Base Purchase Price
shall be reduced by an amount estimated by Seller, and as
agreed upon by Buyer, to be equal to the repair or replacement
costs of the damaged facility or equipment.
(b) PRESERVATION OF ACCURACY OF REPRESENTATIONS AND WARRANTIES.
The parties shall use their respective best efforts to refrain
from taking any action which would render any representation
or warranty contained in Article II or III of this Agreement
inaccurate as of the time of Closing. Seller will promptly
notify Buyer of any claim, litigation, proceeding or
governmental investigation that may be threatened or commenced
against Seller involving in any way this Agreement, the
transactions contemplated herein or any of the Assets.
(c) SALES. Seller will not sell, transfer, assign, convey or
otherwise dispose of any Asset other than: (i) pursuant to
this Agreement; (ii) oil, gas and other hydrocarbons produced,
saved and sold in the ordinary course of business; and (iii)
personal property and equipment which is replaced with
property and equipment of comparable or better value and
utility in the ordinary and routine maintenance and operation
of the Assets.
(d) ENCUMBRANCES. Seller will not create or permit the creation of
any lien, security interest or encumbrance (other than
Permitted Encumbrances) on any portion of the Assets, the oil
or gas produced therefrom or attributable thereto, or the
proceeds thereof.
(e) OPERATION OF PROPERTIES. Seller (i) will not agree to
participate in the drilling of any new well on the Assets or
fail to participate in operations thereon proposed by other
parties, without the advance consent of Buyer; (ii) will not
remove, cause to be removed, sell, abandon or otherwise
dispose of and shall use due diligence to maintain the Assets;
(iii) will perform all of the obligations of it under
contracts relating to or affecting the Assets; (iv) will
exercise all due diligence in safeguarding and maintaining
secure and confidential all geological and geophysical maps,
confidential reports and data and all other confidential
information in its possession relating in any of the Assets;
(v) will not knowingly take any action which will cause any
purchaser of production attributable to the Assets to place in
suspense any payment for production sold; (vi) will inform
Buyer of all third party requests for funds with respect to
operations on the Assets and will not, without providing Buyer
a reasonable opportunity to instruct it, agree to participate
in any proposed operation on the Assets other than routine
recovery operations or operations necessary in the case of any
emergency; and (vii) except for this Agreement, will not enter
into or cause any contract, agreement or commitment with
respect to the Assets which is not in the ordinary course of
business as heretofore conducted in association with the
Assets, or which involves payments, receipts or potential
liabilities by Seller of an amount in excess of the sum of
$25,000.
-16-
17
(f) CONTRACTS AND AGREEMENTS. Seller will not (i) grant any
preferential right to purchase or similar right or agree to
require the consent of any party to the transfer and
assignment to Buyer of any Asset; (ii) enter into any gas
sales contract or new crude oil sales or supply contract with
respect to the Assets herein provided to be sold and conveyed
which is not terminable together with any supplier-purchaser
relationship or dedication accompanying such contract at will
and without penalty or detriment on notice of 30 days or less;
(iii) incur or agree to incur any contractual obligation or
liability, absolute or contingent, with respect to the Assets
which are herein provided to be sold and conveyed, except in
the ordinary course of business as conducted heretofore or as
otherwise provided herein; or (iv) enter into any transaction
the effect of which, considered as a whole, would be to cause
any Asset which is herein provided to be sold and conveyed to
be materially and adversely changed as of the Effective Date.
(g) CONSENTS. If any approval or consent by any federal, state or
local government is required to vest good and marketable title
to any interest in any Asset in Buyer and to the subsequent
use and operation by Buyer thereof, Seller will exercise its
best efforts, or as reasonably requested by Buyer, to obtain
all such required approvals or consents. Seller will use its
best efforts to obtain from all purchasers of hydrocarbons
from the Assets appropriate transfer orders or letters-in-lieu
of transfer orders designating Buyer as the appropriate party
for payment, effective as of the Effective Time, with respect
to the Assets which are sold and conveyed to Buyer hereunder.
(h) ABANDONMENTS. Seller will not abandon any of the Assets
without the advance written consent of Buyer, except as
required by order, judgment or decree of a governmental
authority.
(i) NOTICE OF DEFAULTS. Seller will give prompt written notice to
Buyer of any notice of default (or threat of default, whether
disputed or denied) received or given by it subsequent to the
Effective Time under any instrument or agreement affecting the
Assets to which Seller is a party or by which it or any of the
Assets is bound.
(j) NOTICE OF EVENTS AND PROPOSALS. If between the date hereof and
the Closing Seller becomes aware of (i) any action or
occurrence arising after the date hereof which reasonably may
materially affect any of the Assets, or (ii) any proposal from
a third party to engage in any material transaction with
respect to any of the Assets, it will give prompt written
notice to Buyer of such action, occurrence or proposal.
(k) AMENDMENTS. Seller will not supplement, amend, alter, modify
or waive any Basic Document, insofar as it covers the interest
therein which is herein provided to be sold and conveyed,
except in the ordinary course of business, nor surrender,
permit to expire (except upon expiration of its term) or
terminate any Basic Document except as may be authorized by
Buyer in writing in each instance.
(l) NO SHOP. Seller agrees from the date hereof through the
Closing that neither Seller nor any of its officers, directors
or any other person or entity representing Seller will engage
in any discussions or negotiations with others or otherwise
solicit interest with respect to purchase
-17-
18
of the Assets or which would negatively affect the ability of
Buyer to complete the acquisition of the Assets as structured.
ARTICLE V
PROCEEDS, ROYALTY OBLIGATIONS, EXPENSES AND TAXES
-------------------------------------------------
V.1 ACCOUNTING FOR PRODUCTION AND PROCEEDS OF PRODUCTION. Ownership of all
production from the Assets shall pass from Seller to Buyer as of the
Effective Date (except that Seller shall retain ownership and shall be
entitled to all proceeds from the sale of any oil above the pipeline
connections in all storage tanks attributable to the Assets as of the
Effective Date). If Seller should at any time subsequent to the Closing
Date receive from any purchaser of production any proceeds attributable
to production from the Assets occurring after the Effective Date (other
than as provided in the parenthetical clause of the preceding
sentence), Seller shall without delay remit all such proceeds to Buyer.
Similarly, if Buyer should at any time receive any proceeds
attributable to any production occurring prior to the Effective Date,
Buyer shall without delay remit same to Seller.
V.2 ROYALTY OBLIGATIONS; EXPENSES. Seller shall be responsible for the
payment of all overriding royalty, royalty and other leasehold
obligations, operating expenses and capital expenses attributable to
the Assets accruing prior to the Effective Date. Buyer shall be
responsible for payment of all overriding royalty, royalty and other
leasehold obligations, operating expenses and capital expenses
attributable to the Assets accruing after the Effective Date, subject
to the limitations set forth in Article VIII. Any party who pays any
such obligations which are the responsibility of the other shall be
entitled to prompt reimbursement upon issuance to the responsible party
of evidence of such payment.
V.3 SALES AND OTHER TRANSFER TAXES. Buyer shall bear the cost of all
applicable sales taxes, real property transfer taxes and other taxes
(excluding income taxes), if any, payable as a result of the transfer
of the Assets.
V.4 AD VALOREM AND OTHER TAXES. All taxes on the ownership or operation of
the Assets, including real estate taxes (other than the taxes referred
to in Sections 5.3 and 5.6 hereof), which are imposed with respect to
periods or portions of periods prior to the Effective Date shall be the
burden of Seller and all such taxes imposed with respect to periods or
portions of periods after the Effective Date shall be the burden of
Buyer. Any party who pays any such taxes which are the responsibility
of the other party shall be entitled to prompt reimbursement upon
issuance to the responsible party of evidence of such payment (which
reimbursement shall, if possible, be in the form of a credit to or
deduction from the Base Purchase Price).
V.5 JOINT BILLING AUDITS; CREDITS. Seller shall be responsible for
settlement of all joint billing audits which relate to accounting
periods prior and up to the Effective Date. Buyer shall be responsible
for the settlement of all joint billing audits which relate to
accounting periods from and after the Effective Date. Any credits or
other consideration received by Buyer after the Effective Date
attributable to expenses paid by Seller prior to the Effective Date
shall be reimbursed to Seller by Buyer immediately upon receipt of
same.
-18-
19
V.6 INCOME AND FRANCHISE TAXES. For purposes of federal, state and local
income and franchise taxes and other similar taxes, it is the intent of
the parties that ownership of the Assets shall pass to Buyer as of the
Effective Date herein, and that Buyer shall bear all such taxes
attributable to the Assets accruing after the Effective Date and Seller
shall bear all such taxes attributable to the Assets accruing prior to
the Effective Date.
ARTICLE VI
CLOSING
-------
VI.1 CONDITIONS TO CLOSING.
(a) CONDITIONS TO BUYER'S CLOSING OBLIGATIONS. The obligations
which Buyer is required to perform at Closing are subject to
the satisfaction of the following conditions, any one or more
of which may be waived in whole or in part by Buyer:
(i) REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties in Section 2.1 (a),
(b), (c), (d) and (e) shall be true and correct as of
Closing.
(ii) PERFORMANCE OF OBLIGATIONS OF SELLER. Seller shall
have performed all material obligations it is
required to perform under this Agreement prior to or
at Closing.
(iii) NECESSARY CONSENTS AND WAIVERS. Seller shall have
obtained all material consents and waivers required
from third parties (including, without limitation,
consents and waivers of required in connection with
Paragraphs 3 and 4 of Exhibit "C" hereto) and/or
shall have taken such other actions necessary to the
consummation of the transactions contemplated by this
Agreement including, but not limited to, the
release(s) of all encumbrances, if any, adversely and
materially affecting the Assets (excluding the
Permitted Encumbrances).
(iv) NO LITIGATION. No suit or other proceedings shall be
pending before any court or governmental agency
seeking to restrain or prohibit the transaction
contemplated by this Agreement.
(v) NO VIOLATION OF COURT ORDER. The Closing shall not
violate the order or decree of any court or
governmental body having competent jurisdiction.
(vi) TRANSFER DOCUMENTS. Seller shall have prepared and
executed all documents necessary to transfer title to
the Assets to Buyer as well as all change of operator
forms necessary to transfer operations of wells
operated by Seller to Lomak Production Company (the
general partner of Buyer).
(vii) AMI AGREEMENT. Seller and Buyer shall have executed
and delivered a recordable Area of Mutual Interest
Agreement ("AMI Agreement") with respect to the
Reserved Assets on a form substantially the same as
the AMI Agreement attached as Exhibit "F" attached
hereto and incorporated herein.
-19-
20
(b) CONDITIONS TO SELLER'S CLOSING OBLIGATIONS. The obligations
which Seller is required to perform at Closing are subject to
the satisfaction of the following conditions, any one or more
of which may be waived in whole or in part by Seller:
(i) REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties in Section 3.1 (a),
(b), (c), (d) and (e) shall be true and correct as of
Closing.
(ii) PERFORMANCE OF OBLIGATIONS OF BUYER. Buyer shall have
performed all material obligations it is required to
perform under this Agreement prior to or at Closing.
(iii) NO LITIGATION. No suit or other proceedings shall be
pending before any court or governmental agency
seeking to restrain or prohibit the transaction
contemplated by this Agreement.
(iv) NO VIOLATION OF COURT ORDER. The Closing shall not
violate the order or decree of any court or
governmental body having competent jurisdiction.
(v) REQUIRED BONDING. Lomak Production Company shall have
secured the necessary bonding required for operations
on the Assets as required by all applicable
governmental agencies.
(vi) AMI AGREEMENT. The AMI Agreement shall have been
executed and delivered by Seller and Buyer.
VI.2 DATE AND PLACE OF CLOSING. Closing of the purchase and sale
contemplated in this Agreement ("Closing") will occur in accordance
with the terms and provisions hereof at Seller's offices in Midland,
Midland County, Texas, at 10:00 a.m. on or before March 31, 1998 (the
"Closing Date"), or at such other time or place upon which the parties
may agree in writing.
VI.3 CLOSING OBLIGATIONS. At Closing, the following events shall occur, each
being a condition precedent of the others and each being deemed to have
occurred simultaneously with the others:
(a) DELIVERY OF ASSIGNMENT AND BILL OF SALE. Subject to the
provisions of Sections 4.1 and 4.2 above, Seller shall
execute, acknowledge and deliver to Buyer an executed
conveyance document, substantially in the same form as that
which is attached hereto and made a part hereof as Exhibit "G"
(the "Assignment and Bill of Sale") and such other instruments
of transfer and assignment (including any transfers or
assignments required by state or federal agency) necessary or
convenient to fully effectuate the transfer of the Assets to
Buyer.
(b) DELIVERY OF POSSESSION. Seller shall deliver to Buyer the
right to exclusive possession of the Assets and Buyer shall
take possession of the Assets, effective as of the Effective
Date.
(c) DELIVERY OF PURCHASE PRICE. Buyer shall deliver to Seller, by
wire transfer to Seller's bank or other financial institution
(pursuant to Seller's instruction) or as otherwise directed by
Seller, the cash portion of the Purchase Price, as determined
in accordance with Section 1.2 above.
-20-
21
(d) LETTERS IN LIEU. Seller shall furnish to Buyer executed,
acknowledged transfer orders or letters in lieu of transfer
orders, made effective as of the Effective Date, directing all
purchasers of production to make payments of proceeds of
production attributable to the Assets to Buyer.
(e) OTHER DOCUMENTS. Seller and Buyer shall execute, acknowledge
and deliver such other instruments and take such other action
as may be necessary to fulfill their respective obligations
under this Agreement, including without limitation forms
required in connection with the transfer of the Assets or
operation thereof by applicable governmental agencies and
regulations.
(f) SETTLEMENT STATEMENT. Seller shall prepare and Seller and
Buyer shall execute and deliver a settlement statement which
sets forth the Purchase Price, any adjustments (including
calculations used in making same) to the Purchase Price made
in accordance herewith and any portions of the Purchase Price
retained by Buyer as Title Retention Amount under Section 4.2
above; provided that if no adjustments to the Purchase Price
are necessary and Buyer has retained no Title Retention
Amount, the parties may forego a settlement statement.
(g) TRANSFER OF OPERATIONS FORMS. Seller and Lomak Production
Company shall execute Texas Railroad Commission Forms P-4
designating Lomak Production Company operator of the Assets
previously operated by Seller, subject however, to the rights
of third parties under applicable operating agreements, and
Seller shall file such forms with the Texas Railroad
Commission.
(h) SELLER CERTIFICATE. Seller shall deliver to Buyer, (i) a
certificate signed by a responsible officer of Seller
certifying that all of the representations and warranties of
Seller made hereunder are true and correct at and as of
Closing, as if made on the Closing Date, (ii) a certified copy
of the Board of Directors of Seller authorizing transactions
contemplated by this Agreement, such certified copy to show
the dates of adoption and that on the Closing Date the
resolutions have not been rescinded or modified, and (iii) a
Certificate of the Secretary of Seller showing the incumbency
of the officers of Seller executing instruments on behalf of
Seller.
(i) BUYER CERTIFICATE. Buyer shall deliver to Seller (i) a
certificate signed by a responsible officer of Lomak
Production Company, as the general partner of Buyer,
certifying that all of the representations and warranties of
Buyer made hereunder are true and correct at and as of
Closing, as if made on the Closing Date, (ii) a certified copy
of the Board of Directors resolution of Lomak Production
Company authorizing the transaction contemplated by the
Agreement, on behalf of Buyer, such certified copy to show the
date of adoption and that on the Closing Date it has not been
rescinded or modified, (iii) a certificate of the secretary of
Lomak Production Company showing the incumbency of the
officers of Lomak Production Company executing instruments on
behalf of Buyer, and (iv) such documents as may be reasonably
requested by Seller demonstrating that Lomak Production
Company
-21-
22
is a qualified operator with the Texas Railroad Commission and
has posted all bonds required by it.
(j) SUSPENSE FUNDS. Seller shall deliver to Buyer all funds held
in suspense by Seller with respect to the Assets together with
a report in reasonable detail setting forth the reasons such
funds are held in suspense.
(k) AMI AGREEMENT. Seller and Buyer shall have executed and
delivered the AMI Agreement.
ARTICLE VII
TERMINATION OF AGREEMENT
------------------------
VII.1 TERMINATION. Notwithstanding anything else herein to the contrary, this
Agreement may be terminated, without recourse, by:
(a) Buyer or Seller, if:
(i) after the date of this Agreement, any legislation
which would have the effect of prohibiting or making
unlawful the acquisition or ownership of the Assets
by Buyer or the conveyance or sale of the Assets by
Seller has been enacted into law;
(ii) at Closing, the total value of the following is equal
to or exceeds ten percent (10%) of the Base Purchase
Price:
(1) the Properties Excluded Due to Environmental
Defects under Section 4.1 (c) above
(Environmental Defects relating to the
Assets which remain uncured and which have
not been waived by Buyer);
(2) the Retained Properties under Section 4.2
(c) (iii) above (Title Defects relating to
the Assets which remain uncured and which
have not been waived by Buyer);
(3) the total dollar amount of the adjustments
made to the Base Purchase Price, if any, for
Environmental Defects asserted in the
Environmental Defects Notice, as agreed by
the parties under Section 4.1 (b);
(4) the total dollar amount of the adjustments
made to the Base Purchase Price, if any, for
Title Defects asserted in the Title Defects
Notice, as agreed by the parties under
Section 4.2 (c) (iii); including, without
limitation, adjustments made as a result of
Seller's inability to deliver all or any
portion of the Outstanding Non-Operated
Interests (as defined in Section 10.18);
and,
(5) material breaches of the representations and
warranties of Seller (determined in
accordance with Section 2.1 (bb) above),
remaining uncured and not waived by Buyer;
including, without limitation, the exercise
by
-22-
23
Altura Energy Ltd. (and any other party
holding such right) of its preferential
right to acquire all or any portion of the
Assets, or the failure to grant any required
consent to the sale hereunder.
The respective values relating to each of the above
shall be determined in accordance with the
allocations set forth in Exhibit "B" hereto.
(b) Buyer, if at Closing:
(i) any condition set forth in Section 6.1(a) hereof has
not been satisfied by Seller or otherwise cured, as
the case may be (or waived by Buyer); or,
(ii) Seller fails to perform any of its material
obligations under Section 6.3 (and Buyer is not then
in default under the terms of this Agreement).
(c) Seller, if at Closing:
(i) any condition set forth in Section 6.1(b) hereof has
not been satisfied by Buyer or otherwise cured, as
the case may be (or waived by Seller); or,
(ii) Buyer fails to perform any of its material
obligations under Section 6.3 (and Seller is not then
in default under the terms of this Agreement).
7.2 DISPOSITION OF PERFORMANCE DEPOSIT UPON TERMINATION. If this Agreement
is terminated by either party pursuant to Section 7.1 (a), by Buyer
pursuant to Section 7.1 (b), or by Seller based upon a breach of
Section 6.1 (b) (iii) or (iv), the Performance Deposit, together with
any interest which may have accrued thereon, shall be returned to
Buyer. If this Agreement is terminated by Seller pursuant to Section
7.1 (c) above (excluding termination due to Buyer's breach of Section
6.1 (b) (iii) and/or (iv) above), the Performance Deposit, together
with any and all interest which may have accrued thereon while in
escrow under Section 1.2 (b) above, shall be immediately remitted to
Seller in accordance with the terms of the escrow agreement executed
pursuant to said Section 1.2 (b); and, in such event, the Performance
Deposit and the interest thereon shall be retained by Seller as
liquidated damages (and not as a penalty), it being agreed by the
parties that, given the special circumstances of the transactions
contemplated herein, such amount is a reasonable sum for liquidated
damages, and it would otherwise be extremely difficult, if not
impossible, to ascertain actual damages.
ARTICLE VIII
OBLIGATIONS AFTER CLOSING
-------------------------
VIII.1 POST-CLOSING ADJUSTMENTS. If any charges or credits to the Purchase
Price (including but not limited to income received by either party
which is owned by the other party and expenses charged to either party
which are properly the responsibility of the other party, if any)
become evident following Closing, then within 180 days after Closing
the parties will cooperate in the preparation of a final settlement
statement reflecting in detail such charges and/or credits. In such
final settlement:
-23-
24
(a) CREDITS TO SELLER. Seller shall be credited with:
(i) The value of all merchantable oil above the pipeline
connections in all storage tanks at the Effective
Date that is credited to Seller's net revenue
interest in the Assets, such value to be the actual
price received by Buyer for sale of same less any
taxes properly withheld by the purchaser of same.
(ii) The amount of all costs and expenses including, but
without limitation, royalties, rentals and other
charges, ad valorem, property, production, excise,
severance, windfall profit and other taxes (not
including income taxes) based upon or measured by the
ownership of the Assets or the production of
hydrocarbons or the receipt of proceeds therefrom,
expenses paid under applicable operating agreements
through March 31, 1998, and any and all capital
expenditures paid by Seller under the terms of the
Operating Agreement in connection with the operation
of the Assets during the period after the Effective
Date.
(iii) An amount equal to all prepaid expenses attributable
to the Assets that are paid by or on behalf of Seller
prior to the Closing Date and that are, in accordance
with generally accepted accounting principles,
attributable to the period after the Effective Date
including, but without limitation, prepaid ad
valorem, property, production, severance and similar
taxes (but not including income taxes) based upon or
measured by the ownership of the Assets or the
production of hydrocarbons or the receipt of proceeds
therefrom. Any refund of windfall profit tax or other
ad valorem tax attributable to the period before the
Effective Date received by Buyer shall be credited to
Seller.
(b) CREDITS TO BUYER. Buyer shall be credited with:
(i) Proceeds received by Seller that are, in accordance
with generally accepted accounting principles,
attributable to production from the Assets for the
period of time after the Effective Date.
(ii) The amount of all costs and expenses including,
without limitation, royalties, rentals and other
charges, ad valorem, property, production, excise,
severance, windfall profit and other taxes (not
including income taxes) based upon or measured by the
ownership of the Assets or the production of
hydrocarbons or the receipt of proceeds therefrom,
expenses paid under applicable operating agreements
and any and all capital expenditures paid by Buyer
under the terms of the applicable operating agreement
in connection with the operation of the Assets during
the period prior and up to the Effective Date.
(c) OTHER DEBITS/CREDITS. In addition to the matters mentioned
above, the final settlement statement shall include any other
debits and credits, either cash or accrued, but excluding
income and franchise taxes, which under generally accepted
accounting principals would reflect transfer of ownership of
the Assets on the Effective Date and which correspond with the
intent of the parties as reflected in this Article VIII and
Section 1.2 above.
-24-
25
(d) FINAL CASH SETTLEMENT. The amount to be paid by the owing
party shall be remitted thirty (30) days after the receipt of
the final settlement statement. Each party shall have the
right for a period of forty-five (45) days from the date of
the final settlement statement in which to conduct an audit of
items covered therein or relating thereto.
(e) AUDIT OF FINAL SETTLEMENT STATEMENT. In the event Buyer and
Seller are unable to mutually agree upon the amount of the
settlement statement, an audit shall be conducted by a
mutually acceptable accounting firm. Buyer and Seller agree to
be bound by the findings of such audit insofar as the final
settlement statement amount is concerned and each shall bear
one-half (1/2) of all expenses incurred in connection with
such audit.
VIII.2 FURTHER ASSURANCES. Following Closing, Seller agrees to execute and
deliver to Buyer all such instruments, notices, transfer orders and
other documents and to do all such other acts not inconsistent with
this Agreement as may be necessary and advisable to carry out its
obligations under this Agreement or to more fully assure Buyer, its
successors and assigns, of the respective rights, titles, interests and
estates herein provided to be sold, assigned and conveyed by Seller to
Buyer at Closing.
ARTICLE IX
INDEMNIFICATION
---------------
IX.1 BUYER'S INDEMNITY. From and after the Closing Date, Buyer agrees to
comply with the Leases, Basic Documents and other agreements,
assignments, laws, ordinances, rules, regulations, treaties and decrees
affecting or otherwise relating to the Assets and/or the operations
conducted in connection therewith, including, without limitation, those
relating to the plugging and abandonment of wells and/or abandonment of
the personal property covered herein, inactive or unplugged wells,
bonding requirements, and the use of explosives and shooting or pulling
of casing and tubing (all in accordance with applicable laws, and the
rules and regulations of any agencies exercising jurisdiction over
same). Buyer agrees that it shall properly obtain and maintain in
effect all licenses and permits required in connection with the Assets
by any rule, law, statute, regulation or governmental agency (including
the Permits). Buyer agrees to perform the aforesaid obligations and
operations at its sole expense, to be solely responsible for damages
arising in connection therewith, and to hold Seller harmless therefrom
from and after the Closing Date. Buyer agrees to protect, defend,
indemnify and hold harmless Seller, and Seller's owners, directors,
officers, employees and legal representatives, from and against any and
all costs, expenses, damages, claims, losses, liens (including the
discharge thereof), liabilities, demands, suits, causes of action and
any and all other liabilities of every character and nature, including
without limitation operating expenses, capital expenditures, NORM,
pollution and environmental claims (including, without limitation,
those arising out of or predicated upon Environmental Laws, defined in
Section 4.1 above), civil, regulatory or other damages, judgments,
penalties, interest and costs, injury to person or property, plugging
requirements or exceptions thereto, including bonding requirements,
reasonable and necessary attorneys' and expert witness' fees, and court
costs arising out of, incident to or in connection with Buyer's
ownership or operation of the Assets from and after the Closing Date.
-25-
26
IX.2 SELLER'S INDEMNITY. In addition to Seller's obligations set forth in
this Agreement including the Special Warranty, Seller agrees to
indemnify Buyer as follows:
(a) TITLE DEFECT. Subject to Section 9.2 (d) and Section 9.3
below, any claims, demands, causes of action, obligations and
liabilities (including all costs and reasonable attorneys'
fees) (collectively, "Loss" or "Losses") adversely affecting
the value of any Asset resulting from a Title Defect asserted
at any time following delivery of the Title Defects Notice up
to and including ninety (90) days following Closing, shall be
subject to indemnification by Seller. Seller shall have no
liability for Title Defects, or Losses in connection therewith
(nor shall Buyer be entitled to indemnification therefor),
first asserted or claimed by any person, including Buyer, more
than ninety (90) days following the date of Closing,
regardless of the time period to which such Title Defects
and/or Losses may relate.
(b) ENVIRONMENTAL DEFECTS. Subject to Section 9.2 (d) and Section
9.3 below, any Loss asserted or brought by (i) any third
person or any agency, branch, or representative of any
federal, state or local government or (ii) Buyer for
remediation, on account of any personal injury, any death, any
damage, destruction or loss of property, or any contamination
of natural resources (including air, soil, surface water, or
ground water) resulting from or arising out of any
Environmental Defect asserted by Buyer to Seller at any time
following delivery of the Environmental Defects Notice up to
and including one (1) year from the Closing Date, and based
upon Environmental Defects existing on or before the Closing
Date. Seller shall have no liability for Environmental
Defects, or Losses in connection therewith (nor shall Buyer be
entitled to indemnification therefor), first asserted or
claimed by any person, including Buyer, more than one (1) year
following the date of Closing, regardless of the time period
to which such Environmental Defects and/or Losses may relate.
(c) REPRESENTATIONS AND WARRANTIES. Subject to Section 9.2 (d) and
Section 9.3 below, Seller shall indemnify Buyer for Losses of
Buyer, asserted at any time after Closing up to and including
one (1) year following the Closing Date, arising out of
Seller's breach, prior to Closing, of any of the
representations and warranties made under Section 2.1;
provided, however, Seller shall have no indemnification
obligation for any Losses relating to its alleged breach of
Section 2.1 (v); and, further provided, Seller's
indemnification obligation for Losses relating to its alleged
breach of Section 2.1 (cc) shall only apply to claims or
assertions made in connection with such Losses during the
sixty (60) days following the Closing Date. Seller shall have
no liability for the breaches of any representations or
warranties under this Agreement (including, without
limitation, those listed in Section 2.1), or for any Losses in
connection therewith (nor shall Buyer be entitled to
indemnification therefor), first asserted or brought more than
one (1) year from the Closing Date, regardless of the time
period to which such breaches and/or Losses may relate.
(d) INDEMNIFICATION THRESHOLD. Notwithstanding anything herein to
the contrary, Seller shall have no liability for any
individual Loss claimed or asserted pursuant to Section 9.2
(a), (b) or (c) above (and Buyer shall have no right of
indemnification therefor), unless such Loss exceeds $15,000
(an "Eligible Loss"); and, Seller shall have no liability for
any Eligible Loss claimed or asserted under Section 9.2 (a),
(b) or (c) (and Buyer shall have no right of
-26-
27
indemnification therefor) unless and until the aggregate of
all such Eligible Losses exceeds $250,000. Once the aggregate
of such Eligible Losses exceeds $250,000, Seller shall be
liable for all such Eligible Losses (and Buyer shall be
entitled to indemnification therefor), including those used in
computing such amount.
(e) GENERAL INDEMNIFICATION. Seller agrees to protect, defend,
indemnify and hold Buyer, and Buyer's owners, directors,
officers, employees and legal representatives, free and
harmless from and against any and all costs, expenses,
damages, liens (including the discharge thereof), adverse
awards, penalties, interest, claims, assertions, losses,
liabilities, demands, suits, causes of action and any and all
other liabilities of every kind, character and nature,
including without limitation all items listed in Section 2.2
and all operating expenses, capital expenditures, civil,
regulatory or other damages, judgments, penalties, interest
and costs, injury to person or property, plugging requirements
or exceptions thereto, including bonding requirements,
reasonable and necessary attorneys' and expert witness' fees,
and court costs arising out of, incident to or in connection
with Seller's ownership or operation of the Assets prior and
up to the Effective Date ("Seller's General Indemnity").
Notwithstanding anything herein to the contrary, Seller's
General Indemnity shall not apply to Losses relating to or
arising out of alleged Title Defects, Environmental Defects,
or breaches of representations or warranties under this
Agreement (which are covered under Sections 9.2 (a), (b), (c)
and (d) above).
IX.3 INDEMNIFICATION PROCEDURES. The party claiming a right of
indemnification under Section 9.1 or 9.2 above ("Claiming Party") shall
deliver a written notice to the party having an indemnification
obligation ("Indemnifying Party"), as soon as practicable following the
time when such right accrues, but in no event later than:
(a) ninety (90) days from the Closing Date for any claim of Loss
arising in connection with an alleged Title Defect;
(b) one (1) year from the Closing Date for any claim of Loss
arising in connection with an alleged Environmental Defect;
and
(c) one (1) year from the Closing Date for any claim of Loss
arising in connection with Seller's alleged breach of any
representation or warranty under Article II above.
Such notice shall specify, in reasonably full detail, the facts giving
rise to such claim of Loss, the alleged basis for the claim of Loss,
the value attributable to such claim and all documentation, opinions
and analyses in the possession of Claiming Party establishing or
relating to such claim of Loss. With respect to any Loss which can be
cured, the Indemnifying Party shall have the right (but not the
obligation), for a period of two (2) months after receipt of such
notice, to cure.
If such cure is not effected, and assuming the threshold amounts
provided in Sections 9.2 have been met, where the Claiming Party is
Buyer, the Indemnifying Party shall reimburse the Claiming Party for
the Loss; provided, however, if the Claiming Party's right of
indemnification relates to an alleged Title Defect, Environmental
Defect or breach of representation or warranty under Article II, Seller
may, at its option, require Buyer to reassign to Seller the portion of
the Assets whose value has been
-27-
28
adversely affected thereby. If Seller elects to reacquire a portion of
the Assets pursuant hereto (the "Reacquired Assets") , Seller shall,
within thirty (30) days of Seller's election and notice thereof to
Buyer, deliver to Buyer an assignment and bill of sale conveying to
Seller the Reacquired Assets (the "Reassignment") and Seller shall
simultaneously reimburse Buyer for the value of the Reacquired Assets.
For the purposes of this provision, the value of the Reacquired Assets
shall be calculated based upon the value(s) allocated thereto in
Exhibit "B", less the net income accruing to the Reacquired Assets from
the Effective Date through the end of the day preceding the effective
date of the Reassignment. The Reassignment shall be on substantially
the same form as the Assignment and Bill of Sale provided for in
Section 6.3 (a) above, and shall include a special warranty of title
from Buyer to Seller. The Reacquired Assets shall be delivered to
Seller free and clear of any and all encumbrances, except Permitted
Encumbrances.
The Indemnifying Party shall have the right to control the defense of
any action, suit, hearing or proceeding (including, without limitation,
settlement negotiations, mediations and arbitrations, and any trials,
appeals, and other proceedings), as the Indemnifying Party's counsel
shall deem appropriate. Notwithstanding the foregoing, Buyer shall have
the right to control the defense of any action, including the
designation of legal counsel, in matters involving governmental or
judicial claims in excess of $1,000,000. If the Claiming Party shall
settle any such action, suit or proceeding without the written consent
of the Indemnifying Party (which consent shall not be unreasonably
withheld), the right of the Claiming Party to make any claim against
the Indemnifying Party on account of such settlement shall be deemed
conclusively denied. Neither party shall, without the other party's
consent, settle, compromise, confess judgment or permit judgment by
default in any action, suit or obligation to the other party. The
parties agree to make available to each other, their counsel and
accountants all information and documents reasonably available to them
which relate to any action, suit or proceeding, and the parties agree
to render to each other such assistance as they may reasonably require
of each other in order to insurer the proper and adequate defense of
any such action, suit or proceeding.
ARTICLE X
MISCELLANEOUS
-------------
X.1 SURVIVAL. Articles VIII, IX and X shall survive the Closing and be
deemed covenants running with the Leases and Lands comprising or
relating to the Assets.
X.2 CONFIDENTIALITY. Except as may be required by applicable laws or the
applicable rules and regulations of any governmental agency or stock
exchange, neither Buyer nor Seller shall issue any press release or
other public announcement in which the other party is named without the
prior written consent of the other party. In the event of the
termination of this Agreement, Seller and Buyer shall, to the extent
permitted by law, keep confidential and not use any confidential
information obtained pursuant to this Agreement, unless such
information is readily ascertainable from public or published
information or trade sources or is received by Buyer from a third party
having no obligation of confidentiality with respect to such
information. Notwithstanding the above, neither Seller nor Buyer shall
be precluded from informing its employees of such details of the
transaction as may be reasonably be related to or reasonably necessary
to effectuate the purposes of this Agreement.
-28-
29
X.3 INTEGRATION; AMENDMENT AND MODIFICATION. Except as expressly set forth
herein, none of the parties makes to the other any representation or
warranty, whether express or implied, of any kind whatsoever. All prior
understandings, representations and agreements by or between either
party, whether in writing or verbal, are hereby superseded. This
Agreement may not be modified, supplemented or changed in any respect
except in writing, duly executed by Seller and Buyer.
X.4 DESCRIPTIVE HEADINGS. The headings of the paragraphs and subparagraphs
of this Agreement are inserted for convenience only and shall not
constitute a part of this Agreement.
X.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas and, as Closing is to be
held in the offices of Seller in Midland County, Texas, the parties
agree that this Agreement is partially performable in said county for
venue purposes.
X.6 BINDING EFFECT; ASSIGNMENT. All of the terms, provisions, covenants and
conditions of this Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their
respective successors, assigns, affiliates, subsidiaries and parent
companies; provided, however, neither this Agreement nor any portion
thereof shall be assignable or delegable by any party without the
express prior written consent of the non-assigning or non-delegating
party, which consent shall not be unreasonably withheld or delayed.
X.7 NOTICES. All notices hereunder shall be sufficiently given for all
purposes if in writing and delivered personally, or to the extent
receipt is confirmed by the party charged with notice, sent by
documented overnight delivery service, by United States Mail, telecopy,
telefax or other electronic transmission service to the appropriate
address or number set forth below. Notices to Seller or Buyer shall be
addressed as follows:
SELLER BUYER and LOMAK
------ ---------------
Trend Exploration Company c/o Lomak Petroleum, Inc.
500 N. Loraine, Suite No. 1130 500 Throckmorton Street
Midland, Texas 79701 Fort Worth, Texas 76012
Telephone: (915) 687-3888 Telephone: (817) 870-2601
Telefax: (915) 687-4108 Telefax: (817) 810-9795
Attn: Mr. Chad L. Stephens
Sr. Vice President
X.8 EXPENSES. Whether or not the transactions herein contemplated are
consummated, each party will pay its own expenses (regardless of kind
or character) which are incident to this Agreement (including expenses
incurred prior to, during and following the negotiation hereof) and to
preparing for the consummation of the sale provided for herein.
X.9 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, and both or all of which together
shall constitute one and the same instrument.
X.10 SEVERABILITY OF PROVISIONS. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any
rule of law or public policy, all other conditions and provisions
-29-
30
of this Agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the transactions
contemplated hereby is not substantively affected in an adverse manner
to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to
effectuate the original intent of the parties as closely as possible in
an acceptable manner to the end that the transactions contemplated
hereby are fulfilled to the extent possible.
X.11 CONTINUING EXISTENCE. For a period of two (2) years after the Closing
Date, Seller or any of its successors that expressly assumes its
obligations and liabilities hereunder, shall maintain its legal status
and shall at all times own assets having a value net of liabilities of
not less than $10,000,000.
X.12 FILING AND FILING FEES. Buyer shall pay all documentary, filing and
recording fees incurred in connection with the filing and recording of
the instruments of conveyance delivered pursuant hereto. As soon as
practicable after Closing, Buyer shall provide Seller with recorded
copies of all documents conveying the Assets to Buyer.
X.13 WAIVER. Except as otherwise expressly provided herein, any of the
terms, provisions, covenants, representations, warranties or conditions
hereof may be waived only by a written instrument executed by the party
waiving compliance. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect
such party's right to enforce the same at any other time. No waiver of
any of the provisions of this Agreement shall be deemed or constitute a
waiver of any other provisions hereof (whether similar or dissimilar),
nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
X.14 LEGAL FEES. The prevailing party in any legal proceeding brought under
or to enforce this Agreement shall be additionally entitled to recover
from the non-prevailing party reasonable attorneys' and expert witness'
fees and expenses and costs of court.
X.15 AGREEMENT FOR THE PARTIES' BENEFIT ONLY. This Agreement is not intended
to confer upon any person not a party hereto any rights or remedies
hereunder, and no person, other than the parties hereto is entitled to
rely on any representation, covenant, or agreement contained herein.
X.16 ENFORCEMENT. Should Buyer or Seller default in the performance of this
Agreement, the non-defaulting party shall be entitled to enforce
specific performance of this Agreement, or exercise any other right or
remedy it may have at law or in equity by reason of such default.
X.17 SELLER'S RIGHT OF ENJOYMENT UPON TERMINATION. Upon any termination of
this Agreement, Seller shall be free immediately to possess and enjoy
all rights of ownership of the Assets and to sell, transfer, encumber
or otherwise dispose of the Assets, or any part thereof, to any other
party without any restriction due to or arising under this Agreement.
X.18 SELLER'S ACQUISITION OF OUTSTANDING INTERESTS. As of the date of this
Agreement, third parties (collectively, the "Trend Participants") own
certain legal and/or contractual interests in the Powell Ranch Prospect
("Powell Ranch Prospect") and Dyad Petroleum Company Prospect ("Dyad
Prospect"), which are described in Exhibit "A" hereto (the "Outstanding
Non-Operated Interests"). In the aggregate, the Seller's interests in
the Assets and the Outstanding Non-Operated Interests
-30-
31
comprise the Assets. The respective interests of Trend and the Trend
Participants in the Powell Ranch Prospect and Dyad Prospect are set
forth in said Exhibit "A." Seller will use reasonable efforts to
acquire the Outstanding Non-Operated Interests, so that at Closing,
Seller will be able to deliver to Buyer all of the Assets attributable
to the Powell Ranch Prospect and Dyad Prospect. Notwithstanding
anything herein to the contrary, if at Closing Seller fails to deliver
any of the Outstanding Non-Operated Interests, such failure shall be
deemed a Title Defect and shall be dealt with in accordance with the
provisions of Section 4.2 above.
X.19 BUYER'S OPERATIONS OF THE ASSETS. Buyer acknowledges that Seller
operates some, but not all of the Assets and that its assumption of
Seller's operations will be subject to the terms of provisions of the
governing operating agreements and other Basic Documents, including,
but not limited to, the change of operator provisions contained in the
governing operating agreements.
X.20 NON-COMPETE. Absent the prior written consent of Buyer, Seller agrees
that for a period of four years following the Effective Date, Seller
will not (i) acquire or attempt to acquire any interest in the oil and
gas leasehold estate (whether legal or equitable, presently vested or
reversionary) in, (ii) explore and/or develop for oil, gas or other
hydrocarbons on, or (iii) participate in the exploration and/or
development for oil, gas or other hydrocarbons on, Sections 1-5, 8-17
and 20-22, Block 35, T-3-S, and Sections 34 and 35, Block 35, T-2-S,
T&P Ry. Co. Survey, Glasscock County, Texas; provided, however, this
provision will not apply to the Leases and Lands comprising the
Brunson/Blalock Prospect as described on Exhibit "A" hereto.
X.21 COSTS OF RECENT WELLS. Attached hereto as Exhibit "H" and incorporated
herein are the Authorities for Expenditure ("AFE's") for the following
wells:
a Hillger A #1 horizontal well, operated by Dyad Petroleum
Company, which has recently been drilled and completed;
b. Powell 2D #4 3D well, operated by Seller, recently been
drilled and completed; and
c. Powell #4 well, operated by Dyad Petroleum Company, which, as
of the date of this Agreement is drilling but has not yet been
completed.
Seller shall pay the actual drilling costs and Buyer shall pay the
actual completion costs (which costs are estimated in the AFE's
attached as Exhibit "G" hereto), incurred in connection with the
Hillger A #1 horizontal well and the Powell 2D #4 3D well. Buyer shall
pay all costs relating to the Powell #4 well, including, without
limitation, the costs incurred in drilling, testing, completion,
equipping, operating, plugging and abandoning such well. Any oil, gas
and other hydrocarbons produced from such wells shall be owned by the
parties in accordance with the other provisions of this Agreement.
Regardless of the outcome realized in the drilling of the Powell #4
well (i.e., whether such well is completed or is plugged and/or
abandoned), such outcome shall not (i) serve (for any purpose) as the
basis for an assertion or claim that Seller has breached any of its
representations, warranties, covenants or obligations under this
Agreement (including, without limitation, any of the representations or
warranties set forth in Section 2.1), (ii) result in any adjustment to
the Base Purchase Price, nor (iii) give rise to a claim or right of
indemnification of Buyer following Closing.
-31-
32
This provision shall control in the event it conflicts with any other
provision of this Agreement.
10.22 LOMAK GUARANTEE OF BUYER OBLIGATIONS. As an inducement to Seller to
enter into this Agreement, Lomak hereby guarantees Buyer's complete and
timely performance of and/or compliance with all of Buyer's
obligations, representations, warranties, covenants and conditions
herein, including without limitation the performance by Lomak of any
actions or obligations required to be taken by Lomak under the terms of
this Agreement.
SELLER:
-------
TREND EXPLORATION COMPANY
Attest:
By:_____________________________________
Printed Name:___________________________
Title:__________________________________
BUYER:
------
LOMAK PRODUCTION I, L.P.,
BY AND THROUGH LOMAK PRODUCTION COMPANY,
ITS GENERAL PARTNER
Attest:
By:_____________________________________
Printed Name:___________________________
Title:__________________________________
LOMAK PETROLEUM, INC.
Attest:
By:_____________________________________
Printed Name:___________________________
Title:__________________________________
-32-
1
EXHIBIT 23.1
ARTHUR ANDERSEN
Arthur Andersen LLP
Suite 1800
200 Public Square
Cleveland, OH 44114
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.
/s/ ARTHUR ANDERSEN LLP
Cleveland, Ohio
April 29, 1998
