-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QpvRXN8SweSlZn9zGSMTqhbkgmhKnxXb0kMkgZtmo45tpIAB27KJ6Zxx5VcRc/lW TimJtl3C7LdFgNrMa0dhbQ== 0000899243-97-000490.txt : 19970329 0000899243-97-000490.hdr.sgml : 19970329 ACCESSION NUMBER: 0000899243-97-000490 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOODRICH PETROLEUM CORP CENTRAL INDEX KEY: 0000943861 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 760466913 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12719 FILM NUMBER: 97566579 BUSINESS ADDRESS: STREET 1: 5847 SAN FELIPE STREET 2: SUITE 700 CITY: HOUSTON STATE: TX ZIP: 77057 BUSINESS PHONE: 7137809494 MAIL ADDRESS: STREET 1: 5847 SAN FELIPE SUITE 700 CITY: HOUSTON STATE: TX ZIP: 77057 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For Fiscal Year Ended December 31, 1996 Commission file number 1-7940 GOODRICH PETROLEUM CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 76-0466913 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) 5847 SAN FELIPE, SUITE 700 77057 HOUSTON, TEXAS (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) Registrant's telephone number, including area code is (713) 780-9494
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ----------------------- Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.20 par value..................... New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Series A Preferred Stock, $1.00 par value......... NASDAQ Small Cap
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] At March 3, 1997, there were 41,804,510 shares of Goodrich Petroleum Corporation common stock outstanding. The aggregate market value of shares of common stock held by non-affiliates of the registrant as of March 3, 1997 was approximately $22,081,000 based on a closing price of $0.8125 per share on the New York Stock Exchange on such date. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 1 DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT PART/ITEM OF INCORPORATION -------- -------------------------- Proxy Statement for the Part III, Item 10, 11, 12, 13 1997 Annual Meeting of Shareholders
PART I ITEMS 1 AND 2. BUSINESS AND PROPERTIES. General Goodrich Petroleum Corporation and subsidiaries ("Goodrich" or "the Company") is an independent oil and gas company engaged in the exploration, development, production and acquisition of oil and natural gas properties in the onshore portions of the United States, primarily the states of Louisiana and Texas. In addition to its oil and gas activities, Goodrich owns a 20% non- operated interest in a Texas intrastate natural gas pipeline. At December 31, 1996, Goodrich had estimated proved reserves on a pro forma basis (see discussion of acquisition below) of approximately 2,652 Mbbls of oil and condensate and 21.5 Bcf of natural gas, or an aggregate of 37.4 Bcfe with a pre-tax present value of future net revenues, discounted at 10% of $83.17 million, of which approximately 83% are classified as proved developed. The Company owns working and overriding royalty interests in 87 oil and gas wells located in 41 active fields. The Company's principal executive offices are located at 5847 San Felipe, Suite 700 Houston, Texas 77057. The Company also has offices in Shreveport, Louisiana. At March 3, 1997, the Company had 11 employees. Company Background The Company resulted from a business combination on August 15, 1995 between La/Cal Energy Partners ("La/Cal") and Patrick Petroleum Company and subsidiaries ("Patrick"). La/Cal was a privately held independent oil and gas partnership formed in July 1993 and engaged in the development, production and acquisition of oil and natural gas properties primarily in Southern Louisiana. Patrick was a NYSE-listed independent oil and gas company engaged in the exploration, production, development and acquisition of oil and natural gas properties in the continental United States. Patrick's oil and gas operations and properties were primarily located in West Texas and Michigan at the time of the combination, with additional operations and properties in certain western states. On January 31, 1997, the Company acquired the oil and gas properties of La/Cal Energy Partners II ("La/Cal II") and certain working interest owners for a purchase price of $16.5 million ("La/Cal II Acquisition"). The acquired proved reserves consisted of 1,602,000 barrels of oil and 3,310,000 mcf of gas with 81% classified as proved developed. The related major fields acquired are located in South Louisiana and East Texas. The purchase price was comprised of $1.5 million cash, the assumption of $7.5 million La/Cal II long-term debt and the issuance of 750,000 shares of Series B convertible preferred stock of the Company ("Series B Preferred Stock") with an aggregate liquidation value of $7.5 million. The Series B Preferred Stock accrues dividends at a rate of 8.25% per annum and each share of Series B Preferred Stock is convertible into 8.92 shares of common stock. Such shares are redeemable by the Company after January 31, 2001 at $10.00 per share. 2 Oil and Gas Operations and Properties The following is a summary description of the Company's oil and gas properties. Louisiana Substantially all of the Company's proved natural gas reserves are in the South Louisiana producing region. The Southern Louisiana producing region refers to the geographic area which covers the onshore and in-land waters of South Louisiana lying in the southern one-half of the state of Louisiana. The South Louisiana producing region is one of the world's most prolific oil and natural gas producing sedimentary basins. The region generally contains sedimentary sandstones which are of high qualities of porosity and permeabilities. There are a myriad of types of reservoir traps found in the region. These traps are generally formed by faulting, folding and subsurface salt movement or a combination of one or more of these. Salt movement has resulted in a large number of shallow piercement salt domes as well as deeper movements, which have resulted in both large and small anticlinal structures. The formations found in the South Louisiana producing region range in depth from 1,000 feet to 20,000 feet below the surface. These formations range from the Sparta and Frio formations in the Northern part of the region to Miocene and Pleistocene in the Southern part of the region. The Company's production comes predominately from Miocene and Frio age formations. Lake Raccourci Field. The Lake Raccourci Field was discovered by Humble Oil and Refining Company ("Exxon") in 1949, with the field extended to the South by Pan American ("Amoco") in 1958. Geologically, the field is a large four-way dipping closure which is cross-cut by numerous Northeast-Southwest striking down to the South faults. The field has produced from a minimum of eighteen different Miocene age sandstones, which range in depth from 9,000' to 16,500'. These normally and abnormally pressured reservoirs exhibit depletion, water and combination drive mechanisms, and have produced in excess of 830 billion cubic feet of gas and 20 million barrels of oil and condensate. There are currently six producing wells in the field. Goodrich acquired its working interest in the field through a farmout from MW Petroleum ("Apache") in July 1996. In October 1996, an agreement was reached with Exxon whereby they were allowed to participate as a working interest owner in the drilling of the Goodrich--State Lease 3258 No. 1 well in return for a contributing acreage to be included in a voluntary unit for the well. In addition to participating in the well, Exxon agreed to farmout an additional 320 acres of a separate prospect in the field on State Lease 14589. The Company currently controls approximately 3,800 acres and has plans to drill at least three additional wells in the field, including the State Lease 14589 prospect which is scheduled for drilling in the first quarter of 1997. In December 1996, Goodrich tested the State Lease 3258 No. 1 well in the Bol 6 sand at a rate of 5.3 million cubic feet of gas, 687 barrels of oil, and zero barrels of water per day on a 10/64 inch choke with a flowing tubing pressure of 9570# psi. The well encountered five additional productive sands with a total of approximately 100 feet of net pay. Independent reservoir engineers have assigned gross proved reserves of 25.9 Bcfe to the well. Goodrich owns an approximate 16% working interest in the well, with net reserves to the Company estimated at 3.3 Bcfe. South Pecan Lake Field. The South Pecan Lake Field was initially developed in the early 1950's by Amoco. South Pecan Lake Field, located in Cameron Parish, Louisiana, is a faulted four-way closure separated from the Pecan Lake Field by a major down to the South, East-West trending fault. The field has produced predominately gas and gas condensate from multiple Miocene aged sand reservoirs ranging in depths from 4,000 feet to 15,000 feet. These reservoirs are generally characterized by strong water drive production mechanisms. The South Pecan Lake Field has produced in excess of 650 Bcf of gas and nine million barrels of oil and condensate. In addition to Goodrich Petroleum Corporation, Apache is a major operator in the South Pecan Lake Field. 3 Goodrich acquired its interest through leasing approximately 384 acres and drilled the Miami Corporation 5 No. 1 in September 1996 and has a working interest of approximately 40%. The well was dually completed and tested at totals of 2.1 million cubic feet of gas and 192 barrels of oil per day. The dually completed well was turned to sales during January 1997. A development well is planned for the second quarter of 1997. Pecan Lake Field. The Pecan Lake Field was discovered in 1944 by the Superior Oil Company. Geologically, the field is comprised of a relatively low relief four-way closure and multiple stacked pay sands. The Pecan Lake Field comprises approximately 870 gross leased acres in Cameron Parish, Louisiana, approximately 42 miles southeast of Lake Charles, Louisiana. The field has produced from over 15 Miocene sands ranging in depths from 7,500 to 11,800 feet, which have been predominately gas and gas condensate reservoirs. These sand reservoirs are characterized by generally widespread development and strong waterdrive production mechanisms. The field has produced in excess of 345 Bcf of gas and 622,000 barrels of condensate. All the field production to date has come from reservoirs which are of normal pressure. In May 1992, La/Cal entered the Pecan Lake Field under a farmout arrangement with Mobil, whereby Mobil retained a one-eighth overriding interest in the prospectively developed wells subject to the farmout. In April 1993, La/Cal leased an additional 133.24 gross acres in the Pecan Lake Field from Miami Corp. for approximately $62,000. In March 1994, La/Cal acquired (i) all of Mobil's interest in La/Cal's actual and prospectively drilled wells, (ii) a 43.10% working interest in Mobil's Miami Corp. S13, B15 and B16 wells, and (iii) a 2.26% overriding royalty interest in Mobil's Cutler No. 1 wells for approximately $2.1 million. Pecan Lake consists of seven well completions through four well bores. The Company's working interests range from approximately 43% to 47%. The Company's average daily production at Pecan Lake was 30.06 Bbls of oil and and/or condensate and 2.44 Mmcf of natural gas during 1996. As of December 31, 1996, the Company's interests in the Pecan Lake Field had proved reserves of 57.00 Mbbls of oil and condensate and 7.13 Bcf of natural gas. Ada Field. The Ada Field was discovered by Hope Producing Company in 1945. The field is located in Bienville Parish, in North Louisiana. Geologically, the field is a turtle feature between two salt domes exhibiting a four-way anticline with two main horst blocks, a main graben block, and several compensating faults. The field has produced from numerous Lower Cretaceous sands and lime facies, with the sands being predominately lenticular in deposition. The producing interval for the field ranges from 4,500' to 10,000', with the production being primarily a pressure depletion mechanism. As of December 31, 1996, Ada Field has produced over 654 Bcf of natural gas and 5.2 MMbbls of oil. Goodrich acquired its working interest of approximately 40% through a farmout of various individual working interest owners. In September 1996, the Youngblood No. 1 was drilled and dually completed. From September 15, 1996, first date of production, through December 31, 1996, the dually completed well has produced over 400 Mmcf of natural gas. Goodrich anticipates drilling a development well during the first quarter of 1997. Other. The Company maintains ownership interests in acreage and wells in several additional fields, including the (i) Opelousas field, located in St. Landry Parish, Louisiana (ii) Sibley Field, located in Webster Parish, Louisiana and (iii) City of Lake Charles Field, located in Calcasieu Parish, Louisiana. As a result of the La/Cal II Acquisition, the Company has added five additional Louisiana fields to its properties. Second Bayou Field. The Second Bayou Field is located in Cameron Parish, Louisiana and was discovered in 1955 by the Sun Texas Company. Goodrich is the operator and has an average working interest of approximately 29% in 1,395 gross acres. To date, the field has produced over 420 Bcf of natural gas and two million barrels of oil from multiple Miocene aged sands ranging from 4,000 to 15,200. Goodrich currently has five producing wells and anticipates drilling an additional development well during the second quarter of 1997. Other major operators in the area are Fina Oil and Chemical Company and Texaco Producing Company. 4 Kings Ridge Field. The Kings Ridge Field is located in Lafourche Parish, Louisiana, and was discovered in 1957. The field has produced over 82 Bcf of natural gas and two million barrels of oil. Goodrich is operator and has approximately a 35% working interest in the current geological unit of 435 gross acres. Deep Lake Field. The Deep Lake Field is located in Cameron Parish, Louisiana, and was discovered in 1952 by the Superior Oil Company. The field has produced over 1 Tcf of natural gas and 4.7 million barrels of oil. Goodrich is operator and has approximately 42% in 725 gross acres. Other major operators in the area are Mobil Oil Exploration and Production and Pennzoil Production Company. Mosquito Bay Field. The Mosquito Bay Field is located in Terrebonne Parish, Louisiana, and was discovered in 1961 by Forest Oil Company. The field has produced over 16 Bcf of natural gas and 200,000 barrels of oil. Goodrich is operator and has approximately 47% working interest in the current geological unit of 227 gross acres. Opelousas/Northcott Field. The Opelousas/Northcott Field is located in St. Landry Parish, Louisiana, and was discovered in 1960 by Magnolia Petroleum Company. The field has produced over 200 Bcf of natural gas. Goodrich is operator and has approximately 53% working interest in 1,023 gross acres. Texas Goodrich has oil and gas properties in West Texas as a result of former Patrick holdings and operations. Patrick's primary exploration focus in this area was toward the development of drilling prospects using three dimensional ("3-D") seismic technology. Recent industry advances in high-resolution 3-D seismic technology have facilitated an improvement in the success rate for exploration of smaller but prolific reefs. This has been accomplished by 3-D imaging the optimum drilling locations on these prospects, therefore minimizing edge and marginal well completions and improving the overall recoveries per well. Patrick participated in over 375 square miles of 3-D seismic acquisition in West Texas, and drilled Pennsylvanian ("Penn") Reef and Fusselman prospects generated by this technology. The Company owns two Geoquest work stations, which are being utilized to interpret and map its 3-D data. Sean Andrew Field. The Company's most significant West Texas producing properties are located in Sean Andrew Field, Dawson County, Texas. The Company's average net daily production at Sean Andrew Field was 262 Bbls of oil and 110 Mcf of natural gas during 1996. The Sean Andrew Field has produced in excess of 723,767 barrels of oil and .26 Bcf of gas gross to the interest owners. Other. In addition to the Sean Andrew interests, the Company maintains ownership interests in acreage and wells in several additional fields including the (i) Ackerly Field, located in Howard County, Texas, (ii) Lamesa Farms Field, located in Dawson County, Texas, (iii) Carthage (Bethany) Field, located in Panola County, Texas, (iv) Marhol Field, located in Dawson County, Texas and Midway Field located in San Patricio County, Texas. As a result of the La/Cal II Acquisition, the Company has added two additional Texas fields to its properties. Mary Blevins Field. The Mary Blevins Field is located in Smith County, Texas and is a new discovery which is fault separated from Hitts Lake Field which was discovered in 1953 by Sun Oil. Currently there are three producing wells in this fault block with Goodrich as operator having approximately 48% working interest in approximately 782 gross acres. To date, Hitts Lake has produced over 14 million barrels of oil and Mary Blevins has produced over 183,000 barrels from the Paluxy which occurs at a depth of approximately 7,300 feet. Goodrich plans to drill two additional wells during the second quarter of 1997. East Jacksonville Field. The Jacksonville Field is located in Cherokee County, Texas and was a new discovery by Goodrich Oil Company in 1994. Currently there is one producing well with Goodrich as operator having an approximate 44% working interest in approximately 753 acres. To date, the well has produced over 53,000 barrels of oil and Goodrich intends to drill an additional well during the second quarter of 1997. 5 Oil and Natural Gas Reserves The following tables set forth summary information with respect to the Company's proved reserves as of January 1, 1997, on a historical basis and on a pro forma basis as if the La/Cal II Acquisition had been completed as of that date, as estimated by the Company by compiling the reserve information prepared by two engineering firms (primarily Coutret and Associates, Inc.) and the Company internally. Historical
NET RESERVES PRESENT VALUE ----------------------- OF FUTURE NET OIL GAS REVENUES CATEGORY (MBBLS) (BCF) BCFE (1) (IN MILLIONS) -------- ------- ----- -------- ------------- Proved Developed Producing (Pre-tax)..... 798.33 8.90 13.69 $37.68 Proved Developed Non-Producing (Pre-tax). 171.54 5.01 6.04 10.28 Proved Undeveloped (Pre-tax)............. 80.34 4.27 4.76 9.40 -------- ----- ----- ------ Total Proved (Pre-tax)................. 1,050.21 18.18 24.49 $57.36 ======== ===== ===== ====== Standardized measure of discounted future net cash flows.......................... $47.36 ====== Pro Forma NET RESERVES PRESENT VALUE ----------------------- OF FUTURE NET OIL GAS REVENUES CATEGORY (MBBLS) (BCF) BCFE (1) (IN MILLIONS) -------- ------- ----- -------- ------------- Proved Developed Producing (Pre-tax)..... 1,845.89 12.06 23.13 $57.86 Proved Developed Non-Producing (Pre-tax). 312.72 4.73 6.61 11.13 Proved Undeveloped (Pre-tax)............. 493.50 4.71 7.67 14.18 -------- ----- ----- ------ Total Proved (Pre-tax)................. 2,652.11 21.50 37.41 $83.17 ======== ===== ===== ====== Standardized measure of discounted future net cash flows.......................... $68.26 ======
- -------- (1) Estimated by the Company using a conversion ratio of 1.0 Bbl/6.0 Mcf. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond the control of the Company. Reserve engineering is a subjective process of estimating underground accumulations of crude oil, condensate and natural gas that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. The quantities of oil and natural gas that are ultimately recovered, production and operating costs, the amount and timing of future development expenditures and future oil and natural gas sales prices may all differ from those assumed in these estimates. Therefore, the Present Value of Future Net Revenues amounts shown above should not be construed as the current market value of the estimated oil and natural gas reserves attributable to the Company's properties. In accordance with the Commission's guidelines, the engineers' estimates of future net revenues from the Company's properties and the Present Value of Future Net Revenues thereof are made using oil and natural gas sales prices in effect as of the dates of such estimates and are held constant throughout the life of the properties except where such guidelines permit alternate treatment, including the use of fixed and determinable contractual price escalations. The weighted average prices as of December 31, 1996 used in such estimates were $4.17 per Mcf of natural gas (historical) and $23.88 per Bbl of crude oil/condensate (historical) and $4.07 per Mcf of natural gas (pro forma) and $23.53 per Bbl (pro forma). Oil and gas prices have subsequently declined from December 31, 1996 levels. 6 Productive Wells The following tables set forth the number of active well bores in which the Company maintains ownership interests as of December 31, 1996, on a historical basis and on a pro forma basis as if the La/Cal II Acquisition had been completed as of that date:
NET GROSS (1) (2) Historical -------- ----- Louisiana--Pecan Lake..................................... 4.00 1.81 Louisiana--Lake Raccourci................................. 1.00 .16 Louisiana--South Pecan Lake............................... 1.00 .40 Louisiana--Ada............................................ 1.00 .40 Texas--Sean Andrew........................................ 7.00 2.52 Other..................................................... 49.00 12.62 ----- ----- Total Productive Wells................................ 63.00 17.91 ===== ===== NET GROSS (1) (2) Pro Forma -------- ----- Louisiana--Pecan Lake..................................... 4.00 1.81 Louisiana--Lake Raccourci................................. 1.00 .16 Louisiana--South Pecan Lake............................... 1.00 .40 Louisiana--Ada............................................ 1.00 .40 Louisiana--Second Bayou................................... 5.00 1.55 Louisiana--Kings Ridge.................................... 1.00 .41 Louisiana--Deep Lake...................................... 1.00 .44 Louisiana--Mosquito Bay................................... 1.00 .46 Louisiana--Opelousas/Northcott............................ 1.00 .53 Texas--Sean Andrew........................................ 7.00 2.52 Texas--Mary Blevins....................................... 3.00 1.56 Texas--East Jacksonville.................................. 1.00 .47 Other..................................................... 49.00 12.62 ----- ----- Total Productive Wells................................ 76.00 23.33 ===== =====
- -------- (1) Does not include royalty or overriding royalty interests. (2) Net working interest. Productive wells consist of producing wells and wells capable of production, including gas wells awaiting pipeline connections. A gross well is a well in which the Company maintains an ownership interest, while a net well is deemed to exist when the sum of the fractional working interests owned by the Company equals one. 7 Acreage The following table summarizes the Company's gross and net developed and undeveloped natural gas and oil acreage under lease as of December 31, 1996 on a historical basis and on a pro forma basis as if the La/Cal II Acquisition had been completed as of that date. Acreage in which the Company's interest is limited to royalty or overriding royalty interest is excluded from the table.
GROSS NET Historical --------- -------- Developed acreage Louisiana--Pecan Lake Field.......................... 870.63 400.10 Louisiana--Lake Raccourci Field...................... 900.00 144.00 Louisiana--South Pecan Lake Field.................... 160.00 64.17 Louisiana--Ada Field................................. 160.00 64.00 Texas--Sean Andrew Field............................. 280.00 101.00 Other................................................ 11,388.52 1,332.93 Undeveloped acreage Louisiana--Lake Raccourci Field...................... 3,220.00 673.00 Louisiana--South Pecan Lake.......................... 224.00 89.84 Other Undeveloped.................................... 2,943.04 1,236.02 --------- -------- Total.............................................. 20,146.19 4,105.06 ========= ======== GROSS NET Pro Forma --------- -------- Developed acreage Louisiana--Pecan Lake Field.......................... 870.63 400.10 Louisiana--Lake Raccourci Field...................... 900.00 144.00 Louisiana--South Pecan Lake Field.................... 160.00 64.17 Louisiana--Ada Field................................. 160.00 64.00 Louisiana--Second Bayou.............................. 1,394.69 435.35 Louisiana--Kings Ridge............................... 435.02 176.80 Louisiana--Deep Lake................................. 725.18 320.81 Louisiana--Mosquito Bay.............................. 227.29 105.76 Louisiana--Opelousas/Northcott....................... 1,022.86 537.87 Texas--Sean Andrew Field............................. 280.00 101.00 Texas--Mary Blevins.................................. 781.68 407.27 Texas--East Jacksonville............................. 753.15 361.11 Other................................................ 11,388.52 1,332.93 Undeveloped acreage.................................... Louisiana--Lake Raccourci Field...................... 3,220.00 673.00 Louisiana--South Pecan Lake.......................... 224.00 89.84 Other Undeveloped.................................... 2,943.04 1,236.02 --------- -------- Total.............................................. 25,486.06 6,450.03 ========= ========
Undeveloped acreage is considered to be those lease acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of natural gas and oil, regardless of whether or not such acreage contains proved reserves. As is customary in the oil and gas industry, the Company can retain its interest in undeveloped acreage by drilling activity that establishes commercial production sufficient to maintain the leases, or by payment of delay rentals during the remaining primary term of such a lease. The natural gas and oil leases in which the Company has an interest are for varying primary terms; however, most of the Company's lease acreage is beyond the primary term and is held by producing natural gas and/or oil wells. The Company participated in several farmout agreements with other owners of natural gas and oil leases and is actively leasing acreage in Louisiana and Texas. 8 Operator Activities Goodrich Petroleum is the operator of record of substantially all of its wells in the Lake Raccourci, South Pecan Lake, Pecan Lake, Ada and Sean Andrew Fields. Goodrich Petroleum operates a majority in value of the Company's producing properties, and will seek to become the operator of record concerning properties it drills or acquires in the future. Goodrich is the operator of all of the wells acquired in the La/Cal II Acquisition. Drilling Activities The following table sets forth the drilling activity of the Company since 1992. This information reflects La/Cal's operations on a stand alone basis prior to August 15, 1995. (As denoted in the following table, "Gross" wells refers to wells in which a working interest is owned, while a "net" well is deemed to exist when the sum of fractional ownership working interests in gross wells equals one.)
YEAR ENDED DECEMBER 31, ----------------------------- 1996 1995 1994 --------- --------- --------- GROSS NET GROSS NET GROSS NET ----- --- ----- --- ----- --- Development Wells: Productive...................................... 1.0 0.4 1.0 0.4 1.0 0.5 Non-Productive.................................. 0.0 0.0 0.0 0.0 1.0 0.4 ---- --- --- --- --- --- Total......................................... 1.0 0.4 1.0 0.4 2.0 0.9 ==== === === === === === Exploratory Wells: Productive...................................... 6.0 2.5 1.0 0.2 0.0 0.0 Non-Productive.................................. 3.0 1.3 2.0 0.7 0.0 0.0 ---- --- --- --- --- --- Total......................................... 9.0 3.8 3.0 0.9 0.0 0.0 ==== === === === === === Total Wells: Productive...................................... 7.0 2.9 2.0 0.6 1.0 0.5 Non-Productive.................................. 3.0 1.3 2.0 0.7 1.0 0.4 ---- --- --- --- --- --- Total......................................... 10.0 4.2 4.0 1.3 2.0 0.9 ==== === === === === ===
During 1994 and up to the business combination August 15, 1995, La/Cal was engaged in limited developmental drilling in the Pecan Lake and Lake Charles Fields and La/Cal did not drill any exploratory wells during those periods. 9 Net Production, Unit Prices and Costs The following table presents certain information with respect to oil, gas and condensate production attributable to the Company's interests in all of its fields, the revenue derived from the sale of such production, average sales prices received and average production costs during each of the years in the five-year period ended December 31, 1996 and on a pro forma basis as if the La/Cal II Acquisition had taken place on January 1, 1996.
PRO FORMA 1996 1996 1995 1994 --------- --------- --------- --------- Net Production: Natural Gas (Mcf).................... 2,390,476 1,623,377 2,213,923 2,386,130 Oil.................................. 285,757 165,964 102,731 36,487 Natural gas equivalents (Mcfe) (1)... 4,105,018 2,619,161 2,830,309 2,605,052 Average Net Daily Production: Natural gas (Mcf).................... 6,549 4,448 6,065 6,537 Oil (Bbls)........................... 783 455 281 100 Natural gas equivalents (Mcfe)....... 11,247 7,176 7,754 7,137 Average Sales Price Per Unit: Natural Gas (per Mcf)................ $ 2.60 2.60 1.72 1.85 Oil (per Bbl)........................ 20.79 20.88 16.27 15.99 Other Data: Lease operating expense (per Mcfe)... $ .39 .46 .22 .15 Oil and gas depreciation, depletion and amortization (per Mcfe).......................... 1.05 1.02 .48 .40
- -------- (1) Estimated by the Company using a conversion ratio of 1.0 Bbl/6.0 Mcf. Marketing The Company entered into an agreement with Natural Gas Ventures, L.L.C. ("NGV"), a Louisiana limited liability company, that affiliates of Goodrich Oil Company formed in August 1994, to operate as an agent for the purpose of marketing Goodrich Oil Company's and its contracting parties' natural gas. The Company and other contracting parties contribute natural gas to NGV, which NGV then markets to gas purchasers, pursuant to the Joint Venture Agreement between NGV and Seaber (described below). The Company can terminate this agreement on 60-days advance notice. The Company and the other contracting parties are entitled to participate, on a pro rata basis, in any net profits or equity benefits received by NGV under its Joint Venture Agreement with Seaber, provided the Company and the other contracting parties have not terminated the agreement and are delivering gas under the agreement at the time the net profits and equity interest are earned. The Company believes its contract with NGV allows it to realize higher prices for its contributed gas because of the greater market power associated with larger volumes of gas than the Company would have for sale on a stand-alone basis. NGV has entered into a natural gas marketing joint venture agreement (the "Joint Venture Agreement") with Seaber whereby Seaber acts as agent for NGV in its gas marketing efforts. Pursuant to the Joint Venture Agreement, Seaber arranges short-term gas sales contracts on behalf of NGV with gas purchasers, and NGV delivers to Seaber sufficient gas quantities to fulfill NGV's contractual obligations. NGV can terminate the Joint Venture Agreement on a 60-days advance notice. During the term of the Joint Venture Agreement, on a calendar year basis, NGV has the option to share in 50 percent of all Seaber's net profits provided that NGV meets certain scheduled delivery requirements. Each year, 25% of NGV's share of the Seaber net profits is retained by Seaber as an account payable, which Seaber uses as additional working capital. At the end of the term of the Joint Venture Agreement, and subject to delivering scheduled volumes of gas, NGV can elect to convert its cumulative accounts payable into 50% of the outstanding Seaber common stock, or can choose to receive the payable in cash. 10 As set forth above, provided certain conditions are met, NGV will distribute the Seaber net profits and equity interests if any, to its contracting parties on a pro rata basis. Sean Andrew Field. Goodrich's oil production is gathered by pipeline and purchased by Mobil at a premium over the posted price. The gas is purchased by GPM on a thirty day spot basis. Natural Gas. Goodrich's natural gas production is sold under spot or market- sensitive contracts and to various gas purchasers on short-term contracts. Goodrich's natural gas condensate is sold under short-term rollover agreements based on current market prices. Customers. Due to the nature of the industry the Company sells its oil and natural gas production to a limited number of purchasers and, accordingly, amounts receivable from such purchasers could be significant. Additionally, the Company receives net monthly payments from its partner, Mitchell Marketing Company, in its pipeline joint venture. Revenues from these sources as a percent of total revenues for the periods presented were as follows:
YEAR ENDED DECEMBER 31, ---------------- 1996 1995 1994 ---- ---- ---- Tenneco Gas Marketing Company.............................. -- -- 41% Seaber Corporation of Louisiana............................ 35% 55% 48% Mobil Oil Corporation...................................... 22% 16% -- Mitchell Marketing Company................................. 16% 9% --
Sales The year ended December 31, 1996 generated cash proceeds of $325,628 from the sale of certain oil and gas properties, substantially all in North Dakota. Natural Gas Pipeline Joint Venture Pecos Pipeline & Producing Company ("Pecos"), one of the Company's subsidiaries, has a 20% interest in a joint venture with Ferguson Crossing Pipeline Company, now Southwestern Gas Gathering, Inc. ("Southwestern") a subsidiary of Mitchell Energy and Development Company, relating to an intrastate pipeline. Pecos and its related facilities are located in Leon and Madison Counties, Texas. The pipeline and related facilities are referred to as the "Pecos Pipeline Systems". Southwestern acts as the manager of the joint venture and the net proceeds are distributed to the venturers on a monthly basis, subject to the retention of one month of working capital. In September 1993, the same parties created another joint venture for the purpose of separating the gas contract from the physical pipeline. The joint venture participants are National Marketing Company, which is a subsidiary of the Company, and Mitchell Marketing Company. This joint venture is known as "Madison Gas Marketing Services" ("Madison Gas"). The joint ventures were established for the purposes of buying and/or transporting gas from producers and other pipelines under various contracts at various receipt points and delivering or reselling the gas to Lone Star Gas Company ("Lone Star") under the terms and conditions of a premium priced/fixed volume 20-year contract dated October 1, 1981. On August 31, 1994, effective November 1, 1994, Madison Gas entered into a settlement agreement for the remaining term of the contract providing for (i) a total fixed contract quantity of 23,826,560 Mmbtu, (ii) a monthly average daily contract quantity not to exceed 18,000 Mmbtu during the months of November through March, (iii) a monthly average daily contact quantity not to exceed 7,000 Mmbtu during the months of April through October, (iv) an average annual gross profit margin of $1.74 per Mmbtu less operating expenses and (v) six additional delivery points. The Lone Star contract terminates at some time in the year 2000 depending upon the monthly average daily contract quantities taken under the settlement agreement. 11 Investment in Marcum Natural Gas Services The Company presently owns 675,200 shares of the common stock of Marcum Natural Gas Services ("Marcum"), or approximately 5.5% of the Marcum common stock outstanding. Marcum is a publicly held diversified provider of products and services to the natural gas industry. Competition The oil and gas industry is highly competitive. Major and independent oil and gas companies, drilling and production acquisition programs and individual producers and operators are active bidders for desirable oil and gas properties, as well as the equipment and labor required to operate those properties. Many competitors have financial resources substantially greater than those the Company has, and staffs and facilities substantially larger than those of the Company. The availability of a ready market for the oil and gas production of the Company will depend in part on the cost and availability of alternative fuels, the level of consumer demand, the extent of other domestic production of oil and gas, the extent of importation of foreign oil and gas, the cost of and proximity to pipelines and other transportation facilities, regulations by state and federal authorities and the cost of complying with applicable environmental regulations. Regulations The availability of a ready market for any natural gas and oil production depends upon numerous factors beyond the Company's control. These factors include regulation of natural gas and oil production, federal and state regulations governing environmental quality and pollution control, state limits on allowable rates of production by a well or proration unit, the amount of natural gas and oil available for sale, the availability of adequate pipeline and other transportation and processing facilities and the marketing of competitive fuels. For example, a productive natural gas well may be "shut-in" because of an oversupply of natural gas or the lack of an available natural gas pipeline in the areas in which the Company may conduct operations. State and federal regulations generally are intended to prevent waste of natural gas and oil, protect rights to produce natural gas and oil between owners in a common reservoir, control the amount of natural gas and oil produced by assigning allowable rates of production and control contamination of the environment. Pipelines are subject to the jurisdiction of various federal, state and local agencies as well. Federal Regulation of Natural Gas The Federal Energy Regulatory Commission ("FERC") regulates the transportation and resale of natural gas in interstate commerce pursuant to the Natural Gas Act of 1938 (the "NGA"). Since 1978, the Natural Gas Policy Act of 1978 (the "NGPA") has regulated maximum selling prices of certain categories of gas in either interstate or intrastate commerce. FERC also administers the NGPA. Under the Natural Gas Wellhead Decontrol Act of 1989, however, most regulation and control of natural gas have been eliminated. None of the remaining areas of regulation under the NGA and NGPA have a direct effect on the Company's operations. There can be no assurance, however, that the Company's production of natural gas will not be subject to federal regulation in the future. In April 1992, subsequently as amended, FERC issued Order 636, a rule which restructures the interstate natural gas transportation and marketing system to ensure that direct sales of gas by producers or marketers receive pipeline service comparable to pipeline gas sales. FERC Order 636 is intended to provide "open access" to producers for transportation of gas on ten interstate pipeline systems. Environmental Regulation Various federal, state and local laws and regulations covering the discharge of materials into the environment, or otherwise relating to the protection of the environment, may affect the Company's operations and costs as a result of their effect on oil and gas development, exploration and production operations. It is not 12 anticipated that the Company will be required in the near future to expend amounts that are material in relation to its total capital expenditures program by reason of environmental laws and regulations but, inasmuch as such laws and regulations are frequently changed by both federal and state agencies, the Company is unable to predict the ultimate cost of continued compliance. Additionally, see existing EPA matters discussed in Item 3--Legal Proceedings. State Regulation of Oil and Gas Production State statutes and regulations require permits for drilling operations, drilling bonds and reports concerning operations. In addition, there are state statutes, rules and regulations governing conservation matters, including the unitization or pooling of oil and gas properties, establishment of maximum rates of production from oil and gas wells and the spacing, plugging and abandonment of such wells. Such statutes and regulations may limit the rate at which oil and gas could otherwise be produced from the Company's properties and may restrict the number of wells that may be drilled on a particular lease or in a particular field. (There are currently discussions in several states relating to the imposition of limitations on annual natural gas production rates.) ITEM 3. LEGAL PROCEEDINGS. The U. S. Environmental Protection Agency ("EPA") has identified the Company as a potentially responsible party ("PRP") for the cost of clean-up of "hazardous substances" at an oil field waste disposal site in Vermilion Parish, Louisiana. The Company estimates that the remaining cost of long-term clean-up of the site will be approximately $3.5 million, with the Company's percentage of responsibility to be approximately 3.05%. As of December 31, 1996, the Company has paid approximately $135,000 in costs related to this matter and has $275,000 accrued for the remaining liability. These costs have not been discounted to their present value. The EPA and the PRPs will continue to evaluate the site and revise estimates for the long-term clean-up of the site. There can be no assurance that the cost of clean-up and the Company's percentage responsibility will not be higher than currently estimated. In addition, under the federal environmental laws, the liability costs for the clean-up of the site is joint and several among all PRPs. Therefore, the ultimate cost of the clean-up to the Company could be significantly higher than the amount presently estimated or accrued for this liability. The Company is party to additional lawsuits arising out of the normal course of business. However, the Company has defended and intends to continue to defend these actions vigorously and believes, based on currently available information, that adverse results or judgments if any, in excess of insurance coverage or amounts already provided, will not be material to the financial position or results of operations of the Company and its consolidated subsidiaries. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's common stock is traded on the New York Stock Exchange. At March 3, 1997, the number of holders of record of the Company's common stock was 3,702 with 41,804,510 shares outstanding. High and low sales prices for the Company's common stock for each quarter during the calendar years 1996 and 1995 are as follows:
1996 1995 ------------ ------------ QUARTER ENDED HIGH LOW HIGH LOW ------------- ------ ----- ------ ----- March 31........................................ $1.125 $.75 N/A N/A June 30......................................... 1.125 .75 N/A N/A September 30.................................... .815 .625 $1.375 $.938 December 31..................................... .813 .563 1.25 .75
Prices from periods prior to the business combination (August 15, 1995) are not applicable due to La/Cal being a privately held partnership. The Company has not paid a cash dividend on its Common Stock and does not intend to pay such a dividend in the foreseeable future. 14 ITEM 6. SELECTED FINANCIAL DATA. Selected Statement of Operations Data:
PERIOD FROM HISTORICAL JULY 15, 1993 PERIOD FROM ---------------------------------- (INCEPTION) JANUARY 1, 1993 PRO FORMA YEAR ENDED DECEMBER 31, THROUGH THROUGH YEAR ENDED ----------- ---------------------------------- DECEMBER 31, JULY 14, DECEMBER 31, 1996(E) 1996 1995 1994 1993 1993(C) 1992(C) ----------- ---------- ---------- ---------- ------------- --------------- ------------ Revenues................ $14,370,000 9,857,811 6,174,412 5,013,446 1,068,404 947,000 896,000 Depletion, Depreciation and Amortization....... 5,420,000 3,788,292 1,785,502 1,156,624 179,476 Exploration............. 1,149,000 1,149,240 193,159 4,240 -- Interest Expense........ 1,593,000 828,394 1,132,488 1,072,098 199,389 Total Costs and Expenses............... 12,655,000 9,476,366 5,037,101 2,998,628 574,220 137,000 173,000 Extraordinary Item-- Early Extinguishment of Debt.................. -- -- 482,906 -- -- Net Income.............. 1,715,000 381,445 654,405 2,014,818 494,184 Preferred Stock Dividends.............. 1,264,000 644,800 254,932 Earnings (Loss) Applicable to Common Stock.................. 451,000 (263,355) 399,473 Earnings (Loss) Per Average Common Share... $ .01 (.01) Average Common Shares Outstanding............ 41,804,510 41,804,510 Pro Forma Information: Pro Forma Income Taxes(a).............. 402,698 785,779 192,732 Pro Forma Net Income... 251,707 1,229,039 301,452 Pro Forma Earnings (Loss) Applicable to Common Stock.......... (3,225) 1,229,039 301,452 Pro Forma Income Before Extraordinary Item Per Average Common Share... .02 .06 .02 Extraordinary Item Per Average Common Share... (.02) -- -- Pro Forma Earnings (Loss) Per Average Common Share........... -- .06 .02 Pro Forma Average Common Shares Outstanding (b). 27,722,543 19,765,226 19,765,226
Selected Balance Sheet Data:
PRO FORMA HISTORICAL ----------- ------------------------------------------- DECEMBER 31, ------------------------------------------------------- 1996(E) 1996 1995 1994 1993 ----------- ---------- ---------- ---------- --------- Total Assets............ $39,496,000 22,398,984 22,382,716 8,230,496 5,371,000 Long Term Debt.......... 19,000,000 10,000,000 9,750,000 8,250,000 4,700,000 Stockholders' Equity (Partners' Deficit).... $16,635,000 9,135,200 9,662,812 (2,081,217) (989,000)
- ------- (a) No provision for income taxes is included in the consolidated statements of operations for the periods ended December 31, 1994 and 1993 or the period from January 1, 1995 through August 14, 1995, for the operations of La/Cal Energy Partners (predecessor company), due to La/Cal Energy Partners being a partnership and income taxes were the responsibility of the individual partners of La/Cal Energy Partners. Certain unaudited pro forma information relating to the Company's results of operations, had La/Cal Energy Partners been a corporation for those periods, is shown above. (b) For purposes of this presentation the number of pro forma shares used for periods prior to August 15, 1995, is 19,765,226 shares, the number of shares issued by the Company in exchange for La/Cal Energy Partners net assets contributed. (c) La/Cal Energy Partners was organized on July 15, 1993. Statement of operations data, other financial data, and other selected operating data, other than revenues from oil and gas sales and lease operating expenses and production taxes, for the period from January 1, 1993 through July 15, 1993 and for the year ended December 31, 1992, as well as balance sheet data as of December 31, 1992, is not presented, as the properties for which such financial data related were not maintained as a separate business unit, and assets, liabilities or indirect operating costs applicable to the properties were not segregated by the owners prior to the formation of La/Cal Energy Partners. (d) The above data reflects the operations solely of La/Cal Energy Partners for periods prior to August 15, 1995, whereas such data reflects the operations of La/Cal Energy Partners combined with Patrick Petroleum Company for periods subsequent to August 15, 1995. (e) Amounts are shown on a pro forma basis as if the La/Cal Acquisition had taken place on January 1, 1996, for statement of operations data, and on December 31, 1996, for balance sheet data. 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Background of Business Combination and Basis of Presentation The Company was created by the combination of Patrick Petroleum Company ("Patrick") and La/Cal Energy Partners ("La/Cal") in August 1995. The combination of Patrick and La/Cal was effected primarily by two concurrent transactions: (a) the contribution by La/Cal of substantially all of its assets and liabilities to the Company in exchange for 19,765,226 shares of Common Stock and (b) the merger Patrick and an indirect wholly owned subsidiary of Patrick (the "Merger") whereby (i) each of the 19,765,226 outstanding shares of Patrick common stock ("Patrick Common Stock") was converted into one share of Common Stock; (ii) each outstanding share of Patrick Series B Convertible Preferred Stock was converted into one share of the Company's Series A Convertible Preferred Stock and (iii) Patrick, the surviving corporation in the Merger, became a wholly-owned subsidiary of the Company. The La/Cal--Patrick business combination was accounted for on the basis of purchase accounting, with La/Cal deemed to be the acquiror. Accordingly, on August 15, 1995, the Company recorded the assets and liabilities of Patrick at fair value, whereas the assets and liabilities of La/Cal are reflected at historical book value. The consolidated financial statements reflect the operations solely of La/Cal for periods prior to August 15, 1995, whereas such financial statements reflect the operations of the combined entities for periods subsequent to August 15, 1995. As a result, comparison of the current and prior period financial statements presented is significantly impacted by the combination transactions and, accordingly, will not be indicative of future operating results. Prior to the combination transactions, La/Cal was a privately owned Louisiana general partnership which was formed on July 15, 1993, by the contribution of certain oil and gas properties owned by the partners. As more fully discussed in "1997 Acquisition," the Company acquired the oil and gas properties of La/Cal Energy Partners II and certain working interest owners on January 31, 1997. Results of Operations As noted above, the consolidated statements of operations for the year ended December 31, 1994 and the period from July 15, 1993 through December 31, 1993, reflect the operations of La/Cal only, whereas the statement of operations for the year ended December 31, 1995, reflects the operations solely of La/Cal prior to the combination date (August 15, 1995) and the operations of the combined entities subsequent to the combination date. Year ended December 31, 1996 versus year ended December 31, 1995--Total revenues in 1996 increased to $9,858,000 and were $3,684,000 (60%) higher than total revenues in 1995 due to a full year of the combined entities which resulted in higher oil and gas sales. Oil and gas sales were $2,211,000 higher due primarily to increased oil production as a result of the inclusion of revenues of the combined entities in 1996 along with increased oil prices for the year. Gas production for 1996 was lower primarily due to the early abandonment of two wells producing from a gas reservoir in the Lake Charles Field and a third well producing at a reduced rate compared to 1995. One of the abandoned wells has recently been completed in an oil reservoir. The dollar impact of this decrease was more than offset by increased gas prices received in 1996. In addition, 1996 contains a full year of revenues from the pipeline joint venture which contributed $1,538,000 compared to $573,000 for 1995. The following table reflects the production volumes and pricing information for the periods presented:
1996 1995 ------------------------ ------------------------ PRODUCTION AVERAGE PRICE PRODUCTION AVERAGE PRICE ---------- ------------- ---------- ------------- Gas (Mcf)............... 1,623,377 $ 2.60 2,213,923 $ 1.72 Oil (Bbls).............. 165,964 $20.88 102,731 $16.27
Lease operating expense and production taxes were $1,615,000 for 1996 compared to $1,030,000 for 1995 or $585,000 higher due to the addition of the Patrick oil and gas properties. Lease operating expenses per Mcfe 16 were $.46 in 1996 compared to $.22 in 1995 due to the high level of such expenses of the Patrick properties versus the La/Cal properties. Depletion, depreciation and amortization was $3,788,000 versus $1,786,000 due to a full year of the combined entities, including amortization of the pipeline joint venture. Oil and gas depletion and depreciation per Mcfe was $1.02 in 1996 versus $.48 in 1995, the increase due to the Patrick properties carrying a significantly higher rate per Mcfe. The Company incurred $1,149,000 of exploration expense in 1996 compared to $193,000 in 1995 due to a full year of the combined entities in 1996 versus four and one-half months in 1995. Included in the 1996 exploration expense is $542,000 of costs related to dry holes during the period versus $40,000 of such costs in 1995. General and administrative expenses amounted to $2,096,000 for 1996 versus $739,000 due to the Company providing its own general and administrative services for the full year in 1996 versus four and one-half months in 1995. Additionally, as a public company, the Company incurs a higher level of general and administrative expenses than a privately held company. Interest expense was $828,000 in 1996 compared to $1,132,000 (27% lower) due to the Company having lower average debt outstanding and a lower effective interest rate in 1996 compared to 1995. The Company's preferred stock dividends amounted to $645,000 for 1996 (twelve months dividends on average of 806,000 shares outstanding) compared to $255,000 (four and one-half months dividends on average of 849,000 shares outstanding). Year ended December 31, 1995 versus year ended December 31, 1994--Revenues in 1995 amounted to $6,174,000 and were $1,161,000 (23%) higher than 1994 due to the inclusion of the combined entities subsequent to August 15, 1995, which produced higher oil and gas sales. This was primarily due to higher volumes of oil production for the period slightly offset by slightly lower gas production and prices (see volume and price table below). Additionally, 1995 includes the revenues from the pipeline joint venture which was acquired from Patrick and contributed $573,000 in the period.
1995 1994 ------------------------ ------------------------ PRODUCTION AVERAGE PRICE PRODUCTION AVERAGE PRICE ---------- ------------- ---------- ------------- Gas (Mcf)............... 2,213,923 $ 1.72 2,386,130 $ 1.85 Oil (Bbls).............. 102,731 $16.27 36,487 $15.99
Lease operating expense and production taxes were $345,000 or 50% higher, due to the higher production volumes and depletion, depreciation and amortization was $629,000 or 54% higher than 1994, due to the addition of the Patrick properties subsequent to August 15, 1995, including the amortization of the pipeline joint venture. The Company recorded an impairment from the adoption of FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of in the fourth quarter of 1995 in the amount of $157,000. Additionally, the Company incurred $193,000 of exploration expense in 1995, whereas the 1994 amount was only $4,000 due to La/Cal having virtually no exploration activities. The large variance ($658,000) in general and administrative expenses is due to the fact that La/Cal was provided substantially all of its general and administrative expenses at no cost by an affiliate, whereas the Company provides its own general and administrative services. Additionally, as a public company, the Company incurs a higher level of general and administrative expenses than as a privately held company. Interest expense was $60,000 (6%) higher in 1995 due to the Company (from August 15, 1995 through December 31, 1995) and La/Cal (from January 1, 1995 through August 14, 1995) having slightly higher average debt outstanding in 1995 than La/Cal in 1994. A partial offsetting factor to this was the Company's lower effective interest rate from August 15, 1995 to December 31, 1995. 17 The statements of operations for both periods reflect no income taxes due to: 1) the individual partners of La/Cal being responsible for such taxes for the periods containing the operations of La/Cal only and 2) the Company incurring a loss for the period from August 15, 1995, through December 31, 1995, as a result of the extraordinary item discussed below. In connection with the combination transactions, the Company paid off La/Cal's General Obligation Notes, and the related unamortized debt financing costs of $483,000 were charged to operations as an extraordinary item in the third quarter of 1995. The Company assumed Patrick's Convertible Preferred Stock and has incurred related dividends of $255,000 from August 15, 1995 to December 31, 1995. Liquidity and Capital Resources Net cash provided by operating activities was $4,373,000 in 1996 compared to $3,579,000 in 1995 and $2,823,000 in 1994. The Company's accompanying consolidated statements of cash flows identify major differences between net income and net cash provided by operating activities for each of the years presented. Net cash used by investing activities amounted to $4,163,000 in 1996 compared to net cash provided by investing activities of $8,877,000 in 1995 and net cash used of $3,720,000 in 1994. The year ended December 31, 1996 amount is substantially comprised of $3,992,000 in capital expenditures. The year ended December 31, 1995, reflects the receipt by the Company of $9,600,000 cash in September from the sale of the investment in the Penske Corporation as well as $1,514,000 from the sale of certain properties in Michigan, Montana and North Dakota in the fourth quarter. This was offset by the payment by the Company of $1,088,000 in connection with the business combination and $650,000 for capital expenditures. The year ended December 31, 1994 reflects $3,720,000 in capital expenditures, due to extensive drilling and completion activities and acquisition of producing properties by La/Cal during that year. Net cash used by financing activities in 1996 totaled $479,000 compared to $12,553,000 in 1995 and net cash provided by financing activities of $856,000 in 1994. The 1996 amount primarily consists of the borrowing of $1,800,000 against the Company's line of credit partially offset by debt paydowns of $1,550,000 and the payment of preferred stock dividends of $645,000. The 1995 amount included the borrowing of $21,000,000 by the Company which was used primarily to pay off the debt assumed from La/Cal and Patrick ($19,778,000). The remainder of the loan proceeds were used to provide working capital and pay accrued interest. The year ended 1995 also reflects debt paydowns as follows: i) $915,000 by La/Cal on its General Obligation Notes prior to August 15, 1995; ii) $9,500,000 by the Company on its credit facility in September from the Penske sale proceeds; iii) $500,000 by the Company on its credit facility from operations/working capital; iv) $1,250,000 by the Company in the fourth quarter from the sale of certain oil and gas properties. The 1995 amount also includes partnership distributions by La/Cal of $1,133,000 prior to August 15, 1995 and the Company's preferred stock dividends subsequent to the business combination in the amount of $363,000. The 1994 amount consists of La/Cal borrowings ($5,720,000) used to partially fund the significant capital expenditures mentioned above. This was offset by partnership distributions of $3,107,000 and subsequent payments of $1,757,000 on the borrowings. The Company has a credit facility with Compass Bank which provides for a total borrowing base determined by the bank every six months based, in part, on the Company's oil and gas reserve information. Such borrowing base is $12,300,000 as of December 31, 1996. The maturity date for all amounts drawn under the bank credit facility is June 1, 1998. Interest is based on either of two methods at the option of the Company: the bank's prime lending rate or LIBOR plus 2%. Interest rates are set on specific draws for one, two, three or six month periods, also at the option of the Company. The weighted average interest rate at December 31, 1996 was 7.7%. The credit facility requires the Company to maintain minimum net worth of $8,500,000 plus 50% of net income, as defined, subsequent to September 30, 1995 and a minimum debt service ratio of 1.25 to 1. The amount outstanding under the credit facility as of December 31, 1996 was $10,000,000. See discussion of 1997 credit facility revisions in "1997 Acquisition" below. 18 The Company plans to incur capital expenditures in the amount of approximately $7,500,000 in calendar year 1997. The Company plans to finance such expenditures from its operating cash flow. The Company's business strategy is to explore and develop drilling prospects along the Gulf Coast and in West Texas and pursue strategic acquisitions of oil and gas properties that offer additional development drilling opportunities. It is anticipated that such acquisitions would be financed with bank or other institutional borrowings or from the issuance of equity securities. 1997 Acquisition On January 31, 1997, the Company acquired the oil and gas properties of La/Cal Energy Partners II ("La/Cal II") and certain working interest owners for a purchase price of $16.5 million ("La/Cal II Acquisition"). The purchase price was comprised of $1.5 million cash, the assumption of $7.5 million La/Cal II long-term debt and the issuance of 750,000 shares of Series B convertible preferred stock of the Company ("Series B Preferred Stock") with an aggregate liquidation value of $7.5 million. In connection with the La/Cal II Acquisition, the Company increased its borrowing base under its credit facility to $22.5 million and borrowed an additional $9 million to payoff La/Cal II's debt and to pay the cash portion of the purchase price. The Series B Preferred Stock accrues dividends at a rate of 8.25% per annum and each share of Series B Preferred Stock is convertible into 8.92 shares of common stock. Such shares are redeemable by the Company after January 31, 2001 at $10.00 per share. Disclosure Regarding Forward-Looking Statements This Annual Report on Form 10-K includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts included in this Annual Report on Form 10-K regarding reserve estimates, planned capital expenditures, future oil and gas production and prices, future drilling activity, the Company's financial position, business strategy and other plans and objectives for future operations, are forward- looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. There are numerous uncertainties inherent in estimating quantities of proved oil and natural gas reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond the control of the Company. Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. As a result, estimates made by different engineers often vary from one another. In addition, results of drilling, testing and production subsequent to the date of an estimate may justify revisions of such estimate and such revisions, if significant, would change the schedule of any further production and development drilling. Accordingly, reserve estimates are generally different from the quantities of oil and natural gas that are ultimately recovered. Additional important factors that could cause actual results to differ materially from the Company's expectations include changes in oil and gas prices, changes in regulatory or environmental policies, production difficulties, transportation difficulties and future drilling results. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by such factors. 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Goodrich Petroleum Corporation: We have audited the accompanying consolidated balance sheets of Goodrich Petroleum Corporation and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Goodrich Petroleum Corporation and Subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 1996, in conformity with generally accepted accounting principles. As discussed in Note D to the consolidated financial statements, in 1995, the Company adopted the provisions of Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of. KPMG PEAT MARWICK LLP Shreveport, Louisiana March 4, 1997 20 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31, ASSETS 1996 1995 ------ ------------ ------------ CURRENT ASSETS Cash and cash equivalents.......................... $ 344,551 $ 613,450 Marketable equity securities....................... 569,700 759,600 Accounts receivable Trade and other, net of allowance............... 744,221 170,593 Accrued oil and gas revenue...................... 1,482,503 1,014,709 Accrued pipeline joint venture................... 532,000 530,792 Prepaid insurance.................................. 235,578 302,113 Other.............................................. 4,888 33,532 ----------- ----------- Total current assets............................. 3,913,441 3,424,789 ----------- ----------- PROPERTY AND EQUIPMENT Oil and gas properties............................. 19,129,512 16,262,033 Furniture, fixtures and equipment.................. 107,056 101,333 ----------- ----------- 19,236,568 16,363,366 Less accumulated depletion, depreciation and amortization...................................... (4,918,856) (2,217,425) ----------- ----------- Total property and equipment..................... 14,317,712 14,145,941 ----------- ----------- OTHER ASSETS Investment in pipeline joint venture, net.......... 3,616,360 4,676,500 Deferred charges and other investments............. 551,471 135,486 ----------- ----------- 4,167,831 4,811,986 ----------- ----------- TOTAL ASSETS................................... $22,398,984 $22,382,716 =========== ===========
See notes to consolidated financial statements. 21 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, DECEMBER 31, LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 ------------------------------------ ------------ ------------ CURRENT LIABILITIES Current portion of long term debt....................... $ -- $ -- Accounts payable........................................ 1,108,534 656,886 Accrued liabilities..................................... 1,994,730 1,740,028 ----------- ----------- Total current liabilities............................. 3,103,264 2,396,914 ----------- ----------- LONG TERM DEBT............................................ 10,000,000 9,750,000 OTHER LIABILITIES......................................... 160,520 572,990 STOCKHOLDERS' EQUITY Preferred stock, par value $1.00 per share; authorized 10,000,000 shares; issued 801,149 at and 734,859 shares (liquidating preference $10 per share, aggregating to $8,011,490 and $7,348,590)............................. 801,149 734,859 Common stock, par value--$0.20 per share; authorized 100,000,000 shares; issued and outstanding 41,804,510 shares................................................. 8,360,902 8,360,902 Additional paid-in capital.............................. 1,059,493 1,200,140 Accumulated deficit..................................... (896,444) (633,089) Unrealized loss on marketable equity securities......... (189,900) -- ----------- ----------- Total stockholders' equity............................ 9,135,200 9,662,812 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......... $22,398,984 $22,382,716 =========== ===========
See notes to consolidated financial statements. 22 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ----------------------------------- 1996 1995 1994 ----------- ---------- ---------- REVENUES Oil and gas sales........................ $ 7,687,748 5,477,208 4,995,663 Pipeline joint venture................... 1,537,806 573,393 -- Other.................................... 632,257 123,811 17,783 ----------- ---------- ---------- Total revenues......................... 9,857,811 6,174,412 5,013,446 ----------- ---------- ---------- COSTS AND EXPENSES Lease operating expense and production taxes................................... 1,614,584 1,029,501 684,131 Depletion, depreciation and amortization. 3,788,292 1,785,502 1,156,624 Exploration.............................. 1,149,240 193,159 4,240 Impairment of oil and gas properties..... -- 157,000 -- Interest expense......................... 828,394 1,132,488 1,072,098 General and administrative............... 2,095,856 739,451 81,535 ----------- ---------- ---------- Total costs and expenses............... 9,476,366 5,037,101 2,998,628 ----------- ---------- ---------- INCOME BEFORE EXTRAORDINARY ITEM AND INCOME TAXES..................................... 381,445 1,137,311 2,014,818 Income Taxes............................. -- -- -- ----------- ---------- ---------- INCOME BEFORE EXTRAORDINARY ITEM........... 381,445 1,137,311 2,014,818 Extraordinary item-early extinguishment of debt................................. -- (482,906) -- ----------- ---------- ---------- NET INCOME................................. 381,445 654,405 2,014,818 ========== Preferred stock dividends................ 644,800 254,932 ----------- ---------- EARNINGS (LOSS) APPLICABLE TO COMMON STOCK. $ (263,355) 399,473 =========== ========== LOSS PER AVERAGE COMMON SHARE.............. $ (.01) =========== AVERAGE COMMON SHARES OUTSTANDING.......... $41,804,510 =========== PRO FORMA INFORMATION (UNAUDITED): Income before extraordinary item and income taxes..................................... $1,137,311 2,014,818 Pro forma income taxes*.................... 402,698 785,779 ---------- ---------- 734,613 1,229,039 Extraordinary item-early extinguishment of debt................................. (482,906) -- ---------- ---------- Pro forma net income..................... 251,707 1,229,039 Preferred stock dividends................ 254,932 -- ---------- ---------- Pro forma earnings (loss) available to common stock.............................. $ (3,225) 1,229,039 ========== ========== Pro forma income before extraordinary item per average common share.................. $ .02 .06 Pro forma extraordinary item per average common share.............................. (.02) -- ---------- ---------- Pro forma earnings (loss) per average common share.............................. $ -- .06 ========== ========== Pro forma weighted average common shares outstanding**............................. 27,722,543 19,765,226 ========== ==========
- -------- * As described in Noted D, no provision for income taxes is included in the consolidated statements of operations for the period from January 1, 1995 through August 14, 1995 and for the year ended December 31, 1994, for the operations of La/Cal Energy Partners (predecessor company), due to La/Cal being a partnership and income taxes were the responsibility of the individual partners of La/Cal. Certain unaudited pro forma information relating to the Company's results of operations had La/Cal been a corporation, is shown here. ** For purposes of this presentation the number of pro forma shares used for periods prior to August 15, 1995, is 19,765,226 shares, the number issued by the Company in exchange for La/Cal's net assets contributed. See notes to consolidated financial statements. 23 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, -------------------------------------- 1996 1995 1994 ----------- ------------ ----------- OPERATING ACTIVITIES Net income........................... $ 381,445 654,405 2,014,818 Adjustments to reconcile net income to net cash provided by operating activities: Depletion, depreciation and amortization...................... 3,788,292 1,785,502 1,156,624 Amortization of leasehold costs.... 195,027 84,174 -- Amortization of deferred debt financing costs................... 72,329 101,531 112,530 Gain on Sale of oil and gas properties........................ (88,428) -- -- Extraordinary item-early extinguishment of debt............ -- 482,906 -- Capital expenditures charged to income............................ 678,213 108,985 4,240 Impairment of oil and gas properties........................ -- 157,000 -- Payment of other liabilities....... (364,100) (130,010) -- Other.............................. (11,714) -- -- ----------- ------------ ----------- 4,651,064 3,244,493 3,288,212 Net change in: Accounts receivable.............. (1,042,630) (28,773) (454,610) Prepaid insurance and other...... 95,179 (319,043) -- Accounts payable................. 451,648 493,343 (72,846) Accrued liabilities.............. 218,045 188,905 61,831 ----------- ------------ ----------- Net cash provided by operating activities.................... 4,373,306 3,578,925 2,822,587 ----------- ------------ ----------- INVESTING ACTIVITIES Sale of investment................... -- 9,600,000 -- Purchase of other investment......... (250,000) -- -- Proceeds from sales of oil and gas properties.......................... 325,628 1,514,336 -- Cash paid in connection with business combinations........................ (234,378) (1,088,432) -- Overdraft bank balances assumed in business combination................ -- (451,414) -- Capital expenditures................. (3,992,374) (649,604) (3,719,782) Other................................ (11,668) (47,883) -- ----------- ------------ ----------- Net cash provided by (used in) investing activities.......... (4,162,792) 8,877,003 (3,719,782) ----------- ------------ ----------- FINANCING ACTIVITIES Proceeds from bank borrowings........ 1,800,000 21,000,000 5,719,933 Principal payments of bank borrowings.......................... (1,550,000) (31,942,841) (1,756,856) Partnership distributions............ -- (1,132,735) (3,107,258) Payment of debt financing costs...... (10,256) (114,771) -- Retirement of preferred stock........ (74,357) -- -- Preferred stock dividends............ (644,800) (362,893) -- ----------- ------------ ----------- Net cash provided by (used in) financing activities.......... (479,413) (12,553,240) 855,819 ----------- ------------ ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS........................... (268,899) (97,312) (41,376) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 613,450 710,762 752,138 ----------- ------------ ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................. $ 344,551 613,450 710,762 =========== ============ ===========
See notes to consolidated financial statements. 24 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
PREFERRED STOCK COMMON STOCK TOTAL PARTNERS' -------------------- --------------------- ADDITIONAL UNREALIZED LOSS STOCKHOLDERS' CAPITAL NUMBER NUMBER PAID-IN ACCUMULATED ON MARKETABLE EQUITY (DEFICIT) OF SHARES PAR VALUE OF SHARES PAR VALUE CAPITAL DEFICIT EQUITY SECURITIES (DEFICIT) ----------- --------- --------- ---------- ---------- ---------- ----------- ----------------- ------------- BALANCE AT DECEMBER 31, 1993........... $ (988,777) -- -- -- -- -- -- -- $ (988,777) Partnership distributions.. (3,107,258) -- -- -- -- -- -- -- (3,107,258) Net Income...... 2,014,818 -- -- -- -- -- -- -- 2,014,818 ----------- --------- --------- ---------- ---------- ---------- --------- --------- ----------- BALANCE AT DECEMBER 31, 1994........... (2,081,217) -- -- -- -- -- -- -- (2,081,217) Partnership distributions.. (1,229,344) -- -- -- -- -- -- -- (1,229,344) Business Combination.... 3,310,561 1,098,710 1,098,710 39,530,452 7,906,090 258,539 -- -- 12,573,900 Conversion of preferred stock.......... -- (363,851) (363,851) 2,274,058 454,812 (90,961) -- -- -- Preferred stock dividends ($.30 per share)..... -- -- -- -- -- -- (254,932) -- (254,932) Net income...... -- -- -- -- -- 1,032,562 (378,157) -- 654,405 ----------- --------- --------- ---------- ---------- ---------- --------- --------- ----------- BALANCE AT DECEMBER 31, 1995........... -- 734,859 734,859 41,804,510 8,360,902 1,200,140 (633,089) -- 9,662,812 Net income...... -- -- -- -- -- -- 381,445 -- 381,445 Unrealized depreciation of marketable securities available for sale........... -- -- -- -- -- -- -- (189,900) (189,900) Preferred stock dividends ($.80 per share)..... -- -- -- -- -- -- (644,800) -- (644,800) Retirement of preferred stock.......... -- (10,000) (10,000) -- -- (64,357) -- -- (74,357) Reinstatement of preferred stock under appraisal rights......... -- 76,290 76,290 -- -- (76,290) -- -- -- ----------- --------- --------- ---------- ---------- ---------- --------- --------- ----------- BALANCE AT DECEMBER 31, 1996........... $ -- 801,149 $ 801,149 41,804,510 $8,360,902 $1,059,493 $(896,444) $(189,900) $ 9,135,200 =========== ========= ========= ========== ========== ========== ========= ========= ===========
See notes to consolidated financial statements. 25 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE A--DESCRIPTION OF BUSINESS The Company is in the primary business of the exploration and production of crude oil and natural gas. The Subsidiaries have interests in such operations in eight states, primarily in Louisiana and Texas. The Company's subsidiaries also have a minority interest in a natural gas pipeline joint venture located in the state of Texas. NOTE B--BUSINESS COMBINATION On August 15, 1995, the transactions contemplated by the Agreement and Plan of Merger among Patrick Petroleum Company ("Patrick"), La/Cal Energy Partners ("La/Cal"), Goodrich Petroleum Corporation (the "Company"), and Goodrich Acquisition, Inc. were completed. The Agreement provided for a combination of Patrick and La/Cal, as a result of which the businesses previously conducted by Patrick and La/Cal are now conducted by the Company, which is a Delaware corporation formed for the purpose of consummating such transactions, and its subsidiaries. The combination of Patrick and La/Cal was effected primarily by two concurrent transactions: (a) the contribution by La/Cal of all of its assets and liabilities (excluding cash and accounts receivable accrued prior to March 1, 1995, and interest thereon) to the Company in exchange for 19,765,226 shares of the Company's common stock (the "Common Stock") and (b) the merger of Goodrich Acquisition with and into Patrick (the "Merger") whereby (i) each outstanding share of Patrick common stock ("Patrick Common Stock") was converted into one share of Common Stock; (ii) each outstanding share of Patrick Series B Convertible Preferred Stock was converted into one share of the Company's Series A Convertible Preferred Stock and (iii) Patrick, the surviving corporation in the Merger, became a wholly-owned subsidiary of the Company. La/Cal was formed, by the contribution of certain oil and gas properties owned by the partners, on July 15, 1993, pursuant to the provisions of the State of Louisiana, for the purpose of engaging in the domestic exploration for oil and gas reserves primarily in the States of Louisiana and Texas. Under the provisions of the Agreement of Partnership, the business of La/Cal was to acquire interests in leases within a defined program area in Louisiana and certain railroad districts in East Texas (as amended from time to time) and drill primarily development wells. La/Cal also engaged in the development, production, and sale of any commercial accumulations of oil and gas discovered. Profits, losses, and distributable cash were allocated to the individual partners as defined in the Partnership Agreement. NOTE C--BASIS OF PRESENTATION The combination transactions were accounted for as a purchase business combination in accordance with Accounting Principles Board Opinion No. 16, Business Combinations whereby La/Cal was deemed to be the acquiror and Patrick the acquiree. Accordingly, on August 15, 1995, the Company recorded the assets and liabilities of Patrick at fair value, whereas the assets and liabilities of La/Cal are reflected at historical book value. The consolidated financial statements reflect the operations solely of La/Cal for periods prior to August 15, 1995, whereas such financial statements reflect the operations of the combined entities for periods subsequent to August 15, 1995. NOTE D--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation--The consolidated financial statements include the financial statements of Goodrich Petroleum Corporation, its wholly-owned subsidiary, and its wholly-owned subsidiary's four wholly-owned subsidiaries. Significant intercompany balances and transactions have been eliminated in consolidation. Oil and gas revenues--Oil and gas revenues are recorded using the accrual method of accounting. 26 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 Property and Equipment--The Company uses the successful efforts method of accounting for exploration and development expenditures. Leasehold acquisition costs are capitalized. When proved reserves are found on an undeveloped property, leasehold cost is reclassified to proved properties. Significant undeveloped leases are reviewed periodically, and a valuation allowance is provided for any estimated decline in value. Cost of all other undeveloped leases is amortized over the estimated average holding period of the leases. Costs of exploratory drilling are initially capitalized, but if proved reserves are not found, the costs are subsequently expensed. All other exploratory costs are charged to expense as incurred. Development costs are capitalized, including the cost of unsuccessful development wells. During the fourth quarter of 1995, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Under SFAS No. 121, an impairment is determined to have occurred and a loss is recognized when the net of future cash inflows expected to be generated by an identifiable long-lived asset and cash outflows expected to be required to obtain those cash inflows is less than the carrying value of the asset. The Company performs this comparison for its oil and gas properties on a field-by- field basis. The amount of such loss is measured based on the difference between the discounted value of such net future cash flows and the carrying value of the asset. The Company recorded such an impairment in the fourth quarter of 1995 in the amount of $157,000. Prior to the adoption of SFAS 121, undiscounted future net revenues were compared annually to net capitalized cost of all oil and gas properties to determine if an impairment had occurred in the amount capitalized. Depreciation and depletion of producing oil and gas properties are provided under the unit-of-production method. Proved developed reserves are used to compute unit rates for unamortized tangible and intangible development costs, and proved reserves are used for unamortized leasehold costs. Estimated dismantlement, abandonment, and site restoration costs, net of salvage value, are considered in determining depreciation and depletion provisions. Gains and losses on disposals or retirements that are significant or include an entire depreciable or depletable property unit are included in income. All other dispositions, retirements, or abandonments are reflected in accumulated depreciation, depletion, and amortization. Cash and Cash Equivalents--Cash and cash equivalents include cash on hand, demand deposit accounts and temporary cash investments with maturities of ninety days or less at date of purchase. Marketable Equity Securities--In accordance with Statement of Financial Accounting Standards No. 115, the Company has classified its investment in marketable equity securities as available for sale. Accordingly, unrealized holding gains and losses are excluded from earnings and are reported as a separate component of stockholders' equity until realized. Investment in Pipeline Joint Venture--The Company's investment consists of a 20% interest in an intrastate natural gas pipeline joint venture. The Company's carrying basis in the investment was established at August 15, 1995 (fair value) and is being amortized on a basis which matches the amortization with the monthly maximum average contract quantities over the remaining term of the joint venture, which is estimated to terminate in 2000. Amortization amounted to $1,060,000 and $403,000 for the years ended December 31, 1996 and 1995, 27 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 respectively. The Company records its equity in joint venture earnings as revenues in the statement of operations in the periods when the contract payments are earned. Income Taxes--The Company follows the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes which requires income taxes be accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The federal income tax effect of La/Cal's activities (prior to August 15, 1995) is not reflected in the financial statements since such taxes were the responsibility of the individual partners of La/Cal. The Company became subject to income taxes as of August 15, 1995, as a result of the business combination. Earnings Per Share--As discussed previously, La/Cal's activities prior to the business combination were conducted in the form of a partnership and the Company was established in corporate form on August 15, 1995. Earnings per share information for 1995 and 1994 has been presented on a pro forma basis to reflect such information as if La/Cal had been operated as a corporation prior to August 15, 1995. The Company's Series A convertible preferred stock, stock options and common stock warrants are common stock equivalents, however, fully diluted earnings per share have not been presented, as the conversion or exercise of such instruments would be anti-dilutive. Stock Based Compensation--Prior to January 1, 1996, the Company accounted for its stock option plans in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. In the fourth quarter of 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock options grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. Commitments and Contingencies--Liabilities for loss contingencies, including environmental remediation costs, arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Recoveries from third parties which are probable of realization are separately recorded, and are not offset against the related environmental liability. Use of Estimates--Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. 28 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 NOTE E--FAIR VALUE OF FINANCIAL INSTRUMENTS The following presents the carrying amounts and estimated fair values of the Company's financial instruments at December 31, 1996 and 1995.
DECEMBER 31, 1996 DECEMBER 31, 1995 ---------------------- ------------------- CARRYING CARRYING FAIR AMOUNT FAIR VALUE AMOUNT VALUE ----------- ---------- --------- --------- Financial asset-- Marketable equity securities...... $ 569,700 569,700 759,600 759,600 Financial liabilities-- Other liabilities................. 517,572 503,161 959,990 869,575 Long-term debt (including current maturities)...................... $10,000,000 10,000,000 9,750,000 9,750,000
The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents, accounts receivable, accounts payables and accrued liabilities: The carrying amounts approximate fair value because of the short maturity of those instruments. Therefore, these instruments were not presented in the table above. Marketable equity securities: Fair value is based on bid prices published in financial media. Other liabilities and Long-term debt: The fair value is estimated by discounting the future cash flows of each instrument at rates currently offered to the Company for similar debt instruments of comparable maturities by the Company's bankers. NOTE F--ACCRUED LIABILITIES Accrued liabilities as of December 31, 1996 and 1995 consisted of the following:
1996 1995 ---------- --------- Current portion--consulting agreement contracts............ $ 357,052 387,000 Advanced billings.......................................... 315,081 -- Environmental contingency.................................. 275,000 400,000 Accrued interest........................................... 238,969 80,702 Liability to shareholders of acquired company.............. 177,585 195,695 Prior years' state income and franchise tax assessment..... 175,000 200,000 Taxes other than income.................................... 109,000 160,000 Other...................................................... 347,043 316,631 ---------- --------- $1,994,730 1,740,028 ========== =========
NOTE G--LONG TERM DEBT Long-term debt at December 31, 1996 and 1995 consists of the following:
1996 1995 ----------- --------- Borrowings under credit facility, interest, at prime or LIBOR plus 2% (see below)(weighted average rate at December 31, 1996-- 7.7%); principal due June 1, 1998.............................. $10,000,000 9,750,000 Less current portion..................................... -- -- ----------- --------- Long-term debt, excluding current portion................ $10,000,000 9,750,000 =========== =========
29 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 The Company has a credit facility with Compass Bank which provides for a total borrowing base determined by the bank every six months based in part, on the Company's oil and gas reserve information. Such borrowing base is currently $12,300,000. The maturity date for all amounts drawn under the bank credit facility is June 1, 1998. Interest is based on either of two methods at the option of the Company: the bank's prime lending rate or LIBOR plus 2%. Interest rates are set on specific draws for one, two, three or six month periods, also at the option of the Company. The credit facility requires the Company to maintain minimum net worth of $8,500,000 plus 50% of net income, as defined, subsequent to September 30, 1995. Under such restriction, the Company had $1,766 available for the payment of dividends at December 31, 1996. The credit facility also requires a minimum debt service ratio of 1.25 to 1. The amount outstanding under the credit facility as of December 31, 1996 was $10,000,000. As described in Note S, the borrowing base and minimum net worth requirements were revised as a result of the January 31, 1997 acquisition to $22,500,000 and $14,500,000 plus net income, as defined, subsequent to December 31, 1996, respectively. Substantially all of the Company's assets are pledged to secure this credit facility. Interest paid during 1996, 1995, and 1994 amounted to $562,593, $968,190 and $1,051,927 respectively. NOTE H--STOCKHOLDERS' EQUITY Common Stock--At December 31, 1996, unissued shares of Goodrich common stock were reserved in the amount of 2,667,826 shares for the conversion of convertible preferred stock, 2,841,534 shares for stock option plans and 800,000 shares for the exercise of warrants. Preferred Stock--In accordance with the terms of the combination transactions, all of the outstanding shares of Patrick's Series B Convertible Preferred Stock were converted into Goodrich Series A Convertible Preferred Stock except for 76,290 shares for which appraisal rights had been preserved. The Preferred Stock has a par value of $1.00 per share with a liquidation preference of $10.00 per share, is convertible at the option of the holder at any time, unless earlier redeemed, into shares of Common Stock of the Company at an initial conversion rate of 3.33 shares of Common stock per share of Preferred. The Preferred Stock also will automatically convert to Common Stock if the closing price for the Preferred Stock exceeds $15.00 per share for ten consecutive trading days. Upon any conversion of a share of Preferred Stock prior to the close of business on September 15, 1997, the stockholder will receive one Common Stock purchase warrant to purchase one share of Common Stock at $5.00 per share, subject to adjustment in certain events. Any outstanding warrants can be called on thirty days notice for $4.25 per warrant and will expire on September 15, 1997. The Preferred Stock is redeemable in whole or in part, at $12.00 per share, plus accrued and unpaid dividends. Dividends on the Preferred Stock accrue at an annual rate of 8%. As a result of the combination transactions, the Company was required to offer a special conversion right to all holders of the Preferred Stock for a period of 61 days beginning August 18, 1995. On October 18, 1995, holders of 363,851 shares of the Company's preferred stock elected to convert their shares to Common Stock at an exchange rate of 6.25 to 1. This conversion resulted in the Company issuing an additional 2,274,058 shares of Common Stock and resulted in 734,859 preferred shares outstanding as of December 31, 1995. Effective January 1, 1996, the preferred shares under appraisal rights were reinstated, resulting in outstanding shares of 811,149. Outstanding shares as of December 31, 1996 were 801,149. 30 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 Warrants--In conjunction with 10.75% subordinated collateralized notes sold on May 10, 1990, by Patrick, the Company has outstanding warrants to acquire 800,000 shares of the Company's $.20 per value Common Stock at exercise prices from $3.00 to $6.16 per share, to three institutional investors. These warrants expire on May 10, 1997. Stock Option and Incentive Programs--Goodrich currently has two plans which provide for stock option and other incentive awards for the Company's key employees and consultants and its directors. The Goodrich Petroleum Corporation 1995 Stock Option Plan allows the Board of Directors, through its Compensation Committee, to grant stock options, restricted stock awards, stock appreciation rights, long-term incentive awards, and phantom stock awards, or any combination thereof to key employees and consultants. The Goodrich Petroleum Corporation 1995 Nonemployee Director Stock Option Plan provides for the grant of options to each director who is not and has never been an employee of the Company. Additionally, Goodrich assumed certain outstanding stock options of Patrick as a result of the business combination. The Goodrich Petroleum plans authorize grants of options to purchase up to a combined total of 3,500,000 shares of authorized but unissued common stock. Stock options are generally granted with an exercise price equal to the stock's fair market value at the date of grant and all stock options granted under the 1995 Stock Option Plan generally have ten year terms and five year pro rata vesting. The per share weighted-average fair value of stock options granted during 1996 and 1995 was $ .382 and $ .485 on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 1996--expected dividend yield 0%, risk-free interest rate of 7.5%, and an expected life of 6 years; 1995--expected dividend yield 0%, risk-free interest rate of 7.5%, and an expected life of 6 years; expected volatility of stock over expected life of the options--35%. The Company applies APB Opinion No. 25 in accounting for its Plan and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income would have been reduced to the pro forma amounts indicated below:
1996 1995 -------- ------- Net income.............. As reported $381,445 654,405 Pro forma 225,135 464,885 Earnings (loss) applicable to common stock.................. As reported (263,355) 399,473 Pro forma (419,665) 209,953 Earnings (loss) per average common share... As reported (.01) * Pro forma $ (.01) *
Pro forma net income and earnings per share reflect only options granted in 1996 and 1995. Therefore, the full impact of calculating compensation costs for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented above because compensation costs are reflected over the options' vesting period of approximately 5 years and compensation for options granted prior to January 1, 1995 is not considered. - -------- * Not calculated due to entity not being in corporate form during a portion of 1995. 31 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 Stock option transactions during 1996 and 1995 were as follows:
WEIGHTED WEIGHTED AVERAGE AVERAGE RANGE OF REMAINING NUMBER OF EXERCISE EXERCISE CONTRACTUAL OPTIONS PRICE PRICE LIFE --------- -------- --------- ----------- Outstanding January 1, 1995.......... -- -- -- -- Assumed from Patrick............... 1,670,602 $2.32 Granted--1995 Stock Option Plan.... 880,000 1.02 Granted--1995 Non Employee Director Stock Option Plan................. 220,000 0.97 Expiration of Options.............. (95,000) 2.25 --------- Outstanding December 31, 1995........ 2,675,602 1.78 $.97-3.00 5.5 years Granted--1995 Stock Option Plan.... 395,000 .76 Granted--1995 Non-Employee Director Stock Option Plan................. 90,000 .94 Expiration of Options.............. (319,068) 2.25 --------- Outstanding December 31, 1996........ 2,841,534 1.56 $.75-3.00 5.9 years ========= Exercisable December 31, 1994........ -- -- Exercisable December 31, 1995........ 1,795,602 2.15 Exercisable December 31, 1996........ 1,755,034 $1.95
NOTE I--COMMITMENTS AND CONTINGENCIES The U.S. Environmental Protection Agency ("EPA") has identified the Company as a potentially responsible party ("PRP") for the cost of clean-up of "hazardous substances" at an oil field waste disposal site in Vermilion Parish, Louisiana. The Company has estimated that the remaining cost of long- term clean-up of the site will be approximately $3.5 million with the Company's percentage of responsibility to be approximately 3.05%. As of December 31, 1996, the Company has paid approximately $135,000 in costs related to this matter and has $275,000 accrued for the remaining liability. These costs have not been discounted to their present value. The EPA and the PRPs will continue to evaluate the site and revise estimates for the long-term clean-up of the site. There can be no assurance that the cost of clean-up and the Company's percentage responsibility will not be higher than currently estimated. In addition, under the federal environmental laws, the liability costs for the clean-up of the site is joint and several among all PRPs. Therefore, the ultimate cost of the clean-up to the Company could be significantly higher than the amount presently estimated or accrued for this liability. Additionally, the Company is party to a number of lawsuits arising in the normal course of business. The Company has defended and intends to continue to defend these actions vigorously and believes, based on currently available information, that adverse results or settlements, if any, in excess of insurance coverage or amounts already provided, will not be material to its financial position, liquidity or results of operations. 32 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 NOTE J--INCOME TAXES Income tax expense for the year ending December 31, 1996 and the period from August 15, 1995 through December 31, 1995 consists of:
CURRENT DEFERRED TOTAL ------- -------- ----- Year Ended December 31, 1996: U.S. Federal.................................. $ -- -- -- State......................................... -- -- -- ------ ------- --- -- -- -- ====== ======= === Period from August 15, 1995 through December 31, 1995: U.S. Federal.................................. 25,000 (25,000) -- State......................................... -- -- -- ------ ------- --- 25,000 (25,000) -- ====== ======= ===
Following is a reconciliation of the U.S. statutory income tax rate to the Company's effective rate on loss before income taxes for the year ended December 31, 1996 and the period from August 15, 1995 through December 31, 1995:
1996 1995 ----- ----- U.S. Statutory Income Tax Rate........................... 35.0 % (35.0)% Increase in deductible temporary differences for which no benefit recorded........................................ -- 28.2 Change in the beginning of the year balance of the valuation allowance allocated to income tax income expense................................................. (35.5) -- Nondeductible expenses................................... .5 6.8 ----- ----- -- -- ===== =====
The significant components of deferred income tax expense for the year ended December 31, 1996 and the period from August 15, 1995 through December 31, 1995 are as follows:
1996 1995 ------- -------- Deferred tax benefit (exclusive of utilization of net operating loss carryforwards)........................ -- 657,938 Utilization of net operating loss carryforward........ -- 632,938 ------- -------- -- $(25,000) ======= ========
33 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1996 and 1995 are presented below.
DECEMBER 31, DECEMBER 31, 1996 1995 ------------ ------------ Deferred tax assets: Differences between book and tax basis of: Property and equipment........................... $ 31,026 307,025 Marketable equity securities..................... 206,621 140,156 Contingent liabilities........................... 229,044 254,962 Consulting agreement contracts................... 181,150 335,997 Other............................................ 59,949 70,306 Operating loss carryforwards....................... 13,523,211 12,364,772 Statutory depletion carryforward................... 5,376,361 4,943,209 AMT Tax credit carryforward........................ 1,446,226 1,392,176 Investment tax credit carryforward................. 747,378 1,242,725 ------------ ------------ Total gross deferred tax assets.................... 21,800,966 21,051,328 Less valuation allowance........................... (20,729,196) (19,461,294) ------------ ------------ Net deferred tax assets............................ 1,071,770 1,590,034 ------------ ------------ Deferred tax liability: Differences between book and tax basis of investment in Pecos pipeline...................... (1,046,770) (1,565,034) ------------ ------------ Total gross deferred liability..................... (1,046,770) (1,565,034) ------------ ------------ Net deferred tax asset............................. $ 25,000 25,000 ============ ============
The valuation allowance for deferred tax assets increased $1,267,902 for the year ended December 31, 1996 and $658,000 for the period from August 15, 1995 through December 31, 1995, which, in both years, substantially offset the change in certain deferred tax assets. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based primarily upon the level of projections for future taxable income generated primarily by the reversal of future taxable temporary differences over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowance at December 31, 1996. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. 34 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 The following table summarizes the amounts and expiration dates of operating loss and investment tax credit carryforwards: OPERATING LOSS CARRYFORWARDS INVESTMENT TAX CREDIT CARRYFORWARDS -------------------------------- --------------------------------------- AMOUNT EXPIRES AMOUNT EXPIRES ---------------- ------------ ------------------ ------- $ 8,632,645 2003 $ 558,042 1998 4,331,292 2004 22,591 1999 1,080,772 2005 68,171 2000 7,093,823 2006 96,466 2001 8,860,622 2007 2,108 2002 4,285,746 2008 3,224,939 2009 1,127,906 2011 ---------------- ------------------ $ 38,637,745 $ 747,378 ================ ==================
As a result of the August 15, 1995 business combination, the Company's annual utilization of its net operating and statutory depletion carryforwards generated prior to the business combination are limited under Internal Revenue Code Section 382. Such limitation is determined annually and is comprised of a base amount of $1,682,797 plus any recognized "built in gains" existing at August 15, 1995. Such limitation amounted to $9,100,000 in 1995 and is estimated to be $8,800,000 in 1996. The Company's statutory depletion carryforwards and AMT credit carryovers have no expiration date. As described in Note D, no provision for income taxes for La/Cal was included in the statements of operations prior to August 15, 1995 due to the tax effect of Partnership activities being the responsibility of the individual Partners. The Company paid income taxes of $107,237 and $0 in 1996 and 1995, respectively. NOTE K--PATRICK PETROLEUM EMPLOYEE BENEFIT PLANS Patrick maintained several employee benefit plans prior to the business combination. In accordance with the business combination, each of these plans has been or is in the process of being terminated. Accordingly, the only activities of these plans subsequent to August 15, 1995 were related to their termination. At December 31, 1996, the Patrick Petroleum Corporation of Michigan Defined Benefit Plan and Trust held assets of approximately $1,700,000. The Plan is fully funded and these assets are expected to be distributed to the participants during February 1997. NOTE L--RELATED PARTY TRANSACTIONS. La/Cal did not have any employees and was dependent on Goodrich Oil Company to provide substantially all management of oil and gas operations and administrative functions. La/Cal was not required to pay Goodrich Oil Company for such services. Goodrich Oil Company was the operator of record of the majority of the oil and gas properties in which La/Cal had an interest and owned joint interests in such properties. The Company entered into additional transactions with Goodrich Oil Company subsequent to the business combination as more fully described below. Goodrich Oil Company is owned by Henry Goodrich who is the 35 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 chairman of the Company and the father of Walter G. Goodrich, the Company's President and Chief Executive Officer. Goodrich Oil Company continues to be the operator of record of certain oil and gas properties in which the Company has an interest and Goodrich Oil Company owns joint interests in such properties. The Company is a party to a Joint Participation Agreement with Goodrich Oil Company pursuant to which the Company and Goodrich Oil Company agree to offer to the other a 50% participation interest in such company's share of all drilling prospects and acquisitions of producing properties. During 1996 and 1995, the Company paid Goodrich Oil Company $0 and $222,530 for the repayment of advances for business combination expenses and, $118,775 and $50,132 for general and administrative expenses. Amounts receivable from Goodrich Oil Company were $0 and $3,947 and payable to Goodrich Oil Company were $19,783 and $12,726 at December 31, 1996 and 1995. The Company paid $150,000 and $58,250 to the Company's Chairman, Mr. Henry Goodrich during 1996 and 1995, respectively, under a consulting agreement which expires in August, 2000. In connection with the business combination, Mr. Leo E. Bromberg, a partner and member of the management committee of La/Cal, received a finder's fee paid in the form of 494,131 shares of the Company's common stock. Such shares were included in the 19,765,226 shares of the Company's common stock received by the La/Cal Partners in connection with the transactions. NOTE M--NATURAL GAS AND CRUDE OIL COST DATA AND RESULTS OF OPERATIONS The following reflects the Company's capitalized costs related to natural gas and oil activities at December 31, 1996 and 1995:
1996 1995 ----------- ---------- Proved properties.................................. $17,908,303 15,271,879 Unproved properties................................ 1,221,209 990,154 ----------- ---------- 19,129,512 16,262,033 Less accumulated depreciation and depletion........ 4,885,687 2,209,924 ----------- ---------- Net property and equipment....................... $14,243,825 14,052,109 =========== ==========
The following table reflects certain data with respect to natural gas and oil property acquisitions, exploration and development activities:
YEAR ENDED DECEMBER 31, ---------------------------------- 1996 1995 1994 ---------- ---------- --------- Property acquisition costs Proved.............................. $ 7,068 10,680,422(a) 2,112,308 Unproved............................. 231,053 274,329 -- Exploration costs...................... 3,395,178 21,964 4,240 Development costs...................... 359,075 353,311 1,600,235
- -------- (a) Properties acquired from Patrick. 36 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 Results of operations for natural gas and oil producing activities follow:
YEAR ENDED DECEMBER 31, ------------------------------- 1996 1995 1994 ---------- ---------- --------- Sales to unaffiliated customers................ $7,687,748 5,477,208 4,995,663 Production costs (lease operating expense and taxes)........................................ 1,614,584 1,029,501 684,131 Exploration expenses........................... 1,149,240 193,159 4,240 Impairment of oil and gas properties........... -- 157,000 -- Depreciation, depletion and amortization....... 2,684,494 1,356,060 1,138,635 ---------- ---------- --------- 5,448,318 2,735,720 1,827,006 ---------- ---------- --------- Results of operations (before pro forma income taxes in 1995 and 1994)....................... $2,239,430 2,741,488 3,168,657 ========== Pro forma income taxes (Unaudited)............. 970,703 1,235,776 ---------- --------- Pro forma results of operations (Unaudited).... $1,770,785 1,932,881 ========== =========
La/Cal operated as a partnership since its formation to the date of the business combination (August 15, 1995) and, accordingly, did not directly pay income taxes. Pro forma income tax expense and the results of oil and gas operations as adjusted for pro forma income taxes are reflected above for that period in order to reflect the impact of income taxes as if La/Cal had been organized as a corporation. No income taxes have been reflected above for the Company for the periods subsequent to the August 15, 1995, business combination due to its estimate that net operating loss and statutory depletion loss carryforwards will be utilized to offset future taxable income. NOTE N--CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS Due to the nature of the industry the Company sells its oil and natural gas production to a limited number of purchasers and, accordingly, amounts receivable from such purchasers could be significant. Additionally, the Company receives net monthly payments from its partner, Mitchell Marketing Company, in its pipeline joint venture. Revenues from these sources as a percent of total revenues for the periods presented were as follows:
YEAR ENDED DECEMBER 31, ---------------- 1996 1995 1994 ---- ---- ---- Tenneco Gas Marketing Company.............................. -- -- 41% Seaber Corporation of Louisiana............................ 35% 55% 48% Mobil Oil Corporation...................................... 22% 16% -- Mitchell Marketing Company................................. 16% 9% --
37 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 NOTE O--PATRICK ASSETS AND LIABILITIES ACQUIRED On August 15, 1995, the Company recorded the combination transactions which effect was primarily the recording of the assets and liabilities of Patrick at their fair value. Such amounts were as follows: Cash overdraft............................................. $ (451,414) Marketable equity securities............................... 759,600 Accounts receivable........................................ 676,040 Prepaid expenses and other current assets.................. 12,745 Investment in Penske Corporation........................... 9,600,000 Investment in pipeline joint venture....................... 5,079,754 Property and equipment..................................... 10,780,422 Accounts payable........................................... (27,627) Accrued liabilities........................................ (1,438,070) Long term debt............................................. (10,626,118) Other liabilities.......................................... (703,000) ------------ $ 13,662,332 ============
The former common shareholders of Patrick received 19,765,226 shares of the Company's common stock and the former preferred shareholders of Patrick effectively received 1,175,000 shares of the Company's preferred stock in the business combination. As reflected in the consolidated statements of stockholders' equity, the issuance of such shares resulted in an increase in stockholders' equity of $12,573,900. NOTE P--SALE OF INVESTMENT IN PENSKE CORPORATION On September 18, 1995, the Company received $9,600,000 cash as redemption of its investment in the Penske Corporation. The proceeds were used to pay down the Company's long term debt along with related accrued interest. No gain or loss resulted from the transaction. NOTE Q--EXTRAORDINARY ITEM-EARLY EXTINGUISHMENT OF DEBT La/Cal's General Obligation Notes were paid off in connection with the business combination and the related unamortized debt financing costs in the amount of $482,906 were charged to operations as an extraordinary item, in the third quarter of 1995. NOTE R--PRO FORMA FINANCIAL RESULTS OF OPERATIONS (UNAUDITED) Selected results of operations on a pro forma basis as if the combination transactions had occurred on January 1, 1995 and January 1, 1994, respectively, are as follows:
FOR THE YEAR ENDED DECEMBER 31, ----------------------- 1995 1994 ----------- ----------- Revenues.......................................... $11,588,318 $15,836,988 Income before extraordinary item.................. 2,510,494 3,780,094 Net income........................................ 2,027,588 3,780,094 Income applicable to common stock................. 1,377,588 2,840,094 Income before extraordinary item per average common share..................................... .04 .07 Income per average common share................... $ .03 $ .07
38 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 The pro forma operations for the year ended December 31, 1995 contain a net gain on the sale of an investment which accounted for $1,563,762 of net income and $.04 income per share. The operations information for the year ended December 31, 1994 contains a net gain on sale of investments which accounted for $6,447,102 of net income and $ .16 income per share. Also the operations for the year ended December 31, 1994 has been adjusted to eliminate operations related to certain oil and gas properties sold by Patrick in December, 1994 in order to present comparable amounts. NOTE S--SUBSEQUENT EVENT (UNAUDITED) On January 31, 1997, the Company acquired the oil and gas properties of La/Cal Energy Partners II ("La/Cal II") and certain working interest owners for a purchase price of $16.5 million ("La/Cal II Acquisition"). The purchase price was comprised of $1.5 million cash, the assumption of $7.5 million La/Cal II long-term debt and the issuance of 750,000 shares of Series B convertible preferred stock of the Company ("Series B Preferred Stock") with an aggregate liquidation value of $7.5 million. In connection with the La/Cal II Acquisition, the Company increased its borrowing base to $22.5 million and borrowed an additional $9 million to payoff La/Cal II's debt and to pay the cash portion of the purchase price. The Series B Preferred Stock rate of 8.25% per annum and each share of Series B Preferred Stock is convertible into 8.92 shares of common stock. Such shares are redeemable by the Company after January 31, 2001 at $10.00 per share. Selected results of operations on a pro forma basis as if the Acquisition had occurred on January 1, 1996 are as follows: Revenues..................................................... $14,370,000 Net Income................................................... 1,715,000 Earnings applicable to common stock.......................... 451,000 Earnings per average common share............................ $ .01
NOTE T--SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED) The supplemental oil and gas reserve information that follows is presented in accordance with Statement of Financial Accounting Standards No. 69 ("SFAS No. 69"), Disclosures about Oil and Gas Producing Activities. The schedules provide users with a common base for preparing estimates of future cash flows and comparing reserves among companies. Additional background information follows concerning the schedules. The supplemental oil and gas reserve information that follows relates to properties owned by La/Cal subsequent to formation but prior to the business combination with Patrick (year ended December 31, 1994 and period form January 1, 1995 through August 14, 1995) and properties of the combined entities subsequent to the business combination with Patrick (period from August 15, 1995 through December 31, 1995 and year ended December 31, 1996). Additionally, certain pro forma reserve information is presented as of December 31, 1996 as if the acquisition described in Note S had been completed as of December 31, 1996. All of the subject reserves are located in the continental United States. Schedules 1 and 2--Estimated Net Proved Oil and Gas Reserves The Company's reserve information related to crude oil, condensate, and natural gas liquids and natural gas was compiled based on evaluations performed by two (but primarily Coutret and Associates, Inc.) engineering firms and the Company internally for the year ended December 31, 1996, by several engineering firms and the Company internally for the year ended December 31, 1995, and by Coutret and Associates, Inc., and H. J. Gruy and Associates, Inc. for the year ended December 31, 1994. 39 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 Many assumptions and judgmental decisions are required to estimate reserves. Quantities reported are considered reasonable, but they are subject to future revisions, some of which may be substantial, as additional information becomes available. Such additional knowledge may be gained as the result of reservoir performance, new geological and geophysical data, additional drilling, technological advancements, price changes, and other factors. Regulations published by the Securities and Exchange Commission define proved reserves as those volumes of crude oil, condensate, and natural gas liquids and natural gas that geological and engineering data demonstrate with reasonable certainty are recoverable from known reservoirs under existing economic and operating conditions. Proved developed reserves are those volumes expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves are those volumes expected to be recovered as a result of making additional investment by drilling new wells on acreage offsetting productive units or recompleting existing wells. Schedule 3--Standardized Measure of Discounted Future Net Cash Flows to Proved Oil and Gas Reserves SFAS No. 69 requires calculation of future net cash flows using a ten percent annual discount factor and year end prices, costs, and statutory tax rates, except for known future changes such as contracted prices and legislated tax rates. The calculated value of proved reserves is not necessarily indicative of either fair market value or present value of future cash flows because prices, costs, and governmental policies do not remain static; appropriate discount rates may vary; and extensive judgment is required to estimate the timing of production. Other logical assumptions would likely have resulted in significantly different amounts. Average crude oil prices received for oil and the average price received by well for natural gas, effective at the end of each year, were used for this calculation, and were $23.88 per Bbl and $4.17 per Mcf, respectively as of December 31, 1996, and $17.90 per Bbl and $2.01 per Mcf, respectively as of December 31, 1995. On a pro forma basis as of December 31, 1996 such average prices were $4.07 per Mcf and $23.53 per Bbl. Oil and gas prices have subsequently declined from December 31, 1996 levels. No income tax effect has been provided in the amounts below as of December 31, 1994 due to the fact La/Cal was a partnership with all income taxes being the responsibility of the partners themselves. Schedule 3 also presents a summary of the principal reasons for change in the standard measure of discounted future net cash flows for each of the three years in the period ended December 31, 1996. 40 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 SCHEDULE 1--ESTIMATED NET PROVED GAS RESERVES (MCF)
HISTORICAL PRO FORMA ---------------------------------- ---------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 1996 1995 1994 1996 ---------- ---------- ---------- ---------- Proved: Balance, beginning of period. 18,887,189 21,983,004 17,550,038 Revisions of previous estimates................... (3,995,021) (5,727,528) (702,870) Purchase of minerals in place....................... 3,594 5,324,607 4,380,429 Extensions, discoveries, and other additions............. 4,961,754 375,800 3,141,537 Production................... (1,618,090) (2,213,923) (2,386,130) Sales of minerals in place... (54,688) (854,771) -- ---------- ---------- ---------- Balance, end of period....... 18,184,738 18,887,189 21,983,004 21,495,027 ========== ========== ========== Proved developed: Beginning of period.......... 13,815,905 18,839,882 13,729,911 End of period................ 13,911,003 13,815,905 18,839,882 16,785,503 SCHEDULE 2--ESTIMATED NET PROVED OIL RESERVES (BARRELS) HISTORICAL PRO FORMA ---------------------------------- ---------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 1996 1995 1994 1996 ---------- ---------- ---------- ---------- Proved: Balance, beginning of period. 940,147 523,722 209,941 Revisions of previous estimates................... 44,689 (236,934) (23,246) Purchase of minerals in place....................... -- 938,465 47,482 Extensions, discoveries, and other additions............. 278,129 3,389 326,033 Production................... (165,673) (102,731) (36,488) Sale of minerals in place.... (47,082) (185,764) -- ---------- ---------- ---------- Balance, end of period....... 1,050,210 940,147 523,722 2,652,114 ========== ========== ========== Proved, developed: Beginning of period.......... 920,557 504,908 174,641 End of period................ 969,868 920,557 504,908 2,158,609 SCHEDULE 3-- STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATED TO PROVED OIL AND GAS RESERVES HISTORICAL PRO FORMA ---------------------------------- ---------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 1996 1995 1994 1996 ---------- ---------- ---------- ---------- (IN THOUSANDS) Future cash inflows............ $ 96,668 51,615 44,878 142,112 Future production and development costs............. (11,031) (8,267) (3,803) (16,391) Future income tax expense...... (13,624) (4,150) -- (20,462) ---------- ---------- ---------- ---------- Future net cash flows.......... 72,013 39,198 41,075 105,259 10% annual discount for estimated timing of cash flows......................... (24,656) (12,316) (13,559) (36,997) ---------- ---------- ---------- ---------- Standardized measure of discounted future net cash flows......................... $ 47,357 26,882 27,516 68,262 ========== ========== ========== ==========
41 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 The following are the principal sources of change in the standardized measure of discounted net cash flows for the years shown:
YEAR ENDED DECEMBER 31, ----------------------- 1996 1995 1994 ------- ------ ------ (IN THOUSANDS) Net changes in prices and production costs related to future production.................................... $24,061 829 (2,978) Sales and transfers of oil and gas produced, net of production costs..................................... (6,073) (4,448) (4,312) Net change due to revisions in quantity estimates..... (8,730) (8,848) (921) Net change due to extensions, discoveries and improved recovery............................................. 15,532 521 5,583 Net change due to purchase and sales of minerals-in- place................................................ (792) 11,090 5,105 Development costs incurred during the period.......... 359 -- 1,600 Net change in income taxes............................ (6,524) (3,475) -- Accretion of discount................................. 3,036 2,752 2,143 Change in production rates (timing) and other......... (394) 945 (137) ------- ------ ------ $20,475 (634) 6,083 ======= ====== ======
42 GOODRICH PETROLEUM CORPORATION CONSOLIDATED QUARTERLY INCOME INFORMATION (UNAUDITED)
FIRST SECOND THIRD FOURTH 1996 QUARTER QUARTER QUARTER QUARTER TOTAL ---- ---------- --------- --------- --------- --------- Revenues................ $2,650,788 2,162,719 2,193,449 2,850,855 9,857,811 Costs and Expenses...... 2,374,423 2,445,198 2,082,413 2,574,332 9,476,366 Net income (loss)....... 276,365 (282,479) 111,036 276,523 381,445 Preferred stock dividends.............. 162,230 162,190 160,190 160,190 644,800 Income (loss) applicable to common stock........ 114,135 (444,669) (49,154) 116,333 (263,355) Earnings (loss) per average common share... $ -- (.01) -- -- (.01) 1995 ---- Revenues................ $1,133,420 1,047,620 1,549,524 2,443,848 6,174,412 Costs and expenses...... 675,368 568,837 1,295,987 2,496,909 5,037,101 Income before extraordinary item..... 458,052 478,783 253,537 (53,061) 1,137,311 Extraordinary item-- early extinguishment of debt................... -- -- 482,906 -- 482,906 Net income (loss)....... 458,052 478,783 (229,369) (53,061) 654,405 Preferred stock dividends.............. 107,960 146,972 254,932 Income (loss) applicable to common stock........ 458,052 478,783 (337,329) (200,033) 399,473 Earnings (loss) per average common share... * * * $ (-) *
- -------- * Earnings per share information not presented due to the entity not being in corporate form during the applicable periods. See pro forma presentation of earnings per share in the statement of operations. As noted in Note C to the consolidated financial statements, the Company's operational financial results reflect the operations solely of La/Cal for the periods prior to August 15, 1995, whereas such results reflect the operations of the combined entities for the periods subsequent to August 15, 1995. Accordingly, the fourth quarter of 1995 amounts for revenues and costs and expenses reflect the operations of the combined entities where as such amounts for the third quarter of 1995 reflect the operations solely of La/Cal from July 1 through August 14, 1995 plus the operations of the combined entities from August 15, 1995 through September 30, 1995. The Company's quarterly revenues and costs and expenses since August 15, 1995 are impacted by the fact that the Company's pipeline joint venture contract requires higher revenue payments in November through March versus April through October. Accordingly, the Company records the revenues as earned and matches related amortization with such revenues. Related revenue and amortization amounts for the fourth quarter of 1995 and the first, second, third and fourth quarters of 1996 were approximately $459,000, $582,000, $244,000, $267,000 and $445,000 and $289,000, $392,000 $174,000, $174,000 and $319,000 respectively. The second quarter 1996 cost and expense amount contains costs amounting to $438,000 related to dry holes during the quarter. The fourth quarter 1996 cost and expense amount contains $244,000 in accelerated depletion on three wells. The fourth quarter 1995 cost and expense amount contains 1) a charge for impairment of oil and gas properties of $157,000, 2) a provision for state franchise taxes of approximately $60,000 and 3) dry hole costs of approximately $50,000. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None 43 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. * ITEM 11. EXECUTIVE COMPENSATION. * ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. * ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. * *Reference is made to information under the captions "Election of Directors", "Executive Compensation", "Security Ownership of Certain Beneficial Owners and Management", and "Certain Relationships and Related Transactions", in the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders. 44 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)1.Financial Statements
PAGE ----- The following consolidated financial statements of Goodrich Petroleum Corporation are included in Part II, Item 8: Independent Auditors' Report...................................... 32 Consolidated Balance Sheets--December 31, 1996 and 1995........... 33-34 Consolidated Statements of Operations--Years ended December 31, 1996, 1995 and 1994.............................................. 35 Consolidated Statements of Cash Flows--Years ended December 31, 1996, 1995 and 1994.............................................. 36 Consolidated Statements of Stockholders' Equity--Years ended December 31, 1996, 1995 and 1994................................. 37 Notes to Consolidated Financial Statements--Years ended December 31, 1996, 1995 and 1994.......................................... 38-54 Consolidated Quarterly Income Information (Unaudited)............. 55
2.Financial Statement Schedules The schedules for which provision is made in Regulation S-X are not required under the instructions contained therein, are inapplicable, or the information is included in the footnotes to the financial statements. (b)Reports on Form 8-K None (c)Exhibits 2. Exchange Agreement between La/Cal Energy Partners II and Certain Other Parties Named Herein, Goodrich Acquisition II, Inc. and Goodrich Petroleum Corporation (Incorporated by reference to Exhibit 2 of the Company's Report on Form 8-K dated October 22, 1996) 3. (i) Amended and Restated Certificate of Incorporation of the Company dated August 15, 1995, and filed with the Secretary of State of the State of Delaware on August 15, 1995 (Incorporated by reference to Exhibit 3.1 of the Company's Quarterly Report filed on Form 10-Q for the three months ended September 30, 1995). (ii)Bylaws of the Company, as amended and restated (Incorporated by reference to Exhibit 3.2 of the Company's Quarterly Report filed on Form 10-Q for the three months ended September 30, 1995). 4.1 Credit Agreement between Goodrich Petroleum Company of Louisiana and Compass Bank-Houston dated August 15, 1995 and First Amendment thereto dated December 15, 1995. (Incorporated by reference to Exhibit 4.1 of the Company's Annual Report filed on Form 10-K for the year ended December 31, 1995) 4.2 Second Amendment to Credit Agreement between Goodrich Petroleum Company of Louisiana and Compass Bank dated June 1, 1996 (Incorporated by reference to Exhibit 4 of the Company's Quarterly report filed on Form 10-Q for the three months ended June 30, 1996.) 4.3 Third Amendment to Credit Agreement between Goodrich Petroleum Company of Louisiana, GPC, Inc. of Louisiana and Compass Bank dated January 31, 1997. 4.4 Specimen Common Stock Certificate. (Incorporated by reference to Exhibit 4.6 of the Company's Registration Statement filed February 20, 1996 on Form S-8 (File No. 33-01077)). 4.5 Certificate of Designations of Series B Convertible Preferred Stock of Goodrich Petroleum Corporation. 10.1 Goodrich Petroleum Corporation 1995 Stock Option Plan (Incorporated by reference to Exhibit 10.21 to the Company's Registration Statement filed June 13, 1995 on Form S-4 (File No. 33-58631)).
45 10.2 Goodrich Petroleum Corporation 1995 Nonemployee Director Stock Option Plan (Incorporated by reference to Exhibit 10.22 to the Company's Registration Statement filed June 13, 1995 on Form S-4 (File 33-58631)). 10.3 Patrick Petroleum Company 1993 Stock Option Plan (Incorporated by reference to Exhibit 10.11 to the Company's Registration Statement filed June 13, 1995 on Form S-4 (File No. 33-58631)). 10.4 Form of Joint Participation Agreement between the Company and Goodrich Oil Company (Incorporated by reference to Exhibit 10.18 to the Company's Registration Statement filed June 13, 1993 on Form S-4 (File No. 33- 58631)). 10.5 Form of Marketing Agreement between the Company and Natural Gas Ventures, L.L.C. (Incorporated by reference to Exhibit 10.19 to the Company's Registration Statement filed June 13, 1993 on Form S-4 (File No. 33-58631)). 10.6 Natural Gas Marketing Joint Venture Agreement between Seaber Corporation and Natural Gas Ventures, L.L.C. (Incorporated by reference to Exhibit 10.20 to the Company's Registration Statement filed June 13, 1993 on Form S-4 (File No. 33-58631)). 10.7 Form of Consulting Services Agreement between the Company and Henry Goodrich (Incorporated by reference to Exhibit 10.23 to the Company's Registration Statement filed June 13, 1993 on Form S-4 (File No. 33- 58631)). 10.8 Form of Employment Agreement between the Company and Walter G. Goodrich (Incorporated by reference to Exhibit 10.24 to the Company's Registration Statement filed June 13, 1993 on Form S-4 (File No. 33- 58631)). 10.9 Consulting Agreement with U.E. Patrick (Incorporated by reference to Exhibit 10.25 to the Company's Registration Statement filed June 13, 1993 on Form S-4 (File No. 33-58631)). 10.10 Consulting Services Agreement between Leo E. Bromberg and Goodrich Petroleum Corporation (Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report filed on Form 10-Q for the three months ended September 30, 1995). 21 Subsidiaries of the Registrant 23 Consent of KPMG Peat Marwick LLP 27 Financial Data Schedule, included elsewhere herein
46 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. GOODRICH PETROLEUM CORPORATION (Registrant) /s/ Walter G. Goodrich Date: March 20, 1997 By:__________________________________ Walter G. Goodrich, President, Chief Executive Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED: Date: March 20, 1997
SIGNATURE TITLE --------- ----- /s/ Walter G. Goodrich - ------------------------------------------- Walter G. Goodrich Chief Executive Officer and Director (Principal Executive Officer) /s/ Roland L. Frautschi - ------------------------------------------- Roland L. Frautschi Senior Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer) /s/ Glynn E. Williams, Jr. - ------------------------------------------- Glynn E. Williams, Jr. Vice President (Principal Accounting Officer)
/s/ Sheldon Appel - ------------------------------------------- Sheldon Appel Director /s/ Basil M. Briggs - ------------------------------------------- Basil M. Briggs Director /s/ Benjamin F. Edwards, II - ------------------------------------------- Benjamin F. Edwards, II Director /s/ Henry Goodrich - ------------------------------------------- Henry Goodrich Director - ------------------------------------------- James R. Jenkins Director - ------------------------------------------- Wayne G. Kees Director - ------------------------------------------- John C. Napley Director /s/ J. Michael Watts - ------------------------------------------- J. Michael Watts Director - ------------------------------------------- Arthur A. Seeligson Director
47 EX-4.3 2 THIRD AMENDMENT TO CREDIT AGREEMENT EXHIBIT 4.3 THIRD AMENDMENT TO CREDIT AGREEMENT between GOODRICH PETROLEUM COMPANY OF LOUISIANA GPC, INC. OF LOUISIANA and COMPASS BANK Effective as of January 31, 1997 THIRD AMENDMENT TO CREDIT AGREEMENT ----------------------------------- This THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is made and entered into effective as of January 31, 1997, by and between GOODRICH PETROLEUM COMPANY OF LOUISIANA ("GPCL"), a Nevada corporation, formerly known as American National Petroleum Company, successor by merger to Patrick Petroleum Corporation of Michigan, a Michigan corporation GPC, INC. OF LOUISIANA ("GPC"), a Nevada corporation (collectively with GPCL, the "Borrower"), GOODRICH PETROLEUM CORPORATION, a Delaware corporation, ("Goodrich), and COMPASS BANK, a Texas state chartered banking corporation formerly known as Compass Bank--Houston (the "Lender"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, GPCL, the Lender, and Goodrich are parties to the Credit Agreement dated August 16, 1995, as amended by First Amendment to Credit Agreement dated as of December 15, 1995, and Letter Amendment dated March 26, 1996, and Second Amendment to Credit Agreement dated as of June 1, 1996, and Letter Amendment dated November 12, 1996 (as amended, the "Agreement"), pursuant to which the Lender has extended credit to GPCL and Goodrich has guaranteed the payment and performance of certain indebtedness and other obligations of GPCL to the Lender; and WHEREAS, the parties hereto desire to amend the Agreement as hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in the Agreement and this Amendment, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND INTERPRETATION ------------------------------ 1.1 Terms Defined Above. As used herein, each of the terms "Agreement," "Amendment," "Borrower," "GPC", "GPCL", "Goodrich," and "Lender" shall have the meaning assigned to such term hereinabove. 1.2 Terms Defined in Agreement. As used herein, each term defined in the Agreement shall have the meaning assigned thereto in the Agreement, unless expressly provided herein to the contrary. 1.3 References. References in this Amendment to Article or Section numbers shall be to Articles and Sections of this Amendment, unless expressly stated to the contrary. References in this Amendment to "hereby," "herein," "hereinafter," "hereinabove," "hereinbelow," "hereof," and "hereunder" shall be to this Amendment in its entirety and not only to the particular Article or Section in which such reference appears. 1.4 Articles and Sections. This Amendment, for convenience only, has been divided into Articles and Sections and it is understood that the rights, powers, privileged, duties, and other legal relations of the parties hereto shall be determined from this Amendment as an entirety and without regard to such division into Articles and Sections and without regard to headings prefixed to such Articles and Sections. 1.5 Number and Gender. Whenever the context requires, reference herein made to the single number shall be understood to include the plural and likewise the plural shall be understood to include the singular. Words denoting sex shall be construed to include the masculine, feminine, and neuter, when such construction is appropriate, and specific enumeration shall not exclude the general, but shall be construed as cumulative. Definitions of terms defined in the singular and plural shall be equally applicable to the plural or singular, as the case may be. ARTICLE II AMENDMENT TO AGREEMENT ---------------------- The Agreement is hereby amended as follows: 2.1 Amendment of Section 1.2. Section 1.2 of the Agreement is hereby amended as follows: The following definition is amended to read as follows: "Commitment Amount" shall mean the amount of the Borrowing Base as set forth in Section 2.7(a)". 2.2 Amendment of Section 2.7(a). The first sentence of Section 2.7(a) of the Agreement is hereby amended to read as follows: "Effective December 1, 1996, the Borrowing Base shall be $12,300,000 until June 1, 1997. Effective upon GPC's acquisition of the oil and gas properties of La/Cal Energy Partners II and certain Oil and Gas Properties identified as "Group A Properties" in the reserve report forwarded to the Lender, the Borrowing Base shall be increased to $22,500,000 until June 1, 1997. " 2.3 Amendment of Section 6.11. Also effective upon such acquisition GPC will become a Co-Borrower and will pledge such Oil and Gas Properties to the Lender and Section 6.11 shall be amended to read as follows: 2 "6.11 Consolidated Tangible Net Worth. Permit Consolidated Tangible Net Worth at any time to be less than $14,500,000 plus, for all fiscal quarters ending subsequent to December 31, 1996, 50% of positive Consolidated Net Income and 100% of all cash equity proceeds, net of expenses incurred in connetion with the offering transaction." ARTICLE III CONDITIONS ---------- The obligation of the Lender to amend the Agreement as provided herein is subject to the fulfillment of the following conditions precedent: 3.1 Receipt of Documents and Other Items. The Lender shall have received, reviewed, and approved the following documents and other items, appropriately executed when necessary and in form and substance satisfactory to the Lender: (a) multiple counterparts of this Amendment executed by the Borrower and Goodrich, as requested by the Lender; (b) a Mortgage from GPC, Inc. of Louisiana pledging Oil & Gas Properties reviewed by the Lender and used for increasing the Borrowing Base; (c) new Guaranty of Goodrich Petroleum Corporation; and (d) new Note executed by the Borrower. 3.2 Accuracy of Representations and Warranties. The representations and warranties contained in Article IV of the Agreement and in any other Loan Document shall be true and correct, except as affected by the transactions contemplated in the Agreement and this Amendment. 3.3 Matters Satisfactory to Lender. All matters incident to the consummation of the transactions contemplated hereby shall be satisfactory to the Lender. ARTICLE IV REPRESENTATIONS AND WARRANTIES ------------------------------ Each of the Borrower and Goodrich hereby expressly re-makes, in favor of the Lender, all of the representations and warranties set forth in Article IV of the Agreement and 3 set forth in any other Loan Document to which it is a party, and represents and warrants that all such representations and warranties remain true and unbreached, except as affected by the transactions contemplated in the Agreement and this Amendment. ARTICLE V RATIFICATION ------------ Each of the parties hereto does hereby adopt, ratify, and confirm the Agreement and the other Loan Documents to which it is a party, in all things in accordance with the terms and provisions thereof, as amended by this Amendment and the documents executed in connection herewith. ARTICLE VI MISCELLANEOUS ------------- 6.1 Scope of Amendment. The scope of this Amendment is expressly limited to the matters addressed herein and this Amendment shall not operate as a waiver of any past, present, or future breach, Default, or Event of Default under the Agreement, except to the extent, if any, that any such breach, Default, or Event of Default is remedied by the effect of this Amendment. 6.2 Agreement as Amended. All references to the Agreement in any document heretofore or hereafter executed in connection with the transactions contemplated in the Agreement shall be deemed to refer to the Agreement as amended by this Amendment. 6.3 Parties in Interest. All provisions of this Amendment shall be binding upon and shall inure to the benefit of the Borrower, the Lender, Goodrich, and their respective successors and permitted assigns. 6.4 Rights of Third Parties. All provisions herein are imposed solely and exclusively for the benefit of the parties hereto and their respective successors and permitted assigns. No other Person shall have standing to require satisfaction of such provisions in accordance with their terms and any or all of such provisions may be freely waived in whole or in part by the Lender at any time if in its sole discretion it deems it advisable to do so. 6.5 Entire Agreement. THIS AMENDMENT CONSTITUTES THE ENTIRE AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND SUPERSEDES ANY PRIOR AGREEMENT, WHETHER WRITTEN OR ORAL, AMONG SUCH PARTIES REGARDING THE SUBJECT HEREOF. FURTHERMORE IN THIS REGARD, THIS AMENDMENT, THE AGREEMENT, AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE PARTIES THERETO AND 4 MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES. 6.6 Governing Law. THIS AMENDMENT AND ALL ISSUES ARISING IN CONNECTION HEREWITH AND THE TRANSACTIONS CONTEMPLATED HEREBY SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW. 6.7 Jurisdiction and Venue. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO OR FROM THIS AMENDMENT, THE AGREEMENT, OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE SOLE DISCRETION AND ELECTION OF THE LENDER, IN COURTS HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. EACH OF THE BORROWER AND GOODRICH HEREBY SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST IT BY THE LENDER IN ACCORDANCE WITH THIS SECTION. 6.8 Waiver of Rights to Jury Trial. EACH OF THE BORROWER, GOODRICH, AND THE LENDER HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY, AND UNCONDITIONALLY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, COUNTERCLAIM, OR OTHER LITIGATION THAT RELATES TO OR ARISES OUT OF THIS AMENDMENT, THE AGREEMENT, OR ANY OTHER LOAN DOCUMENT OR THE ACTS OR OMISSIONS OF THE LENDER IN THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS AMENDMENT, THE AGREEMENT, OR ANY OTHER LOAN DOCUMENT OR OTHERWISE WITH RESPECT THERETO. THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THIS AMENDMENT. IN WITNESS WHEREOF, this Amendment is executed effective as of the date first hereinabove written. BORROWER: GOODRICH PETROLEUM COMPANY OF LOUISIANA By: /s/ Walter G. Goodrich ---------------------------- Walter G. Goodrich President 5 GPC, INC. OF LOUISIANA By: /s/ Walter G. Goodrich --------------------------- Walter G. Goodrich President GUARANTOR: GOODRICH PETROLEUM CORPORATION By: /s/ Walter G. Goodrich ---------------------------- Walter G. Goodrich President COMPASS BANK By: /s/ Dorothy Marchand Wilson ----------------------------- Dorothy Marchand Wilson Vice President 6 EX-4.5 3 CERTIFICATE OF DESIGNATION EXHIBIT 4.5 CERTIFICATE OF DESIGNATIONS OF SERIES B CONVERTIBLE PREFERRED STOCK ($1.00 Par Value) OF GOODRICH AQUISITION II, INC. ___________________ Pursuant to Section 151(g) of the Delaware General Corporation Law ___________________ GOODRICH ACQUISITION II, INC., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), HEREBY CERTIFIES that the following resolutions were duly adopted by the Board of Directors of the Corporation pursuant to authority conferred upon the Board of Directors by the provisions of the Restated Certificate of Incorporation of the Corporation, as amended (the "Certificate of Incorporation"), which authorizes the issuance of up to 10,000,000 shares of preferred stock, $1.00 par value per share ("Preferred Stock"), by unanimous written consent of the Board of Directors on January 30, 1997. The Board of Directors on January 30, 1997 adopted the following resolution authorizing the issuance of a series of preferred stock: RESOLVED, that the issuance of a series of preferred stock, $1.00 par value per share, which shall consist of 750,000 of the 10,000,000 shares of preferred stock which the Corporation now has authority to issue, be, and the same hereby is, authorized, and the powers, designations, preferences and relative participating, optional and other special rights of the shares of such series, and the qualifications, limitations and restrictions thereof are hereby fixed as follows: 1. Number of Shares and Designation. Seven hundred and fifty thousand (750,000) shares of the Preferred Stock, $1.00 par value per share, of the Corporation are hereby constituted as a series of the preferred stock designated as "Series B Convertible Preferred Stock." 2. Definitions. For purposes of the Series B Convertible Preferred Stock, the following terms shall have the meanings indicated: "Board of Directors" shall mean the Board of Directors of the Corporation or any committee authorized by such Board of Directors to perform any of its responsibilities with respect to the Series B Convertible Preferred Stock. "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the City of New York are authorized or obligated by law or executive order to close. "Closing Price" with respect to a particular security on any day shall mean on such day the last reported sales price, regular way, for such security or, in case no sale takes place on such day, the average of the reported closing bid and asked prices, regular way, for such security in either case as reported on the New York Stock Exchange, on the principal national securities exchange on which such security is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ National Market System") or, if such security is not quoted on the NASDAQ National Market System, the average of the closing bid and asked prices for such security in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for such security on each such date shall not have been reported by NASDAQ, the average of the bid and asked prices for such security for such day as furnished by any National Association of Securities Dealers, Inc. ("NASD") member firm regularly making a market in such security selected for such purpose by the board of directors or similar governing body of the issuer of such security or, if no such quotations are available, the fair market value of such security furnished by any NASD member firm selected from time to time by the board of directors or similar governing body of the issuer of such security for that purpose. "Common Stock" shall mean the Common Stock of the Corporation, par value $.20 per share. "Conversion Price" shall mean the conversion price per share of Common Stock into which the Series B Convertible Preferred Stock is convertible, as such Conversion Price may be adjusted pursuant to Section 7 hereof. The initial Conversion Price will be $1.12 (equivalent to the rate of 8.92 shares of Common Stock for each share of Series B Preferred Stock). "Current Market Price" per share of Common Stock on any date shall mean the average of the daily Closing Prices for the 30 consecutive Trading Dates commencing 45 Trading Dates before the date of determination. "Defaulted Preferred Stock" shall have the meaning set forth in paragraph (a) of Section 9 hereof. "dividend payment date" shall have the meaning set forth in paragraph (a) of Section 3 hereof. "dividend payment record date" shall have the meaning set forth in paragraph (a) of Section 3 hereof. "Dividend Periods" shall mean quarterly dividend periods commencing on the first day of January, April, July and October of each year and ending on and including the day preceding the first day of the next succeeding Dividend Period (other than the initial Dividend Period which shall commence on the Issue Date and end on and include March 31, 1997). "Issue Date" shall mean the first date on which shares of Series B Preferred Stock are issued. -2- "Person" shall mean any individual, firm, partnership, corporation or other entity, and shall include any successor (by merger or otherwise) of such entity. "Preferred Stock" means the series of Preferred Stock of the Corporation designated herein as the Series B Convertible Preferred Stock. "Redemption Price" shall have the meaning set forth in paragraph (a) of Section 5 hereof. "Securities" shall have the meaning set forth in paragraph (d)(iii) of Section 7 hereof. "Trading Date" with respect to any security means (i) if such security is listed or admitted for trading on the New York Stock Exchange or another national securities exchange, a day on which such exchange is open for trading, (ii) if such security is quoted on the NASDAQ National Market System, or any similar system of automated dissemination of quotations of securities prices, a day on which trades may be made on such system, (iii) if not quoted as described in clause (ii), a day on which quotations are reported by the National Quotation Bureau Incorporated or (iv) otherwise, any Business Day. "Transaction" shall have the meaning set forth in paragraph (e) of Section 7 hereof. "Transfer Agent" means Harris Trust and Savings Bank, Chicago, Illinois or such other agent or agents of the Corporation as may be designated by the Board of Directors as the transfer agent or conversion agent for the Series B Preferred Stock. 3. Dividends. (a) The holders of shares of the Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available therefor, cumulative cash dividends at an annual rate of $0.825 per share of Preferred Stock. Such dividends shall be cumulative from the Issue Date, whether or not in any Dividend Period or Periods there shall be funds of the Corporation legally available for the payment of such dividends and whether or not such dividends are declared, and shall be payable quarterly, when, as and if declared by the Board of Directors, on March 31, June 30, September 30 and December 31 in each year (each a "dividend payment date"), commencing on March 31, 1997. If any dividend payment date shall be on a day other than a Business Day, then the dividend payment date shall be on the next succeeding Business Day. Each such dividend shall be payable in arrears to the holders of record of shares of the Preferred Stock, as they appear on the stock records of the Corporation at the close of business on those dates (each such date, a "dividend payment record date"), not less than 10 days nor more than 60 days preceding the dividend payment dates thereof, as shall be fixed by the Board of Directors. Dividends on the Preferred Stock shall accrue (whether or not declared) on a daily basis from the Issue Date and accrued dividends for each Dividend Period shall accumulate to the extent not paid on the dividend payment date first following the Dividend Period for which they accrue. As used herein, the term "accrued" with respect to dividends includes both accrued and accumulated dividends. Accrued and unpaid dividends for any past Dividend Periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on such date, not exceeding 45 days preceding the payment date thereof, as may be fixed by the Board of Directors. -3- (b) The amount of dividends payable for each full Dividend Period for the Preferred Stock shall be computed by dividing the annual dividend amount by four (rounded down to the nearest cent). The amount of dividends payable for the initial Dividend Period on the Preferred Stock and any other period shorter or longer than a full Dividend Period on the Preferred Stock shall be computed on the basis of a 360-day year consisting of twelve 30-day months. Holders of shares of Preferred Stock called for redemption on a redemption date falling between the close of business on a dividend payment record date and the opening of business on the corresponding dividend payment date shall, in lieu of receiving such dividend on the dividend payment date fixed therefor, receive such dividend payment together with all other accrued and unpaid dividends on the date fixed for redemption (unless such holder converts such shares in accordance herewith). Holders of shares of Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or securities, in excess of cumulative dividends, as herein provided, on the Preferred Stock. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Preferred Stock which are in arrears. (c) So long as any shares of the Preferred Stock are outstanding, no dividends, except as described in the next succeeding sentence, shall be declared or paid or set apart for payment on any class or series of stock of the Corporation ranking, as to dividends, on a parity with the Preferred Stock, for any period unless full cumulative dividends on all outstanding shares of Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment for all Dividend Periods terminating on or prior to the date of payment, or setting apart for payment, of such full cumulative dividends on such parity stock. When dividends are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, upon the shares of the Preferred Stock and any other class or series of stock ranking on a parity as to dividends with the Preferred Stock, all dividends declared upon shares of the Preferred Stock and all dividends declared upon such other stock shall be declared and paid pro rata so that the amounts of dividends per share declared and paid on the Preferred Stock and such other stock shall in all cases bear to each other the same ratio that accrued and unpaid dividends per share on the shares of the Preferred Stock and on such other stock bear to each other. (d) So long as any shares of the Preferred Stock are outstanding, no other stock of the Corporation ranking on a parity with the Preferred Stock as to dividends or upon liquidation, dissolution or winding up shall be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund or otherwise for the purchase or redemption of any shares of any such stock) by the Corporation (except by conversion into or exchange for stock of the Corporation ranking junior to the Preferred Stock as to dividends and upon liquidation, dissolution or winding up) unless (i) the full cumulative dividends, if any, accrued on all outstanding shares of the Preferred Stock shall have been paid or set apart for payment for all past Dividend Periods and (ii) sufficient funds shall have been set apart for the payment of the dividend for the current Dividend Period with respect to the Preferred Stock. (e) So long as any shares of the Preferred Stock are outstanding, no dividends (other than dividends or distributions paid in shares of Common Stock or other stock ranking junior to the Preferred Stock as to dividends and upon liquidation, dissolution or winding up) shall be declared or paid or set apart for payment and no other distribution shall be declared or made or set apart for payment, in each case upon the Common Stock or any other stock of the Corporation ranking junior to the Preferred Stock as to dividends or upon liquidation, dissolution or winding up, nor shall any -4- Common Stock nor any other such stock of the Corporation ranking junior to the Preferred Stock as to dividends or upon liquidation, dissolution or winding up be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund or otherwise for the purchase or redemption of any shares of any such stock) by the Corporation (except by conversion into or exchange for stock of the Corporation ranking junior to the Preferred Stock as to dividends and upon liquidation, dissolution or winding up) unless, in each case (i) the full cumulative dividends, if any, accrued on all outstanding shares of the Preferred Stock and any other stock of the Corporation ranking on a parity with the Preferred Stock as to dividends shall have been paid or set apart for payment for all past Dividend Periods and all past dividend periods with respect to such other stock and (ii) sufficient funds shall have been set apart for the payment of the dividend for the current Dividend Period with respect to the Preferred Stock and for the current dividend period with respect to any other stock of the Corporation ranking on a parity with the Preferred Stock as to dividends. 4. Liquidation Preference. (a) In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, before any payment or distribution of the assets of the Corporation (whether capital or surplus) shall be made to or set apart for the holders of Common Stock or any other series or class or classes of stock of the Corporation ranking junior to the Preferred Stock upon liquidation, dissolution or winding up, the holders of the shares of Preferred Stock shall be entitled to receive $10.00 per share plus an amount per share equal to all dividends (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. No payment on account of any liquidation, dissolution or winding up of the Corporation shall be made to the holders of any class or series of stock ranking on a parity with the Preferred Stock in respect of the distribution of assets upon dissolution, liquidation or winding up unless there shall likewise be paid at the same time to the holders of the Preferred Stock like proportionate amounts determined ratably in proportion to the full amounts to which the holders of all outstanding shares of Preferred Stock and the holders of all outstanding shares of such parity stock are respectively entitled with respect to such distribution. If, upon any liquidation, dissolution or winding up of the Corporation, the assets of the Corporation, or proceeds thereof, distributable among the holders of the shares of Preferred Stock shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other shares of stock ranking, as to liquidation, dissolution or winding up, on a parity with the Preferred Stock, then such assets, or the proceeds thereof, shall be distributed among the holders of shares of Preferred Stock and any such other stock ratably in accordance with the respective amounts which would be payable on such shares of Preferred Stock and any such other stock if all amounts payable thereon were paid in full. For the purposes of this Section 4, neither a consolidation or merger of the Corporation with one or more corporations or other entities nor a sale, lease, exchange or transfer of all or any part of the Corporation's assets for cash, securities or other property shall be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary. (b) Subject to the rights of the holders of shares of any series or class or classes of stock ranking on a parity with or prior to the Preferred Stock upon liquidation, dissolution or winding up, upon any liquidation, dissolution or winding up of the Corporation, after payment shall have been made in full to the holders of Preferred Stock, as provided in this Section 4, any other series or class or classes of stock ranking junior to the Preferred Stock upon liquidation, dissolution or winding up shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and -5- all assets remaining to be paid or distributed, and the holders of Preferred Stock shall not be entitled to share therein. (c) Written notice of any liquidation, dissolution or winding up of the Corporation, stating the payment date or dates when and the place or places where the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage prepaid, not less than 30 days prior to any payment date stated therein, to the holders of record of the Preferred Stock at their respective addresses as the same shall appear on the stock records of the Corporation. 5. Redemption at the Option of the Corporation. (a) Preferred Stock may not be redeemed by the Corporation prior to the fourth anniversary of the Issue Date. On or after such date the Corporation, at its option, may redeem the shares of Preferred Stock, in whole or in part, out of funds legally available therefor, at any time or from time to time, subject to the notice provisions and provisions for partial redemption described below, at the redemption price of $10.00 per share, plus an amount equal to accrued and unpaid dividends, if any, to (and including) the date fixed for redemption, whether or not earned or declared (the "Redemption Price"). (b) In the event the Corporation shall redeem shares of Preferred Stock, notice of such redemption shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed, at such holder's address as the same appears on the stock records of the Corporation. Each such notice shall state: (i) the redemption date; (ii) the number of shares of Preferred Stock to be redeemed and, if less than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the Redemption Price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; (v) the then current Conversion Price; and (vi) that dividends on the shares to be redeemed shall cease to accrue on such redemption date. If, on the date fixed for redemption, funds necessary for the redemption shall be available therefor and shall have been irrevocably deposited or set aside, then, notwithstanding that the certificates evidencing any shares of Preferred Stock so called for redemption shall not have been surrendered, the dividends with respect to the shares so called shall cease to accrue after the date fixed for redemption, such shares shall no longer be deemed outstanding, all rights of the holders of such shares as stockholders of the Company shall cease, and all rights whatsoever with respect to the shares so called for redemption (except the right of the holders to receive the Redemption Price without interest upon surrender of their certificates therefor) shall terminate. Upon surrender in accordance with said notice of the certificates for any such shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the applicable Redemption Price aforesaid. If fewer than all the outstanding shares of Preferred Stock are to be redeemed, shares to be redeemed shall be selected by the Corporation from outstanding shares of Preferred Stock not previously called for redemption by lot or pro rata (as near as may be) or by any other method determined by the Board of Directors of the Corporation in its sole discretion to be equitable. If fewer than all the shares represented by any certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. -6- In the event that the Corporation has failed to pay accrued and unpaid dividends on the Preferred Stock, it may not redeem less than all of the then outstanding shares of the Preferred Stock until all such accrued and unpaid dividends and the then current quarterly dividends have been paid in full. Notwithstanding the foregoing, if notice of redemption has been given pursuant to this Section 5 and any holder of shares of Preferred Stock shall, prior to the close of business on the fifth business day prior to the redemption date, give written notice to the Corporation pursuant to Section 7(b) hereof of the conversion of any or all of the shares to be redeemed held by such holder (accompanied by a certificate or certificates for such shares, duly endorsed or assigned to the Corporation), then (i) the Corporation shall not have the right to redeem such shares, (ii) the conversion of such shares to be redeemed shall become effective as provided in Section 7 and (iii) any funds which shall have been deposited for the payment of the Redemption Price for such shares shall be returned to the Corporation immediately after such conversion (subject to declared dividends payable to holders of shares of Preferred Stock on the dividend payment record date for such dividends being so payable, to the extent set forth in Section 7 hereof, regardless of whether such shares are converted subsequent to such dividend payment record date and prior to the related dividend payment date). 6. Shares to be Retired. All shares of Preferred Stock purchased, redeemed, exchanged or converted by the Corporation shall be retired and canceled and shall be restored to the status of authorized but unissued shares of preferred stock, without designation as to series, and may thereafter be reissued. 7. Conversion. Holders of shares of Preferred Stock shall have the right to convert all or a portion of such shares into shares of Common Stock, as follows: (a) Subject to and upon compliance with the provisions of this Section 7, a holder of shares of Preferred Stock shall have the right, at such holder's option, at any time to convert all or any of such shares into the number of fully paid and nonassessable shares of Common Stock (calculated as to each conversion to the nearest 1/100th of a share) obtained by dividing the aggregate liquidation preference of the shares to be converted by the Conversion Price and by surrender of such shares, such surrender to be made in the manner provided in paragraph (b) of this Section 7; provided, however, that the right to convert shares called for redemption pursuant to Section 5 hereof shall terminate at the close of business on the fifth business day prior to the date fixed for such redemption. No share of Preferred Stock may be converted in part into Common Stock. (b) In order to exercise the conversion right, the holder of each share of Preferred Stock to be converted shall surrender the certificate representing such share, duly endorsed or assigned to the Corporation or in blank, at the office of the Transfer Agent in Chicago, Illinois, accompanied by written notice to the Corporation that the holder thereof elects to convert such share of Preferred Stock. Unless the shares issuable on conversion are to be issued in the same name as the name in which such share of Preferred Stock is registered, each share surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Corporation, duly executed by the holder or such holder's duly authorized attorney and an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Corporation demonstrating that such taxes have been paid or are not required to be paid). -7- Holders of shares of Preferred Stock at the close of business on a dividend payment record date shall be entitled to receive the dividend payable on such shares on the corresponding dividend payment date (except that holders of shares called for redemption on a redemption date falling between the close of business on such dividend payment record date and the opening of business on the corresponding dividend payment date shall, in lieu of receiving such dividend on the dividend payment date fixed therefor, receive such dividend payment together with all other accrued and unpaid dividends on the date fixed for redemption, unless such holders convert such shares called for redemption pursuant to the Certificate of Designations relating to the Preferred Stock) notwithstanding the conversion thereof following such dividend payment record date and prior to such dividend payment date. However, shares of Preferred Stock surrendered for conversion during the period between the close of business on any dividend payment record date and the opening of business on the corresponding dividend payment date (except shares of Preferred Stock called for redemption on a redemption date during such period) must be accompanied by payment of an amount equal to the dividend payment with respect to such shares of Preferred Stock presented for conversion on such dividend payment date. A holder of shares of Preferred Stock on a dividend payment record date who (or whose transferee) surrenders any such shares for conversion into shares of Common Stock on the corresponding dividend payment date will receive the dividend payable by the Corporation on such shares of Preferred Stock on such date and the converting holder need not include payment in the amount of such dividend upon surrender of shares of Preferred Stock for conversion on the dividend payment date. Except as provided in this paragraph, the Corporation shall make no payment or allowance for unpaid dividends, whether or not in arrears, on converted shares of Preferred Stock or for dividends on the shares of Common Stock issued upon such conversion. As promptly as practicable after the surrender of certificates for shares of Preferred Stock as aforesaid, the Corporation shall issue and shall deliver at such office to such holder, or on such holder's written order, a certificate or certificates for the number of shares of Common Stock issuable upon the conversion of such shares in accordance with the provisions of this Section 7, and any fractional interest in respect of a share of Common Stock arising upon such conversion shall be settled as provided in paragraph (c) of this Section 7. Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the certificates for shares of Preferred Stock shall have been surrendered and such notice received by the Corporation as aforesaid, and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby at such time on such date and such conversion shall be at the Conversion Price in effect at such time on such date, unless the stock transfer books of the Corporation shall be closed on that date, in which event such person or persons shall be deemed to have become such holder or holders of record at the close of business on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date upon which such shares shall have been surrendered and such notice received by the Corporation. All shares of Common Stock delivered upon conversion of the Preferred Stock will upon delivery be duly and validly issued and fully paid and nonassessable. (c) In connection with the conversion of any shares of Preferred Stock, no fractional shares or scrip representing fractions of shares of Common Stock shall be issued upon conversion of the Preferred Stock. Instead of any fractional interest in a share of Common Stock which would otherwise -8- be deliverable upon the conversion of a share of Preferred Stock, the Corporation shall pay to the holder of such share an amount in cash (computed to the nearest cent) equal to the Closing Price of Common Stock on the Trading Date immediately preceding the date of conversion multiplied by the fraction of a share of Common Stock represented by such fractional interest. If more than one share of Preferred Stock shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Preferred Stock so surrendered. (d) The Conversion Price shall be adjusted from time to time as follows: (i) In case the Corporation shall after the Issue Date (A) pay a dividend or make a distribution on its Common Stock that is paid or made (1) in shares of its Common Stock or (2) in rights to purchase stock or other securities if such rights are not separable from the Common Stock except upon the occurrence of a contingency, (B) subdivide or split its outstanding Common Stock into a greater number of shares, (C) combine its outstanding Common Stock into a smaller number of shares or (D) issue any shares of capital stock by reclassification of its Common Stock, the Conversion Price in effect immediately prior thereto shall be adjusted or (in the case of clause (A)(2)) other provision shall be made so that the holder of any share of Preferred Stock thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock of the Corporation and rights to purchase stock or other securities which such holder would have owned or have been entitled to receive after the occurrence of any of the events described above had such share been surrendered for conversion immediately prior to the occurrence of such event or the record date therefor, whichever is earlier. In the event of the redemption of any rights referred to in clause (A), such holder shall have the right to receive, in lieu of any such rights, any cash, property or securities paid in respect of such redemption; provided, however, that if the value of such cash, property or securities is less than $.05 per share of Common Stock, such holder shall not be entitled to such cash, property or securities. An adjustment made pursuant to this subparagraph (i) shall become effective immediately after the close of business on the record date for determination of stockholders entitled to receive such dividend or distribution in the case of a dividend or distribution (except as provided in paragraph (h) below) and shall become effective immediately after the close of business on the effective date in the case of a subdivision, split, combination or reclassification. Any shares of Common Stock issuable in payment of a dividend shall be deemed to have been issued immediately prior to the close of business on the record date for such dividend for purposes of calculating the number of outstanding shares of Common Stock under clauses (ii) and (iii) below. (ii) In case the Corporation shall issue after the Issue Date rights or warrants to all holders of Common Stock entitling them (for a period expiring within 45 days after the issuance date) to subscribe for or purchase Common Stock at a price per share less than the Current Market Price per share of Common Stock at the record date for the determination of stockholders entitled to receive such rights or warrants, then the Conversion Price in effect immediately prior thereto shall be adjusted to equal the price determined by multiplying (A) the Conversion Price in effect immediately prior to the date of issuance of such rights or warrants by (B) a fraction, the numerator of which shall be the sum of (1) the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants (without giving effect to any such issuance) and (2) the number of shares which the aggregate proceeds from -9- the exercise of such rights or warrants for Common Stock would purchase at such Current Market Price, and the denominator of which shall be the sum of (1) the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants (without giving effect to any such issuance) and (2) the number of additional shares of Common Stock offered for subscription or purchase. Such adjustment shall be made successively whenever any such rights or warrants are issued, and shall become effective immediately after such record date. In determining whether any rights or warrants entitle the holders of Common Stock to subscribe for or purchase shares of Common Stock at less than such Current Market Price, there shall be taken into account any consideration received by the Corporation upon issuance and upon exercise of such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors (whose determination shall, if made in good faith, be conclusive). (iii) In case the Corporation shall pay a dividend or make a distribution to all holders of its Common Stock after the Issue Date of any shares of capital stock of the Corporation or its subsidiaries (other than Common Stock) or evidences of its indebtedness or assets, including securities (any of the foregoing being hereinafter in this subparagraph (iii) called the "Securities"), but excluding rights, warrants, dividends and distributions referred to in subparagraphs (i) and (ii) above, regular periodic cash dividends payable out of the Corporation's surplus that may from time to time be fixed by the Board of Directors and dividends and distributions in connection with the liquidation, dissolution or winding up of the Corporation, then in each such case, the Conversion Price shall be adjusted so that it shall equal the price determined by multiplying (A) the Conversion Price in effect on the record date mentioned below by (B) a fraction, the numerator of which shall be the Current Market Price per share of the Common Stock on the record date mentioned below less the then fair market value as determined by the Board of Directors (whose determination shall, if made in good faith, be conclusive) as of such record date of the portion of the Securities applicable to one share of Common Stock, and the denominator of which shall be the Current Market Price per share of the Common Stock on such record date; provided, however, that in the event the then fair market value (as so determined) of the portion of Securities so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price per share of Common Stock on the record date mentioned above, in lieu of the foregoing adjustment, adequate provision shall be made so that each holder of shares of Preferred Stock shall have the right to receive the amount and kind of Securities such holder would have received had such holder converted each such share of Preferred Stock immediately prior to the record date for the distribution of the Securities. Except as provided in paragraph (h) below, such adjustment shall become effective immediately after the record date for the determination of stockholders entitled to receive such distribution. (iv) Notwithstanding anything in subparagraph (ii) above, if such rights or warrants shall by their terms provide for an increase or increases with the passage of time or otherwise in the price payable to the Corporation upon the exercise thereof, the Conversion Price upon any such increase becoming effective shall forthwith be readjusted (but to no greater extent than originally adjusted by reason of such issuance or sale) to reflect the same. Upon the expiration or termination of such rights or warrants, if any such rights or warrants shall not have been exercised, then the Conversion Price shall forthwith be readjusted and thereafter be the rate which it would have been had an adjustment been made on the basis that (A) the only rights -10- or warrants so issued or sold were those so exercised and they were issued or sold for the consideration actually received by the Corporation upon such exercise plus the consideration, if any, actually received by the Corporation for the granting of all such rights or warrants whether or not exercised and (B) the Corporation issued and sold a number of shares of Common Stock equal to those actually issued upon exercise of such rights or warrants, and such shares were issued and sold for a consideration equal to the aggregate exercise price in effect under the rights or warrants actually exercised at the respective dates of their exercise. For purposes of subparagraph (ii), the aggregate consideration received by the Corporation in connection with the issuance of shares of Common Stock or of rights or warrants shall be deemed to be equal to the sum of the aggregate offering price (before deduction of underwriting discounts or commissions and expenses payable to third parties) of all such securities plus the minimum aggregate amount, if any, payable upon the exercise of such rights or warrants into shares of Common Stock. (v) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this subparagraph (v) are not required to be made shall be carried forward and taken into account in any subsequent adjustment; and provided, however, that any adjustment shall be required and shall be made in accordance with the provisions of this Section 7 (other than this subparagraph (v)) not later than such time as may be required in order to preserve the tax-free nature of a distribution to the holders of shares of Common Stock. All calculations under this Section 7 shall be made to the nearest cent (with $.005 being rounded upward) or to the nearest 1/100th of a share (with .005 of a share being rounded upward), as the case may be. Anything in this paragraph (d) to the contrary notwithstanding, the Corporation shall be entitled, to the extent permitted by law, to make such reductions in the Conversion Price, in addition to those required by this paragraph (d), as it in its discretion shall determine to be advisable in order that any stock dividend, subdivision of shares, distribution of rights or warrants to purchase stock or securities, or distribution of other assets or any other transaction which could be treated as any of the foregoing transactions pursuant to Section 305 of the Internal Revenue Code of 1986, as amended, hereafter made by the Corporation to its stockholders shall not be taxable to such stockholders. (e) In case the Corporation shall be a party to any transaction (including without limitation a merger, consolidation, statutory share exchange, sale of all or substantially all of the Corporation's assets or recapitalization of the Common Stock (each of the foregoing being referred to as a "Transaction"), in each case as a result of which shares of Common Stock shall be converted into the right to receive stock, securities or other property (including cash or any combination thereof), then the Preferred Stock remaining outstanding will thereafter no longer be subject to conversion into Common Stock pursuant to Section 7, but instead shall be convertible into the kind and amount of shares of stock and other securities and property receivable (including cash) upon the consummation of such Transaction by a holder of that number of shares or fraction thereof of Common Stock into which one share of Preferred Stock was convertible immediately prior to such Transaction. The Corporation shall not be a party to any Transaction unless the terms of such Transaction are consistent with the provisions of this paragraph (e) and it shall not consent or agree to the occurrence of any Transaction until the Corporation has entered into an agreement with the successor or purchasing entity, as the case may be, for the benefit of the holders of the Preferred Stock which will contain provisions enabling the holders of the Preferred Stock which remains outstanding after such -11- Transaction to convert into the consideration received by holders of Common Stock at the Conversion Price immediately after such Transaction. In the event that at any time, as a result of an adjustment made pursuant to this Section 7, the Preferred Stock shall become subject to conversion into any securities other than shares of Common Stock, thereafter the number of such other securities so issuable upon conversion of the shares of Preferred Stock shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares of Preferred Stock contained in this Section 7. The provisions of this paragraph (e) shall similarly apply to successive Transactions. (f) If: (i) the Corporation shall declare a dividend (or any other distribution) on the Common Stock that would cause an adjustment to the Conversion Price of the Preferred Stock pursuant to the terms of any of the paragraphs above (including such an adjustment that would occur but for the terms of the first sentence of subparagraph (d)(v) above); (ii) the Corporation shall authorize the granting to the holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of any class or any other rights or warrants; (iii) there shall be any reclassification or change of the Common Stock (other than an event to which paragraph (d)(i) of this Section 7 applies) or any consolidation, merger or statutory share exchange to which the Corporation is a party and for which approval of any stockholders of the Corporation is required, or the sale or transfer of all or substantially all of the assets of the Corporation; or (iv) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation; then, the Corporation shall cause to be filed with the Transfer Agent and shall cause to be mailed to the holders of shares of the Preferred Stock at their addresses as shown on the stock records of the Corporation, as promptly as possible, but at least 30 days prior to the applicable date hereinafter specified, a notice stating (A) the date on which a record is to be taken for the purpose of such dividend, distribution or granting of rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights or warrants are to be determined or (B) the date on which such reclassification, change, consolidation, merger, statutory share exchange, sale, transfer, dissolution, liquidation or winding up is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, change, consolidation, merger, statutory share exchange, sale, transfer, dissolution, liquidation or winding up. Failure to give such notice or any defect therein shall not affect the legality or validity of the proceedings described in this Section 7. (g) Whenever the Conversion Price is adjusted as herein provided, the Corporation shall promptly file with the Transfer Agent an officers' certificate signed by the President or a Vice President and the Chief Financial Officer or the Secretary of the Corporation setting forth the Conversion Price after such adjustment, the method of calculation thereof and setting forth a brief -12- statement of the facts requiring such adjustment and upon which such adjustment is based. If the calculation of the adjustment requires a determination by the Board of Directors pursuant to paragraph (d)(iii) of this Section 7 or any similar provision, such certificate shall include a copy of the resolution of the Board of Directors relating to such determination. Promptly after delivery of such certificate, the Corporation shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price, the facts requiring such adjustment and upon which such adjustment is based and the date on which such adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Price to the holder of each share of Preferred Stock at such holder's last address as shown on the stock records of the Corporation. (h) In any case in which paragraph (d) of this Section 7 provides that an adjustment shall become effective immediately after a record date for an event and the date fixed for conversion pursuant to Section 7 occurs after such record date but before the occurrence of such event, the Corporation may defer until the actual occurrence of such event (i) issuing to the holder of any share of Preferred Stock surrendered for conversion the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such holder any amount in cash in lieu of any fraction pursuant to paragraph (c) of this Section 7. (i) For purposes of this Section 7, the number of shares of Common Stock at any time outstanding shall not include any shares of Common Stock then owned or held by or for the account of the Corporation or any corporation controlled by the Corporation. (j) If any single action would require adjustment pursuant to more than one paragraph of this Section 7, only one adjustment shall be made and such adjustment shall be the amount of adjustment which has the highest absolute value to the holders of the Preferred Stock. (k) In case the Corporation shall take any action affecting the Common Stock, other than action described in this Section 7, which in the opinion of the Board of Directors would materially adversely affect the conversion rights of the holders of the shares of Preferred Stock, the Conversion Price for the Preferred Stock may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Board of Directors may determine to be equitable in the circumstances. Subject to the foregoing, there shall be no adjustment of the Conversion Price in case of the issuance of any stock of the Corporation in a reorganization, acquisition or other similar transaction except as specifically set forth in this Section 7. (l) The Corporation shall at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued shares of Common Stock or its issued shares of Common Stock held in its treasury, or both, for the purpose of effecting conversion of the Preferred Stock, the full number of shares of Common Stock deliverable upon the conversion of all outstanding shares of Preferred Stock not theretofore converted. For purposes of this paragraph (l), the number of shares of Common Stock which shall be deliverable upon the conversion of all outstanding shares of Preferred Stock shall be computed as if at the time of computation all such outstanding shares were held by a single holder. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value of the shares of Common Stock deliverable upon conversion of the Preferred Stock, -13- the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of Common Stock at such adjusted Conversion Price. The Corporation will endeavor to make the shares of Common Stock required to be delivered upon conversion of the Preferred Stock eligible for trading upon the New York Stock Exchange, upon the NASDAQ National Market System or upon any national securities exchange upon which the Common Stock shall then be traded, prior to such delivery. Prior to the delivery of any securities which the Corporation shall be obligated to deliver upon conversion of the Preferred Stock, the Corporation will endeavor to comply with all federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval of or consent to the delivery thereof by, any governmental authority. (m) The Corporation will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of the shares of Preferred Stock (or any other securities issued on account of the Preferred Stock pursuant hereto) or shares of Common Stock on conversion of the Preferred Stock pursuant hereto; provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Preferred Stock (or any other securities issued on account of the Preferred Stock pursuant hereto) or shares of Common Stock in a name other than the name in which the shares of Preferred Stock with respect to which such Common Stock shares are issued were registered and the Corporation shall not be required to make any issue or delivery unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any such tax or has established, to the reasonable satisfaction of the Corporation, that such tax has been paid or is not required to be paid. (n) The Corporation shall not take any action which results in an adjustment of the number of shares of Common Stock issuable upon conversion of a share of Preferred Stock if the total number of shares of Common Stock issuable after such action upon conversion of the Preferred Stock then outstanding, together with the total number of shares of Common Stock then outstanding, would exceed the total number of shares of Common Stock then authorized under the Certificate of Incorporation. Subject to the foregoing, the Corporation shall take all such actions as it may deem reasonable under the circumstances to provide for the issuance of such number of shares of Common Stock as would be necessary to allow for the conversion from time to time, and taking into account adjustments as herein provided, of outstanding shares of the Preferred Stock in accordance with the terms and provisions of the Certificate of Incorporation. 8. Ranking. (a) Any class or classes of stock of the Corporation shall be deemed to rank: (i) prior to the Preferred Stock, as to dividends or as to the distribution of assets upon liquidation, dissolution or winding up, if the holders of such class shall be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in preference or priority to the holders of Preferred Stock; -14- (ii) on a parity with the Preferred Stock, as to dividends or as to the distribution of assets upon liquidation, dissolution or winding up, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share thereof be different from those of the Preferred Stock, if the holders of such class of stock and the Preferred Stock shall be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation prices, without preference or priority of one over the other; and (iii) junior to the Preferred Stock, as to dividends or as to the distribution of assets upon liquidation, dissolution or winding up, if such stock shall be the Common Stock or if the holders of Preferred Stock shall be entitled to receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in preference or priority to the holders of shares of such stock. (b) The Preferred Stock shall rank junior to shares of the Corporation's Series A Convertible Preferred Stock as to dividends and as to the distribution of assets upon liquidation, dissolution or winding up. 9. Voting. (a) Except as herein provided or as otherwise from time to time required by law, holders of Preferred Stock shall have no voting rights. Whenever, at any time or times, dividends payable on the shares of Preferred Stock at the time outstanding have not been paid in an aggregate amount equal to at least four quarterly dividends on such shares (whether or not consecutive), the holders of Preferred Stock shall have the right, voting separately as a class with the holders of shares of any one or more other series of stock ranking on a parity as to dividends with the Preferred Stock upon which like voting rights have been conferred and are exercisable (the Preferred Stock and any such other stock, collectively for purposes hereof, the "Defaulted Preferred Stock"), to elect two directors of the Corporation at the Corporation's next annual meeting of the stockholders and at each subsequent annual meeting of stockholders; provided, however, that if such voting rights shall become vested more than 90 days or less than 20 days before the date prescribed for the annual meeting of stockholders, thereupon the holders of the shares of Defaulted Preferred Stock shall be entitled to exercise their voting rights at a special meeting of the holders of shares of Defaulted Preferred Stock as set forth herein. At elections for such directors, each holder of Preferred Stock shall be entitled to one vote for each share held (the holders of shares of any other series of Defaulted Preferred Stock ranking on such a parity being entitled to such number of votes, if any, for each share of stock held as may be granted to them.) Upon the vesting of such right of the holders of Defaulted Preferred Stock, the then authorized number of members of the Board of Directors shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of outstanding Defaulted Preferred Stock as hereinafter set forth. The right of holders of Defaulted Preferred Stock, voting separately as a class, to elect members of the Board of Directors as aforesaid shall continue until such time as all dividends accumulated on Defaulted Preferred Stock shall have been paid, or declared and funds set aside for payment in full, at which time such right shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned. As long as any shares of Preferred Stock shall remain outstanding, the number of directors of the Corporation (excluding any directors elected by vote of the holders of shares of Defaulted -15- Preferred Stock) elected at any meeting of stockholders of the Corporation at which directors are to be elected shall not be such as would cause the number of directors in office after such meeting (excluding any directors elected by vote of the holders of shares of Defaulted Preferred Stock) to exceed the number which is two less than the maximum number of directors permitted by the Certificate of Incorporation. (b) Whenever such voting right shall have vested, such right may be exercised initially either at a special meeting of the holders of shares of Defaulted Preferred Stock called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing directors, and thereafter at such meetings, or by the written consent of such holders pursuant to Section 228 of the General Corporation Law of the State of Delaware. (c) At any time when such voting right shall have vested in the holders of shares of Defaulted Preferred Stock entitled to vote thereon, and if such right shall not already have been initially exercised, an officer of the Corporation shall, upon the written request of 10% of the holders of record of shares of such Defaulted Preferred Stock then outstanding, addressed to the Secretary of the Corporation, call a special meeting of holders of shares of such Defaulted Preferred Stock. Such meeting shall be held at the earliest practicable date upon the notice to holders of Defaulted Preferred Stock given as required for annual meetings of stockholders at the place for holding annual meetings of stockholders of the corporation or, if none, at a place designated by the Secretary of the Corporation. If such meeting shall not be called by the proper officers of the Corporation within 30 days after the personal service of such written request upon the Secretary of the Corporation, or within 30 days after mailing the same within the United States, by registered mail, addressed to the Secretary of the Corporation at its principal office (such mailing to be evidenced by the registry receipt issued by the postal authorities), then the holders of record of 10% of the shares of Defaulted Preferred Stock then outstanding may designate in writing any person to call such meeting at the expense of the Corporation, and such meeting may be called by such person so designated upon the notice to holders of Defaulted Preferred Stock given as required for annual meetings of stockholders and shall be held at the same place as is elsewhere provided in this paragraph. Any holder of shares of Defaulted Preferred Stock then outstanding that would be entitled to vote at such meeting shall have access to the stock books of the Corporation for the purpose of causing a meeting of stockholders to be called pursuant to the provisions of this paragraph. Notwithstanding the provisions of this paragraph, however, no such special meeting shall be called or held during a period within 45 days immediately preceding the date fixed for the next annual meeting of stockholders. (d) The directors elected as provided herein shall serve until the next annual meeting or until their respective successors shall be elected and shall qualify; any director elected by the holders of Defaulted Preferred Stock may be removed without cause by, and shall not be removed without cause otherwise than by, the vote of the holders of a majority of the outstanding shares of the Defaulted Preferred Stock who are entitled to participate in such election of directors, voting separately as a class, at a meeting called for such purpose or by written consent as permitted by law and the Certificate of Incorporation and By-laws of the Corporation. If the office of any director elected by the holders of Defaulted Preferred Stock, voting separately as a class, becomes vacant by reason of death, resignation, retirement, disqualification or removal from office or otherwise, the remaining director elected by the holders of Defaulted Preferred Stock, voting separately as a class, may choose a successor who shall hold office for the unexpired term in respect of which such vacancy occurred. Upon any termination of the right of the holders of Defaulted Preferred Stock to vote for directors as -16- herein provided, the term of office of all directors then in office elected by the holders of Defaulted Preferred Stock, voting separately as a class, shall terminate immediately. Whenever the terms of office of the directors elected by the holders of Defaulted Preferred Stock, voting separately as a class, shall so terminate and the special voting powers vested in the holders of Defaulted Preferred Stock shall have expired, the number of directors shall be reduced by the number of directors whose term of office shall have terminated as provided hereinabove. (e) So long as any shares of the Preferred Stock remain outstanding, the affirmative vote or consent of the holders of at least 66-2/3% of the shares of Preferred Stock outstanding at the time given either by written consent or in person or by proxy at any special or annual meeting, shall be necessary to permit, effect or validate any one or more of the following: (i) the authorization, creation or issuance, or any increase in the authorized or issued amount, of any class or series of stock, or any security convertible into stock of such class or series, ranking prior to the Preferred Stock as to dividends or the distribution of assets upon liquidation, dissolution or winding up; (ii) the amendment, alteration or repeal of any of the provisions of the Certificate of Incorporation (including the Certificate of Designations relating to the Preferred Stock) which would adversely affect any right, preference, privilege or voting power of the Preferred Stock or of the holders thereof; provided, however, that any increase in the amount of authorized preferred stock or the creation and issuance of other series of preferred stock, or any increase in the amount of authorized shares of any such other series of preferred stock, in each case ranking on a parity with or junior to the Preferred Stock with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed to adversely affect such rights, preferences, privileges or voting powers; or (iii) the authorization of any reclassification of the Preferred Stock. (f) So long as any shares of the Preferred Stock remain outstanding, the affirmative vote or consent of the holders of at least 50% of the shares of Preferred Stock outstanding at the time given either by written consent or in person or by proxy at any special or annual meeting, shall be necessary to permit, effect or validate any increase in the amount of authorized Preferred Stock or the creation of additional classes of stock or the issuance of any series of capital stock ranking on a parity with the Preferred Stock with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution and winding up of the Company. The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of Preferred Stock shall have been redeemed. 10. Record Holders. The Corporation and the Transfer Agent may deem and treat the record holder of any shares of Preferred Stock as the true and lawful owner thereof for all purposes, and neither the Corporation nor the Transfer Agent shall be affected by any notice to the contrary. 11. Notice. Except as may otherwise be provided by law or provided for herein, all notices referred to herein shall be in writing, and all notices hereunder shall be deemed to have been given -17- upon receipt, in the case of a notice of conversion given to the Corporation as contemplated in Section 7(b) hereof, or, in all other cases, upon the earlier of receipt of such notice or three Business Days after the mailing of such notice if sent by registered mail (unless first-class mail shall be specifically permitted for such notice under the terms hereof) with postage prepaid, addressed: if to the Corporation, to its offices at 5847 San Felipe, Suite 700, Houston, Texas 77057 (Attention: Corporate Secretary) or other agent of the Corporation designated as permitted hereby; or, if to any holder of the Preferred Stock, to such holder at the address of such holder of the Preferred Stock as listed in the stock record books of the Corporation (which shall include the records of the Transfer Agent), or to such other address as the Corporation or holder, as the case may be, shall have designated by notice similarly given. -18- IN WITNESS WHEREOF, this Certificate has been signed on behalf of the Corporation by its President and attested to by its Secretary, all as of the 30th day of January, 1997. GOODRICH ACQUISITION II, INC. By:/s/ Robert C. Turnham --------------------- Attest: By:/s/ Robert C. Turnham --------------------- -19- EX-21 4 SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT GPC Inc. of Louisiana-incorporated in the state of Nevada Goodrich Petroleum Company of Louisiana-incorporated in state of Nevada Subsidiaries of Goodrich Petroleum Company of Louisiana Drilling & Workover Company, Inc.-incorporated in state of Louisiana LECE, Inc.-incorporated in the state of Texas National Market Company-incorporated in state of Delaware Pecos Pipeline & Producing Company-incorporated in the state of Texas EX-23 5 KPMG CONSENT EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT The Board of Directors Goodrich Petroleum Corporation: We consent to the incorporation by reference in the registration statement (No. 33-01077) on Form S-8 of Goodrich Petroleum Corporation of our report dated March 4, 1997, relating to the consolidated balance sheets of Goodrich Petroleum Corporation and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, which report appears in the December 31, 1996, annual report on Form 10- K of Goodrich Petroleum Corporation. Our report dated March 4, 1997, refers to a change in 1995 in the method of accounting for the impairment of long-lived assets. KMPG PEAT MARWICK LLP Shreveport, Louisiana March 27, 1997 EX-27 6 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 344,551 569,700 2,768,724 10,000 0 3,913,441 19,236,568 4,918,856 22,398,984 3,103,264 10,000,000 0 801,149 8,360,902 (26,851) 22,398,984 9,225,554 9,857,811 0 8,647,972 0 0 828,394 381,445 0 381,445 0 0 0 381,445 (.006) 0
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